What Do You Care About Most As An Investor? For Me? It’s All About Capital Efficiency, Baby!

What do you care about most as an investor?

For me it’s a slam dunk no brainer.

It’s all about capital efficiency, baby!

Let me explain.

Imagine a hypothetical buffet that’s been created and customized just for you!

This hypothetical buffet has a memory like an elephant.

It never forgets.

It remembers all of the wonderful baked goods your Grandma made for you as a child to tickle the desire of your premature tastebuds.

Those double fudge brownies you used to pig-out on to the point of nearly drifting off into a diabetic coma.

They’re stacked up and waiting for you to grab at liberty.

It also recalls the hole-in-the-wall cafe you meandered into by accident in Hanoi, Vietnam.

You know, the one where you parked your arse down on a plastic chair and slurped Pho with locals as the only gringo in sight?

Yeah, that one – it only cost $1.

But that’s the best Pho you’ve ever had!

This buffet has it all.

Stuff you loved and wolfed down as a kid.

Things that your more mature tastebuds appreciate as an adult.

East meets West.

North and South.

Local and International flavours.

Savoury, sweet, sour, salty, zesty, pungent, putrid, pickled and everything else in between!

It’s all there for the taking.

But there’s a catch.

You only get one plate and one serving.

Expanding The Canvas: Can I Please Get A Bigger Plate?

You’re in total disbelief.

Firstly, you’re shocked that all of your favourite foods that you’ve ever sampled are right in front of your nose and available all at once.

Secondly, you’re equally perplexed about only having one regular sized plate with not enough room to fit it all.

Immediately you start making concessions and compromises.

Well, if I only grab one slice of pizza maybe I’ll still have a bit of room for the sushi, tandoori chicken and laksa?

But then I may not have enough space to grab a decadent dessert.

You’re a tortured soul having to utilize addition by subtraction methods to figure out what to do.

But what if there was another option?

Could you ask for a bigger plate?

Hmmm…

You hadn’t thought of that one until just now!

A bigger plate!

More space.

You could grab a bit more of everything without having to shave down something else.

“Is it possible! Can you give me a bigger plate!”

You belt out with glee.

The waiter nods his head and brings you something twice the size of what you’re currently holding in your hands.

Without having to make compromises you line up to grab a bit of everything being offered at the buffet.

There’s just enough room on your expanded canvas plate to cover it all.

It’s the best meal of you life.

Capital Efficiency Is What I Care The Most About As An Investor

Hey guys! Here is the part where I mention I’m a travel content creator as my day job! This investing opinion blog post is entirely for entertainment purposes only. Most investors should not use leverage in any way, shape or form. 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. 

Capital Efficiency: Creating An Expanded Canvas Portfolio

Capital efficiency for me is like being at this customized buffet where all of my favourite foods are available.

I’m excited about the prospects but I need the extra space to enjoy everything!

How do I create that?

Well, in the example above I grabbed a bigger plate.

In an investing scenario I can “grab a bigger plate” by utilizing capital efficient ETFs and Mutual Funds to create this extra space in my portfolio.

I don’t have to play within the confines of a 100% sandbox or small dinner plate.

I can move the boundaries to create a bigger sandbox or I can grab a bigger dinner plate.

For $1 spent on merely a bond only ETF I can spend that same $1 and grab a product like Return Stacked Bonds and Managed Futures ETF where I get $1 worth of bonds and 1$ worth of managed futures.

So instead of shaving down bonds to make space for managed futures I can nod my head and just take equal amounts of both.

Now one can get greedy and just go hog wild on a couple of different items.

Consider the buffet example from earlier in the article.

Imagine if I used that large dinner plate to load up only on pizza (stocks) and grandma’s double fudge brownies (bonds).

Don’t get my wrong, that’s a stellar combo!

I could do a 100% portfolio of a fund like PSLDX to achieve just that!

100% stocks (pizza) and 100% bonds (grandma’s double fudge brownies).

Mmmm….that sounds pretty darn good!

But it might leave me with a tummy ache or severe indigestion from time to time (2022 for example with PSLDX being down -43.17%!!!).

I don’t really want that.

Is there a better way to proceed?

I think there is!

Capital Efficiency Reigns Supreme So That I Can Maximally Diversify

Capital efficiency reigns supreme so that I can maximally diversify my portfolio!

Pizza (stocks) and Grandma’s double fudge brownies (bonds) are no doubt a winning combo!

And I want plenty of those on my plate (portfolio) but I want to create space for other things I love as well.

I want to have ramen, bibimbap and braai as well!

These are different flavours (uncorrelated asset classes and strategies) that’ll diversify my plate from merely pizza and brownies (stocks and bonds).

This is a buffet after-all!

The primary reason I want to diversify my portfolio is so that I can create an all-weather juggernaut that can compound with the likes (or better) than an all equity portfolio but with considerably less risk.

