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  • Tax Alpha: Municipal Bonds Aren’t Always the Best Yielding Option for High Earners

    Executive Summary

    Municipal bonds are often recommended to higher earners by advisors due to their tax benefits (the interest payments are excluded from federal taxes). But, unless you’re living off the income from your portfolio, you could be earning a higher yield by sticking with taxable bond funds held in non-taxable accounts.

    Increasing After-Tax Yields By $4,250 on a $500k Bond Position

    Let’s go through a detailed, hypothetical example.

    Investor Profile:

    Let’s say you and your spouse are in your late 30s and together earn $460,000 a year. This puts you in the 32% federal tax bracket if you’re filing jointly. We’ll ignore the net investment income, state and local tax for now to keep things simple.

    You have $2.5m in total investable assets of which:

    • $1.25m is in tax-advantaged retirement accounts
    • $1.25m is in taxable accounts
    • You are targeting a 60% stocks / 40% bonds allocation across your investments
    • This equates to $1m total in bonds across your account types or roughly $500k in retirement accounts and $500k in taxable accounts

    Investment Options:

    Let’s compare two ETFs that are reasonable municipal and taxable bond equivalents. Here are the the key stats as of Dec 5, 2025 for these two options:

    • The iShares National Muni Bond ETF (ticker: MUB) has a 30-day SEC yield of 3.32%
    • The iShares Core US Aggregate Bond ETF (ticker: AGG) has a 30-day SEC yield of 4.17%

    Note, these two do have slightly different characteristics when it comes to underlying credit risks, overall duration of the fund, etc. But they are similar enough across these traits that many advisors would likely use them interchangeably depending on a client’s tax status.

    Analyzing Pre and Post-Tax Yields:

    Let’s take a look at the numbers.

    Table 1: Pre and Post-Tax Yields Between Bond Fund Types

    iShares National Muni
    Bond ETF (MUB)    		iShares Core US Aggregate
    Bond ETF (AGG)
    Amount Invested$500k$500k
    30 Day SEC Yield
    (as of Dec 5, 2025)    		3.32%4.17%
    Implied Yearly Pre-Tax Payments at 30D SEC Yield$16,600$20,850
    Implied Yearly After-Tax Payments (Assuming 32% Federal Tax Rate)$16,600$14,178

    The table above provides a clear illustration of why many advisors and DIY investors prefer to hold municipal bonds in taxable accounts.

    The after-tax yield (last row) is $2,422 higher than than the taxable bonds since the municipal bond funds are generally exempt from federal taxes. This is despite the pre-tax yield on the taxable bonds being $4,250 more than the muni bonds.

    This is where a lot of advisors or DIY investors would stop the analysis. It’s pretty clear here that this family should put their bond allocation into munis instead of taxable bonds.

    Going One Step Further:

    What if we could keep all of the $20,850 from the taxable bonds instead of paying taxes on it?

    You can do this by treating your accounts as one integrated portfolio rather than two separate taxable vs. retirement account buckets.

    Instead of holding a consistent ratio of 60% stocks and 40% bonds across each of your taxable and retirement accounts, you can optimize by putting your all of your higher yield, higher tax investments (like taxable bond funds) in your retirement accounts and move more of your lower yield, lower tax investments (like stock index funds) into your taxable accounts.

    Let’s illustrate what we’re talking about with another quick table.

    Table 2: Portfolio Allocation Strategies

    Current Portfolio StrategyTax and Yield Optimized Strategy
    Total Stocks & Bonds Across Accounts ($2.5m Total)$1.5m Stocks
    $1.0m Bonds    		$1.5m Stocks
    $1.0m Bonds
    Taxable Accounts
    ($1.25m Total)    		$500k Bonds
    $750k Stocks    		$1.25m Stocks
    $0 Bonds
    Retirement Accounts
    ($1.25m Total)    		$500k Bonds
    $750k Stocks    		$1.0m Bonds
    $250k Stocks

    In the table above, the Current Portfolio Strategy holds a 60% stocks / 40% bonds mix across both their taxable accounts and retirement accounts. The Tax and Yield Optimized Strategy swaps all the bonds out of the taxable accounts in place for stocks.

    The total amount of money allocated to stocks and bonds stays consistent between the two strategies so you can maintain your overall risk profile. We are just moving the bond allocation out of the taxable accounts and into the retirement accounts where they are sheltered from taxes allowing you to capture all of the incremental yield they produce.

    In this case, this strategy means instead of accepting the lower overall yield of $16,600 from the muni bond fund held in your taxable account, you could capture the full $20,850 yield from the taxable bond fund by holding it in your non-taxable account.

    This is what smart, tax-efficient investing is all about.

    Learn more about tax-efficient asset location strategies Links to article about tax-efficient asset location strategies

    Real World Implications

    This was an overly simplified example to help illustrate how tax-smart strategies can improve portfolio yield. In the real world, you would need to take into account other factors such as:

    • The total return of investments outside of the yield
    • What investments you have available in your retirement accounts
    • Capital gains taxes from making large allocation shifts in your taxable accounts
    • The yield on your stock allocations
    • Your specific federal, state, local, and other tax situation

    This, and other analyses like it, are part of the Tax, Portfolio, and Planning optimizations our advisors run for clients assisted by our proprietary Alpha platform.

    Reach out to us if you’d like a complimentary, 30-minute lightweight Diagnostic consultation to learn more about how our unique tech-augmented process helps investors identify high value tax, portfolio, and planning opportunities that other advisors and strategies miss.

    Email us at: [email protected]

    Disclosures:
    This content is for educational purposes only and is not investment, tax, or legal advice. No post is an endorsement of any particular strategy or security. We do not receive any direct payments or commissions for securities discussed in our posts. Employees and clients of Kangpan & Co. may hold positions in securities discussed in posts. Speak with a licensed tax, legal, or financial advisor before making any changes to your investments or financial strategies. Past performance is no guarantee of future returns. Investing involves risk including the loss of capital.

  • Portfolio Alpha: Eliminate Dead Cash to Neutralize Cash Drag

    This post is part of our Portfolio Alpha series where we help investors understand how to find and optimize tax, fee, and performance inefficiencies of their portfolios. We discuss what Dead Cash is, how it impacts a portfolio, and what a self-directed investor can do to help mitigate its effects.

    Dead Cash is unintentional cash buildup held in portfolios that is not being invested. This creates a cash drag on the portfolio, lowering long-term returns. There are numerous reasons this situation comes up such as automatic contributions that weren’t invested, dividends that aren’t being reinvested, etc.

    It’s important to regularly check for these positions and make sure you are investing excess cash intentionally against your long term investment plan and aren’t (literally) leaving money on the table.

