The Volatility and Tactical Opportunity portfolio aims to benefit from the up and down swings of market volatility. Volatility, as measured by the, tends to be mean reverting over time (when volatility goes down, it will have a tendency to climb higher in the very short term).
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When volatility trends higher, the portfolio aims to benefit from potentially lower short term volatility by buying short volatility ETFs such as the VelocityShares Daily Inverse VIX Short Term ETN and ProShares Short VIX Short Term (SVXY). 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 Futures.
2013 has been a robust year for our Volatility and Tactical Opportunity portfolio, as there have been significant moves in both directions for volatility. July was a great month for the portfolio, as volatility began to decrease substantially and the portfolio was nicely positioned to benefit a more tranquil period of volatility; our position in XIV gained substantial ground during the month as a result.
As we head further into the summer, our portfolio will become more active should volatility continue to escalate. If this happens, the model will see more trading activity, with round-trips involving XIV/SVXY (short volatility) and UVXY (long volatility) as our mean reversion models dictate. If, instead, volatility stays low, the portfolio will remain in XIV and SVXY positions.
The investments discussed are held in client accounts as of July 31, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.
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Covestor Ltd. is a registered investment advisor. Covestor licenses investment strategies from its Model Managers to establish investment models. The commentary here is provided as general and impersonal information and should not be construed as recommendations or advice. Information from Model Managers and third-party sources deemed to be reliable but not guaranteed. Past performance is no guarantee of future results. Transaction histories for Covestor models available upon request. Additional important disclosures available at http://site.covestor.com/help/disclosures.