I want my portfolio to feature all of the different flavours and tastes.

Just sweet (stocks) and salty (bonds)?

That’s not enough for me.

I want sweet, sour, salty, bitter, and umami!

A plate prepared for every craving under the sun!

A portfolio prepared for every season: sunny (prosperity), overcast (deflation), rain (inflation) and storms (recession)

Something that can handle every economic curveball thrown its way!

I’m able to stretch the canvas of my portfolio or update the size of my plate to include the necessary ingredients to make all of this happen.

Instead of just stocks and bonds I can also add the following:

1. Managed Futures (Trend-Following)
2. Gold
3. Market Neutral
4. Options (Calls/Puts)
5. Bitcoin
6. Global Systematic Macro (other MF strategies aside from trend)
7. Inverse Vix
8. Arbitrage
9. Long-Short Equity
10. Style Premia

These are just a few of the ingredients I can add to my expanded canvas plate.

I’ve got the space (real-estate) to make it happen.

It’s just a matter of how I assemble things together.

Capital Efficient Puzzle Pieces: All Of The Dishes At The Buffet!

What would say a 150% or 200% expanded canvas portfolio allow you to do as an investor seeking a capitally efficient plus maximally diversified portfolio?

Could you use this extra space wisely to load up with all of your favourite dishes at the buffet of your wildest dreams?

Yes.

These days you can.

Here are some of the most fascinating building blocks out there today.

This is our buffet menu!

source: Optimized Portfolio on YouTube

Stocks And Bonds

Let’s start with pizza and Grandma’s double fudge brownies!

We’ve got the classic stocks and bond combinations that are capital efficient.

100/100 Equities/Bonds

PSLDX – PIMCO StockPlus Long Duration Fund
DSEEX – DoubleLine Shiller Enhanced CAPE
DSEUX – DoubleLine Shiller Enhanced Intl CAPE

90/60 Equities/Bonds

RSSB – Return Stacked Global Stocks And Bonds
NTSX – WisdomTree U.S Efficient Core Fund
NTSI – WisdomTree International Efficient Core Fund
NTSE – WisdomTree Emerging Markets Efficient Core Fund

70/90 Equities/Bonds

SWAN – Amplify BlackSwan Growth & Treasury Core ETF
ISWN – Amplify BlackSwan ISWN ETF (International)
QSWN – Amplify BlackSwan Tech & Treasury ETF

Stocks And Managed Futures

These funds are 50% Equities / 100% Managed Futures strategies.

BLNDX – Standpoint Multi-Asset Fund
MAFIX – Abbey Capital Multi Asset Fund
MBXIX – Catalyst/Millburn Hedge Strategy Fund

Other Interesting Combinations

Two of my personal favourites over here!

We’ve got a 90/90 US equities plus gold fund and a 100% Aggregate Bonds plus 100% Managed Futures ETF.

RSBT – Return Stacked Bonds & Managed Futures ETF
GDE – WisdomTree Efficient Gold Plus Equity Strategy Fund

Multi-Strategy Asset Allocation Funds

Here are multi-asset class plus multi-strategy asset allocation funds.

FIG – Simplify Macro Strategy ETF
UPAR – Ultra Risk Parity ETF
RPAR – Risk Parity ETF
RDMIX – Rational/ReSolve Adaptive Asset Allocation Fund
NFDIX – Newfound Risk Managed U.S. Growth Fund

 Diversifying Strategies

These are various diversifying alternative strategies.

ARB – AltShares Merger Arbitrage ETF
BTAL – AGF US Market Neutral Anti Beta Fund
LBAY – Leatherback Long/Short Alternative Yield ETF
VMOT – Alpha Architect Value Momentum Trend ETF
QLEIX – AQR Long-Short Equity Fund
QDSIX – AQR Diversifying Strategies Fund
TAIL – Cambria Tail Risk ETF
PFIX – Simplify Interest Rate Hedge ETF
BITO – ProShares Bitcoin Strategy ETF
SVOL – Simplify Volatility Premium ETF
FLSP – Franklin Systematic Style Premia ETF
FSMSX – FS Multi-Strategy Alternatives Fund

Capital Efficient Portfolio Ideas: Maximum Diversification Model Portfolios

Now let’s move on to the fun part!

We’ve got all the of buffet dishes at our disposal.

How are we going to assemble our plates?

Let’s explore a few different capital efficient model portfolio ideas ranging from 2, 3, 4, 5 and 8 fund combos!

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. 

2 Fund – Multi-Strategy Portfolio

50% UPAR – Ultra Risk Parity ETF
50% FIG – Simplify Macro Strategy ETF

It’s hard to believe that combining two asset allocation funds 50/50 could offer exposure to the following strategies:

1. Global Equities – UPAR / FIG
2. Commodity Producing Equities – UPAR
3. TIPS – UPAR
4. Capital Efficient Bonds – UPAR / FIG
5. Gold – UPAR / FIG
6. L/S Equity – FIG
7. Options (Calls/Puts) – FIG
8. Managed Futures – FIG
9. Inverse VIX – FIG
10. High Yield Credit – FIG

Both are capital efficient as well!

