May 2020 Commentary

HARDly Normal

Even as the S&P 500 clawed another 4.8% out of the Coronavirus hole in May, VIX futures hovered near crisis levels throughout the month, indicative of the uncertainty around the ongoing “gladiator match” between liquidity and solvency. While the VIX has retreated from outright panic after the stock market rally of the past two months, its message today is that things are “hardly normal”:

S&P 500 and VIX Futures, YTD 2020. Source: TCM, Yahoo Finance

Follow the leader

By now, long-time readers should be prepared for a familiar line: following the message from the VIX, TCM strategies performed in line with markets in May with a neutral VIX having little impact during the month. With the largest exposure to the S&P 500 of our three strategies, Smart Index (+4.5%) predictably fared the best in May, followed by the more-diversified Legacy Navigator (+3.4%) and finally by Alpha Seeker which remained flat with the broader VIX market.

With the economic fallout from the Coronavirus pandemic now compounded by civil unrest just a few months before a presidential election, it’s no wonder that the entire VIX complex remains elevated. Especially as these issues come to a head this fall, investors need to be prepared for anything.

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