Long/Short Volatility targets portfolio growth via a focused strategy that is simultaneously invested in both sides of a market with planned exits and entries on each side within the typical range of given market. ACI’s preferred markets for this product are selected commodity securities like oil, currency ETF pairings, & bull/bear ETF pairings.
The tighter the correlation between the pairs, the more even the allocation to each instrument. In instances where the correlation is wider, the pairing may have skew. To be specific, equity market pairings may involve inverse securities which inherently lose value due to the long term upward bias of the equity markets. To offset the downward bias in the value of inverse equity securities in certain sectors, the long side will have an allocation difference representing a 5-25% skew in assets allocated.
Skewing pairings in these instances provides a necessary hedge to reduce risk, while still providing opportunities for realized gains as a given market moves up and down.
This strategy favors the two constant driving factors of fear and greed in the financial markets–instruments rarely go straight up and rarely go straight down. The battle between the two forces provides consistent opportunities to transact for real returns over time which builds account equity and NAV.
Instruments used in each market are highly liquid ETF’s, ETNs, UIT’s, etc. with minimum average daily volume requirements to assure excess liquidity. ACI does not ever use margin in managed accounts, except for whatever leverage may be inherent in a trading instrument. When leveraged instruments are used, they are paired with another leveraged instrument to provide acceptable hedges against large, unpredictable directional moves in a given market.
This strategy does not hold short stock, and therefore may be used as part of an alternative asset allocation in retirement accounts.