The June 30, 2018, month-end performance estimate for the Horse Cove Partners Absolute Return Strategy is +2.36% net of fees1. Since the December 2010 inception of trading, the Strategy has achieved a total cumulative return of +299.26%.
Total assets under management as of June 30, 2018 - $127.91 million.
Market Recap and Commentary
S&P 500 Total Return for the month of June was up 0.62%.
We are seeing more volatility this year compared with last year. The average move of the S&P 500 is 0.70% year to date, up from 0.30% in 2017.
Volatility, as measured by the VIX, has moved inversely to the markets, as is typical. VIX spent a good chunk of the month under 14, with only a quick pop over 17 at month’s end.
Performance and Trading Update
Horse Cove Partners Absolute Return Strategy composite was up 2.36% net of fees in June.
June was a solid month for Horse Cove, as we continue to recover the losses from February. As we mentioned in the last few newsletters, the months after large sudden corrections in both the market and in VIX tend to be premium rich environments for our trade. All of the trades made this month were profitable, including the five times we were able to write calls.
VIX was lower this month, leading us to reevaluate the effectiveness of trading twice each day. We believe that as long as volatility remains under the 15 -16 area we will be able to extract more value by taking advantage of extra time delay and uncertainty of direction and write the whole trade in the morning.
The Enhanced Yield Strategy had another solid month with no pressure on any of the positions. The lower targeted return typically allows us to be further away from the market versus the regular strategy, with no calls written and no weekend risk.
VIX spent most of the month under 14%, rising to over 17% briefly at month’s end. We wrote at an average VIX of 13.6%.
Here are the composite net returns for the Portfolio Margin accounts for the periods indicated:
Reg. T Update
Here are the composite net 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.
HC Enhanced Yield Update
Here are the composite net returns for the Enhanced Yield Strategy for the periods indicated:
News of the Day
Friday, July 6, 2018: The jobs report for June is released reporting 213,000 new payroll jobs…
The S&P 500 futures turn from down -6.25 to positive 5.75 in 6 minutes. Now what?
Watching the news and tracking the latest developments in the trade war, immigration, an inverted yield curve, etc. is all very interesting, but does it matter? We have concluded - not really.
Every day you can tune into CNBC, Bloomberg, ZeroHedge.com and see predictions and analysis of the latest economic news and how it is leading to something. The markets, in general, seem to be more headline-driven than ever. One day up, the next down on whatever appears to be virtually the same news. Perhaps ignoring the news would be the better approach to investing.
It seems to be a fundamental point in investing that if you could discover what the market does not know, you can profit from that. Perhaps if you could glean how what you just read or saw will affect the price of XYZ, you could profit from that conclusion. It is true, after all, that there are pricing disconnects in the marketplace from time to time. However, study after study shows that investors who leave their portfolios alone do better over time than those who actively trade.
Our approach does not attempt to make judgments on the “news of the day” and its effect on the “market.” After all, we all knew the jobs report would come out at 8:30 E.T. just as it did the month before and the previous ones before that. Rather, a systematic approach to exploit the fear of “what could happen” versus what actually happens is an investment strategy slanted in our favor. If we let it run, over time, the math and the results have shown over the last 28 years that the strategy will be profitable.
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 June 2018 were $127.91 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 the 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 thank you for your continued support.
Sincerely,
Sam DeKinder, Kevin Ellis
Greg Brennan
Fiona Dyer
John Monahan
Michael Crissey
Don Trotter
sdekinder@horsecovepartners.com
kellis@horsecovepartners.com
gbrennan@horsecovepartners.com
fdyer@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 6.30.2018, 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 was prepared by Horse Cove Partners LLC a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. Additional information about our firm is also available at www.adviserinfo.sec.gov. You can view the firm’s information on this website by searching by our firm name.
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 (678) 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.
This material has been prepared solely for informational purposes only. Strategies shown are speculative, involve a high degree of risk and are designed for sophisticated investors.
Past performance is not a guarantee of future results. Investing involves risk, including the possible loss of principal and fluctuation of value. The information herein was obtained from third-party sources. Horse Cove does not guarantee the accuracy or completeness of such information provided by third parties. All information is given as of the date indicated and believed to be reliable. Performance results are estimates pending a verification. The returns are based on the Investment Manager's strategy and the compilation of actual client account trades. The Horse Cove Absolute Return and IRA Return strategies seek to extract absolute returns from the market by trading short volatility option spreads. The Enhanced Yield strategy seeks to achieve a targeted return trading only puts with a high probability of success.
The strategies reflect the deduction of advisory fees and any other expenses that a client would have paid or actually paid. 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 the 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." Investors cannot invest directly in an index. An index does not charge management fees or brokerage expenses, and no such fees or expenses were deducted from the performance shown. Options 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 of 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.
