RLY: More Of A Cyclical Play Than A Portfolio Diversifier

seekingalpha03-15

gopixaOne of the readers of my recent Risk Parity ETF (RPAR) article asked a question in the comments section that triggered my curiosity: "How would you compare RPAR to the SPDR SSGA Multi-Asset Real...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2419293271?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1472468191/image_1472468191.jpg","is_english":true,"pubTime":"2024-03-15 03:54","share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","id":"2419293271","market":"nz","top_or_hot":-1,"title":"RLY: More Of A Cyclical Play Than A Portfolio Diversifier","media":"seekingalpha","content":"<div>\n<p>gopixaOne of the readers of my recent Risk Parity ETF (RPAR) article asked a question in the comments section that triggered my curiosity: \"How would you compare RPAR to the SPDR SSGA Multi-Asset Real...</p>\n\n<a href=\"https://seekingalpha.com/article/4678296-rly-more-of-a-cyclical-play-than-a-portfolio-diversifier\">Source Link</a>\n\n</div>\n","source":"seekingalpha_fund","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>RLY: More Of A Cyclical Play Than A Portfolio Diversifier</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nRLY: More Of A Cyclical Play Than A Portfolio Diversifier\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-03-15 03:54 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4678296-rly-more-of-a-cyclical-play-than-a-portfolio-diversifier><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>gopixaOne of the readers of my recent Risk Parity ETF (RPAR) article asked a question in the comments section that triggered my curiosity: \"How would you compare RPAR to the SPDR SSGA Multi-Asset Real...</p>\n\n<a href=\"https://seekingalpha.com/article/4678296-rly-more-of-a-cyclical-play-than-a-portfolio-diversifier\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"NEE","symbol_name":"新纪元能源","start_time":0,"source_url":"https://seekingalpha.com/article/4678296-rly-more-of-a-cyclical-play-than-a-portfolio-diversifier","article_id":"2419293271","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1472468191/image_1472468191.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2419293271","pubTimestamp":1710446058,"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"gopixaOne of the readers of my recent Risk Parity ETF  article asked a question in the comments section that triggered my curiosity: \"How would you compare RPAR to the SPDR SSGA Multi-Asset Real Return ETF ?\" To be frank, I had never spent any time digging into this multi-asset class fund. However, because I see RPAR as one of the most unique, full-package, diversified portfolios in the ETF space, I wondered if I might be ignoring similar funds that could be equally interesting for a diversified investor to own. Today, I look more closely at RLY and conclude that it lacks quite a bit of the diversification benefits of RPAR — but that it could feasibly be owned, in small amounts, alongside the risk parity ETF for further protection against rising inflation. What is RLY?","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"NEE":"新纪元能源","LU0068578508.USD":"First Eagle Amundi International Cl AU-C USD","BK4588":"碎股","LU1988902786.USD":"FULLERTON LUX FUNDS GLOBAL ABSOLUTE ALPHA \"I\" (USD) ACC","LU0792757196.USD":"TEMPLETON SHARIAH GLOBAL EQUITY FUND \"A\" (USD) ACC","BHP.AU":"BHP GROUP LTD","ANYYY":"Aena SME S.A.","GNR":"SPDR S&P Global Natural Resource","LU1093756325.SGD":"FTIF - Franklin K2 Alt Strat Fd A (acc) SGD-H1","LU1732800096.USD":"摩根大通环球收益基金A (irc)","XOM":"埃克森美孚","TIPX":"SPDR Bloomberg Barclays 1-10 Year TIPS ETF","IE00B1XK9C88.USD":"PINEBRIDGE US LARGE CAP RESEARCH ENHANCED \"A\" (USD) ACC","IE00BD4GTT62.SGD":"Legg Mason ClearBridge Infrastructure Value A SGD-H (mdis) plus","BK4581":"高盛持仓","IE00BKDWB100.SGD":"PINEBRIDGE US LARGE CAP RESEARCH ENHANCED \"A5H\" (SGDHDG) ACC","FDN":"First Trust Dow Jones Internet I","LU0320765646.SGD":"FTIF - Franklin Income A MDIS SGD-H1","RLY":"SPDR SSgA Multi-Asset Real Return ETF","LU0124384867.USD":"贝莱德新能源基金A2","BHP":"必和必拓公司","BK7507":"资源股","LU2264538146.SGD":"Fullerton Lux Funds - Global Absolute Alpha