Markets are still what I would call ambiguous. It’s been 5 weeks since the infamous Volmageddon or Volpocalypse and the front months of the VIX futures term structure is still in mild backwardation and the gap between front month M1 and the VIX is still pretty tiny. Also SVXY was at 12.91 on Feb 15th which was exactly one month ago, and yesterday it closed at 12.62.
It’s a pretty weak market right now so our “trend following”strategies will remain in safety positions. Our “market neutral”strategies will remain in trades. Let’s quickly review the difference.
1) Trend following strategies are those that capitalize on stronger directional price movements. Our core VTS Balanced Strategy and our VTS Combined Volatility Strategy are both what I would call trend following.
– In up-trending markets we attempt to be allocated into MDY stocks and short volatility
– In down-trending markets we attempt to be allocated into GLD gold and long volatility
– In non-trending markets (like we’re currently in) the only viable choice is safety positions because market signals are ambiguous. Which means IEF Bonds and Cash.
I believe a well designed diversified portfolio has both types within it because sometimes markets are following strong trends, and other times they just can’t choose a direction. The Total Portfolio Solutionis designed to have a mix of both so we can allocate to trades, but not all of them can be profiting from the same direction. We do need to attempt to keep inter-strategy correlations to a minimum and I hope my portfolio has achieved that.
I think we’re at a very interesting point in this market cycle and it could very well be a turning point. The “easy money” is gone. The Fed is not only out of the easing picture but they’ve already started actively reducing their balance sheet. Essentially all the low hanging fruit has been picked at this point.
Any further gains from here will likely need to be for good economic or sound policy related reasons. Let’s see if there are any left in this now 9+ year bull market run.
Current VTS Total Portfolio Solution Allocations
VTS Aggressive Vol Strategy – Optional replacement for higher risk tolerance investors
VTS Conservative Vol Strategy – Optional replacement for lower risk tolerance investors
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