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Author: Brad Lamensdorf

Brad Lamensdorf, the founder and portfolio manager of Active Alts, is a principal and co-manager of the AdvisorShares Ranger Equity Bear ETF. He previously managed a long-short investment partnership from 1998-2005 under the name Tarpon Capital Management. Earlier in his career Mr. Lamensdorf was an equity trader/market strategist for the Bass Brothers’ trading arm. He managed a short only portfolio in addition to co-managing a $1bil hedging program. He also served as in-house market strategist for the entire internal and external network of Bass Brothers money managers.

Deja Vu all Over Again

By John Del Vecchio and Brad Lamensdorf

Deja Vu all Over Again

Stocks have been partying like it’s 1999 all over again. 

The real action is in unprofitable IPOs.

Take a look at the chart, courtesy of BofA Global Research:

Deja Vu all Over Again
Deja Vu all Over Again

Unprofitable IPOs just hit 80%, the same level near the peak of the Internet Bubble. More money is chasing few quality investment ideas. As a result, nearly everything is getting bid up to higher prices. 

The thing is, markets change. The companies that dominate the markets changes. The leaders in sectors change.

The law of economics and human nature don’t change.

The best opportunities, on both sides of the market, are at extremes. We are at an extreme with unprofitable IPOs. Could this trend move higher? Yes. However, it’s highly likely that all gains from here will be more than lost.

The Active Alts / Sentiment Trader Long / Short Strategy capitalizes on extremes. In case you missed it…

Brad hosted a webinar on February 9th talking about achieving better risk-adjusted returns in an overheated market. 

The Active Alts SentimenTrader Long / Short Strategy returned 25.87% in 2020 compared with 7.86[1] % in the Credit Suisse Long / Short Index.

What’s more, is that the Active Alts SentimenTrader Long / Short Strategy experienced a 9.99% draw down and held an average cash position of 19.4%[1] for the year.

The webinar dives into:

  • How to navigate the rocky markets we have been living through
  • How to generate alpha on the long and short side of the market
  • The power of our proprietary exposure gauge and what it means for investment returns in current market conditions

If you missed the webinar, you can watch it here!

Brad Lamensdorf Jason Goepfert Webinar

 

See More Sentiment Updates:

General Disclaimer
Active Alts, Inc. (“Active Alts”  or the “Manager”) is an investment adviser registered with the state of Connecticut. Active Alts manages the Active Alts SentimenTrader L/S Strategy and SentimenTrader serves as the research/index provider for the strategy. Registration with the state of Connecticut does not imply a certain level of skill or training.
The information set forth regarding securities and investment advice was obtained from sources which we believe reliable but we do not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation by us of the purchase or sale of any securities. The performance quoted above represents past performance and current performance may be lower or higher than the performance date quoted. Past performance does not guarantee future results as investment returns may vary from time to time depending upon market conditions and the composition of the strategy.

SENTIMENTRADER DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. Investors should consult their tax advisors before making investment decisions, as well as realize that past performance and results of the strategy are not a guarantee of future results. The Active Alts SentimenTrader L/S Strategy is not intended to be the primary basis for investment decisions and the usage of the strategy does not address the suitability of any particular investment for any particular investor.
The Standard & Poor’s 500 Index is provided for informational purposes only. Indices are not indicative of the strategy and may not be suitable for comparison purposes.   Indices that may be shown do not reflect the deduction of advisory fees, commissions or other transaction charges.
Fees charged by the Firm are negotiable and may vary by client.

Before making an investment, you should consider your goals, objectives, time horizon and risk tolerance to be sure that this investment is suitable for you.  There are no guarantees that the strategy will perform as it did in the past. You could lose money and you should not invest unless you can afford to lose some or all of your invested funds.

