Monthly Newsletter - March 2024

I am sure it comes as no surprise to those of you who know me that as a child, I was obnoxiously inquisitive.? A recurring theme of my childhood was asking questions as to why things were being done as they were, only to be told by the adult in question that it was “because I said so.”? I am reminded of this only because it seems we are in an economic, political, and investing environment where rational explanations are becoming increasingly difficult to come by, and we are being told by the “experts” that the government remains functional, the economy is resilient, and the stock market is invulnerable simply because they said so.?? ???

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The S&P 500 is up 6.8% in the first two months of 2024, including a gain of over 5% in February alone.? This was the best February the S&P 500 has had since 2015.? Since the inception of the S&P 500 in 1957, there have only been 20 occurrences in which the index gained more than 5% in the first two months of the year.?

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Senet Capital continues to keep pace, with net gains of 7.6% in February and net gains of 9.7% so far in 2024.? Because we sell calls against a portion of our position, our gains have been muted in recent months as the rally has continued to call shares away from our portfolio.? This is not a flaw, but rather a feature.? Our strategy is designed to deliver in both up and down markets, and the income we generate from these calls allows us to hedge the portfolio and remain invested in a market that continues to defy gravity.? By locking in profits at pre-set premiums on our shares over short periods of time, we are able to add gains without attempting to time the market.? Those who have tried to call a top to this market lost that battle long ago.

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We are currently short calls at three different strike prices and with expiration dates that go into April 2024.? We hold put options against our positions that also expire in April.

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We feel very strongly about our approach to investing and the clear, quantifiable benefits of our options overlay strategy and the risk-adjusted returns we can deliver over long periods of time.? However, this is not the only strength we see in Senet Capital.? A lesser known, but equally crucial benefit is our size.?

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Senet Capital is a small firm, and we manage a small fund.? It is no secret that our aspirations are to remain as such.? History has proven that smaller investment funds outperform their larger counterparts, even after normalizing for survivorship-bias in the data.? There are a number of reasons for this.? Small funds typically have a high degree of investment from their founders and managers, which makes the investment manager’s interest typically more aligned with their investors.? Smaller funds also typically can pursue more niche investment strategies and opportunities than larger funds are able to.? As assets grow and larger funds are forced to deploy more and more capital to their best ideas, the marginal returns on these investments begin to shrink over time.?

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Congratulations to all of our investors on the strong performance we have enjoyed since the Fund launched in June of last year.? We are thankful for the faith you have put in us, and we are determined to reward your support for many years to come.

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If you are not currently a partner of ours and you feel that you have not participated in the returns that equities have delivered in recent years, please reach out to us so we may share our story and why we operate Senet Capital as we do.?

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If you are interested in our strategy but have reservations about investing in an emerging fund like ours, send us an email and we will be happy to discuss why waiting for a small fund to become a large fund will likely cost you in the long run.? We welcome inquisitive minds and appreciate the opportunity to answer questions and discuss the markets directly and transparently.? At many large funds, the answer you’ll find is because they said so.?

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Happy hunting,

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David Jeffress and Jonathan Berkowitz