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 Flex and Market Downturns
If you want an investment that always goes up when the market goes down, it requires having an investment that always goes down when the market goes up. This is not what the Flex Strategy does!
Low Correlation…NOT Negatively Correlated
The Flex has low correlation to the S&P 500. This means that the direction of the S&P 500 does not have a meaningful impact on the direction of the Flex’s performance. In other words, when the S&P 500 is down like it has been the past week and a half, the Flex could be down, could be up, or could be flat…they are generally disconnected but NOT inversely connected (negatively correlated).
This disconnected performance between the Flex and S&P 500 has been demonstrated over and over since its launch more than 10 years ago. The table below illustrates this.
S&P 500 Declines of -5% or More
This table includes every decline of the S&P 500 by -5% or more since the launch of the Flex in January 2010. The performance of the Flex is included as well along with the difference between the two in the far right column.
A positive in the Difference column occurs when the Flex has done better than the S&P 500. As this data clearly demonstrates, when the S&P 500 is down the Flex sometimes does better and other times does worse than the S&P 500. Remember these are all of the periods when the S&P 500 has declined by at least -5%.
Length of Time Makes a Difference
When investing, the longer the time period, the more likely it is that we get what we expect. For example, investors generally expect stocks to perform better than bonds. This is true over longer period of time but certainly not all shorter periods of time. The same is true with the Flex and our expectations.
In the table above I highlighted all of the periods when the S&P 500 declines occurred in 30 days or less…shorter periods of time. Of these six short declines, the Flex did better only twice. In the eight other periods when the S&P 500’s decline persisted for more than 30 days, the Flex did better than the S&P 500 in all but one. Clearly the more time that passes, the more likely it is that the Flex helps mitigate some losses in down markets.
Performing Exactly as Expected
Every bit of evidence and research demonstrates the Flex is performing just as expected. If this market decline persists, I would expect the Flex to gain ground on the S&P 500 and help reduce losses in a diversified portfolio. Furthermore, I expect the Flex to continue outperforming the S&P 500 over longer periods of time, regardless if it is a bull market or bear market, just as it has since its launch more than 10 years ago.