The January 31, 2022, month-end performance estimate for the Horse Cove Partners Absolute Return Strategy was down (0.43%) net of fees1. Since the December 2010 inception of trading, the Strategy has achieved a total cumulative return of +241.27% net of fees.
Market Recap and Commentary
S&P 500 Total Return Index lost (5.17%) in January to start 2022.
How quickly the tides can turn. As we have mentioned several times over the last few months, as indexes were grinding out new highs, there was a lot of carnage going on behind the curtain. The weight of those gains came predominately on the shoulders of a handful of companies. Last month the Federal Reserve Bank gave a little more clarity on its intention for rates and tapering and the markets quickly reacted. From peak to trough, the S&P was down over 12% at one point. It was a quick move, as most are these days.
It is possible that we saw the latest implementation of the “FED put” at the lows on January 24, 2022. With the S&P 500 down over 160 points in a day, a mysterious put seller stepped in and sold massive quantities of puts. This action reduces the delta on options, forces the market makers to buy stocks to hedge the puts they now own, and generally turns the sentiment. We watched this play out as the S&P staged a historical recovery that same day.
The stock market, however, continues to show signs of being fragile and unhealthy. Following the dramatic reversal on January 24, 2022, the S&P 500 was able to string together 3 consecutive days where intra-day gains of over 1.5% were reduced to losses by the close of trading. That hasn’t happened ever. Sentiment among those few stocks carrying the indexes, however, was turned around by strong earnings from Apple and a well-received report from Amazon.
As we have said in the past, it is impossible for anyone to be able to time the market consistently. It is, however, possible to be aware of what is going on around you, the headwinds that the equity markets and the economy are facing, and the abnormal (unhealthy) moves the markets are making. We are confident that the relatively healthy correction we saw start in 2020 was stalled by the global central bank’s massive liquidity infusion and accommodative policies, and now the market is starting to come to terms with the reality that it will be facing the least accommodative Federal Reserve Bank it has seen in over a decade.
Performance and Trading Update
Horse Cove Partners Absolute Return Strategy composite was down (0.43%) net of fees.
There is no question, markets like we faced in January, are difficult to trade for an option seller. The last time the markets moved that much in such a short period of time, we faced tough losses. Although negative for the month, losses were insignificant and strong evidence that our adjustments to the strategy are working. We continue to be opportunistic with our trades, and believe this will be a strong year for us on an absolute basis and vs. the S&P.
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 may be written than in the “regular” accounts that use Portfolio Margin. Over time, this may also 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:
HC Money Plus
Here are the composite gross returns for the Money Plus Strategy for the periods indicated:
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 the 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 that began in December 2010. The firm 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 the probability of success and the management of risk. We believe that it is possible to realize positive returns through a 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
Don Trotter
sdekinder@horsecovepartners.com
kellis@horsecovepartners.com
gbrennan@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 1.31.2021, which is preliminary and subject to revision. Performance estimates described herein as “YTD” are net of fees and expenses including a 2% per year management fee and 20% incentive fee and assumes investors have been invested the entire time with no withdrawals. Individual account returns may vary depending on cash flows, the time period assets are invested, and restrictions placed on the account.
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 for our firm name.
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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 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 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.
