Any index is a portfolio of stocks, selected by using some rules. I am wondering what is so special about S&P 500 index, that it is very difficult to beat its performance. It seems to me that, at least theoretically, it is possible to create another index that consistently beats S&P 500. One example is CAPE index that showed outperformance for the last 15 years. Probably some smart ETF try to accomplish that, but I am not sure whether they are successful.

@catch22
I already posted that my curiosity is for worst cases and dip intervals and how it compares with better-understood entities. You might even say known-stabler entities, depending on how one sees SP500 vol and general bond vol.
We all can see how it has done over time the last 3.5y, yes.
Maybe not the best period for comparison, a bull market, but it's all there is.
I have read (from others' posts here) that CAPE has been seriously backtested.
@msf
>> If you assume that the fund has 100% exposure to CAPE
a safe assumption, right?
>> impossible to figure all of them without a lot more data points to work with
Well, for this timespan it is a fair number of datapoints, a dozen or more market gyrations, as that phrase goes. And it's all there is to look at; I did not leave anything out.
So au fond I am not seeing that it has any more dynamic range and slope steepness than conventional investments. I do not see how M* calculates its downside capture figure. I do not see how the funds' evidently successful and exact derivatives' deployment really has much to do with its potential problems.
>> equity exposure is less than 100% (and possibly varying),
how likely is this, given goal of tracking CAPE?
>> or the bond return isn't as stable as Doubleline said,
and how likely is it they are fudging that?
Obvs all I am trying here is to address the 'if it sounds too good to be true it must be yada yada '. DSENX / DSEEX have consistently and seriously outperformed both SP500 and CAPE, and use a recipe that simply appears too good to be true. That's all. I ain't complaining. With more than half my nut in it, I am trying to be wary and plan in advance.
I figured this place of all places might be able to discuss worst cases vs, and potential worse situations than, some conventional and comprehensible concoction of LV blend + broad bonds.

@davidrmoran
This linked chart is CAPE and SPY and DSEEX back to October 2013.
Total returns for this period are:
CAPE = 61.9%
SPY = 44.7%
DSEEX = 70.4%
What else are you attempting to compare?
http://stockcharts.com/freecharts/perf.php?CAPE,SPY,DSEEX&n=870&O=011000

I didn't try to analyze this too much because, as you noted, there are only a few data points. There are a lot of variables - how the bond portion moves, the overhead of the leverage (the cash payments that need to be made on the swaps), to what extent (0-100%) the fund has exposure on the CAPE side and on the bond side.
Trying to infer all these values is likely going to overfit the data - in plain English, tell you nothing. It's like trying to solve for two variables with one equation (x + y = 10). You can come up with any number of solutions that "work", but you don't know what the real values are.
The problem is made worse, again as you noted, by having little downside data.
FWIW, Doubleline claims that the bond side returns have been fairly steady, at 2.87%, according to their Feb 7th webcast summary.
If you assume that the fund has 100% exposure to CAPE, and a constant annual leverage cost of N%, then the return for a given month should be:
CAPE (mo) + 2.87%/12 - N%/12
I don't think this fits that well. So either the leverage cost is changing (given fairly stable interest rates, that's not where I'd look), or the equity exposure is less than 100% (and possibly varying), or the bond return isn't as stable as Doubleline said, or ...
You begin to see what all the variables are and why it's impossible to figure all of them without a lot more data points to work with.

Okay, for all valleys from mid-2015 on to the present, the performance and tracking of DSENX are as above: usually better than CAPE, a little, occasionally worse, a little, while always the same as or better than SP500. EXCEPT for October and November of last year, when performance consistently was marginally worse than CAPE and also worse than or equal to SP500.
All of this investigation is of growth of $10k.

It's 55% of my entire investment net.
To some degree I understand on paper what it does. What I am still trying to get my mind around are worst-case scenarios and how it would compare with some combo of conventional LV and broad bonds. The leverage explanations are interesting but the msf conclusion
>> think this as a 2x leveraged fund.
and the downside capture ratios that M* lists are confusing to me in terms of its actual performance.
I have begun analysis of every 2-week or longer dip since inception as compared w/ CAPE and w/ SP500. I am through 2014 and into the beginning of 2015, with the more recent years tk.
Thus far all that I see, from a sample of seven such dips, is as follows:
- no delta to speak of, though leveler (smoother) performance than SP500
- smooth outperformance, small, marginal
- smooth underperformance, small, marginal (only one of these valleys thus far)
- first one and then the other, smooth underperformance followed by smooth outperformance, with the result, at the end of the recovery point, higher than CAPE, which is higher than SP500.
Now, since its inception, 4.5y ago, it is true that we have not had long or deep dips ("drawdowns"), so this investigation of mine may not speak to what one can comparatively anticipate in a plummet of length. But thus far I see no increase in volatility, and depth or speed of drop (insofar as one can tell from M* data).
Maybe it would be the case that during a bad set of months and years it would be better to hold TWEIX [or insert your favored broad index here] with some mysterious bond portion.
But I ain't seein' it, and thus far I ain't finding it either.
Will report further results later, for dips the last two years.

