pair off
As earnings reports showed frustrating lack of revenue on billions in AI investments, investors moved to de-risk portfolios by closing the popular long Nasdaq / short Russell 2000 “pair trade”, sending the two indexes in sharply opposite directions in July (chart) while the diverse exposure of the S&P 500 preserved a gain for the month despite a heavy drag from the same “Mag 7” names that weighed on the Nasdaq.
July 2024 MTD Returns. Source: barchart.com. Click for larger image
Reflecting sector rotation rather than wholesale liquidation, relatively muted volatility for the S&P 500 index as a whole kept a lid on the VIX and defensive positions out of TCM portfolios during the month. Like so many times before, this proved valuable for TCM investors as Tactical Beta (+1.2% Jul) captured 100% of the S&P 500’s gain in July versus just 38% for its continuously hedged peers*, further widening its lead in the rally since Nov 2023 (chart) and in most other time frames since inception.
*Equally-weighted composite of JP Morgan Hedged Equity (JHEQX), Swan Def Risk (SDRIX) and Gateway Fd A (GATEX).
Total return net of fees, Nov 2023 - Jul 2024. Source: TCM, barchart.com. Click for larger image. Please see Tactical Beta fact sheet for full performance history
While maximizing up capture helps TCM strategies separate from their peers in healthy markets, minimizing down capture in a crisis is what separates them from their benchmarks. Though still early, the month of August has moved into crisis conditions and TCM portfolios have been well positioned for the dramatic moves in equities and the VIX in the first few days of the month. As markets attempt to recover, it remains to be seen if this is a blip or the start of the next true crisis but whatever the case, we will continue to navigate using the VIX marketplace as our guide.
As always, feel free to contact us at any time with any questions.