Crescat Global Macro

We are delighted to report that all three Crescat strategies produced strong gains in November. Not only did the Crescat Global Macro Fund return positive 8.6% net of all fees, but 15 out of 17 macro themes generated positive performance for the month! In one month, Crescat Global Macro gained back the majority of its pullback since its high water mark in February. The fund was also just recognized as a top 10 performing (#6) macro hedge fund for three-year performance ended September 2016.

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The performance award came from BarclayHedge, Ltd. in their universe of all macro hedge funds with assets greater than $10 million. Over this three-year period, Crescat Global Macro generated an 11.7% annualized net return compared to 9.4% annualized total return for the S&P 500 Index. The Fund beat the S&P 500 benchmark during this period when the vast majority of actively managed funds did not. That period included Crescat Global Macro’s recent drawdown. Through November, Crescat Global Macro’s three-year annualized performance is even better, 14.0% net versus 10.1% for the S&P 500 as shown in the table below.

Year to date performance in our Large Cap long-only separately managed account strategy remains strong. It was recently awarded a Morningstar 5-star rating for 3-year, 5-year, and Overall risk-adjusted performance, which places it in the top 10% of Large Cap SMAs in the Morningstar Universe for those categories ended June, 2016. Year to date numbers are still below our standard in our hedge funds due to the negative impact from many of our short positions from March through September. Yes, our hedge funds are true hedge funds that actually hedge using short positions and we do have drawdowns sometimes. We encourage investors to stay focused on Crescat’s proven long term performance track record that includes such periods. Please also note our low correlation to S&P 500 across all Crescat strategies. We are confident that our robust and repeatable investment process will continue to drive persistent high risk-adjusted long term returns for our investors.

BarclayHedge noted that Crescat Global Macro Fund had the lowest correlation to the S&P 500 (-0.27) among the top 10 macro funds that they featured. The low correlation to the benchmark illustrates Global Macro’s strong risk-adjusted performance which translates into an extraordinarily high annualized alpha of 17.6% over the three-year period in the BarclayHedge study! A high alpha conveys active manager value-added compared to a benchmark. Managers who take excessive benchmark risk tend to have negative alpha. Index funds tend to have close to zero alpha. The Global Macro Fund achieved its high alpha in an actively managed diversified long/short portfolio of liquid securities across multiple asset classes. We also achieved this by following our firm-wide investment discipline of combining macro themes with a fundamental equity quant model and disciplined risk controls.

Thematic Update

We discontinued one theme during the month of November – Maturing US Expansion – due to the recent pickup in the domestic economic growth outlook and the surprise election results. The Republican sweep was a game changer for the US economic growth outlook, primarily due to the new likelihood for sweeping corporate and individual tax cuts. We also added a new US Fiscal Stimulus theme which currently holds long positions in domestic infrastructure stocks supported by our equity model.

The six best performing themes in descending order for November in the Crescat Global Macro Fund were:

Peak Deflation: This is a rising global inflation theme that we introduced in September in which we have been correctly short low interest rate, long-term bonds across the globe.
Fed Moderation: This is a US Fed rate hike cycle theme. We significantly increased our exposure to this theme on the day after the US elections. In this theme, we hold a variety of domestic financial equities that are cheap and will benefit from both rising interest rates and an improving domestic economy. Financials are currently the best scoring sector in Crescat’s equity model.
Broadcast Auction: This is an opportunistic theme in which we own undervalued US media companies with hidden assets that should benefit disproportionately from the current FCC wireless spectrum auction.
Rise of the Machines: This is an artificial intelligence theme in which we own companies supported by our equity model that are capitalizing on real world applications of machine learning.
Twilight in Utilities: We added this theme in September to both of our hedge funds. We are short US electric utility stocks based on historic overvaluation and poor fundamentals across several dimensions.
China Currency and Credit Bubble: We profited from our short China foreign currency exposure as the yuan accelerated its depreciation. However, some of our currency gains were offset by losses on our China short equity exposure.

The only substantially detracting theme in November was Global Fiat Debasement, a long precious metals oriented theme which had been our best performing theme year to date across all Crescat strategies through the third quarter.

As we begin the last month of 2016, we remain fully committed to seeking out opportunities based on our time-tested investment discipline that has delivered high, long-term alpha across all three Crescat strategies. We will continue to work hard to both grow and protect capital for our investors.

Please be sure to add [email protected] to your address book to ensure delivery of all investor communication. Additionally, updated performance reports will be available in the next few weeks. Thank you for your continued support and commitment to Crescat.

Sincerely,

Crescat Capital