the more things change
YTD Returns as of 2/28/25. Source: TCM, Barchart.com. Click for larger image.
Retracing most of January’s gains with modest losses (S&P 500 -1.3% MTD) in February, US stocks extended the back-and-forth that has now seen the S&P 500 index alternating gains and losses for six consecutive months with very little net progress.
Meanwhile, other recent trends seem to be reversing with performance in 2025 (chart) so far found mainly outside of the US (MSCI EAFE +7.9% YTD) rather than in the vaunted “Mag 7” tech names (MAGS -5.9%, Nasdaq 100 -0.6% YTD) as the market seems to be moving from the AI capex story to “AI 2.0”- the applications of the technology rather than its infrastructure.
Picking up on early signs of stress from the Volatility Dashboard, initial VIX positions produced value for TCM portfolios in February with partial profits booked near the close of the month and the remaining exposure carried over into March with room to expand should the VIX trend higher continue (chart).
Tactical Beta strategy exposure, trailing 100 day as of 2/28/25. Source: TCM. Click for larger image
Adding to the complexity, US tariffs and the cost-cutting efforts of the Dept of Government Efficiency (DOGE) have created simultaneous concerns over growth and inflation in the US, the dreaded “stagflation” scenario in which growth struggles while the Fed’s printing presses are forced to the sidelines. Indeed, based on recent experience with Argentina’s sharp reduction in government spending, it is not unreasonable to expect a temporary contraction of GDP as the US deficit is curtailed in the ultimately healthy process of transitioning to real, low-inflation growth from the productive private sector.
While this process has coincided with strong gains for the Argentinian stock market, it has not come without volatility and there is little reason to expect different in the US. Clearly, there are risks to manage but how does an investor do so without sacrificing too much return? How should the risk from hedging itself be managed?
Unlike its competitors, TCM’s risk management philosophy is not just about hedging or volatility reduction but about striking a more profitable balance between cushioning declines and preserving upside. As demonstrated over the past 8+ years, an imbalance in either direction (too hedged or too risky) eventually leads to lower, not higher portfolio values (chart).
Cumulative Return, Nov 2015 - Feb 2025. Source: TCM, Barchart.com. Click for larger image
With this in mind, TCM continues to approach today’s risks tactically- taking cues from the VIX, neither permanently hedged nor unhedged- without expecting perfection. Though the “permanent” (indexing or continuous hedge) approaches will inevitably appear attractive in particular periods, TCM portfolios will remain focused on the big picture, seeking the most profitable balance of upside and downside exposure over the long term.
While equity drawdowns are a real risk, it is often hedging that destroys more value over time through its limiting of upside exposure. By explicitly seeking to balance these two ends of the risk control spectrum, we believe the Tactical Beta and Tactical Q strategies offer the best value proposition of any hedged equity offering on the market today and we look forward to continuing to prove the concept out.