In light of the very fluid situation in markets, we will forgo the usual review of what is by now quite stale information. For the most timely updates, we recommend subscribing the Little Harbor Volatility Watch, a weekly newsletter authored by Matt & Mike Thompson.

TCM clients can always find updated portfolio information using the Black Diamond portal and as always, feel free to Contact Us with any other questions.

Fertile Ground

Volatility is like fertilizer—smelly, uncomfortable, and absolutely essential for portfolio growth. Of course with too much, a major drawdown or ill-timed emotional reaction become real threats. It is TCM’s mission to help investors navigate these twin risks with a system that aims to maintain portfolio volatility in the optimal zone for long-term growth by buffering extreme volatility while taking care to avoid the more subtle damage from over-hedging.

Unlike typical hedged equity approaches, TCM strategies pursue total return using a tactical risk management approach designed to produce not lower volatility but an up/down capture asymmetry (higher up than down capture) that enables attractive long-term growth with acceptable volatility. Now in the midst of the third major volatility spike in the past 8 years, TCM strategies continue to prove this concept out.

Though investment returns are reported on a calendar basis (see 1,3,5 and since inception returns here), an investor’s actual experience is more often oriented around major peaks and valleys in the market. Viewing returns on this basis (chart below), the up and down capture concept becomes clear. For example, in the period since the last S&P 500 correction (close -10% or more from a peak) on 10/31/23, Tactical Beta captured 83% of the gain to its peak on 2/19/25, followed by 65% of the decline through the first week of April (chart).

While other hedged equity strategies reduced exposure about equally in each phase, the subtle up/down asymmetry of Tactical Beta during this period resulted in higher cumulative return than its peers* and even the market itself, with less volatility and lower drawdowns than an unhedged index exposure- precisely the long term goal for TCM’s risk-managed equity strategies.

*Equal-weighted composite of JPM Hedged Equity (JHEQX), Swan Def Risk (SDRIX) and Gateway Fd A (GATEX)

*Cumulative net return, 11/1/23 - 4/425. Time period reflects the dates of the last two corrections (closes -10% or below a recent peak) in the S&P 500. See* *thompsoncm.com/documents* *for 1, 3, 5 and since inception figures. Hedged Equity Peers is an equal-weighted composite of JPM Hedged Equity (JHEQX), Swan Def Risk (SDRIX) and Gateway Fd A (GATEX). Click for larger image*

In addition to a tactical (not continuous) hedging approach, this asymmetry is made possible by the historically positive skew of VIX returns. While relatively rare and not always neatly aligned with declines in the S&P 500 (i.e., in 2022), large positive outliers in the VIX represent a concentrated source of potential alpha for TCM strategies. With exposure to several of these events since inception in 2016, it is no wonder why the longest-running portfolios in Tactical Beta are closest to the goal of equity-like returns with less risk (chart).