Thursday, April 1, 2010

2010 Fund Performance Period 3

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 ( 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 third 4 week period is now complete. (Data is through last Friday's closing prices)

(click to enlarge)

Period 3 was simple to describe - up or sideways.... but mostly up.  A remarkable period with no pullbacks of any sort; as the period ended the S&P 500 had gone 7 weeks without a 1% correction.  The Russell 2000 at one point had been up 15 of 17 sessions, with shorter but similar streaks in NYSE and S&P 500.  The "negative" days were almost all of the -0.2% variety.  All news was good news as Greece was finally backstopped by the EU/IMF and investors looked ahead to a census laden jobs report at the beginning of April.  Housing data was weak but ignored. Consumer discretionary, financials, and industrials dominated as did niche sectors like insurance, restaurants, airliner production, and autos. Major emerging markets did not do as well with China and Brazil in particular struggling.   I was unable to pull another +8.7% period which would of been nice, as I was trying to put together 13 in a row - Bernie style.

For the third "four week" period of 2010 the fund returned +8.3%, versus the market's +5.7%, so an outperformance of +2.6%.
On a cumulative basis the return is +27.9%, versus the Russell 1000's+4.9%, so an outperformance of +23.0% for the year to date. (thus far 12 weeks)

Period 3 achieved both absolute performance (making money) and relative performance (outperforming the market).  The yearly goal of beating the index by 15% has been achieved.


*** Long/Short Fund Discussion below

Overview:  The chart for period 3 says it all - rally, followed by rally, followed by rally.  Much of it came (yet again) in premarket as many days were full of almost no movement between 10 AM and 3:30 PM as the computers churned the market.  It feels very emotionless and aside from a few breakouts in the indexes there were not many trading opportunities since so much of the movement came overnight. The only weakness of any sort came in the last week and even that was minor.  This is the hardest type of market to keep up with with our sort of strategy, versus the easiest for the typical mutual fund crowd.

Week 1: The market was just finishing 2 weeks of a bounce off the 200 day moving average and was running into "resistance" (a funny word in retrospect) around the 50 day on the S&P 500 the previous week.  After breaking over that level this week, there was no turning back for the entire period.  Of course we did not know that in advance so we were heavily hedged at 12% long, 7% short, and the remainder in cash (much of the short was simply "long US dollars").

  • We sold the last of our month long (held) dollar calls early in the week for a sizeable gain which helped us keep pace with the frantic market.  
  • I was looking for a stock that was near support but had not joined the party early in the week so I expanded our position in Rackspace Hosting (RAX)... unfortunately the stock did nothing all week despite a market going ballistic.   
  • Assured Guaranty (AGO) was sold completely out as it was not participating in the rally; it also did nothing the rest of the week.   
  • Added some Ultra Silver (AGQ) as the precious metals charts started to shape up... this one did "pan out" (would of been funnier if I had bought gold).  
  • I cut back DragonWave (DRWI) mid week as the stock not only was a non participant in the festitivies but broke support; in retrospect that worked out in the near term.   
  • F5 Networks (FFIV) has gone up 20% in a short amount of time, so I took 70% off the table.
Then I did the unthinkable - I shorted some stocks...  using Greenhill & Co (GHL), American Superconductor (AMSC) and AthenaHealth (ATHN). 

Week 2: With the market bouncing smartly off the 50 day moving average I went much more heavy to the long side - including some index positions.  Cash was drawn down to 66%, longs up to 22% and shorts up to 12%.  The largest positions
  • Profits were taken in Las Vegas Sands (LVS) both early in the week, and later as the stock shot up. (consumer discretionary)  This was the best stock of the period by a mile.
  • I restarted positions in Google (GOOG), Braskem (BAK) & Riverbed Technology (RVBD)
  • DragonWave (DRWI) was also closed out, (but surely must be due for a dead cat bounce) and Seagate Technology (STX) after breaking support (50 day moving average), was cut back by 40%. 
  • My largest short at the time Greenhill & Co (GHL) was stopped out.

