Derp Report ETF: GAA Excluding TSP

 

If you ever have time on your life to listen to podcasts, I definitely recommend the Meb Faber show. He is very entertaining, and takes a very quantitative look at the markets. We have somewhat of a similar background with undergraduate degrees in biology. Mr. Faber used his Biology degree to work for an investing firm analyzing biotech companies, and I ended up working for the Federal Reserve Bank with a degree in Biochemistry. Something happened along the way where he ended up being a multi-millionaire managing hundreds of millions of dollars in funds, and I ended up writing a blog earning 0.001 cents per ad impression.

 

I would like to think we brought our aspie, geek, quantitative minds into a world so saturated with bros and old stuffy men. Instead of making trades based on feelings and experience, we could use mounds of data to see new trends and patterns. In ‘The Big Short’ Dr. Michael Burry MD played by Christian Bale is the epitome of this savant/rain-man approach to applying quantitative reasoning in analysis of markets. You got to be the weirdo with the crazy ideas otherwise we are all just doing the same thing, and falling into the same traps.

The reason how many of us are exposed to market risk is we are too much into one thing. We tend to dump everything into something that has already gained value or has done well in the past. When that does not work out, when there is no more upside to it, we find ourselves holding the bag when all the initial investors have left. Just like flipping 5 houses in 2008, or buying thousands of dollars in Bennie Babies, or holding onto Twitter years after the IPO like my dumbass is ding. We all got burned by being too late into the game or buying on the upswing of hype and holding long after the sparkle is gone.

 

Diversity of investments is how we can capture growth while spreading out risk. Heard thinking and trend following is stupid, and if you dumped a bucket of ice water on your head for Facebook likes at some point in your life, you may be just wired to always be catching trends on the upswing, and buying into bubbles and holding on for another rally. You don’t hear about portfolio diversity because it is boring. I got into TSP because it is just that, incredibly boring and consistent and cheap over an insane time horizon. Now the next step is even more lame, because Global Asset Allocation is not sexy. No one brags about owning BB rated foreign sovereign debt as much as their brand new Tesla.

 

As I wrote before, TSP falls short in many aspects of the entire universe of investment opportunities out there. Mainly we are crippled to be truly diversified due to our domestic market bias. We think we are spread out and not exposed to risk because we own 3000 plus stocks in the American stock market, but forget to consider international stocks or bonds. We are just kind of half assing it here, we did the diverse index but not diverse markets. We forgot to go one more level up, the meta indexing of indexes.

 

Meb Faber’s podcast made me realize that all of us in TSP are investing in only domestic markets and developed international companies. He has a free book out there called Global Asset Allocation that he pushes the concept that to truly diversify our portfolio we may want to consider investing in companies we can’t pronounce or currencies we have never used.

 

If there is any sort of market correction here in the United States stock market, it is very unlikely that we see it affecting our position in a bond called “YPF Sociedad Anonima 144A” which is a loan to a company called Yacimientos Petrolíferos Fiscales or “Fiscal Oilfields ” an integrated Argentine energy company. This loan to the company is at 8.75% interest for $3.34 Million dollars and we can have a stake in in via the HYEM ETF. On the flip side, it’s hard to convince an American company to take out a 8.75% interest loan on $3.34 million dollars since most AAA rated bonds in America are earning around 3% right now.

 

There is an ETF that tries to invest in the entire world called GAA based on the Global Asset Allocation concept. From cambriafunds.com:

 

The Cambria Global Asset Allocation ETF (NYSE: GAA) utilizes a quantitative approach to manage a diversified portfolio of global asset classes. The Cambria Global Asset Allocation ETF uses a buy and hold strategy that aims to reflect the market portfolio of investable assets.

