• Hedging an equity portfolio: Volatility

    | | Strategy

    We opined in our last article that “Traditional Hedges Suck” that most traditional hedges had significant weaknesses and did not have many characteristics of a great hedge.  Volatility (long positions in VIX futures), while not perfect, has a number of these favorable characteristics for hedging an equity portfolio. The characteristics of a great equity hedge are three-fold: Makes more money in down markets that it loses in up markets; therefore, the hedge improves the risk adjusted returns of the portfolio. If the risk adjusted return is improved, the investor can either have less risk on the same investment size OR … Read more Hedging an equity portfolio: Volatility
  • May 2021 Flash Report

    | | Flash Report

    Equity market volatility surfaced again, led primarily by the tech sector with several themes continuing to work its way through this market. Is the market rally stalling out or getting set to move higher? Many of the trends observed over the last few months have continued throughout May with exposure to a variety of commodities (long) and currencies (long). The topic of inflation continues to persist as the Fed seems likely to hold rates until unemployment comes down to pre-pandemic levels while inflation will be allowed to exceed a rise above the 2% target. Inflation seems less of a concern … Read more May 2021 Flash Report
  • A Better SPY?

    | | Investment Strategies

    Index investing is all the rage now with over a trillion dollars invested in the SPY and VOO ETFs alone.  The expectation is that low fees coupled with broad market exposure is better for your portfolio than an actively managed strategy with higher fees. One could argue that as the components of the indices attract more of the capital flow that these names really do drive the market and even a “diversified portfolio” often correlates highly to a simple index. I believe strongly that everyone should have some equity exposure but is there a better way to do it? Futures … Read more A Better SPY?
  • When Good News is Bad

    | | Markets

    My favorite analogy for passive investing describes two men sitting at a bar. One is drunk and the other sober.  When the night is over the sober man leads the other home to make sure he gets there safely. Historically, hedge funds and active investors pored over financials, looked at P/E ratios, and listened to earnings calls to decide when to invest.  Passive investors just went long an index fund and hoped that the others did a good job leading prices to their logical equilibrium point.  Thus the active investors could lead them home safely.  Today, “the drunks” are leading … Read more When Good News is Bad
  • April 2021 Flash Report

    | | Flash Report

    The US continues to push toward the other side of the pandemic with over half of eligible Americans already vaccinated (or at least with one shot). The rest of the world seems to be lagging (in some cases) seriously behind as lockdowns still exist and COVID cases in India are increasing dramatically. Overall the US is carrying equity indexes to new highs in April. Employment has continued to improve and commodities prices have in some cases hit levels not seen in decades. Will the Fed take a different approach to softening its stance on rates? It appears that in the … Read more April 2021 Flash Report