Calculation Disclaimer
Dividends are included in the performance results. The Manager have also calculated the net results by applying the highest management fee to be charged to advisory clients. Results will vary based on the amount of the fee applied. The results were also calculated by rebalancing the long and short portfolios on a weekly basis.  The portfolio selection was and will be generated from the proprietary Active Alts stock selection process which is based on quantitative factors and mechanically driven. Commissions were added. No taxes were deducted; no borrowing costs were added; and no ex-dividend costs were included from the short portfolio.
Downside deviation is a measure of downside risk that focuses on returns that sell below a minimum threshold of a Minimal Acceptable Return (MAR).
Sharpe ratio is the average return earned in excess of the risk free rate per unit of volatility of risk.
Time to recovery is the duration of time it takes to restore the value lost.
Beta is a measure of a stock’s volatility in relation to the market. By definition, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0.
Annualized volatility – Historic volatility measures a time series of past market prices. Implied volatility looks forward in time, being derived from the market price of a market-traded derivative (in particular, an option).
Max drawdown is an indicator of the risk of a portfolio chosen based on a certain strategy. It measures the largest single drop from peak to bottom in the value of a
portfolio (before a new peak is achieved).
(1) Indicators drive the exposure while a proprietary Long & Short portfolio are rebalanced monthly for the strategies equity drivers.
(2) Commissions were added to the exposure rebalance as well as the monthly stock rebalance.

All the Glitters is……..Gold?

By John Del Vecchio and Brad Lamensdorf

Today, cryptocurrencies are all the rage. Bitcoin has hit new highs as it has increasingly captured the public’s imagination and gained support from institutions.

The new talk is that it’s an inflation hedge.

It may turn out though that the new most well-known inflation hedge is ready to rock.

That’s right. We are talking about gold.

While gold mining stocks have never been more profitable in 25 years, the amount of capital expenditures into the industry is at a 70-year low. This under-investment is setting the stage for better return on equity and higher prices in general due to supply constraints from the lack of Capex.

Take a look at the chart:

All the Glitters is……..Gold?
All the Glitters is……..Gold?

After decades of value destruction, gold miners’ free cash flow yield is surging.

This comes at a time when private investments in exploration have plummeted. Investment has dwindled to a trickle compared to the prior boom.

All the Glitters is……..Gold?
All the Glitters is……..Gold?

While other sectors are grabbing all of the headlines and sucking all of the oxygen out of the room, there’s a powerful set up occurring in an old inflation standby.

Fact is, sectors ebb and flow. What’s not hot can quickly ignite fire and huge trends can emerge. This set up is taking shape in the gold miners. 

It’s not just bitcoin that can rally 1,000%.

Big moves and great returns potentially lie ahead.

Speaking of returns…In case you missed it…

Brad hosted a webinar on February 9th talking about achieving better risk-adjusted returns in an overheated market. 

The Active Alts SentimenTrader Long / Short Strategy returned 25.87% in 2020 compared with 7.86[1] % in the Credit Suisse Long / Short Index.

What’s more, is that the Active Alts SentimenTrader Long / Short Strategy experienced a 9.99% draw down and held an average cash position of 19.4%[1] for the year.

The webinar dives into:

  • How to navigate the rocky markets we have been living through
  • How to generate alpha on the long and short side of the market
  • The power of our proprietary exposure gauge and what it means for investment returns in current market conditions

If you missed the webinar, you can watch it here!

Brad Lamensdorf Jason Goepfert Webinar

 

 

 

 

 

 

General Disclaimer
Active Alts, Inc. (“Active Alts”  or the “Manager”) is an investment adviser registered with the state of Connecticut. Active Alts manages the Active Alts SentimenTrader L/S Strategy and SentimenTrader serves as the research/index provider for the strategy. Registration with the state of Connecticut does not imply a certain level of skill or training.
The information set forth regarding securities and investment advice was obtained from sources which we believe reliable but we do not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation by us of the purchase or sale of any securities. The performance quoted above represents past performance and current performance may be lower or higher than the performance date quoted. Past performance does not guarantee future results as investment returns may vary from time to time depending upon market conditions and the composition of the strategy.

