I found this ETF reading Roger Nusbaum blog. When I first saw the name and website, I instantly dismissed it as a marketing stunt. But Roger continued to mention it, so one day I bit the bullet and dug more.
INVESTMENT APPROACH
The Adviser allocates the Fund’s portfolio equally among four baskets of Underlying ETFs designed to track the behavior of four distinct economic regimes. Each regime generally represents approximately 25% of the Fund’s portfolio. The four regimes are:
- Prosperity
- Recession
- Inflation
- Deflation
On a daily basis, the Adviser evaluates each of the Underlying ETFs, considering their performance track record, investment philosophy, and performance consistency and adjusts the Fund’s portfolio in an effort to seek to produce optimal results for the Fund. The Adviser utilizes proprietary software to monitor specific metrics for each basket component in the Fund’s portfolio. If any of these metrics move outside predetermined target ranges, the Fund’s portfolio managers may adjust the Fund’s
portfolio by reallocating assets within the existing basket or replacing a basket component with an alternative Underlying ETF.
The only understandable part of this description is that the ETF goal is to be a risk parity strategy…which makes total sense if you want to be a product for financially independent people. You want to combine growth with a steady enough perpetual withdrawal rate.
What really picked my interest was this:
FIRS has actually delivered some intriguing results. When you compare its returns to the Model Portfolio (over the admittedly brief period we have data) they’re remarkably similar. But here’s the kicker: FIRS did it with meaningfully lower volatility. And during April’s market drawdown? FIRS absolutely crushed it.
How was it possible?
The current ETF breakdown is: bonds 39%, stocks 27%, REITs 4%, gold 18%, bitcoin 10%, trend following 5%, and tail risk 4%.
The manager has complete freedom to change both the underlying funds and their allocations, so what we’re seeing today might not reflect what the portfolio looked like in the past or will look like in the future. That makes it nearly impossible to evaluate the strategy’s historical performance or predict its future behavior.
But let’s try anyway.
The fund has 1.07x leverage (from BTGD), which honestly surprised me. I’ve been so deep in the leverage/return stacking world that I was expecting much more aggressive use of borrowed money. Apparently, the leverage is mainly there to fund the tail risk component: essentially borrowing a tiny amount to pay for portfolio insurance.
What’s more concerning is the heavy focus on active management throughout almost every sleeve. The stock allocation combines funds focused on value with others focused on growth, which feels like the classic “I want the best of both worlds” approach that rarely works in practice.
Even the REIT sleeve is actively managed, which seems unnecessary for an asset class where passive approaches work perfectly well.
But the real red flag for me is this weird bond fund called FIAX that has a “sell options to generate income” strategy. It’s performed worse than plain vanilla AGG so far, and their marketing describes it as “not your grandpa’s bond fund”, exactly the kind of language that makes me nervous. When fund companies start talking about how innovative and different their approach is, it usually means they’re charging you more for worse performance and less transparency.
Looking at this ETF’s asset allocation, I had one of those moments where you squint at something and think, “Wait, I’ve seen this before”. That nearly 20% gold allocation immediately made me realize this is essentially a Golden Butterfly clone with some modern twists.
Looks like I wasn’t too far off:
They’ve taken the ‘traditional’ portfolio allocation and made some tweaks that, on paper, make sense:
The Cash Pivot: Half of what would typically be cash allocation gets moved into a mix of trend-following strategies and REITs. The other half goes into bonds, but these are short-duration bonds, so we’re essentially talking about cash equivalents anyway. This isn’t revolutionary, the Cockroach Portfolio figured this out years ago. Trend Following works when cash is supposed to work and provides convexity; this doesn’t come for free, unfortunately, because TF can also print negative nominal returns.
The Bitcoin Bet: They’ve carved out a portion of the equity allocation for Bitcoin. This is the kind of move that either makes you look like a genius or a fool, depending on when you’re evaluated. It’s a classic, Taleb-style, barbell strategy: make the rest of the portfolio more conservative, then take a concentrated bet on something with massive upside potential.
