As most of you are probably aware, over the last month or so the markets have been making large moves both upwards and downwards. In fact the level of these moves as measured by the VIX, which measures volatility in the S&P 500, is at a level not seen since April 2009. What this means right now is markets which normally stay within a certain range most of the time, are now making moves with magnitudes only seen around 5% of the time or less. During these unusual times of high volatility, our Market Neutral Strategy tends to underperform. While implementing the strategy last November through March, markets stayed within the ranges we would expect based on underlying market conditions. However in the last month or so, we have moved well outside those expectations and hence our performance has suffered. In our covered call writing strategies we have been carefully adjusting positions to collect additional income.
In times like these it is tempting to try to shift gears and change our investing strategies. However, as someone who’s been doing this for 25 years, it is best to “stick to our knitting”. First, despite what might be said by the so called experts, it is very difficult to predict when things will turn. Our covered call strategy sells calls during this time to bring in additional income to buffer some losses on the equity part of client portfolios. The Market Neutral Strategy, when re-established, can take advantage of the more volatile environment by putting on positions for about the same cost but with much more room for the markets to move. This can often lead to faster profits when markets do settle down and price volatility subsides.
Market environments like the one we are experiencing are always concerning. But know we are carefully monitoring all positions based on years of experience and strict risk management and making adjustments when appropriate. If you have questions about your individual portfolio give us a call. In the meantime, don’t focus on the talking heads of CNBC, but rather on your long-term investment strategy. This is not the first or last time we will experience this type of market – just remember that a sound long term investment strategy will allow a portfolio to achieve the proper objective even through the most tumultuous times.
Market Commentary – May 20th
20. May, 2010 Categories: Market Commentary, Volatility by steve 0 Comments
As most of you are probably aware, over the last month or so the markets have been making large moves both upwards and downwards. In fact the level of these moves as measured by the VIX, which measures volatility in the S&P 500, is at a level not seen since April 2009. What this means right now is markets which normally stay within a certain range most of the time, are now making moves with magnitudes only seen around 5% of the time or less. During these unusual times of high volatility, our Market Neutral Strategy tends to underperform. While implementing the strategy last November through March, markets stayed within the ranges we would expect based on underlying market conditions. However in the last month or so, we have moved well outside those expectations and hence our performance has suffered. In our covered call writing strategies we have been carefully adjusting positions to collect additional income.
In times like these it is tempting to try to shift gears and change our investing strategies. However, as someone who’s been doing this for 25 years, it is best to “stick to our knitting”. First, despite what might be said by the so called experts, it is very difficult to predict when things will turn. Our covered call strategy sells calls during this time to bring in additional income to buffer some losses on the equity part of client portfolios. The Market Neutral Strategy, when re-established, can take advantage of the more volatile environment by putting on positions for about the same cost but with much more room for the markets to move. This can often lead to faster profits when markets do settle down and price volatility subsides.
Market environments like the one we are experiencing are always concerning. But know we are carefully monitoring all positions based on years of experience and strict risk management and making adjustments when appropriate. If you have questions about your individual portfolio give us a call. In the meantime, don’t focus on the talking heads of CNBC, but rather on your long-term investment strategy. This is not the first or last time we will experience this type of market – just remember that a sound long term investment strategy will allow a portfolio to achieve the proper objective even through the most tumultuous times.
Tags: Market Commentary