The November 30, 2016 month-end performance estimate for the Horse Cove Partners Absolute Return Strategy is +2.54% net of fees1. Since the December 2010 inception of trading, the Strategy has achieved a total cumulative return of +273.71%.
Market Recap and Commentary
The S&P 500 Total Return Index was up 3.70% for the month, and is up 9.79% for the year.
The S&P 500 index nearly reached all-time highs in the month of November, led mostly by financials and the expectation of a reduction in regulations from the Trump administration.
We continue to expect an interest rate raise by the Fed at its December meeting.
Volatility, as measured by the (VIX), began the month continuing the upswing from the end of October into the November 8th election, opening at 16.54. It continued to trade up for the first few days of the month, reaching 23.01 on the 4th. On November 9th, the day after the election, VIX fell sharply to close at 14.38 and traded between 12 and 14 for the remainder of the month.
Performance and Trading Update
For the month, the Horse Cove Absolute Return Strategy composite return was up 2.54%, compared with the S&P 500 Total Return Index that was up 3.70%. Year to date, the Strategy is up 18.72% compared to the S&P 500, up 9.79%.
The election, a higher average VIX, and our investment discipline helped us achieve a solid return for the month of November.
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.
The Election Behind
November proved to be a great example for us that following our rules works. The month started with the tail end of the S&P’s first 9 day losing streak since the 1980’s. Many analysts credited this to Trump’s rising poll numbers, signaling stock investors were obviously more comfortable with Clinton —“the devil you know”. When the FBI cleared Hillary Clinton for the second time, the market took off running.
If you remember from October’s newsletter, we faced a great many unknowns this past month. Some that the market has never seen before. We collected solid premiums writing for the Wednesday 11/9 expiration, with the expectation of giving some back to exit the position on election day and be out of the market completely when the results came in. This proved to be a sound strategy. Overnight markets on the morning of November 9th saw very dramatic selling, causing S&P 500 futures to be halted at the limit-down until regular trading on Wednesday. This drama allowed us again to collect strong premiums on Wednesday, placing at least one of the major uncertainties behind us.
Volatility dropped significantly after the election, but continued to bounce around between 12- 14 for the remainder of the month. As we heard more of Trump’s agenda, his cabinet picks, Jill Steins voter recount, and the Italian vote we are assured of at least one thing: there will always be plenty to keep us on our toes. In November, we faced a steadily declining market as well as a steadily rising market. Using part “science” and part “art” we were able to continually write outside the actual movement and collect healthy premiums as volatility drifted lower.
Once again, we know better than trying to predict what the market is going to do. The execution of our strategy is grounded in statistical probability and is replicated weekly. Relying on the math of the historical market movement means we don’t need to predict market direction to deliver results.
About Horse Cove Partners LLC
Profiting from the art and science of taking risk.®
Milestones:
- We have now completed 6 full years of live trading in the strategy, 72 months with an average rolling 12 month return of 26.14%.
- Assets under management have doubled again for the fourth consecutive year since the firm was started in January 2013.
- Through October 2016, Horse Cove Partners Absolute Returns Strategy was listed by Eurekahedge as the #6 manager out of 300 in the Long/Short Equity Category of managers that they track.
- Of 21 managers eligible for performance ranking awards at Barclay Hedge, Horse Cove Partners was no.1 year to date through October, up 15.78%. Only two managers were in double digits through October year to date.
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 November 2016 were $37.75 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 11.30.2016, 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.
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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.
