According to this Bloomberg story, Doubleline Capital has filed for a cyclically-adjusted P/E (CAPE) ratio -based investment product. It sounds like bonds will be involved as well perhaps in a kind of portable alpha strategy, but it’s difficult to tell…. Perhaps bonds will come into the portfolio when CAPE is high, which would not be portable alpha…..
Here is the filing, which seems like it will be a portable alpha (exposure to the underlying CAPE Index through derivatives combined with an investment in bonds) type of strategy. The CAPE Index overweights the cheapest sectors and underweights the most expensive sectors based on CAPE metrics. Apparently, there is also a momentum component to it that helps it avoid value traps. Key passage below:
Principal Investment Strategies
The Fund seeks total return in excess of the Shiller Barclays CAPE® US Sector TR USD Index (the “Index”). The Fund will seek to use derivatives, or a combination of derivatives and direct investments, to earn a return that tracks closely the performance of the Index. The Fund will also invest in a portfolio of debt securities to seek to provide long-term total return supplemental to the return of the Index. The Fund uses investment leverage in seeking to provide both the Index return and the return on a portfolio of debt securities; it is likely that the Fund will have simultaneous exposures both to the Index and to debt securities, each in an amount potentially up to the value of the Fund’s net assets.
The Fund will normally attempt to create an investment return approximating the Index return using derivatives. For example, the Fund might enter into swap transactions or futures transactions designed to provide the Fund a return approximating the Index’s return. The Fund expects to use only a small percentage of its assets to attain the desired exposure to the Index because of the structure of the derivatives the Fund expects to use. As a result, use of those derivatives along with other investments will create investment leverage in the Fund’s portfolio. In certain cases, however, such derivatives might be unavailable or the pricing of those derivatives might be unfavorable; in those cases, the Fund might attempt to replicate the Index return by purchasing some or all of the securities comprising the Index at the time. If the Fund at any time chooses to invest directly in the securities comprising the Index, those assets will be unavailable for investment in debt instruments, and the Fund’s ability to pursue its investment strategy and achieve its investment objective may be limited.
To the extent use of the above-described derivatives strategy leaves a substantial portion of the Fund’s assets available for other investment by the Fund. The Fund expects to invest those assets in a portfolio of debt instruments managed by the Adviser to provide long-term total return supplemental to the Index return.