U.S. Equity Index Income & Protection Fund
"Some people dream of success, while other people get up every morning and make it happen."
~ Wayne Huizenga
The Strategy aims to benefit from the precious metals' secular bull market which began in 2001, while seeking diversification and protection against today's extreme global stock market risks.
The Strategy seeks to generate alpha from price differentials in precious metals and equity markets through the application of thorough, integrated analyses. Slingshot effects resulting from a volatility trend reversal are expected to remove the still-available extreme premium under-valuations that make exponentially increasing sizable gains possible; the potential for profits will persist for a number of years due to the unfolding of these long term trends.
The Fund's objectives are to exploit historically low premiums that do not reflect our expectations for future volatility (VIX, VXSLV, GVZ, etc.), precious metals, and global equities. Quantitatively, after identifying superior fundamental, valuation and technical factors, the fund invests in customized warrants referencing specific precious metals and equity indices. The potential for exponential returns stems from:
◊ Risk premiums IN GENERAL, which set record lows at the beginning of 2018
◊ Long-dated warrant premiums ON AN ABSOLUTE BASIS, which do not reflect historically asymmetric trends between precious metals and global equities.
◊ Warrant time premiums ON A RELATIVE BASIS, i.e. longer-dated warrants that are undervalued relative to shorter-term option premiums.
Recent developments in the precious metals markets have greatly increased the risk of an upside acceleration in the New Year (2020) and beyond, which would be consistent with a sharp downturn in equities. Successful outperformance is independent of the more leveraged and therefore, more rewarding scenario of asymmetry. Still, asymmetric performance is viewed as a matter of course.
June 1, 2020: Since the product descriptions below were uploaded on January 9, 2019, prices and volatility premiums have dramatically changed. For the precious metals outperformance program, the Strategy was poised for windfall gains resulting from the asymmetric performance of the 2 asset classes, as well as the historically swift changes in their prices and the eruption in the respective asset classes’ option premiums. Indeed, the Strategy was perfectly poised to achieve the purpose of ‘highly efficient portfolio asset reallocation from stocks to PMs.’ For the stock index rules-based Strategy, any accruing gains resulting from the sustained pre-2020 market advance, could have enjoyed windfall profits on multiple occasions during 2020’s 1st quarter (see this year’s reports).
The Fund's rules-based strategy seeks to benefit from favorable pricing in equity index options (implied volatility) vis-a-vis their historic volatilities. Specifically, by exploiting the relationship between shorter and longer-dated contracts, the Strategy aims to provide ongoing income, as well as leveraged insurance against sharp equity index declines.
The Strategy demonstrated respectable gains after positive quarters, along with 65-95% profits after sharp bear market-style declines. Importantly, the Strategy deploys only 20% of the fund's book value (profits are not reinvested). This speaks to an unusual risk/reward ratio.
Therefore, since positive quarters all but assure a gain, the vehicle does not represent a holding which is dependent on bad markets, while seeking to hedge portfolios during today's dangerous period for equity investment.
Having subjected the trade program to stress tests within the post-2009 bull market, the Manager was able to conclude that the fund should be profitable in all markets over any reasonable period of time. The Strategy was not simply run through back-testing scenarios utilizing 'cherry picked' periods. Analysis was conducted on how the Strategy behaved from 'trough to peak,' as well as 'peak to trough' periods within the decade-long bull market (research available upon request).
To maintain superior pricing when repositioning after sizeable gains are realized as a result of a sharp market decline, the Strategy's rules-based criteria includes a VIX component.
The Strategy is the perfect response to the Manager's belief that global equities are at magjo highs, viewing 2000 as having marked the summit of equities' "real" inflation-adjusted peaks in both financial, as well as economic terms.
Consistent with peaking equity markets, volatility premiums returned to historically low levels in 2019. The manipulation of global asset markets via currency printing and interest rate suppression has created unsustainable, artificially inflated equity valuations.