2018 April CAD
0.71%
MTD
13.33%
YTD
Monthly Performance (net of all fees)
| Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | YTD | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2018 | 6.36 | 4.81 | 0.95 | 0.71 | 13.33% | ||||||||
| 2017 | 0.27 | 0.05 | 0.35 | 0.25 | 1.39 | 1.45 | 1.77 | 0.12 | 3.27 | 3.61 | 13.96 | 1.96 | 31.51% |
| 2016 | 1.59 | 3.30 | 1.53 | -0.82 | 5.67% |
Risk vs. Return Comparisons Across Indexes
| Month Return | YTD Return | Volatility | Sharpe | Sortino | Beta | Best Month | Worst Month | Annualized | |
|---|---|---|---|---|---|---|---|---|---|
| Caravel | 0.71% | 13.33% | 11.28% | 2.29 | INF | 1.00 | 13.96% | -0.82% | 31.28% |
| S&P 500 | 0.38% | -0.38% | 7.67% | 1.55 | 3.65 | 0.27 | 5.72% | -3.69% | 14.69% | S&P/TSX | 1.82% | -2.78% | 5.09% | 0.93 | 1.26 | -0.4 | 3.06% | -3.02% | 7.15% |
Dear Partners,
The Caravel Funds continued to carry a large cash position through the month of April in spite of our efforts to find new opportunities. A big reason for this is the perception of risk in the market. As market sentiment ebbs between fear and greed the rate of return on stocks change. When the return is attractive we add to or hold a position, when markets become exuberant the returns shrink. If the returns shrink enough we become sellers of our strategies and end up in a cash position.
Think of the market we deal with similar to your backyard; now imagine seeing a gold coin there on a Saturday morning. Wewouldallaccepttherisktogooutsideandpickupthecoinknowingwecanturnthegoldtocash with a visit to a bank on Monday. The same goes when Caravel Capital identifies investment opportunities with low risk relative to the value they offer... we go and get them. The big difference in our situation is the length of time we have to wait before we can exchange our “gold coin” for cash. We incorporate that time factor into our investment thesis using Risk-Adjusted Rate of Return. Our model also includes the knowledge we have acquired over decades of investing. The market’s Risk Adjusted Rate of Return changes by the minute and sometimes investors are willing to accept a lower return than we are. Imagine the same Saturday morning you found the gold coin, someone knocked on your front door and offered you the same amount for the gold coin that the bank would offer you on Monday. The offer eliminates the cost of driving, parking, and your time waiting at the bank. You would sell them the coin and take the cash. You don’t know why they offered you that amount. Maybe they felt the price was going to rise by Monday morning or they needed some gold that day...it doesn’t matter. The same goes for us when markets move and other investors offer to take our longer-term trades for a much lower Risk Adjusted Rate of Return. Simply put, we would sell our gold (in the fund's case we sell our stocks) just like you would. In any given month we may be a buyer and a seller of a position for these exact reasons. Lately we have been a seller hence the large cash position.
We have identified a few takeovers involving spinouts that are very appealing. These “Spincos” are often overlooked and trade at a significant discount to their fair value. The reasons for this relates to the aversion long only managers have to owning risk arbitrage situations, the companies are usually overlooked because they are smaller, and the lack of liquidity to purchase the Spinco on a stand-alone basis. All are factors that historically produce a great investment opportunity.
During the month we reduced our hedges in oil, the US broad market, and covered short stock on a few small warrant positions. The Fund is currently closed and will remain so until we can deploy its cash as not to dilute our partners’ returns. On April 1, 2018 the managers rolled their Q1 performance fees into the fund alongside some current investors who topped up their holdings.
We thank you for your confidence and capital.
Sincerely, Jeff & Glen