Wednesday, April 28, 2010

2010 Fund Performance Period 4

The mutual fund is now on schedule for a [late] 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 fourth 4 week period is now complete. (Data is through last Friday's closing prices)

(click to enlarge)

Period 4 was almost identical to period 3... almost every day was up or sideways. The only drama were 2 days in the final 6 of the period; Goldman Sachs Friday and last Thursday when the market opened down in premarket by a material amount for only the 3rd time in 2010. It's been a remarkable streak since mid February - volatility died away, the moves upward have not been large in any 1 session but unrelenting, and the selloffs almost non existent. China continued to struggle and the Greece drama continued but speculators were assured someone will bail them out so no worries there. Unlike last period, we were unable to keep up with the market since the majority of the gains were in sectors we were not focused on, and we were underweight on the long side. Without any large intraday surges in "breakout" fashion short term index plays were limited so we were hand cuffed.

For the fourth "four week" period of 2010 the fund returned +0.9%, versus the market's +4.7%, so an underformance of -3.8%.
On a cumulative basis in 2010 the return is +29.1%, versus the Russell 1000's +9.8%, so an outperformance of +19.2% for the year to date. (thus far 16 weeks)

Period 4 allowed absolute performance (making money) but failed in relative performance (outperforming the market). The yearly goal of beating the index by 15% is on track.


*** Long/Short Fund Discussion below

Overview: The S&P 500 simply moved along its 6 day moving average for almost the entire period, mimicking performance in period 3. This string of grind up movement was finally broken by the Goldman Surprise, which took the S&P 500 down to 20 day moving average... and that level was retested on the Thursday of the last week of the period. However the NASDAQ and Russell 2000 were so strong, even Goldman Sachs fallout did not push them below their 6 day moving averages. From there a (now) typical V shape bounce occurred the next 3 days. Last Thursday saw a rare gap down open and -1.5% intraday move... which ended up also crushing bears as the market did a V shape intraday bounce. Summary - bears were crushed at every turn.

Below is the chart for period 4...

To show you how consistent the market has been for 2+ months, I cut and paste the chart for period 3 below... almost identical. In fact if not for the "Goldman Sachs event" they might of ended up almost perfectly aligned.

I was expecting SOME form of pullback at SOME point in these past 4 weeks and was wrong the entire period. Thankfully bets against the market were light but caution was punished. While the market was up, up, up, sideways, up, up... there were no big breakouts to play with index positions and we had a few blowups like Massey Energy (MEE). What little dips there were, in retrospect should have been bought. Consumer discretionary stocks remained monsters with the retail ETF (XRT) hitting all time highs... not yearly highs, but all time highs. The Financial ETF was hot until Goldman Friday, and industrials also were smoking hot.

Week 1: Cash 76%, Long 18%, Short 6%

Charts were already extended entering this 4 day week; 90% of stocks were over their 50 day moving average - which usually is an extreme reading. But nothing is too extreme in the new paradigm market. Oil began breaking out so some oil service stocks finally showed life after being massive laggards so I tried my hand there.

Long side moves:
  • I restarted a position in Diamond Offshore Drilling (DO).
  • I I bought more Atheros Communications (ATHR) on a breakout.
  • I closed the last remnant (0.1% exposure) in Telestone Technologies (TSTC) - the stock was not expensive but extremely volatile and is difficult to trade around on technical terms with so many days it moves 8 to 10%; plus the earnings report it gave out the previous week was not received warmly.
  • Some smallish index ETF exposure was bought this week as well.

On the short side:
  • Morgan Stanley China A Shares (CAF) was closed as the instrument broke out.

Week 2: Cash 70%, Long 25%, Short 5%.

On the long side
  • I restarted home builder Lennar (LEN) as nothing more than "people got frothy in 2009 when housing rebounded in spring/summer... I expect them to do the same and be 'surprised' in 2010'."
  • I cut back half of Massey Energy (MEE) after the mine disaster struck...and the stock fell below the 50 day moving average.
  • I sold half of Indian bank HDFC (HDB) simply because it had quite the run
  • I bought some SPY Index calls Friday afternoon.
On the short side
  • I bought back into the exposure against US bonds which I had covered a few weeks previous.
  • I was stopped out of AsiaInfo Holdings (ASIA) late Thursday for a loss.

Week 3: Cash 62%, Long 34%, Short 4%. Same old, same old - straight up. This was the case until Goldman Friday.

On the long side:
  • I sold almost all of our hotel chain Wyndham Worldwide (WYN) - one of our few consumer discretionary stocks - simply to lock in profits after a very nice run.
  • I closed a position (sold the the 2nd half) in Massey Energy (MEE), as the stock looked to be pressured by government scrutiny - instead I rolled that money into a more speculative Chinese equivalent L&L Energy (LLEN).
  • I yook partial profits (25 to 33% of the positions) in 3 names - Quality Systems (QSII), Triquint Semiconductor (TQNT) and NetLogic MicroSystems (NETL), simply to have some discipline.
  • I restarted Discover Financial (DFS) on the idea that many more Americans can now pay their credit card bills since they no longer have to bother with a house payment as delinquencies rule aka the new house ATM.
  • Restarted Rackspace Hosting (RAX) on what appeared to be a breakout - a big move out of a base, on huge volume.
  • I closed Diamond Offshore Drilling (DO) as it has been a major laggard and did not breakout as we had hoped.

On the short side
  • I put on some SPY puts Friday in reaction to Goldman Sachs news... just for some hedging purposes... not a big position.

Week 4: Cash 66%, Long 27%, Short 7%. The question going into the week was "would Goldman matter for more than 1 day?" This week we had 4 names really take off to the upside (3 on earnings, and Lennar on "housing data being stronger in spring"), and was the main reason we were able to scratch out a positive period. Certain stocks began selling off on earnings while other high value momo names were completely blowing out shorts.

On the long side:

  • Rackspace Hosting (RAX) was sold Monday for not participating in this epic rally.
  • After Atheros Communications (ATHR) rocked its earnings report, I sold 1/5th.
  • After some "surprising" housing numbers, I sold 25% of our largest position Lennar (LEN).
  • I was stopped out of half of coal name L&L Energy (LLEN) for a quite nasty loss
  • I restarted a position in Bucryus (BUCY) as the stock pulled back to support post earnings.
  • I added to [new breakout] Quality Systems (QSII) & Skyworks Solutions (SWKS) [fell back to first level support]
  • I added index positions (SPY calls and TNA ETF) in the closing hours as the S&P was poised to take out highs for the years, and "Magical Monday" awaited.
  • I closed Market Vectors Brazil Small Cap (BRF) for similar reasons to Rackspace Hosting... no life.
On the short side:
  • Hands remained tied, simply sold the index put positions I had bought the previous Friday on the Monday dip to the 20 day moving average.

[Apr 1, 2010: 2010 Fund Performance Period 3]
[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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