    Dead cash could cost larger portfolios thousands a year

    Let’s bring this to life with a quick, illustrative example for a $3m portfolio. The table below shows:

    • How much dead cash (col 2) is sitting in the portfolio at different assumed % rates of dead cash (col 1)
    • How much that dead cash returns each year at varying rates:
      • 0.5% – hypothetical, default low-yielding cash position in an account
      • 3.9% – the 30d SEC yield as of November 19, 2025 on the iShares 0-3 Month Treasury Bond ETF (ticker: SGOV)
      • 9.0% – hypothetical long-term expected return of a diversified portfolio

    Table 1: Illustrative Dead Cash Drag On A $3m Portfolio

    % of portfolio in dead cash$ portfolio in dead cashYrly $ return of dead cash at 0.5%Yrly $ return of dead cash at 3.9%Yrly $ return of dead cash at 9.0%
    0.5%15,000755851,350
    1.0%30,0001501,1702,700
    1.5%45,0002251,7554,050
    2.0%60,0003002,3405,400

    For educational purposes only. All returns and results are hypothetical and do not include the impact of taxes or advisory fees. Individual results will vary based on factors such as positions held and size of portfolio. Past performance is not indicative of future returns. Investing involves risk, including the loss of capital

    This table reveals the opportunity costs of letting dead cash sit uninvested in a portfolio.

    On the low end, $15,000 of uninvested dead cash yielding $75 a year could at least be reinvested into a higher-yield cash equivalent position like SGOV to yield $585 instead. A difference of $510. Not a huge difference, but it at least pays for a nice date night including childcare.

    On the higher end, $60,000 in dead cash yielding $300 a year could be reinvested into a diversified portfolio strategy with a historical 9.0% a year in returns equating to $5,400. A much larger difference of $5,100 which could pay for a multi-day family vacation.

    These are purely illustrative examples, you can and should do your own calculations to understand the impact of any dead cash on your portfolio.

    But the takeaway should be clear: don’t let dead cash sit unutilized.

    Self-managing dead cash

    There are a few tips and tricks for managing dead cash positions if you’re a self-directed investor:

    • Check for dead cash regularly: Make it a part of your monthly or quarterly planning and budget management process to check your investment accounts for dead cash
    • Update your default cash position: Some brokerages let you select what your default cash position will be held in (often called a core position). For example, Fidelity offers SPAXX, a Government Money Market Fund, as a core position option in many of their accounts. This has a 7-day yield of 3.59% as of November, 20, 2025. This helps ensure that if you’ve forgotten to check your dead cash for awhile that it will at least be invested in a reasonable yielding position by default.
    • Set up automatic investments: Some brokerages allow you to set up automatic investments of your contributions and / or your dividends. That means any cash that hits your account will go towards your specified allocations so you don’t need to worry about dead cash.

    Options are different across brokerages so be sure to check to see what yours offers and reach out to a qualified financial advisor if you’re unsure about what to do.

    Our advisors use our Alpha platform to systematically optimize dead cash positions

    We’ve incorporated Dead Cash Optimization into our Alpha platform’s Portfolio Diagnostic module. This helps our advisors systematically check for and quantify the impact of any dead cash positions on portfolios when we onboard new clients. Our advisors then work with these clients to optimize how we use this dead cash to best meet overall financial goals.

    The rest of our portfolio management tools and processes help us minimize dead cash on any portfolios we’re actively managing for clients on an ongoing basis once a client is onboarded.

    Reach out to us to schedule a complimentary, 30-minute Lightweight Portfolio Diagnostic if you’re interested in quantifying the impact of cash, tax, or fee drags on your portfolio’s performance.

    email: [email protected]

    Disclosures:
    This content is for educational purposes only and is not investment, tax, or legal advice. Employees and clients of Kangpan & Co. may hold positions in securities discussed in this post. Speak with a licensed tax, legal, or financial advisor before making any changes to your investments or financial strategies. Past performance is no guarantee of future returns. Investing involves risk including the loss of capital.

  • The Real Risk Of Extreme CAPE Ratios: Missing The Upside Could Cost More Than Avoiding The Downside.

    This post looks at how the S&P 500 performs based on CAPE valuations over a 60+ year horizon. We find there are useful signals in extremes of CAPE valuations but acting on those instances is likely more beneficial when the CAPE is substantially undervalued vs. historical averages rather than when it is substantially overvalued.

    Our systematic investment strategies are continuously informed and optimized by the insights generated from our ongoing research. Learn more about how we engineer different risk and return profiles through factor allocations or how incorporating alternatives such as gold and structured credit can help investors better achieve their investment objectives.

    Most clients and prospects we’ve spoken with over the past few months have expressed frustration with their prior advisors not giving them a straight answer on whether the market is overvalued and what, if anything, should be done about it. We like to use data and analysis to inform our reasoning and guidance to clients so let’s take a look at what one of the popular valuation metrics says about the state of the markets today.

    The Market is Overvalued According to the CAPE Ratio

    The CAPE ratio is one of the datapoints we look at when assessing the state of the market’s valuation and long-term prospects (we are strong believers that investment decisions cannot be made with any singular datapoint). The CAPE divides the current market price of stocks by the average of their inflation-adjusted earnings over the past 10 years. It is essentially a PE ratio that looks beyond just one year of earnings in order to smooth out the bumps in the business cycle.

    October 2025’s CAPE ratio was 39.51 according to Schiller’s latest dataset. This is the 98.7th percentile of all available monthly readings. The only other time the CAPE was higher than this was during the lead-up to the Dotcom crash. So, yes, we think the market is richly valued right now vs. historical levels.

    The CAPE Ratio Can Help Inform Allocation Decisions

    While we agree with most investment research that says it’s impossible to predict short-term stock price movements, we feel one can at least make data-informed decisions about medium to long-term allocation choices. We are going to build a simple algorithm for understanding how investment decisions made using CAPE valuations would have historically performed.

    There has been quite a bit written about what the proper long-term CAPE ratio to use as a baseline is given evolving market dynamics, economic regimes, etc. We like to look at backwards-looking, rolling 30-year windows. We believe this helps to adjust for some of these issues. We see what percentile the CAPE ratio is in vs. the range of readings within the past 30 years. We bucket these percentiles into deciles to simplify the final analysis summary.

    The table below shows the average yearly S&P 500 returns from 1957 through 2024 based on what decile the CAPE reading was at the beginning of January of each year. Specifically:

    • Col 1 is the decile we are analyzing
    • Col 2 shows the average yearly S&P 500 return when the CAPE was < the decile
    • Col 3 shows the average yearly S&P 500 return when the CAPE was >= the decile

    For example, if you look at Decile: 2, the table is saying the average yearly S&P 500 return was 16.5% whenever you invested when the CAPE ratio was below the 20th percentile of the past rolling 30 years. It was 11.1% whenever you invested when the CAPE ratio was greater than or equal to that level. The overall average annual return of the S&P 500 during this time period was 11.8%.

    Table 1: Arithmetic Average Annual S&P 500 Returns Based on Rolling 30y CAPE Decile

    DecileAvg. S&P Return < DecAvg. S&P Return >= Dec
    122.8%10.8%
    216.5%11.1%
    316.9%10.9%
    414.6%11.1%
    514.3%11.0%
    615.8%9.1%
    714.0%10.0%
    813.8%8.1%
    912.0%11.1%

    Disclosures: For educational purposes only. Not investment advice. Past performance is not indicative of future returns. Investing involves risk, including the loss of capital. Rolling 30-year decile analysis by Kangpan & Co., data compiled from Damadoran’s “Historical Returns on Stocks, Bonds and Bills: 1928-2024″ and Schiller’s “US Stock Price, Earnings and Dividends as well as Interest Rates and Cyclically Adjusted Price Earnings Ratio (CAPE) since 1871” datasets.

