The month-end performance estimate as of December 31, 2013 for Horse Cove Partners High Yield
Strategy is +3.90%, net of fees. This brings the total return for 2013 to +28.02%.1 Since the inception of trading in December 2010, the strategy has achieved a total cumulative return of +135.20%, versus +55.77% for the S&P 500 over the same period. Since the beginning of trading, the strategy has not had a negative quarter, with the fourth quarter up +4.49%.
We close the year with just over $4.3 million dollars of assets under management and look forward to helping our clients have a prosperous new year of investment.
Market Recap and Commentary
The US equity markets rose to finish 2013 with the best annual performance since 1997. The easy money of “Quantitative Easing” appears to be driving the markets higher, although expectations of a top, or at least of a correction seems to be growing.
We have an expectation that markets will revert to the mean over time. Reviewing a few data points are illustrative on this front:
- Over the past three years since we began trading, the average VIX was 18.42%, so in this current environment, we are significantly below “normal” volatility. Since the beginning of 1995 monthly VIX has averaged 21.19%.
- The average annual return of the S&P500 since 1995 has been 9.53%, so last year’s banner year of up 29.6%, is significantly above the mean.
Performance and Trading Update
December was a see-saw month with volatility rising and falling as the overall market rose and fell. The daily VIX, as measured by its adjusted closing price, averaged 14.189% for the month. Along the way, it rose almost 20% into mid-month peaking at 16.67%. Then fell 20.8%, ending essentially flat at 13.72%.
Interactive Brokers continues to tighten margin requirements, forcing adjustments to positions on almost a daily basis. There does not seem to be any rational sense to this as we have seen margin calls with probabilities at 0.0% with positions being bought back for $0.05 that were sold for $0.60 a week earlier. However, as our results reflect, we are successfully working through these issues of change.
We wrote puts on average just under 5.1% out of the money each week, and calls at an average of approximately 2.88% each week.
Are You a Gambler or an Investor?
I ask because there is a fundamental difference in how you approach your investment decisions depending on your answer that goes to the very heart of the Horse Cove investment strategy. The “gambler” is looking to score, looking for the next trade that will make up for the losses in the past. Investors apply a tested methodical approach to their investing that is likely to be successful over time.
Investing is not as exciting as gambling. There isn’t the short term rush that comes from “winning” and beating the market at its own game. In fact, investing can at times be rather boring. But by carefully following an intelligent investment methodology, and replicating it over time, the beauty of compounding happens.
About Horse Cove Partners LLC
Profiting from the art and science of taking risk.®
Horse Cove Partners was founded by Sam DeKinder and Kevin Ellis in January of 2013 with the commitment to help grow client’s assets with a highly disciplined investment strategy, replicated weekly, to extract absolute returns from the market by trading short volatility option spreads. The firm was launched after more than two years of trading experience with personal assets, and is built on the strength of hedge fund trading expertise developed beginning in 2002.
“We do not believe we are smarter than the market, nor can we time the market in any given week or month. As a result, we take an investment approach similar to an insurance company in that our investment strategy focuses on probability of success and the management of risk. We believe that it is possible to realize positive returns through disciplined focus on the risk of each trade with a weekly investment horizon, and accepting intelligent losses when risk events occur.”
We would like to thank you for your continued support and look forward to being in touch with you in the near future.
Sincerely,
Sam DeKinder and Kevin Ellis
sdekinder@horsecovepartners.com
kellis@horsecovepartners.com
Horse Cove Partners LLC
1899 Powers Ferry RD SE
Suite 120
Atlanta, GA 30339
678-905-5723 main
1Net estimate as of 12.31.2013, which is preliminary and subject to revision. Performance estimate described herein as “YTD” are net of fees and expenses and assume investor has been invested since 01.01.2013 with no withdrawals.
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Internet communications are not secure and subject to possible data corruption, either accidentally or on purpose, and may contain viruses. The content of this message should not be construed as an investment advice unless explicitly stated as such in the text of this message. Further, this message should not be construed as the solicitation of an offer to purchase or an offer to sell any securities or other financial instruments, including, without limitation, interest in any private investment managed by Horse Cove Partners LLC or any of its affiliated entities.
Finally, to the extent that performance information is contained in this message, you are hereby advised, and you acknowledge it, that past performance does not assure future results, which are not guaranteed by Horse Cove Partners LLC or any of its affiliated entities or by any insurance mechanism.
IRS CIRCULAR 230 NOTICE. Any advice expressed above as to tax matters was neither written nor intended by the sender or any Horse Cove Partners LLC affiliated entities to be used and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed under U.S. tax law.
