New Stone Ridge interval funds, 1) bitcoin futures, 2) for 65-year-old women only (sort of)

[nisiprius]

I simply report what I found at Stone Ridge Asset Management Funds, one under the "bitcoin futures" tab, one under the "LIFEX" tab.

Background: Stone Ridge Asset Management offers a number of interval funds. Interval funds are not mutual funds. They occupy a middle ground between mutual funds and closed-end funds. They have limited liquidity. There is no secondary market for them. You can't redeem them on demand like a mutual fund. Typically, the fund company hopes or expects but does not promise to make a periodic repurchase offers e.g. every quarter, but they might not make the offer or they might offer to buy only a percentage of your shares. You generally can buy them only through an advisor. They come with tons of disclaimers and warnings. The fact that they are not liquid like a mutual fund makes it possible for them to invest in illiquid assets that mutual funds cannot invest in. The AVRPX, LENDX, and SRRIX (variance, peer-to-peer lending, and reinsurance) interval funds are occasionally discussed in this forum, because of Larry Swedroe's endorsement of them.

The first one is a bitcoin futures fund, BTCNX. It apparently was launched in January, 2020. For those who like this sort of thing, this is the sort of thing they will like. In the words of Forrest Gump, "and that's all I have to say about that."

The second one gives new meaning to the phrase "this fund is not for everyone." OK, I'm joking, but Stone Ridge Longevity Risk Premium Fixed Income Fund 2045 65F is

Only being offered to investors who are women born on or between January 1, 1955 and December 31, 1955.

As you might expect, though, there are forty-two of these funds: Stone Ridge Longevity Risk Premium Fixed Income Fund 2045 65F, 65M, 66F, 66M, and so on up through Stone Ridge Longevity Risk Premium Fixed Income Fund 2045 85F and Stone Ridge Longevity Risk Premium Fixed Income Fund 2045 85M, each being offered only to investors of a specific age and sex. The slicing up is because the price of each fund depends on the buyer's age and sex.

If I understand correctly, and I might not--the fund invests in STRIPS. It makes monthly payments amount to $1 per share per year for 25 years, or until the shareholder dies, whichever comes first. That's a level dollar payout. On death, there is a sort of return-of-premium-like feature: a payment is made equal to the initial purchase price less the total amount of distributions that have been made. The funds cost from $12.81 to $20.98 per share, depending on age and sex. Unlike a typical income annuity, the payments stop after 25 years even if the shareholder is still alive, but they note cheerfully "A significant portion of the Fund’s shareholders are not expected to survive through the Fund Liquidation Date." Even if the shareholder survives, the payments might not continue for 25 years because

If the Fund has insufficient assets to make its monthly distributions before the Fund Liquidation Date, however, the Fund will liquidate early.

There is a gigantic disclaimer:

The Fund is not an annuity or other type of insurance contract, consequently:

• Distributions provided by the Fund are not guaranteed or otherwise backed by an insurance company or by any third party.
• Therefore, if the Fund is wrong in its assumptions or actuarial estimates or the Fund’s investments lose money, then at any time, you may not receive monthly distributions as described below, and you may lose any or all of your investment that has not already been distributed to you.

[cheezit]

The first one is a bitcoin futures fund, BTCNX. It apparently was launched in January, 2020. For those who like this sort of thing, this is the sort of thing they will like. That is all I am going to say.

I have zero interest in investing in bitcoin and even less interest in investing in bitcoin futures contracts, but for curiosity's sake I'd like to ask the finance wizards on this forum a pair of related questions:

1) A priori, should the 'normal' state of bitcoin futures be backwardation or contango?

2) Should the expected roll return for this type of fund be positive or negative?


The reason I ask is because my mental model of bitcoin is fuzzy with regards to whether it ought to act like a currency, a commodity, or something else.

[aristotelian]

I am very glad I don't have any money there. I wonder if Larry Swedroe is still recommending them.

1) A priori, should the 'normal' state of bitcoin futures be backwardation or contango?

2) Should the expected roll return for this type of fund be positive or negative?