    Key Insight:
    The data suggests increasing S&P 500 allocations when the CAPE is undervalued is more impactful than decreasing allocations when the CAPE is overvalued

    There are a few things about this chart that stand out to us:

    • All Avg. S&P Return < Dec numbers (Col 2) are higher than the long-term average of 11.8% during the full time period; this suggests it is more important to capture the upside when the stock market is undervalued vs. trying to eliminate the downside risk when the market appears overvalued
    • The 3.4% underperformance relative to the overall 11.8% average of investing when the CAPE is >= Decile 8 is less than the 5.4% outperformance of investing when the CAPE is < Decile 3; once again, supporting the point that it is more impactful to capture the upside of the market when it is undervalued vs. trying to protect the downside
    • That said, this analysis suggests there is still a significant, quantifiable underperformance relative to historical average returns of 3.4% that can be avoided when the CAPE is >= Decile 8; however, the follow-up question is whether the alternative investment options available (in this case, 10-year treasury bonds) are expected to return more than 8.1% a year whenever the CAPE is in this range. We will look at this dynamic more closely in a future post.

    What About Protecting Against Crashes?

    The table below shows the largest drawdowns in the S&P 500 by calendar year from 1957-2024 and whether those drawdowns occurred while the CAPE ratio was within a given decile. This view is useful for understanding which drawdowns could have been avoided by not investing in the S&P 500 when CAPE ratios were >= Decile X.

    For example, the table shows that the -11.9% drawdown in 2001 occurred when the CAPE ratio was in the 9th decile. However, the -22.0% drawdown in 2002 occurred before the CAPE ratio reached this level. Meaning, a strategy that avoids investing in the S&P 500 when the CAPE ratio is at 9th decile would not have protected against that particular event.

    Table 2: S&P 500 Drawdowns Averted By Decile

    Year | DrawdownDecile 9Decile 8Decile 7
    2008 | -36.6%
    1974 | -25.9%
    2002 | -22.0%XX
    2022 | -18.0%XX
    1973 | -14.3%X
    2001 | -11.9%XXX
    1957 | -10.5%X
    1966 | -10.0%XXX
    2000 | -9.0%XXX
    1962 | -8.8%XXX
    Crashes Avoided4/106/108/10

    The most interesting thing to note about this analysis is that none of these decile cutoffs protected against the two largest calendar year crashes that occurred in 2008 and 1974 (though the Decile 7 and 8 cutoffs did offer some protection against the 2000-2002 Dotcom sequence of drawdowns). According to our analysis, you would have had to cut investments off at the 6th decile in order to avoid the 2008 crash and the 3rd decile to avoid every drawdown on this chart. Of course, the problem with expanding those cutoffs so far down means you are giving up substantial, long-term upside for this protection by not being invested in the markets.

    These two tables tell us that the CAPE ratio in isolation is likely best used to understand when to increase allocations to the S&P 500 rather than when to avoid investing in it.

    Reach out to us if you’d like to discuss this analysis in more detail or if you’d like schedule a complimentary 30-minute Portfolio Efficiency Diagnostic Preview if you’re interested in learning how our systematic processes could improve your portfolio’s after-tax returns, optimize it’s reward-to-risk ratio, or incorporate an asset mix that better aligns to your long-term goals.

    email: [email protected]

    Disclosures:
    This content is for educational purposes only and is not investment, tax, or legal advice. Employees and clients of Kangpan & Co. may hold positions in securities discussed in this post. Speak with a licensed tax, legal, or financial advisor before making any changes to your investments or financial strategies. Past performance is no guarantee of future returns. Investing involves risk including the loss of capital.

  • Systematic Factor Optimization: How Quality and Size Can Improve S&P 500 Returns

    We utilize factor exposures and alternatives in the various Core and Augmentation portfolios we manage for our clients. This post explores breaking down the S&P 500 into Large and Quality factors and then highlighting how a mix of these factors has outperformed the S&P 500 since 2006.

    If you enjoy this post, check out our research on how alternatives like gold or structured credit can diversify or augment investment portfolios.

    The S&P 500’s returns have dominated global equity markets in recent years. And the returns of the index itself have been dominated by the largest companies that make up the index. This shouldn’t be too surprising given the S&P 500 is a market-cap weighted index; the returns of the index increase in proportion to the rise in individual market values of the underlying companies. Logically, a company valued at $300 billion that increases in value by 10% will impact the index more than a company valued at $30 billion increasing by 20%.

    This doesn’t mean it’s always the same large companies driving the growth cycle. Decades ago it was the Nifty Fifty, in the late 90s it was internet stocks, and most recently it was the Mag 7. The largest companies in the index can, has, and will change over time as business cycles and trends shift. But the impact the largest companies can have on overall returns during periods of broad market growth remains a mathematical constant.

    What’s driving the rest of the return that’s not accounted for by the largest group of companies? Over the long run, we believe it’s companies that exhibit financial traits that signal they are better-run businesses than other constituents of the index. Traits such as having a good return on equity, low debt, and solid business performance overall. The industry calls these companies “Quality” stocks. And research from institutions such as Morgan Stanley show this Quality factor tends to outperform the S&P 500 over very long periods.

    What if you could create a portfolio strategy that lets you:

    • Systematically invest in the largest companies in the S&P 500 index regardless of which companies they are in any given growth cycle
    • Methodically reduce exposure to lower quality companies in the index so you can focus your investment dollars in the highest quality components

    This is the strategy we we want to explore with the rest of this post.

    Here’s a quick graphic to better illustrate how we want to approach this. Imagine each square below represents one company in the S&P 500. We’ve sorted the companies by Market Cap with the larger companies on the left and smaller companies on the right. At the same time, we’ve also sorted the S&P 500 by Quality with the higher quality companies towards the top and the lower quality companies towards the bottom.

    Figure 1: S&P 500 Stocks Sorted By Market Cap and Quality

    We’re now going to carve out the largest companies and the highest quality companies from this universe to focus our investment on the key factors that we want to be exposed to. There are a number of ways to go about this but let’s use two readily available ETFs:

    • Invesco’s S&P 500 Top 50 ETF (ticker: XLG) – invests in the 50 largest companies in the S&P 500
    • Invesco’s S&P 500 Quality ETF (ticker: SPHQ) – invests in the 100 highest quality companies in the S&P 500 as objectively measured by three fundamental measures: return on equity, accruals ratio and financial leverage ratio

    Our exposure to the components of the S&P 500 using these two ETFs now looks something like this:

    Figure 2: S&P 500 Stocks Selected by Large Market Cap and High Quality Exposures

    We’re not just targeting factors, we are also systematically removing lower-quality components of the S&P 500 that introduce uncompensated risk and return drags on the overall portfolio.

