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 Patton Flex Fund for March and more. For more information on the strategy of the Fund, visit our website here.
The Flex Fund 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.
* Compounded annually net of all fees.
Note: individual investor performance may differ.
The Flex Strategy closed the month of October down -2.9% while the S&P 500 coincidently delivered a similar return down -2.7%. In spite of this similar return for the month, the Flex and S&P continue to deliver distinctly different performance behavior moving in opposite directions 7 of the month’s 22 trading days. Furthermore, the Flex held onto its year-to-date performance lead over the S&P 500.
As would be expected during a month when the S&P 500 is down, the long positions in the Flex were also down but did perform relatively better than the S&P 500 losing just -2.1%. This is a relatively positive result while the disappointment 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 +0.8% resulting in the Flex losing the same amount.
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.
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 the Flex. This stock’s rally was fueled by signs that the economy is continuing to recover and shoppers will return to stores. The Flex exited this position on October 23rd.
Positioned for Market Gains
Our Flex 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 the Flex.
Starting in November the Flex 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 the Flex, it certainly has more impact. The Flex 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.