April 2020 Commentary

The Gladiator Match

After $6 trillion of monetary and fiscal stimulus succeeded in pulling markets back from all-out panic in April, markets find themselves caught in the middle of an epic gladiator match between liquidity and solvency, now down just -1% since March despite the sharpest economic contraction since the Great Depression.

Heeding the distress signals that continued to emanate from the VIX complex, TCM strategies remained defensively positioned in April, holding long volatility exposures which continue to carry quite well despite a falling VIX index. (Under crisis conditions, VIX futures and long VIX ETPs tend to be less reactive to the direction of the VIX index. As an illustration, with the VIX Index -15% since March 1st, the iPath VIX Short Term Futures ETN (VXX) has returned +66%. See chart below.)

View fullsize

Cumulative return comparison, Mar 1- Apr 30, 2020

Benefiting from the bounce in equities, Smart Index (+9.0%) and Legacy Navigator (+6.5%) posted solid numbers in April while Alpha Seeker’s (-3.1%) long volatility positions slipped along with the receding panic. Solidly positive on the year as markets continue to sag, all three strategies continue to be in a good position to watch the gladiator match from a safe distance until markets eventually declare a winner.