The January 31,
Market Recap and Commentary
S&P 500 Total Return for the month of January was up 8.01%.
The stock market reversal from the lows on Christmas Eve has been remarkable with the S&P 500 index up 16.43% since then. It is up 18 out of 24 days so far in 2019.
The S&P 500 posted its best January since late 1987 with the DOW posting its best since 1989. Absorbing mixed economic and earnings data, the driving force of the market rallies and the decline in VIX seems to be the reintroduction of the Fed “put.” The Fed decided against raising rates in its last meeting and indicated that it would be responsive to markets when considering rate hikes in the future, as well as changes to the balance sheet runoff. January is a typical example of why you don’t fight the Fed. In our opinion, the Fed flinching indicates a softening economy, which is evident globally in the economic numbers and is becoming clearer in the U.S. While the Fed may be more sensitive to the markets, they have significantly fewer arrows in their quiver this time around. Rates are still historically low and their balance sheet, at $4 trillion, is more than 4 times larger than it was in 2008. This will limit the amount of intervention they are able to supply if needed.
Economic and corporate earnings news in the U.S. this month was, at best, mixed and clearly negative in the rest of the world. We continue to see a ripe environment for HCP Absolute Return Strategy in 2019 while VIX stays above 15 and the markets continue to digest conflicting data. Keep in mind, there is still no resolution to the "trade war" or Brexit and as the deadlines loom, the markets will soon have to digest these eventualities and results.
Performance and Trading Update
Horse Cove Partners Absolute Return Strategy composite was up 2.41% net of fees in January.
What a difference a month makes. The S&P 500 roared back from the worst 4thquarter for the stock market since the Great Depression. It was the best January for stocks since 1987.
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:
IMPORTANT TAX INFORMATION
If you have 2018 net losses on Section 1256 contracts, see IRS Form 6781, the instructions to that form and consult your tax advisor as to the availability of any carryback of such losses to prior years.
We are not in the business of offering tax advice so please consult with your tax professional.
Tax forms will be available at Interactive Brokers on Feb. 15, 2019.
Outside the Box
The wealth advisory world is in a state of change because of technology. Robo advisor services are springing up and greater use of target funds and ETF investments offer lower fees, but do they deliver? Taking advantage of those services require the adviser to correctly identify the risk tolerances and goals of a client and then place them in the off-the-shelf investment allocation or predesigned portfolio.
The challenge with this approach is that the results will reflect the market returns less inefficiencies. This inevitably leads to results over time that are not quite what the market delivers. For the bulk of the wealth advisory industry, the actual results reflect this reality.
So how can an investor attempt to achieve better results? Timing is one approach, but we certainly cannot predict what the market is going to do and there are very few who can. Allocations to the right trend at the right time can lead to outstanding results, but those achievements are few and far between.
The second approach is to employ an investment process relying on the successful execution of a plan that takes advantage of a defined inefficiency. High-frequency traders rely on the timing differences created by the distance from an exchange to extract return. The strategies they employ are agnostic to the market’s direction. They just need electrons to move more slowly over longer distances than shorter ones.
At Horse Cove Partners, our strategy is designed to take advantage of the persistent spread between implied versus realized volatility as those things impact options pricing. That spread is very real and measurable. Over time, repetition of that strategy to capture that difference offers the possibility to out-perform the market, because the spread exists whether the market is going up or down.
We believe our repeatable risk-based approach to capturing that difference offers a unique opportunity to outperform the markets over time. Thank you for your continued support.
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 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.
Assets under management at the end of January 2019 were $116.33 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 1.31.2019, 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 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 by our firm name.
THIS MESSAGE AND ANY FILES TRANSMITTED WITH IT ARE CONFIDENTIAL AND PRIVILEGED. IF YOU ARE NOT THE INTENDED RECIPIENT, PLEASE NOTIFY THE SENDER IMMEDIATELY AT 1 (678) 905 5723. IF YOU ARE NOT THE NAMED ADDRESSEE YOU SHOULD NOT COPY OR DISCLOSE THE CONTENT OF THIS MESSAGE AND ANY FILES TRANSMITTED WITH IT TO ANY OTHER PERSON.
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.
