Return Stacking: How to Get 160% Exposure with $100
Return Stacking: How to Get 160% Exposure with $100
EXECUTIVE SUMMARY
- The Innovation: Traditional investing forces you to choose: “Do I buy Stocks OR Bonds?” Return Stacking asks: “Why not buy Stocks AND Bonds?” It uses capital-efficient vehicles (like Futures or ETFs with embedded leverage) to stack multiple asset classes on top of each other.
- The Mechanics: For every $1 you invest, you get $1 of Stocks + $1 of Managed Futures (or Bonds). This creates a portfolio with >100% exposure (typically 160% to 200%).
- The Goal: It is not to take more risk, but to introduce Diversification that was previously impossible. You can maintain your core Stock allocation while adding a full sleeve of Alts/Bonds to smooth out the ride.
- Authority Baseline: This strategy is validated by the research of Corey Hoffstein and Rodrigo Gordillo, demonstrating that “Stacking” uncorrelated assets increases the Sharpe Ratio significantly.
In 2022, the 60/40 portfolio failed. Stocks fell, Bonds fell. The Return Stacker survived. Why? Because they had a third layer: Managed Futures (Trend) stacked on top. Return Stacking solves the “denominator problem.” It allows you to add defensive assets without selling your offensive assets. According to Team BMT Analysis, this is the future of retail portfolio construction. Source: ReturnStacking.com / ReSolve Asset Management
Scenario: You want Stocks (Growth) and Managed Futures (Crisis Insurance).
- Old Way (The Trade-Off):
You sell 50% of your Stocks to buy Futures.
Portfolio: 50% Stocks / 50% Futures.
Problem: You miss out if Stocks rally. - New Way (The Stack):
You buy an ETF like RSST (Return Stacked US Stocks & Managed Futures).
Portfolio: 100% Stocks + 100% Futures (inside one ticker).
Result: You capture the full Stock rally AND the full Futures protection. You are getting $2 of exposure for $1.
BMT Verdict: Leverage is dangerous when used to buy more of the same asset (e.g., 2x S&P 500). But leverage is prudent when used to buy diversifying assets (e.g., 1x S&P 500 + 1x Bonds). Return Stacking is the latter. It uses leverage to reduce portfolio risk, not increase it.
Sharpe Ratio Comparison
| Portfolio | Sharpe Ratio (Risk-Adjusted Return) |
|---|---|
| Traditional 60/40 | 0.6 |
| Return Stacked (60/40 + 60 Alts) | 0.9 |
*Chart Note: By stacking uncorrelated assets (Alts), you increase the return per unit of risk. The portfolio becomes more robust against inflation and deflation shocks.
Yes, borrowing costs (interest rates) reduce the benefit of stacking. That does not break the ruleโit proves the need for high excess returns. If the cost of leverage is 5%, your stacked asset must earn more than 5%. Historically, Managed Futures and Bonds have cleared this hurdle easily over full cycles.
CRITICAL SCENARIO: The “Correlation” Crash
When diversification fails.
| Market Condition | Stacked Portfolio Outcome |
|---|---|
| Stocks Down, Futures Up (2022) | Protection. The Futures layer profits offset the Stock layer losses. Net result: Flat or Slight Gain. |
| Everything Down (Liquidity Crisis) | Amplified Loss. If correlations go to 1 (Stocks crash, Bonds crash, Trend follows down), leverage hurts. You lose on both layers. (Rare but painful). |
Execution Protocol
Do you want Bonds or Trend?
RSSB: 100% Stocks + 100% Bonds. (Aggressive Balanced).
RSST: 100% Stocks + 100% Managed Futures. (Crisis Hedged).
RSBT: 100% Bonds + 100% Managed Futures. (Defensive).
Don’t buy these on margin. Replace your core holdings. Example: Sell your VTI (Total Stock Market) and buy RSST. You keep your stock exposure but gain a free “Trend Following” hedge.
These funds use swaps/futures, which have a financing cost (SOFR + Spread). If short-term rates spike to 10%, the cost of leverage might outweigh the benefit. In normal rate environments (0-5%), the math works.
This strategy involves structural leverage. If you cannot tolerate tracking error against the S&P 500, stick to simple index funds.
WEALTH STRATEGY DIRECTIVE
- Do This: Use Return Stacking to solve the “low yield” problem of the 60/40 portfolio. By adding a third leg (Alts) without reducing equity exposure, you increase the probability of meeting retirement goals.
- Avoid This: Stacking highly correlated assets (e.g., 2x Tech Stocks). That is just gambling. Stacking only works when the layers are uncorrelated (e.g., Stocks + Trend).
Frequently Asked Questions
Is RSST safe?
It is an ETF, so it has standard regulatory protections. However, it uses derivatives. The main risk is “Manager Risk” (the trend strategy underperforms) and “Interest Rate Risk” (cost of leverage rises).
Can I do this in an IRA?
Yes. These ETFs are fully eligible for IRAs. In fact, they are great for IRAs because they generate short-term capital gains (from futures) that are better sheltered in a tax-advantaged account.
Who invented this?
The concept comes from PIMCO (Portable Alpha) in the 1980s, but “Return Stacking” as a retail framework was popularized by Newfound Research and ReSolve Asset Management in 2020.