Newsletter Volume 2, Issue 1

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VOLUME 2, ISSUE 1: DECEMBER 2018

Happy New Year Friends,
For the month ending December 31st 2018, Mach 100 LP was down 0.23% gross and down 0.25% net. This compares to the S&P 500 that was down 9.18% for the month; as well as the NASDAQ Composite which was down 9.48% and the Russell Microcap index which was down 12.05%. For the year ending December 31st 2018, (beginning mid-April for inception of Mach 100 LP) Mach 100 LP was Up 16.52% gross and Up 11.71% net. This compares to the 2018 performance of the S&P 500 that was down 6.24%, the NASDAQ Composite which was down 3.88% and the Russell Microcap index which was down 13.08%.

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

December 2018 was the worst month for stocks since the year 1931; and it was the worst year for stocks since 2008. 2018 was a year filled with extreme volatility. As an example, the S&P 500 moved more than 1% in a day 64 times during the year. The Dow swung 1000 points in a single trading session only eight times in its history and five of those took place in 2018. It was a year that was a convergence of several competing factors, including but not limited to: quantitative tightening of interest rates; a trade war with China; slowing economy in China; an ongoing financial crisis in Russia; Brexit uncertainty; stimulus programs in Europe; Middle East oil price dissension; the strongest labor market in the history of modern America; a strong and growing U.S. GDP; record operating results for U.S. companies with a global revenue base (e.g. Caterpillar et. al.); and the strongest logistics and transportation sectors, globally, ever.

WHAT’S IN STORE FOR 2019 – OUR GLOBAL EQUITY INVESTMENT OUTLOOK

This is our global equity investment outlook for 2019: Domestically, we believe that this will be the year that security selection will matter the most and more so than any year since both 2008 and 2011. Run-of-the-mill domestic equity ETF’s are unlikely to outperform capable stock pickers. Micro cap, small cap and even the mid cap, capitalization tiers of equities will generally outperform the large cap and mega cap stocks (e.g. FAANG, etc.). Our view is further reinforced by a secular pattern in which pension funds and mutual funds often reduce their exposure to equities during times of rising interest rates (which we have) and decelerating economic growth (which we don’t have-yet). Group and sector strength will also be tantamount for achieving investment success with those groups and sectors slowing down economically being punished, or at least stalling (excluding highly defensive plays such as sin stocks (alcohol, gaming, tobacco) and utilities that produce strong dividends). Because there is a concern that the economy is slowing (which again we really haven’t seen yet-sans Apple), growth [emphasis on technology and health care-secular growth trends] will outperform value with earnings and margins being critical focal points. At the same time, expensive market valuations will be challenged. Share buybacks will help equity investment returns. Public companies are increasingly buying back their own equity and we are already seeing an acceleration of Form 4 (insider buying) activity. We think highly speculative issues (those without demonstrably improving operating results) will have a tough time and potentially be crushed. Special situations will rule the day!

Internationally, we believe Japan and Europe have fairly valued equity markets. Less expensive than the U.S (excluding U.S. microcap equities) and especially Japan. Asian developed markets: China has shown evidence of economic slowing and the Shenzhen Stock Exchange Composite Index is down approximately 32% during the last 12 months. There may be an opportunity there, but don’t catch the falling safe. Emerging markets in Russia, Brazil and Mexico may have the greatest upside to their equity markets, with greatest potential opportunity being Russia; and all three have the greatest risk , again with Russia possessing the highest risk. State Street did some interesting research that was recently published in an interview of investment banks, stating that emerging market “small cap” companies are now “trading at a larger discount to U.S. small caps than historically , while international developed small caps are trading” “at their 10-year median.”

No single region or country offers a uniquely compelling thesis. Country, theme, sector, style and security selection will be critical in 2019.

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. Other than utilities, currently, the strongest sectors this month are the same as last month plus one: Retail/Wholesale Auto Parts; Soap and Cleaning Preparations; Beverages (non-alcoholic); Telecommunications (wireless); and Computers (integrated systems, technology (IT) services, database and enterprise software). 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); Retail (consumer electronics); and Computer (data storage).

We find it very interesting that 2 of the top 3 sectors during the past 3 months are retail and advertising, as the strength of these sectors demonstrate that for now, perception is that the economy is not slowing [yet]. In contrast the other sector of the top 3 is retail autoparts, which is a defensive sector and would reflect a belief that the economy is slowing.
We will watch this sector ‘tug-of-war’ as we wait to determine if the economy is slowing or continuing to expand

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 93% Long, 0% short and 7% in cash. Therefore 93% 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); online media; (digital advertising and content distribution); medical device(fertility); software (mobile gaming and social apps and cloud based SasS and logistics apps);

PORTFOLIO COMPOSITION

While non-correlating assets reduce market risk (beta) and have the potential to generate much larger than market-related [non-market related] investment returns (alpha), both asset and security selection are crucial. The degree to which non-correlation exists in a portfolio is a direct reflection of its securities held. Some of the non-correlating assets within the Mach 100 LP portfolio consist of 3 PIPE investments. One in medical device, one in gaming and, one in digital media. PIPE is an acronym for Private Investment [in] Public Equity. These are investments made via a private placement (private offering) in a security which is different than, but possesses an underlying publicly traded security. Investment structure, terms and pricing for PIPE investments are different than that of their underlying public security and therefore their valuation and trading behavior is also different; making them non-correlating. Usually 6-12 months after purchase, when these securities become unrestricted, they can be sold as freely trading securities of the underlying equity or convertible equity. This non-correlation is further demonstrated by quantifying the correlation coefficient of the Fund or portfolio to a broad market index or indices, such as the S&P 500. A correlation coefficient of 1 means that the portfolio moves exactly with the markets. An index fund emulating an index is a good example of an investment with a correlation close to 1. We strive to achieve the opposite of an index fund. A coefficient of 0 means that the portfolio has no relationship at all to the markets. A very low correlation coefficient means that most of the systematic [market] risk is being removed. However this does not remove asystematic (individual security) risk from the portfolio. Mach 100 LP aims to have a very low correlation coefficient. Currently, our correlation coefficient to the S&P 500 is .very low at .07. We would much rather possess asystematic (security selection) risk than be subject to the broad markets behavior.

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
information. No liability is accepted by Mercadyne for any direct, indirect or consequential loss arising from the use of the information that
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 |2019-04-17T06:31:58+00:00January 30th, 2019|Unaccredited Newsletters|0 Comments