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This Model is Ready for Increased Market Volatility Ahead

 November 20, 2012 10:43 AM


The Volatility and Tactical Opportunity portfolio aims to benefit from the up and down swings of market volatility.

Volatility, as measured by the VIX, tends to be mean reverting over time (when volatility goes down, it will have a tendency to climb higher in the very short term). When volatility trends higher, the Volatility and Tactical Opportunity portfolio aims to benefit from potentially lower short term volatility by buying short volatility ETFs such as XIV and SVXY. When volatility goes down, there is a tendency for volatility to swing higher, and the portfolio aims to benefit by purchasing long volatility ETFs, such as UVXY.

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2012 has been a robust year for our Volatility and Tactical Opportunity portfolio, as there have been significant moves in both directions for volatility. October was a more difficult month for the portfolio, as volatility began to increase but not sufficiently enough to alter our positioning of the volatility portfolio which would benefit a more tranquil period of volatility; our position in XIV lost ground during the month as a result.

As we head further into the fall, our models will become more active should volatility continue to escalate.  The model will see more trading activity, with round-trips involving XIV/SVXY (short volatility) and UVXY (long volatility) as our mean reversion models dictate.

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The investments discussed are held in client accounts as of 11/1/12.  These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.

Certain information contained in this presentation is based upon forward-looking statements, information and opinions, including descriptions of anticipated market changes and expectations of future activity. The manager believes that such statements, information and opinions are based upon reasonable estimates and assumptions. However, forward-looking statements, information and opinions are inherently uncertain and actual events or results may differ materially from those reflected in the forward-looking statements. Therefore, undue reliance should not be placed on such forward-looking statements, information and opinions.

Covestor Ltd. is a registered investment advisor. Covestor licenses investment strategies from its Model Managers to establish investment models. The commentary here is provided as general and impersonal information and should not be construed as recommendations or advice. Information from Model Managers and third-party sources deemed to be reliable but not guaranteed. Past performance is no guarantee of future results. Transaction histories for Covestor models available upon request. Additional important disclosures available at http://site.covestor.com/help/disclosures. For information about Covestor and its services, go to http://covestor.com or contact Covestor Client Services at (866) 825-3005, x703.

Amin Khakiani

Focal Point Management, a California-based SEC registered investment advisor was founded by Amin Khakiani. Amin has a background in engineering

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