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Hedge Fund Update for September
2004-10-01
Liquidity, transparency and diversification - our focus at Lindzon & Associates is to offer "best of breed", market-proven managers that deliver superior risk-adjusted returns. The benefits of adding world-class alternative asset managers to your current portfolio include diversification (low correlation to traditional asset classes - equities and bonds) and enhanced portfolio efficiency (better return potential for a given level of risk).
September was a mixed month in the equities markets, with the S&P 500 gaining 0.94% (+0.24% YTD) the DJIA losing 0.92% (-3.57%YTD) and the NASDAQ increasing 3.20% (-5.32% YTD). The CSFB Hedge Fund Index gained 1.01% in September, bringing YTD 2004 performance to +3.79%.
We have added a merger arbitrage manager to our coverage list. The Shorewater International Fund seeks to achieve a 20% annual return, with bond-like volatility of 5%, and currently manages approximately US$45M. Shorewater employs multiple strategies including risk arbitrage, corporate restructuring, warrants and convertible bond arbitrage. The Fund typically invests in 25-30 trades at a time, with 80% of assets historically deployed in US and European markets. Within the sector, the Fund ranked 6th (out of 36 funds) in compounded rate of return over the past three years in the Barclay Managed Funds Report. If you would like additional information on Shorewater, kindly contact us.
Let?s get to the numbers. The following are estimates for September(net of fees), together with YTD (as of the end of September) and 2003 results:
Global/Macro Sept. est. YTD 2004 2003
Vega Global -1.68% -1.63% +12.64%
Vega Feeder -3.53% -4.53% +24.82%
Vega Liquidity +0.04% +2.39% na
Vega Select -9.51% -4.47% +35.08%
Vega Relative Value -6.29% -2.97% +17.71%
Vega Diversified -5.24% -3.61% +19.50%
Vega Diversified 2X -10.61% -8.66% +40.50%
"Vega Plus"
Anak European Fund +0.27% +6.98% na
Taurus Fund +0.08% +1.60% +10.70%
Linnaeus Fund -0.31% -7.40% na
Anglian Commodities -0.81% +1.32% na
Nayan Trading Fund +0.24% +2.01% na
Trend Following / Managed Futures
Fall River Fund -0.43% -35.30% +36.00%
Abraham Trading +8.00% +8.31% +74.65%
Aspect Diversified +0.67% -12.44% +20.48%
Wizard Global +1.10% -14.39% +23.55%
Short-Term Volatility
Conquest Macro -3.24% -10.17% +0.19%
Long/Short Equity
FM Absolute Return Europe Fund +1.35% +4.31% +21.40%
FM European Catalyst Fund +1.66% +9.30% +21.30%
FM Absolute Germany Fund +0.53% +23.59% na
Merger/Risk Arbitrage
Shorewater Intnl +0.15% +2.28% +3.61%
Fund of Funds
Pangea Alternative -1.16% -2.04% +22.93%
Blackstar Fund +1.31% -7.10% +26.00%*
Vega sustained losses in all of the ?core? funds in September, the result of an overall short fixed-income bias. With 30-day liquidity and high transparency, Vega counts among its clients many of the world?s leading investors, including public and private pension funds and central banks. Vega offers four distinct programs and currently manages in excess of US$10 billion. Vega?s risk-averse Global Fund has been profitable in 84 of its 95 months in operation. Global?s portfolio of 200+ positions is focused in G10 fixed-income, currencies and equity indices. Global is unique in that it targets LIBOR + 4% to 9%, with a maximum 6% loss limit in any calendar year. Vega?s Select Opportunities Fund (EuroHedge?s Global Macro Fund of the Year for 2003) is a concentrated, aggressive version of the Global Fund, typically invested in 5 to 15 of the best Global ?ideas?. This Fund, which commenced trading in June 2000, has delivered an average annual net return of 22%, with low-teen volatility. Vega has closed the Select Opportunities Fund to new investors, as of the end of July. Vega?s Relative Value Fund, EuroHedge?s Fixed-Income Fund of the Year in each of 2002 and 2003, is focused on non-directional G10 fixed-income strategies. Vega?s Liquidity Fund, launched in January 2004, is a ?hybrid? product responding to institutional demand for a highly liquid, ?money-market plus? alternative to short-term deposits and is designed to track (and outperform) short-term interest rates.
Fall River currently manages approximately US$250M, with US$20M in the Fall River Fund. The Fund was flat in September (-0.43%), with gains in energies offsetting losses in currencies. This choppy, directionless market has taken its toll (seven consecutive monthly losses); however, Fall River has demonstrated an ability, during its four-year existence, to recover strongly from significant drawdowns. The Fund is designed to be continuously present in each of the 70 markets that it trades and does not attempt to predict the next big move, but rather minimizes losses while waiting for the next big move to occur. The system targets those investors that can stomach a 20%+ drawdown, while targeting 30%+ annual returns. Fall River is led by Charlie Wright, a graduate of Harvard?s MBA program (1977), who has taught seminars and authored books on systems trading.