    Historical Performance

    This strategy makes for an elegant visual representation, but how does it perform? We’ve developed a few scenarios to understand how different proportions of Large Market Cap via XLG and High Quality via SPHQ would have done against the S&P 500 overall which we are representing with State Street’s SPDR S&500 ETF (ticker: SPY).

    Each column in the table below represents a different investment strategy with the first column serving as the baseline comparison of being 100% invested in SPY. The next three columns represent different % XLG | % SPHQ ratios. The timeframe covers Jan 2006 (when XLG and SPHQ performance data was first available via Portfolio Visualizer) through Sep 2025.

    Figure 3: XLG + SPHQ vs. SPY Metrics

    We apply this kind of quantified, systematic analysis to every facet of investment management. Reach out to us for a complimentary 30-minute Portfolio Efficiency Diagnostic Preview to learn about how our systematic analyses and processes could help you better optimize your portfolio for your needs.

    email: [email protected]

    There are a few things we’d like to draw your attention towards:

    • Annualized trailing returns tend to increase as the proportion of XLG to SPHQ rises across most of the assessed time periods
    • The reward to risk ratio of the strategy (as measured by the Full Period Return to Stdev metric) also tends to improve as increasing levels of XLG are added relative to SPHQ
    • The 75% XLG / 25% SPHQ portfolio outperformed SPY across every assessed time period and also exhibited a slightly better overall Return to Stdev. As the table below shows, $100,000 invested in SPY in January 2006 would have been worth $773,336 by the end of September 2025. That same amount invested for in a portfolio of 75% XLG / 25% SPHQ over that same time period would have resulted in an ending balance of $818,307.

    Implications

    This is an educational analysis highlighting how selectively weighting a US Large Cap position towards various factors can impact return and risk measures vs. the overall S&P 500 index. However, we do not advocate switching a portfolio’s S&P 500 allocations to a static 75% XLG / 25% SPHQ based purely on this analysis. The past decade has seen a very rapid market cap growth in the largest stocks of the S&P 500 which this strategy would have been well-positioned to capture. As of the date of this post, the top 50 companies make up ~60% of the index’s overall market cap with concentration of the top companies reaching historically high levels according to analysts as firms such as Columbia Threadneedle. A 75% weighting to XLG represents an even greater concentration than the current market weighting.

    We incorporate the insights (not the fixed weightings) from this analysis into the portfolios we manage for our clients. We believe the strategic use of different factor ETFs in general is beneficial for systematically increasing or reducing varying exposures to optimize portfolio outcomes for different investors’ objectives.

    Email us to schedule a complimentary 30-minute Portfolio Efficiency Diagnostic Preview if you’re interested in learning how our systematic processes could improve your portfolio’s after-tax returns, optimize it’s reward-to-risk ratio, or incorporate an asset mix that better aligns to your long-term goals.

    email: [email protected]

    Disclosures:
    This content is for educational purposes only and is not investment, tax, or legal advice. Employees and clients of Kangpan & Co. may hold positions in securities discussed in this post. Speak with a licensed tax, legal, or financial advisor before making any changes to your investments or financial strategies. Past performance is no guarantee of future returns. Investing involves risk including the loss of capital.

  • Portfolio Efficiency Diagnostic: Quantifying Hidden Tax, Fee, and Performance Drags

    This post details our approach to maximizing the after-tax and after-fee efficiency of a client’s investment portfolios using a Diagnostic. Check out our primer posts on Systematic Optimization  and  Diagnostics to learn more about our unique approach to financial advisory.

    Our Portfolio Efficiency Diagnostic examines opportunities to improve after-tax returns across your portfolio while also systematically looking for places to reduce overall fees and performance drags. Industry research shows the optimizations included in this Diagnostic could have a sizable impact on long-term portfolio returns through improvements such as:

    • Tax-Efficient Asset Location: which can result in 0.14 – 0.41% boosts to yearly after-tax returns according to Schwab
    • Tax-Loss Harvesting: that could lead to 1-2% a year in potential tax savings over 10 years according to JP Morgan
    • Fund Type Optimization: which could reduce fees by 0.51% a year, the average difference in fees between mutual funds and ETFs according to Morningstar

    As with all our Diagnostics, our structured approach ensures we are comprehensively examining your situation in a methodical way, quantifying the tradeoffs that matter, and then aligning your path forward to your unique goals. Our Diagnostics evolve over time as we identify additional analyses and Systematic Optimizations through our ongoing research and work with clients.

    Seemingly small efficiency improvements can have significant immediate and long-term impacts on a portfolio’s returns. As the chart below shows, just 0.50% improvement on a $5 million portfolio could result in $25,000 a year in additional after-tax wealth accruing to an investor.

    The Portfolio Efficiency Diagnostic

    Our Portfolio Efficiency Diagnostic currently contains ten primary Systematic Optimizations supported by dozens of detailed analyses as shown in the table below. All analyses and recommendations are provided to the client as part of our deliverable.

    Table 1: Our Portfolio Efficiency Diagnostic as of October 2025

    Systematic OptimizationsSupporting Analyses
    01: Minimize Index Fees– Identify index-tracking funds within portfolios
    – Compare expense ratios and fund fees vs. similar funds
    – Determine cost-savings opportunities from moving to lower fee alternatives
    – See example
    02: Fund Type Optimization– Compare fully-loaded fees on any mutual funds being held with their ETF equivalents
    – Quantify cost impact of switching to lower fee alternatives
    02: Optimize Custodian Fees– Assess trading and brokerage fees across accounts
    – Calculate admin / custodial fees across accounts
    – Determine cost-savings from migrating accounts and providers
    03: Cash Yield– Calculate total cash holdings and corresponding after-tax yield
    – Compare after-tax yield of alternatives
    – Optimize cash positions across accounts to maximize after-tax yield
    – See example
    04: Tax-Efficient Asset Location– Calculate current tax load on equity dividends and bond distributions across accounts
    – Determine potential tax efficiencies from moving higher yield and higher tax investments to tax-advantaged accounts
    – See example
    05: Tax-Efficient Asset Types – Calculate current tax load on fixed income bond fund distributions across accounts
    – Compare potential tax efficiencies from moving to municipal and other tax-advantaged, fixed income instruments
    06: Tax-Loss / Tax-Gain Harvesting– Identify positions and lots with losses
    – Identify positions and lots with gains
    – Quantify opportunities for optimal tax-loss / tax-gain management
    – Determine opportunities for loss deductions and carryovers
    07: Asset Performance Benchmarks– Compare performance of individual, non-index funds to indexed equivalents
    – Understand performance optimization opportunities from moving to passive index equivalents
    08: Portfolio Performance Benchmarks– Compare performance of overall portfolio to common benchmarks i.e. 60/40 or our Core Portfolios to understand performance and risk optimization opportunities
    09: Account Types – Catalog current accounts and types (i.e. tax advantaged vs. brokerage, etc.)
    – Identify any gaps in account types that could improve after-tax results
    10: Contributions and Funding Strategies – Ensure funding and contribution strategies are maximizing after-tax results or aligned to long term goals (i.e. early retirement, withdrawal needs, etc.)

