Dear Partners,

For the month of April, Caravel returned +0.40% compared to -0.39% for the benchmark (-0.68% for the S&P 500 & -0.09% for the SPTSX). This brings the fund's year-to-date total net return to +2.63% and the benchmark's to -1.78%, respectively.

Sometimes, you have to run hard just to stay in the same place.That was certainly the case for the fund in April. In ten years, one might look back at April 2025 as rather uneventful in financial markets, if all they remembered was the return over that 30-day period. In truth, April was a whirlwind, with global risk assets sent reeling on April 2^nd (“Liberation Day”) after President Trump revealed his many charts. The proposed US tariffs against a vast majority of global trading partners were a severely negative shock to expectations, laying the conditions for a volatile month. The S&P 500 began and ended around the 5,600 level, but briefly cracked 5,000 before ‘cooler heads prevailed’ (at least for now) and a blistering rally ensued.

Source: Bloomberg LP

Such volatility is atypical and generally disastrous for financial assets if not quelled within a reasonable period. Since the Global Financial Crisis and coincident debut of Quantitative Easing (QE) in the global west, central banks including the US Federal Reserve have generally stepped in to support markets through various liquidity mechanisms and/or aggressive interest rate cutting during periods of excessive volatility. This was the case for the 2018 taper tantrum, 2020 pandemic, and 2023 regional bank crisis. Notably, although the Fed announced in March 2025 that it would slow the pace of the Quantitative Tightening (QT) it initiated in response to the inflation shock of 2022, it has taken a ‘wait and see’ approach in response to Trump 2.0 tariff policies. Ostensibly, the Fed does not want to add excessive liquidity to the financial system given persistently low unemployment levels and having just wrestled its inflation benchmark down from a peak of 5.65% in February 2022 to 2.65% as of March 2025. 

As active managers, it’s easier to prepare for a storm before it hits than while you’re in one. We always expect volatility. Having seen multiple markets crises of various origins over the course of our careers, we have learned that you never know where or when the fire will start (apologies for the analogy mixing – perhaps a fire storm?). This is why we maintain a perpetual hedging strategy, which contributed ~ +1.4% of gross returns in April, despite markets losing little value overall. We managed to do this by monetizing our hedges dynamically throughout the month without ever leaving the fund exposed to another leg down in prices. We continue to hold downside insurance despite stocks having wiped out nearly all 2025 losses at the time of writing.

The equity long-short book was a Jekyll and Hide story in April, with 7/8 holdings contributing ~ 0.80% gross returns in aggregate, while the eighth cost the fund ~1.00%. Unfortunately, the fund held shares in a software company that unexpectedly cut its 2025 financial guidance by 30% in April, less than six weeks after issuing it. We had channel checks into the company, as we do periodically with all our holdings, which indicated no cause for alarm. Less than a week later, pandemonium.  Clearly other holders were equally surprised, with the stock immediately selling off 35% to account for a combination of deteriorating business fundamentals and a lack of confidence/trust in management. Management certainly broke our trust, and we exited the position to contain the loss. The stock is down another ~20% from where we sold it while the market is up ~10%. 

The remainder of the book netted out to a marginally negative return, with merger arbitrage and fixed income gains partially offsetting losses in our commodity-related strategies. We have cut net exposure to gold stocks, due to the incredible run they’ve had, and to oil & gas stocks, given the uncertainty of forward global demand as well as the aggressive supply side hikes recently announced by OPEC+. Lastly, we have increased our net exposure to uranium stocks given our favourable view of the backdrop for the balance of the year and beyond. With >70% of the book allocated to fixed income and merger arbitrage, we hope to be able to remain in the fairway should market jitters begin anew.

We thank you for your continued support,

Jack and Glen

Managing Partners, Caravel Capital

 _{1 Benchmark = 50/50 weighting of S&P 500 & SPTSX Composite Indices}