Tuesday, February 2, 2010

2010 Fund Performance Period 1

The mutual fund is now on schedule for a summer 2010 launch. If, after reading the blog content you might have an interest in participation, please consider reading why this blog exists.

  1. [Jan 2008: Reader Pledges Toward Mutual Fund Launch]
  2. [May 2008: Frequently Asked Questions]
  3. Our story in Barron's [A New Kind of Fund Manager]
  4. [November 2009: General Updates, Questions]

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For those who read the content of the website via email or RSS reader, you can come to the website at any time and click on 'Performance/Portfolio' tab in the menu bar to get updated positions (weekly) and performance.

Total Portfolio Value, as maintained by 3rd party, can be checked here each day with 20 minute delay vs real time (starting value $1,000,000 or $10.00 NAV)

I will post an update of performance versus Russell 1000 every 4 weeks; we moved to a new tracking system in 2009 (Investopedia.com) as the old system would not allow shorting of individual stocks, among other "technical issues" that often came up.  Hence while the website and portfolio began in August 2007, we "began anew" in terms of performance with portfolio "B" as of early 2009.  Detailed history on latter 2007 and 2008, as well as 2009, [Jan 7, 2010: 2009 Final Performance Metrics]  can be found on the above mentioned tab.  For 2010 our first 4 week period is now complete. (Data is through last Friday's closing prices)

(click to enlarge)

It was a tale of two fortnights in period 1, sandwiched around a Scott Brown victory in the Senate.  The first two weeks were an orgy of complacent bliss as the market "could only go up".  The latter two weeks were marked by the first real selloff since late October 2009, and first serious threat to the market since July 2009.  The S&P traded in a wide range, topping out near S&P 1150 and closing near 1075.  Two long term gaps were filled and political theater dominated economic and earnings news.  A threat to Ben Bernake's re-appointment worried markets late in the period, but as all good enablers, the drug addicts rolled over once push came to shove.  Chinese stocks (in the US) and "weak dollar" stocks struggled mightily in the latter part of the period after big gains early, as did anything technology.  Leadership stocks - especially of the NASDAQ kind - broke down towards the end of the period.  Both the Chinese (Shanghai) and Brazilian markets broke the 50 day moving average during this time frame - a red flag. Greece debt did not matter the first few weeks but suddenly became a concern in the latter half.  And Chinese tightening became a worry for speculators addicted to "cheap if not nearly free money" the world over.  Unlike the past few quarters, 'good' earning reports were sold off by and large. 

For the first "four week" period of 2010 the fund returned +8.7%, versus the market's -3.7%, so an outperformance of +12.4%.

On a cumulative basis the return is +8.7%, versus the Russell 1000's -3.7%, so an outperformance of +12.4% for the year to date. (thus far 4 weeks)

Period 1 was a good start to our yearly goal of beating the indexes by 15%, however a late surge in the period - including a bevy of unrealized gains on the final day - probably overstated things to a degree. We just happened to end the period on a very strong day so 2-3% of performance is probably variable and prone to be lost in period 2. Both absolute performance (making money) and relative performance (outperforming the market) were achieved in the period.  Very content with this performance and these type of months are the ones that will stnad out versus the mutual fund peer group.

*** Long/Short Fund Discussion below

Overview: Period 1 of 2010 could be marked B.B. and A.B. (Before Brown, After Brown).  Markets ran to 15-16 month highs as celebration that our politicans would be neutered with a loss of a super majority by the Dems in the Senate led to great excitement.  But this ended up being a "sell the news" moment.  The market continued to break out from its November/December 2009 base and we stayed the course until things took a turn for the worse in week 3, and the S&P 500 fell back into "the box".  The fund suffered one bad day, along with the market but as we were being stopped out of position after position, and we changed our bias 180 degrees once the technicals in the market began to break down - we ended up having a strong performance.  Two gaps in the S&P 500 chart led to some quite easy to see targets on the downside, although there was no expectation they would both be "filled" so quickly.  By the time the market really broke down we were only had 3 material long positions.  As the period ended on a selloff, we had many unrealized gains on the short side, so prone to giving some back on any rebound.
Please note on the right margin of the blog is an archive in which you can see all these events in chronological order, clicking on any link within the sentences below will take you to that transaction - a summary below:

Week 1: A late day selloff on the last day of 2009 was met with voracious buying at the open as 2010 began; the year began with a bang.  The market continued in uptrend as complacency reigned supremet.  Our cash was at 63%, but we were "all long" at 36% with under 1% short.

