NOVEMBER 2017

CAPITAL INVESTMENT FUND

  • -0.73% (Class A)
  • -0.63% (Class F)

OPPORTUNITIES FUND

  • -2.59% (Class A)
  • -2.32% (Class F)

CRYPTOCURRENCY FUND

  • +44.03% (Class A)
  • N/A (Class F)

Capital Investment Fund

The Capital Investment Fund declined -0.7% for the month of November.  The multi-factor strategy gained 0.3%, with the long portfolio outperforming the short portfolio nearly 3x.  The structured product arbitrage strategy was flat for the month.  The relative value and volatility strategies each declined -0.5%.  


While low equity market volatility has proven challenging for the Fund’s legacy strategies, a new, highly volatile market has opened-up and we see quite a few attractive arbitrage trading opportunities.  We are currently researching and formulating trading strategies for this new arbitrage opportunity and look forward to introducing investors to a potential new profit driver for the Fund in the near future.

Opportunities Fund

The Opportunities Fund declined -2.6% for the month of November.  The merger strategy declined -0.4% largely due to the DOJ suing to block AT&T’s acquisition of Time Warner.  Partially offsetting this mark-to-market loss were the closing of the Gaming Nation deal along with a positive resolution on the NYX Gaming transaction. The relative value portfolio declined -0.7% due to certain tracking stock spreads blowing out to record levels.  The special situations portfolio declined by -1.1% as a spin-off and share repurchaser fell on negative fundamental events. These two securities have been divested from the Fund.  Our short equity hedges also caused the strategy to suffer.  The liquidation strategy declined -0.3% on investor fatigue.  


The Fund holds the Time Warner / AT&T merger deal, and obviously we were shocked when the DOJ sued to block the transaction.  Given the companies do not compete (known as a “vertical merger”), and the DOJ has not successfully blocked a vertical merger in nearly 50 years while approving hundreds since, the action by the DOJ seems to be politically motivated, given the President’s dislike of CNN (a Time Warner subsidiary). For now, the companies and the DOJ will duke it out in court, and we believe it is likely that the companies will win and successfully close the merger next year.  Unfortunately, this unexpected action by the DOJ has added not only unnecessary delay and volatility to the Time Warner transaction, but also introduced material uncertainty into other larger mergers.      

Cryptocurrency Investment Fund

The Cryptocurrency Investment Fund gained +44.03% for the month of November.  The Fund’s portfolio is 97.7% allocated to bitcoin and 2.3% allocated to bitcoin gold. 

On November 8th, the controversial SegWit2x hard fork was cancelled.  The fork was originally planned to increase the block size and hence increase the scalability of the bitcoin blockchain.  However, sufficient consensus for the block size upgrade was not attained and therefore the SegWit2x supporters decided to cancel the fork in order to restore cohesiveness in the bitcoin community.  This was the right decision and was a net positive for the asset class, as we do not necessarily need more cryptocurrencies.  The scaling issue for the bitcoin blockchain remains an issue, however numerous technological advances are in development to address this.   

Bitcoin crossed the $10,000 mark on November 29th.  The asset is somewhat reflexive, in which the better it performs, the more speculators are drawn to it, creating a virtuous cycle.  As the number of market participants increases, the intrinsic value of cryptocurrencies increases according to Metcalfe’s law, which states that the value of a network is proportional to the square of its users. According to blockchain.info*, the number of bitcoin wallets has steadily increased at an exponential rate and just crossed the 20 million mark in early December.  We foresee this trend continuing, which could be supportive for the asset class.

Julian Klymochko, CFA 

 

(*source: https://blockchain.info/charts/my-wallet-n-users)

Trout Taylor