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Dear investors,
The months of August and September were negative for the AEX, with depreciation of - 6.11% in August and - 1.99% in September.
Overall, the AEX fell by - 10.05% from its July 2023 top to its preliminary low in early October.
RVM Strategy did - 4.02% in August and + 0.10% in September, and RVM Retirement did - 5.26% in August and + 0.76% September.
These have become months of sharp correction for the stock markets.
Normally declines in the AEX do not matter much to RVM Strategy, it is a market neutral system and therefore not dependent on a positive index.
But for the first time since the start of both systems in 2019, the algorithm used did not manage to keep the feet of its many followers dry. In particular, the week from August 14 to 18, which included a fall of Adyen of - 50% on Thursday, August 17, was exceptionally difficult for the algorithm. The system's risk management was triggered. Risk management is part of the algorithm and it is fixed what to do in that case.
Almost always the measures to be taken when risk management is triggered are unnecessary in hindsight, but in this case it proved necessary. and in fact it hasn't happened since the systems were launched in 2019. As a result, the loss in this "Adyen week" was limited.
The systems did outperform the AEX index itself despite this calamity, and this happened again in September.
The fall of Adyen was an anomaly for our algorithm. It provided interesting observations. Since the AEX has existed, i.e. since 1983, there has never been a fall of a stock of - 50% in one day. Add to this that Adyen had a large weighting within the AEX before the fall, and it is not surprising that our calculation on the AEX was broken and with it the laws on which the trading system relies.
What was interesting for us now was to study what would happen to the index after this Adyen situation. Because new statistics for also means new and interesting input, which we are always looking for.
The good news remains a trade secret, but we were able to make pleasant observations.
Thus, if another such break of the algorithm occurs in the future, we know that this presents good opportunities, opportunities that are not normally there.
In other words, hindsight now shows that we learned something important from this rare loss. It was actually new statistics, and those new statistics have now become part of the system.
In addition to the price declines, there was another observation: volatility remained low despite the falling prices. As a result of this lack of volatility on the index, option premiums also continued to fall during the year. For systems like RVM Strategy and RVM Retirement, this is not so favorable. However, we assume that this is a temporary situation, and that volatility will increase and with it option premiums.
The trading month of October has so far been an excellent month for the RVM systems as far as options trading is concerned, but we still have a little over a week to go in October.
With the threat of war in the Middle East, we see the price of gold, even in euros, rising very sharply, just as it did when Russia invaded Ukraine in 2022.
In times of war, gold appears to be the time-honored and common refuge for investors, but oil companies have also done well, and, of course, certain defense groups. War, as you may know, is not so bad for the stock market in general. War leads to more economic activity, not less.
The stock market month of October is weak again so far (Oct. 20), but that is not because of the new escalating situation in Israel, but because of still rising interest rates, especially in the United States. If interest rates were to go down, the stock markets would do better. Our long-term view is still positive for equities, and thus positive for the value development of the AEX index. Further declines in the index therefore seem likely to turn out to be buyable, although we do not know when that will happen.
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Sincerely,
On behalf of Van Megen Systematic Trading,
Ruud van Megen