A Acc SGD","LU2384288077.EUR":"AZ EQUITY GLOBAL INFRASTRUCTURE \"A-INS\" (EUR) ACC","PDBC":"Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF","IE00BMG7P819.SGD":"Legg Mason ClearBridge - Global Infrastructure Income A Mdis SGD-H Plus","XLE":"SPDR能源指数ETF","GII":"SPDR S&P Global Infrastructure ETF","LU1621768206.USD":"AZ EQUITY GLOBAL INFRASTRUCTURE \"AAZ\" (USD) ACC","IE00BMG7P926.USD":"Legg Mason ClearBridge - Global Infrastructure Income A Acc USD","LU1066051498.USD":"HSBC GIF GLOBAL EQUITY VOLATILITY FOCUSED \"AM2\" (USD) INC","LU2236285917.USD":"ALLIANZ GLOBAL INCOME \"AMG\" (USD) INC","BK4168":"多种金属与采矿","BK4592":"伊斯兰概念","LU0266512127.USD":"摩根大通环球自然资源 A(acc)","IE00BMG7P694.USD":"Legg Mason ClearBridge - Global Infrastructure Income A Mdis USD Plus","LU0985489474.SGD":"First Eagle Amundi International AHS-C SGD-H","SG9999015341.SGD":"United Income Focus Trust Acc SGD-H","LU0300736062.USD":"FRANKLIN NATURAL RESOURCES \"A\" (USD) ACC","IE00BD4GTW91.USD":"LEGG MASON CLEARBRIDGEINFRASTRUCTURE VALUE \"A\" (USDHDG) INC","LU0122376428.USD":"贝莱德世界能源基金A2","LU0878866978.SGD":"First Eagle Amundi International AHS-QD SGD-H","IE00BJTD4N35.SGD":"Neuberger Berman US Long Short Equity A1  Acc SGD-H","LU1978683503.SGD":"Blackrock Sustainable Energy A2 SGD-H","SHEL":"SHELL PLC SPON ADS EACH REPR 2 ORD SHS","RPAR":"RPAR Risk Parity ETF","LU0433182093.SGD":"First Eagle Amundi International AS-C SGD","LU1093756168.USD":"FRANKLIN K2 ALTERNATIVE STRATEGIES \"A\" (USD) ACC","IE00BD4GTV84.USD":"LEGG MASON CLEARBRIDGEINFRASTRUCTURE VALUE \"A\" (USDHDG) ACC","LU1732799900.SGD":"JPMorgan Investment Funds - Global Income A (irc) SGD-H"},"translate_title":"RLY：与其说是投资组合多样化，不如说是周期性投资","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"BHP":1,"XOM":1,"XLE":1,"TIPX":1,"SHEL":1,"RPAR":1,"RLY":1,"PDBC":1,"NEE":1,"GNR":1,"ANYYY":1,"GII":1,"BHP.AU":1,"FDN":0.9},"content_text":"gopixaOne of the readers of my recent Risk Parity ETF (RPAR) article asked a question in the comments section that triggered my curiosity: \"How would you compare RPAR to the SPDR SSGA Multi-Asset Real Return ETF (RLY)?\" To be frank, I had never spent any time digging into this multi-asset class fund. However, because I see RPAR as one of the most unique, full-package, diversified portfolios in the ETF space, I wondered if I might be ignoring similar funds that could be equally interesting for a diversified investor to own. Today, I look more closely at RLY and conclude that it lacks quite a bit of the diversification benefits of RPAR — but that it could feasibly be owned, in small amounts, alongside the risk parity ETF for further protection against rising inflation. What is RLY? The SPDR Multi-Asset Real Return ETF is a small fund with just north of half a billion dollars in AUM and an average daily traded volume of $5 million (about 200,000 shares). The bid-ask spread is only about 2 cents on shares that are worth $27, which makes RLY liquid enough for most individual investors and even small institutions to enter and exit positions without much drag. As described by State Street, the ETF manager, the SPDR Multi-Asset Real Return ETF: Seeks to provide exposure to domestic and international inflation-protected securities, real estate securities, commodities, infrastructure companies, and companies in natural resources and/or commodity businesses which may include agriculture, energy, and metals and mining companies as well as industrial, and utility companies. The description above suggests that RLY should have a substantial bias towards multiple assets — equity and otherwise — that would likely perform well during periods of elevated consumer and/or producer prices because TIPS, commodities, infrastructure, and natural resource companies do as well. The portfolio allocation chart below reinforces the idea. RLY is primarily a fund of funds since it currently holds 12 ETFs in addition to roughly 11% net exposure to money market investments. The fund-of-funds approach to gaining exposure to different factors is something that many other ETFs also use, and I find it particularly effective while maintaining some simplicity. The two largest categories, at a combined 53% allocation, are