RLY strategy and portfolio
SPDR® SSgA Multi-Asset Real Return ETF (NYSEARCA:RLY) is an actively managed fund of funds. It started investing operations on 4/26/2012, has 13 holdings, a distribution yield of 5.50% and an expense ratio of 0.50%. Distributions are paid quarterly.
“Real Return” is defined as a rate of return above the rate of inflation, consisting of capital appreciation and current income.
As described by SSGA, the fund’s objective is
to provide exposure to domestic and international inflation protected securities, real estate securities, commodities, infrastructure companies, and companies in natural resources and/or commodity businesses which may include agriculture, energy, and metals and mining companies as well as industrial, and utility companies.
The investment process relies on a proprietary quantitative model as well as fundamental views regarding factors that may not be captured by the quantitative model.
The exchange-traded fund, or ETF, invests in these securities through ETPs (exchange-traded products). Some of them may gain exposure to commodities by using derivatives. I guess that the quantitative model includes tactical allocation rules based on relative strength indicators, but the strategy description offers a lot of flexibility to the fund managers. On the downside, it lacks transparency for investors, like most actively managed funds. The portfolio turnover rate in the most recent fiscal year was 30%.
The table below lists all the fund’s holdings. As of writing, 64.3% of asset value is invested in equities related to natural resources, energy, metals and infrastructure.
Name |
Ticker |
Weight% |
Asset category |
SPDR S+P GLOBAL NATURAL RESOUR |
GNR |
28.78 |
Equities |
SPDR S+P GLOBAL INFRASTRUCTURE |
GII |
25.48 |
Equities |
INVESCO OPTIMUM YIELD DIVERSIF |
PDBC |
18.72 |
Commodities |
SPDR BLOOMBERG 1 10 YEAR TIPS |
TIPX |
6.67 |
US Treasuries |
ENERGY SELECT SECTOR SPDR FUND |
XLE |
6.26 |
Equities |
SSI US GOV MONEY MARKET CLASS |
– |
5.03 |
Treasuries |
SPDR S+P METALS + MINING ETF |
XME |
3.20 |
Equities |
SPDR FTSE INTERNATIONAL GOVERN |
WIP |
2.54 |
Global Treasuries |
SPDR GOLD MINISHARES TRUST |
GLDM |
2.04 |
Gold |
SPDR DOW JONES INTERNATIONAL R |
RWX |
0.54 |
Real Estate |
SPDR DOW JONES REIT ETF |
RWR |
0.54 |
Real Estate |
VANECK AGRIBUSINESS ETF |
MOO |
0.24 |
Equities |
As reported in the next table, valuation and growth metrics of the equity part are much more attractive than the S&P 500 index represented by SPDR® S&P 500 ETF Trust (SPY).
RLY |
SPY |
|
Price/Earnings TTM |
11.82 |
22.64 |
Price/Book |
1.67 |
4 |
Price/Sales |
1.19 |
2.58 |
Price/Cash Flow |
6.68 |
15.71 |
Earnings growth |
23.19% |
17.47% |
Sales growth |
22.31% |
11.41% |
Cash flow growth |
33.35% |
7.99% |
Performance vs benchmarks
The next table compares performance and risk metrics of RLY since inception with four benchmarks:
- U.S. equities: SPY
- US bond market: Vanguard Total Bond Market Index Fund ETF Shares (BND)
- 60/40 portfolio: SPY, BND
- A Permanent Portfolio inspired by Harry Browne and modeled by an equal-weight portfolio in stocks (SPY), bonds (BND), Treasury bills (BIL) and gold (GLD), rebalanced annually.
Total Return |
Annual.Return |
Drawdown |
Sharpe ratio |
Volatility |
|
RLY |
32.18% |
2.43% |
-37.74% |
0.22 |
12.93% |
SPY |
307.71% |
12.88% |
-33.72% |
0.87 |
14.50% |
BND |
15.53% |
1.25% |
-18.58% |
0.01 |
4.61% |
60/40 |
156.67% |
8.47% |
-21.80% |
0.82 |
9.47% |
SPY, BND, BIL, GLD |
64.90% |
4.41% |
-12.45% |
0.59 |
6.07% |
Calculation by Portfolio123.
RLY has lagged these benchmarks except BND regarding total return and risk-adjusted performance (Sharpe ratio). The permanent portfolio looks the most efficient at reducing drawdowns and volatility (standard deviation of monthly returns). However, most of this period was characterized by a bullish stock market and low inflation. RLY active allocation strategy may perform better in other market conditions.
RLY vs. competitors
The next table compares characteristics of RLY and five other tactical multi-asset funds:
- iShares Core Growth Allocation ETF (AOR)
- iShares Core Conservative Allocation ETF (AOK)
- Strategy Shares Nasdaq 7HANDL Index ETF (HNDL)
- WisdomTree U.S. Efficient Core Fund (NTSX)
- RPAR Risk Parity ETF (RPAR).
RLY |
AOR |
AOK |
HNDL |
NTSX |
RPAR |
|
Inception |
4/25/2012 |
11/4/2008 |
11/4/2008 |
1/16/2018 |
8/2/2018 |
12/12/2019 |
Expense Ratio |
0.50% |
0.15% |
0.15% |
0.96% |
0.20% |
0.50% |
AUM |
$544.04M |
$2.11B |
$685.29M |
$913.33M |
$897.00M |
$646.51M |
Avg Daily Volume |
$4.45M |
$17.69M |
$6.73M |
$2.56M |
$3.37M |
$6.79M |
Turnover |
30.00% |
6.00% |
5.00% |
58.00% |
7.00% |
28.00% |
YTD Price Performance |
-2.65% |
9.65% |
5.03% |
2.41% |
16.18% |
-1.50% |
3 Yr Price Performance |
9.87% |
-0.04% |
-8.31% |
-21.10% |
4.69% |
-21.58% |
Dividend Yield |
5.48% |
2.17% |
2.71% |
6.97% |
1.21% |
2.58% |
Div. Growth 3 Yr (annualized) |
25.93% |
2.18% |
4.86% |
-6.24% |
2.43% |
46.23% |
RLY shows the highest 3-year price return and the second highest 3-year dividend growth rate. However, distributions are dependent on asset allocation and may vary a lot from one year to another, as plotted on the next chart. Despite attractive dividend growth metrics, RLY is definitely not a dividend growth fund.
RLY is also the best performer of this group regarding 3-year total returns.
However, it has been lagging in 2023 to date:
Takeaway
SPDR® SSgA Multi-Asset Real Return ETF is a fund of funds aiming at excess return over inflation. Equities related to natural resources, energy, metals and infrastructure represent almost two thirds of asset value. This equity part has attractive valuation and growth metrics. RLY has outperformed other multi-asset ETFs in the inflationary environment of the last 3 years, which is promising. However, performance and risk metrics since inception still are underwhelming relative to passive multi-asset benchmarks such as “60/40” and “Permanent” portfolios.
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