Love NTSX. When my friends or family members ask what they should put their money in, NTSX is often the answer we come to. Simple, tax efficient, diversified, good returns, appropriate even as a 100% holding... what's not to love?
I agree with your general sentiments here. It's had my interest for a few months already, and I think I may ease into replacing my HFEA portfolio with a combination of NTSX/NTSI.
@@user-tm1kb3fq4m Basically the environment we're in now - high inflation, rising interest rates, and slow economic growth. The fund is leveraged so its downturns would be greater than a standard 60/40 portfolio using intermediate bonds.
@@user-tm1kb3fq4m interest rates rising faster than expected hurts the value of the bonds you currently hold. But you’re right that rising interest rates in the long term bodes well for Ntsx, as higher yields will boost its advantage over SandP 500. In my mind, rising interest rates should be viewed as a good thing by anybody planning to hold Ntsx for longer than it’s average bond duration (about 7 years).
I don’t know if I’m just weird or if the RUclips algorithm isn’t showing you any love. This video should have 100-1,000 times as many views. There’s a mountain of financial videos out there, and yours are better than almost all of them. You’re like the Ben Felix of leverage and individual fund analysis. No hyperbole. No nonsense. Just very clear evidence and reasoning.
Wow thanks so much for the kind words and thoughtful comment, Jason! High praise. Ben Felix is my idol. Glad you've been enjoying my stuff. The attributes you described are definitely the goal for me.
Great video! I really like the concept of NTSX. I really appreciate your channel and the work you do! I also think doing a video on GDE and Wisdom Tree's Gold Leveraged ETF would be helpful. I've always been hesitant to add gold to my portfolio (because of the opportunity cost taking away from other asset classes) but GDE sounds interesting, especially from a Risk Parity strategy and having more uncorrelated assets to US equities.
But please only in a tax-advantaged account. NTFX is fantastic for personal investing where you must pay tax and I am planning to use it instead of traditional bond exposure which you effectively get anyway.
Great video about a little known product more should use. I appreciate your advocacy for leveraged products. As a math major, I know the traditional reason not to use them is volatility drag. It is mathematical rubbish, as should be obvious. Just buying shares is simply a geared investment with a gearing of 1. It suffers from volatility drag. Just why the volatility drag of gearing to 1 should be the optimum is an obvious red flag a professional should see immediately.
Has anyone on this channel looked at the Returns Stacked series of ETFs? RSST, RSSB, and there are a few others. Love the content on the channel and I think it would be a great idea to review these ETFs that have greater capital efficiency advantages. I'd also love to hear about a contrast holding NTSX vs. RSSB or RSST in a taxable portfolio.
I have blog posts on all of them. Videos to follow at some point. RSST - www.optimizedportfolio.com/rsst/ RSBT - www.optimizedportfolio.com/rsbt/ RSSY - www.optimizedportfolio.com/rssy/ RSSB - www.optimizedportfolio.com/rssb/
I like it to replace VTI for my taxable account as it's lower draw down if I need liquidity for any reason. The question is do you add an extended market ETF to get all the market like VTI or just skip it and add a small cap value fund
Hi John. On the issue of tax efficiency, does NTSX not generate repeated taxable events when it turns over bond futures contracts? And if so, how does it remain more tax efficient than VTI? Thanks in advance! You rock!
Yes, but for any gains, the majority are taxed at the long term capital gains rate, regardless of how long the contract is held, as opposed to interest from cash bonds being taxed as ordinary income.
@@OptimizedPortfolio but being a 90/60 fund, does that leave you with the equivalent of turnover of 60% of your assets every year? Thanks for the response!
On tax efficiency, the fund is 60% bond futures, which turn over quarterly I believe. Does that leave you with the equivalent of turnover of 60% of your assets every year? Thanks for the response!
I don't understand how the 90% stock portion is leveraged 1.5x for 60% stocks. It looks like only the bonds are leveraged. Wouldn't a mix of 2x s&p500 and 2x bond etf actually leverage the stock market. Other than preventing drawdowns, shouldn't returns be similar to s&p500?
