Key Takeaways
- • Return stacking layers diversifying investments on top of core holdings rather than replacing them, enabling investors to gain additional exposure without selling existing positions—a concept that translates institutional "portable alpha" strategies to retail and smaller institutional investors.
- • Corey Hoffstein, CIO of Newfound Research, champions return stacking as a capital-efficient diversification method, with managed futures emerging as a primary diversifier when stacked atop traditional 60/40 stock/bond portfolios.
- • Stacking managed futures with bonds and stocks improves tax efficiency compared to standalone managed futures funds, as the structural approach allows for more favorable tax treatment of the layered strategy.
- • Return stacking achieves $1.00+ of portfolio exposure per $1.00 invested, enabling investors to add diversifying asset classes without reducing allocations to core positions—addressing a fundamental trade-off in traditional portfolio construction.
- • Hoffstein and collaborators (including Rodrigo Gordillo and Adam Butler) formalized return stacking theory in 2021, with practical applications now available through products such as the RSBT Return Stacked Bonds & Managed Futures ETF.
Summary
Return stacking is a portfolio construction methodology that layers diversifying investments on top of an existing core portfolio rather than requiring investors to liquidate existing holdings to accommodate new allocations. At its foundation, the approach enables capital-efficient investing by achieving more than $1.00 of portfolio exposure per $1.00 of capital deployed. Corey Hoffstein, chief executive and chief information officer of Newfound Research, has emerged as a leading advocate for the strategy, positioning it as an accessible framework that brings institutional investing practices—specifically the concept of "portable alpha"—downstream to a broader investment audience.
The concept addresses a persistent challenge in portfolio management: the traditional diversification trade-off that requires investors to reduce positions in core holdings to add exposure to new diversifiers. Return stacking circumvents this constraint by funding supplementary allocations through borrowing at Treasury bill rates plus a financing spread, typically around 50 basis points. When applied to managed futures as a diversifier overlay on a 60/40 stock/bond foundation, the strategy has demonstrated historical improvements in risk-adjusted returns. Performance data spanning December 1999 through December 2025 shows measurable differences in volatility, maximum drawdown, and other metrics compared to unlevered 60/40 portfolios, though results vary depending on market environment and allocation sizing.
Hoffstein and collaborators Rodrigo Gordillo and Adam Butler introduced formalized return stacking theory in 2021, establishing it as a distinct framework within academic and practitioner literature. The methodology gained practical expression through investment vehicles including the RSBT Return Stacked Bonds & Managed Futures ETF, which combines fixed-income holdings with managed futures allocations financed through leverage. A significant structural advantage of this approach versus standalone managed futures funds is tax efficiency—the layering mechanism produces more favorable tax outcomes by avoiding the embedded gains and distribution patterns typical of traditional managed futures funds.
The application of return stacking extends beyond managed futures to merger arbitrage and other alternative strategies, each serving different portfolio roles depending on correlation characteristics and return drivers. Hoffstein's work has generated sustained institutional and media interest, with multiple platforms—including podcasts, interviews, and research publications—exploring both theoretical foundations and practical implementation. The strategy remains subject to market conditions, leverage costs, and index selection, with historical backtests indicating positive outcomes under various return assumptions and fee structures, though past performance does not guarantee future results.
The concept addresses a persistent challenge in portfolio management: the traditional diversification trade-off that requires investors to reduce positions in core holdings to add exposure to new diversifiers. Return stacking circumvents this constraint by funding supplementary allocations through borrowing at Treasury bill rates plus a financing spread, typically around 50 basis points. When applied to managed futures as a diversifier overlay on a 60/40 stock/bond foundation, the strategy has demonstrated historical improvements in risk-adjusted returns. Performance data spanning December 1999 through December 2025 shows measurable differences in volatility, maximum drawdown, and other metrics compared to unlevered 60/40 portfolios, though results vary depending on market environment and allocation sizing.
Hoffstein and collaborators Rodrigo Gordillo and Adam Butler introduced formalized return stacking theory in 2021, establishing it as a distinct framework within academic and practitioner literature. The methodology gained practical expression through investment vehicles including the RSBT Return Stacked Bonds & Managed Futures ETF, which combines fixed-income holdings with managed futures allocations financed through leverage. A significant structural advantage of this approach versus standalone managed futures funds is tax efficiency—the layering mechanism produces more favorable tax outcomes by avoiding the embedded gains and distribution patterns typical of traditional managed futures funds.
The application of return stacking extends beyond managed futures to merger arbitrage and other alternative strategies, each serving different portfolio roles depending on correlation characteristics and return drivers. Hoffstein's work has generated sustained institutional and media interest, with multiple platforms—including podcasts, interviews, and research publications—exploring both theoretical foundations and practical implementation. The strategy remains subject to market conditions, leverage costs, and index selection, with historical backtests indicating positive outcomes under various return assumptions and fee structures, though past performance does not guarantee future results.
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