The November 30, 2021, month-end performance estimate for the Horse Cove Partners Absolute Return Strategy was flat at 0.22% net of fees1. Since the December 2010 inception of trading, the Strategy has achieved a total cumulative return of +240.22% net of fees.
Market Recap and Commentary
S&P 500 Total Return Index lost (0.69%) in November.
Markets were relatively stable for most of November, with the S&P hovering around 4700 for most of the month. In the last week, investors were hit with a one-two punch from Covid and an announcement by the Federal Reserve Bank that they would begin tapering bond purchases. This resulted in the S&P 500 index losing 2.8% in the last three trading days of the month.
The emergence of the Omicron variant reignited investors’ fears that more pandemic-driven headlines would ensue. As we have said multiple times, this is a headline-driven market run largely by algo trading in the short term. For the last few months, what is being called the “reopen” trade was driving the market on expectations that we would be returning to “normal”. Uncertainty about the new variant, its severity, and how fast it will spread quickly took the wind out of the sails from the reopen trade. At this moment, it seems as if those fears have calmed as Omicron does not appear to be as deadly as the original or the Delta variant.
While testifying before Congress, Jerome Powell retired the term “transitory” when describing the current inflationary pressure our economy is facing, leading the way for faster tightening of monetary policy as well as opening the door to earlier than expected rate hikes. It is hard to ignore the rate at which the prices of goods are rising. While some of the price pressure is coming from “short term” supply issues, there is also the impact of the unprecedented amount of money being injected into the economy by global central banks in response to the pandemic. Inflation is running well over 6% year over year. This is a rate that consumers have not seen since the early 1980s. Using the 1980 based formulas to calculate inflation versus what is now being reported as “official”, the current inflation rate would be well over 10%. http://www.shadowstats.com/alternate_data
In case you don’t remember, the FED had to raise rates to almost 20% in the ’80s to get inflation under control.
As long as governments and central banks are willing to print vast sums of money and force-feed it to the economy, there will be a backstop on how far markets can drop. Meanwhile, behind the curtain, individual stocks continue to experience significantly more volatility than the indexes would suggest. The stock market indexes have been rising on the backs of just a handful of outperformers that are heavily weighted in the indexes.
Performance and Trading Update
Horse Cove Partners Absolute Return Strategy composite was up 0.22% net of fees.
Returns for November were disappointing, but it was a difficult market to navigate. The sharp recovery from the dip early in the month caused a quick retreat in premium that drained the risk/reward from our trade and left us out of the market for longer than we would have liked. The larger dip at the end of the month drove up volatility as measured by the VIX and returned premiums to more normal levels. We expect volatility to continue through 2022 as there are many unresolved issues to be dealt with and we expect premiums to be robust.
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:
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 11.30.2021, 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.
