Dear Investors, Partners, and Friends,
While the broader market pulled back from its long and sharp Covid recovery the Hyperion Fund took advantage of the opportunity. More specifically the SP500 futures finished the month -5.08% and The Hyperion Fund appreciated +.90% over the course of September. These market tantrums could continue, in our opinion, well into 2022. It will not likely be a straight line in either direction but rather a bumpy ride while the market rotates from one sector to another in search of Alpha.
I think this is an essential time to talk about correlations. Over the six-year managed account and then fund performance record, Hyperion’s correlation to the SP500 is .07. This is one of those months where we get to really highlight why that is important. Like any absolute return fund, we want to be positive most of if not all the time. As we all know it is impossible to do this but given our strong belief in our edge and a positive expectancy for the future, we do expect to be positive most months. Therefore, In times where the broad market is bullish and recently an aggressive bull at that, we are bound to feel more correlated to the market than we really are. Then an opportunity like September comes along and demonstrates why we try to be as market-neutral as possible or have our directional trades only last 48 hours. With the option positions used by our portfolio managers we are able to take those short-term, directional, risk-managed positions but never be tied to a direction for very long. When the market goes sideways or struggles for momentum our Tactical strategy tends to perform best as its positions will straddle the market and wait for its next move. Our volatility capture strategy which utilizes VIX calendar spreads will be less active in these periods and therefore have a more minimized impact on overall performance. Somewhat surprisingly when you look at where the market ended the month, there were few long vol trades this month. The position was on for much of the month but the movement in the VIX was muted and there was never a panicked demand from market participants for protection (puts).
When evaluating shorter time frames within a year, quarter, or month, the Hyperion fund performance to the stock market may underperform or outperform but the focus for us has always remained the same, slow and steady growth. If you strip much of the volatility away from the market you’re left with the conclusion that it does not require 2+% a month to outperform over the longer term. Taking the average annual return of the SP500 over the past 20 years ending Dec 2020 will tell you that the average annual rate of return for the stock market is 6.92%. Months like September is why our fund is competitive. This is a topic meant for its own article but one would have to assume given the cyclical nature of the stock market that at least for a short period we will enter a bear market. When we do, this matter of correlation will be all the more important.
We’re looking forward to a strong finish to 2021 after a relatively slow start to the year. If you would like to discuss how our Portfolio Managers are positioned or how those positions will change as the market does, please feel free to reach out any time. As always, thank you for entrusting us with your investment.