Logical Invest Investment Outlook - July 2016

Our top year-to-date strategies:

SPY, the S&P500 ETF, returned 3.82%, year-to-date.

Market comment:

The big event for June was the British E.U. membership referendum. Contrary to widespread expectations, Britain’s vote was in favour of leaving the Eurozone. Anyone trading on the 23rd experienced unprecedented volatility as the VIX first crashed on expectations of the “remain” camp winning and subsequently spiked up as the actual results came in.

As of this writing the SP500 has almost recovered. Still, this provides an excellent opportunity to see how our strategies perform under a real and unprecedented market shock.

Our core strategy, UIS saw a drawdown of barely -1.45%. Our BUG leveraged strategy, being 200% invested, lost no money and returned +7.4%, its majority allocation being in gold, treasuries and inflation protected treasuries (TIPS).  Our year-to-date top performers, the UIS 3x and MYRS strategies, returned +10.4% and +7.4%, completely ignoring the ‘black-swan’ event.

So let us take a closer look and see why our strategies remained robust in this type of risky environment. Most of our current subscribers are familiar with the fact that all our strategies are hedged using treasuries, some using gold as well. The idea is to participate in longer term growth through equity investment while hedging  part of the portfolio in a leveraged treasury ETF. When a market negative event materializes, money flows to traditional safe heavens like treasuries or gold. Having a (variable) allocation to these will dampen the shock to the portfolio and sometimes even provide profit, especially if the shock to the system is temporary and the equity part recovers. Of course all this assumes that ETFs like SPY and TLT/GLD are inversely correlated, which is mostly the case.

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