New York (HedgeCo.net) Over the last 30 trading days, the overall stock market has seen its share of volatility with the S&P 500 gaining just under 2% from June 15 through June 23 and then losing over 3.5% from June 23 through July 8. From July 8 through July 14, the index gained over 3%. The see-saw action has created short-term trading opportunities, but investors had to be agile and their timing had to be spot on to make money on the swings. One of our composite models did seize on the swings rather well and that was the HedgeCoVest Technology Short-Only model.
The model gained 6.98% from June 2 through July 15 and this was while the overall market moved sideways. The model shows a YTD gain of 3.47% and that came even as the XLK gained just over 3%. The maximum drawdown was 10.38% and the correlation of -0.8 reflects that it has an inverse relationship to the overall market. The fund is moderately active with 18 positions open when this snapshot was taken.
The current allocation snapshot shows that 39% of the portfolio is dedicated to short positions in the semiconductor sector, 33% is allocated to short positions in the software sector and 28% is allocated to short positions in the hardware sector. The highest allocation being devoted to the chip sector has worked as the sub-sector has lagged the tech sector as a whole and it has lagged the overall market, both YTD and over the past 30 days.
Because it is a sector specific composite model, the HedgeCoVest Technology Short-Only model can benefit investors in a number of ways. If an investor has a portfolio that is heavily invested in the tech sector and is looking for a hedge, this model would definitely provide that. If an investor works in the tech industry and has heavier exposure to the tech sector through stock options and the like, this model can provide a degree of insurance against an overall decline in the sector.
If an investor is looking for short exposure in general, this model will provide that. It is worth noting that in the bear market from 2000-2002, the tech sector was the hardest hit sector and in the bear market from 2007-2009, the sector dropped more than 50% and was among the worst performing sectors yet again. Should the market enter another bearish phase, the tech sector would likely be among the worst performing sectors once again and the HedgeCoVest Technology Short-Only model should thrive in a bearish phase in the overall market.
Rick Pendergraft
Research Analyst
HedgeCoVest