@@OptimizedPortfolio I'd be curious to hear your thoughts on the relatively much smaller AUM of those ETFs (NTSI, NTSE), and whether or not it discourages you from using those products
@@humich It did originally but their assets have grown pretty significantly since I first wrote about NTSX. I've added a couple updates to that blog post here: www.optimizedportfolio.com/ntsx/
@@OptimizedPortfolio no worries, I was also wondering what you meant by "return stacking". I'm assuming it's just leveraged returns of bonds in addition to equity appreciation which can help during periods of equity under performance?
@@Delta3angle Yea, not sure who exactly coined that term, but it just means "stacking" different sources of return to add up to more than 100% exposure.
@@OptimizedPortfolio is it a bad or good idea to hold 3x leveraged ETFs for years if you’re in the 30’s in age? Has it been backtested on the performance?
@@robinspanier7017 That's your opinion. In recent years, 3x was optimal. Historically, 2x was optimal. Also depends on what else you're holding: ruclips.net/video/lwMHuHE9MzQ/видео.html
How would this outperform in anything other then an environment with falling interest rates? You say it could even outperform in slowly rising rate environments. How? You also mention roll yield? The easy I understand the futures part, this will capture 90% of voo and that's it for upside UNLESS treasury yields move lower. So I understand this as protection from downside due to lack of correlation between the two classes, and that protection is what leads to overall putperformance. I just don't understand how it could outperform in any other environment as it isn't treasuries, its futures and I don't think that have any yield or income.
Bonds handle low and slow rate increases just fine. For 1992-2000, interest rates rose by about 3% and long treasury bonds returned about 9% annualized for the period. For 2003-2007, interest rates rose by about 4% and long treasury bonds returned about 5% annualized for the period. For 2015-2019, interest rates rose by about 2% and long treasury bonds returned about 5% annualized for the period. Yes, imperfect correlation of assets with positive expected returns typically improves outcomes. Not just about "protection." You seem to misunderstand the exposure - it's futures effectively providing a 60% interm. treasury bond position. Yield is not somehow lost. 90% is just straight US large cap stocks; no futures there.
Yes 90/60. Yes long bonds can handle slow rate increases. These aren't bonds. This is a 6x treasury future position. If I understand this correctly, they do not act like a long bond position in terms of yield. The only protection these offer is appreciation based on yields dropping. If you hold a treasury future you do not participate in the treasury interest. So I dint filigree this could outperform overall but I think that outperformance is solely by hedging the downside as in every other environment, futures would act as a drag by not generating amy income the way a actual bond or note or bill would. Please correct me if my understanding of futures is wrong, but this comment serves to correct the idea that this is a leveraged bond position. It is not. PSLDX does this the opposite. Long treasuries which capture income while using futures on the equity portion. Added risk and more expensive leverage, but they do capture coupon payments.
@@jim171 Your understanding is indeed wrong. Forget the word "futures" for a moment. Just think 60% interm. treasury bonds. Perhaps I could have explained this better in my video. You're also wrong on the idea that you "do not participate" in the interest; it's not somehow lost or subtracted from the total return that's priced into a futures contract. That would be silly.
Sorry for delayed response. Was driving. Also thanks for spending time to make sure we're on the same page. Perfectly fine if I'm wrong so long as u are accurate at the end since u reach the masses. I think it's probably better to remove the term treasuries and use the word futures to give a more accurate representation. So when purchasing a future, at what part of the equation is the yield taken into considerarion for the long portion of the open contract? I know the conversion factor is to adjust for different coupons. I actually have a call into CME to try and clarify too since I didn't get that info from the courses. In the grand scheme it probably makes little difference as the bulk of the outperformance would be due to interest rate sensitivity but this would be significantly more appealing if you are correct that the futures contract compensates the long position for interest since they don't actually hold the bond and won't receive anything. Typed a lot so the question was at what stage in the calculation does the coupon payments get factored into the contract?
