Brendan Ruchert-Dixon manages Covestor’s Alpha Trapper and new Beta Blocker portfolios, both of which are long/short ETF models. We recently had a chance to ask Brendan a few questions regarding his models and strategy.
Covestor: You’ve recently launched the Beta Blocker model which, in addition to your Alpha Trapper model, takes long and short ETF positions. What’s the key difference between the two models, and what led you to launch a second model?
BRD: When I opened the Alpha Trapper model last December, my goal was to build a portfolio that maps fairly well to the strategies I try to use in my own accounts, where I take a rather aggressive approach and aim to limit risk mainly via diversification.
My decision to open the Beta Blocker model was motivated by a few things. First, I wanted to develop a model that focuses more on capital preservation, while still aiming for returns beyond what you might see from the typical very conservative portfolio (this does of course involve taking on risk that can cause performance to fall below that typical conservative portfolio).
Secondly, the initial success of the Alpha Trapper model made me realize I should give it a try.
Covestor: These models have performed well so far, especially given the recent market volatility. Could you comment on what elements of your strategy you attribute this to?
BRD: I think the models have held up well because they have been diversified in both the asset classes they hold and in the strategies they depend on to make gains. Both have had fairly large bond allocations in addition to stocks (though as of early August Alpha Trapper is less weighted there). As far as the strategies go, I try to stay open minded and will pursue a range of strategies within the portfolio.
On the long side, this could include the occasional value play (e.g. my purchases of Asta Funding (NASDAQ: ASFI)).
On the short side, I try to find ETFs that are compelling to short simply because of their structure, and that also have broader market conditions working against them at the time. My two favorite examples of these are leveraged ETFs (especially the inverse ones) and futures-base ETFs when they are in contango.
Of course, it’s not always the right move to bet against these ETFs indiscriminately – I always stay mindful of where I think the market is going when I make my bets. To that end, I do my own analysis and read a few newsletters. One plug I’ll make is for John Mauldin – I read his book Endgame last spring and found some very convincing arguments regarding the current and near-future state of economies in the US and around the world.
Covestor: Thanks, Brendan.
BRD: My pleasure.