It is clear, we were right to hedge our positions before the Brexit vote. However, we were wrong to stay hedged once we knew the outcome. We should have traded according to our methodology rather than staying hedged. This would have made us long US 10yr notes and the S&P, possibly short the DJI and short the Japanese Nikkei.

This is important is not only because we did not realize more profits, but because our fundamental analysis reflects our portfolio’s positions. Full disclosure, we are aware of both the bull and bear fundamental points of view but only advocate those views that support our portfolio’s positions. Consequently, we need to find the reason US equity markets will rise as global equity markets and long term interest rates weaken?

Currently, Fed governor Bullard is walking back the Fed talk of tightening to possibly not until 2018. We do view this as positive for the US markets however we continue to expect negative interest rates in Japan and Europe to be deflationary. We can only hope, Bullard and the Fed keeps short term interest rates near zero and recognizes the need to normalize the Fed’s balance sheet and begin to sell their bond holdings at historic high prices, yields move in opposite direction of price.

In the world of financial engineering, US companies faced with low earnings are buying back stock at historic rates. One of the determinants of pricing a company’s stock is the Price Earning Ratio (“PE”), which is the price of the stock divided by earnings per share (“EPS”). One way to lower the PE and raise the stock price is for the company to buy back stock to reduce shares outstanding which raises the EPS - same earnings but divided amongst less shares. The stockholder is incentivized to maintain ownership as their share in the company increases during a stock buyback. At historic low interest rates and faced with global deflation, US equities provide some value. However, if the economy begins to slow down on top of a slowing global economy, financial engineering will not be able to compensate against shrinking earnings. That is why we advocate the Fed should lower short term interest rates to heat the US economy and reduce their balance sheet to prepare for the next financial crisis.

Thursday, June 30th, we sold the mini DJI futures at an equivalent index price of 17,795 and bought back our short in the S&P on the close for a profit at an equivalent index price of 2097. We are currently short the Japanese Nikkei and the DJI and in a synthetic option on the US 10yr note. We are 53% invested.

In 2012 modeled performance (7 ½ mo.) net of all fees was +12.46% with a 10% Hurdle rate
In 2013, modeled performance net of all fees was +19.73% with a 10% Hurdle rate
In 2014, modeled performance net of all fees was +56.42% with a 10% Hurdle rate
In 2015, modeled performance net of all fees is +72.68% with an 8% Hurdle rate
In 2016, modeled performance net of all fees is +30.14% with a Graduated 10% Hurdle Rate

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Disclaimer:

The Unicorn Macro Fund, LP (“Fund”) operates under the SEC rules of 506(c) of Regulation D. This rule allows general solicitation as long as all purchasers of the Fund are accredited investors and the Fund takes reasonable steps to verify that purchasers are accredited investors. The 506(c) rule benefits funds that perform better than their peers, because for the first time, Regulation D funds can post their results publicly.

The Fund trades both long and short positions in a variety of global markets and its performance is not correlated to any one market. Performance of the model of the Fund is measured by Net Asset Value (NAV) which is net of all fees, is unaudited, and may include the use of estimates. Individual results will vary based on the timing of an investment and past performance is no guarantee of future results and there is a possibility of loss.

The modeled results are based only on capital appreciation from macro style trades. The results do not include dividend reinvestment or any other form of cash flow and are taxed as ordinary income. All trades have a risk/reward objective of at least 3 to 1 and each full position risks no more than 2% of assets. There will be times when market conditions may alter these objectives. Since the inception of the model our trading of the methodology has become more precise.