Tier 1 Trigger Monitoring — Beta Hedge Deployment Criteria
The following four signals are the primary Tier 1 trigger conditions for beta hedge deployment. When any one is active the fund enters Tier 1 Watch. When two or more are simultaneously active, Tier 2 partial hedge deployment is warranted. REIT and builder-specific signals (occupancy, NOI, gross margins, cancellation rates) require quarterly earnings monitoring and are noted below.
Overlay Opportunity Monitoring — MBB Calls, VMBS Margin & TMF Easing
The following signals monitor conditions for deploying yield enhancement overlays. These are opportunity signals, not stress signals — they indicate when offensive overlay deployment is justified. Yield enhancement instruments are never deployed when Beta Hedging instruments are active.
1. TMF (0.75% NAV) — deploy first. Pure Treasury exposure, no negative convexity. Maximum price appreciation per basis point of yield decline. Entry: Fed cut confirmed + yield curve normalizing (2s-10s positive) + recession probability <30%.
2. VMBS Margin (1.10–1.25x) — deploy as carry turns positive. SOFR falls with cuts while VMBS yield declines more slowly, widening carry differential. Best deployment window: mid-to-late cut cycle.
3. MBB Calls (0.50% NAV premium) — deploy alongside TMF. Leveraged MBS upside at lower cost than increasing VMBS directly. Note: MBB has negative convexity — as rates fall, mortgage prepayments accelerate, capping price appreciation vs. pure Treasuries. Set strikes more conservatively than equivalent Treasury ETF calls.
Important: This is a proxy using publicly available rates. True agency MBS option-adjusted spread (OAS) is typically 20–60bps above Treasuries — a completely different scale. This proxy moves directionally in the same direction as true OAS but at ~150–200bps normal vs. ~25–50bps for true OAS. True OAS requires Bloomberg or ICE BofAML data.
In a confirmed rate-cut cycle, SOFR falls with policy rates while VMBS yield declines more slowly — widening carry and making margin leverage more attractive as cuts proceed. The best margin deployment window is mid-to-late cut cycle when carry differential is widest.
Note: Uses 30yr mortgage rate as VMBS yield proxy. Actual VMBS SEC yield available at Vanguard.com and will differ.
The ACM Residential Real Estate Fund (REF) is a simulated model portfolio. All signal readings are provided for informational and educational purposes only and do not constitute investment advice or a recommendation to buy or sell any security. Signal data sourced from FRED (Federal Reserve Bank of St. Louis) and Yahoo Finance; ACM makes no representation as to the accuracy or completeness of third-party data.
The MBS spread shown is a proxy using the 30-year mortgage rate minus the 10-year Treasury yield, not a true agency MBS option-adjusted spread. SOFR is used as a margin borrowing cost proxy; actual margin rates vary by broker and account size. Quarterly earnings signals (REIT occupancy, NOI, builder margins, cancellation rates) are not available in real time and require manual monitoring via company earnings releases.
Adkins Capital Management LLC. All rights reserved. ACM model portfolio managed by Troy Morris Adkins II.