Newsletter Volume 1, Issue 8



Investment Performance November



VOLUME 1, ISSUE 8: NOVEMBER 2018

Happy New Year {$firstName!”Friends”}!
For the month ending November 30, 2018, Mach 100 LP was down 9.99% net 12.42% gross. This compares to the S&P 500 which was up 1.79% for the month, the NASDAQ Composite which was up 0.34% and the Russell Microcap index down 0.64%. Year to date (YTD) through November, (beginning mid-April for inception of Mach 100 LP) Mach 100 LP is up 16.79% gross and 12.05% net. This compares to the YTD performance through November of the S&P 500 that is up 3.24%, the NASDAQ Composite up 6.19% and the Russell Microcap index which is down 1.17%.

MACH 100 LP INVESTMENT PERFORMANCE SUMMARY

Mach 100 LP Investment Performance Results are presented gross and net. Net results are for an investor since inception, net of 1% management fee and 25% performance allocation with a “high watermark” threshold. Individual investor’s performance may vary based on time of investment and class of investment. Since inception returns are from fund inception 4/2018.
See Important Performance Disclosures.

MACH 100 LP INVESTMENT PERFORMANCE COMPARISON

Mach 100 LP Investment Performance Results are presented net. Net results are for an investor since inception, net of 1% management fee and
25% performance allocation with a “high watermark” threshold. Individual investor’s performance may vary based on time of investment and class
of investment. Since inception returns are from fund inception 4/2018.
See Important Performance Disclosures.

EQUITY MARKET OBSERVATIONS

November equity markets were a whipsaw. While some of the indices were up nominally due to an end of month short term “relief rally”, thanks to Fed Chairman Powell’s remarks about being “just below” neutral. Still other indices were down. In general, the price action was corrective. As I surmised and discussed in the October newsletter, November brought full-fledged choppy markets.

PERCEPTION IS REALITY—EVEN WHEN IT’S NOT

Seemingly never to be undone, the capital markets (equity, fixed income, commodity, currency, etc.) always over-shoot when it comes to expectations, perceptions and reactions, both positive and negative, regarding everything, including but not limited to: the domestic and global economy; geo-political events, macro-economic phenomenon and even [read especially] down to company fundamentals. For example, there are concerns about slowing global growth. Yet companies like Caterpillar, a global company, generating approximately $54 billion in annual revenue with half of its revenue generated internationally, shows no signs of slowing [yet]. In fact, quoting the Company’s 10Q with respect to its 3rd quarter operating results released on October 23rd: “Most end markets continue to improve. Order rates and backlog remain healthy. In the fourth quarter, price realization, operational excellence and cost discipline are expected to more than offset higher material and freight costs, including tariffs.” Caterpillar certainly does not indicate any signs of slowing overall; and while such may be happening in a particular geographic market, it is certainly not globally (again at least not yet); and Caterpillar, with $54 billion per year in revenue, with 50%+- of that revenue emanating from international markets, is definitely a bell weather for international trade. The point is not that after reporting its most profitable quarter in 90 years of operating history that the stock is down 15% from the day it reported its results. That’s just a symptom of the December implosion of the equity markets. The point Is that the capital markets believe that the global economy is slowing and operating results [for now] for some of the biggest international companies in the world, such as Caterpillar, demonstrate otherwise. However, when it comes to the securities markets, perception is reality.

GROUP AND SECTOR ROTATION

Group and sector rotation is an important part of a comprehensive investment process, as it is a direct reflection of money flow and therefore supply and demand (in the form of trading volume) of various investment instruments (e.g. stocks, bonds, ETF’s, metals, other commodities and currencies); and volume is the fuel of price. Currently, the strongest sectors are: Retail/Wholesale Auto Parts; Soap and Cleaning Preparations; Beverages (non-alcoholic); Telecommunications (wireless); and Utilities (both diversified and electric power). The weakest sectors consist of: Building (mobile manufacturing and RV); Food and Dairy Products; Retail/Wholesale Jewelry; Oil and Gas (exploration and production); Steel (specialty alloys); Chemicals (plastics); Building (wood products); and Computer (data storage). The current strongest industry groups are a clear indication that the equity markets have moved into an extremely defensive posture. While that (flight to utilities and other defensive sectors) may make sense in the short term, the equity markets have lost so much market value (as of December 25, 2018 defined as a bear market with the S&P 500 down approximately 22%) so rapidly, that if the rate of downside acceleration continues, within the next 3 months, investors may then be rotating out of these defensive sectors, just as quickly as they rotated into them; or be stagnating in them.