natural resources and global infrastructure, represented by investments in names like Shell plc (SHEL), BHP Group (BHP), Exxon Mobil (XOM), Aena (OTCPK:ANYYY), and NextEra (NEE), among several others. RLY's specific portfolio allocations could vary over time since it is an actively managed fund and exposure \"will be in proportions consistent with the Adviser’s evaluation of the expected returns and risks of each asset class\", according to the prospectus. However, at least 80% of the assets will be allocated to TIPS, real estate securities, commodities, infrastructure, and natural resources companies at all times. See below a list of RLY's largest ETF positions as of March 2024:  SPDR S+P Global Natural Resources (GNR): 28.7% SPDR S+P Global Infrastructure (GII): 23.4% Invesco Optimum Yield Diversified Commodity ETF (PDBC): 17.0% SPDR Bloomberg 1-10 Year TIPS ETF (TIPX): 8.2% Energy Select Sector SPDR Fund (XLE): 6.5% All others: 16.2%  Data by State StreetIs RLY Better Than RPAR? The next questions to address are how RLY compares to RPAR, and whether the former could be a good replacement for the latter. A snapshot of the portfolio holdings is probably enough to answer these questions: that is to say, RLY is heavily biased towards assets that are inherently cyclical and beta-positive to economic growth. This ETF seems to fall well short of RPAR in its ability to more broadly diversify a portfolio across asset classes that might perform differently across the several possible economic environments. More specifically, RLY seems well-positioned to produce gains during periods of higher inflation, and likely through expansionary cycles — in fact, these two scenarios often happen simultaneously, with the latter often causing the former. The chart below clearly shows the tight relationship between RLY's performance since inception and the YOY change in core PCE, a standard measure of consumer price levels. Data by YChartsCompared to RPAR, RLY has minimal (if any) exposure to fixed-income instruments whose market value would ordinarily increase in the case of low inflation and slow economic growth. RPAR, on the other hand, allocates 35% of its net assets to nominal (i.e., not adjusted for inflation) government bonds in addition to another 35% to TIPS. From the above, I can derive what I expect to be the biggest risk in RLY: the ETF is unlikely to produce decent returns, and may, in fact, deliver painful losses, during periods of economic stagnation or contraction. This was clearly the case in 2014-2015 (a period of falling earnings in Corporate America) and early 2020 (the beginning of the COVID-19 crisis), when RLY lost as much as 45% from peak levels. A secondary risk that I see today pertains to timing. RLY's best days of performance have probably been left a few months behind. The period of more pronounced increase in inflation happened in 2021 and early 2022, precisely when RLY climbed the most. While the valuation of some of RLY's largest individual stock allocations (see chart below) tends to be low by nature, with P/Es in the high single digits and low-to-mid teens, the multiples have been generally climbing in the past 24-30 months. Data by YChartsIn Conclusion In my view, RLY could at best serve as a complement to RPAR in a portfolio if (1) an investor strategically chose to be better hedged against increases in consumer and/or producer prices, and (2) the ratio of RLY to RPAR was relatively small. In fact, an 80/20 RPAR and RLY (in this order) portfolio would have produced better absolute and risk-adjusted returns in addition to slightly lower volatility and less damaging drawdowns (see portfolio 1 below, in blue) compared to a 100% investment in the risk parity ETF since its inception. Portfolio Visualizer Having said the above, I take a pass on RLY for now, understanding that RPAR provides some of the same benefits that one could find in SPDR SSGA Multi-Asset Real Return ETF while being much better positioned to outperform during periods of tamer inflation and slower economic growth.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.24.2","shortVersion":"4.24.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2419293271"}