Despite Launching Nine Months Ago
EHLS Performance Since Launch
The fund’s expense ratio is 1.58%, which includes estimated dividends and interest expense on short positions. If this were excluded, the expense ratio would be 1.15%. The fund's inception was 4/2/2024. The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when sold or redeemed, may be worth more or less than their original cost, and current performance may be lower or higher than the performance quoted. For standardized performance, visit https://www.evenherd.com/ehls.
Looking Back
December underwhelmed relative to historical trends, delivering a muted “Santa Claus Rally.” Nonetheless, we’re pleased with the Even Herd Long Short ETF's (EHLS) first year-end performance, particularly relative to the S&P 500 Equal Weighted Index, as highlighted in the chart above. The S&P 500 Equal Weight Index includes the same 500 companies as the standard S&P 500 but assigns an equal weight to each constituent, regardless of market capitalization.
This month’s bright spots were concentrated in speculative areas, notably quantum computing stocks, where we added positions in D-Wave Quantum (QBTS), IonQ Inc. (IONQ), and Rigetti Computing (RGTI). Previously microcaps just months ago, these companies gained significant momentum, leading us to take moderate positions guided by our system rather than traditional valuation metrics. In niche, disruptive spaces like quantum computing, we favor some exposure over none when broad rallies emerge. While quantum computing has long been viewed as perpetually “around the corner,” recent market activity suggests a shift, with investors increasingly pricing in its nearer-term potential—at least for now.
While we typically avoid chasing what seem to be short-term sharp price spikes, the trend of these companies moving out of microcap status warranted measured exposure. Google’s quantum breakthroughs, announced in mid-December, accelerated this move. Notably, stocks in this sector began their rise in late October, gained momentum through November, and continued to stand out in December as broader markets faded. We expect tremendous volatility from these names, which we will continue to monitor and avoid any excessive exposure to.
Another speculative area of interest that outperformed was drone-related companies. Late November saw a surge in these stocks after the President-Elect’s son joined a publicly traded drone company’s board. We added Red Cat Holdings (RCAT), which subsequently partnered with Palantir (PLTR), another fund holding, which continued to catapult the stock. This activity followed Elon Musk’s criticism of the F-35 program and advocacy for armed drones, further fueling market optimism for drone makers as potential beneficiaries of shifting government priorities. We also observed a rally in space-related companies, another speculative area. The fund maintains exposure to this sector through holdings like Redwire (RDW), Intuitive Machines (LUNR), and Rocket Lab (RKLB), among others.
In terms of sector performance, Financials—our most overweight sector at the start of the month—experienced the third-worst drop across our system, likely weighing on overall performance. Meanwhile, Technology, now our most overweight sector, demonstrated strength. Consumer Defensive stocks saw the largest rebound; however, the fund remains underweight in this area.
Looking Forward
While the fund has been able to benefit from more speculative investments as of late, we continue to fixate on diversification for EHLS and will also limit overall exposure to these names, as they will undoubtedly incur more volatility. Moving forward, we may adjust these positions as the system warrants, but given the recent run most of these have had in terms of outperformance, we would expect them to be held in the fund throughout January as well.
Despite a modest pullback, Financials remain an overweight sector in the system, a trend we anticipate continuing into next month. However, we are prepared to increase short positions in the sector if this pullback signals the start of a broader downtrend. For now, financials remain a point of strength and will be overweight until our system indicates otherwise.
Energy remained one of the lowest-ranking sectors throughout the month, with the fund maintaining an underweight position. However, natural gas prices saw a significant spike on December 30th, suggesting the potential continuation of a recent uptrend. The fund currently has exposure in this space through Gulfport (GPOR) and may consider additional positions if the trend persists. Despite this, overall energy exposure will remain limited unless the entire sector shows signs of a turnaround. We believe the market is anticipating lower oil prices potentially being sparked by renewed "drill, baby, drill" enthusiasm.
As of month-end, Basic Materials ranked as the weakest sector, and we expect it to remain underweight for the month moving forward. Outside of Technology and Financials, sector rankings remain relatively tight, making it challenging to forecast significant portfolio shifts over the next month, but we will continue to shift allocations as trends emerge.
Looking Forward Further
As we close the first calendar year of the fund, we’re thrilled about the road ahead. Achieving double-digit returns in under nine months is a milestone we’re proud of, but we see even greater potential for improvement. Even Herd was founded to create investment solutions designed for any market environment.
With a new administration promising significant changes, rising U.S. interest rates, near-record-high market valuations, excessively concentrated indices, and reaccelerating inflation, we believe we’re entering a new era for investments unlike anything seen in the last 40 years. While many managers continue relying on indicators from the previous era, at least for now, we are instead focused on the future—guided by our system, attuned to market signals, and watching the herd to identify emerging trends to continue to provide investment strategies built for whatever lies ahead.
Even Herd Long Short ETF
Long Short ETF
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