Was quite a good year for the fund. The fund was up about 28% for the year from inception. It was looking even better up until January of 2010, followed by couple of rough months. Good thing is S&P was only up 15% during the period.
Key take away for the year
1) More leverage doesn't necessarily mean better results. We ran the portfolio at a gross leverage of around 1.6 till January, and didn't have a losing month. However, increasing leverage to 2.2 in February didn't add much to the return. Added to the complexity and we started bleeding.
2) Never underestimate momentum. Some of the trades outlasted our patience and over priced stocks continued climbing. At the heart of our strategy we are anti-momentum, and believe in deep value. of course some of them could end up being clunkers.
3) During periods of panic, pairs trading is a good strategy to protect wealth. But if you want to make money, a bias towards long or short the market is key. One of the reasons for this is correlations tend to 1, and there is very little dispersion.
4) These are also great times to load up on quality names like MSFT, JPM (Of course I'll keep my personal views on TBTF, and big banks out of this for now) etc. As a bank, JPM is probably better risk managed than it's peers. We are also sitting on a good 10% gain on the JPM trade so far. Will probably soon close out of that.
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