Performance Summary

^* Compounded annually net of all fees.

Note: individual investor performance may differ.

June's Performance

The month of June started rough with the Flex down 6 consecutive days for a total loss of -12.6% while the S&P 500 was higher in 5 of those 6 days rising a cumulative +6.2%. As difficult as this is, it does clearly demonstrate the low correlation of the Flex to the S&P 500 as the performance behavior of the two are often very different from one another.

To better understand what drove the weak start to the month followed by a near full recovery, I have created the two following stock indexes:

The stocks in these two indexes are much as you would expect with the High Risk 50 including airlines, cruise lines, and energy stocks while the Low Risk 50 include health care, food manufacturers, and technology stocks as examples (click here to see a full list of the stocks in both indexes). These two indexes help us see the amazing flip-flop in investor sentiment from one period to the next including during early June as compared to the remainder of the month.

As the above graph shows, the High Risk 50 stocks surged +38.3% during the first week or so of June. Keep in mind these are the stocks that collapsed the worst during the market decline in February and March…airlines, cruise lines, and energy stocks as examples. Our Flex Strategy was short 22 of these 50 stocks! meaning as they rose in price, we lost money. At the same time, the Low Risk 50 hardly moved. These were the stocks that held up the best during the market selloff but only gained a fraction while the S&P 500 gained +6.2%. The Flex was long 17 of these Low Risk 50 meaning that our long positions were doing little to offset the losses of our short positions at the start of the month.

As the month continued, the High Risk 50 fell an average of -22.1% while the Low Risk 50 continued to edge up fractionally gaining +0.2%. During this time of June 8th through the rest of the month the S&P 500 declined -4.1% but our Flex recovered much of its early month losses.

Positioned for Safety

Our Flex Strategy tilts to a long-bias during the months of November through May during which time we have more money invested in long positions than shorts and a rising market is therefore helpful. From June through October the Flex is roughly neutral meaning we have roughly similar amounts of money in long and short positions (when adjusting for volatility).

Being that it is the month of June we are in this period of neutrality which means the direction of the market has nearly no direct impact on the performance of the Flex. This does NOT mean we cannot lose money, of course and as it did in June, but that a significant market decline would not have a direct impact. We saw this during June when the Flex posted gains during 7 of the 8 days when the S&P 500 was lower. Very few investments are positioned to deliver such performance.

New Long Position Example

Although the Flex has many long positions that tend to be among the more conservative stocks in today’s environment such as Procter & Gamble (PG), Netflix (NFLX), and Walmart (WMT), it added Chipotle Mexican Grill (CMG) during the month.

Chipotle is an example of stock that was hit relatively hard during the selloff, down -50%, but has since fully recovered and hit new all-time highs. Hitting new all-time highs does make it distinctly different than the stocks in the High Risk 50, those hit the worst during the selloff, that remain down an average of -44.8 year-to-date while Chipotle is now higher by +25.7%.