Assuming that Doubleline bond funds behave similarly to DODIX (far from a sure bet, they're more like black boxes), the difference between a 50/50 combo of TWEIX (or CAPE) and DODIX would be due primarily to leverage.
Effectively, $100 of DSENX buys you the movement of $100 of TWEIX and $100 of movement in DODIX. So when both are doing well, you add the two and do better. (BTW, I tried combining CAPE and various Doubleline bond funds to find a Doubleline bond fund that approximated the bond portion of DSENX, but none matched well on a year by year basis).
Likewise, when both TWEIX and DODIX are doing poorly, you add their returns and that's more or less what you'd expect to get from this fund. Suppose TWEIX dropped 20% and DODIX dropped 10%. Your $100 investment in DESNX would move like $100 in TWEIX (dropping $20) and also move like $100 in DODIX (dropping $10).
Because of 100% exposure to each of the funds (thanks to leverage) you'd lose $30, or 30% of your investment. 20% (TWEIX) + 10% (DODIX). If it helps, just think this as a 2x leveraged fund.
Of course there's always slop when leveraging, and the exposure is only up to 100% on the equity and fixed income sides. So this is just a crude approximation. But I think it shows how this fund can amplify simultaneous drops in equity and fixed income.
What you hope is that equity and bonds are out of sync, so that you get some protection. Since equity and bonds are closer to uncorrelated than negatively correlated, sometimes you get that protection, sometimes you don't.

Obviously there has been a lot of discussion regarding this fund and rightfully so given its performance, albeit just 3 years.
I am a recent investor in DSEEX/DSENX and like the price action vs the S&P500. I have read on this and other forums that some feel this fund is NOT a "core" holding unlike an S&P500 idx fund.
Maybe this comparision is not exactly "apples-to-apples" but it does seem to be a fair correlation.
What are your thoughts on this fund as a "core" holding and what percentage-range of your stock holdings should a fund like DSEEX be?
Of course, I recognize everybody's risk tolerance and objectives are different. I am just looking for some guidance and opinions; I am still in the growth stage.
Thank you for any input and thoughts,
Matt

I tend to agree with MikeM that the "black box" thesis is overblown, though with different details.
If you look at DSENX's portfolio, it has full exposure to the Schiller CAPE US sector index by buying total return equity swaps on the index. If you're spooked by all derivatives (including options like covered calls), then by all means stay away. As far as derivatives go, equity swaps seem pretty tame, especially as the counterparty can hedge away the equity risk on its side.
Basically, DSENX pays Barclays and BNP Paribas (two huge investment banks) a large enough cash stream to cover the cost of borrowing money to buy the index equities (should they choose to hedge). The banks can make a profit on their ability to actually raise that money at lower cost, on lending the securities, etc. In exchange for that cash stream, these banks pay DSENX the total return on those equities. (If the portfolio loses money, DSENX has to cover the loss). Alternatively, the banks can use this to reduce their exposure to equities they already have in their portfolio, while simultaneously pocketing that cash stream.
Pretty basic stuff as far as derivatives go. Since DSENX has to put up virtually $0 cash for its equity exposure, it can simultaneously be 100% long in bonds. It uses some of the fixed income to pay the cash stream to the banks, and holds the rest as profits for the fund's investors.
Therein lie the risks. The first risk is in the fact that this is a highly leveraged fund. Not in the traditional sense of investing, say 150% in the market by borrowing, but by investing 100% in equities and 100% in bonds. The prospectus even says this, emphatically (in italics) and explicitly:
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, in each case in an amount potentially up to the value of the Fund’s assets.
Fidelity recognizes this, going so far as to require you to sign a declaration form before it allows you to invest in DSENX. You have to state that you're a sophisticated investor, that you know what you're doing, that you can afford losing 100% of your investment, etc.
The second risk is with Doubleline's style of bond investing. IMHO that's where the black box is. I can't tell you what's going on in their bond funds any more than I can tell you what PIMCO is doing. If you want to trust Gundlach with bonds that's fine, you're buying into his black box.
What I normally expect from this kind of strategy is 100% exposure to the index being tracked, plus a small alpha from a conservatively managed bond portfolio. But what this fund is doing is investing aggressively on the bond side. Hence the outsized returns since inception, a period when both equities and bonds have done well.
Unfortunately, if you buy into the CAPE sector index thesis, there's not a "safe" vehicle to get exposure. You've got this fund which has the risks above, and you have CAPE, which as an ETN has single creditor risk. (You risk your principal if an ETN defaults; you risk only your profits if a total return swap counterparty defaults.)

