2019 May CAD

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1.35% MTD

9.45% YTD

Dear Partners,

The Caravel Cad Fund was up 1.35 % for the month of May.

We’ve all heard the expression, “put your money where your mouth is.” After last month’s North American market return (US drops 6% and Canada 3%), we assure you, we did.

From Caravel Capital’s March 2019 Partners letter dated April 6, 2019:

"North American markets have enjoyed above-average returns since the correction in the 4th quarter of 2018. The exaggerated increase in major indices has not gone unnoticed by Caravel. While we did expect valuations to exceed fair value based on economic growth for 2019, we are initiating a more cautious approach to new investments. We have been exiting relative value positions that tend to carry higher systematic risk (market risk). We have increased the portfolio’s weight in convertible bonds that are trading at or below par value, merger arbitrage, and heavy hedged warrant positions. Finally, we are selling options or adding a hedge to strategies where possible. Simply put ... we believe this party is in full swing, it’s getting late, and we see some over served patrons.”

From Caravel Capital’s April 2019 Partners letter dated May 5, 2019:

“As we mentioned in our March letter, markets have risen above what we feel is fair value. At the time of writing we are seeing some of this euphoria evaporate as systematic risk once again increases. We have adjusted the complexion of the portfolio to generate positive returns while the markets adjust back to more rational valuations. This can be more of an art than a science, however we are very comfortable with the current portfolio given the turmoil caused by the ongoing international trade wars.”

With what happened in May, you may be asking yourself ...“Do these guys have bag of magic crystals? ” You bet we do... we have quite a few of them... And we are going to share 2 of them with you this month!

Our first Magic Crystal: SELF AWARENESS

This one tells us when everybody is making a pile of money and it feels like trouble is miles away, It’s not the time to go with the flow, it’s time to reassess EVERYTHING

Our second magic crystal: FEAR

This photo hung on the wall of a bond trading desk in the 80’s and 90’s with the caption,
“RISK NOT THY WAD.” It is a great reminder whenever we think it is safe to drop our defenses.

As we approach the 2nd half of 2019, you can take comfort in the fact that the managers at Caravel Capital

1. Continue to reinvest their performance fees back into the fund.
2. Remain the largest investors in the fund.
3. Take their own advice.

We thank you for your Confidence and Capital. Enjoy your summer.

Jeff and Glen