SENTIMENTRADER DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. Investors should consult their tax advisors before making investment decisions, as well as realize that past performance and results of the strategy are not a guarantee of future results. The Active Alts SentimenTrader L/S Strategy is not intended to be the primary basis for investment decisions and the usage of the strategy does not address the suitability of any particular investment for any particular investor.
The Standard & Poor’s 500 Index is provided for informational purposes only. Indices are not indicative of the strategy and may not be suitable for comparison purposes.   Indices that may be shown do not reflect the deduction of advisory fees, commissions or other transaction charges.
Fees charged by the Firm are negotiable and may vary by client.

Before making an investment, you should consider your goals, objectives, time horizon and risk tolerance to be sure that this investment is suitable for you.  There are no guarantees that the strategy will perform as it did in the past. You could lose money and you should not invest unless you can afford to lose some or all of your invested funds.

Calculation Disclaimer
Dividends are included in the performance results. The Manager have also calculated the net results by applying the highest management fee to be charged to advisory clients. Results will vary based on the amount of the fee applied. The results were also calculated by rebalancing the long and short portfolios on a weekly basis.  The portfolio selection was and will be generated from the proprietary Active Alts stock selection process which is based on quantitative factors and mechanically driven. Commissions were added. No taxes were deducted; no borrowing costs were added; and no ex-dividend costs were included from the short portfolio.
Downside deviation is a measure of downside risk that focuses on returns that sell below a minimum threshold of a Minimal Acceptable Return (MAR).
Sharpe ratio is the average return earned in excess of the risk free rate per unit of volatility of risk.
Time to recovery is the duration of time it takes to restore the value lost.
Beta is a measure of a stock’s volatility in relation to the market. By definition, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0.
Annualized volatility – Historic volatility measures a time series of past market prices. Implied volatility looks forward in time, being derived from the market price of a market-traded derivative (in particular, an option).
Max drawdown is an indicator of the risk of a portfolio chosen based on a certain strategy. It measures the largest single drop from peak to bottom in the value of a
portfolio (before a new peak is achieved).
(1) Indicators drive the exposure while a proprietary Long & Short portfolio are rebalanced monthly for the strategies equity drivers.
(2) Commissions were added to the exposure rebalance as well as the monthly stock rebalance.

See More Chart of the Week Posts

Bitcoin isn’t the Only Market that’s Flying

By John Del Vecchio and Brad Lamensdorf

Bitcoin news sucks all the oxygen out of the room. However, it’s not the only market rallying that may indicate inflation is afoot. 

Take a look at copper.

Bitcoin isn’t the Only Market that’s Flying
Bitcoin isn’t the Only Market that’s Flying

Or oil.

Bitcoin isn’t the Only Market that’s Flying
Bitcoin isn’t the Only Market that’s Flying

Or corn.

Bitcoin isn’t the Only Market that’s Flying
Bitcoin isn’t the Only Market that’s Flying

Or soybeans.

Bitcoin isn’t the Only Market that’s Flying
Bitcoin isn’t the Only Market that’s Flying

These commodities are flying and that is inflationary.   

It is no coincidence that the TLT’s are breaking down.

Higher rates could put a lot of pressure on market multiples.   

Beware.   

It’s time to put on hedges. 

The Active Alts SentimenTrader long / short strategy manages exposure based on dozens of proprietary risk indicators. To learn more about how to manage risk from here, book a call with Brad.

Market Euphoria is Literally off the Charts

By John Del Vecchio and Brad Lamensdorf

Euphoria in the market is literally off the charts. 

Here’s the Panic / Euphoria model from Citi below.

 

Market Euphoria is Literally off the Charts

Not much else needs to be said other than it’s time to work into hedges.

The team at SentimenTrader tried their hand at recreating the Citi model based on their understanding of the inputs that go into it. 

While SentimenTrader’s version isn’t as extreme as the original Citi model, the result is close. When the SentimenTrader proxy is above 1.0 (Euphoria), which happens about 14% of the time, the annualized returns for the S&P 500 are -3.7%. Conversely when the model is below 0 (Panic), the market returns 21.4% annualized.