I'm not really following the "black box" concept being applied to DSENX. It's pretty straight forward it invest in the S&P 500 sectors deemed to have the most value and along with that a fixed income allotment that are swaps and/or derivatives. Heck, most PIMCO funds do that and possibly many other of your favorite fund families. I may not understand the exact formula for DSENX, but I can see the result over the past year+ that I've owned it. Apparently the concept is not for everyone, but that's ok by me. I'm good until the day it doesn't out-perform.
That said, I wouldn't touch the European version now. It would need some kind of track record for me. We can call it 'the same' and "should" have the same edge as the domestic version of CAPE if we want, but prove it first is my philosophy to any brand new fund.

I see @Charles's points. Other recent threads or at least posts speak of ETFs that "change stripes" or purport to follow an index no one has ever heard of. The same could be said of DSENX and DLEUX. Are these funds the equivalent of what in my field used to be called "the latest crazy idea from France"? Needless to say, France has declined in more ways than one and it certainly is not generating any new intellectual fervor. Marine Le Pen is a throwback to populist movements that have often shaken France. Will the CAPE/Schiller craze prove to be no more than the latest crazy idea from Wall Street?
As for investments I don't understand, which seem to be the brain children of financial engineering, I'm leery but fascinated. As for genetic engineering, I'm generally OK but my wife bombards me with links to anti-GMO sites and won't allow GMO food in the house. I mention this because I own DSENX even though I can't fathom the managers' methods and I think GMO products improve the world, all the while not understanding the science. What's a humanities guy to do in this world? Go around the neighborhood and buy shares in businesses I like à la Peter Lynch? I can hear the answer already: buy index funds and keep your nutty ideas to yourself (LOL).

Buy Cape!!

>> I'd prefer not to pay more than $10K for $10K worth of securities.
haha, there goes the system. I'd prefer not to pay any markup ever for anything, cars, groceries, furniture. Actually no, I don't mind; I know that's how the service gets provided. Everything in life should be like VFIAX.
CAPE is an etn. But to switch fruit, since it outperforms VFIAX so consistently, from inception and every interval since, again, who cares?

If I want to buy a $10K interest the Vanguard 500 portfolio, I could pay exactly $10K for VFIAX. Or I could pay a bit more for VOO shares representing the same $10K interest in the portfolio because of the added cost of the spread. I'd prefer not to pay more than $10K for $10K worth of securities.
Regardless of how large or small that added cost is, it is a drawback inherent in the ETF design. Though perhaps it is one that you may not personally care about.
Regarding the size of that spread, Ted's 1 basis point spread is more the exception than the rule. For example, CAPE has a typical spread of 15 basis points. Here's Vanguard's table of spreads on its ETF share class.
With SPY and VFINX Ted is comparing oranges and tangerines (close but still different). The question was what downsides there were to ETFs, not whether ETF 1 was better or worse than OEF 2.
The only way I know to do an apples to apples comparison using concrete funds rather than discussing different attributes of ETFs and OEF is to compare ETF and OEF shares of the same underlying portfolio. Say VFIAX vs. VOO. Since these are shares of the same portfolio, and since they have the same ER, the only factors affecting performance should be due to the nature of the shares and not of the particular fund.
Here's the M* comparison over the past ten years.
As of April 18, 2017, VFIAX'sVOO's cumulative return was 97.23%, while VOO's was 96.59%. That doesn't include dinging VOO for the cost of the spread.
If you add SPY to the M* comparison chart, you'll find its performance was even worse, at 95.66%. But that's because of the design of the fund (cash drag due to UIT structure plus higher ER). Those additional variables confound the data.
A tip for the linkster - to link to a M* page comparing funds, one needs to link to the chart page (there's a "share this chart" link there). The only fund that shows up when one links to a M* performance page is the original fund; the compared funds don't get passed through the link.

