How RSSB Helps Create Room for Diversification Without Reducing the Core

Most well-constructed portfolios share a structural problem: they are full. Every dollar is deployed, every allocation is intentional, and when something genuinely compelling arrives, there is nowhere to add it without first removing something else.

The difficulty is not conviction. It is capacity. A fully invested portfolio has no unallocated capital, which means any new position can only be funded by reducing an existing one. Cutting equities reduces the return engine the portfolio was built around. Cutting bonds weakens the diversifying or stabilizing role fixed income was included to play. Either way, the portfolio that emerges from the addition is not the one the investor set out to build.

This is not a problem that investors can think their way out of. It is a structural constraint built into how portfolios work. We call it the funding problem of diversification: every diversifying strategy worth adding must be funded by selling something already in the portfolio. RSSB is built to change that.

We call it the funding problem of diversification: every diversifying strategy worth adding must be funded by selling something already in the portfolio.

The Problem With 100%

The funding problem has a specific cost. In a traditional 60/40 portfolio, with 60% in global equities and 40% in bonds, every dollar of available capital is deployed. Adding a 20% position in any new diversifying strategy requires funding it from somewhere, which means reducing equities, bonds, or both. The core gets smaller. An investor who set out to build a 60/40 portfolio ends up defending a 48/32 split instead.

The pattern is visible in the interactive above: every percentage point added to a new allocation comes directly at the expense of the equity and bond core. This trade-off quietly shapes portfolio decisions over time. Diversifying strategies that might genuinely improve outcomes get passed over not because the case for them is weak, but because the cost of implementing them feels too high. The portfolio construction problem masquerades as a conviction problem. The investor does not lack the belief that the diversifying strategy belongs in the portfolio. They lack the space to put it there without a trade-off they cannot easily defend.

When an investor sells equities or bonds to fund a new position, the new holding is not simply competing for returns. It is competing against the return of whatever was sold..

There is a subtler cost embedded in that trade-off. When an investor sells equities or bonds to fund a new position, the new holding is not simply competing for returns. It is competing against the return of whatever was sold. Cut equities to make room for an alternative, and the alternative now carries an implicit hurdle rate equal to the expected return on equities. That bar is often underappreciated, and it is one the investor sets against themselves before the first dollar moves.

A Different Way to Think About a Dollar

The Return Stacked® Global Stocks & Bonds ETF (RSSB) addresses this constraint directly. By combining a full allocation to global equities with U.S. Treasury bond exposure obtained through futures contracts, RSSB seeks to provide $1.00 of passive global equity exposure and $1.00 of U.S. Treasury bond exposure for each $1.00 invested.

RSSB seeks to provide $1.00 of passive global equity exposure and $1.00 of U.S. Treasury bond exposure for each $1.00 invested, using a futures overlay to hold two distinct and historically uncorrelated return streams at once.

The mechanism is a futures overlay. RSSB holds a diversified equity portfolio directly while gaining U.S. Treasury bond exposure through futures contracts, which require only a fraction of their notional value as collateral. That frees the remaining capital to stay invested in equities, which is how both exposures fit within a single dollar. This is leverage, and it is worth stating plainly: RSSB uses leverage not to amplify a single concentrated bet, but to hold two distinct and historically uncorrelated return streams at once. Institutional investors have used derivatives-based overlay strategies like this for decades. The concept has a name: return stacking (also known as portable alpha). RSSB makes it available in a single ETF, without the operational complexity that made it the exclusive domain of large institutions.

That structure also changes the hurdle rate. In a traditional allocation, selling equities or bonds to fund an alternative sets the return of whatever was sold as the alternative's implicit benchmark: the new position must beat what it displaced just to break even. Return stacking resets that equation. Because the overlay obtains its exposures at the funding rate, the hurdle for whatever sits on top is effectively T-bills rather than the return of the asset sold to make room.

