RSST ETF Review: Return Stacked U.S. Stocks & Managed Futures ETF Review

You’re probably wondering if I’ve run out of things to return stack!

I mean we’ve witnessed dosas piled up to the heavens above, triple burger feasts and a mountain of pancakes on this investing blog.

Do I have any other tricks up my sleeve?

It turns out I do!

A few years back, I visited Tokyo, Japan where I heard rumours of an 8 flavour ice cream cone.

Being the absolute glutton that I am, of course, I had to check it out.

So I went in search of this “return stacked” Japanese ice cream in some nondescript basement of a shopping mall in Tokyo.

And folks I eventually found it.

I can’t recommend a better way to expand your waistline and/or drift off into a pre-diabetic coma than trying to consume all 8 scoops but somehow I pulled it off.

But we’re not here today to discuss my lack of self-control when it comes to food.

We’re here to unpack an exciting new “return stacking strategy” that manifested itself recently in the form of RSST ETF.

It’s better known as Return Stacked US Stocks & Managed Futures.

For every $1 spent you get 1$ exposure to US large-cap equities + $1 to a Managed Futures strategy.

2 for 1.

It’s easily one my favourite ETFs of the year and quite frankly a superstar when it comes to expanded canvas products in the marketplace.

In my opinion, it’s one of the most versatile capital efficient puzzle pieces out there.

So, without further ado, let’s review RSST ETF.

The Potential Benefits Of Managed Futures

Ladies and Gentlemen, Princes and Princesses, Knights in Shining Armor, and perhaps the occasional Pirate — gather around! Today, we shall embark on a whimsical journey to the magical realm of Managed Futures. Now, I understand that you might have been expecting dragons, unicorns, or perhaps a sprinkling of fairy dust, but bear with me. The world of Managed Futures is filled with its own breed of magic, especially for your investment portfolio.

1. Diversification Delight: Managed futures are like the rainbow sprinkles on an investment sundae. Who wants a bland, one-flavor portfolio? Not I! And neither should you. With managed futures, you get to sprinkle some of that non-correlated asset goodness into your holdings. It’s like having both chocolate and vanilla. Or better yet, rocky road with a side of mint chip.
2. Ride the Wave: Ever tried surfing? It’s all about catching the right wave. Managed futures strategies can go both long (ride the wave up) and short (ride the wave down). So, whether the market’s doing the cha-cha slide or the moonwalk, you’ve got some moves to groove with it.
3. The Cool Under Pressure Award: When the financial markets are throwing tantrums like a toddler denied candy, managed futures are that cool kid in the corner, sipping a juice box with poise. They tend to exhibit low correlation with traditional asset classes, offering potential stability during market meltdowns. The kind of friend you want around when the proverbial investment ice cream hits the fan.
4. Global Party: Why limit yourself to one playground? Managed futures party globally! They can access a broad range of global markets, from grains in Graceland to metals in Middle-earth. Okay, maybe not Middle-earth, but you get the picture.
5. Flexibility Gymnastics: Managed futures funds can change their asset exposure on a dime. They’re more flexible than a contortionist at a circus. Whether it’s the shift from equities to commodities or from bonds to currencies, these funds can pirouette with grace.

In short, if you’re looking for a whimsical addition to your portfolio’s investment party, managed futures might just be the disco ball you’ve been waiting for. Dance on, savvy investor, dance on!

RSST Portfolio Structure

Why Return Stack US Equities With Managed Futures?

Picture this: US equities and managed futures decide to throw a soirée. What’s on the agenda? Nothing short of the grandest, most exhilarating investment shindig of the century! Let’s dive into why this is the duo you didn’t know you needed.

1. The Peanut Butter & Jelly Principle: Just as these two sandwich superstars complement each other’s strengths, US equities provide the solid bread and butter (or, ahem, peanut butter) of growth and dividends. Managed futures, on the other hand, are the zesty jelly, adding flavor with their dynamic strategies. Alone, they’re delightful. Together? Culinary (and financial) bliss.
2. Diversification’s Dashing Dance: In the ballroom of investments, US equities are the ever-popular waltz, while managed futures are the unexpected tango. When the stock market decides to have an off day (or month, or year…), managed futures might just sweep in, twirling and saving the dance. Their typically non-correlated performance means when equities dip, managed futures can cha-cha real smooth.
3. The Bouncer at the Portfolio Club: Market volatility is like that one party crasher who wasn’t invited but shows up anyway. But don’t fret! Managed futures, with their global market strategies and long-short positions, act as the portfolio’s bouncer. They can handle market rowdiness, ensuring the party goes on.
4. The Global Tour: If US equities are the home band playing your favorite familiar tunes, managed futures are the globetrotting DJ, bringing in beats from commodities in Cairo to currencies in Canberra. It’s a world tour right in your portfolio, ensuring you’re grooving to diverse investment rhythms.
5. Fashion Forward: In the ever-trending world of investments, having both US equities and managed futures is akin to sporting both timeless classics and avant-garde haute couture. Equities? Your trusted tuxedo. Managed futures? That bold statement piece everyone’s raving about.