@@jim171 Total return of the bond is reflected in the change in value of the futures contract (it would make no sense if it didn't), again providing effective exposure of US treasuries with a duration of about 7 years, which we call intermediate. The 10% is T-bills as collateral. Would encourage you to read up on such products and the prospectus of NTSX itself. Also, again, bulk of performance is NOT due to interest rate sensitivity. blog.thinknewfound.com/2017/04/declining-rates-actually-matter/
Thanks, Derek! But remember that by itself, this fund would be for a long-term portfolio so YTD performance means nothing. I also didn't "call" anything, but I'm glad you're enjoying the videos and funds. Thanks for all your comments and support! :)
@@OptimizedPortfolio I looked on Portfolio Visualizer and it lags the index over the life of NTSX by a couple of percent. A 'call' and a 'recommendation' are the same thing...
I really like the concept behind NTSX. What do you think of it?
Love NTSX. When my friends or family members ask what they should put their money in, NTSX is often the answer we come to. Simple, tax efficient, diversified, good returns, appropriate even as a 100% holding... what's not to love?
I agree with your general sentiments here. It's had my interest for a few months already, and I think I may ease into replacing my HFEA portfolio with a combination of NTSX/NTSI.
I have some in NTSX and some in SPD to diversify protection types.
@@user-tm1kb3fq4m Basically the environment we're in now - high inflation, rising interest rates, and slow economic growth. The fund is leveraged so its downturns would be greater than a standard 60/40 portfolio using intermediate bonds.
@@user-tm1kb3fq4m interest rates rising faster than expected hurts the value of the bonds you currently hold. But you’re right that rising interest rates in the long term bodes well for Ntsx, as higher yields will boost its advantage over SandP 500. In my mind, rising interest rates should be viewed as a good thing by anybody planning to hold Ntsx for longer than it’s average bond duration (about 7 years).
I don’t know if I’m just weird or if the RUclips algorithm isn’t showing you any love. This video should have 100-1,000 times as many views. There’s a mountain of financial videos out there, and yours are better than almost all of them. You’re like the Ben Felix of leverage and individual fund analysis. No hyperbole. No nonsense. Just very clear evidence and reasoning.
Wow thanks so much for the kind words and thoughtful comment, Jason! High praise. Ben Felix is my idol. Glad you've been enjoying my stuff. The attributes you described are definitely the goal for me.
@@OptimizedPortfolio came here after watching Ben Felix lol
Glad your making videos again
Thanks! Me too!
Your channel has so much useful information and you’re work ethic is admirable!
Thanks for the kind words, John!
This was a great video on a very interesting topic. Please keep making videos like this
Nick, thanks so much for the kind words! Glad you found it interesting.
Was looking forward to this one!
:)
Great video! I really like the concept of NTSX. I really appreciate your channel and the work you do! I also think doing a video on GDE and Wisdom Tree's Gold Leveraged ETF would be helpful. I've always been hesitant to add gold to my portfolio (because of the opportunity cost taking away from other asset classes) but GDE sounds interesting, especially from a Risk Parity strategy and having more uncorrelated assets to US equities.
Great suggestion!
Love the content. When you get a chance I would like to see you cover VEA, VWO, VTEB, SCHB, SCHF, SCHE, and SCHD.
Thanks! I've got a couple of those here: www.optimizedportfolio.com/vea-vwo-vxus/
Another solid vid. Keep up the uploads.
Thanks! Working on being more consistent with them this year! :)
Congratulations for the video. With each content a different learning thank you.
Glad you like them!
I use a version of your Ray Diallo all weather 3x leveraged portfolio combined with unleveraged index etfs.
But please only in a tax-advantaged account. NTFX is fantastic for personal investing where you must pay tax and I am planning to use it instead of traditional bond exposure which you effectively get anyway.
Glad to hear it!
Great video about a little known product more should use. I appreciate your advocacy for leveraged products. As a math major, I know the traditional reason not to use them is volatility drag. It is mathematical rubbish, as should be obvious. Just buying shares is simply a geared investment with a gearing of 1. It suffers from volatility drag. Just why the volatility drag of gearing to 1 should be the optimum is an obvious red flag a professional should see immediately.
