The October 31, 2017 month-end performance estimate for the Horse Cove Partners Absolute Return Strategy is 0.84% net of fees1. Since the December 2010 inception of trading, the Strategy has achieved a total cumulative return of +334.75%.
Total assets under management as of October 31, 2017 - $119.61 million.
Market Recap and Commentary
S&P 500 Total Return for the month of October was up 2.33%. This marks the 12th consecutive positive month for the index, and this during what is historically the worst month of the year for stocks.
The tech sector continues to drag the S&P 500 to new highs--up more than twice as much as the index this year. Early October saw the S&P close at a new record high for 6 straight days which is the longest streak in 20 years. Factors including the progression of the tax plan, two consecutive quarters of over 3% growth in GDP, a narrowing US trade deficit, and a possible soft Brexit have all added to the positive sentiment of investors.
The Federal Open Market Committee (FOMC) continues to stay the course on reducing its balance sheet while hinting at a possible rate hike in December. The UK raised their benchmark rate this month, and in their statement, listed many reasons why rates should not be raised--proof that this is one of the most hated bull markets we have seen in a while.
Volatility, as measured by the VIX, had some volatility of its own in October. Choppy trading and a brief spike over 13% almost hid the fact that it spent most of the month under 10.5%.
Performance and Trading Update
The Horse Cove Partners Absolute Return Strategy composite gained 0.84%net of fees in October, compared with the S&P 500 Total Return Index that was up 2.33%.
What can we say? The market continues to grind higher and volatility remains historically low. Early in the month, we faced some pressure on one of our call positions. We made a tactical decision to exit the trade early at essentially a break-even. All other trades for the month were closed or expired as intended.
We continue to trade an 80-point spread for expirations on Wednesdays and Fridays. In this low volatility environment, we are getting better fills and better use of collateral compared with 100 point spreads.
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 Income Update
Here are the composite net returns for the HCP Income Strategy for the periods indicated:
Ditto
Melt-up. Trump. Taxes.
Is low volatility a predictor of higher volatility? This is one of the more common questions we are asked. No matter how long we make this trade, most people will view it from their own perspective and training. Each of us has learned and apply a set of “rules” of investing. It is how we attempt to bring order to the chaos. Those rules can get in your way because many times they are not rational.
Take, for example, trying to “time the market” or predict what the market is going to do. We have never met anyone who can do that with any success over time. Yet, when you form an opinion that the volatility will go higher because it is now lower, that’s making a prediction.
So far this year, we have seen that low volatility is an excellent predictor of low volatility in the following weeks. Will volatility move higher? Probably. But, we have no idea when. It is easy to predict “what” almost impossible to predict “when”. Higher VIX is not necessarily a bad thing for the strategy either.
The success of the Horse Cove Partners Absolute Return Strategy is not dependent on correctly predicting market movements. It is one of the strengths of the trade. It is also one of the challenges to new prospects who try to view what we do through the lens of traditional investments that depend on timing, selection, and prediction.
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 October 2017 were $119.61 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 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 10.31.2017, 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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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.
