The February 28, 2021, month-end performance estimate for the Horse Cove Partners Absolute Return Strategy was a gain of 0.03% net of fees1. Since the December 2010 inception of trading, the Strategy has achieved a total cumulative return of +228.13% net of fees.
Market Recap and Commentary
S&P 500 Total Return Index gained 2.76% in February.
In February equity markets posted a sharp reversal compared to the selling that occurred at the end of January, repeating the same pattern from December into January. The S&P recovered its losses in less than a week. Although the VIX started the month in the 30s, it briefly dipped under 20 for the first time in over a year. These continuing sharp moves in both directions are not typically a sign of healthy markets and are more likely indicative of a topping pattern.
However, markets generally want to go up. The monetary accommodations of the deep pockets of governments globally, some normalization of global relationships, low rates, and the prospects of recovery from the global pandemic are giving it plenty of reasons to do so. While there have been no major actions by the new administration, other than by way of Executive Orders, investors seem to have faith that they will spend, and that has allowed them to ignore many things that factor into risk.
Along with the unprecedented amount of liquidity the US debt continues to grow. Now just topping $28 trillion. Source: https://www.usdebtclock.org/. What seems like small moves in interest rates can have dramatic effects on the costs to businesses and governments to service that debt. Notably in the lower or “no” earning new tech space. Nasdaq has been the market leader for years, but the glimpse of higher rates and/or inflation that we have seen lately may be the proverbial “crack in the dam.”
At this point, markets around the world are pricing in an almost perfect recovery, while not discounting any potential consequences of the meteoric rise in balance sheets. If investors remain detached from fundamentals and focused on the rosiest of scenarios, there is no way to know where this will end.
It appears to us that even a true bull market at this point would need a 7-10% pullback in the S&P before it marches higher. It appears everyone is long and borrowing to go “longer-er,” so it wouldn’t take much for a reversion.
Performance and Trading Update
Horse Cove Partners Absolute Return Strategy composite was flat at 0.03% net of fees.
February was a light month for premium selling. It was a short month, and we watched VIX decline from 33 to 20. We continue to be cautious, writing further out and covering earlier. We believe patience and caution are the correct approach to the potential powder keg we are sitting on.
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:
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 2.28.2021, 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 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.
