Horse Cove Partners LLC Absolute Return Strategy was up 1.01% in August 2020

The August 31, 2020, month-end performance estimate for the Horse Cove Partners Absolute Return Strategy was a gain of 1.01% net of fees1. Since the December 2010 inception of trading, the Strategy has achieved a total cumulative return of +206.4% net of fees.

Market Recap and Commentary

S&P 500 Total Return Index gained 7.19% in the month of August and the Index had its best quarterly gains since 1989.

In hindsight, it appears much of the gain came from massive stock and call buying by SoftBank, followed of course by momentum traders and banks (that sold the calls) buying the stocks to reduce their gamma. This was very concentrated in only a few names. The largest 5 stocks in the S&P 500 now make up over 23% of the market capitalization of the index.

Stocks have been on a meteoric rise from their lows just a few short months ago. Whether it is on the back of massive FED spending, call buying or momentum traders, the sentiment seems to be that the economy is well on its way to recovery and everyone is willing to see past this “short term” pain.

The problem is that we have not recovered, and many people expect the recovery to take years. Job numbers are improving but have a long way to go recover from pre-pandemic levels. Governments around the world are still struggling with the reopening, only to have to shut them down again. There is no Covid-19 vaccine and cases are still rising.  

As the race for POTUS ramps into high gear, we expect to see some volatility. Democrats will want things to seem as awful as possible, while Republicans will be focusing on all that is good. These conflicting headlines, along with shifting polls will drive the market in the short term.

As the market rose into the close of August, so did VIX. This is not a typical correlation and therefore could be a sign of things to come.

Performance and Trading Update

Horse Cove Partners Absolute Return Strategy composite was up 1.01% net of fees. 

Our trading has remained cautious. We have continued to limit our exposure by reducing the amount of collateral we are using for the trade. With wild swings in the market, we think it is prudent to leave ourselves capital to take advantage of large jumps in premium and to be less exposed if a trade goes against us.  

With markets at all-time highs (again), that should reduce expectations of returns for stocks over the next 5-10 years. Especially considering the historically high multiples they are trading at. In that scenario, our trade should be poised to outperform significantly.

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. ®

www.horsecovepartners.com

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 8.31.2020, 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.

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.

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