The September 30, 2016 month-end performance estimate for the Horse Cove Partners Absolute Return Strategy is +2.01% net of fees1. Since the December 2010 inception of trading, the Strategy has achieved a total cumulative return of +261.46%.
Market Recap and Commentary
The S&P 500 Total Return Index was up 0.02% for the month, and is up 7.84% for the year.
The S&P 500 index has achieved another month of less than average returns. Although significantly more volatile than August, with 12 out of 21 trading sessions seeing more than a half of a percent move, it ended the month just as it started. Flat. The market was able to digest the news surrounding Deutsche Bank (DB), the expected non-event at the Fed, and the Bank of Japan’s (BOJ) surprise move to control the yield curve.
Volatility, as measured by the (VIX) had seen a higher range for most of this month, reaching an intra-day high of just over 20% while absorbing the news on DB. The VIX spent most of the month of September north of 13%, with a low close of 11.98% and, average for the month of 14.21%.
Performance and Trading Update
For the month, the Horse Cove Absolute Return Strategy composite return was up 2.01%, compared with the S&P 500 Total Return Index that was up 0.02%. Year to date, the Strategy is up 14.83% compared to the S&P 500, up 7.84%.
We continue to have an extended period of low volatility. As noted above, we did have a pop in the VIX that helped the returns for the month, but for the most part it was pretty quiet.
Here are the returns for the composite portfolio margin accounts:
Reg. T Update
Here are the composite returns for the Reg. T accounts for the periods indicated:
IRA accounts must use Reg. T Margin which, means that fewer option contracts can be written than in the “regular” accounts that use Portfolio Margin. Over time, this will result in lower returns when compared to the “regular” accounts.
Living the Herd Behind
Dan Ferris, editor of Extreme Value wrote a piece on September 30, 2016 that caught my eye while skimming emails. The piece was titled, “The Only Advantage You'll Ever Get in the Financial Markets”. In summary, Mr. Ferris points out that there are three big reasons why you as an investor are at a disadvantage in the financial markets.
The first is the information advantage. You need good information to be successful, but you can never know more than all the combined investors.
The second is the analytic advantage. The financial markets are chock full of analysts who examine every aspect of every bond, stock, etc. and you can’t work harder than all of them combined.
The third is the timing advantage. No matter what anyone tells you, we have never met anyone that can, with any consistency, time the market or predict with a high degree of accuracy what the market is going to do.
However, there is an advantage that we can exploit. One that is simple but not easy, and one that we use to our advantage at Horse Cove Partners---the behavioral advantage.
We have seen the quote, “buy when there is blood in the streets”. Investment legend Warren Buffett has often said that to succeed as a stock investor, you need to "be fearful when others are greedy and greedy when others are fearful." These Wall Street sayings refer to the behavioral reality of the Street. It is called the herd mentality. You can make money in the financial markets if you are not following the herd investors.
Fear is the dominant behavioral driver of the financial markets. The VIX is called the “fear index” and it is one of the components used to price index options. The pricing in the sale of an option implies fear that historically speaking is lower than what is priced into the premium of options. That difference gives Horse Cove Partners an advantage over the herd.
If you only understand one thing about the Horse Cove Partners Absolute Return Strategy, let it be this: The fear of loss is a large motivator of buyers of options, and as sellers, we accept that implied fear and profit from fear that is actually realized.
Please let us know if you have an interest in leaving the herd behind.
Horse Cove Update
We are pleased to announce that Gregory Brennan has joined Horse Cove Partners as an Assistant Portfolio Manager. Greg is joining us from Cohen, Mackall & Associates, an independent financial planning practice of Ameriprise Financial Services, Inc. Greg was the Senior Vice President of the predominately fee-based financial advisor and had been there for the past six years.
Greg started his career as a financial advisor with A.G. Edwards & Sons in an office in Garden City, NY. For 16 years he has helped individuals and businesses build and manage investment portfolios, as well as creating and implementing financial plans to secure their financial future. In 2006, he accepted an offer from SunTrust Investment Services and moved to Atlanta, GA.
Greg earned a BA in Economics in 2000 from Queens College. He resides in Marietta, GA with his wife Amanda and their three children.
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 clients’ 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 that began in December of 2010. The firm is built on the strength of hedge fund trading expertise developed beginning in 2002.
Assets under management at the end of September 2016 were $33.50 million.
“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, Kevin Ellis
Greg Brennan
John Monahan
Michael Crissey
Don Trotter
sdekinder@horsecovepartners.com
kellis@horsecovepartners.com
gbrennan@horsecovepartners.com
jmonahan@horsecovepartners.com
mcrissey@horsecovepartners.com
dtrotter@horsecovepartners.com
Horse Cove Partners LLC
1899 Powers Ferry RD SE
Suite 120
Atlanta, GA 30339
678-905-5723 main
1Net estimate on a consolidated basis of similar accounts as of 9.30.2016, which is preliminary and subject to revision. Performance estimate described herein as “YTD” are net of fees and expenses including a 2% per year management fee and 20% incentive fee and also assumes investors have been invested with no withdrawals.
THIS MESSAGE AND ANY FILES TRANSMITTED WITH IT ARE CONFIDENTIAL AND PRIVILEGED. IF YOU ARE NOT THE INTENDED RECIPIENT, PLEASE NOTIFY THE SENDER IMMEDIATELY AT 1 (978) 905 5723. IF YOU ARE NOT THE NAMED ADDRESSEE YOU SHOULD NOT COPY OR DISCLOSE THE CONTENT OF THIS MESSAGE AND OF ANY FILES TRANSMITTED WITH IT TO ANY OTHER PERSON.
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.
Past Performance is not a guarantee of future results. Investing involves risk, including the possible loss of principal and fluctuation of value. The returns are based on the Investment Manager's strategy and not actual client accounts. The Horse Cove Absolute Return and IRA Return strategies seek to extract absolute returns from the market by trading short volatility option spreads. The strategies reflect the deduction of advisory fees and any other expenses that a client would have paid or actually paid. Model results do not represent actual trading and they may not reflect the impact that material economic and market factors might have had on the Portfolio Manager’s decision-making if the advisor were actually managing the clients' money. The S&P 500 index is used for comparative purposes only. The volatility of an index is materially different from that of the model portfolio. The S&P 500 refers to the Standard and Poor's 500 Index which is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic stock market. The VIX (CBOE volatility index) is the ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking and is calculated from both calls and puts. The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge." Option trading entails a high level of risk. The models do not include the reinvestment of dividends and capital gains because options don't pay dividends. Please read the Characteristics and Risks or Standardized Options available from the Options Clearing Corporation website: http://www.optionsclearing.com for further details.
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.