Aa blend of US equities and managed futures is like an epic gala with a fusion of timeless classics and electric new beats. You’ll have tales to tell, dances to relish, and perhaps, returns to cherish.

Cheers to a harmonious financial waltz! 🥂🕺💃

RSST ETF SIM vs 100% S&P 500 vs 100% 60/40 Portfolio Backtest

CAGR: 15.40% vs 11.65% vs 7.38%
RISK: 14.88% vs 15.00% vs 9.91%
BEST YEAR: 43.56% vs 31.22% vs 21.79%
WORST YEAR: -8.33% vs -18.17% vs -16.90%
MAX DRAWDOWN: -13.79% vs -23.93% vs -20.78%
SHARPE RATIO: 0.96 vs 0.74 vs 0.66
SORTINO RATIO: 1.71 vs 1.14 vs 0.99
MARKET CORRELATION: 0.76 vs 1.00 vs 0.98

Review of RSST ETF : Reviewing Return Stacked US Stocks & Managed Futures ETF

Hey guys! Here is the part where I mention I’m a travel blogger, vlogger and content creator! This investing opinion blog post ETF Review is entirely for entertainment purposes only. There could be considerable errors in the data I gathered. This is not financial advice. Do your own due diligence and research. Consult with a financial advisor. 

source: Return Stacked® Portfolio Solutions on YouTube

Newfound Research and ReSolve Asset Management

When Newfound Research and ReSolve Asset Management team up for a project, it’s bound to be top-notch.

This latest endeavor is no different.

For the past year, I’ve kept tabs on Corey Hoffstein from Newfound Research and the dynamic trio from ReSolve – Adam Butler, Rodrigo Gordillo, and Mike Philbrick.

They’ve consistently shared invaluable insights through tweets, videos, and podcasts.

The term “return stacking” frequently surfaced in their discussions.

Initially, I thought “return stacking” was just a buzzword they introduced for advisory purposes and specialized portfolio models.

But now, the fog has lifted.

It’s an offering meant for all.

With the introduction of RSST ETF, RSBT ETF, and the upcoming RSSB ETF, retail investors are now presented with innovative tools to craft their ideal return stacked portfolios.

RSST ETF Overview, Holdings and Info

The investment case for “Return Stacked US Stocks and Managed Futures” has been laid out succinctly by the folks over at Return Stacked ETFs: (source: fund landing page)

Investment Case

“Capital Efficiency: Aims to provide simultaneous exposure to U.S. stocks and a managed futures strategy.  For every $1 invested, the RSST aims to provide $1 of exposure to large-cap U.S. equities and $1 of exposure to a managed futures strategy.

Diversification: RSST seeks to provide exposure to a managed futures strategy that has historically exhibited low correlation to both stocks and bonds.

Inflation Hedging: With the ability to go both long and short global futures markets (including equities, bonds, commodities, and currencies), managed futures has historically exhibited inflation-hedging characteristics.

*Diversification does not assure a profit.*”

Fund Overview

“The Fund seeks long-term capital appreciation by investing in two complimentary investment strategies: a U.S. equity strategy and a managed futures strategy. For every $1 invested, the Fund attempts to provide $1 of exposure to its U.S. equity strategy and $1 of exposure to its managed futures strategy.

The U.S. equity strategy seeks to capture the total return of large-cap U.S. equities by investing in large-cap U.S. stocks, large-cap U.S. equity ETFs, and U.S. equity index futures.

The managed futures strategy will invest using a trend-following strategy in futures contracts among four major asset classes: commodities, currencies, equities, and fixed income.”

