Dear Investors, Partners, and Friends,
The major macro themes persisted in April as we started the second quarter of 2021. Those themes have predominantly been the Federal Reserve and the country coming back online post-pandemic. As the lockdown trades fall out of favor the market seems to be struggling to find its next driver and all eyes are on and will continue to be on the Fed. After a month or so of consolidation, the equity market resumed its bullish run increasingly through the end of the month. As a firm, we have continued what we’ve always done which is slow and steady returns regardless of the market environment. In a rapid bull market, it is more difficult for our strategies to outperform due to the cost of calls and the short duration we are in trades.
All three strategies were mildly positive for the month. We took a small hit on the final day of the month as our open put positions priced against us before ultimately bouncing back the following trade session which will be reflected in May’s performance. With the Fed supporting the market and the VIX having dropped below 20 after hovering above for most of the last year, we reduced exposure to the momentum trade. We also increased leverage overall to our option strategies. I believe that these changes will ultimately support a higher return while maintaining our risk exposure at similar levels. As for looking forward to the rest of the second quarter, I believe it is likely that the market stays hyper-focused on the Fed with exaggerated moves in both directions. May so far is a great example of this and the market at the moment seems a bit lost for a catalyst. This is an environment I expect The Hyperion Fund to shine brightest.
Powell has made it clear that rates will be low for the short and medium-term but any sign of hawkishness will send the equity market spiraling. This was one of the reasons the market kicked off a short-lived bear market in the 4th quarter of 2018. The market has been bottle-fed for quite some time and we should expect tantrums as we move forward. This type of environment aligns well with the strategies we employ and will help us stand out from the major benchmark. Our directional spreads are held for up to 48 hours, and our tactical strategy holds positions for 1-2 weeks, so a volatile market within a wide range is conducive to those trades. The momentum strategy, as the name would imply, needs momentum. Hence our reduced exposure to the strategy.
I’m excited for the 2nd quarter and a strong remainder of 2021. If you have any questions or would like to discuss any aspects of the fund in greater detail please feel free to reach out any time. As always, thank you for trusting us with your investment capital.