Crescat Capital commentary for the month of August 2016.
Also see hedge fund letters
According to the Wall Street Journal, only 14% of active Large Cap mutual funds are outperforming the Russell 1000 this year through July. Crescat’s long-only Large Cap strategy has outperformed the benchmark significantly. Large Cap’s strong performance has been achieved despite holding the most cash this year of any year in its seventeen-year history. The defensive posture is warranted based on Crescat’s global macro outlook as we discuss in our quarterly investor letters. Large Cap’s cash cushion has made its risk-adjusted performance even stronger than its outright performance suggests. Good stock picking has carried the portfolio. Two of our holdings, Newmont Mining (NEM) and NVIDIA (NVDA), are the #1 and #4 performing stocks in the S&P 500 this year. Below is August mid-month and YTD net estimates for all three strategies:
August Mid-Month Net Estimates (through 8/15/16)
Crescat Global Macro: -2.1%
Crescat Equity Long/Short: -0.8%
Crescat Large Cap: +2.1%
S&P 500: +0.9%
2016 YTD Net Estimates (through 8/15/16)
Crescat Global Macro: -1.2%
Crescat Equity Long/Short: +0.6%
Crescat Large Cap: +13.7%
S&P 500: +8.6%
On the hedge fund front, Crescat’s two hedge funds prospered early in the year when they delivered high absolute returns and even stronger alpha in the declining global equity market through mid-February. As of February 11 this year with the S&P 500 down 10.2%, Crescat’s Global Macro Fund was up 9.0%. However, Crescat’s hedge funds have under-performed since February, principally due to our short positions that are part of our Asian and energy related macro themes.
Despite the recent under-performance in the hedge funds, all three of Crescat’s strategies have substantially outperformed market benchmarks and the vast majority of other managers, net of fees since inception on both an absolute and a risk-adjusted basis. See the links below for our latest performance reports.
Crescat has been experiencing net capital inflows year to date and has doubled its assets under management in the last year. Crescat’s hedge fund returns have been strong over the last several years and since inception unlike many hedge funds that have struggled. We believe this is due to our independent thinking backed by our proprietary fundamental model and macro thematic investment process. This discipline combined with our risk models and exposure limits have been key to our strong long term returns.
Redemptions from large hedge funds that have under-performed over a long time period combined with index fund chasing have made shorting stocks more challenging in recent months. The problem has been compounded by ultra-low interest rates and easy global central bank monetary policy. As a result, stock markets are flying high once again, but there remains significant risks due to the lingering global debt-to-GDP imbalances and future inflation and currency devaluation that is necessary to ultimately reconcile them. At Crescat, we remain nimble and pro-active and intend to capitalize on these market inefficiencies as we have since inception.