The reason I ask is because my mental model of bitcoin is fuzzy with regards to whether it ought to act like a currency, a commodity, or something else.

This probably deserves a separate thread but I see Bitcoin speculation as similar to currency speculation. I don't know any reason why you would expect positive or negative return.

[whodidntante]

If one wants to own bitcoin futures, it is really simple to do. You don't need a fund, or to pay a fund's ER, or to pay an advisor. You also wouldn't have fund trading restrictions. You could liquidate your entire position now, for example.

[JamesDean44]

I am very glad I don't have any money there. I wonder if Larry Swedroe is still recommending them.

1) A priori, should the 'normal' state of bitcoin futures be backwardation or contango?

2) Should the expected roll return for this type of fund be positive or negative?


The reason I ask is because my mental model of bitcoin is fuzzy with regards to whether it ought to act like a currency, a commodity, or something else.

This probably deserves a separate thread but I see Bitcoin speculation as similar to currency speculation. I don't know any reason why you would expect positive or negative return.

Recommending particular funds is different than recommending all of a company's funds.

[nisiprius]

If one wants to own bitcoin futures, it is really simple to do. You don't need a fund, or to pay a fund's ER, or to pay an advisor. You also wouldn't have fund trading restrictions. You could liquidate your entire position now, for example.

What do you make of the schedule of investment, reported April 30th, page 3 of the semiannual report? I see exactly two futures contracts. I see about $4.6 million (yes, million with an "m") in money market funds and Treasury bills. But I see $2.4 million in "reverse repurchase agreements," and, ummm... what exactly are we looking at, here?

[Steve Reading]

The first one is a bitcoin futures fund, BTCNX. It apparently was launched in January, 2020. For those who like this sort of thing, this is the sort of thing they will like. That is all I am going to say.

I have zero interest in investing in bitcoin and even less interest in investing in bitcoin futures contracts, but for curiosity's sake I'd like to ask the finance wizards on this forum a pair of related questions:

1) A priori, should the 'normal' state of bitcoin futures be backwardation or contango?

2) Should the expected roll return for this type of fund be positive or negative?


The reason I ask is because my mental model of bitcoin is fuzzy with regards to whether it ought to act like a currency, a commodity, or something else.

1) Normal should be contango.
2) Negative.

If it weren't negative, then there would be an arbitrage opportunity. Instead of owning bitcoin, keep your cash in dollars earning 0.5% and use it as collateral for bitcoin futures. You get the exact same bitcoin positive exposure but actually earn money. So in general, all else equal, bitcoin futures, like gold futures, should display a slight contango consistent with interest rates.

I am very glad I don't have any money there. I wonder if Larry Swedroe is still recommending them.

1) A priori, should the 'normal' state of bitcoin futures be backwardation or contango?

2) Should the expected roll return for this type of fund be positive or negative?


The reason I ask is because my mental model of bitcoin is fuzzy with regards to whether it ought to act like a currency, a commodity, or something else.

This probably deserves a separate thread but I see Bitcoin speculation as similar to currency speculation. I don't know any reason why you would expect positive or negative return.

Owning a currency might have zero expected return, all else equal. But gaining exposure to that currency via futures should cost somewhat because you need to effectively "pay" the counterparty for the financing costs of assembling the bitcoin exposure.

[CycloRista]

I shy away from funds that lump a bunch misfit toys together

I dabble in Bitcoin (directly- not futures) since I can keep a reasonably decent handle on excessive volatility "warnings". I made a tidy sum on an early investment and these days, buy smaller blocks when it dips (in the 6 - 8 k range) and sell when it is near the current ceiling (~10k).

[Steve Reading]

If one wants to own bitcoin futures, it is really simple to do. You don't need a fund, or to pay a fund's ER, or to pay an advisor. You also wouldn't have fund trading restrictions. You could liquidate your entire position now, for example.

What do you make of the schedule of investment, reported April 30th, page 3 of the semiannual report? I see exactly two futures contracts. I see about $4.6 million (yes, million with an "m") in money market funds and Treasury bills. But I see $2.4 million in "reverse repurchase agreements," and, ummm... what exactly are we looking at, here?

