The December 31, 2019, month-end performance estimate for the Horse Cove Partners Enhanced Yield Strategy is up 0.65% net of fees1. Since the June 2017 inception of trading, the Enhanced Yield Strategy has achieved a total cumulative return of +22.94% net of fees.
Fixed Income Commentary
The Barclays US Aggregate Bond Index lost (0.07%) in December 2019.
Source: http://performance.morningstar.com/Performance/index-c/performance-return.action?t=XIUSA000MC
Overall rates were up slightly in December from November with the yield on the 10-year US Treasury Note rising from 1.78% at the end of November to 1.92% per annum at the end of the year. Source: US Treasury.gov
One of the things that caught our eye at the end of the year was the action of the Federal Reserve Bank injecting liquidity into the marketplace through the repo market. Major banks seem to be having liquidity problems and no one seems to know the reason(s) why. As a result of these actions and “not QE”, the balance sheet of the FED climbed by almost half a trillion, in the fourth quarter. Source: FederalReserve.gov.
If there is one thing to be watching, it is the liquidity injections being performed by the Federal Reserve Bank in the overnight markets.
Performance Update
Horse Cove Partners Enhanced Yield Strategy composite was up 0.65% net of fees in December closing the year out on target, up 7.46%.
Trading around the holidays always presents challenges with lighter volumes and shorter trading periods. When you take 1½ days out of a 5-day option the premiums are significantly lower compared to 5 full trading days. But the option still has the full five days of exposure. As a result, we kept our exposure light at the end of the month but still returned results meeting our expectations.
Here are the composite net returns for the Enhanced Yield Strategy for the periods indicated:
There have now been 31 consecutive months of live trading the Enhanced Yield Strategy with no negative months. During the same time, the Barclays US Aggregate Bond Index had 13 negative months.
The Enhanced Yield Strategy is intended to serve as a complement to a fixed income portfolio by adding alpha with low correlation to traditional bond portfolios. The strategy employs an overlay approach to option selling by holding a core portfolio of short-term US Treasury securities that are used as collateral to sell significantly out of the money put options on the S&P 500 Index.
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 our 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.
The firm offers clients two Strategies: Absolute Returns, which commenced trading in December 2010 and Enhanced Yield, which began trading in June 2017. Total regulatory assets under management at the end of December 2019 were $82.64 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 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
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 12.31.2019, 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 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 a 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.
