While VIX is low and markets are trending higher, hedge expense is the main risk to portfolios and in these periods, a dogmatic hedging approach often costs investors more than the market declines they seek to avoid.

For now, low VIX and tight credit spreads reflect little worry of imminent systemic stress and under such conditions, we view hedge expense as the main risk to manage with market decline risk taking precedence only once conditions turn enough to make an imminent crisis more likely.

Beyond just “hedging”, TCM’s focus is on risk management- whether from crisis declines or the risk presented by hedges themselves. Hedging restraint in pre-crisis conditions is how TCM outperforms its peers during bull markets like the past six months.

The month’s relatively hawkish FOMC meeting was taken in stride by markets, suggesting increasing reliance on actual economic outcomes rather than monetary stimulus for future gains.

While inflation remains and market divergences continue to mount, the “A.I.” narrative powers on.