05 November, 2020 Audacity Strategy

Audacity Strategy - November 2020 Update

All blog content is for information purposes. Any reference to indivisual stocks, indexes, or other securities as well as all graphs and tables are not recommendation but only referenced for illustration purposes.

The following is to provide some insight and perspective on the performance of the Audacity Strategy for March and more. For more information on the strategy, visit our website here.

The Audacity Strategy is most often recommended as only one component of a Super-Diversified Portfolio. Therefore the information in this blog only pertains to one component of a Super-Diversified portfolio. For more on Super-Diversification, visit our website here.

Performance Summary

Audacity Strategy performance

* Estimate based on Patton Funds calculations.

Note: the Year-to-Date return is back-tested through 3/31/2020

The Audacity Strategy closed the month of October down -4.8% while the S&P 500 coincidently delivered a negative return down -2.7%. In spite of both closing the month down, Audacity and S&P continue to deliver distinctly different performance behavior moving in opposite directions 7 of the month’s 22 trading days.

As would be expected during a month when the S&P 500 is down, the long positions in Audacity were also downcontributing to -3.5% of the month’s total loss. The disappointment though was on the short side. In a down month, we generally expect our short positions to be profitable (they go down in price and we profit) but that was not the case in October as the short positions, on average, gained +1.4% resulting in Audacity losing the same amount.

Performance Breakdown

Example of a Winning Short

As noted above, our short positions generally moved higher costing us return in October but that certainly was not the case for all positions. Novavax, Inc. (NVAX), a biotech company with little sales and never profitable, was an example of a profitable short. As illustrated in the accompanying graph, the stock fell from $108 at the start of the month to $81 by the end.

Novavax, inc. (NVAX) stock price

Source: www.YCharts.com

Example of a Losing Short

Tapestry, Inc. (TPR), the retailer of brands such as Coach, Kate Spade, and more, saw its stock rally in October as highlighted in the accompanying graph resulting in a loss for Audacity. This stock’s rally was fueled by signs that the economy is continuing to recover and shoppers will return to stores. Audacity exited this position on October 23rd.

Tapestry, inc. (TPR) stock price

Source: www.YCharts.com

Positioned for Market Gains

Our Audacity Strategy is neutral during the months of June through October meanings that we have similar exposure on both the long and short side of the portfolio. During these months the direction of the market has nearly no direct impact on the performance of Audacity.

Long-Bias November through May

Starting in November Audacity tilts to a long-bias during which time we have more money invested in long positions than shorts. Although the market’s direction will NOT entirely dictate the performance of Audacity, it certainly has more impact. Audacity is designed this way because decades of market history suggests the market’s performance tends to be strongest during the months of November through May and our goal is to capture more of these gains.

Contact Mark A. Patton :