Yes, there are 2 types of futures contracts. They have 53 of one and 20 of the other, for a total exposure to bitcoin of 3,261,450. The fund has 3,130,390 in assets so the contracts appear to be basically fully collaterized (i.e. little leverage).
The reverse repo is just a short-term investment that is unrelated to the bitcoin. It appears the fund raised money from the Canadian bank (borrowed money from them). The fund then used this money to invest in short-term bills. The fund, in the future, will have to "buy back" the reverse repo and pay back the Canadian bank. That's why it appears like a liability while it has 140+% in short-term investments. In order to ensure the bank's money is safe, the bank demands collateral. The fund uses some of the T-Bills it purchased with the money as the collateral.

That's my understanding but I could be wrong.

[langlands]

The first one is a bitcoin futures fund, BTCNX. It apparently was launched in January, 2020. For those who like this sort of thing, this is the sort of thing they will like. That is all I am going to say.

I have zero interest in investing in bitcoin and even less interest in investing in bitcoin futures contracts, but for curiosity's sake I'd like to ask the finance wizards on this forum a pair of related questions:

1) A priori, should the 'normal' state of bitcoin futures be backwardation or contango?

2) Should the expected roll return for this type of fund be positive or negative?


The reason I ask is because my mental model of bitcoin is fuzzy with regards to whether it ought to act like a currency, a commodity, or something else.

1) Normal should be contango.
2) Negative.

If it weren't negative, then there would be an arbitrage opportunity. Instead of owning bitcoin, keep your cash in dollars earning 0.5% and use it as collateral for bitcoin futures. You get the exact same bitcoin positive exposure but actually earn money. So in general, all else equal, bitcoin futures, like gold futures, should display a slight contango consistent with interest rates.

Just to add to this answer, there are also storage costs (which adds to the contango and makes the roll return more negative). For gold, this is physical storage. For bitcoin, it's the security overhead to ensure safe cold storage of your coins.

[whodidntante]

If one wants to own bitcoin futures, it is really simple to do. You don't need a fund, or to pay a fund's ER, or to pay an advisor. You also wouldn't have fund trading restrictions. You could liquidate your entire position now, for example.

What do you make of the schedule of investment, reported April 30th, page 3 of the semiannual report? I see exactly two futures contracts. I see about $4.6 million (yes, million with an "m") in money market funds and Treasury bills. But I see $2.4 million in "reverse repurchase agreements," and, ummm... what exactly are we looking at, here?

Yes, there are 2 types of futures contracts. They have 53 of one and 20 of the other, for a total exposure to bitcoin of 3,261,450. The fund has 3,130,390 in assets so the contracts appear to be basically fully collaterized (i.e. little leverage).
The reverse repo is just a short-term investment that is unrelated to the bitcoin. It appears the fund raised money from the Canadian bank (borrowed money from them). The fund then used this money to invest in short-term bills. The fund, in the future, will have to "buy back" the reverse repo and pay back the Canadian bank. That's why it appears like a liability while it has 140+% in short-term investments. In order to ensure the bank's money is safe, the bank demands collateral. The fund uses some of the T-Bills it purchased with the money as the collateral.

That's my understanding but I could be wrong.

Sounds right to me.

The fund will have to post a performance bond for the futures, just as you would if you bought the futures yourself. But the fund would be free to pursue return on cash. Reverse repo agreements are used by MMFs. They probably bought that because it paid more than T-bills, but the investment is still in the low-risk low-return category. Reverse repo agreements are not something a small-time investor can enter into. Also, a fund can post T-bills for the performance bond, which you wouldn't be able to do either unless maybe you are trading futures with your big boy pants on. But I doubt either of these institutional investor advantages would come close to covering the fees of the fund with cash yields near 0%.

If you're going to trade futures, keeping that much cash cancels the leverage of the contract. So an individual investor would have greater capital efficiency than this fund, mainly because that investor would hopefully have lots of non-bitcoin assets to meet maintenance margin. So you wouldn't be concerned about bustout. If this fund were to try exploit leverage in this way, a major drawdown could make the fund go *poof*.

