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PremiumPoints 1Q-2018 Issue

Posted: April 19, 2018 | by: Thomas F. McKeon, CFA

In this issue: 1Q-2018 Review & Outlook, OH...That Volatility, Portfolio Activity, Update on Clothier Springs Capital Partners, The Index Revolution Continues--Not Your Father's Portfolio, Alpha, Schmalpha

1Q-2018 Review and Outlook

As the graphic above shows, the markets finally took a little breather in 1Q- 2018. Only the emerging markets equities managed to eke out a small gain. Volatility--as measured by the VIX Index--spiked sharply higher in early February after several years of declining alongside growing investor complacency.

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OH...That Volatility

Market volatility was front-page news this quarter with market turmoil and the historic spike in the VIX. After spending most of January in the 10.00 to 12.00 range, the VIX soared to near 35.00 almost overnight as a brief market rout caused much consternation and short-covering of short VIX future positions. Being short the VIX futures had worked so well for so long that more than one hedge fund was launched to simply short the VIX.....it worked until it did not.

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Portfolio Activity

We added two new positions in most portfolios during 1Q-2018 and just after the quarter end as we reviewed portfolios. The Volatility Index (VIX) has been made tradeable though the creation of VIX futures. Due to the nature of futures and the construction of ETFs that hold them (VXX, VXZ), they suffer a constant erosion of value due to the “negative roll yield’ of maintaining a constant maturity futures position in the ETF.

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Update: Clothier Springs Capital Partners

Our partnership for private investment in the real estate and related markets commenced operations on February 15 2018 with the first placement of partnership assets with a Merchant Cash Advance business. We contracted for a three-year note, paying the partnership 18.0% annually, with monthly distributions of income.

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The Revolution Continues: Not Your Father's Portfolio

When I was still laboring as a market maker in the foreign currency markets at the Philadelphia Stock Exchange in the 1980s and I started to make a little money that needed to be invested, I met and engaged a broker from a well-known national brokerage firm—think who is “bullish on America.” I felt the need to work with a broker because even then I recognized that what I did for a living— trading—was not remotely similar to investing. So I sought guidance.

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