Week 3: At this point with yet another "V" shaped bounce, I began thinking the market was overdue for at least a moderate pullback (2%? 4%?)  Not so much.  I did not add to any shorts however as the strength of the market was too powerful - long exposure was 19%, short 8% (as always some of this being long US dollar), and cash 73%.  This was not much different from the previous week but I did a lot of adjusting to new names.  The largest % gain for the fund happened this week when we caught a 16 point S&P move with SPY calls and levered index ETFs
  • On the long side we had a trade in TQNT:  Early in the week a limit purchase order hit for TriQuint Semiconductor (TQNT) after it pulled back to the 50 day moving average; that position was sold right back out after a 8% gain within days as TQNT raised guidance.   The stock immediately fell after I sold, so I got the position back - this company gets no respect despite a steady stream of good news, so I have to trade it.   
  • The big move of the week was an index play where after thinking I might get 16 points on the downside Monday (if S&P 1140 was to break), instead I grabbed 16 points on the upside with a move from 1154 to 1170ish.  Half my index positions (SPY calls, and TNA ETF) were sold just under 1170, and another half sold once 1165 was broken.  
  • Late in the week I restarted coal player Alpha Natural Resources (ANR) [sacrifice to the gods so that they would bring us a real selloff] with a 1% position, and healthcare e-records name Quality Systems (QSII) as a potential breakout candidate - which it was doing Friday, but the "down" market slowed it.  
  • Friday, I closed lagging Seagate Technologies (STX).

On the short side:
  • I attempted to short True Religion (TRLG).  
  • I had less than 24 hours in shorts of Vulcan Materials (VMC) and Cemex (CX) - they stopped out very quickly.  
  • For the sport of it, I shorted the stock which went 1 full month without 1 down session - Maidenform Brands (MFB).  
  • I thought a break of S&P 1160 Friday would lead to more damage so attempted some downside index plays (SPY puts, short TNA) but only squeezed out a few measly points as the market smashed shorts who attempted this "breakdown" play with a quick rally to finish off the week. 

Week 4: The relentless move up, as the S&P was over 1150 and not looking back.  Entered the week 19% long, 9% short and 72% cash. It was difficult to apply cash at this point to the long side because most of the names I like were up tremendously since the Feb lows with almost no pullback.  Index plays this week were losers as most of the market move was in premarket and some choppy action had us constantly stopping out.

On the long side
  • I began a position in NetLogic Microsystems (NETL) simply due to error - the stock split 2:1 and the simulator I run my portfolio in did not compensate so my long standing limit buy order executed - it was a small order so no big deal.  Within 48 hours after splitting the company did an offering, at which point I bought more shares, to make the position a moderate size.   
  • I started a position in Massey Energy (MEE) - within hours the company announced a stock offering (notice a theme?), which hurt the stock - but in the George Costanza market, stocks now rally when they company diluted shareholders.  
  • I closed a large position in Google (GOOG) for a smallish loss as it broke support and continued to sell off on the same news from China....  which appears to have set the bottom in the stock.  
  • EnerNOC (ENOC) a position held since last fall was closed out, as it has been unable to move for many weeks on end.

On the short side -
  • I reshorted Athenahealth (ATHN) which has been good to us; we won again as I quickly covered for a 3% gain.  That might sound like peanuts but 3% down in this market is like 15% down in a normal market.  
  • AsiaInfo Holdings (ASIA) was shorted as it broke support and eyed a large gap in its chart.  
  • I covered a multi week short in True Religion (TRLG) for only a 1% loss and consider it a major victory as the stock went nowhere for 2-3 weeks as its sector was the hottest in the market.
  • Exact same logic in Maidenform Brands (MFB) - the strength of the market simply hit my stop loss and I could not stay in.   
  • I covered our modest allocation in iShares Barclays 20+ Year Bond (TLT) as bonds swooned mid week. 

[Mar 2, 2010: 2010 Fund Performance Period 2]
[Feb 2, 2010: 2010 Fund Performance Period 1]
[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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