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I think you need to consider time horizons when analyzing these funds. You can buy SPY and it will win. Unless there is a market crash when you hit retirement a

I think you need to consider time horizons when analyzing these funds. You can buy SPY and it will win. Unless there is a market crash when you hit retirement age, in which case you are screwed until the market recovers. If you don't mind the risk, go 2x levered and you will do even better. [0] Many institutions and HNW and UHNW individuals prioritize consistency over absolute growth. They would rather make 6-8% a year and reduce downside risk than optimize for gains. Multi-strat funds like this one are catering to people who want that product. [0] - https://citeseerx.ist.psu.edu/document?repid=rep1&type=pdf&doi=766305a669c45afbac4b833025529e84ced4a025 https://citeseerx.ist.psu.edu/document?repid=rep1&type=pdf&d...

mgfist 2y ago
2x leaves at the mercy of margin calls, which inconveniently come at the moment where you least want to sell (right after a huge crash). Getting margin called after a 50% crashes leaves you with $0, as an example. A 50% market crash would be brutal even without leverage, but at least no one would force you to sell.
- unyttigfjelltol 2y ago
  ... "permanently high plateau" and all that...
- cj 2y ago
  You can achieve 2x leverage without the risk of margin calls by buying ETFs like SPUU (or SPXL, UPRO if you want 3x leverage).
  - casercaramel144 2y ago
    That's a really bad idea, those rebalance daily, so you are basically betting against short-term volatility (if spy goes down 10% in a day then up 10% the next, you are down 1% on spy, on a 2x levered etf you are down 4% or 4x the loss). Also both fees and slippage are really terrible on all levered ETFs If you really want to do 2x lever its probably best to just buy 6 month or 1 yr dated ITM calls. They're quite cheap and very liquid on SPY.
    - arcticbull 2y ago
      And yet UPRO (3X SPY) has significantly outperformed 3X the S&P 500 since inception (since June 2009 UPRO is +8000% vs SPY +700%. The reason is exactly what you described actually. If the underlying exhibits positive momentum, generally trending up instead of oscillating back and forth, the daily balancing works for you instead of against you and the ETF outperforms the target multiple of the underlying. Yes, if your S&P returns over 3 days are +10%, -10%, +10% then SPY is up 8.9% while UPRO is up 18% (2X, not 3X). On the other hand if your S&P returns over 3 days are +10%, +10%, +10% then SPY is up 33% while UPRO is up 120% (4X, not 3X). The big levered ETFs have reasonable volume and limited slippage for any volume retail investors would be trading. Fees are like 0.9% which all things considered isn't bad - given their vast outperformance. I'm not saying go all in on these, what I'm saying is that your analysis of the levered funds is missing some important details which show up on a quick backtest. If you understand the products and what bet you're making with them, they can be quite reasonable to hold long term - despite popular misconceptions. > If you really want to do 2x lever its probably best to just buy 6 month or 1 yr dated ITM calls. They're quite cheap and very liquid on SPY. Respectfully those are much more expensive and if you're near the money quite non-linear. You're going to have to pony up pretty close to the price of just buying the index again to get 2X exposure if you're deep ITM. Near the money you'll need several options to get 2X - and you'll need to delta rebalance. You'll also get eaten alive by theta decay. To avoid having to pony up a ton of collateral or get eaten by theta, you may as well just buy more SPY on margin - or save yourself the hassle and get an /ES=F or /MES=F. If you insist on trying to trade the S&P 500 with options (especially if your expiration is only 6-12m away) use SPX or XSP -- not SPY. They're cash-settled European index options, so no early exercise to worry about, no dividends to worry about and they get 60/40 capital gains treatment no matter how long you hold them for.
      - pinkmuffinere 2y ago
        +1, the criticism of “if s&p goes up and come back down, leveraged investments lose” is just insufficient as a criticism. It examines only one case. I’m probably 30% in SPUU for years now, and would like to hear real criticisms — do you have any real criticisms to share? I legitimately have found so little competent commentary on it, and I think I understand the risk I’m taking, but don’t want to miss an opportunity to get considered input.
chongli 2y ago
You have to pay interest when you invest on margin and a margin call can wipe you out. Investing on margin is serious riverboat gambling, not retirement saving.
asdasdsddd 2y ago
I always see this "excuse". Our fund isn't focused on alpha; we minimize beta. It's just unclear to me whether this is shown out in the data.
- casercaramel144 2y ago
  Anecdotally (can't say how I know), many firms did very well in the 2020-2021 Covid crash, also its quite cheap to say buy 50 million in far OTM puts to guard against black swan events. It's far more likely that a slow slide in SPY will show some Beta correlation than anything else.
- ddmitriev 2y ago
  I think they usually say that they are focused on alpha while minimizing beta, i.e. don't compare us to the S&P or other indices because we are market neutral. And in my experience, the large, old firms that I am personally familiar with do in fact have beta very close to 0 in their main funds, so on that front at least some firms do deliver. This doesn't necessarily make the product a good idea even for people who can get an allocation, however. For example, because most (all?) market-neutral firms engage in active trading, a US UHNW person living in a high-tax state will generally have to pay around 50% of each year's gains in taxes. These taxes will have to be paid whether or not they did or were even allowed to withdraw any money from their investments that year, so a gain of let's say 12% becomes 6%, which may have to come out from some other source.
  - chii 2y ago
    > have to pay around 50% of each year's gains in taxes. > ...will have to be paid whether or not they did or were even allowed to withdraw any money from their investments that year That's crazy. I would've thought the hedge fund would be able to hide the capital gains tax (as they're a trader, and should be exempted from capital gains taxes), so you as an investor only pays capital gains tax when you withdraw. This also implies that the investor doesn't get to carry forward capital losses, or use it to offset their own outside capital gains.

