Episode 392: Small Cap Value Indexes, Managed Futures Butterly, And A Mini-Rant On Bucketeering

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Jan 8, 2025

This discussion dives into the nitty-gritty of small cap value indexes, spotlighting the S&P 600 and its unique profitability filter. It explores how managed futures can enhance the classic Golden Butterfly portfolio, offering a fresh take on asset allocation. Additionally, the podcast unpacks the common pitfalls of bucketing strategies, suggesting that they're more psychological than practical in mitigating risks. Expect insightful debates about finding balance in portfolio strategies and the often-overlooked complexities of withdrawal rates.

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ADVICE

Stock Diversification

Use at least two funds for basic stock diversification: one value-tilted and one growth-tilted.
Check Morningstar's style boxes to determine a fund's growth/value tilt.

INSIGHT

Small-Cap Value ETFs

VIOV is preferred over VBR for small-cap value due to its focus on small-caps and profitability filter.
The S&P 600 index (VIOV) excludes unprofitable companies, unlike the CRSP (VBR) and Russell 2000.

ADVICE

Managed Futures in Golden Butterfly

Explore managed futures as an alternative to short-term bonds in the Golden Butterfly portfolio.
Testfolio offers more managed futures data than Portfolio Visualizer, facilitating portfolio modeling.

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In this episode we answer emails from Kyle, Steve and James. We discuss the three most common small cap value indexes -- S&P 600, CRSP and Russell, modifications to the Golden Butterfly portfolio using managed futures, and the fantasies and follies of portfolio Bucketeering.

Links:

Father McKenna Center Donation Page: Donate - Father McKenna Center

Steve's Modified Golden Butterfly: testfol.io/?s=hJZl3QbaXsj

Merriman's Best In Class ETFs: Best-in-Class ETF Recommendations | Merriman Financial Education Foundation

Kitces Article About Bucket Strategies: Managing Sequence Risk: Bucket Strategies Vs Total Return

Amusing Unedited AI-Bot Summary:

Can equal-weighted ETFs outperform their cap-weighted counterparts? Find out as we break down their impact on factor representation within diversified portfolios, focusing on strategies like the Golden Butterfly. Join me, Frank Vasquez, in our latest episode as I discuss listener questions and share insights on choosing between Invesco's RSP and traditional options like SPY or VOO. I'll also revisit my preference for the small-cap value ETF VIOV over VBR, emphasizing the advantages of the S&P 600 index's unique profitability filter. This episode is packed with knowledge to help you refine your portfolio allocation strategies, with a special focus on the role of managed futures and their influence on compound annual growth rates and drawdowns.

Shatter the myth of bucket strategies as we confront their limitations in mitigating sequence of returns risk. Drawing on Bill Bengen's studies, I argue that excessive cash allocations hinder performance more than they help. We explore the psychological allure of bucket strategies and suggest that true financial security lies in prudent spending rather than complex asset arrangements. Tune in as we offer a fresh perspective on managing your financial future, challenging conventional wisdom and emphasizing smarter, evidence-based approaches to portfolio management. Whether you're a seasoned investor or just starting, this episode promises valuable insights and a chance to rethink traditional investment strategies.

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