March 2017 Commentary

Dipsea Capital Fund LP  


March 2017 Commentary: 


The Dipsea Capital Fund returned .72% to clients for the month of March, its 8th consecutive, positive month.  For the first quarter of 2017, the fund is up 2.26% after fees and the trailing 12-month return is 6.58%.  Of the 23 trading days in March, the fund generated positive returns 70% of the time.  In addition, the fund’s largest daily loss was a modest .06%.


On a bookkeeping note, K-1’s for 2016 were emailed out last week.  Note that another positive outcome of our uncorrelated strategy is a favorable tax treatment assigned to a portion of the profits we generate from trading in certain index products.  For 2016, approximately 33% of our profits were allotted this tax treatment (termed 1256 treatment).  As our fund grows, we anticipate a larger percentage of our returns qualifying for this deduction.


There are many intriguing variables to monitor as we enter the 2nd quarter.  First quarter results will soon be reported; earnings for the 500 companies in the SP 500 are projected to increase 8.9%, year-over-year.  That said, equity prices have been rising for months, potentially discounting this growth. 


The primary “tell” we’re observing is the slope of the yield curve.  The bond market is presently communicating that economic growth may be slowing.  With longer term rates falling slightly, the stocks of companies in the financial sector have sold off modestly.  If economic growth or future earnings guidance appears to be slowing, or political progress on tax reform gives the impression of stalling, we feel the market could correct lower.


Although we’d love a crystal ball, we don’t know the ultimate direction of equity prices.  What we do know is the market is expensive using traditional metrics, bonds are offering little yield, and someday the market will correct.  We believe it’s a smart decision for investors to have some component of their portfolios invested in a strategy uncorrelated to stock prices.  Our approach continues to provide that diversification.


Please accept our appreciation for the trust you place in us as a steward of your capital. 





Chris Antonio



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