[Elysium]

I am very glad I don't have any money there. I wonder if Larry Swedroe is still recommending them.

Oh boy, he sure knows how to pick them winners don't he

With his selection of PCRIX, QSPIX, SRRIX, AVRPX, LENDX, etc he has a knack of consistently recommending money losing alternatives over quite a long period now.

[WildCat48]

I am very glad I don't have any money there. I wonder if Larry Swedroe is still recommending them.

Oh boy, he sure knows how to pick them winners don't he

With his selection of PCRIX, QSPIX, SRRIX, AVRPX, LENDX, etc he has a knack of consistently recommending money losing alternatives over quite a long period now.

I have no idea why these Stoneridge guys are still in business when all they do is lose money.

[SpaceCowboy]

I simply report what I found at Stone Ridge Asset Management Funds, one under the "bitcoin futures" tab, one under the "LIFEX" tab.

Background: Stone Ridge Asset Management offers a number of interval funds. Interval funds are not mutual funds. They occupy a middle ground between mutual funds and closed-end funds. They have limited liquidity. There is no secondary market for them. You can't redeem them on demand like a mutual fund.
...
The second one gives new meaning to the phrase "this fund is not for everyone." OK, I'm joking, but Stone Ridge Longevity Risk Premium Fixed Income Fund 2045 65F is

Only being offered to investors who are women born on or between January 1, 1955 and December 31, 1955.

As you might expect, though, there are forty-two of these funds: Stone Ridge Longevity Risk Premium Fixed Income Fund 2045 65F, 65M, 66F, 66M, and so on up through Stone Ridge Longevity Risk Premium Fixed Income Fund 2045 85F and Stone Ridge Longevity Risk Premium Fixed Income Fund 2045 85M, each being offered only to investors of a specific age and sex. The slicing up is because the price of each fund depends on the buyer's age and sex.

If I understand correctly, and I might not--the fund invests in STRIPS. It makes monthly payments amount to $1 per share per year for 25 years, or until the shareholder dies, whichever comes first. That's a level dollar payout. On death, there is a sort of return-of-premium-like feature: a payment is made equal to the initial purchase price less the total amount of distributions that have been made. The funds cost from $12.81 to $20.98 per share, depending on age and sex. Unlike a typical income annuity, the payments stop after 25 years even if the shareholder is still alive, but they note cheerfully "A significant portion of the Fund’s shareholders are not expected to survive through the Fund Liquidation Date." Even if the shareholder survives, the payments might not continue for 25 years because

If the Fund has insufficient assets to make its monthly distributions before the Fund Liquidation Date, however, the Fund will liquidate early.

There is a gigantic disclaimer:

The Fund is not an annuity or other type of insurance contract, consequently:

• Distributions provided by the Fund are not guaranteed or otherwise backed by an insurance company or by any third party.
• Therefore, if the Fund is wrong in its assumptions or actuarial estimates or the Fund’s investments lose money, then at any time, you may not receive monthly distributions as described below, and you may lose any or all of your investment that has not already been distributed to you.

I hate interval funds, because of the liquidity restrictions.
However, the second fund is kind of interesting. Isn’t this basically trying to create a tontine, which would actually be a useful product. If the fees are less than a SPIA, it might be worth investigating. Understanding the disclaimer and the real risk to payout are key.

[vencat]

I am very glad I don't have any money there. I wonder if Larry Swedroe is still recommending them.

Oh boy, he sure knows how to pick them winners don't he

With his selection of PCRIX, QSPIX, SRRIX, AVRPX, LENDX, etc he has a knack of consistently recommending money losing alternatives over quite a long period now.

I have no idea why these Stoneridge guys are still in business when all they do is lose money.

You're wrong...they make money, it's the clients who lose!!!

[afan]

1.00% sales load. 0.6% expense ratio.

But fees don't matter here.
I am convinced this is a joke. Perhaps originally timed for April 1. They may have left it up because it is so funny.

