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| Fund Overview | In a typical environment the Fund will hold around 70 stocks comprising 35 pairs. Each pair contains one long and one short position each of which will have been thoroughly researched and are selected from the same market sector. Whilst in an ideal environment each stock's position will make a positive return, it is the relative performance of the pair that is important. As a result the Fund can make positive returns when each stock moves in the same direction provided the long position outperforms the short one in relative terms. However, if neither side of the trade is profitable, strict controls are required to ensure losses are limited. The Fund uses no derivatives and has no currency exposure. The Fund has no hard stop loss limits, instead relying on the small average position size per stock (1.5%) and per pair (3%) to limit exposure. Where practical pairs are always held within the same sector to limit cross sector risk, and positions can be held for months or years. |
| Manager Comments | Long term performance remains sound with since inception (Jan 2003) returns at 17.45% pa (Index 8.01%) and a volatility of 11.90% (Index 12.90%). Sharpe and Sortino ratios are well ahead of the Index at 1.04 and 1.74 respectively. Fund performance in September was very disappointing in the context that we were well positioned for this correction as the factors that reversed this month, being price momentum and yield (the so called 'carry trade'), do not rate as solid investment fundamentals in our process and had previously been detractors from fund performance. As such the majority of the portfolio performed satisfactorily however the primary determinant of fund return is always stock selection and several stock specific issues affected returns during an extremely weak market which produced some relatively severe adverse movements in prices. |
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