Alpha Low Volatility Fund commentary for the month ended December 31, 2024.
It was just a little over three years ago that we started a fund seeking noncorrelated returns independent of market swings. We called it the The Low Volatility Fund for lack of a better word. We might have better labled it Extraordinary Return Fund. It finished December up 0.07% and for the year, 38.66% net of all fees and expenses.
Perhaps even more impressive than the market beating returns, the Fund had only two down months, a diminutive 0.08% loss in July and -0.71% in October.
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The Alpha Low Volatility Fund is a non directional fund, utilizing the natural decay of options and volatility derivatives around a core holding of TBills or TBill ETF equivalents. The fund is a strong alternative to cash management strategies, bond alternatives, and even core equity portfolio holdings.
With the path to lower interest rates stalled out, market valuations stretched, and volatility almost certainly to pick up, 2025 might just be the best year yet for Alpha Low Volatility Fund.
Strategy Description
The Alpha Low Volatility Fund is a market-neutral strategy seeking noncorrelated returns that are independent of market swings. The Fund utilizes the natural decay of indexoptions and other derivatives.As options are expiring assets, the entire extrinsic value is exposed to time decay, which, when all else is equal, decreasesthe value of the option contract each day up to expiration. An option contract has no time value at expiration and is only worth its intrinsic value, or the value of the underlying security above(call option) or below (put option) the underlying security.
The Fund will generally generate short-term capital gains but also aims to take advantage of favorable tax treatment available afforded under Section 1256 Contracts of the IRS code. Any gain or loss from a 1256 Contract is treated for tax purposes as 40% short-term gain 60% long term.
