Manager: Focal Point Management
Disclosures: XIV, UVXY
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 ETNs such as the VelocityShares Daily Inverse VIX Short-Term Index (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 the ProShares Ultra VIX Short-Term (UVXY).
This year has been a robust period for our Volatility and Tactical Opportunity portfolio, as there have been significant moves in both directions for volatility. July was a 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 further into the summer, 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 July, we remain in XIV (short volatility) positions until conditions warrant a change.