Thanks, Bill! Agreed!
In the long run, Is the 50% additional bond expected to outperform cost of 50% leverage?
Yes
Very well explained
Thanks!
I saw on your article that you use this in your own portfolio. Example? I didn’t see it in the ginger ale port.
As I noted, it comprises most of my taxable account.
Given current inflation concerns has your opinion on this ETF changed?
No
Has anyone on this channel looked at the Returns Stacked series of ETFs? RSST, RSSB, and there are a few others. Love the content on the channel and I think it would be a great idea to review these ETFs that have greater capital efficiency advantages. I'd also love to hear about a contrast holding NTSX vs. RSSB or RSST in a taxable portfolio.
I have blog posts on all of them. Videos to follow at some point.
RSST - www.optimizedportfolio.com/rsst/
RSBT - www.optimizedportfolio.com/rsbt/
RSSY - www.optimizedportfolio.com/rssy/
RSSB - www.optimizedportfolio.com/rssb/
Thanks for the blog post links!
Do you do content for folks two years from retirement?
Depends on what you're looking for, I guess. I've got blog posts on things like sequence risk, asset allocation, ETFs for retirees, etc.
@@OptimizedPortfolio do now I’m looking for income with new money.
I like it to replace VTI for my taxable account as it's lower draw down if I need liquidity for any reason.
The question is do you add an extended market ETF to get all the market like VTI or just skip it and add a small cap value fund
Either would be a fine option. I prefer to tilt small cap value.
Hi John. On the issue of tax efficiency, does NTSX not generate repeated taxable events when it turns over bond futures contracts? And if so, how does it remain more tax efficient than VTI? Thanks in advance! You rock!
Yes, but for any gains, the majority are taxed at the long term capital gains rate, regardless of how long the contract is held, as opposed to interest from cash bonds being taxed as ordinary income.
@@OptimizedPortfolio but being a 90/60 fund, does that leave you with the equivalent of turnover of 60% of your assets every year?
Thanks for the response!
On tax efficiency, the fund is 60% bond futures, which turn over quarterly I believe. Does that leave you with the equivalent of turnover of 60% of your assets every year?
Thanks for the response!
Sort of, but futures have pretty favorable tax treatment. This is explained in detail in the fund's prospectus.
Good job
Thanks
I don't understand how the 90% stock portion is leveraged 1.5x for 60% stocks. It looks like only the bonds are leveraged. Wouldn't a mix of 2x s&p500 and 2x bond etf actually leverage the stock market. Other than preventing drawdowns, shouldn't returns be similar to s&p500?
As noted, the stocks portion is not leveraged. It's just 90% straight large caps. Effective exposure is 90% stocks, 60% bonds.
Any chance we could get a video on NTSI and NTSE?
Probably not. They're the same thing as NTSX except they're for ex-US Developed and Emerging markets respectively.
@@OptimizedPortfolio I'd be curious to hear your thoughts on the relatively much smaller AUM of those ETFs (NTSI, NTSE), and whether or not it discourages you from using those products
@@humich It did originally but their assets have grown pretty significantly since I first wrote about NTSX. I've added a couple updates to that blog post here: www.optimizedportfolio.com/ntsx/
@@OptimizedPortfolio no worries, I was also wondering what you meant by "return stacking". I'm assuming it's just leveraged returns of bonds in addition to equity appreciation which can help during periods of equity under performance?
@@Delta3angle Yea, not sure who exactly coined that term, but it just means "stacking" different sources of return to add up to more than 100% exposure.
What is considered young for holding 3x leveraged ETFs for 3-5 years?
What?
@@OptimizedPortfolio is it a bad or good idea to hold 3x leveraged ETFs for years if you’re in the 30’s in age? Has it been backtested on the performance?
@@RicardoHernandez-zr1pw As always, depends on time horizon, goals, and risk tolerance. Backtests don't tell us the future.
