We are excited to announce that Monday, July 1st was the official launch date of the Eventurum Capital Long Short Equity Fund. While this is the first time we are utilizing the strategy in this specific structure, we’ve successfully applied this approach in similar formats previously and is why we invest more than 90% of our liquid net worth in the fund and will continue to do so in the foreseeable future.
Since we are driven by data derived from the market, backward and forward looking, our quarterly letters will delve into various parts of the portfolio and discuss where we see deviations developing between our main drivers.
Typically we would start with performance but this quarter we’ll begin with our beta, which started Q3 at -0.08. When comparing this to data compiled by JP Morgan’s Flows & Liquidity published June 28th, our beta is significantly less.
Due to the difference in our structure compared to most long short equity funds, we wouldn’t say this is a true representation of our relative equity exposure. Our beta relative to the zero bound is a better depiction because of our focus on market cyclicality while remaining relative neutral. In future quarterly letters we will provide a chart showing our weekly portfolio beta.
Moving to our sector exposure, which is published monthly in our tear sheet, we see that our net long exposure is tilted towards the sectors that are historically considered defensive. When looking at our exposure, it is important to note that only 24% of our pairs are positioned cross-sector.
While most economists and market strategists view the consumer as strong, we would disagree based upon the way we view the data and the relative performance Retailers vs Staples.
Beginning with the macro data, and specifically Retail Sales ex Autos and Gas, we continue to see the six-month average moving lower.
We view this as important to our positioning because the relative performance of Retail vs Staples has moved with Retail Sales for the past 20+ years.
Finally, we see that the Relative Fundamentals of Retail vs Staples also moves with Retail Sales. This sequence of charts reinforces why we focus on the Macro and Relative Fundamentals and believe they are core drivers to our performance.
While most data driven funds focus primarily on the data already released, we differentiate ourselves by also looking at the trend of numerous macro data points along with the company estimates published by the sell side.
With Retail Sales, there are a few other data points that we track to help confirm the trend of data.
One item we analyze along with Retail Sales is US Intermodal Rail Volume. Our reasoning is that if businesses were confident that they will be selling more goods in the future, then they’re going to ordering more inventory to meet the increase in demand. In this circumstance, we see that US Intermodal Rail Volume is not only declining but has gone negative for only the fourth time in the past 20 years.
We also track Nominal Weekly Wages to determine the consumers ability to purchase more goods. Similar to Intermodal Rail Volume, we find that the data isn’t projecting an improvement for Retail Sales.
Knowing that the Relative Fundamentals move with Retail Sales, we would expect to see the estimates from the sell-side confirming the Macro. However, the sell-side is projecting that the Relative Fundamentals of Retail vs Staples will bottom with the CYQ2 data after a significant decline the past 12 months.
Based upon the recent market action, it seems that the market agrees with the sell-side.
At this time, we’ll continue to take the other side of the market since the Macro is not projecting a rebound in the near term and should mean lower estimates for at least Q3.
Nevertheless, if the data does begin to change, then we will change with it. As John Maynard Keynes once said, “when the facts change, I change my mind.”
As always, we are happy to discuss the portfolio structure and drivers in more detail for serious inquiries.
CEO and Portfolio Manager
Eventurum Capital LLC