Eat that 60/40 that only brings stocks and bonds to the table.

3 Fund – 5 Strategy Portfolio

50% $GDE – WisdomTree Efficient Gold Plus Equity Strategy Fund
45% $RSBT – Return Stacked Bonds & Managed Futures ETF
5% $BTAL – AGF US Market Neutral Anti Beta Fund

With just three funds we’ve assembled a five strategy portfolio that is more diversified than a 60/40 portfolio.

We’ve got the following exposures:

45% US Equities
45% Gold
45% Aggregate Bonds
45% Managed Futures Trend
5% Anti-Beta Market Neutral

Canvas: 185% Expanded Canvas Portfolio

This equal parts portfolio is reminiscent of the Harry Browne Permanent Portfolio.

The only difference is that it punts out cash for the more adaptive strategy of managed futures.

And it has one last diversifier and return smoother in BTAL.

CountDown Portfolio – 4, 3, 2, 1

40% $RSSB – Return Stacked Global Stocks And Bonds
30% $RSBT – Return Stacked Bonds & Managed Futures ETF
20% $GDE – WisdomTree Efficient Gold Plus Equity Strategy Fund
10% $BTAL – AGF US Market Neutral Anti Beta Fund

The countdown portfolio is a four fund portfolio that includes many of the same ingredients as the 3 fund portfolio we covered above.

However, it isn’t an equal parts portfolio.

The countdown portfolio prioritizes 4, 3, 2, 1 between 40%, 30%, 20% and 10% slots.

Overall, we have these exact exposures:

54% Global Equities
54% Bonds
30% Managed Futures
18% Gold
10% Anti-Beta Market Neutral

Canvas: 166% Expanded Canvas Portfolio

Our portfolio is balanced between Stocks (54%), Bonds (54%) and Alternatives (58%)

Mutual Fund Portfolio – 5 Funds

20% $PSLDX – PIMCO StockPlus Long Duration Fund
20% $DSEUX – DoubleLine Shiller Enhanced Intl CAPE
30% $BLNDX – Standpoint Multi-Asset Fund
10% $QLEIX – AQR Long-Short Equity Fund
20% $QDSIX – AQR Diversifying Strategies Fund

This five ticker mutual fund portfolio brings loads of diversification to the dinner table.

We’ve got the following strategies

1. Global Equities
2. Bonds
3. Managed Futures
4. Long-Short Equity
5. Arbitrage
6. Market Neutral
7. Style Premia
8. Global Macro
9. Currencies
10. Commodities

Maximum Diversification Portfolio – 8 Funds

25% $RSSB – Return Stacked Global Stocks And Bonds
25% $RSBT – Return Stacked Bonds & Managed Futures ETF
25% $FIG – Simplify Macro Strategy ETF
5% $ARB – AltShares Merger Arbitrage ETF
5% $BTAL – AGF US Market Neutral Anti Beta Fund
5% $GDE – WisdomTree Efficient Gold Plus Equity Strategy Fund
5% $FLSP – Franklin Systematic Style Premia ETF
5% $VMOT – Alpha Architect Value Momentum Trend ETF

This is the most complicated portfolio hands down.

But with it we’ve assembled the most diversified portfolio of them all:

1. Global Equities
2. Bonds
3. Managed Futures
4. Arbitrage
5. Gold
6. Market Neutral
7. Style Premia
8. Long-Short Equity
9. High Yield Credit
10. Options (Calls/Puts)
11. Inverse VIX

Nomadic Samuel Final Thoughts

Capital Efficiency reigns supreme in my portfolio!

It is my number one priority.

I use it to stretch the canvas of my portfolio to paint a more detailed picture.

I upgrade my dinner plate in the buffet line to capture more dishes being served.

It’s interesting because I recently created a poll on Twitter to ask others the following question:

“What do you care most about as an investor?”

1. Capital Efficiency
2. Maximum Diversification
3. Optimization (Factors)
4. Lowest Fees Possible

It’s fascinating because this is my list of priorities ranked in order of importance.

Firstly, I care most about capital efficiency as it allows me to create space in my portfolio.

Secondly, I’m thrilled about maximum diversification because I can utilize that extra space to stuff as many uncorrelated strategies into the mix as possible.

Thirdly, I love to optimize (factor strategies) whenever possible but I mostly capture this with L/S equity funds as opposed to long-only.

Finally, I’m just like everybody else on the planet when it comes to fees – I’d love to pay less!

But at this point in the article I’m more curious about what you have to say.

What do you think about building capital efficient portfolios?

Is it something you’re doing or considering?

Please let me know in the comments below.

That’s all I’ve got for today!

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.