RSST ETF: Fund Selection Process

To better understand the process of how the fund operates, let’s turn our attention towards the summary prospectus where I’ve summarized the key points at the very bottom. (source: summary prospectus)

Principal Investment Strategies:

Principal Investment Strategies

The Fund is an actively-managed exchange-traded fund (“ETF”) that seeks to achieve its investment objective by investing in two complimentary investment strategies, a U.S. Equity strategy and a Managed Futures strategy. The Fund uses leverage to “stack” the total return of holdings in the Fund’s U.S. Equity strategy together with the potential returns of the Fund’s Managed Futures strategy. Essentially, one dollar invested in the Fund provides approximately one dollar of exposure to the Fund’s U.S. Equity strategy and approximately one dollar of exposure to the Fund’s Managed Futures strategy. So, the return of the Managed Futures strategy (minus the cost of financing) is essentially stacked on top of the returns of the U.S. Equity strategy.

In particular, the term “exposure” refers to the degree to which the Fund’s investment is influenced by fluctuations in each of the U.S. Equity strategy and the Managed Futures strategy. If you invest one dollar in the Fund, nearly one dollar’s worth of that investment will track the performance of the Fund’s U.S. Equity strategy, behaving similarly to how U.S. stocks behave. In addition, almost another dollar will align with the performance of the Managed Futures strategy, mirroring the ups and downs of futures markets. So essentially, your single dollar investment is doubled to follow and potentially profit (or experience losses) from two different investment strategies. The Fund’s two strategies are not explicitly designed to have any target correlation to each other (whether positive or negative).

Under normal circumstances, the Fund will invest at least 80% of its net assets, plus borrowings for investment purposes, in (a) the U.S. Equity strategy (as described below) and (b) the Managed Futures strategy (as described below). The Fund’s “80%” policy is non- fundamental and can be changed without shareholder approval. However, Fund shareholders would be given at least 60 days’ notice prior to any such change. For the Fund’s U.S. Equity strategy, the Fund will invest in U.S. equity securities (i.e., common stocks of U.S. issuers), U.S. equity ETFs, and/or futures contracts on U.S. equity indices.

For the Fund’s Managed Futures strategy, the Fund will invest among four major asset classes (commodities, currencies, equities, and fixed income) and generally, the Fund will gain exposure to these four asset classes by investing in futures contracts including, but not limited to, commodity futures; currency futures; equity index futures; bond futures; and interest rate futures (collectively, the “Instruments”). The Fund may either invest directly in the Instruments or indirectly by investing in the Subsidiary (as described below) that invests in the Instruments.

The Fund will target a 100% exposure to each of its U.S. Equity strategy and its Managed Futures strategy.

Further, the Fund (and the Subsidiary) will hold U.S. Treasury bills and cash equivalents as collateral for the futures contracts as well as to generate income.

U.S. Equity Strategy:

The Fund seeks to capture the total return of large-capitalization U.S. equities (meaning companies with a market capitalization greater than $8 billion) with the objective of long-term capital appreciation. To do so, the Fund will invest in U.S. equity securities, U.S. equity ETFs, or U.S. equity index futures contracts.

For the Fund’s direct investments in U.S. equity securities, the Fund will invest in large-capitalization U.S. equities. The Fund may also invest in broad-based U.S. large-capitalization equity ETFs, which are ETFs that are designed to provide broad exposure to U.S. large- capitalization equity markets. The Fund’s sub-adviser, Newfound Research LLC (the “Sub-Adviser”), will favor low-cost equity ETFs that provide exposure to the large-capitalization U.S. equity market, and which are highly liquid. Further, the Fund may implement its equity strategy by investing in U.S. equity index futures.

Under normal circumstances, the Fund’s exposure to the U.S. Equity strategy will represent approximately 100% of the Fund’s net assets.

Note: Notional value is the total underlying amount of a derivatives trade. Leverage allows an investor (like the Fund) to use a small amount of money to gain exposure to a larger (and potentially, a much larger) amount. So, notional value reflects the total value of a trade, not the cost (or market value) of taking the trade. Via the Fund’s use of futures in both its U.S. Equity and Managed Futures strategies (described below), the Fund provides leveraged exposure to a combination of U.S. equities and managed futures.

Managed Futures Strategy:

The Fund will invest, using a Managed Futures strategy, among four major asset classes (commodities, currencies, equities, and fixed income). As noted above, the Fund will invest in various types of futures contracts, such as commodity futures; currency futures; equity index futures; bond futures; and interest rate futures (collectively, the “Instruments”).