Hi @golub1,
I have three hybrid sleeves and with this I just decided to post a description of my sleeve management system along with current holdings which includes area allocations as of April 1, 2017. This does not include the seasonal revision to my portfolio's new overall allocations noted in my above post but it will provide fund holdings that you seek. Come fall, I'll most likely be back to the overall allocations described below.
Old_Skeet's Sleeve Management System
Now being in retirement here is a brief description of my sleeve management system which I organized to better help manage the investments held within mine & my wife’s combined portfolios. Currently, the master portfolio is comprised of two taxable investment accounts, two self directed ira accounts, a health savings account plus two bank accounts. With this, I came up with four investment areas. They are a cash area which consist of two sleeves … an investment cash sleeve and a demand cash sleeve. The next area is the income area which consists of two sleeves … a fixed income sleeve and a hybrid income sleeve. Then there is the growth & income area which has more risk associated with it than the income area and it consist of four sleeves … a global equity sleeve, a global hybrid sleeve, a domestic equity sleeve and a domestic hybrid sleeve. An finally there is the growth area, where the most risk in the portfolio is found and it consist of five sleeves … a global sleeve, a large/mid cap sleeve, a small/mid cap sleeve, a specialty/theme sleeve plus a special investment (spiff) sleeve. Each sleeve (in most cases) consists of three to nine funds with the size and the weight of each sleeve can easily be adjusted, from time-to-time, by adjusting the number of funds and amounts held the exception is the spiff sleeve. By using the sleeve system one can get a better picture of their overall investment landscape and weightings by sleeve and area. In addition, I have found it beneficial to Xray each fund, each sleeve, each investment area, and the portfolio as a whole quarterly. Again, weightings can be adjusted form time-to-time as to how I might be reading the markets along with using an adaptive allocation matrix as an aid to help set the stock allocation weighting. All funds pay their distributions to the cash area of the portfolio with the exception being those in my health savings accounts where reinvestment occurs. With the other accounts paying to the cash area builds the cash area of the portfolio to meet the portfolio’s monthly cash disbursement amount (if necessary) with the residual being left for new investment opportunity. Generally, in any one year, I take no more than a sum equal to one half of my portfolio’s average five year return. In this way, principal builds over time. In addition, most buy/sell trades settle from, or to, the cash area with some net asset value exchanges between funds taking place.
Last revised: 04/01/2017 Master Portfolio
Here is how I have my asset allocation broken out in percent ranges, by area. My neutral allocation weightings are cash 20%, income 30%, growth & income 35%, growth & other assets 15%. I do an Instant Xray analysis on the portfolio quarterly (sometimes monthly) and make asset weighting adjustments as I feel warranted based upon my assessment of the market, my risk tolerance, cash needs, etc. Currently, according to Morningstar Instant Xray, I am about 20% in the cash area, 25% in the income area, 35% domestic stocks area, 15% foreign stocks area & 5% in the other asset area. In addition, I have the portfolio set up in Morningstar’s Portfolio Manager by sleeve and as a whole for easy monitoring plus I use brokerage account statements along with some other Morningstar reports as well.
Cash Area (Weighting Range 15% to 25% with neutral weighting being 20%)
Demand Cash Sleeve… (Cash Distribution Accrual & Future Investment Accrual)
Investment Cash Sleeve … (Savings & Time Deposits)
Income Area (Weighting Range 25% to 35% with neutral weighting being 30%)
Fixed Income Sleeve: BAICX, CTFAX, FMTNX, GIFAX, LALDX, LBNDX, NEFZX, THIFX & TSIAX
Hybrid Income Sleeve: APIUX, CAPAX, DIFAX, FISCX, FKINX, ISFAX, JNBAX, PGBAX & PMAIX
Growth & Income Area (Weighting Range 30% to 40% with neutral being 35%)
Global Equity Sleeve: CWGIX, DEQAX & EADIX
Global Hybrid Sleeve: CAIBX, TEQIX & TIBAX
Domestic Equity Sleeve: ANCFX, FDSAX, INUTX & SVAAX
Domestic Hybrid Sleeve: ABALX, AMECX, DDIAX, FBLAX, FRINX, HWIAX & LABFX
Growth Area (Weighting Range 10% to 20% with neutral weighting being 15%)
Global Sleeve: ANWPX, SMCWX & THOAX
Large/Mid Cap Sleeve: AGTHX, BWLAX & SPECX
Small/Mid Cap Sleeve: PCVAX, PMDAX & TSVAX
Specialty & Theme Sleeve: LPEFX, PGUAX & NEWFX
Spiff Sleeve: VADAX
Total Number of Mutual Fund Positions = 48

