Manager: Focal Point Management
Model: Volatility and Tactical Opportunity
The Volatility and Tactical Opportunity portfolio aims to benefit from the up and down swings of market volatility. Volatility, as measured by the VIX, tends to be mean reverting over time (when volatility goes down, it will have a tendency to climb higher in the very short term).
When volatility trends higher, the Volatility and Tactical Opportunity portfolio aims to benefit from potentially lower short term volatility by buying short volatility ETFs such as VelocityShares Daily Inverse VIX Short Term (XIV). When volatility goes down, there is a tendency for volatility to swing higher, and the portfolio aims to benefit by purchasing long volatility ETFs, such as ProShares Ultra VIX Short Term Futures ETF (UVXY).
2012 has been a robust year for our Volatility and Tactical Opportunity portfolio, as there have been significant moves in both directions for volatility. September was a particularly strong month for the portfolio, as volatility continued to decline and our volatility portfolio was well positioned to benefit from a more tranquil period of volatility; our position in XIV gained ground as a result.
As we head into the fall, our models indicate the currently lower volatility will likely stay for a period of time, and the model remains positioned to benefit from reduced to flattish volatility and will remain so until conditions change. So, as of the end of September, we remain in XIV (short volatility) positions until conditions warrant a change.
Disclosure: The index comparisons herein are provided for informational purposes only and should not be used as the basis for making an investment decision. There are significant differences between client accounts and the indices referenced including, but not limited to, risk profile, liquidity, volatility and asset composition. The S&P 500 is an index of 500 stocks chosen for market size, liquidity and industry, among other factors.
The investments discussed are held in client accounts as of September 30, 2012. These investments may or may not be currently held in client accounts.The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or that investment decisions we make in the future will be profitable.
Certain of the information contained in this presentation is based upon forward-looking statements, information and opinions, including descriptions of anticipated market changes and expectations of future activity. Covestor believes that such statements, information, and opinions are based upon reasonable estimates and assumptions. However, forward-looking statements, information and opinions are inherently uncertain and actual events or results may differ materially from those reflected in the forward-looking statements. Therefore, undue reliance should not be placed on such forward-looking statements, information and opinions.
