Cranwood Capital Management - March Commentary
Cranwood funds returned -0.19% net for March and 0.62% for the first quarter 2009. Our returns during the past six months have been substantially below our historical average. This has come during a time when our assets under management have grown significantly, which raises the question of whether or not our returns have been diluted by a larger asset base.
The answer is that our returns have not been diluted, but our opportunities have been diminished because of the market turmoil of the past six months. There are virtually no asset classes that have been uncorrelated to the financial, and now economic, crisis that has metastasized from securities occupying a corner of the fixed income market to every tradable financial instrument in the world in eighteen months.
An experienced market analyst1 recently remarked that all asset classes effectively crashed three times: in September 2008, November 2008 and in February 2009. The unprecedented price volatility resulting from dramatic dislocations in supply and demand has created turbulence in previously stable arbitrage relationships, including the yield curve.
We still have an edge, but the conditions for plying our edge are often sub-optimal, at least compared to previous periods. Like every other trader who has survived this crunch, we have learned to adapt and become discerning bout the presence or absence of tradable opportunity. We believe that you pay us to take what the market gives us, not to chase returns.
In our opinion, performance-chasing irrespective of market conditions can be dangerous to your wealth. Cranwood’s trading philosophy is built upon a disciplined framework of risk management and market vigilance. We assess 22.5 hours a day, minute-by-minute, the risk-return opportunities on the spreads we trade. This is the approach that has successfully helped us navigate through market shocks like 9/11, the Lehman Brothers bankruptcy and others.
On March 18, 2009, the 30-year Treasury futures contract rallied an historic 8 full points in just a few minutes in response to the Fed’s announcement of its intent to purchase long-dated Treasury securities in the open market. We witnessed it from the safety of the sidelines. This is part of our downside protection, which is paramount in challenging markets.
Important Legal Disclosures. All reported returns are purely historical and are no indication of future performance. This information does not constitute an offer to sell (nor the solicitation of an offer to buy) interests in any fund. Such an offering is made solely by means of the fund's private placement memorandum. This information, including any attachments, is being sent to prospective investors who have requested such information. The information is not being distributed publicly, is confidential, and is not to be redistributed to any other persons without the express written consent of Cranwood Capital Management LLC.