Milkshakes and Coins
A post-dollar milkshake hedge review as we move into 2026 plus a convex Acorn stocking filler! Then the usual weekly review of the đżď¸'s BUSHY⢠Portfolio and the live Acorn trade ideas. 2025, Week 51.
Time to reflect on some of the most important portfolio tweaks as we look ahead to 2026. A combined note this weekend (will be the same next weekend).
The timing could not have been better for Brent Johnson of Santiago Capital to join Ben (Capital Misallocation) and myself for a fascinating discussion on the dollar and the USâs 21st Century âManhattan Projectâ. The discussion around stablecoins also helped to cement an idea from a reader that I have been thinking about. New âAcornâ âstocking fillerâ below.
If you missed the show live, please catch and the highlights on the âBenny & The Squirrelâ YouTube channel (please also remember to subscribe there - we are already lining up a content blockbuster for 2026!).
FX Hedges
Spending an hour in the company of 2 dollar bulls like Brent and Ben always focuses the mind. To be fair, a âmilkshake momentâ or âdollar napalm runâ is a risk that the đżď¸ has been at pains to hedge throughout the past 12 months.
Even if I believe that overseas dollar debtors and central bankers are likely to be better prepared (for a dollar liquidity squeeze) than they have been in the past, the muscle memory impulse for investors and traders to reach for US dollar cash during ârisk offâ moments is likely to remain strong.
Both BUSHYâ˘, my beta portfolio, and the individual âAcornâ trades have had a significant ex-US bias throughout the year. This will not be changing as we enter 2026.
As a reminder we set out the philosophy for BUSHY⢠and its hedge book in January (link to full note).
âThe composition of this initial portfolio embeds some pretty out of consensus (with âBig Retirementâ) bets on factor, asset class and geographic exposures:
The BUSHY⢠only owns large cap US tech stocks via their (tiny) equal weighting in the RSP 0.00%â, long S&P futures within the trend portfolios, or if 3Fourteenâs factor and trend screening model (FCTE 0.00%â) decides that it wants to rent them.
BUSHY⢠is structurally short the US dollar relative to the average âBig Retirementâ portfolio.
BUSHY⢠is massively underweight duration risk (no long bonds unless the machines happen to own them, and they donât currently); no profitless tech stocks; and no exposure to the financial nihilistsâ YOLO⢠portfolio).â
In January, a risk budget of 2.5% of NAV was allocated to:
Out of the money calls on the XLK 0.00%â (Tech) and ARKK 0.00%â ETFs, to hedge the underweight to US equities (especially MAG7) and
shitcosprofitless tech stocks.Puts on the Canadian Dollar (vs. USD) via CME Futures options (a USD hedge with an energy angle).
Call options on 3-month SOFR futures to hedge BUSHYâ˘âs lack of exposure to long duration fixed income.
Over the year, we made the following changes.
We transitioned from a CAD-based FX hedge to a EUR-based one in March (in response to the political shifts in Ottawa). We replaced the EUR hedge with DXY/DX/UUP call spreads in June and added outright calls on the same underlying in September.
In September we sought to protect the portfolioâs (global) equity risk with cheap (even if they got cheaper) Nasdaq 100 put spreads (via QQQ 0.00%â), rolling into a similar position in early October.
In early October, we also collared the portfolioâs gold exposure, closing this protection 3 weeks ago.
BUSHYâ˘âs hedge book has âcostâ the portfolio 2.29% year-to-date. No regrets about that whatsoever. It was the prudent way to approach our non-consensus macro positioning versus my benchmarks and helped to manage periods of drawdown effectively.
BUSHY⢠hedge book over 2025 and plan for 2026
Unsurprisingly, the exam question regarding hedges is not dissimilar to the one facing the đżď¸ last year. But the challenges require further thoughtâŚ