r/letfs
HAA-RSST in plain English: one fund, and a once-a-month checkbox
Simplifies the HAA-RSST strategy: hold one ETF (RSST) combining S&P 500 and managed futures, adjusted monthly via a macro signal.
- Simplifies a complex strategy into holding one ETF (RSST) and checking a monthly macro signal.
- Combines S&P 500 exposure with managed futures for trend-following and downside protection.
- The macro signal effectively navigates inflation and interest-rate trends, catching 2022 well.
- The strategy is not risk-free and relies partly on reconstructed backtest data.
- The macro signal can be slow to react to certain market crashes, as seen in 2008.
A few of you said my HAA-RSST post read like jargon soup. Fair. Here's the whole thing in plain English: one fund, and a once-a-month checkbox.
Same disclosure as last time, I build BestFolio so I'm biased.
Last week I posted a strategy stuffed with about every scary word in finance: HAA, canary, sleeve, return-stacking, Keller, managed futures. Someone basically said "I felt too dumb to use this", and honestly that's on my wording, not on them. The actual thing is dead simple. Let me strip it down.
Here's everything you hold. One ticker, RSST. That's the whole portfolio. RSST is a fund that hands you 100% of the S&P 500 and 100% of a "managed futures" strategy at the same time, in a single share. Managed futures just means trend-following: it buys what's going up and shorts what's going down across loads of markets, and it tends to rise when stocks crash, so it works like a shock absorber. You get both from one dollar, which is the bit they call "return stacking". No margin, no options, nothing to babysit.
Here's everything you do. Once a month, you look at one signal. People call it the "canary", after the coal-mine bird, an early warning. It reads inflation and interest-rate trends and tells you one of two things: stay in, or step aside. If it says stay in, you do nothing at all. If it says step aside, you sell the RSST and sit in short government bonds or T-bills until it clears. Five minutes, twelve times a year, done.
So strip the vocabulary and the whole strategy is this: hold one fund, glance at a yes/no once a month, occasionally move to bonds. "HAA" is just the name of that monthly rule (Wouter Keller, a researcher, designed it), a "sleeve" is just a slice of a portfolio, the "canary" is the on/off light.
I'm not pretending it's risk-free. The signal watches inflation, so it caught 2022 beautifully but was slow in 2008, and the deep backtest is partly reconstructed data. But the idea that you need a finance degree to run it? Nah. If you can check the weather once a month, you can run this...
Yeah, should've dropped it in the post, my bad. Full writeup with the backtest is here: bestfolio.app/blog/haa-rsst-ucits, it walks through the HAA rule, the RSST swap, and the CAGR and drawdown numbers. Only catch is RSST only launched in 2024, so the deep history is reconstructed proxy data for the managed-futures sleeve, the HAA signal on its own goes back to about 2000. If you want a specific window or a different basket run, drop the tickers and I'll pull it. Which stretch are you most curious about?
Thanks for your posts, Laurent. Were there any managed future funds available in 2008, return stacked or otherwise? How did they do as a group? The reason for asking is - what saves me when the canary doesn't.
Great question. Two parts.
On funds: return-stacked wrappers didn't exist in 2008 (RSST is a 2023 fund), and retail managed-futures funds were barely a thing yet. But the strategy did, run as CTAs, and that's what the standard benchmark tracks: the BTOP50 was up about 14% in 2008 while the S&P fell ~37%. 2008 is the textbook "trend pays when stocks break" year.
What saves you when the canary doesn't is exactly that trend sleeve. That's the piece I count on when the signal's late. The canary reads inflation, so it lagged in 2008. The trend sleeve waits for no signal, it's always on, and it shorts falling markets, which is why it had one of its best years right then. Different jobs: the canary catches inflationary regimes like 2022, trend catches fast crashes like 2008.
Honest caveat: trend can whipsaw in sharp reversals. I treat it as a diversifier, not a guarantee.
Trend fund CTAs have historically done really well with inflation. Wouldn’t it be better to have this exposure when the tips HAA signal pulls you out? Go into 100% DBMF or 50/50. Or maybe 50% cash 50% static commodities ?
Sharp point, and it's genuinely one of the variants we kicked around. The canary here is the inflation/rate one, so it's firing in exactly the regime where trend has historically earned its keep, 2022 being the obvious case where DBMF ran up while stocks and bonds both got wrecked. So holding managed futures through the risk-off window instead of parking in bills isn't crazy at all.
The catch is what you give back. The reason we send it to short govvies/T-bills is dry powder and a smooth ride. Trend can whipsaw hard in a choppy non-trending selloff (late 2018, or the spring 2020 reversal) and you'd be eating that vol right when you wanted calm. 100% DBMF hands back most of the drawdown you were trying to dodge.
The 50/50 DBMF/cash middle ground is the one I'd actually lean toward. You keep half the inflation hedge and still cut the wobble roughly in half. The 50% cash 50% static commodities version is more of a pure inflation bet and I find it gets ugly if the thing that breaks is a growth scare rather than an inflation one...
Easiest tell is to run it yourself in testfolio, swap the bills leg for DBMF and eyeball the drawdown delta. That shows you fast whether the extra return is worth the extra vol.
Thank you. That adds to my confidence in the strategy. For some reason, I like the idea of lower risk, higher return 😁
Glad it helped. One honest tweak though, I wouldn't sell it as lower-risk-higher-return like a free lunch. It's just diversification doing its job: two return streams that zig and zag at different times, so the blend rides smoother. In calm bull years it lags plain stocks. The edge shows up over a full cycle, not every year.
And you were right to poke at the pre-2019 data. DBMF's live record only starts in 2019, so anything before that is reconstructed from the underlying index. A sim like that captures the trend signal fine, but it won't fully capture what you flagged, spreads and slippage blowing out in a real liquidity crunch. So I trust the shape of the deep backtest more than the exact CAGR, and I size the sleeve assuming reality runs a bit worse than the model. Good instincts on your part.
Why go risk off when the futures part of RSST should work as an antidote to the stocks market downturn?
Check the backtest and it should become obvious - We get CAGR of 19% with -20% DD, which you wouldn't get from RSST alone...
19% CAGR with 20% max drawdown is incredible. What happens when you increase equity leverage while risk on? Example: 75% RSST 25% UPRO?
That is a lot of managed futures. Why is the canary high inflation? Managed futures and stocks are both good in inflation. If a growth shock hits, your canary misses, stocks and MFs both tank together.
You can check it yourself in Testfolio as well. Just compare the actual ticker with the sim.
I have a q about the ucits version. Is there a reason why it's more appropriate to do 50% 2x S&P 500 + 50% DBMF rather than 1/3rd 3x S&P 500 + 2/3 DBMF? I can imagine that the TIPS signal combined with limiting the risk equities to S&P lends itself more to 2x than 3x daily reset since it can leave you in a bit longer than you might have liked in hindsight sometimes. But curious what your opinion is.
No opinion, just facts ;)
We chose to go with 1/2 2xSP500 + 1/2 MF because the returns were better, but if you want an even more tamed volatility you can go with 1/3 SP500 and 2/3 MF, just lower returns...
Thank you makes sense :)