A Tale of Two Strategies: How June’s “Risk-On” Rally Shuffled the Deck
June brought a significant shift in market sentiment. A strong “risk-on” rally in U.S. equities, fueled by hopes of cooling inflation and a more stable outlook on interest rates, reversed the cautious and uncertain tone of previous months. This created a fascinating divergence in how different investment strategies performed.
This month’s environment provides a perfect case study. To see how, we’ll look at a tale of two of our strategies: the Maximum Yield Strategy and the Gold-Currency Strategy II. One had its best month of the year, while the other—our year-to-date leader—took a breather. This contrast clearly illustrates why holding different types of strategies is key to long-term success.
The Hare: Maximum Yield Seizes the Rally
The Maximum Yield Strategy was our top performer in June with a +9.3% return. This strategy is designed to perform best in strong, risk-on markets. But even better on volatility crashing environments. What is volatility crashing?
Let’s look at an example: When intense fear grabs the markets ( for example uncertainty over tariffs and trade-wars) the SP500 may correct somewhat. At the same time, volatility (the ‘VIX”) spikes up. This spike is often exaggerated and the move is much bigger than the correction itself.
When the ‘business as usual’ psychology returns to the market, the S&P 500 may stop falling or even correct upwards a bit, but the VIX (volatility) comes crashing down from its exaggerated peak. The Maximum Yield strategy benefits from this because it uses VXZ, the iPath Series B S&P 500 VIX Mid-Term Futures ETNs. For more info, check the strategy description.
In June, as investors moved confidently back into U.S. equities, this strategy performed exactly as intended. Its strong monthly gain brings its year-to-date return to 19.5%, proving its effectiveness in capturing market upswings.
The Tortoise: Gold-Currency’s Strategic Role
In contrast, our year-to-date leader, the Gold-Currency Strategy II., posted a modest 0.4% for the month. Despite this, it maintains an impressive +25.9% return for the year.
Why the dip in June? This strategy’s strength comes from holding gold (as well as rotating between major world currencies) which typically excel during periods of high inflation expectations or market uncertainty. When confidence returned to the stock market in June, demand for defensive assets like gold temporarily decreased, causing a slight pullback. This is a normal and expected part of its behavior.
The Moral of the Story: Building a Robust Portfolio
These two strategies clearly show why chasing monthly winners may be a flawed approach. No single strategy can lead in every market. The Hare wins in a sprint, and the Tortoise wins in a marathon of uncertainty.
The goal is not to guess which strategy will perform best each month. Instead, the objective is to build a portfolio that blends different, uncorrelated strategies. By combining approaches that thrive in different environments, you can create a more resilient and consistent path to achieving your long-term financial goals. As we enter the second half of the year, this diversified approach remains the most reliable way to prepare for whatever the market brings next.
Sincerely,
The Logical-Invest.com Team
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