FYI: U.S. equities fell on Wednesday as investors assessed the geopolitical landscape. The dollar hit a session low after President Donald Trump told the Wall Street Journal he thought the currency was getting "too strong."
Regards,
Ted
Bloomberg:
https://www.bloomberg.com/news/articles/2017-04-11/asia-set-for-mixed-open-as-tension-spurs-haven-bid-markets-wrap
Reuters:
http://www.reuters.com/article/us-usa-stocks-idUSKBN17E1DI
MarketWatch:
http://www.marketwatch.com/story/us-stock-futures-stay-in-holding-pattern-as-geopolitical-risks-linger-2017-04-12/print
IBD:
http://www.investors.com/market-trend/stock-market-today/stocks-broadly-lower-this-type-of-airline-is-outperforming/
CNBC:
http://www.cnbc.com/2017/04/12/us-markets.html
AP:
http://hosted.ap.org/dynamic/stories/F/FINANCIAL_MARKETS_MARKETS_RIGHT_NOW?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT
WSJ Markets At A Glance:
http://markets.wsj.com/us
SPDRs Sector Tracker:
http://www.sectorspdr.com/sectorspdr/tools/sector-tracker
SPDRs Bloomberg Sector Performance Pie Chart:
https://www.bloomberg.com/markets/sectors
Current Futures: Negative
http://finviz.com/futures.ashx

Hi Guys,
Most financial wizards recommend that some portion of our portfolios should be invested in foreign markets. The obvious question is which markets? There is no obvious answer and it is likely that the answer morphs over time anyway.
I have always liked the checkerboard presentation of returns data over time as a nice statistics summary. If patterns exist, they always escape my interpretations. Here is a Link that presents returns for various countries in that checkerboard format:
https://novelinvestor.com/international-st
Here is a Link to a more recent 2017 detailed report on international market performance as compiled by Credit Suisse:
https://publications.credit-suisse.com/tasks/render/file/?fileID=B8FDD84D-A4CD-D983-12840F52F61BA0B4
Enjoy. I hope you find these references useful when making your investment decisions.
Best Regards

'Manager execution' is different here, right?
CAPE alone has been backtested to '02, fwiw:
http://investwithanedge.com/new-barclays-shiller-cape-sector-rotation-etn
... annualized return [['02-'12]] of +10.8% (adjusting for investor fees) with 19.6% standard deviation. For the same period, the S&P 500 Total Return Index gained +7.2% with a 21.2% standard deviation.

I think counterparty risk is reduced, not eliminated, because in a bear market or some sort of crisis you'd expect the fund was losing even if it wasn't as bad as the S&P. There is no counterparty risk in that case. Of course there's still a risk because the swaps have a time period associated with them so if you're winning and there's a sudden crisis then you could still lose some money. They can manage that risk to some degree but you'd hope they've thought about it and how they'd manage that risk.
I also don't think the leverage is typical leverage risk either. Normally the really big risk with leverage is that you end up with a bigger debt than you have assets. That isn't the case here except in a situation so extreme that the fund isn't able to liquidate bonds in an orderly way to pay losses on the swaps when they expire. Considering the bonds they have, especially a decent chunk of Treasuries, and the fact that their swaps are laddered, my assessment would be that the risk related to being levered is small, not zero, but not something that would concern me.
You're right there are costs to the swaps and the management fee, but the swaps are essentially paper bets as I understand them. That means you're not dealing with a bid-ask spread and you don't have any trading costs for the equity. Considering the impact trying to buy or sell $750 million of a sector fund at the end of a month I guess the savings in this regard aren't insignificant. In addition, if you tried to mimic this yourself, assuming you wouldn't be trading enough volume to affect the market, you would almost certainly incur higher costs than the fund to create the leverage and to trade the etfs, plus whatever small expense ratio the etfs charge anyway.
I think it mostly boils down to whether you believe in the CAPE approach to the equity side and whether you believe in Gundlach (and Sherman) to manage the bond side well. CAPE isn't known for forecasting short-term movements so I wouldn't count on the equity side always being as good as it has been but I wouldn't bet against Gundlach on the bond side.

>> other than the fact it has performed well.
What else is there, ultimately? Plus the method.
I just now looked at the best LCV at M* for 3y and 5y, and graphed IFUTX and TWEIX, their winners, against DSENX since inception (3.5y ago). Outperformance. Also for every other period I could graph, short and longer, it is no contest.
Yes, past performance etc. My question would be how it would do against its category.
I am not comparing it with CGMFX or WEMMX or FRIFX.
As for mimicking, yeah, I also have looked at many bondy ways to augment CAPE and thus far come up short.
So that's the love answer, for me.