  • Added to positions in strong looking charts: Atheros Communications (ATHR) and Skyworks Solutions (SWKS) Monday.
  • Took profits in Telestone Technologies (TSTC) securing a 21% gain in under a week (thankfully as the stock was all downhill from there)
  • As the rush back into risk assets repeated anew in the New Year, we started rebuilding some exposure in gold and silver which had been slashed to almost nothin in November 2009.
  • As the Brazilian market made a run to highs last reached in 2008, we added back to Brazilian chemical maker Braskem (BAK) as it fell to the 20 day moving average.  Identical strategy with Sourcefire (FIRE) as it pulled back to its 20 day.
  • Closed our long held position in Baidu (BIDU) a week before Google and China got into a spat.... but it was a tiny position that was not running with the rest of the market, so I stand by the decision making process.
  • Added to index type long positions (SPY calls, and levered long ETFs)
Week 2: Another week of no worries - unicorns, mermaids and fairies surrouned the market protecting it from all sell offs.  Bullish sentinment measures were reaching some extreme multi year levels in popular surveys but CNBC said if the first week of January is up, the whole year is up! No worries man.  Entered the week with 35% cash, 64% long and less than 1% short.
  • Closed out the last 0.1% exposure to Brazilian home builder Gafisa (GFA) as the chart was poor, and it was not rallying like almost every other equity on Earth; similar thought process to Baidu the previous week.
  • Covered the majority of our short in of iShares Barclays 20+ Year Treasury Bond (TLT).
  • After a great earnings report the previous week, DragonWave (DRWI) pulled back so we began rebuilding the position, taking it from a 1% allocation to 1.7% while hoping for lower prices to make it even larger.  There was a gap that needed to be filled (formed by the large gains post earnings) and that happened the next day, where we bought more.
  • An analyst downgrade crushed Myriad Genetics (MYGN), so we took our 8% loss and closed the position as the chart was now a disaster.
  • Human Genome Sciences (HGSI) broke the 20 day moving average and we left a very large unrealized gain on the table in this one, which was unfortunate.  This stock was bought only for technical reasons, and the technical reason played out but we became greedy and wanted more - never selling even a portion of the position.  With the breakout no longer in play, we sold out completely for a 3% loss.
  • After selling almost all of our Telestone Technologies (TSTC) for a large gain the previous week, the stock fell sharply so we began rebuilding the name in the $21 area.  Only a 1.4% exposure to start but we wanted to buy more on dips.  Later in the week our target of mid $20s was hit and another 0.8% was added to the position.
  • TriQuint Semiconductor (TQNT) raised guidance, and with the stock up 7% we decided to sell almost the whole position - willing to rebuy it if it broke over resistance of $6.50 - which it did not do.  The stock had been range bound for about 6 weeks and not participating in the general rally.
At this point the S&P 500 was making repeated attemps at 1150, which was a key pivot point.  Over that level I'd be interested in buying back long exposure, including index positions.  But I was in "prove it to me" mode.
  • DragonWave (DRWI) had bounced 11% in 2 days and was not forming a potential double top (a return to an old high) - so we took the money and ran in a very short term trade.
  • Re-established a smallish short in of iShares Barclays 20+ Year Treasury Bond (TLT) after taking profits the previous week.
  • Added to our position in Assured Guaranty (AGO) as the stock appeared to breaking out of a nice base.
  • Stop loss triggered in Sourcefire (FIRE) as 80% of our position was called away for a 8% loss - the stock broke its 50 day moving average.