mgfist 2y ago

2x leaves at the mercy of margin calls, which inconveniently come at the moment where you least want to sell (right after a huge crash). Getting margin called after a 50% crashes leaves you with $0, as an example. A 50% market crash would be brutal even without leverage, but at least no one would force you to sell.

unyttigfjelltol 2y ago
... "permanently high plateau" and all that...
cj 2y ago
You can achieve 2x leverage without the risk of margin calls by buying ETFs like SPUU (or SPXL, UPRO if you want 3x leverage).
- casercaramel144 2y ago
  That's a really bad idea, those rebalance daily, so you are basically betting against short-term volatility (if spy goes down 10% in a day then up 10% the next, you are down 1% on spy, on a 2x levered etf you are down 4% or 4x the loss). Also both fees and slippage are really terrible on all levered ETFs If you really want to do 2x lever its probably best to just buy 6 month or 1 yr dated ITM calls. They're quite cheap and very liquid on SPY.
  - arcticbull 2y ago
    And yet UPRO (3X SPY) has significantly outperformed 3X the S&P 500 since inception (since June 2009 UPRO is +8000% vs SPY +700%. The reason is exactly what you described actually. If the underlying exhibits positive momentum, generally trending up instead of oscillating back and forth, the daily balancing works for you instead of against you and the ETF outperforms the target multiple of the underlying. Yes, if your S&P returns over 3 days are +10%, -10%, +10% then SPY is up 8.9% while UPRO is up 18% (2X, not 3X). On the other hand if your S&P returns over 3 days are +10%, +10%, +10% then SPY is up 33% while UPRO is up 120% (4X, not 3X). The big levered ETFs have reasonable volume and limited slippage for any volume retail investors would be trading. Fees are like 0.9% which all things considered isn't bad - given their vast outperformance. I'm not saying go all in on these, what I'm saying is that your analysis of the levered funds is missing some important details which show up on a quick backtest. If you understand the products and what bet you're making with them, they can be quite reasonable to hold long term - despite popular misconceptions. > If you really want to do 2x lever its probably best to just buy 6 month or 1 yr dated ITM calls. They're quite cheap and very liquid on SPY. Respectfully those are much more expensive and if you're near the money quite non-linear. You're going to have to pony up pretty close to the price of just buying the index again to get 2X exposure if you're deep ITM. Near the money you'll need several options to get 2X - and you'll need to delta rebalance. You'll also get eaten alive by theta decay. To avoid having to pony up a ton of collateral or get eaten by theta, you may as well just buy more SPY on margin - or save yourself the hassle and get an /ES=F or /MES=F. If you insist on trying to trade the S&P 500 with options (especially if your expiration is only 6-12m away) use SPX or XSP -- not SPY. They're cash-settled European index options, so no early exercise to worry about, no dividends to worry about and they get 60/40 capital gains treatment no matter how long you hold them for.
    - pinkmuffinere 2y ago
      +1, the criticism of “if s&p goes up and come back down, leveraged investments lose” is just insufficient as a criticism. It examines only one case. I’m probably 30% in SPUU for years now, and would like to hear real criticisms — do you have any real criticisms to share? I legitimately have found so little competent commentary on it, and I think I understand the risk I’m taking, but don’t want to miss an opportunity to get considered input.

chongli 2y ago

You have to pay interest when you invest on margin and a margin call can wipe you out. Investing on margin is serious riverboat gambling, not retirement saving.

asdasdsddd 2y ago

I always see this "excuse". Our fund isn't focused on alpha; we minimize beta. It's just unclear to me whether this is shown out in the data.

casercaramel144 2y ago
Anecdotally (can't say how I know), many firms did very well in the 2020-2021 Covid crash, also its quite cheap to say buy 50 million in far OTM puts to guard against black swan events. It's far more likely that a slow slide in SPY will show some Beta correlation than anything else.
ddmitriev 2y ago
I think they usually say that they are focused on alpha while minimizing beta, i.e. don't compare us to the S&P or other indices because we are market neutral. And in my experience, the large, old firms that I am personally familiar with do in fact have beta very close to 0 in their main funds, so on that front at least some firms do deliver. This doesn't necessarily make the product a good idea even for people who can get an allocation, however. For example, because most (all?) market-neutral firms engage in active trading, a US UHNW person living in a high-tax state will generally have to pay around 50% of each year's gains in taxes. These taxes will have to be paid whether or not they did or were even allowed to withdraw any money from their investments that year, so a gain of let's say 12% becomes 6%, which may have to come out from some other source.
- chii 2y ago
  > have to pay around 50% of each year's gains in taxes. > ...will have to be paid whether or not they did or were even allowed to withdraw any money from their investments that year That's crazy. I would've thought the hedge fund would be able to hide the capital gains tax (as they're a trader, and should be exempted from capital gains taxes), so you as an investor only pays capital gains tax when you withdraw. This also implies that the investor doesn't get to carry forward capital losses, or use it to offset their own outside capital gains.