    Client Implementation

    This Diagnostic is available to our financial planning clients as part of their ongoing deep dives.

    If you’re not already a client, you might currently be paying for management and planning that is not delivering these systematic optimizations. The only way to stop the hidden drags in your portfolio is through an objective, rules-based audit.

    Our Portfolio Efficiency Diagnostic is available for a flat-fee engagement (typically $1,000 to $10,000), which is always priced to be significantly less than the expected quantifiable tax and fee savings we identify.

    Stop guessing about your hidden tax, fee, and performance drags and start executing an optimized playbook to address these issues. Email us to schedule a complimentary 30-minute Portfolio Efficiency Diagnostic Preview to learn more about what we could do for you.

    email: [email protected]

    Disclosures:
    This content is for educational purposes only and is not an investment recommendation. Employees and clients of Kangpan & Co. may hold positions in securities discussed in this post. Speak with a licensed financial advisor before making any changes to your investments. Past performance is no guarantee of future returns. Investing involves risk including the loss of capital.

  • Systematic Resilience: Quantitative Diagnostics for Understanding Risk

    This is a brief primer on Systematic Resilience, our processes and diagnostics for quantifying and assessing investment risks. This post will be updated over time as our process evolves.

    We rigorously evaluate the potential risks of investments we incorporate into portfolios, not just the expected medium to long-term returns they may generate. We believe it is impossible to consistently make short term predictions about what the markets will do. But we should at least be well-informed about the risks we are taking with the assets we incorporate into our portfolios.

    We have a series of these risk metrics we look at for investments which include:

    • Valuation: Analyzing the current price of an investment relative to its underlying cashflows (in the case of stocks and bonds) or historical price levels (in the case of commodities or other assets with no cashflows).
    • Risk-Adjusted Returns: Understanding the amount of return we are getting for every corresponding point of risk we are taking. The higher this number the better. The calculation is simply the Return / Standard Deviation. We look across multiple time periods when evaluating this number.
    • Asset Correlations: Assessing how the investment relates to other assets in the portfolio as well as the portfolio overall. The ideal is to find an asset with very low correlation to the rest of the portfolio that provides a strong, Risk-Adjusted Return.
    • Stress Period Performance: Examining how the asset has performed under various adverse market or economic conditions such as the 2022 US Stock and Bond drawdown, 2008 Financial Crisis, etc.
    • Max Drawdowns: Cataloging the largest observed losses over the life of the asset and / or asset class.

    Optimizing the combination of these factors when selecting investments for each client’s needs and risk tolerances is what we call Systematic Resilience.

    We share these metrics openly with our clients and selectively in our ongoing, publicly-facing research. We will be refining and codifying these and other diagnostics into more structured Playbooks as we continue to build our Investment Management practice.

    To learn more about our process or to speak with an advisor, reach out to us at:

    email: [email protected]

    Disclosures:
    This content is for educational purposes only and is not an investment recommendation. Employees and clients of Kangpan & Co. may hold positions in securities discussed in this post. Speak with a licensed financial advisor before making any changes to your investments. Past performance is no guarantee of future returns. Investing involves risk including the loss of capital.

  • Our Core Portfolio Strategies

    This post provides more detail on how we develop a Core portfolio strategy for our clients. This post should also help potential clients better understand how our mindset and approach may be different from the typical advisor.

    The Role of the Core Portfolio

    Designing and managing a Core portfolio is one of the foundational investment management services we provide to clients. As the name implies, the Core portfolio should be the reliable engine to take an investor from where they are today to where they want to be in the future with as minimal drama as possible. The Core portfolio is where an investor will keep the majority of their assets. This means a Core portfolio must adhere to our three key investing tenets:

    • Short term returns for any asset class are unpredictable so a Core portfolio needs to be truly and widely diversified across uncorrelated asset classes
    • Base rates are a strong guide to long-term returns so we should make decisions on which assets to include and in what proportions based on robust historical data that covers a wide range of business and economic cycles; these assets will be held for the long term and rebalanced to target allocations rather than actively traded
    • Avoid permanent losses of capital in this portfolio by focusing on funds of diversified assets and strategies with established, audited track records rather than becoming overly concentrated in individual stocks or securities; we will be methodical in how we administer the portfolio such as minimizing tax drags based on where we locate assets, rebalancing the portfolio, and selecting funds to be included

    The Core portfolio is primarily composed of a customized mix of low-cost, diversified ETFs across the following asset categories:

    • Equities (Stocks): These are the primary drivers of long-term returns within most portfolios. Depending on a client’s comfort with risks and return objectives, we integrate a mix of equities that span different geographies (i.e. US, International) and different factors (i.e. Large Cap Growth, Small Cap Value)
    • Fixed Income (Bonds): These can be used to provide steady income within a portfolio or function as ballast for when equities experience stress periods. Depending on a client’s income needs and risk tolerance we will look to include fixed income options that span a range of durations and credit qualities.
    • Alternatives: These are investments we use to further diversify the mix of Stocks and Bonds in a portfolio ideally seeking to increase returns while reducing overall risks. Assets used here could include commodities such as gold, managed futures, structured credit, etc.

    Our comfort with alternative investments is one of the traits that makes us different from typical advisors. For examples on how we think about how alternatives can improve the return / risk profile of a portfolio, check out our post about gold’s role in portfolio or our post about how structured credit like AAA CLOs can enhance yields.

    While the Core portfolio generally does the bulk of the heavy lifting for an investor, it’s important to point out that we feel investors should have two other types of portfolios to form a well-rounded investment plan: a Cash portfolio and an Augmentation portfolio. The table below highlights key aspects of each portfolio and we will discuss the other two portfolios in more depth in future posts.

    Building a Client’s Core Portfolio

    While there are common building blocks across the Core portfolios we manage, we customize each one to the unique needs and risk tolerances of every client. This is typically done by following three key steps.

    Step I: Understand a client’s goals and timeframes to establish a target return

    In order to determine what return we need from our portfolio, we first need to figure out where we are at and where we are trying to go. Many investors have a vague sense of wanting to “retire earlier” or “build more wealth,” but we need to better quantify those notions in order to create objective targets. Once we know our goals, we can then figure out what return we need from our portfolio. This is something we work closely with our clients to understand before we make any investments.

    Let’s go through an example to help illustrate what we’re talking about.

    The Johnson’s are a family of two working professionals in their mid 40’s with two kids. They currently have an investable portfolio of $1.8 million and want to retire in 10 years with $7.5 million. They expect to be able to add $200,000 a year to their investable assets between now and then.

    Using our dynamic planning tools, we determine together that they will need to earn a return of at least 8.9% a year over the next 10 years to reach their $7.5 million goal.

    We use sophisticated modeling to convert vague goals into objective return targets.

    Illustrative example using Kangpan & Co. planning tools to determine expected asset levels along with associated confidence intervals. Modified for demonstration purposes.

