Monthly Newsletter - October 2024

Greetings,

September was another volatile month in equity markets.? Despite its tumultuous start, the S&P 500 ended the month up 2.02% and is now 20.81% higher for the year.? For September, Senet Capital Enhanced Equity Fund, LP generated net returns of 3.61% and is up 31.50% year-to-date, again net of all fees and expenses.?

The Fund is currently 244% long equities. ?We are short calls on the SPY with strikes ranging from $580 to $600, and we hold put options with strike prices below current market levels.? Suffice it to say, having leveraged exposure to the long side while being hedged against the downside on an ongoing basis has proven to be a profitable strategy.

What has not proven to be as profitable is investing under the misconception that one is able to select sector and/or asset class exposure as a means of generating outperformance, as highlighted by a recent profile published by Bloomberg.?

Harvard Management Company, or HMC, is the entity that manages the multi-billion-dollar endowment fund for Harvard University.? The investment mistakes that Harvard and HMC have made are plentiful, and I encourage you to read the article in its entirety, but the one I would like to focus on is HMC’s historical tendency to increase risk at market tops and then reduce risk before markets rebound.? In layman’s terms, we call this buying high and selling low; not a recipe for stock market riches.?

HMC has generated annualized returns of 8.8% over the past 20 years, and their coffers would be $20 billion richer had they simply been able to match the returns of their university peers; a low bar in my opinion. ?

I bring this to your attention to reinforce what Senet Capital Management does and why our systematic approach to investing removes many of the emotions that befall even the Ivy League brain trusts.?

Lastly, we’d like to revisit interest rates and bring to your attention those soon-to-be maturing certificates of deposit (CDs).? As we mentioned in our letters to you last year, the biggest danger in high-yield environments is the opportunity cost.?

Here is what we said:

“We have heard feedback from prospective investors about the attractiveness of 5% guaranteed yields as an alternative to equity investments.? The issue with this logic, in our opinion, is that a 5% annualized return still doesn’t come close to the long-term appreciation that equities can provide.? And investing in a high-yield, guaranteed investment now will put you, as an investor, in the position of either reinvesting those funds at lower yields in the future as interest rates fall, or reinvesting those funds, plus your 5%, in the market at potentially much higher prices.” – November 2023.

We mention this only to say, that time has come.? As more and more CDs are maturing, that capital will need to be reinvested in an environment where the risk-free rate is falling.? So, in addition to the 5% cash returns since last November, one will now have to reinvest into lower-yielding investments - or put that money to work in an equity market that is 31% higher.?

If you are a long-term investor looking for hedged exposure to equities and our approach to investing interests you, please don’t hesitate to reach out.? We are always looking for like-minded partners to join us.?

Happy Hunting,?

David Jeffress and Jonathan Berkowitz