The following is to provide some insight and perspective on the performance of the Patton Flex Fund for March and more. For more information on the strategy of the Fund, visit our website here.
The Flex Fund is most often recommended as only one component of a Super-Diversified Portfolio. Therefore the information in this blog only pertains to one component of a Super-Diversified portfolio. For more on Super-Diversification, visit our website here.
* Compounded annually net of all fees.
Note: individual investor performance may differ.
At the end of May the Flex crossed into positive territory for the year gaining +3.9% for the month and higher by a fraction of a percent year-to-date. Although May’s performance for the Flex was very similar to the S&P 500’s gain of +4.5% for the month, the day-by-day performance could hardly be more different as illustrated in the below graphs.
During month of May, the Flex and the S&P 500 moved in opposite directions 10 of the 20 trading days! Across all 20 days, the average difference between the Flex and the S&P 500’s performance was 1.9% per day. These are staggering facts demonstrating one of the Flex’s key benefits of low correlation (statistically not moving up and down at the same time in the same way as the market). Even during the days when the two moved in the same direction, the difference in performance was often significant.
The following table highlights the 5 days of the month when the performance was most different between the Flex and S&P 500.
Tail of Two Halves
The performance of the Flex was distinctly different in the first half of May versus the second half as the accompany graph illustrates. During the first half, the long positions were nearly unchanged while the short positions were meaningfully profitable (falling in price). Around the middle of the month investors began to broadly favor some of the most beaten up stocks during the pandemic, stocks we are short, and they rallied sharply through the end of the month and into early June resulting in losses. Fortunately during the second half of May the long positions also rallied, but only about a third as fast as the short positions, still resulting in enough gains to leave the Flex higher for the full month.
Existing Shorts That Doubled
Every stock in the Flex is selected via a set of mathematical rules developed from my research on market data back to 1963. Mathematical rules also dictate when to exit stocks from the portfolio. One of the rules triggering an exit of a short position is when it doubles in price in a relatively short period of time (shorts going up in price result in losses for the Flex).
During the month of May we exited 11 short positions due to this rule (price doubling). This is the most stocks exited in a 30 day period due to this rule since the launch of the Flex in early 2010. Furthermore, there were only two times during our research back to 1963 where we saw more: 1.) during the early stages of 2009 coming out of the 2008 collapse, and 2.) during the bear market of 2000 – 2002.