I don't follow the LENDX, SRRIX, PCRIX, QSPIX hit parade. Are they losing? Would one be better off immediately shorting whatever is recommended from that source? Can anyone be so reliable that betting against everything they tout is a winning strategy?

OR-
Save the adviser fee
Save the outrageous expense ratio
Spare yourself the illiquidity
Save the taxes

Buy VTI.

[afan]

I am very glad I don't have any money there. I wonder if Larry Swedroe is still recommending them.

Oh boy, he sure knows how to pick them winners don't he

With his selection of PCRIX, QSPIX, SRRIX, AVRPX, LENDX, etc he has a knack of consistently recommending money losing alternatives over quite a long period now.

I have no idea why these Stoneridge guys are still in business when all they do is lose money.

You're wrong...they make money, it's the clients who lose!!!

Good point. Instead of buying their funds, invest in Stone Ridge itself. Get on the winning side of this business.

OR

Buy VTI

[nisiprius]

...I don't follow the LENDX, SRRIX, PCRIX, QSPIX hit parade. Are they losing?...

No, not really. It's hard to keep score on the interval funds, because there isn't any easy way to compute returns between arbitrary months with an interval fund, and the repurchase offers aren't synchronized across the funds, and the online charts when you do find them are price only, not total return.

Using only the annual return numbers quoted in the prospectuses, the average (CAGR) over all years reported (thus only going through 10/2019 for SRRIX and AVRPX, and 2/2020 for LENDX, has been:
SRRIX, 0.94%
AVRPX, 2.50%
LENDX, 6.44%

[WildCat48]

We have a friend who works with a wealth advisor in LA who had a portfolio filled with Stone Ridge Funds and the performance over the past few years has been pretty miserable.

[Uncorrelated]

That longevity risk premium fund actually sounds interesting. As far as I'm aware of there are currently no methods of insuring against longevity risk (in my country) that are tax efficient when purchased with after-tax money. This fund might be able to fix that.

I would love to see more funds with this concept. This offering appears to be quite complicated. I don't quite understand what the purpose of the redemption on death is, it would be simpler/better if the shares just expired worthless on death. Maybe there are some laws requiring this approach?

[Angst]

I hate interval funds, because of the liquidity restrictions.
However, the second fund is kind of interesting. Isn’t this basically trying to create a tontine, which would actually be a useful product. If the fees are less than a SPIA, it might be worth investigating. Understanding the disclaimer and the real risk to payout are key.

I would love it if the SEC, or whatever part of government would sanction and regulate these, could bring back the tontine. I haven't read on it in a good while but the idea sounds so fitting, so perfect for what it accomplishes. Everyone thinks they'll outlive others and gain more of the benefit, but if you're wrong, it doesn't matter because you're dead. I think that's the gist of it.

Tontine, per Wikipedia

[not4me]

I hate interval funds, because of the liquidity restrictions.
However, the second fund is kind of interesting. Isn’t this basically trying to create a tontine, which would actually be a useful product. If the fees are less than a SPIA, it might be worth investigating. Understanding the disclaimer and the real risk to payout are key.

I would love it if the SEC, or whatever part of government would sanction and regulate these, could bring back the tontine. I haven't read on it in a good while but the idea sounds so fitting, so perfect for what it accomplishes. Everyone thinks they'll outlive others and gain more of the benefit, but if you're wrong, it doesn't matter because you're dead. I think that's the gist of it.

Tontine, per Wikipedia

I'm not planning on taking the time to figure this fund out, but did skim it a bit & am a bit curious about the tontine aspect. I thought with a tontine as each dies their portion rolled into the pot to be won by last survivor. In this case, it looked as if when a person dies, they get out of the pot. I took it to be a twist on maturity date bond funds. Also wondered if perhaps the distribution was in such a way as to maybe lower taxes? I think someone else already said this may have been designed to be sold rather than bought. I can see some elderly person willing to take the presumed constancy of distribution & not wanting to spend the time a BHer would on comparing -- especially if their dear friend said it was good

[SpaceCowboy]

I hate interval funds, because of the liquidity restrictions.
However, the second fund is kind of interesting. Isn’t this basically trying to create a tontine, which would actually be a useful product. If the fees are less than a SPIA, it might be worth investigating. Understanding the disclaimer and the real risk to payout are key.

