Crescat November Performance Update

Kevin Ludolph Crescat News and Updates

December 12, 2018

Dear Fellow Investors,

Performance and Profit Attribution

In December through yesterday’s close, Crescat Global Macro Fund (CGMF) is up an estimated 5.9% month to date and 29.9% year to date and Crescat Long/Short Fund (CLSF) is up approximately 7.4% month to date and 20.6% net year to date. Through the same period, the S&P 500 is down 4.4% month to date and up 0.5% year to date.

Crescat’s hedge funds were up 22.6% (CGMF) and 12.3% (CLSF) through November year to date. In comparison, the global hedge fund industry was down 3.6% year to date through November according to data from the Bloomberg Hedge Fund Database. As world economic and corporate earnings growth rates expectations for next year have been declining significantly, 2018 has turned into a challenging year for global financial markets and for many money managers and investors. Crescat has been able to capitalize on this environment in its hedge funds.

After posting industry-leading net gains in October in both of Crescat’s hedge funds, 17.1% and 16.3% in CGMF and CLSF respectively, Crescat pulled back in November, giving back 4.4% net in CGMF and 4.9% net in CLSF. Financial markets can be fickle, but Crescat is steadfast in our firmwide global macro investment process. We have gained all of November’s losses back in our hedge funds in December month to date by staying grounded in our themes and positions. Both funds have hit new high-water marks intra month as we approach year end.

Crescat’s November pullback was primarily caused by short positions in our China credit bubble and yuan devaluation themes as hopes for a US-China trade deal worked against those positions ahead of the Trump/Xi meeting in Buenos Aires. US equity shorts in our maturing expansion theme also detracted from our performance in November. The good news is that 10 of our 14 themes in CGMF are producing gains this month while the Chinese economy continues to deteriorate on its own accord due the natural unwinding of its historic credit bubble. While global financial markets may continue to rally on hopes of trade deal between the US and China, we think those rallies will be selling opportunities. In our analysis, the US has already entered a new cold war with China driven by bi-partisan deep factions within the US government, including its military and intelligence arms. As such, we believe the US is unlikely to reach any major new trade deal with China despite intermittent optimism over such by the Trump administration and Chinese officials.

We believe we are facing the end of a long global economic expansion with record corporate, household, and government debt levels compared to GDP and only-recent record valuations for many global securities markets, including US equities and US corporate fixed income. By the way, US corporate credit deterioration is a new theme at Crescat. In this theme, we have held put options on two corporate high yield bond ETFs in CGMF since early October. Formerly, these positions were part of our maturing expansion theme. We see more opportunities ahead that make this worthy of an entire theme. As a global-macro focused and value-driven manager, we believe today’s markets present extraordinary opportunities for all Crescat’s strategies.

See all Crescat’s returns year to date, including Crescat Large Cap, in the charts and tables below.

December 2018 MTD and YTD Estimates

Official Performance through November 2018


November Profit Attribution by Theme

Why Crescat?

Crescat’s global macro and value-driven approach has led to significant long-term outperformance compared to passive benchmarks and active manager peers through a variety of market environments. By staying grounded in our macro themes, valuation models, and risk controls, Crescat’s strategies have persevered to deliver strong absolute and risk-adjusted outperformance over the long term. By deploying a macro thematic investment process across all our strategies, we have historically demonstrated a low correlation to equity benchmarks and the ability to generate profits in market downturns.

Crescat’s strategies are designed for long-term investors who believe in Crescat’s investment process. They are not designed for short-term investors who are likely to be shaken out by one of Crescat’s inevitable drawdowns.

Given our valuation approach to entering and exiting positions, we are confident that our portfolios are worth substantially more than public markets are quoting them at any given time. Such conviction is necessary to withstand inevitable, short-term, mark-to-market losses in Crescat’s strategies due to erratic market behavior. We never view drawdowns as a permanent loss of capital. We are always confident in our ability to realize the much greater intrinsic value of our portfolios. While we can never be right on all our themes and positions, when we are wrong, we are happy to recognize that and move on. We know that the markets will constantly present us with substantial new themes and opportunities for future strong performance and that our models will guide us to them.

Crescat’s long-term returns demonstrate that adding Crescat’s global macro-oriented strategies to a portfolio mix of traditional asset classes can reduce overall volatility and improve returns over complete economic cycles. We believe this is the secret to earning industry-leading long-term performance: (1) commitment to a robust global macro investment process grounded in valuation; and (2) the fortitude to withstand inevitable short-term drawdowns while adhering to risk controls.

In Closing

Given the poor performance across many asset classes throughout global financial markets in 2018, many investors are contemplating the end of a long macroeconomic cycle and considering new ways to protect and preserve their assets. Moving to cash will not offer opportunities to make meaningful money during a global macro downturn. At Crescat, we are determined to capitalize on bear markets as well as bull markets. We develop tactical investment themes based on proprietary value-driven models. Our mission is to grow and protect wealth by capitalizing on the most compelling macro themes of our time. We aim for high absolute and risk-adjusted returns over the long term with low correlation to benchmarks. We ask that you consider making an investment allocation to Crescat today. As always, we stand ready to answer questions or discuss themes.

For more on our investment themes and outlook, please stay tuned for our extensive quarterly research letter that will be coming out soon. For brief, more frequent research updates, please follow Crescat Capital, Kevin Smith, and Tavi Costa on Twitter.

Sincerely,

The Crescat Team

For further information, contact:
Derek Chow
Director of Marketing and Business Development
303-350-4287
dchow@crescat.net

© 2018 Crescat Capital LLC
Case studies are included for informational purposes only and are provided as a general overview of our general investment process, and not as indicative of any investment experience. There is no guarantee that the case studies discussed here are completely representative of our strategies or of the entirety of our investments, and we reserve the right to use or modify some or all of the methodologies mentioned herein. Only accredited investors and qualified clients will be admitted as limited partners to a Crescat fund. For natural persons, investors must meet SEC requirements including minimum annual income or net worth thresholds. Crescat funds are being offered in reliance on an exemption from the registration requirements of the Securities Act of 1933 and are not required to comply with specific disclosure requirements that apply to registration under the Securities Act. The SEC has not passed upon the merits of or given its approval to the Crescat funds, the terms of the offering, or the accuracy or completeness of any offering materials. A registration statement has not been filed for any Crescat fund with the SEC. Limited partner interests in the Crescat funds are subject to legal restrictions on transfer and resale. Investors should not assume they will be able to resell their securities. Investing in securities involves risk. Investors should be able to bear the loss of their investment. Investments in the Crescat funds are not subject to the protections of the Investment Company Act of 1940. Performance data represents past performance, and past performance does not guarantee future results. Performance data is subject to revision following each monthly reconciliation and annual audit. Current performance may be lower or higher than the performance data presented. Crescat is not required by law to follow any standard methodology when calculating and representing performance data. The performance of Crescat funds may not be directly comparable to the performance of other private or registered funds. Investors may obtain the most current performance data and private offering memorandum for a Crescat fund by contacting Linda Smith at (303) 271-9997 or by sending a request via email to lsmith@crescat.net. See the private offering memorandum for each Crescat fund for complete information and risk factors.