Figure 1: How RSSB Builds Dual Exposure from a Single Dollar
A dollar of cash is split into a margin reserve and investable capital, then deployed into equities with a futures overlay added on top. For illustrative purposes only.

For illustrative purposes only. Proportions are conceptual and do not reflect actual fund allocations, margin requirements, or costs. Notional exposure refers to the face value of derivatives positions held, which may exceed the capital deployed. There are risks associated with investing, including possible loss of principal. The use of derivatives involves additional risks, including leverage risk.

Most portfolios already hold equities and bonds, which means RSSB slots in as a direct replacement for a portion of those existing positions. Swap out a portion of the existing equity and bond exposure for RSSB, and the overlay seeks to restore both exposures while the freed-up capital becomes available for something new. That is the building block: a single holding designed to restore the core and create the space. This is what we mean by capital efficiency: seeking more exposure from each dollar without the investor giving up the core portfolio they have already built.

How It Works in Practice

Consider an investor managing a portfolio allocated 60% to global equities and 40% to U.S. Treasury bonds, who wants to add a 20% allocation to an additional diversifying strategy while keeping the original core intact.

Figure 2: Adding vs. Replacing: How Capital Efficiency Changes the Allocation
A 60/40 benchmark with a 20% alternatives allocation, two ways. For illustrative purposes only.

For illustrative purposes only. Allocations are hypothetical and do not represent any actual portfolio. Effective exposure reflects notional exposure, which may exceed 100% where derivatives are used. There are risks associated with investing, including possible loss of principal. Leverage has the potential to increase the volatility of an investment. Past performance is not indicative of future results.

As Figure 2 illustrates, the traditional path creates an immediate problem. Funding a 20% allocation by selling proportionally from equities and bonds leaves the investor with 48% equities and 32% bonds. The core has shrunk, and the total notional exposure remains 100%.

The RSSB-enabled path works differently. Since RSSB's overlay delivers equity and bond exposure in a 1:1 ratio, the investor sells equal amounts from each asset class (20% from equities and 20% from bonds) rather than proportional amounts. The investor uses those proceeds to purchase 20% RSSB and 20% of the additional diversifying strategy. RSSB seeks to restore the equity and bond exposures that were sold, with the new diversifying strategy sitting alongside the core rather than inside it.

The capital allocation has changed. The effective exposure has not. In this example, the 60/40 core is effectively preserved, and the 20% alternative allocation sits alongside it. The total adds up to 120%: not because more capital was invested, but because RSSB's overlay seeks to deliver the equity and bond exposures without requiring additional dollars.

The capital allocation has changed. The effective exposure has not. The 60/40 core is preserved, and the new diversifying strategy sits alongside it rather than displacing it.

The tool below lets any investor start from their own benchmark, adjust the stack size, and work through the trade: which positions to reduce, how much RSSB to hold, and what the resulting exposures look like. Different benchmarks have different amounts of room.

Stack Anything

RSSB functions as the base layer, not the alternative layer. It does not prescribe what gets added on top. The diversifying strategy placed above the core can be whatever the investor determines is appropriate: managed futures, commodities, real assets, income-oriented diversifying assets, or any other approach that fits the client's investment thesis.

An investor who believes managed futures can provide diversification when equity markets sell off may now have a path to act on that view without shrinking the equity core. One who wants real assets for inflation protection can explore adding them without cutting bonds. The choice of diversifying strategy depends entirely on the client's goals and the investor's thesis; RSSB seeks to create the capacity, and the investor decides how to fill it.

By separating exposure from capital, RSSB can give investors a way to act on their convictions without a forced trade-off in the core portfolio. The question is no different from any other allocation decision: what does the diversifying strategy contribute that the existing portfolio lacks, and will the investor hold it through the inevitable stretches when it lags? The choice of what to stack, and why, remains entirely with the investor.

By separating exposure from capital, RSSB can give investors a way to act on their convictions without a forced trade-off in the core portfolio. The choice of what to stack, and why, remains entirely with the investor.