I would love it if the SEC, or whatever part of government would sanction and regulate these, could bring back the tontine. I haven't read on it in a good while but the idea sounds so fitting, so perfect for what it accomplishes. Everyone thinks they'll outlive others and gain more of the benefit, but if you're wrong, it doesn't matter because you're dead. I think that's the gist of it.

Tontine, per Wikipedia

I'm not planning on taking the time to figure this fund out, but did skim it a bit & am a bit curious about the tontine aspect. I thought with a tontine as each dies their portion rolled into the pot to be won by last survivor. In this case, it looked as if when a person dies, they get out of the pot. I took it to be a twist on maturity date bond funds. Also wondered if perhaps the distribution was in such a way as to maybe lower taxes? I think someone else already said this may have been designed to be sold rather than bought. I can see some elderly person willing to take the presumed constancy of distribution & not wanting to spend the time a BHer would on comparing -- especially if their dear friend said it was good

Well I actually did spend a little time to figure it out and it’s a really lousy investment.
Basically it pays you $1 per year per share for up to 25 years, if you live for 25 years. The price you pay is determined by your age or year of birth and gender. It invests in Treasury Strips, which have very low yields contributing to why it’s a poor investment. Also, there is a 0.60% management fee, which is a huge bite out of treasury yields.
So if you’re a 65 year old male, the estimated price per share is $20.47. (Found way back on page 30 of the prospectus). So just to get your money back without interest you have to live 20+ years. The max profit over the 25 year life of the investment is $4.53, which is less than 2.5% cumulative over 25 years!
If you’re an 85 year old male, the estimated share price is $12.81. You have to live to age 98 to eke out any profit.
Also, the prospectus is dated March 9, so the pricing could now be even more expensive. They need to get 250 investors minimum to launch it over the initial 6 month offering period which ends in September.
My guess is that it doesn’t actually launch this year and they put it on the shelf until interest rates increase.

[Uncorrelated]

I hate interval funds, because of the liquidity restrictions.
However, the second fund is kind of interesting. Isn’t this basically trying to create a tontine, which would actually be a useful product. If the fees are less than a SPIA, it might be worth investigating. Understanding the disclaimer and the real risk to payout are key.

I would love it if the SEC, or whatever part of government would sanction and regulate these, could bring back the tontine. I haven't read on it in a good while but the idea sounds so fitting, so perfect for what it accomplishes. Everyone thinks they'll outlive others and gain more of the benefit, but if you're wrong, it doesn't matter because you're dead. I think that's the gist of it.

Tontine, per Wikipedia

I'm not planning on taking the time to figure this fund out, but did skim it a bit & am a bit curious about the tontine aspect. I thought with a tontine as each dies their portion rolled into the pot to be won by last survivor. In this case, it looked as if when a person dies, they get out of the pot. I took it to be a twist on maturity date bond funds. Also wondered if perhaps the distribution was in such a way as to maybe lower taxes? I think someone else already said this may have been designed to be sold rather than bought. I can see some elderly person willing to take the presumed constancy of distribution & not wanting to spend the time a BHer would on comparing -- especially if their dear friend said it was good

Well I actually did spend a little time to figure it out and it’s a really lousy investment.
Basically it pays you $1 per year per share for up to 25 years, if you live for 25 years. The price you pay is determined by your age or year of birth and gender. It invests in Treasury Strips, which have very low yields contributing to why it’s a poor investment. Also, there is a 0.60% management fee, which is a huge bite out of treasury yields.
So if you’re a 65 year old male, the estimated price per share is $20.47. (Found way back on page 30 of the prospectus). So just to get your money back without interest you have to live 20+ years. The max profit over the 25 year life of the investment is $4.53, which is less than 2.5% cumulative over 25 years!
If you’re an 85 year old male, the estimated share price is $12.81. You have to live to age 98 to eke out any profit.
Also, the prospectus is dated March 9, so the pricing could now be even more expensive. They need to get 250 investors minimum to launch it over the initial 6 month offering period which ends in September.
My guess is that it doesn’t actually launch this year and they put it on the shelf until interest rates increase.