@@OptimizedPortfolio it does not depend on time horizons, 3x is too much.
volatility decay removes all benefits. 2x max
@@robinspanier7017 That's your opinion. In recent years, 3x was optimal. Historically, 2x was optimal. Also depends on what else you're holding: ruclips.net/video/lwMHuHE9MzQ/видео.html
How would this outperform in anything other then an environment with falling interest rates? You say it could even outperform in slowly rising rate environments. How? You also mention roll yield? The easy I understand the futures part, this will capture 90% of voo and that's it for upside UNLESS treasury yields move lower. So I understand this as protection from downside due to lack of correlation between the two classes, and that protection is what leads to overall putperformance. I just don't understand how it could outperform in any other environment as it isn't treasuries, its futures and I don't think that have any yield or income.
Bonds handle low and slow rate increases just fine. For 1992-2000, interest rates rose by about 3% and long treasury bonds returned about 9% annualized for the period. For 2003-2007, interest rates rose by about 4% and long treasury bonds returned about 5% annualized for the period. For 2015-2019, interest rates rose by about 2% and long treasury bonds returned about 5% annualized for the period.
Yes, imperfect correlation of assets with positive expected returns typically improves outcomes. Not just about "protection."
You seem to misunderstand the exposure - it's futures effectively providing a 60% interm. treasury bond position. Yield is not somehow lost. 90% is just straight US large cap stocks; no futures there.
Yes 90/60. Yes long bonds can handle slow rate increases. These aren't bonds. This is a 6x treasury future position. If I understand this correctly, they do not act like a long bond position in terms of yield. The only protection these offer is appreciation based on yields dropping. If you hold a treasury future you do not participate in the treasury interest. So I dint filigree this could outperform overall but I think that outperformance is solely by hedging the downside as in every other environment, futures would act as a drag by not generating amy income the way a actual bond or note or bill would.
Please correct me if my understanding of futures is wrong, but this comment serves to correct the idea that this is a leveraged bond position. It is not.
PSLDX does this the opposite. Long treasuries which capture income while using futures on the equity portion. Added risk and more expensive leverage, but they do capture coupon payments.
@@jim171 Your understanding is indeed wrong. Forget the word "futures" for a moment. Just think 60% interm. treasury bonds. Perhaps I could have explained this better in my video.
You're also wrong on the idea that you "do not participate" in the interest; it's not somehow lost or subtracted from the total return that's priced into a futures contract. That would be silly.
Sorry for delayed response. Was driving. Also thanks for spending time to make sure we're on the same page. Perfectly fine if I'm wrong so long as u are accurate at the end since u reach the masses.
I think it's probably better to remove the term treasuries and use the word futures to give a more accurate representation.
So when purchasing a future, at what part of the equation is the yield taken into considerarion for the long portion of the open contract? I know the conversion factor is to adjust for different coupons. I actually have a call into CME to try and clarify too since I didn't get that info from the courses.
In the grand scheme it probably makes little difference as the bulk of the outperformance would be due to interest rate sensitivity but this would be significantly more appealing if you are correct that the futures contract compensates the long position for interest since they don't actually hold the bond and won't receive anything.
Typed a lot so the question was at what stage in the calculation does the coupon payments get factored into the contract?
@@jim171 Total return of the bond is reflected in the change in value of the futures contract (it would make no sense if it didn't), again providing effective exposure of US treasuries with a duration of about 7 years, which we call intermediate. The 10% is T-bills as collateral. Would encourage you to read up on such products and the prospectus of NTSX itself. Also, again, bulk of performance is NOT due to interest rate sensitivity. blog.thinknewfound.com/2017/04/declining-rates-actually-matter/
Down 23% this year and 3 year average return is 7%...Another great call!
Thanks, Derek! But remember that by itself, this fund would be for a long-term portfolio so YTD performance means nothing. I also didn't "call" anything, but I'm glad you're enjoying the videos and funds. Thanks for all your comments and support! :)
@@OptimizedPortfolio I looked on Portfolio Visualizer and it lags the index over the life of NTSX by a couple of percent. A 'call' and a 'recommendation' are the same thing...