Yes, for this very reason, I’ve asked myself if combining classic “linear” leverage with “trending” leveraged ETFs could be advantageous for diversification purposes. Haven’t looked at these instruments in detail though
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Stupid question, but with leveraged ETFs, wouldn’t one be classified as professional trader, leading to having to pay capital gains taxes?
Why would you think that?
There has been pretty extensive discussion on that here (in the various leverage and prof. trader topics) and the conclusion is that it‘s very very unlikely.
There is also not a single known case as far as I‘m aware.
The essence of what constitutes a professional trader still needs to apply.
As long as you are not trading frequently and trying to replace your income, I don‘t see how it will be the case.
You are not breaking any rules directly.
Structured products using options are definitely allowed as well for example. You are just not allowed to use options/derivatives yourself (except for hedging).
If you squint hard enough, maybe the borrowing rule is scratched. But there is also big leeway, you are allowed to borrow to invest, just only up to certain limits (taxable income > interest paid on loan, but you are not holding a loan in that case, as it‘s also with swaps or via futures, so not actually borrowing and so not quantifiable also)
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Yes, I thought one might be classified as such because one of the 5 rules is (not) using leveraged products.
But thanks for explaining!
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Hi
I want to add RSST and maybe RSSB to my portfolio (15% in RSST and 10% in RSSB).
One thing I do not like about RSSB is that it only uses US bonds (so you are not diversified globally). Now I discovered https://www.wisdomtree.eu/de-ch/etfs/efficient-core/ntsg-wisdomtree-global-efficient-core-ucits-etf---usd-acc NTSG which has international bonds.
I might increase from 10% to 15% with either NTSG or RSSB. As I hold RSST I already have EXUS and VFEM in my portfolio as well.
Would you change RSSB to NTSG?
NTSG has 0.31% lower TER
NTSG is a WisdomTree fund, so I can diversify a bit across funds (psychological effect).
RSSB has VT and NTSG uses some WisdomTree ESG index, but for me it looks more or less the same as MSCI World. Am I wrong?
RSSB has emerging markets and 10% more stocks (futures). I expect this 10% more stocks to earn long term around (6% - risk free interest on average (lets assume 3.5%)), so around 0.1*(6%-3.5%) = 0.25%
Since RSSB gives me back the withholding tax I say the overall benefit is about (0.25%-0.31%+0.05% (for withholding tax term) = approximately 0%). But this is dependent on the interest rate (I cannot foresee it).
For NSTG not having emerging markets and small caps I would just increase the portion of VFEM by around 1% (market cap weighted) and neglect small caps.
Do you think RSSB is worth it, since it has 40% more bonds, but only US ones?
Both these ETFs should be tax efficient and only rely on the interest rate change (since I am holding the bond currency and buying future contracts on these bonds). I expect forex gains anyway to be globally around 0%. The interest rate for the 10% cash should be the same for both, I guess.
How can I quantify if these 100% US bonds are better than 60% of international bonds (although 2/3 of them are also US). The gains of the additional leverage come from the rebalancing of market downturns (sell high buy low). What do you think brings long term more return of these two ETFs? Can you explain why?
RSSB does rebalance due to a percent change and NTSG only every quarter. I guess both is not a problem, since I hold future contracts and so the fund can anyways not get margin called and if they would the could just sell their equity to pay the margin call. Am I correct?
Don‘t firget NTSG is a ucits fund, so 15% US withholding tax is lost in any case. Depending on your tax situation, RSSB has a tax advantage for you and that alone will probably negate the TER difference.
Less bang for your buck with less bonds.
The bond allocation is still 80% US.
Only developed countries. So 70% US stocks.
ESG filters (although more exclusions and no weighting I think)
Also NTSG will only have 90% stocks exposure! RSSB will add 10% e-mini futures to get to 100%.
So RSSB is 100% stocks, 100% bonds
And NTSG 90/60
You will almost certainly have a higher longterm return with RSSB. But it‘s also a higher leverage.
That saying, I think NTSG is still a really good fund.
Also you need to consider your overall portfolio and maybe consider in general how much % in bonds you want to target.
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Thanks for the response!
Yes, I am aware that NTSG is a UCITS fund. I am not sure if the withholding tax will negate the TER difference because NTSG had a dividend of 0.99% last year. Assuming 75% US inside there and marginal tax rate of 25% it is just 0.05% net (if it stays like this).
But for these 10% e-mini futures, don’t I have to pay the current Dollar interest rate? So i get stock return minus interest rate?.
Anyways I would also assume that I get a higher longterm return with RSSB.
I just don’t feel very comfortable with having like 50% of my allocation in Return Stacked and Avantis ETFs, since they are not as large as Vanguard, Blackrock, State Street, Invesco etc. So I somehow (irrationally) feel better if I split RSST + RSSB to RSST and NTSG, but I will rethink it.
My goal would be around 10% in bonds right now (but only through leverage, no real bonds).
I also have an Avantis Factor ETF, besides VT and Swiss stocks and plan to hold 10% in Swiss REITs.
Swiss stocks and Swiss REITs I consider as bond proxies, so I need like around 10% more in bonds, which RSSB (10%) and NTSG (15%) would offer.
Due to my personal history and future plans I have more than one year of spending in my emergency fund (I know it is not good, but I feel much better with this).
I personally wouldn’t feel comfortable with a 100% equity portfolio in a market downturn like in 2008, so I am a bit more defensive (cash, REITs and Swiss Stocks and leveraged managed futures and bonds (RSST and NTSG/RSSB) but more aggressive with the other half of my portfolio (factor and leverage (RSST and NTSG/RSSB))).
Would you consider NTSG or RSSB more risky?
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That can‘t be possible. The fund just launched. It did not have any dividend yet.
You will have the 70% x 90%(the equity portion) 1.5% usual US dividend
=0.95% US dividends x 15% = ~0.15%
Yes the interest is embedded on futures price profression, but you also have the 10% collateral yielding the dollar interest rate.
And comoared to risk-free rate the equity risk premium should be way higher, so negligible wither way.
And the e-mini futures have the dividend yield imbedded, and not as taxable distribution.
Reasonable, but Avantis for example has already gotten pretty big and already managing like 40 billion $.
In either case, fund closure risk is relatively unproblematic for us, due to no capital gains tax.
You could also simply have both in your portfolio.
Personally I would choose it according to asset allocation and how to implement it the most capital efficient
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That can‘t be possible. The fund just launched. It did not have any dividend yet.
Yes you are right. It is written there but it does not make sense.
And the e-mini futures have the dividend yield imbedded, and not as taxable distribution.
Good to know. Thanks!
You could also simply have both in your portfolio. Personally I would choose it according to asset allocation and how to implement it the most capital efficient
Good hint!
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