2018 February CAD

Back to archives

4.81% MTD
11.48% YTD

Dear Partners,

The indices above underscore just how well the Caravel Capital Fund Ltd performed during the month of February. As mentioned in our January letter, we were well positioned to profit from the drop in the markets over the past 40 days. When the opportunity to unwind our bearish and contrarian strategies arose, we executed and locked in the well-deserved gains. But that wasn’t all we did.... the fund had abundant liquidity waiting to deploy into merger arbitrage strategies, volatility strategies, credit strategies, and relative value strategies. When investors panicked and valuations were once again attractive or in some cases incredibly so, we deployed our sidelined capital along with the capital from the contrarian strategies aggressively. In basic terms we shorted high, covered low, and went long the bullish trades almost in sequence.

February’s significant contributions came from the following strategies:

  1. Risk arbitrage - For months this strategy has offered single digit annualized returns, that when risk adjusted we believed were unacceptable. During the market correction, we were able to deploy capital into these opportunities at returns in the high double digits on an annualized basis. At the time of writing these opportunities are offering returns in the single digits, we are selling them and booking our profits.
  2. Convertible Arbitrage - Our convertible arbitrage strategies with high hedges acted like puts. When the markets reached valuations considered attractive by even skeptics standards, we reduced the hedge on our convertible arbitrage positions. Which in turn allowed the convertible strategies to appreciate from the Dow’s 1500-point rally. Convertible securities tend to take on higher than normal valuations relative to the underlying shares in times of stress.
  3. Relative Value - Our relative value trades outperformed during the sell off and then continued to appreciate when the correction finally ran out of steam.

Simply put we waited with discipline, we executed when we had clarity & certainty, and we earned “above average returns with below market risk”. This is our mantra and we always repeat it before we consider investing our partner’s capital.

We thank you for your confidence and capital Sincerely,
Jeff & Glen

Monthly Performance (net of all fees)

JanFebMarAprMayJunJulAugSepOctNovDec YTD

Risk vs. Return Comparisons Across Indexes

Month Return YTD Return Volatility Sharpe Sortino Beta Best Month Worst Month Annualized
S&P 500-3.69%1.83%7.4%

Growth of $1000 since inception

Commentary Archives