Treasury strips, by definition, have zero yield.

2.5% cumulative sounds pretty good to me for an investment with zero risk. This is a product to insure yourself against longevity risk, or course if the risk doesn't turn up (you die young), it's going to be a bad investment. As all insurance products are.

The main problem with this product is the somewhat complicated structure and high fees. The traditional life insurance market is very competitive and MWR (money worth ratio's) are very close to 1:


source: https://papers.ssrn.com/sol3/papers.cfm ... id=2531779

I have not attempted to run the numbers, but I suspect traditional annuities offer slightly more value for money.

[SpaceCowboy]

I hate interval funds, because of the liquidity restrictions.
However, the second fund is kind of interesting. Isn’t this basically trying to create a tontine, which would actually be a useful product. If the fees are less than a SPIA, it might be worth investigating. Understanding the disclaimer and the real risk to payout are key.

I would love it if the SEC, or whatever part of government would sanction and regulate these, could bring back the tontine. I haven't read on it in a good while but the idea sounds so fitting, so perfect for what it accomplishes. Everyone thinks they'll outlive others and gain more of the benefit, but if you're wrong, it doesn't matter because you're dead. I think that's the gist of it.

Tontine, per Wikipedia

I'm not planning on taking the time to figure this fund out, but did skim it a bit & am a bit curious about the tontine aspect. I thought with a tontine as each dies their portion rolled into the pot to be won by last survivor. In this case, it looked as if when a person dies, they get out of the pot. I took it to be a twist on maturity date bond funds. Also wondered if perhaps the distribution was in such a way as to maybe lower taxes? I think someone else already said this may have been designed to be sold rather than bought. I can see some elderly person willing to take the presumed constancy of distribution & not wanting to spend the time a BHer would on comparing -- especially if their dear friend said it was good

Well I actually did spend a little time to figure it out and it’s a really lousy investment.
Basically it pays you $1 per year per share for up to 25 years, if you live for 25 years. The price you pay is determined by your age or year of birth and gender. It invests in Treasury Strips, which have very low yields contributing to why it’s a poor investment. Also, there is a 0.60% management fee, which is a huge bite out of treasury yields.
So if you’re a 65 year old male, the estimated price per share is $20.47. (Found way back on page 30 of the prospectus). So just to get your money back without interest you have to live 20+ years. The max profit over the 25 year life of the investment is $4.53, which is less than 2.5% cumulative over 25 years!
If you’re an 85 year old male, the estimated share price is $12.81. You have to live to age 98 to eke out any profit.
Also, the prospectus is dated March 9, so the pricing could now be even more expensive. They need to get 250 investors minimum to launch it over the initial 6 month offering period which ends in September.
My guess is that it doesn’t actually launch this year and they put it on the shelf until interest rates increase.

Treasury strips, by definition, have zero yield.

2.5% cumulative sounds pretty good to me for an investment with zero risk. This is a product to insure yourself against longevity risk, or course if the risk doesn't turn up (you die young), it's going to be a bad investment. As all insurance products are.

The main problem with this product is the somewhat complicated structure and high fees. The traditional life insurance market is very competitive and MWR (money worth ratio's) are very close to 1:


source: https://papers.ssrn.com/sol3/papers.cfm ... id=2531779

I have not attempted to run the numbers, but I suspect traditional annuities offer slightly more value for money.

2.5% cumulative over a 25 year period is terrible. It’s not 2.5% annually for 25 years.
Happy to take the opposite side of this bet. I’ll even agree to put it in a rolling treasury ladder so you have zero credit risk. I’ll take the reinvestment risk. So send me your $20 and I’ll send you a $1 per year for 25 years. Might have to make it a $1,000 though so I can buy the t-bills, but I’ll send you $50 per year.