LONG/SHORT PORTFOLIO EXPOSURE

Currently, (approximately as of this writing) the Fund’s long/short portfolio exposure (which is always subject to change without notice or obligation), is 79% Long, 5% short and 16% in cash. Therefore 74% Net Long.

SECTOR ALLOCATIONS

Currently (approximately as of this writing) the Fund has positions (which are always subject to change without notice or obligation), long and short, in the following industry sectors and subsectors: agriculture; automotive; cyber security; electronics manufacturing (additive 3D Printing); fintech (financial technology); leisure (transaction processing for sports betting); media; (digital advertising and content distribution); medical device(fertility); software (mobile gaming and social apps and cloud based SasS and logistics apps);

PORTFOLIO COMPOSITION

Mach 100 LP’s performance for November was mainly the result of pull backs in 3 of our core long positions. These positions currently are trading at fractions of what we believe their current intrinsic value to be right now. We believe that with a modicum of increased investment community visibility and therefore sponsorship, each one of them will trade geometrically higher and will be big winners in 2019. We believe 2019 will reflect their true value.

Our short exposure largely consists of individual short positions. One example on the short side is a software company in the healthcare space, Veeva Systems Inc. A provider of cloud-based software solutions for the life sciences industry. Veeva has historically captured 100% of its target market’s customers. However, at 16x forward sales, it is “priced for perfection.” The company is now beginning to lose customers to its largest competitor, for the first time ever. It’s largest competitor recently signed a strategic partnership with the platform software company that Veeva relies upon (Salesforce.com) to power its own software solution to its life sciences customers; and Veeva is now at risk of losing Saleforce.com’s software (despite having several months notice to “figure it out”), which would be problematic to say the least; and potentially catastrophic. Additionally, based upon the last conference call, management seems to be in denial. Hubris is not a good thing.

Last month we wrote about special situations, suggesting that special situations are the optimal long side investment opportunities. We reiterate that based upon current market conditions, special situations are the place to be. We currently possess four of these in the portfolio.

OUTLOOK

With the S&P 500 now (as of December 25, 2018) down approximately 20%, there can be no denying that we are in a bear market; with over $4 trillion of market value being wiped out of the equity markets in the last 3 months and $7 trillion in market value lost since September. However, one needs to be objective and realize, that for now, we are experiencing a bear market with a very strong economy. We have a bear market with strong corporate earnings (e.g. Caterpillar a true economic bell weather-discussed earlier in this letter), 3% growth (yes growth) in GDP during the 3rd quarter, a very strong labor market and currently, arguably the greatest demand for transportation and logistics in the history of the world’s economy. Therefore, for now, we have a bear market without a recession. My prognostication is, that while the bear market may continue for another 3 months or less, the aforementioned economic metrics demonstrate that we may not get a recession at all.

WHY INVEST IN MACH 100 LP NOW?

Investors who invest in Mach 100 LP now, have a rare opportunity to invest in the Fund at a time when the equity markets have lost $7 trillion in market value during the last 4 months and small cap and micro cap securities, as represented by the Russell 2000 and Russell Microcap indices are down 24% and 20%, respectively, from their highs, achieved in late August early September of this year. Most of the 320 securities that we simultaneously monitor in real time, have had their valuations reset to levels not seen since 2016 or early (March) 2017. In addition, as discussed previously, several of our core positions are trading at fractions of what we believe their current intrinsic value to be right now. We believe each one of these special situations investments will trade geometrically higher and will be big winners in 2019. Finally, the number of potential short positions that are candidates for our portfolio continues to increase and we stalking them for entry points. While there are no guarantees, for these reasons, we believe now is a rare opportunity to invest in Mach 100 LP. If you are interested in investing in Mach 100 LP please call me directly at 415.297.4749.


