from concentrate

*S&P 500 consensus 2024 earnings estimates. Source: Factset, GS Global Inv Research. Click for larger image*

Benefitting from historic concentration in surging megacap tech names, large cap US stock indexes (Nasdaq 100 +6.2%, S&P 500 +3.6% Jun) hit new all time highs in June as soft employment & CPI boosted the case for lower inflation and supported a rally in bonds (Bloomberg Aggregate Bonds +1.0% Jun).

Outside of the US, Emerging Markets (MSCI Emg Mkts +3.6% Jun) were higher for a fourth consecutive month while European markets (MSCI EAFE -1.6% Jun) declined on political worries following French elections.

While VIX is low and markets are trending higher, hedge expense is the main risk to portfolios and in these periods, a dogmatic hedging approach often costs investors more than the market declines they seek to avoid. For example, in the rally since Nov 2023, traditional hedged equity strategies* have underperformed Tactical Beta by 12.4% through June, forfeiting in eight months the entire 11.4% advantage gained during the unusual low-volatility bear market of 2022. *Equal-weighted composite of JP Morgan Hedged Equity (JHEQX), Swan Def Risk (SDRIX) and Gateway Fund Cl A (GATEX), rebalanced monthly.

While market declines tend to attract all of the attention, a loss of value from hedging is just as real and for continuously hedged strategies, much more frequent. Far from an outlier, periods like the past eight months are commonplace in Tactical Beta’s history with the strategy outperforming its hedged equity peers in 82% of all eight month S&P 500 rallies since inception by an average of 11.4%. Combined with the effectiveness of VIX hedges during crisis conditions, this comprehensive approach has been a winning combination over the past eight years (chart) and with markets soaring on ever more precarious assumptions, we expect it to create much more value on the road ahead.