    Step 2: Understand a client’s comfort with risk and return to establish a baseline allocation using traditional assets (i.e. Stock and Bond mix)

    The baseline rate of return of a Core portfolio is predominantly determined by its ratio of Stocks to Bonds. This forms the baseline allocation of the portfolio. Alternatives, which we discuss in the next step, are used to manage the risk profile of a portfolio.

    The table below shows the long-term historical performance and key risk metrics of various mixes of Stocks/Bonds that we pulled together using Portfolio Visualizer’s asset backtesting module. We show tables like this to clients to guide conversations about what baseline mix should be used as a starting point to reach their return goals.

    Each column represents the results for a different mix of Stocks/Bonds with Stocks represented by US Large Caps (a proxy for the S&P 500) and Bonds represented by 10yr Treasuries. For example, the column 100/0 is a portfolio comprised of 100% Stocks and 0% Bonds while the 60/40 column is a portfolio of 60% Stocks and 40% Bonds.

    We can see based on the table that in order for the Johnson family to get their target 8.9% return, they will need to have a portfolio that is somewhere between a 40/60 portfolio (with an 8.5% expected return) and a 60/40 portfolio (with a 9.5% expected return).

    Table 1: Return and Risk Profiles for Various Stock/Bond Portfolio Mixes

    Return and risk profiles for various mixes of stocks to bonds in a traditional baseline portfolio.

    However, in addition to understanding how returns are affected by the mix of Stocks and Bonds in a portfolio, we also use the data in this table to better understand how our clients feel about risk. Specifically we look at data points like how volatile the portfolio is on a year to year basis, how severe downturns have been (the Max Drawdown metric), and how long each portfolio took to recover from those downturns.

    Step 3: Adjust the return and risk profile of the baseline portfolio to the client’s needs by more broadly diversifying the base asset mix and selectively incorporating alternatives

    Our first step identified what minimum return level we need to target in order to help our client reach their goals on the timeline they desire. Our second step gave us a better understanding of how the client views the tradeoffs between risks and potentially higher returns. These prior two steps give us the inputs we need for our final step with a client… fine-tuning the risk and reward ratios of a baseline Stock and Bond portfolio by introducing additional diversifiers.

    Let’s say in our discussion with the Johnson’s in the prior step that they liked the idea of retiring with $8.3 million instead of $7.5 million if they could earn the historical 10.2% returns of an 80/20 portfolio (who wouldn’t?). However, among other issues, they did not like the amount of additional risk that came with that portfolio’s Max Drawdown of -39.2% vs. the 40/60 portfolio’s -19.0%.

    This is where we can use a wider range of funds and alternative assets to help our clients balance the returns they want with the potential risks of a portfolio. In the table below, we are showing a simplified example of enhancing the portfolio with just two additional asset classes:

    • US Small Cap Value: research shows US Small Caps and Value factors tend to outperform US Large Caps over time
    • Gold: an alternative asset class that can help diversify portfolios consisting of Stocks and Bonds

    Strategically incorporating these two additional asset classes allows us to boost backtested returns to the levels of an 80/20 portfolio while having the risk characteristics more aligned to a 40/60 portfolio:

    Table 2: Returns and Risks for Systematically Enhanced Portfolio vs. Stock / Bond Mixes

    Incorporating additional asset class exposures such as US Small Cap Value and alternatives such as Gold to a traditional Large Cap and Bond portfolio can enhance risk-adjusted returns

    This is where the power of being open to incorporating alternatives comes into play for clients – we can better engineer a portfolio’s returns and risks to meet the unique needs and desires of each client.

    We primarily use alternatives in publicly available ETFs rather than private options because they are generally:

    • More transparent: so both our advisors and our clients are clear on what is being added to the portfolio
    • More liquid: the tradability of ETFs makes rebalancing or strategic shifts in allocations much easier to accomplish
    • Lower fee: ETFs tend to (but not always) have lower fees than private funds for similar strategies and implementations

    Real-World Client Implementation

    The example in the prior section is purely illustrative and for educational purposes only. In the real world, we look across a much broader set of investable options across stocks, bonds, and alternatives. The actual individual securities and funds we use to set up our clients’ positions which will have a different return and risk profile from those based on overall asset class returns used in our example.

    Our clients benefit from the ongoing research we conduct for each asset class inlcuding:

    • How the asset class relates to the rest of the portfolio by understanding historical correlations, stress periods, return and risk profile, etc.
    • How different allocation weights affect the overall portfolio’s risk and return metrics across various time periods
    • Our preferred fund or individual security(ies) for gaining access to that asset class

    Our selection process for specific securities we use in portfolios depends on the asset class we are researching and our clients’ specific needs. For examples of some of the factors we consider check out our post on selecting an ETF for S&P 500 exposure or our preferred International funds

    Once a Core portfolio strategy has been developed, we then help clients implement and manage the portfolio on an ongoing basis including:

    • Reporting / Monitoring
    • Rebalancing
    • Tax-Loss Harvesting
    • Adding / Removing Assets Over Time

    Our fees and minimums for designing and managing a Core portfolio strategy can be found in the Service Models & Pricing section of our investing services page. We also work with clients on a flat-fee project basis for those that just want access to our portfolio advice and construction process rather than ongoing management.

    Email us if you’d like to discuss anything in more detail or learn more about our services.

    email: [email protected]

    Disclosures:
    This content is for educational purposes only and is not an investment recommendation. Employees and clients of Kangpan & Co. may hold positions in securities discussed in this post. Speak with a licensed financial advisor before making any changes to your investments. Past performance is no guarantee of future returns. Investing involves risk including the loss of capital.

  • How Gold Enhances Portfolio Returns

    This post examines how incorporating gold into a portfolio of US stocks and bonds can improve overall returns as well as lowering overall volatility. We typically use the analyses shown here, in combination with other data points, to guide conversations with clients about including a gold allocation within their Core portfolios.

    There are numerous reasons investors incorporate gold into their portfolio, but ours come down to the following key points:

    • Gold exhibits very low correlation to stocks and bonds of 0.00 to 0.09 since the 1970s, making it a powerful diversifier to a portfolio primarily made up of those assets1
    • Gold is predominantly priced in US dollars across global markets making it a particularly good hedge position for US-based investors2
    • Gold’s long-term return measured in US dollars from 1971 (after being de-linked from the dollar) to 2023 is 8% outpacing US inflation and various US Treasuries3

    We are also well aware of the arguments against holding gold, but we prefer to focus on what real world data says, not on theoretical criticisms. One of the traits that makes us different from other advisors is our focus on empirical evidence and our willingness to do our own homework.

    We’ll explore each of the points in favor of gold in more detail in future posts. For today, we’re going to spend the rest of this article highlighting the historical impact gold has had on a stock and bond portfolio’s returns and risk metrics.

    Portfolio Analysis

    We used Portfolio Visualizer’s “Backtest Asset Allocation” module to develop the analyses shown in the table below. We’ll look at three scenarios to understand how adding gold affects the return and risk characteristics of a 60/40 portfolio. In each scenario below, the ratio of Stocks to Bonds stays at a consistent 60/40 ratio to each other with Gold representing 0%, 5%, and then 10% of the total portfolio mix.

