mob mentality
In a kind of technological riot coordinated on social media and “gamified” trading platforms like Robinhood, retail investors charged into several heavily-shorted stocks en masse in January, sparking epic squeezes that ultimately destabilized the entire market as over-exposed hedge funds scrambled to reduce risk (see gallery below). The stress came to a head in a wild final week which saw the S&P 500 fall over 3% and the VIX spike to its highest levels since the election.
Responding to signs of VIX strength in the days prior to the drama, timely volatility exposures kept TCM strategies firmly in the green during a month which saw most indexes lower (see table below). After a 62% spike in the VIX index on Jan 27 (the largest ever for a -2.5% S&P 500 day), signs of volatility fatigue from the Dashboard led to a quick about-face as TCM portfolios booked hedge profits and increased bullish exposure near month end.
Legacy Navigator net of 0.50%, Alpha Seeker and Smart Index strategies net of 1% and Hedged Disruptive Innovation net of 2% management fee. Click for larger image
With markets recovering sharply in the early part of February, it looks as if the acute adjustment phase has run its course. As always, we will continue to follow a systematic yet flexible approach, looking to the VIX marketplace to guide our portfolio exposures.
Please feel free to contact us or schedule a webinar for further details.