In a Down Market and in Only 10 Days, Our Long XLF, Short Regional Bank Spread Trade is up 400+ bps

Since October 5th when we suggested the possibility, the ratio of the KBW Regional Banking Index vs. the XLF financial ETF has declined 420 bps!

In other words, our suggestion to long the XLF and short regional banks has generated 420 bps in portfolio return/alpha in a mere 10 days.

Over the same time the SPX is actually down marginally.

Yet another example of how spread trades like this can facilitate out-sized performance regardless of market conditions.

In fact, our long Euro financials / short XLF, long domestic Chinese equities / short SPX and long XLF / short regional financials trades generated a combined 2,000 bps (i.e., 20%) in portfolio return dating from the time of our original posts to the time of our posts updating their successful performance !

Incredible when you think about it given the SPX is up only 15% this year and these trades were FULLY hedged, market neutral positions that would have had you out of the market, without capital at risk, for the vast majority of time.

Regarding this post’s subject specifically, here’s the original chart we posted, which we update below.