The Fund may either invest directly in the Instruments or indirectly by investing in the Subsidiary (as described below) that invests in the Instruments. There are no geographic limits on the market exposure of the Fund’s assets. This flexibility allows ReSolve Asset Management SEZC (Cayman) (the “Futures Trading Advisor”) to look for investments or gain exposure to asset classes and markets around the world, including emerging markets, that it believes will enhance the Fund’s ability to meet its objective.

The Futures Trading Advisor uses a proprietary, systematic and quantitative process which seeks to benefit from price trends in commodity, currency, equity, volatility, credit and fixed income Instruments. As part of this process, the Fund will take either a long or short position in a given Instrument. The size and type (long or short) of the position taken will relate to various factors, including the Futures Trading Advisor’s systematic assessment of a trend and its likelihood of continuing as well as the Futures Trading Advisor’s estimate of the Instrument’s risk. The owner of a long position in a derivative instrument will benefit from an increase in the price of the underlying instrument. The owner of a short position in a derivative instrument will benefit from a decrease in the price of the underlying instrument. The Futures Trading Advisor generally expects that the Fund will have exposure in long and short positions across all four major asset classes (commodities, currencies, fixed income and equities), but at any one time the Fund may emphasize one or two of the asset classes or a limited number of exposures within an asset class.

Futures contracts have a limited lifespan before they expire (e.g., quarterly). The Fund will frequently “roll-over” futures contracts – replace an expiring contract with a contract that expires further in the future. As a result, the Fund’s portfolio will be subject to a high portfolio turnover rate.

Under normal circumstances, the Fund’s exposure to the Managed Futures strategy will represent approximately 100% of the Fund’s net assets. The Fund’s Managed Futures strategy involves levered exposure to a diversified basket of global futures contracts.

Example: If the Fund has $100 in assets, the Fund expects to achieve $100 of exposure to the equity strategy and $100 of exposure to the managed futures strategy. This is akin to investing $100 in a US equity fund, borrowing $100, and putting the borrowed $100 in a managed futures fund.

Return Stacked Bonds and Managed Futures Key Points

1. Actively Managed ETF: Pursues the dual mandate of 100% US Stocks + 100% Managed Futures strategies
2. Leverage: Stacks the returns of 100% Stocks with 100% Managed Futures utilizing leverage
3. $1 USD Invested Exposure: $1 USD of Stocks + $1 USD of Managed Futures
4. U.S. Equity Strategy: U.S. equity securities, U.S. equity ETFs, or U.S. equity index futures contracts
5. Managed Futures Strategy: 4 major asset classes (commodities, currencies, equities, fixed income) utilizing futures contracts
6. 200% Expanded Canvas: Return Stacking 100% Stocks + 100% Managed Futures
7. Cash Collateral: U.S. Treasury bills and cash = collateral for the futures contracts + generate income
8. Stocks Strategy Mandate: Equal total return of US Large Cap Equities (via low cost ETFs and Equity Index Futures)
9. Managed Futures Mandate: Systematic and quantitative trend process of taking long/short positions across 4 major asset classes

RSST ETF Info

Ticker: RSST
Canvas Size: 200% Total = (100% US Stocks + 100% Managed Futures)
Net Expense Ratio: 1.04
AUM: ? (*Review written mere days after fund launch* Will update soon)
Inception: 09/06/2023

source: ReSolve Asset Management

RSST ETF Pros and Cons

Let’s move on to examine the potential pros and cons of RSST ETF.

RSST Pros: Distinct Advantages

• Features a unique combination of 100% US Equities and 100% Managed Futures, offering investors a distinctive capital-efficient tool.
• The first of its kind capital-efficient equities + managed futures ETF: 100% Managed Futures paired with 100% U.S Stocks.
• Flexibility to pair this with other capital efficient building blocks (e.g., treasury, gold, etc).
• Option for a balanced 60/40/100 or all equity 100/50/50 portfolio across equities, fixed income, and managed futures when combined with RSBT or PSLDX
• Compatibility with various other capital-efficient ETFs and Mutual Funds to craft a personalized return stacking design.
• Allows integration of alternatives (managed futures) without shrinking or shaving down your equity allocation.
• Creates room in your portfolio for alternative diversified diversifiers like global systematic macro, gold, market-neutral strategies, long-short equity, style premia, catastrophe bonds, arbitrage, bitcoin, etc.
• Low correlation amongst stocks, bonds, and managed futures allows investors to blow to smithereens the outdated 60/40 narrative
• Competitive management fee for a fund offering 200% expanded canvas coverage
• Historically, managed futures have offered a buffer/ballast during market upheavals.
• Employs a comprehensive strategy through machine learning to mimic a selection of trend-following funds.
• Support innovative boutique funds catering to both retail investors and advisors.

