BREXIT STRATEGY 2.0: Hedging Against the Unexpected

In anticipation of heightened volatility around the U.S. election, we implemented BREXIT STRATEGY 2.0 in our largest tactical accounts. This strategy involved increasing exposure to small-cap equities while hedging with a 2x VIX position—a move designed to balance risk given the uncertainty of the outcome.

We believed this approach offered a better risk-adjusted outcome than going all-in on equities or sitting on the sidelines. It mirrored our successful Brexit hedging strategy earlier in the year.

How It Played Out: Election Night Volatility

Our thesis proved accurate in real time:

• Early in the night, with Hillary favored and a Republican Senate likely, the S&P 500 futures were up ~1%, while our VIX hedge remained flat. Our growth portfolios were theoretically up +0.5%.

• As Trump’s path to victory emerged, S&P futures dropped 5% (triggering a trading halt), while the VIX futures surged 45%.

• Despite the chaos, our Tactical Growth portfolios—50% small-cap, 8% 2x VIX—were up 1.1%.
  That’s right: we were up during both the initial rally and the steep selloff. A rare win-win scenario.

Morning-After Moves: Smart Adjustments

By Wednesday morning:

• The S&P 500 opened down 1%.

• Small caps (IWM) opened down 0.7%.

• Our 2x VIX hedge was up 15%.

This translated to:

• A -0.35% drag from small caps.

• A +0.85% gain from the hedge.

We acted quickly, scaling back the hedge and slightly reducing equity exposure. By day’s end:

• The S&P was up 1.18%.

• Our growth portfolios closed up 1.4%—not bad for a portfolio built to guard against a 5% decline.

This outcome illustrates our commitment to managing risk while seeking growth—ensuring client portfolios can withstand shocks and still move toward long-term objectives.

Market Misread: A Familiar Pattern

Markets—and pundits—got it wrong again.

A Trump win was widely forecasted to cause a 5–10% selloff. While we didn’t know whether that would materialize, we were prepared. And when the market reversed dramatically, traders scrambled to reposition.

This is reminiscent of Brexit, when the initial crash was followed by a sharp recovery—except this time, the rebound happened within hours, not days.

What Happens Next?

Here’s what we’re watching:

• The Trump honeymoon phase is in full swing, but it could take months before new policies are enacted.

• Pro-growth proposals such as:

  • Corporate and income tax cuts

  • Fiscal stimulus

  • Deregulation

  • A smaller government footprint

  • Anti-corruption initiatives
    could have long-term market implications—if implemented.

If Congress aligns with the President-elect, we could see a truly sustainable rally, potentially even the start of a secular bull market, reminiscent of 1982.

Looking at the Bigger Picture

BREXIT STRATEGY 2.0 wasn’t just about trading the election. It’s a prime example of how we:

• Proactively hedge market risk

• Take tactical opportunities

• Adapt swiftly to changing conditions

While the catalyst was political, the technical setup and sentiment extremes signaled potential upside. And while valuations remain elevated, renewed optimism and stronger earnings growth could fuel further momentum.

Final Thoughts

We remain focused on:

• Risk management—protecting against major drawdowns

• Sector rotation—finding opportunity in change

• Long-term results—keeping your goals front and center

As always, thank you for your continued trust. We take the responsibility of managing your financial future seriously, and we are invested in your success.

This website commentary reflects the personal opinions and analyses of Gainplan LLC employees. It does not describe Gainplan LLC’s advisory services or client investment performance. Views in the commentary may change anytime without notice. Nothing here constitutes investment advice, performance data, or recommendations for specific securities, transactions, or strategies. Mentioning a security or its performance is not a buy or sell recommendation. Gainplan LLC uses various investment strategies, not all discussed here. Investing in securities carries risks, including loss. Past performance does not guarantee future results.

Gainplan LLC provides links to third-party websites for convenience. Clicking these links leaves our website. Gainplan LLC is not responsible for errors, omissions, or content on third-party sites and does not necessarily endorse their information. Users accessing these sites must follow their terms and assume all risks.