The September 30, 2017 month-end performance estimate for the Horse Cove Partners Absolute Return Strategy is 1.32%% net of fees1. Since the December 2010 inception of trading, the Strategy has achieved a total cumulative return of +331.13%.
Total assets under management as of September 30, 2017 - $116.73 million.
Market Recap and Commentary
S&P 500 Total Return for the month of September was up 2.06%. This marks the 11th consecutive positive month for the index, during what is historically the worst month of the year for stocks.
Another natural disaster, another up month for the major averages. The S&P has tallied 38 record high closings this year and continues its record streak without a 5% correction. The end of September capped 41 consecutive weeks without even a 2% correction. The Trump administration presented their tax package, fueling strong performance in the S&P to end the month. A lowering of the corporate tax rate from 35% to 25% as proposed, could have a dramatic effect on the markets.
The FOMC met on September 20th and decided to leave short-term interest rates unchanged. They hinted that they may raise rates one more time before year end if inflation rises. They also remain committed to shrinking their bond holdings to “normalize” their balance sheet.
Volatility, as measured by the VIX, logged its lowest September average since the index’s launch in 1990. At well under 11%, it easily replaced September of 1995’s average low of 12.06%.
Performance and Trading Update
The Horse Cove Absolute Return Strategy composite gained 1.32% in September, compared with the S&P 500 Total Return Index that was up 2.06%.
Most of September was uneventful for the strategy, allowing all but one position to close as planned. On the 12th after a few strong days in the S&P, we felt that the short call expiring on the 15th was moving against us and made the decision to roll up the position at a loss. We maintained an overall profit for the week, primarily due to employing multiple expirations.
We continue to trade an 80-point spread for expirations on Wednesdays and Fridays. In expectation of continued strong growth in AUM, we are also currently tracking trading of the Monday expiration.
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.
HC Income Update
Here are the composite returns for the HCP Income Strategy for the periods indicated:
Risk On!
Revival of the Trump administration’s tax plan has given plenty of fodder to market bulls. Even though we have only seen an outline, and there is a lot to be done before any of it can be realized, investors seemed to be pricing in the lowering of the corporate tax rate. There seems to be plenty of bad news from Texas, Florida, and Puerto Rico as the costs of rebuilding continue to grow. Market pundits remain split on how much room this bull has left. For now, the “melt-up continues.”
In the face of a persistent historically low VIX, our returns continue to keep pace with the strongly rising market. Our strategy affords us the luxury of not having to predict what the market is going to do. Up, down, or sideways, we continue to put on our positions at a constant, initial risk profile, collecting premiums and adjusting weekly. We do not chase the market or returns, we manage risk. It is our belief that this will put us in a strong position when volatility inevitably returns and our clients will enjoy the benefits of non-correlation.
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 2017 were $116.73 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 9.30.2017, 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.