 

What’s nice is the fund does not in itself have a management fee. It is listed o.oo% for an expense ratio, but in actuality it is around 0.25% because the underlying ETFs have fees in themselves. The description continues on:

 

The Cambria Global Asset Allocation ETF targets investing in approximately 29 ETFs that reflect the global universe of assets consisting of domestic and foreign stocks, bonds, real estate, commodities and currencies.

 

The biggest problem with this GAA ETF is I have $18,000 a year going into TSP which overlaps with a big chunk of it. Luckily all 28 funds are listed in the prospectus, and because I don’t have the requisite one million dollars to start my own ETF, I invite any of my readers to copy this template for a new ETF which is GAA minus any TSP components. I have marked each component accordingly:

 

Symbol Fund Name Category Fund % TSP Overlap
EYLD Cambria Emerging Shareholder Yield ETF Diversified Emerging Mkts 10.49% None
BND Vanguard Total Bond Market ETF Intermediate-Term Bond 7.77% F Fund
PDBC PowerShares Optm Yd DvrsCdtySrt NoK1 ETF Commodities Broad Basket 6.26% None
BNDX Vanguard Total International Bond ETF World Bond 5.04% None
MTUM iShares Edge MSCI USA Momentum Factor Large Growth 4.68% C Fund
VWOB Vanguard Emerging Mkts Govt Bd ETF Emerging Markets Bond 4.66% None
VTI Vanguard Total Stock Market ETF Large Blend 4.55% C and S Fund
VO Vanguard Mid-Cap ETF Mid-Cap Blend 4.48% S Fund
GVAL Cambria Global Value ETF Foreign Small/Mid Value 4.08% None
HYEM VanEck Vectors EM High Yield Bond ETF Emerging Markets Bond 3.99% None
VEA Vanguard FTSE Developed Markets ETF Foreign Large Blend 3.85% I Fund
SOVB Cambria Sovereign High Yield Bond ETF Emerging Markets Bond 3.52% None
SYLD Cambria Shareholder Yield ETF Mid-Cap Value 3.20% S Fund
VNQ Vanguard REIT ETF Real Estate 3.12% None
IPE SPDR® Blmbg Barclays TIPS ETF Inflation-Protected Bond 2.99% None (slight G Fund)
IEF iShares 7-10 Year Treasury Bond Long Government 2.95% G Fund
WIP SPDR® Citi Intl Govt Infl-Prot Bd ETF World Bond 2.94% None
LQD iShares iBoxx $ Invst Grade Crp Bond Corporate Bond 2.92% F Fund
VNQI Vanguard Global ex-US Real Est ETF Global Real Estate 2.78% None
VSS Vanguard FTSE All-Wld ex-US SmCp ETF Foreign Small/Mid Blend 2.04% None
VCSH Vanguard Short-Term Corporate Bond ETF Short-Term Bond 1.96% F Fund
TLT iShares 20& Year Treasury Bond Long Government 1.96% G Fund
BSV Vanguard Short-Term Bond ETF Short-Term Bond 1.96% F Fund
IHY VanEck Vectors Intl Hi Yld Bd ETF World Bond 1.88% None
IBND SPDR® Blmbg Barclays Intl Corp Bd ETF World Bond 1.88% None
FYLD Cambria Foreign Shareholder Yield ETF Foreign Small/Mid Value 1.88% None
JNK SPDR® Blmbg Barclays High Yield Bd ETF High Yield Bond 1.87% None

 

You can see exactly which funds to buy if you wanted to replicate GAA. Just keep in mind it will cost you at least $6.95 on Schwab to trade each ETF. Send me a message once you make this ETF or mutual fund and I will be your first investor. Just put me on your board!

 

-Derp

 

4 Responses to Derp Report ETF: GAA Excluding TSP

  1. MEB is the man. I have greatly lowered my TSP invested amount in US stocks due to the crazy high schiller PE. Instead I upped the still biased but better I fund and in my IRA went to VXUS and VWO. Still missing a ton and limited bonds, but the G fund is almost unfairly good considering its a short term asset with a long term return.

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