When Warren Buffett was about to win his 10-year bet against hedge funds, we proposed that Buffett’s next bet should be against the Investable Benchmarks.
If Buffett would take this bet, it would highlight the extraordinary opportunity for small investors in leveraged income and growth, also known as risk parity.
Income & Growth 3x (IG 3x)
Over the past 5.5 years, the Income & Growth 3x (IG 3x) investable benchmark gained 192% versus 69% for Buffett’s ETF portfolio recommendation, almost triple Buffett’s return.
Extraordinary Performance
While Buffett’s portfolio (90% S&P 500 and 10% cash) outperformed in two of the years, IG 3x outperformed by a larger margin in three of the periods, including a gain of 75% in 2014.
In the first half of this year, leveraged income and growth outperformed again when IG 3x gained 42% versus 17% for the Buffett ETF portfolio.
Risk Control
Leveraged income and growth also delivered a higher return with lower risk. Since 2000, the worst calendar year for Buffett’s ETF portfolio was -32% in 2008. We estimate that IG 3x would have returned -6% that year, with a worst year return of -18% in 2018.
Bottom Line
At times, diversification can be a free lunch, and leveraged diversification can be a free retirement nest egg. Still, past performance can never guarantee future results.
At ETF PM, we recommend investors use caution with risk assets and employ our active risk controls for additional protection.
Contact us today to learn more.