RSST Cons: Potential Limitations

• During years where both equities and managed futures are down, the ETF’s leverage could amplify short-term losses.
• Tracking error when managed futures have a challenging month, quarter and/or year(s)

source: Raise Your Average. on YouTube

RSST ETF Model Portfolio Ideas

These asset allocation ideas and model portfolios presented herein are purely for entertainment purposes only. This is NOT investment advice. These models are hypothetical and are intended to provide general information about potential ways to organize a portfolio based on theoretical scenarios and assumptions. They do not take into account the investment objectives, financial situation/goals, risk tolerance and/or specific needs of any particular individual. 

Do you remember earlier on when I said RSST ETF is one of the most versatile expanded canvas products?

Well, now it time to prove my point.

With RSST ETF you have almost unlimited combos to build high conviction capital efficient portfolios.

Let’s explore some of those.

60/40/100: 60/40 Plus 100% Managed Futures

For those seeking the classic configuration of the a 60/40 portfolio with a no holds barred allocation to Managed Futures you only need 2 funds.

Model Portfolio:

60% RSST
40% RSBT

Exposures:

60% US Equities
40% Bonds
100% Managed Futures

Expanded Canvas: 

200%

That’s it.

You’re done.

How has that performed in a backtest?

ALL EQUITY: 100/50/50 (Stocks + Managed Futures + Bonds)

If you’re an investor that doesn’t want to shave down your equity sleeve one bit you can still “return stack” bonds and managed futures in an equal combo with just 2 funds:

Model Portfolio:

50% RSST
50% PSLDX

Exposures:

100% US Equities
50% Managed Futures
50% Bonds

Expanded Canvas: 

200%

Let’s check that out by rolling back the clock a little bit with this performance summary.

Maximum Diversification Portfolio

For investors seeking to maximally diversify their portfolios (with as many strategies as possible) you can cobble together 7 uncorrelated strategies with just 6 funds:

Model Portfolio:

50% RSST
20% GDE
10% TYA
10% HCMT
5% BTAL
5% CAOS (formerly AVOLX)

Exposures:

88% or 68% US Equities
50% Managed Futures
30% Intermediate Treasury
18% Gold
0 or 10% Cash
5% M/N Equities (Long: Low Vol / Short: High Beta)
5% OTM PUT

Expanded Canvas: 

196% or 186%

Let’s send that combo off for a beautiful backtest!

And here are the correlations between strategies.

Nomadic Samuel Final Thoughts

Return Stacking offers everything I could ever want as a DIY expanded canvas investor.

I’m able to expand the canvas of my portfolio to create space for more diversified diversifiers.

That’s the name of the game for me.

And RSST ETF is an incredible new puzzle piece I can utilize to keep my equity position strong whilst adding managed futures to the mix.

There are no compromises here.

It’s just a big ‘ole extra scoop of ice cream added to my waffle cone at the parlour on a hot summer’s day.

And with all that talk of food, I think that’s where we’ll end things for today.

I’m freakin’ hungry.

Let’s turn things over to you.

What do you think of RSST ETF?

Is it on your radar?

Please let me know in the comments below.

Ciao for now!

Important Information

Investment Disclaimer: The content provided here is for informational purposes only and does not constitute financial, investment, tax or professional advice. Investments carry risks and are not guaranteed; errors in data may occur. Past performance, including backtest results, does not guarantee future outcomes. Please note that indexes are benchmarks and not directly investable. All examples are purely hypothetical. Do your own due diligence. You should conduct your own research and consult a professional advisor before making investment decisions. 

“Picture Perfect Portfolios” does not endorse or guarantee the accuracy of the information in this post and is not responsible for any financial losses or damages incurred from relying on this information. Investing involves the risk of loss and is not suitable for all investors. When it comes to capital efficiency, using leverage (or leveraged products) in investing amplifies both potential gains and losses, making it possible to lose more than your initial investment. It involves higher risk and costs, including possible margin calls and interest expenses, which can adversely affect your financial condition. The views and opinions expressed in this post are solely those of the author and do not necessarily reflect the official policy or position of anyone else. You can read my complete disclaimer here.