The month-end performance estimate as of April 30, 2015 for Horse Cove Partners Absolute Return Strategy is +0.20%, net of fees1. Since the inception of trading in December 2010, the Strategy has achieved a total cumulative return of +189.56%.
Market Recap and Commentary
The S&P 500 Total Return Index had a positive month in April, up 0.96% but continues to lag last year’s performance and the Horse Cove Partners Absolute Return Strategy. For the year-to-date, the S&P 500 Total Return Index is up 1.92%.
Volatility was pretty calm during the month, opening at 15.32% on April 1, 2015, and then never getting back to 15% at any point during the month. The VIX closed below 13 three times during the month, hitting a closing low for the month of 12.29% on April 24.
The GDP report for the first quarter was a disappointing 0.2% --which seemed to calm the market’s expectations for an increase in interest rates. That translated into a perception of more “free” money and continued business as usual of buying the dips.
Performance and Trading Update
April turned out to be one of those "put the trades on and wait" kind of months. We had almost no margin pressure during the month. The Strategy was repeated four times, leading to a normal return kind of month, given the low volatility.
The Strategy was up 2.31% gross for the month. After the deduction of fees earned in the first quarter, the net was a slight positive.
We wrote puts and calls an average of 5.2% and 2.7% out of the money respectively. The strategy continues to out-perform the S&P 500 Total Return Index in all of the periods indicated:
IRA Update
Here are the returns for the consolidated IRA accounts for the periods indicated:
*Trading of IRA accounts began in September 2014. (1)
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.
A Path Less Traveled
Two roads diverged in a wood, and I—
I took the one less traveled by,
And that has made all the difference.
Robert Frost
The timeless words written by Robert Frost reminded me this month of how different the Horse Cove Absolute Return Strategy is when compared to other investments. For our clients, having an allocation to the Strategy over the last 4 1⁄2 years, has made all the difference in their total portfolio returns.
With that in mind, we noted with interest, that the latest 7-Year Asset Class Real Return Forecast from GMO as of March 31, 2015. The firm that manages $118 billion as of March 31, 2015, publishes a highly respected forecast of the future real return after inflation of various asset classes. In their report, GMO predicts the annual real rate of return for the next 7 years from owning various asset classes will not be very rosy:
US Large Cap Equities---negative -2.0% US Small Cap Equities---negative -3.2% US High Quality---positive 0.50%
Intl Large Cap Equities---negative -0.1% Emerging Markets---positive 2.7%
US Bonds---negative -1.2%
Intl Bonds Hedged---negative -3.5%
Note that these are the estimated returns per year. After 7 years, a portfolio matching the returns of the biggest and best companies in America will be down just over 13%. GMO predicts that the single best assets class to hold over the next 7 years will be Timber with an estimated annual return of 4.8% per year.
We believe GMO left off one important asset class, selling options and volatility. Ignoring for a moment that the net returns for any consecutive 12 months of the Horse Cove Absolute Return Strategy in 4 1⁄2 years have averaged 29.73% -- cutting in half the worst 12 month return of the Strategy in our history (+9.73%), and repeating it for 7 years in a row, would essentially tie what GMO predicts will be the best returning asset class.
We believe the path less traveled, the one our clients are on, will make all the difference in the coming years. If you would like to learn more, please contact us. We would welcome the opportunity to work for you.
Horse Cove Update
The Horse Cove Partners Absolute Return Strategy was listed as the #4 top performer in the Option category from BarclayHedge for the month of March and remains the number one option strategy in the category year to date.
Total assets under management now exceed $16.2 million in the Horse Cove Absolute Return Strategy.
We value each of our clients and the assets each has entrusted to us in our Strategy, and will continue to pursue attractive returns to the benefit of all.
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.
“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 would like to thank you for your continued support and look forward to being in touch with you in the near future.
Sincerely,
Sam DeKinder, Kevin Ellis
John Monahan and Michael Crissey
sdekinder@horsecovepartners.com
kellis@horsecovepartners.com
jmonahan@horsecovepartners.com
mcrissey@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 4.30.2015, 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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Finally, to the extent that performance information is contained in this message, you are hereby advised, and you acknowledge it, that past performance does not assure future results, which are not guaranteed by Horse Cove Partners LLC or any of its affiliated entities or by any insurance mechanism.
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.