Week 3: Bulls still in charge but S&P 1050 was the near term ceiling.  While we were being stopped out of certain stocks and others we liquidated for non participation in the rally, we still entered the week long heavy although not as much as the previous week.  Entered the week with 48% cash, 50% long, and just under 2% short. We continued to give the market the benefit of the doubt because betting against it cost much pain but were willing to change our stance if the late December 2009 breakout failed and the S&P 500 fell back into the range from Nov/Dec 09.  That happened Thursday of this week and we made some serious changes. 

  • Sold half our Skyworks Solutions (SWKS) ahead of earnings. Earnings were fine; but stock sold off anyway.
  • Added a modest amount to BHP Billiton (BHP) as the "weak dollar plays" began getting hit, this was a place on the chart where a gap needed to be filled.
  • Atheros Communications (ATHR) pulled back to the 20 day moving average, so we added more.
  • AsiaInfo Holdings (ASIA) broke the 50 day moving average so 75% of the position was exited in the $27.30s.  A huge gap at $26 stood out like a sore thumb.
  • Sourcefire (FIRE) continued to be weak, so after selling 80% of the position in week 2, the rest was sold early in week 3.  In it's place we added to Rackspace Holdings (RAX) which had a much superior technical condition.
At this point Scott Brown had won & Google (GOOG) was about to report earnings but I had noticed almost all the hedge fund momo (momentum) stocks - especially of the tech kind - were breaking down.  An ominous warning... the only exception was Apple (AAPL).
  • Much like BHP, a limit buy order for Potash (POT) kicked in - these are our only 2 commodity stocks.  The order his at $112 but we were soon to be stopped out at $108 for minor losses.
The "Volcker rules" were introduced....
  • Some stop losses began to trigger.  American Superconductor (AMSC), Telestone Technologies (TSTC).
  • I did add to EnerNOC (ENOC) as it fell back to the 20 day moving average - one of the strongest stocks in our universe at the time.
  • Our 2nd go around with Insituform Technologies (INSU) went just like the first; we had a loss of 6% but only on a 0.6% exposure.  Closed the position.
  • As Gafisa (GFA) [see week 1] imploded down to the 200 day moving average we tried it for a trade only (2% allocation) - we were stopped out by the next morning for a 2% loss.
  • We sold almost our entire Wyndham Worldwide (WYN) for very nice profits, to lock in gains and pointing to a very obvious gap in the chart.  (which has yet to fill).  Still looking to buy back the shares we sold.
  • Braskem (BAK) broke the 50 day moving average, so we cut it back by 1/3rd while adding index short exposure via SPY puts
I mentioned there was a gap in the S&P 500 at 1104 that yearned to be filled.
  • Stopped out of 60% of our Atheros Communications (ATHR); no major losses here as we used the 20 day moving average rather than the 50 day.
  • Began a small stake in F5 Networks (FFIV) as the company posted impressive results earlier in the week and had pulled back after a post earnings surge.
  • Very late Friday not only did the gap at S&P 1104 fill, but the S&P broke in the 1090s... we tried to take much of our SPY put exposure off the table not wanting to hold it ahead of "magical Mondays" (when the stock market only goes up) but did not get 1 of our trades in, in time - so only took profits on 30%, rather than 70% as we had wished.   That cost us some performance as the following Monday (lo and behold) was up right from the open...

Week 4: The market had fallen dramatically the previous week Thursday/Friday - and we had taken some profits on some short term bearish positions so our short exposure was less as we entered the week than it had been the previous Friday.  The S&P 500 sat just above key support of 1085, we opined a break of that level should lead to a "gap fill" in the chart at 1071.50... which happened 5 days hence.  But to begin the week we were 65% cash, 24% long, and 8% short.  Short exposure exploded higher late in the week....

  • ...

[Jan 7, 2010: 2009 Fund Performance - Final Edition]

For previous years please see tab 'Performance / Portfolio'  (we were using other tracking mechanisms at the time)

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