Complacency, greed and fear are the emotions that dominate the market, especially the options market. As a result, Volatility Index or VIX can sometimes behave very irrationally. The Valarian Volatility Harvest strategy seeks to exploit unique opportunities to short volatility when the market is too fearful, and to buy volatility when the market is too greedy or complacent. These opportunities present themselves once or twice a year and usually last several weeks or months. When there is no opportunity to harvest the mispricing of volatility, this strategy stays in cash. The Volatility Harvest strategy is best used as a complement to core holdings. The strategy is available as a separately managed account (“SMA”) for investors who do not mind: 1) waiting in cash for lucrative opportunities, 2) occasionally enduring significant volatility for the prospect of high returns. The strategy is also available as a subadvisor to the clients of investment advisors (requires trading authorization), or as signals for investment advisors who wish to retain trading control. Key features include:
Past performance of any Kerns Valarian strategy is not an indication of future results. There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. Investing involves risk and possible loss of principal, including foreign currency exchange rates, political risks, market risk, interest rate risk, different methods of accounting and financial reporting. Investors should carefully consider the investment objectives, risk and expenses of any investment strategy before investing.
VAMI means Value Added Monthly Index. The returns shown reflect an index of the strategy. Strategy performance does not reflect any management fees, transaction costs or other expenses that would be incurred by a portfolio or fund, or brokerage commissions on transactions. Such fees, expenses and commissions would reduce returns.
All information presented prior to the live date of any Kerns Valarian strategy is back-tested and hypothetical and provided for informational purposes only to indicate historical performance had the index strategy been available over the relevant time period. Backtested performance does not represent actual performance and should not be interpreted as such. Backtested performance results have certain limitations. Such results do not represent the impact that material economic and market factors might have on an investment adviser’s decision-making process if the adviser were actually managing client money. Backtested performance also differs from actual performance because it is achieved through retroactive application of model strategies designed with the benefit of hindsight. As a result, the strategy theoretically may be changed from time to time and the effect on performance results could be unfavorable. No hypothetical record can completely account for the impact of financial risk in actual trading. Further, the material market and economic conditions during the backtest are unlikely to repeat.
The results shown reflect the reinvestment of dividends, earnings and capital gains with period rebalancing. If client accounts are rebalanced using different periods, it will affect returns. Tax liability has not been deducted from any performance results. Taxes will reduce client returns significantly. Actual performance for client accounts may be materially lower than the index strategies. Clients should consult their account statement for information how their actual performance compares to that of the strategy index.
For all data periods, annualized standard deviation is presented by multiplying monthly standard deviation by the square root of 12. Please note that the number computed from daily, weekly or annual data will differ.
The S&P 500 Total Return Index is the dividend-adjusted return of the S&P 500 Index. The S&P 500 is a representative sample of 500 leading large cap companies in leading industries of the US economy. It is widely regarded as the best single gauge of the US equities market. Source: Standard & Poor’s.
The Barclay Hedge Fund Index is a measure of the average return of all hedge funds (excepting Funds of Funds) in the Barclay database. Source: Barclay. Investors are not able to invest directly in the indices referenced in this illustration and unmanaged index returns do not reflect any fees, expenses or sales charges. The referenced indices are shown for general market comparisons.
The strategy invests in volatility ETFs. ETFs whose investments are concentrated in a specific category or sector may be subject to a higher degree of market risk than ETFs whose investments are diversified. This strategy may not be suitable for all investors. Further, volatility ETFs often engage in leveraging and other speculative investment practices that may increase the risk of investment loss. Strategies whose investments may be concentrated in a specific industry or sector may be subject to a higher degree of market risk than more diversified strategies, and may not be suitable for all investors.
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