Blockforce Multi-Strategy Master Fund Performance for February

We continue to see strong performance results from the fund. After the impressive bull run in January, February proved a good test. Bitcoin was down 8% in the month of February, however, the fund was only down 1.2%. This brings the 2020 year-to-date returns to +16.8% compared to bitcoin which is up 19.5% over that time period. Importantly, the volatility over that period was just ⅓ of the volatility of bitcoin. Here is a link to our February Fund FactCard.

As a reminder, our fund seeks to earn returns that capture approximately 80% of the upside of the cryptocurrency market with just 40% of the downside, and with little to no correlation to the other major asset classes. YTD, the annualized volatility of the fund is approximately 24.5% compared to the volatility of bitcoin of over 74%. The upside capture is 86% and the downside capture was just 12.5%. Over longer market cycles, we feel we can achieve our targets, however, managing downside risk is paramount. Meeting upside targets is important, but that priority pales in comparison to our downside risk targets.

Considering that this marks our one-year anniversary, it makes sense to zoom out a bit and reflect on the fund.

Upside Capture

I feel that the fund got off to a choppy start for the bulk of 2019. In 2019, the fund was only up 11% for the 9-month period since inception in March. Over that period, bitcoin rallied 87%. In fact, in the first four months of the fund’s operations, as bitcoin rallied over 180% the fund only managed a 32% move upwards.

Downside Protection

Fortunately, the models did a nice job protecting downside over the remaining months of 2019. While bitcoin dropped 33% from July — December, the fund lost only 16% over that period.

Understanding and Simplifying Complexity

One thing to keep in mind when evaluating performance throughout 2019 was the erratic nature of returns. Trends were difficult to come by. The vast majority of the performance in 2019 came in sudden jarring moves to the upside or the downside, the volatility of volatility challenged most of the trend following systems in the fund. We were pleased with the downside risk management, but last year we were unable to capture a significant portion of the upside. In November, after a portfolio management team change, we significantly reduced the complexity of the models, we slowed down some of the signals and focused our research efforts on optimizing for trade frictions as well as identifying high-probability trends to confirm either up, down or sideways markets. These model updates went live in December and we have been very pleased with the results since that time.

We continue to work on additional updates to the research in pattern recognition, predictive signals for correlation breakdowns and some other areas that we find promising, but my hypothesis is that while this market is still in its infancy, we will generate the bulk of our alpha through downside risk mitigation, portfolio overweights and underweights and the tactical use of digital asset lending in the portfolio.

For additional information about the fund, please reach out to info@blockforcecapital.com

Kind regards,

Eric Ervin, CEO & Portfolio Manager