BlackPearl Masters Fund Newsletter August 2019

The BlackPearl Masters Fund had another good month in August and finished up +1.40%. This was a pleasing result given that equity markets generally sold off in August with the ASX 200 index down -3.1% and the S&P 500 down -1.65%.

During the month there was significant divergence in performance among a number of the fund’s strategies which is to be expected given that the aim of the fund is to allocate capital to strategies that have a low correlation to the overall market as well as to other strategies with in the fund.

The low correlations among strategies provides a benefit to the fund over time which can been seen during months like August where even though the general market was down and a number of the fund’s strategies finished lower, they were outnumbered by positive strategies which also showed much greater percentage gains.

Overall six of the funds nine strategies finished in positive territory with the best performing strategy finishing up +12.3% while the worst finished down 7.1%. The strategies that generated the strongest returns in the month had a focus on small caps, mid-caps, growth stocks, volatility and where on the right side of many earnings reports. While the weaker strategies had exposure to resource and value stocks. From a category standpoint the strategies that performed best where long short variable beta, market neutral and systematic trading.

The strategy that performed strongest for the month was our long short variable beta strategy which generally has a tilt towards small and midcap stocks. The double digit return in a single month was the strongest monthly return achieved since the strategy’s inception. The strategies manager commented:

“The monthly return was generated from gains from both the long (stock selection) and short (index protection) investments. The long investments enjoyed a remarkable reporting season, with the underlying businesses of each long position performing very well without exception. The short book made a positive contribution with returns driven primarily through our systematic index hedging program. The monthly return was generated with no material change in our gross or net exposure levels (our net exposure of c.50% remains consistent with levels held by the fund over the last seven years)”

Additionally, it was pleasing that the fund’s volatility strategy was up for the month and provided the protection that it is designed to provide in downward markets. The VIX index was up +17.74% in August and the strategy managed to take advantage of the initial volatility spike early on in the month after which it sold front-end volatility aggressively to take advantage of the decline that occurred over the following weeks.