Beat Stocks -- With Bonds

Beat Stocks -- With Bonds

This story is about an interesting fund that has been around for a while. It is an SPX index fund but instead of buying the stocks it replicates the index with futures contracts.

As the manager puts it in the article each $100 that comes in goes to buy $100 of equity exposure but with less money, futures leverage in action. The rest of the money goes in to bonds for extra yield.

This is similar to an idea I have written about before, but which I did not invent, which is to use zero coupon treasury bonds and index funds.

It works like this, if you have $100,000 you would buy $100,000 face value of zeroes for, maybe, $0.60 on the dollar. Use the remaining $40,000 to buy an index fund. I've usually written about this as a substitute for a variable annuity.