2010 Fund Performance Period 11

If, after reading the blog content you might have an interest in participation for the mutual fund, 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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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 eleventh 4 week period is now complete. (Data is through last Friday's closing prices)

(click to enlarge)

Period 11 was a good period for the fund, but the market in parabolic melt up mode still outperformed.  Consider the high cash position along with some light hedging here or there, that is acceptable.  Multiple technical levels were sliced through as the market ran early in the period - based for a while (as various sectors were cycled through by the traders) and then took off the day after actual QE2 was announced in the last week of the period.  It was a "throw a dart" period for the market - almost any stock was a winner under the QE2 regime.  A GOP win and QE2 was discounted ALL month, but even the actual news events were bought... at the end of the period both the 200 week simple moving average was cleared, as were yearly highs. Buying any small dips at the 13 day moving average was the only thing you had to do on the greater index.  The dollar continued to be hammered, emerging market stocks and commodities roared, and stocks went along with them.   

For the eleventh "four week" period of 2010 the fund returned +4.1%, versus the market's +7.0%, so an underperformance of -2.9%.

On a cumulative basis in 2010 the fund return is +62.6%, versus the Russell 1000's +10.6%, so an outperformance of +52.0% for the year to date. (thus far 44 weeks)

Period 11 was a period of absolute outperformance (making money) but relative underperformance (did not outperform the market). The yearly goal of beating the index by 15% is on track.

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*** Long/Short Fund Discussion below

Portfolio Overview:  The manager finally threw in the towel on shorting this period after getting "the message" from the market Ben Bernanke.  Two of the previous three periods were lackluster but this one was quite good within a vacuum.  4% in one of 13 periods, extrapolates to 52% annual.  But the market rose at a 91% annual rate - impossible to keep up without being "balls to the wall" long.  The story of the period remained the same: Dollar down, everything else up.  QE. QE. QE.  We continued to find some nice winners (Riverbed Technology, Las Vegas Sands, auto supplier stocks) , but frankly one doesn't know how much of this is skill and how much is random dart throwing since so many stocks rallied during this period.  This is another period where "everyone is a genius" ala 1999.  While every so often the manager took a shot at the short side the main hedge was 'dollar long' which had mixed results.  Hence "cash" itself was the main downside hedge.  Technically, both the 200 week simple moving average AND yearly highs were taken out in back to back days in the last week of the period, post Fed announcement.

Below is the chart for period 11:



Week 1: Entered the week: Cash 63%, Long 19%, Short 18%

Expecting the market to have *some* sort of selloff, I was quite hedged entering the week.  That ended quickly as all 5 equity positions were stopped out within a few sessions.  Most of our top long names had already had a parabolic move so I was at a loss to what to buy.

On the long side:

• After being stopped out of shorts on Whirlpool (WHR) and China Automotive Systems (CAAS) Monday morning, I decided to try them long. 
• I started to move into some secondary long positions, a "chicken" energy play with Kinder Morgan Energy Partners (KMP) which at least yields 6.3% if nothing else. 
• Tuesday, not liking the 'action' in the cloud space - I closed out positions in F5 Networks (FFIV), Acme Packet (APKT), and Salesforce.com (CRM).
• Added to Rovi (ROVI). 
• Restarted a stake in Baidu (BIDU). 
• Started a stake in commercial real estate stock CB Richard Ellis (CBG) as it had broken out of a long held range. 
• Wednesday I bought some SPY Calls (4.5% exposure) as S&P 1180 was breached; for the day this was a winner but by the next day it was a loser where I sold out the incremental exposure. 
• Thursday, I restarted Trina Solar (TSL) as a test to see if I could stop the sector in its track as per my history - test succeeded. 
• Sold 1/3rd of Home Inns & Hotel Management (HMIN) for a 10% gain. 

On the short side:

• Monday, stop losses of Whirlpool (WHR) and China Automotive Systems (CAAS) were triggered. 
• Volatility has been sucked out of the market as complacency reigns - hence the VIX has been crushed, and with that the very poorly constructed ETF that tries to track VIX has been doubly crushed; I sold the last of iPath S&P 500 VIX (VXX) with a 17% loss. 
• Stopped out of OpenTable (OPEN) for a 2.8% loss. 
• Wednesday, stopped out of Prudential Financial (PRU) as it broke over the 200 day moving average. 
• Thursday, stopped out of Shanda Interactive (SNDA) as it broke over the 50 day moving average.