The Tail Protection: A small allocation to tail-risk strategies, because nobody wants to be the person explaining why they didn’t hedge against the next financial crisis.
Each of these moves has merit.
Here’s where things get interesting, and not in a good way. The trend-following allocation gets implemented through what has been one of the worst-performing trend-following ETFs available (sorry Meb Faber but so far only the Invesco product did worse).
The REITs allocation is another head-scratcher. REITs might have some diversification benefits (shoutout to OutcastBeta for the research), but to me they’re essentially a hybrid of stocks and bonds. Adding 5% might provide some benefit, but it’s not clear it’s worth the additional complexity.
And then there’s Bitcoin. The Nassim Taleb barbell approach has its merits: make 90% of your portfolio extremely conservative, then take wild swings with the remaining 10%. But Bitcoin in a portfolio designed for people living off their investments? I am not sure if it fits the philosophy behind the product.
What I do not like at all are the plethora of active mandates within the ETF and the fact that the manager might be positioned today as a GB but tomorrow can go in a different direction. They state they want to target 25% allocation to each quadrant, but I would rather do it explicitly (as the Cockroach Portfolio) or at least produce content that explains to investors what the ETF is doing regularly.
The real kicker is the fee structure. FIRS charges 50 basis points for what is essentially a fund-of-funds approach, which means you’re paying fees on top of the fees charged by the underlying ETFs. The prospectus mentions that underlying funds are “affiliated,” which could mean fee waivers, but there’s also this delightful disclaimer:
“An investment in the Fund may entail more costs and expenses than the combined costs and expenses of direct investments in the Underlying ETFs.”
Translation: You might end up paying more, not less (maybe they just refer to the already-mentioned 50bps but I am not sure it would require a disclaimer). And there’s another gem about how the adviser has conflicts of interest and might choose one fund over another based on profitability, for the adviser, rather than performance. This is where the whole thing starts to feel like a elaborate shell game. Not only are you not getting a discount for bundling, but the manager might be making decisions based on what’s best for them, not what’s best for you.
This brings us to the fundamental question: Who is this product actually for?
The completely uninformed investor is probably going to stick with something simple like a Vanguard LifeStrategy fund or chase yield with something like JEPI. They’re not going to understand why they need exposure to trend-following strategies or tail-risk hedging.
The sophisticated investor who understands the rationale behind these strategies is probably going to look at the fee structure and conflicts of interest and decide to build the portfolio themselves. Why pay 50 basis points plus underlying fund fees when you can implement the same strategy for a fraction of the cost?
That leaves a very narrow slice of investors who are sophisticated enough to understand the strategy but not sophisticated enough to implement it themselves, and who are willing to pay a premium for the convenience. It’s possible this market exists, but it feels awfully small.
What makes this even more frustrating is the missed opportunity on the education front. The FIRS website has a content section that could be used to explain what the fund is doing and why, but it’s mostly filled with generic FIRE movement content rather than actual portfolio strategy explanations.
Compare this to something like Return Stacked, which produces tons of educational content explaining their approach. If you’re going to charge a premium for active management, you better be prepared to explain what you’re actively managing and why it’s worth the cost.
This whole situation illustrates a broader problem in the ETF world. There’s a constant tension between innovation and practicality, between sophisticated strategies and simple execution. The financial services industry has a habit of taking good ideas and wrapping them in so much complexity and fee structure optimization (for them) that they become almost unrecognizable.
The core insight behind FIRS, that traditional 60/40 portfolios could use some tweaking, is sound. The execution, however, feels like it’s optimized more for the asset manager than for the end investor. And that’s a shame, because the underlying strategies they’re trying to implement aren’t bad ideas.
It feels like the (almost) right product for a financial advisor who is great at planning but needs to hire an outsourced CIO: the niche in which this product might fit is really small indeed.
I am surprised that Roger is more inclined to give this product a go rather than the Return Stacked suite…but maybe I am the one that is biased. It is always good to challenge your ideas, and so far, FIRS is beating the Model Portfolio so…;)
What I am reading now:
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