    Table 1: How Gold Impacts a 60/40 Portfolio – Jan 1972 through Aug 2025

    60% Stocks
    40% Bonds
    0% Gold    		57% Stocks
    38% Bonds
    5% Gold    		54% Stocks
    36% Bonds
    10% Gold
    Topline Metrics
    Annual Return (CAGR)9.48%9.60%9.70%
    Annual Stdev10.11%9.70%9.41%
    Return/Stdev0.930.991.03
    Max Drawdown-28.5%-24.5%-22.5%
    Stress Periods
    Dotcom Crash-18.4%-16.8%-15.2%
    Subprime Crisis-26.4%-24.5%-22.5%
    COVID Shock-9.6%-9.1%-8.7%

    For educational purposes only. Data and analytics via Portfolio Visualizer run on September 29, 2025. Scenarios developed and summarized by Kangpan & Co. Assumes yearly rebalancing and does not include the impact of fees or taxes. Stocks are represented by “US Stock Market,” Bonds represented by “10-year Treasury,” and Gold represented by “Gold.” Stress Periods: Dotcom Crash Mar 2000 – Oct 2022, Subprime Crisis Nov 2007 – Mar 2009, COVID Shock Jan 2020 – Mar 2020. Past performance is not indicative of future returns. Investing involves risk including the loss of capital.

    There are two key takeaways from the chart that we want to highlight for readers:

    • Increasing allocations to Gold result in increasing Annual Returns along with decreasing volatility (as measured by the Annual Standard Deviation) thus improving the overall Return/Stdev ratio
    • Incorporating Gold makes the portfolio more resistant to shocks and stress, lowering the observed overall Max Drawdown of the portfolio and reducing the losses experienced across numerous Stress Periods

    Overall, the data and analysis shows adding gold to a standard portfolio of stocks and bonds tends to increase expected annual returns while decreasing its risk profile.

    Implications for Investor Portfolios

    We feel the table above is a compelling set of data points to argue in favor of including gold allocations within traditional stock and bond portfolios. When we work with clients who have an interest in diversifying their portfolio with gold, we will also help them:

    • Identify the optimal starting allocation based on the rest of their portfolio and their overall risk tolerance
    • Determine how to incorporate gold into their portfolio such as utilizing an ETF vs. holding physical gold
    • Manage the additional complexity of including more assets within their portfolio such as rebalancing, broader tax-loss harvesting, etc.

    Email us if you’d like to discuss anything in more detail or learn more about our services.

    email: [email protected]

    Disclosures:
    This content is for educational purposes only and is not an investment recommendation. Employees and clients of Kangpan & Co. may hold positions in securities discussed in this post. Speak with a licensed financial advisor before making any changes to your investments. Past performance is no guarantee of future returns. Investing involves risk including the loss of capital.
    1. https://www.ssga.com/us/en/intermediary/insights/gold-as-a-strategic-asset-class
    2. https://www.cmegroup.com/openmarkets/metals/2025/Gold-and-the-US-Dollar-An-Evolving-Relationship.html
    3. https://www.suerf.org/wp-content/uploads/2025/03/SUERF-Policy-Brief-1119_Johan-Palmberg.pdf

  • SPY vs. VOO? Don’t Overpay For Your S&P 500 Position

    This is going to be a short one. I’m surprised how often I come across individual investors who hold State Street’s SPDR S&P 500 ETF Trust (ticker: SPY) over Vanguard’s S&P 500 ETF (ticker: VOO). What’s the difference between these two? Not a lot besides fees, at least for the typical medium to long-term investor1.

    As of the date of this post, SPY has an expense ratio of 0.0945% while VOO sits at 0.03%. That means for every $1,000,000 invested in SPY, you are paying $945 a year in fees to iShares. The same amount invested in VOO translates to $300 a year going to Vanguard. This is a $645 a year difference for two very similar products that track the same index.

    Paying the lowest fee for a fund isn’t necessarily the best strategy to pursue when you are looking across different types of strategies. An alternative credit ETF has a different operational setup and risk / return profile than a large cap index ETF. But fees are very important when comparing funds that track the same strategy and index.

    If all things are more or less equal between two ETFs, then the lower fee version should have consistently higher returns roughly equal to the gap in fees. Let’s take a look at the average annual performance for SPY vs. VOO to see if the lower fees on VOO appear to translate to higher returns:

    TickerYTD1yr3yr5yr 10yr
    SPY10.71%15.85%19.40%14.64%14.46%
    VOO10.79%15.96%19.53%14.70%14.57%

    Market price returns are before tax and inclusive of reinvested dividends and net of fund fees as of August 31, 2025. Data from each provider’s website.

    What you see is a pretty consistent 0.06% to 0.13% performance lag from SPY vs. VOO across all time periods above. Other factors can affect performance such as tracking error as well as premiums / discounts to NAV but we believe the fee difference is a significant contributor to the performance difference in this case.

    This is an example where knowing what to do (invest in a low-cost S&P 500 ETF) is not the same thing as knowing how to do it optimally. We focus a lot on the optimal here at Kangpan & Co. since we believe even seemingly small Systematic Enhancements can compound into significant benefits to our clients over time. In this case, it’s not just the $645 a year for every $1,000,000 a client has invested in a S&P 500 tracker. It’s the tens of thousands of dollars that translates into when you consider a) that fee difference is lost to the investor every year and b) those fees lost out on reinvested compounding returns.

    As a reminder, we do not accept commissions or other forms of direct compensation from any third parties. This post is our own unbiased research and analysis.

    Email us if you’d like to discuss anything in more detail or learn more about our services.

    email: [email protected]

    Disclosures:
    This content is for educational purposes only and is not an investment recommendation. Employees and clients of Kangpan & Co. may hold positions in securities discussed in this post. Speak with a licensed financial advisor before making any changes to your investments. Past performance is no guarantee of future returns. Investing involves risk including the loss of capital.

    1. There are other considerations such as differences in liquidity, premium / discount to NAV, etc. that could impact some types of investors such as very active traders

  • Enhancing Short-Term Yields With AAA CLOs

    Wait, CLOs? That sounds vaguely like those things that blew a hole through the economy back in 2008… Close, but it was actually CDOs that contributed to the meltdown. According to VanEck’s William Skol:

    “… not only did CLOs have nothing to do with the Global Financial Crisis, the asset class thrived through the 2008 crisis relative to other fixed income asset classes.”

    Read on if you’re:

    • Looking for ways to increase yield in your portfolio without taking on significant credit risks
    • Interested in alternative credit options available in liquid forms

    As a reminder, we are a fee-only fiduciary advisor and have no compensation arrangements with any of the funds discussed below.

    A Quick CLO Primer

    The love of TLAs (three-letter acronyms) within the financial world plays a part in this confusion between CDOs and CLOs. I spent a summer internship back in the mid-2000s structuring both these and other derivatives, and I still had trouble keeping all the acronyms straight as I was completing my rotation on the desk.