Week 2: Entered the week: Cash 65%, Long 30%, Short 5%

A surprise Chinese rate hike caught dollar bears leaning too heavily and the greenback actually rallied through the 5 day moving average and to the 20 day.  But that is all it could muster.  Once it sold off, everything in the market rallied. Riverbed Technology (RVBD) was the star of the week. 

On the long side:

• Wednesday, despite a lot of lower quality small cap Chinese stocks rallying hard the past few weeks - China Automotive Systems (CAAS) failed on a breakout of the previous week so was sold for a 7% loss. 
• Playing a bounce off the 13 day moving average, and a "POMO" day - I bought some SPY calls in the low 1070 area hoping for a move to 1080 (10 points) - this came within hours of purchase Wednesday so I sold half around 1080 and half around 1085; 15% gain on the former, 25% on the latter, 20% average.  I tried again Thursday as the market broke over resistance of S&P 1185 but this time it was a trap, and the market reversed ... actually a quite common tactic of late in the market.  I sold for flat to losses.  
• Thursday, I sold out of Trina Solar (TSL) for a 17% loss as the solar sector topped just as I bought in.
• Half of Baidu (BIDU) was sold going into earnings; after the earnings were benign, I bought those shares back at about a 5% premium Friday morning. 
• I had the last part of some old SPY 117 calls that I sold off Thursday as the market was acting shoddy; these were about a 17% gain, but were 33% earlier in the day and could have been sold the next day for 30% so not the best timing. 
• Closed out CB Richard Ellis (CBG) as this was a technical based trade - a stock breaking out of a long base, but it failed to continue the breakout.
• Friday, took 30% out of Riverbed Technology (RVBD) as it was up some 15% off of earnings; to replace the exposure in the portfolio Acme Packet (APKT) was restarted as I felt Acme and F5 Networks might get some "halo" effect from Riverbed even though they do completely different things. 
• Restarted a position in mining equipment producer Bucyrus (BUCY) on a pullback to support after a disappointing earnings report.  
• Threw a position in Atheros Communications (ATHR) on the docket, just ahead of earnings simply as a small speculation on a beaten down stock. 

On the short side:

• Monday, took a 1.4% loss on iShares Barclays 20+ Year Treasury Bond (TLT) as the consensus is that the Fed will be targeting shorter term duration paper (3-5-7 years) with most of their buying.  TLT broke key supports, so was sold.  The 10 year yield seemed to bottom in the 2.4% area, so this might be a big change of direction trade - we'll see.
• Shorted Prudential Financial (PRU) as it rallied to the top end of a narrow range; and covered Friday for a 2% gain - this is 'slow money' and any victory on the short side during this move is a win. 
• Replaced a long term insurance play, Dec SPY puts with Jan SPY puts.  Took a 60%ish loss on the 1% exposure on the Dec puts as the market has rallied non stop since they were put on at S&P 1120-1130.

Week 3: Entered the week: Cash 69%, Long 26%, Short 5%

Markets sold off on Tuesday due to a leak in the WSJ that QE2 would not be a trillion right off the bat, which upset speculators.  For one day.  Then it was back to buying anything that moved.  The dollar continued to be hammered.  Precious metals soared.  Rinse. Wash. Repeat . Las Vegas Sands (LVS) was a star.  I bought some SPY calls one day this week for no good reason other than the market was at the 13 day moving average and the next day was a POMO morning.  I made 20% within a session.  It was just "that easy".

On the long side:

• Monday, I started a modest 1% position in Ford (F) after a very good earnings report - the stock was very extended so I did not want to chase with large exposure, until (if) it pulled back.
• Tuesday, a small stop loss in Bucryus (BUCY) was executed as the WSJ leak on QE, put pressure on the market in the opening minutes.  After my stop loss was collected the stock immediately bounced well over 2%. 
• A new position of 2.2% exposure was started in Citrix Systems (CTXS) after an excellent earnings report, and the stock breaking over some resistance.
• Wednesday, Whirlpool (WHR) was closed after an adverse reaction to earnings; took a 5% loss. 
• Wednesday afternoon, I bought a 4.5% exposure in SPY calls for no reason other than "POMO" on Thursday morning.  They were sold the next morning for a 20% gain... 
• I sold almost all Las Vegas Sands (LVS) this week - as this is one of the new "nifty 50".  Half the remaining position was sold just ahead of earnings for a 25% gain, and the remainder the next morning for a 36% gain. This was about a 6 week trade from where I bought most of the exposure. 
• Thursday, sold 2/3rds of Rovi (ROVI) going into earnings for 'flat'. 
• Closed Kinder Morgan Partners (KMP), mostly out of boredom, taking a 2% loss. 
• Added some exposure to BorgWarner (BWA) after another excellent earnings report. 
• Friday, started a position in a new name - Eastman Chemical (EMN) - which is about as cyclical as you can ask for. 
• Acme Packet (APKT) had a nice report but did not react 'great', since I wanted to keep some long exposure going after sales earlier in the week I added some to this position, mostly out of default.
• Precious metals looked poised for a new run after resting for a few weeks - I restarted a position in Silver Wheaton (SLW). 

On the short side:

• Friday, I took a little off the Powershares US Dollar Bullish (UUP) position (our main hedge) as the dollar was rejected at the 20 day moving average and now sits in limbo. 

Week 4: Entered the week: Cash 69%, Long 28%, Short 3%

This was the remarkable week - elections, Fed announcement, and monthly jobs report ... all data was bought even as we already knew most of it well ahead of time, and the market went up each and every day.  While taking some profits in names with big runs, once the 200 WEEK simple moving average was cleared to the upside I was forced to add about 11% extra to long exposure during the week.  Silver Wheaton (SLW) was a star.  I attempted 2 short positions just to keep it interesting, and went 1 for 2.

On the long side:

• Monday, I restarted a substantial (>4%) position in Apple (AAPL) near support at $300 figuring there is no way the greater market goes up without this stock.  It bounced nicely the rest of the week, to test all time highs. 
• Tuesday, I sold half of Polypore International (PPO) ahead of earnings to lock in about a 35-40% gain.  The stock was trashed on an "in line" earnings report, causing technical damage, so I sold the rest Thursday for a gain somewhere in the 20-25% level. 
• Atheros Communications (ATHR) stalled at the 200 day simple moving average, so I cut half the stake with the intention of buying back *if* it broke over that level.  That indeed happened on Thursday morning melt up, so I bought back the half. 
• Sold half of Spreadtrum Communications (SPRD) as the stock was up 10% on the session.
• Sold 25% of Riverbed Technology (RVBD) just to not be egregious as the stock was up 32% from entry. 
• Thursday morning Bernanke forced my hand as the indexes surged over the 200 week moving average.  I closed out Las Vegas Sands (LVS) as I could not stomach a new purchase anytime soon as the stock was incredibly extended.  I added to existing purchases in HDFC Bank (HDB), Acme Packet, and Atheros (see above).   New positions were created in Blackstone Group (BX), TRW Automotive (TRW), DSW (DSW), and Cummins (CMI).
• Thursday, Home Inns & Hotel Management (HMIN) was closed as it was acting poorly in a big up day; I retained a 3% gain in the 2/3rds of the original position... the stock went on to implode later in the day, down nearly double digits..
• Late Thursday, took some light profits in Silver Wheaton (SLW), Ford (F), and Magna International (MGA) ahead of earnings. 
• Friday, I sold another third of Magna International (MGA) on the earnings spike. 

On the short side:

• Tuesday, I shorted Equinix (EQIX) (2.8% exposure) and Lender Procession Services (LPS) (2.1% exposure) - simply to create an appearance I am being 'sophisticated'.  I placed odds at 90% I would lose money in both trades, since the market can only go up.  Well, the market only did go up - so I lost my 2% in LPS in under 24 hours as I was stopped out, but made 2.5% in EQIX which I closed out Friday.   A small net positive, but mostly a moral victory to see that money can still be made on the short side, but its akin to a root canal.
• Powershares Bullish US Dollar (UUP) was closed as a hedge due to a break to new (recent lows) Thursday.

[Oct 14, 2010: Fund Performance Period 10]
[Sep 16, 2010: Fund Performance Period 9]
[Aug 18, 2010: 2010 Fund Performance Period 8]
[Jul 20, 2010: 2010 Fund Performance Period 7]
[Jun 24, 2010: 2010 Fund Performance Period 6]
[May 26, 2010: 2010 Fund Performance Period 5]
[Apr 28, 2010: 2010 Fund Performance Period 4]
[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)