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.
The Flex added to its March gains in April but did lag well behind the S&P 500’s biggest gain in 30+ years. The underperformance of the Flex during the month was almost entirely the result of the short positions.
The accompany graph shows the allocation of the short positions as of the end of April with energy stocks making up 25.6% of the total. These energy stocks have been very profitable to be short in 2020 but on average rallied +30.8% in April, costing the Flex -4.8% of return alone for the month, as investors were clearly bottom fishing in some of the most beaten up stocks. Some of the biggest movers are shown in the below table.
Shorts Outperformed Longs
The average short position rallied +19.0% in April, causing loses (shorts going higher cause loses), while the average long position gained only +11.4%. The Flex produced a gain in spite of this due to the long-bias (more longs than shorts) in place. Only 4 of the 53 short positions generated a profit while 71 of the 79 longs did so.
The performance of the Flex continues to be relatively uncorrelated to the S&P 500 (not moving up and down at the same way at the same time). The below graph shows some select dates from April when the performance between the two was significantly different.
As the graph shows, on the 1st and the 15th the S&P 500 fell sharply while the Flex was down far less while on the 17th and 27th the S&P 500 surged higher and the Flex was down fractionally. This performance behavior is exactly what we want and expect from the Flex and has contributed significantly to its long-term success.
Healthcare Stocks Added to Longs
The Healthcare sector has been one of the best performers in 2020 down just -1.3% for the year. The Flex added 4 new long positions in the healthcare sector increasing the long allocation to this sector from 6.3% at the end of March to 17.5% at the end of April.