Dipsea Capital Fund LP
April 2017 Commentary:
The Dipsea Capital Fund returned 0.43% to clients for the month of April, its 9th consecutive, positive month. Year to date, the fund is up 2.70% after fees and the trailing 12-month return is 6.49%. Seventeen weeks into 2017, the fund has been profitable in 16 of those weeks. In April, the fund’s largest daily loss was 0.06%.
The equity markets remain ensconced in a regime of historically low volatility. The VIX index, which Wall Street likes to regard as a measure of investor fear on the S&P 500 index, recently closed at its lowest level since 1990. Generally, this historically low reading reflects an absence of concern among market participants with respect to a lower market. Although that is a rational conclusion, there may be other dynamics at work.
There are approximately 4500 stocks traded on the NYSE and the NASDAQ markets combined. Implausibly, there are now more than 5000 indices tied to those stocks. We postulate that this abundance of products, especially volatility oriented products, is having a dampening effect on the market’s normal ebbs and flows.
Regardless of what are the true stimuli to the current unprecedented quiescence in the stock market, we believe these new dynamics lead to a considerably more fragile marketplace.
Building a Better Mousetrap:
Our methodology continues to generate steady, uncorrelated returns in this low volatility environment. Nevertheless, it’s important to remind our clients that our rule based methodology is one that is oriented to identifying value, on a relative basis. Currently, and for the past several years, (pre and post launch of our fund), our efforts have primarily identified value in low volatility strategies that benefit from sublime market conditions.
Notwithstanding, we stand ready to identify future regime changes, and look forward to identifying value with a more long volatility orientation. Having successfully managed client assets, (pre fund launch, verified returns available upon request), in 2007 and 2008, we feel our rule based methodology combined with the experience of our team, has the capacity to offer solid returns when market turbulence returns.
To quote Charlie Munger, (and ideally emulate the consistency of Warren Buffet), “A lot of other people are trying to be brilliant; we’re just trying to be rational”.
Please accept our continued gratitude for the trust you place in us as a steward of your capital.
Chris, Gregg, Eddy, Peter, Kurt and Austin.