    Collateralized Debt Obligations (CDOs) can be comprised of a variety of debt instruments including unsecured and junior obligations. It was sub-prime mortgage CDOs that played a dominant role in the 2008 collapse. We’re not going to cover CDOs any further in this post.

    Collateralized Loan Obligations (CLOs) are a form structured credit that are generally backed by senior secured loans from corporate borrowers. Senior meaning first in line to be paid if a company experiences financial troubles. Secured meaning they are backed by the company’s assets.

    The underlying loans within a CLO are also usually both liquid and tradable. Each CLO is generally made up of 150-250 individual loans. These loans are then further divided into a layered loss structure called “tranches” where losses are absorbed by each layer in a cascading sequence.

    These layers are rated like other credit instruments from CCC (the riskiest) to AAA (the least risky). In order for AAA-rated CLO tranches to take a loss, all other preceding layers need to have blown out. This makes the AAA-rated CLO tranche a relatively lower risk investment vs. other corporate credit options out there.

    How much lower risk? As the fixed income team at BlackRock points out in their March 17, 2025 article:

    ” … no AAA-rated CLO has ever defaulted.”

    I recommend checking out both the VanEck and BlackRock articles linked above for a more in-depth overview.

    JAAA ETF Overview

    CLOs have been around for decades now but only recently became available in a more easily accessible, liquid ETF form. They come in a variety of versions including those focused just on AAA-rated tranches which is what we’ll spend the rest of this post discussing.

    There are multiple AAA CLO ETFs available (that’s three TLAs in a row if you’re keeping score), but we’ll use Janus Henderson’s (ticker: JAAA) for our analysis which is both the largest by AUM and the one that has been around the longest. Here’s a quick rundown of JAAA’s core attributes:

    MetricJAAA
    Closing Market Price$50.68
    30-Day SEC Yield5.39%
    Net Annual Expense Ratio0.20%
    Number of Holdings453
    Effective Duration (Yrs_0.12
    Returns
    YTD
    1y
    3y
    3.51%
    5.85%
    7.02%

    Via https://www.janushenderson.com/en-us/advisor/product/jaaa-aaa-clo-etf/ ; data as of close on September 17, 2025 except returns which are as of August 31, 2025 and represent total average market-price returns including distributions

    Beyond JAAA’s yield and performance, one of the most important characteristics of JAAA is its very low duration of 0.12 years which (a) gives this fund’s price very low interest rate sensitivity and (b) essentially makes this a floating rate investment.

    We need to put JAAA’s performance in context by comparing against a benchmark asset. Here are a few key traits we need to consider when selecting a comparison asset:

    • A fixed income investment
    • Invested in AAA-rated credits or higher
    • With a very short duration

    These attributes make the iShares 0-3 Month Treasury Bond ETF (ticker: SGOV) a solid contender to compare as the benchmark which is a fixed income product, invested in government debt, with a duration of just 0.09 years. Here are the attributes side-by-side:

    MetricJAAASGOV
    Closing Market Price$50.68$100.57
    AUM$25.2 billion$57.7 billion
    30-Day SEC Yield5.39%4.19%
    Net Annual Expense Ratio0.20%0.09%
    Number of Holdings453na
    Effective Duration (Yrs)0.120.09
    Returns
    YTD
    1y
    3y
    3.51%
    5.85%
    7.02%
    2.1%
    4.51%
    4.80%

    – JAAA data via https://www.janushenderson.com/en-us/advisor/product/jaaa-aaa-clo-etf/
    – SGOV data via https://www.ishares.com/us/products/314116/ishares-0-3-month-treasury-bond-etf
    – Data as of close on September 17, 2025 except returns which are as of August 31, 2025 and represent total average market-price returns including distributions

    A current yield spread of 120 bps and a persistent 134 bps increase in returns vs. short-term treasuries across time periods seems pretty good for a AAA-rated fixed income alternative with similar duration. So what’s the catch?

    JAAA’s Historical Drawdowns

    While the total return for JAAA has exceeded those of SGOV since JAAA’s launch, that return has come with a bit more volatility.

    Unlike short-term treasury funds, short-term AAA CLOs ETFs can and have experienced notable drawdowns due to increased credit exposure and other factors. Let’s explore what these drawdowns have been.

    AAA CLOs have existed for decades but JAAA itself has only been around since October 2020. That means we can only look at a handful of stress periods to get a sense for how well it has held up. The chart below shows the three largest drawdowns for JAAA since launch with the following data points:

    • The start month of each drawdown and the end month when the lowest price was hit for that stress period
    • The Underwater Period which is the length of time between the drawdown start date to when when the investor fully recovered their initial investment inclusive of reinvested distributions
    • The max % total loss experienced (i.e. inclusive of distributions) during the drawdown

    The largest drawdown was during 2022, aka the worst overall bond market since 1949 according to Bank of America and other bond analysts. JAAA’s drop during this time was primarily due to the aggressive rate hikes that resulted in a repricing of CLOs across the board along with increased trading activity among various market participants. However, it’s important to note that the relatively short Underwater Period of 11 months can be attributed to two key factors:

    • The very short duration of JAAA’s holdings which significantly reduces interest rate sensitivity as the holdings mature essentially making its holdings floating rate instruments so as the interest rates ratcheted up, the underlying holdings increased yields with less price impact than many other fixed income investments
    • The underlying changes to NAV were not due to credit issues given none of the holdings defaulted during this time (and, if you recall from earlier, no AAA CLO has ever defaulted as of the date of this post).

    While by no means risk-free, we feel JAAA has held up fairly well under a relatively limited set of stress scenarios. That said, there are other considerations an investor should look into as well when assessing an investment like this such as tax implications, target interest rate exposure, etc.

    Client Portfolio Strategy

    Like many alternatives, AAA CLO ETFs aren’t necessary or even appropriate for every portfolio. Here are common situations where we think about utilizing these investments:

    • Clients with income-centric portfolios that want to enhance their yield within their short-term exposures without taking on significant credit risks
    • Clients with large cash and other liquid holdings that want to further enhance their yield for funds they are not anticipating needing within the next 1-2 years

    There are other situations where we would consider including these liquid alternatives in portfolios based on client needs and risk tolerances which we help clients model out and understand the expected benefits and implications in doing so.

    If you’d like to discuss anything in more detail, reach out to your dedicated advisor if you’re a current client or email us to learn more about our services.

    email: [email protected]

    Disclosures:
    This content is for educational purposes only and is not an investment recommendation. Speak with a licensed financial advisor before making any changes to your investments. Past performance is no guarantee of future returns. Investing involves risk including the loss of capital.

Kangpan & Company LLC is a Registered Investment Advisor with the state of Pennsylvania. All content on this site is for educational purposes only and should not be considered financial advice. Past performance is not indicative of future returns and all investing involves risk including the loss of capital. Individualized responses to persons in a particular state will only be made after complying with all regulatory requirements of that state. Kangpan & Company LLC is not responsible for the content of external websites linked from this site. For a full description of our services, fees, and other important information, please read our Form ADV Part 2A, which are available on the SEC’s website here.