More importantly, based on this version, the market sits at the third most extreme level of euphoria in the last 30 years.

Market Euphoria is Literally off the ChartsMarket Euphoria is Literally off the ChartFurthermore, SentimenTrader provides mode detail on the specific signals and the future returns.

Market Euphoria is Literally off the Charts

Market Euphoria is Literally off the Chart

Median returns tend to be negative across the board. Only 2011 was positive a year later, and barely so. This is even more reason to get active in hedging.

Active Alts has partnered with SentimenTrader to create proprietary signals that help inform the exposure in a long / short strategy. To learn more about how these models can help you mitigate risks in the market, book call with Brad.

You may schedule your call here. 

See more Sentiment Updates: 

Market Sentiment Remains Frothy into New Year

By John Del Vecchio and Brad Lamensdorf

The froth in market sentiment has backed off a bit but still in the danger zone. Stock market bulls still top 60%, and while bears have inched up a bit, the spread between the two exceeds nearly 43%.

As the chart below from Investors Intelligence shows, the bull/bear spread is still in the upper end of the range over recent history. Proceed with caution. We are still in the danger zone.

 

Market Sentiment Remains Frothy into New Year
Market Sentiment Remains Frothy into New Year

As we noted in the most recent Chart of the Week, there’s a fascinating piece from GMO published December 8, 2020 that talks about the bloodbath in value investing.

If you’re not familiar with GMO they manage over $60 billion. And the “G” in GMO refers to Jeremy Grantham who conducted groundbreaking work on quality metrics in the 1970’s.

To recap the gory details, here’s a synopsis from their report:

“After more than a decade of disappointing performance, Value stocks just experienced their worst 12-month performance in history. This has left these stocks trading at some of the cheapest levels relative to the market we have ever seen. This cheapness is robust to a variety of challenges that skeptics may raise, and this is true broadly across all major equity regions. An analysis of the sources of returns for Value since 2007 shows that more than 100% of Value’s underperformance is due to falling relative valuations, confirming that under the surface the Value premium actually still exists. If Value were to continue trading at current spreads to the market and experienced the same relative fundamental performance as it has over the past 14 years, it would beat the market. The flip side of the extraordinary cheapness of Value is the expensiveness of Growth: we believe Growth stocks have entered a bubble similar to the one in 2000. While we are not sure what the catalyst will be for the deflation of the Growth bubble and the recovery for Value, there are a number of plausible candidates for one, not least the eventual recovery of the global economy over the next 12-18 months as the pandemic recedes. We believe the outlook for Value is exceedingly bright from here, particularly in a long/short framework, which can profit from Value’s outperformance in both rising and falling markets.”

Even if we are entering another bubble in growth stocks, plenty of opportunity exists in the market. Closing the massive spread between value and the market will create huge opportunities for alpha in the coming years.

What’s more is that not all value stocks are the same. Some stocks are cheap for a reason. In our own work, we saw value, combined with quality and momentum, perform well in 2020. And, we agree that long / short is poised to perform well going forward.

Active Alts operates two strategies to navigate through all market conditions.

The long-only, Active Alts Focused Momentum Strategy was up 79.60% in 2020. What’s more, 2020’s performance was achieved with an average exposure of 74.87%.

In December, the strategy turned in a performance of 22.16%, with an average exposure of 55.09%.

Quality, momentum, value, and risk/reward. Those are the factors, when combined into one cohesive approach, are the engine that powers the Active Alts Focused Momentum Strategy.

The Active Alts Long / Short finished 2020 up 25.91%

That same GMO report, published December 8, 2020, is decidedly bullish on the long /short space in the future. The historical spread between value and the market is likely to revert to the mean.

This bodes well for tactical stock pickers.

Want to know more about the Active Alts Focused Momentum Strategy and the Active Alts SentmenTrader Long / Short Strategy?

Please schedule a phone call with Brad today.

You can book your call here.

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