BND - RLY: Multi-Asset ETF Beating Peers For 3 Years

2023-12-08 17:40:59 ET

Summary

• SPDR® SSgA Multi-Asset Real Return ETF is an actively managed fund of funds aiming at excess return over inflation.
• The RLY fund provides exposure to inflation-protected securities, real estate securities, commodities, infrastructure companies, and natural resources and commodity businesses.
• Performance and risk metrics since 2012 are underwhelming, but RLY has outperformed other multi-asset ETFs in the inflationary environment of the last 3 years.

RLY strategy and portfolio

SPDR® SSgA Multi-Asset Real Return ETF ( RLY ) is an actively managed fund of funds. It started investing operations on 4/26/2012, has 13 holdings, a distribution yield of 5.50% and an expense ratio of 0.50%. Distributions are paid quarterly.

“Real Return” is defined as a rate of return above the rate of inflation, consisting of capital appreciation and current income.

As described by SSGA , the fund’s objective is

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 investment process relies on a proprietary quantitative model as well as fundamental views regarding factors that may not be captured by the quantitative model.

The exchange-traded fund, or ETF, invests in these securities through ETPs (exchange-traded products). Some of them may gain exposure to commodities by using derivatives. I guess that the quantitative model includes tactical allocation rules based on relative strength indicators, but the strategy description offers a lot of flexibility to the fund managers. On the downside, it lacks transparency for investors, like most actively managed funds. The portfolio turnover rate in the most recent fiscal year was 30%.

The table below lists all the fund’s holdings. As of writing, 64.3% of asset value is invested in equities related to natural resources, energy, metals and infrastructure.

As reported in the next table, valuation and growth metrics of the equity part are much more attractive than the S&P 500 index represented by SPDR® S&P 500 ETF Trust ( SPY ).

Performance vs benchmarks

The next table compares performance and risk metrics of RLY since inception with four benchmarks:

• U.S. equities: SPY
• US bond market: Vanguard Total Bond Market Index Fund ETF Shares ( BND )
• 60/40 portfolio: SPY, BND
• A Permanent Portfolio inspired by Harry Browne and modeled by an equal-weight portfolio in stocks ((SPY)), bonds ((BND)), Treasury bills ( BIL ) and gold ( GLD ), rebalanced annually.

Calculation by Portfolio123.

RLY has lagged these benchmarks except BND regarding total return and risk-adjusted performance (Sharpe ratio). The permanent portfolio looks the most efficient at reducing drawdowns and volatility (standard deviation of monthly returns). However, most of this period was characterized by a bullish stock market and low inflation. RLY active allocation strategy may perform better in other market conditions.

RLY vs. competitors

The next table compares characteristics of RLY and five other tactical multi-asset funds:

• iShares Core Growth Allocation ETF ( AOR )
• iShares Core Conservative Allocation ETF ( AOK )
• Strategy Shares Nasdaq 7HANDL Index ETF ( HNDL )
• WisdomTree U.S. Efficient Core Fund ( NTSX )
• RPAR Risk Parity ETF ( RPAR ).

For further details see: