Since the August 5th Market Lows
EHLS & Indices Since August Low
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.
Despite a volatile start to the year, the fund outpaced the S&P 500 in January. Although it has yet to reach its first anniversary, it has already weathered a market low observed in August. From that low, the fund has gained 25.99% as of February 5, 2025, more than doubling the performance of the S&P 500 Equal Weight Index—an accomplishment we’re particularly proud of as the fund achieved these returns while ending the month with only 59.13% net equity exposure. At month end, the fund had 199 positions long, 201 positions short, and the top 10 stocks only comprised of 14.38% of total portfolio long holdings. This level of diversification we believe validates our system over time as reliance on any single security seems to be a difficult argument.
In This Update
Theme Concentration: While diversified, the fund’s proprietary relative momentum-based strategy can inherently overweight certain themes, resulting in more exposure across multiple industries—and creating both opportunity and correlation risk.
Deep Seek Drop: AI stocks plummeted on January 27th, but prior gains and vigilant position adjustments helped cushion the impact.
Momentum Adjustments: The momentum-based approach adds and trims positions based on changing trends, regardless of personal market or theme-related convictions.
Looking Ahead: The fund is reinforcing strong AI names, exploring software-based tech that has been on the move, maintaining energy allocations that saw an increase in the month, and staying overweight in Financials, Technology, and Industrials—while eyeing Communication Services for further gains.
Trade Wars & DOGE: We remain aware of the current events that could bring additional market turmoil, but we'll continue to follow our system that should shift with any tides.
Looking Back
Even Herd employs a proprietary relative momentum system to avoid investment bias, often leading to higher exposure in themes that cut across multiple industries. This can bring both benefits and drawbacks, particularly for the short portfolio, which may lack offsetting positions. Themes such as Artificial Intelligence (AI) can be very broad and are closely monitored. AI re-emerged as a major focus after the 2022 tech drawdown, and by early 2023 many AI-linked stocks were “top picks” in our system, spanning semiconductors (Nvidia – NVDA), electronics (Celestica – CLS), photonics (Lumentum – LITE), networking (Ciena – CIEN), energy (Vistra – VST, Constellation – CEG), and cooling systems (Modine – MOD).
Although these holdings appear diversified by sector or industry, the shared AI thread can amplify correlation risks. We therefore track large cross-industry trends to avoid over-concentration and will reposition if sentiment shifts, acknowledging that we may occasionally miss related opportunities in order to limit excessive correlation. Additionally, these themes can increase volatility, but we’ll address that topic in a future update.
On January 27th, some AI-related stocks fell by 30% or more, marking some of the steepest single-day declines in individual names since the pandemic and global financial crisis. However, prior gains helped cushion the blow. Certain market segments performed well that day, while other unrelated areas—such as crypto miners and providers like TeraWulf (WULF) and Core Scientific (CORZ)—also plunged and subsequently dropped out of our system. Ironically, only a few AI-specific names fell, likely due to their strong run-up; Modine (MOD) was one we sold for now.
Even though we maintain a short portfolio, identifying good short candidates against a strong theme is challenging. Enthusiasm for a hot sector usually lifts most companies, and we only short underperforming names. Nonetheless, major reversals can create fresh shorting opportunities when a trend truly breaks. We generally stay net long in robust themes until our system suggests otherwise, because the potential rewards can justify the exposure risks. Unfortunately, when a theme endures a targeted one-day dive, our strategy will feel the impact given the limited short side. Still, we believe the benefits outweigh the risks. That day provided a wealth of data under extreme conditions, giving us insight into how the market might react to AI-specific concerns.
Looking Forward
It’s impossible to say definitively whether AI’s run is on pause, but our system will continue trimming holdings if certain names keep declining. On the surface, AI tailwinds remain strong despite the January 27th drop. The market pointed to Deep Seek’s models as a reason for the pullback, but we think that primarily affects companies dependent on closed-model providers, rather than infrastructure suppliers or emerging software players. Ultimately, we see the news as a net positive for AI overall. Its rapid evolution will bring immense potential—and significant volatility—so we rely on our data-driven approach to guide us. If a theme weakens and top stocks lose momentum, we exit them regardless of personal conviction and re-enter once the system indicates a renewed uptrend. This ensures our personal biases don’t override systematic signals.
We believe that within the next ten years, nearly every business will leverage AI in some capacity, and it may become as ubiquitous as the internet is today. However, we also anticipate that AI’s impact will dwarf the internet’s influence, fueling volatility and uncertainty due to its unprecedented pace of change.
Recently, we trimmed or sold weaker AI-themed names, like Benchmark Electronics (BHE), while adding to higher-conviction investments like Celestica (CLS). Other tech companies, notably in software—such as SAP (SAP) and Cloudflare (NET)—continued to climb toward recent highs, prompting us to finally open positions after initially holding back due to correlation concerns discussed earlier. We closely monitor different tech segments for additional opportunities.
Beyond AI, energy gained momentum early in the month but faded somewhat by the second half. Our observations from the last update led us to increase exposure in Energy, and our system still favors midstream operators like Targa Resources (TRGP), MPLX, and Energy Transfer (ET), as well as natural gas-focused firms like Gulfport (GPOR). Even if we suspect oil prices might stagnate or decline, we follow the system’s guidance and maintain exposure in top-ranked names such as Texas Pacific Land (TPL). We expect Energy to retain its weighting through February.
As noted previously, space-related stocks represent another emerging theme, though they can be speculative. We remain alert to the possibility of it broadening to other industries. As of month-end, we haven’t seen a major expansion of this theme. Currently, the fund holds positions in Redwire (RDW), Rocket Lab (RKLB), and Intuitive Machines (LUNR), which together account for just over 1.5% of the portfolio. We view these as speculative and emphasize the small share of the portfolio they occupy—though they’re always interesting to discuss.
Regarding sector exposure, Financials remain strong, so we plan to stay overweight there alongside Technology and Industrials. Communication Services is also strengthening and could soon rival Industrials for our third-largest weighting if the trend continues. We should note that the portfolio currently leans heavily toward growth, which has been an outperformer since late 2022. Should the market tilt toward value or other factors, we’d expect to shift accordingly. We don’t discriminate by style but rather follow where our system leads.
Trade Wars
With announcements occurring the last day of the month, we remain aware of ongoing trade war headlines and their potential to cause market gyrations and uncertainty. While abrupt policy shifts or even rhetoric can trigger excessive volatility that may briefly affect our system-based approach, we rely on momentum signals rather than headline sentiment when adjusting positions. At the same time, we stay vigilant of broader macroeconomic trends, ensuring our strategy remains both adaptable and invested in emerging opportunities.
We believe our systems are built for any market environment—like a storm at sea, waves (like stocks in our system) still exist to ride and may provide even larger opportunities, but more volatility from escalating trade wars seem inevitable. We will try to be opportunistic when we see pockets of disconnect between our systems and sharp market moves. But, we fully expect these next few months to bring additional volatility not just from trade wars but as markets also digest aggressive and necessary actions for the future of America being made by the Department of Government Efficiencies, a theme we may discuss in future updates.
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