[Uncorrelated]

2.5% cumulative over a 25 year period is terrible. It’s not 2.5% annually for 25 years.
Happy to take the opposite side of this bet. I’ll even agree to put it in a rolling treasury ladder so you have zero credit risk. I’ll take the reinvestment risk. So send me your $20 and I’ll send you a $1 per year for 25 years. Might have to make it a $1,000 though so I can buy the t-bills, but I’ll send you $50 per year.

I would make that bet because I'm not of risk of dying anytime soon.

How did you calculate the return? The initial purchase is $20.47 and the maximum payout is $25. Supposing you get the maximum payout (everybody else dies), that is a total return of 22.2%. With a estimated duration of 12.5 years that corresponds to approximately 1.6% annual interest, significantly above the current treasury rate.

It's probably very unlikely to get the maximum payout, you have to live though the end, and also others in the pool have to die to pay for management fees. My main gripe with this product is that is appears to be too complicated to calculate the money's worth ratio correctly. At immediateannuities.com it appears that $20.47 purchases $1.15 annual payout for life for a 65 year old female, that clearly looks like a better deal. Maybe I'm missing something.

[SpaceCowboy]

2.5% cumulative over a 25 year period is terrible. It’s not 2.5% annually for 25 years.
Happy to take the opposite side of this bet. I’ll even agree to put it in a rolling treasury ladder so you have zero credit risk. I’ll take the reinvestment risk. So send me your $20 and I’ll send you a $1 per year for 25 years. Might have to make it a $1,000 though so I can buy the t-bills, but I’ll send you $50 per year.

I would make that bet because I'm not of risk of dying anytime soon.

How did you calculate the return? The initial purchase is $20.47 and the maximum payout is $25. Supposing you get the maximum payout (everybody else dies), that is a total return of 22.2%. With a estimated duration of 12.5 years that corresponds to approximately 1.6% annual interest, significantly above the current treasury rate.

It's probably very unlikely to get the maximum payout, you have to live though the end, and also others in the pool have to die to pay for management fees. My main gripe with this product is that is appears to be too complicated to calculate the money's worth ratio correctly. At immediateannuities.com it appears that $20.47 purchases $1.15 annual payout for life for a 65 year old female, that clearly looks like a better deal. Maybe I'm missing something.

You seem to have forgotten that the first $20.47 of “return” is the return of principal. Please send me a PM and we arrange to make the bet. I won’t even ask how old you are, unlike the fund

[nisiprius]

Basically it pays you $1 per year per share for up to 25 years, if you live for 25 years.... So just to get your money back without interest you have to live 20+ years.

I don't think that's right. If you don't live long enough for the payouts to equal the purchase price, they pay you the difference. In the case of the woman born in 1955 who pays $20.98 per share, if she lives $25 years she gets $25 total; 21 years, $21 total. But if she only lives 20 years, she has received $20 and the fund fund then pays a final "redemption price of $0.98. If she only lives 10 years, she receives $10 in regular payments the fund pays a final "redemption price" of $10.98.

Mandatory Redemption or Cancellation Upon Death. All shares held by a shareholder will be redeemed or cancelled by the Fund upon the shareholder’s death. Except as disclosed in the next paragraph below, shareholders who die will have their shares redeemed for a redemption price equal to the Initial Purchase Price for the Fund (as provided on Schedule A below) minus the total amount of distributions per share since the Fund’s commencement of investment operations....

If, upon a shareholder’s death, the amount of distributions paid per share since the commencement of investment operations of the Fund is greater than the Initial Purchase Price for the Fund, then the redemption price will be zero. In this case, the shares will be cancelled for no value.

But the big question I can't figure out is, if the actuaries know their stuff and at the end of 25 years, after all of the monthly payments have been paid and all of the "mandatory redemptions" on death have been made, there might be money left over. What happens to it?

[SpaceCowboy]

Nisi you’re correct there is a redemption price at death, so that your heirs get most of your investment back.
There is a mechanism to return the residual value after 25 years to remaining living shareholders, but if the actuaries are right, i believe the predicted amount is $0.
If the actuaries are wrong and underprice the shares, you get less than 25 years of payments.
If the actuaries are wrong and overprice the shares, you get the liquidation amount at 25 years.
I left that out for simplification.