-David N. Baker and Steven Shum

FUND DESCRIPTION

Mach 100 LP is a small and micro-capitalization, non-correlated, equity focused hedge fund possessing concentrated positions and capitalizing on discovery premium and information arbitrage (disparities from publicly available information). The Fund’s investment objective is to generate absolute returns that are largely alpha (the active component of investment returns that are in excess of the financial markets’ movement as a whole). The Fund utilizes fundamental quantitative and qualitative analysis, assessment of securities and broad market behavior, trading psychology and return risk profiling to determine portfolio exposure and select investments across asset classes, instrument types, industry sectors and geographies. Managed by industry veterans, the Fund is designed to generate consistent, positive investment returns with low net portfolio exposure and lower correlations than typical equity market benchmarks. As a pooled investment vehicle, the Fund may employ a diverse combination of equity, equity arbitrage, equity linked derivatives, debt, spot metals and other investment and hedging instruments (including cash) in order to achieve its objectives. The Fund’s long portfolio focuses upon emerging growth companies across the small and micro-capitalization tiers (~$50 million to $2 billion). Its short portfolio focuses upon fundamentally flawed companies and management teams. Our strategy presents both the opportunity to achieve higher gains, as well as creating unique challenges that require significant skill, as well as deep and broad experiences within these volatile capitalization tiers; and of paramount importance, the right trading psychology. Mach 100 LP believes it has the right team, strategy and tactics to successfully capitalize on these opportunities to produce superior investment returns.

DISCLAIMER


Mercadyne Funds, LP (“Mercadyne”) is not currently registered in any capacity in the financial services industry, and the information that
accompanies this disclosure, as well as any other information provided by Mercadyne, should not to be construed as financial advice, investment
advice or a solicitation to buy, sell or hold any particular security. Mercadyne makes no warranty, expressed or implied, as to the accuracy or
completeness or fitness for a purpose (investment or otherwise), of the information provided in its publications, including its websites and social
media posts, including video, audio or text. The published information has been sourced from publicly available sources, but Mercadyne does
not guarantee the accuracy, timeliness, completeness or correct sequencing of the information, and does not warrant any results from use of the
information. Readers are encouraged to consult their personal financial adviser before making any decisions to buy, sell or hold any securities
mentioned in any materials from Mercadyne. Investing in securities of emerging growth companies or emerging growth economies is highly
speculative and carries an extremely high degree of risk. It is possible that all of an investor’s invested capital may be lost or impaired due to the
speculative nature of the companies profiled. In addition, Mercadyne’s personnel and/or investment vehicles may have or take long or short
investment positions in the companies discussed in the accompanying information (the existence of any such positions will be disclosed when
applicable). Mercadyne encourages readers to invest carefully and to read the investor information available at the websites of the Securities and
Exchange Commission (“SEC”) at www.sec.gov and/or the Financial Industry Regulatory Authority, Inc. (“FINRA”) at www.finra.org/investors.
Mercadyne is not responsible for any error, mistake or shortcoming that may be occasioned at the time of publishing of the information in this
publication, any other Mercadyne publication, or its web site(s) and is not obligated to, and undertakes no duty to, update and/or correct any
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accompanies this disclosure. Mercadyne expressly disclaims any fiduciary responsibility or liability for any consequences, financial or otherwise
arising from any reliance placed on the information provided. The information that accompanies this disclosure is subject to change without
notice. While the accompanying information may include details relating to Mach 100, LP (the “Fund”), a private investment fund managed by
Mercadyne that relies to SEC Rule 506(c) to maintain a “private placement” of its securities, an offer of such securities may be made only by the
delivery of the Fund’s Confidential Private Placement Memorandum specifically addressed (either on the cover page or in an electronic mail
message) to the intended recipient.

By |2019-01-03T18:21:32+00:00January 3rd, 2019|Unaccredited Newsletters|0 Comments