Abraham Trading's Salem Futures Fund, with a fifteen year audited track record, follows a systematic long-term trend following approach with the implementation of proprietary filtering techniques designed to improve the risk/reward profile of the trades. The Fund gained 8.0% in September, led by gains in energies and grains, bringing it to +8.3% for the year, a period of significant drawdowns for most other trend followers. The Fund avoids stock and stock index futures, as its system attempts to capture trends created by large fundamental catalysts that they believe are better expressed in the currency and interest rate markets. The high exposure to physical commodity futures (60%), combined with the lack of stock and stock index futures, provides low correlation with other managed futures managers.
Aspect Capital manages approximately US$4B and boasts a solid 15 percent plus five-year track record in its Diversified Fund. The Diversified Fund posted a small increase (0.67%) in September, with gains in trending energy markets offsetting losses in interest rates and currencies. The Diversified Program applies two systematic and complementary strategies (Momentum and Break-Out) over multiple timeframes to a portfolio of over 100 markets (31.5% capital markets, 33% commodities and 35.5% currencies/interest rates). Trading signals are generated over six distinct trading frequencies (from two days to six months), allowing for the capture of short and long-term market trends more successfully than an individual system. Principals are former founders of AHL (now part of Man Group PLC), with a combined fifty years of quantitative trading experience.
Wizard Trading?s Global Diversified Program is a systematic trend following fund that targets a net return of 20-25%, while containing drawdowns to 15-18%. The Fund managed an increase of 1.1% in September, with gains in energies and metals. Louis Lukac, former Director of futures research for Prudential Securities, founded the firm in 1990 and launched the redesigned trading program in September 2001. The program, which trades in 60 markets and currently manages approximately US$16M, has delivered an average annual net return of 30%+, with volatility only slightly higher than equities markets. Wizard?s system books profits in a faster manner than most other trend followers and therefore tends to suffer lower drawdowns.
Our short-term volatility program, Conquest Macro, has over US$600M under management, and employs a systematic strategy with an emphasis on capturing expansions in volatility via short-term trading in over 30 of the most liquid global markets (foreign exchange, fixed income, equity indices, energy, metal and commodities). Conquest?s unique strategy, which sustained a loss of over three percent in September, offers low correlation to the broader managed futures sector and has delivered an average net return of approximately 15% since its inception in May 1999.
FM Fund Management: a long/short manager with a focus on European equities, managed gains in all three of its funds in September. FM combines rigorous analysis with its extensive contact base and local market expertise in seeking to achieve 15-25% net annual returns, with half the volatility of equities indexes. Florian Homm, who founded FM in 2002, holds an MBA from Harvard and became one of the youngest analysts at Merrill Lynch (1983) before moving to Fidelity, where he cut his teeth as a portfolio manager under Peter Lynch. Florian has garnered numerous investment awards during his career, including distinctions granted by Lipper, Micropal and Standard & Poor?s.
Pangea Capital is a three-year old fund of funds program, currently managing approximately US$50M (gross US$155M). Pangea?s Alternative Fund suffered a loss of 1.18% in September. Pangea is currently invested in 36 funds (10 that are closed) and earned a net 23% 2003 with a risk profile lower than that of a high-grade bond portfolio. Pangea?s strategy is not concerned with predicting market direction, but rather, focuses on the exploitation of price discrepancies between related financial assets. Pangea focuses on low-volatility funds, employing a dynamic leverage strategy (currently, approximately 3 to 1) designed to enhance returns, while keeping risk parameters within well-defined limits.
The Blackstar Fund is a multi-style, directional fund of funds, with an emphasis on managed futures (40% of portfolio). The Fund ended a string of six consecutive down months with a 1.31% rise in September, led by its managed futures and hedged equity managers. The Fund, which commenced trading in December 2003, is backed by Tom Basso (featured in The New Trading Wizards). Mr. Basso sits on Blackstar?s investment committee, and advises on the selection of managers and allocation of funds. Blackstar places great emphasis on risk management, using both qualitative and quantitative criteria to select managers that will provide value within the overall portfolio. On a pro-forma basis, Blackstar has earned an average net return in excess of 20%, with a maximum drawdown of less than 10%.
As always, kindly contact us for additional information on any of the
funds.
Howard Lindzon
John Cundari
602 315-8920
416 783-0663
howard@accesscap.ca
john@accesscap.ca
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This material is provided for informational purposes only as of the date
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documents to qualified investors. The information contained herein,
including investment returns, valuations, fund targets and strategies,
has been supplied by the funds or their agents to ACM and, although
believed to be reliable, has not been independently verified and cannot
be guaranteed. ACM makes no representations or warranties as to the
accuracy or completeness of such information. This material is not
complete and is subject to the more complete disclosures and terms and
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performance is no guarantee of future results.
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?2004 Lindzon & Associates Money Management
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