Performance Update

Performance Report: 09/30/20

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All performance data for our strategies is net of all fees and expenses.  All performance data for indexes or other securities is from sources we believe to be reliable.  All data is as of 9/30/2020.

Investment Strategy

MAP Long-only (IRA)

Map Long/Short (Margin)

S&P 500 Index

YTD Returns

9.6%

5.1%

4.1%

Daily Volatility

0.43%

0.46%

1.52%

Worst Day

(3.2%)

(3.4%)

(10.9%)

We gave back some YTD gains this past month but our strategies continue to do well both in absolute terms and on a risk-adjusted basis.  Both strategies have generated returns in excess of our benchmark, the S&P 500, with less than 1/3 of the volatility.  The past couple of months have not been as profitable as was earlier in the year as our precious metals exposure underperformed the broad markets.  Fortunately, our MAP system had us liquidate the majority of equity and some of our precious metals exposure in July and August allowing us to lock in some strong gains.  Unfortunately, we didn't liquidate all our metals exposure and gave back some gains.

Market Update

After an incredible run, the stock market retreated this past month.  Volatility picked up and it is clear the Covid-19 is taking a bigger toll on the economy than what stock market investors have allowed for.  The FED will continue to pump more liquidity into the space.  Thus far they have succeeded in pushing stock prices up and stock valuations far beyond historical extremes.  Part of their plan is to keep interest rates at 0% providing retirees with no alternatives than to assume more risk in their investment portfolios. 

Over the past week, there have been heartbreaking reports of massive layoffs.  These layoffs will gradually work their way into the economy.  If the US government can agree on further stimulus, it would certainly stave off economic hardship for large sections of the US populace.  But at what cost? 

On the positive side, there seems to be some real progress on the vaccine front.  And every day, we are learning more and more about how to contain and treat the virus until a vaccine or some other systemic solution becomes available.  In Europe, they are training dogs to sniff out Covid with remarkable success.   If a real solution presents itself soon, the economy could come roaring back.  But my expectations are tempered as even a vaccine will take more time to prove itself and considerable time to make and distribute.  Assuming this happens sooner rather than later, the ability of the FED to support markets will lend further credence to their efforts.

There is one major risk I am keeping a mindful eye on.  This past month, there was considerable price inflation for daily staples.  I can’t recall a time since 2005 when the prices of corn, soybeans, sugar, and wheat went up while stock prices fell.  These commodities all increased between 6 – 8% this month.  Price inflation, specifically commodity price inflation, is the FED’s kryptonite.  If the prices for everyday essentials continue to go up, the FED will have to become more hawkish.  These commodities have only appreciated for a couple of months and that certainly does not constitute a trend, but it is worth watching.

Conclusion

My MAP system is doing a wonderful job of identifying low-risk opportunities while my strict approach to risk management is minimizing any losses.  The latter is growing more important as the stock market is undergoing a significant shift.  Over the past 10 years, stocks more or less went up and down in tandem.  Now we are seeing stock prices across the board come unhinged from the indexes.  Energy and many travel-related stocks are near their 52-week lows while some tech names continue to blast into the stratosphere.  I have touched on this in past updates where I see the market becoming a stock picker's paradise while indexes may fail to provide meaningful returns.  In this type of market, the MAP will continue to buy stocks of all shapes and sizes but our risk management process will sift out the weak performers and allow the strong ones to run.  

If you have any questions about your account or about our strategy, please do not hesitate to give us a call at 830 | 460 2050.

All the best,

Matt McCracken