HIT Capital’s 2015 end of year update.
The Fund continued its trend of outperformance by returning 3.12% in 2015; this puts the Fund up 69.42% since inception. In 2015, HIT Capital outperformed the S&P 500 by 4.17% (S&P returned -1.05%) and the Hedge Fund Index by 1.8% (HFI returned 1.32%).
HIT Capital and the overall market had an up and down year, with both ending similarly to how each had started. The 4 percent of outperformance in 2015 continues to be attributed to beta slippage. The Fund’s beta slippage strategy comprised 83 percent of the portfolio while Contango was reduced to 4%. The Contango strategy was not as effective in 2015 as it was in 2014. The premium people were previously willing to pay was not as significant throughout 2015. We will evaluate how the market responds to the current downturn and if people start to become irrational we may see the premium return. If it does, we will be ready; but until then, Contango will not be a very active strategy. The Fund’s value investing strategy has grown to about 13% of the portfolio. Our in-house quantitative analysis program has been completed and is being implemented in the value strategy. We simulated trading with the program and found that the most efficient way to capture value was through the Alpha Architects Quantitative Value fund. While the fund and allocation are relatively small, this addition minimizes our transaction costs while still granting the Fund access to an assortment of larger value stocks.
HIT Capital recently completed its third year since inception and during those years we have had the luxury of participating in bull and neutral market conditions. These conditions are optimal for our primary strategy, beta slippage, which is evidenced by the Fund‘s outperformance of the S&P 500. Since the fund has not experienced a steep or continuous market decline, we remind you that the beta slippage strategy is predicted to underperform in these conditions. We could capture beta slippage through a neutrally weighted allocation, but because of our strong belief in opportunistic gains (economic growth and our governments thirst for inflation) all of our current strategies are implemented with a long bias. This philosophy and our current allocation weighting will set the fund up to likely underperform during down markets and outperform during neutral and bull markets.
Looking forward toward 2016, we will continue to invest and optimize our core strategies while also researching and testing new strategies with a goal of enhancing our risk adjusted returns. If you have any questions or comments, please contact me at Stephen.Read@hitinvestmentsllc.com.
Thank you for choosing HIT Capital and we wish you a safe and prosperous investment future.
Performance (December 31, 2015)
Allocations (December 31, 2015)
This report is intended to assist limited partners in understanding how HIT Capital LLLP (Fund) performed during the period ended December 31, 2015 and reflects the views of the general partner at the time of this writing. These views may change and do not guarantee the future performance of the Fund or the markets. Portfolio composition is subject to change. The current and future holdings of the Fund are subject to investment risk.
Hedge fund investing involves risks, including possible loss of principal. An investor should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. The Offering Documents contain this and are available by contacting Stephen Read @ 309.253.7887 or Stephen.Read@HITInvestmentsLLC.com. The Offering Documents should be read and understood before investing.
The comparison of the Partnership’s performance to a single market index is imperfect because the Partnership’s portfolio may contain options and other derivative securities, may include margin trading and other leverage and is not as diversified as the Standard and Poor’s 500 Index or other indices. Due to the differences between the Partnership’s investment strategy and the methodology used to compute most indices, HIT Investments cautions potential investors that no indices are directly comparable to the results of the Partnership.
S&P 500 data provided by Yahoo Finance
Hedge Fund Index data provided by BarclayHedge