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If you look at our Total Portfolio Solution performance chart up above there you’ll notice there’s two benchmarks.  I always like to include the S&P 500 because for most people it’s a pretty high bar.  We have a lot of statistics that show the large majority of investors substantially underperform that across their portfolio.  I also include the HFRI hedge fund index to give people a good representation of the active fund management side of things because again, the vast majority of hedge funds won’t beat the S&P 500 either.

Today I’d like to show another index that I’ve mentioned a few times in the past but haven’t really gone into much detail and that’s the CBOE Eurekahedge Index.  Here is the description straight from their website:

 

“The CBOE Eurekahedge Volatility Indexes is a suite of 4 indices developed by Eurekahedge with the support of the Chicago Board Options Exchange (CBOE).  With a total of 64 constituents, these indices aim to carefully measure the performances of hedge funds investing in volatility and thus, provide a new benchmark in the alternative investment industry to help professionals comparing their returns with their peers.”

 

So it is what it sounds like, a volatility specific benchmark.  Now everything I do here at Volatility Trading Strategies is specifically designed around volatility.  The VTS Conservative Vol and Aggressive Vol, as well as all our option trading is easy to see why that is.  However even the Tactical Balanced strategy which rotates between positions in stocks bonds and gold is getting all the signals from the volatility metrics that I track so it’s also what I consider a volatility strategy.  It’s just using non volatility underlying vehicles to represent the trades.

 

CBOE Eurekahedge Index since Jan 2012:

So it’s actually a little lower than even the HFRI Hedge Fund Index on both absolute and risk adjusted measures.  I guess the take away here is, it’s not just a matter of shorting volatility and forgetting about it.  If only it were that easy, but clearly even most professional fund managers struggle to use volatility for any real benefit to client portfolios.  I often times here people commenting on performance records and say things like:

–  “That’s good but it’s volatility so it’s much easier.”
–  “Just follow the term structure, M2>M1 stay short.”
–  “You can’t compare to the S&P because option trading makes higher profit.”

None of that is backed by actual statistics for real performance of financial professionals.  Turns out, ALL investing is hard whether it’s equities, fixed income, or alternative methods.  It’s all very difficult to get a decent rate of return in the long run.

 

So while I won’t include the CBOE Eurekahedge Index in our Total Portfolio Solution performance chart going forward, I will revisit it from time to time because it is a much closer benchmark to what I do with my investments.  Volatility specific trading which of course I strongly believe is the best way to gauge the temperature of the markets and react accordingly.

 

Current VTS Total Portfolio Solution Allocations

10% VTS Conservative Vol Strategy  –  Optional replacement for lower risk tolerance investors

10% VTS Aggressive Vol Strategy  –  Optional replacement for higher risk tolerance investors

50% VTS Tactical Balanced Strategy

20% VTS Iron Condor Strategy

10% VTS Discretionary Strategy

Temporarily paused:  VTS Tactical Volatility Strategy

 

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