As we step into a new year, we remain steadfast in our commitment to navigating the evolving market landscape with diligence and strategic foresight. January presented a better-than-expected start, shaped by external factors such as inflationary pressures and shifting economic expectations. The second half of the month saw a strong rally in the broad indices, which is where we tend to underperform.
The release of a hotter-than-expected Consumer Price Index (CPI) report later in the month indicated that inflation rose more than anticipated in January. This development led to increased Treasury yields and diminished expectations for near-term Federal Reserve rate cuts. Despite these challenges, our disciplined approach remains focused on long-term growth and stability.
To provide further transparency into our thought process, the following commentary comes from Maik Kaminski, one of the Portfolio Managers in the Long Vol portion of our portfolio:
“The open option premium in the portfolio at the end of December amounted to 1.22%, with positions for the expirations in Week 1, Week 2, and Week 3 of January. This meant that this 1.22% had to be earned/realized to avoid finishing January with a loss. The Week 1 option expiration had only two trading days in 2025, as January 3 fell on a Friday. Over these two trading days, the S&P 500 rose by 61 points (+1.03%), resulting in a realized loss of 0.28%.
Due to our active position management, we adjusted the portfolio structure in line with the market’s upward movement and benefited from a nearly -2% decline in the S&P 500 Index in the following week, realizing a return of 1.10%. This was followed by a rally that lifted the S&P 500 to a month-to-date return of over +4% and a new all-time high. During this period, we set up the new corridor for the February Week 1 and February Week 2 option terms. As a result of adjustments in active position management, the upper corridor is now at 6,100 points, near the all-time high in the S&P 500.
Notably, January exhibited relatively high volatility within a narrow trading range of 5,827 to 6,119 points in the S&P 500 Index on a closing price basis. Several signs of a downward breakout (January 10, 13, and 27) as well as an upward breakout emerged. The new all-time high lasted only one day and was reached again on the last trading day before the U.S. government announced tariff increases for Mexico, Canada, and China effective February 1. If the new U.S. administration implements its election program, it could provide advantages for the U.S. economy and local companies. However, the implementation also carries risks, necessitating an expectation of increased volatility. Market psychology will be particularly interesting to observe if the S&P 500 breaks below the 5,800-point range.”
In January, the 10-day put/call ratio on the NYSE fell to its lowest level since November 2021, indicating that market participants are hedging less against falling prices than at any time in the past three years.
Weekly S&P 500 performance in January:
- Week 1 (January 3): -0.48%
- Week 2 (January 10): -1.94%
- Week 3 (January 17): +2.91% (biggest weekly gain so far in 2025)
- Week 4 (January 24): +1.74%
While market fluctuations impacted short-term performance, our core investment strategies are built to weather varying conditions. We continue to identify opportunities, adjust allocations where necessary, and position our portfolios for sustained success.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE RISK OF LOSS IN TRADING COMMODITY INTERESTS CAN BE SUBSTANTIAL. YOU SHOULD, THEREFORE, CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN COMMODITY INTEREST TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. IN SOME CASES, MANAGED COMMODITY ACCOUNTS ARE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT AND ADVISORY FEES. IT MAY BE NECESSARY FOR THOSE ACCOUNTS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS.
