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Investment Strategy
Why a Conservative Long / Short Fund:
- Downside Protection:
- Capital preservation: walking the talk (+4.0% in 2008)*
- Portfolio Insurance - "Can't buy insurance after the fire"
- Outperformed TSX composite 75% of months when index declined
- Low Correlation:
- Low correlation with TSX Composite index 0.185 (from Dec 31 2007 - Dec 31 2010)
- True diversifying impact on portfolio
- Low Volatility:
- Low Volatility: 7.87% (from Dec 31 2007 - Dec 31 2010)
- Corresponding volatility for TSX Composite was 19.9% (from Dec 31 2007 - Dec 31 2010)
Summary:
- Classic Long/short equity fund
- Targeted returns (10%-12% annual)
- Liquid holdings, large/mid-cap focus
- Low volatility, <10% volatility target
- Batting for singles and doubles, not home runs
- RRSP eligible, FundServ listed, approved on most bank platforms
Investment Strategy:
- Classic Hedge Fund:
- Classic in the tradition of Alfred Jones circa 1940's
- Buy undervalued stocks, sell overvalued ones
- No 'black box'; transparent approach**
- Minimize Directional Risk:
- Do not make large marco or commodity calls
- Minimize net sector and commodity exposures
- Research Driven:
- In-house, fundamental, bottom-up analysis
- Focus on knowing the companies we hold extremely well
- Conservative Approach:
- Avoiding high risk bets; conservative stock selection
- Large/mid cap focus provides liquidity
* As compared to the Canadian Hedge Watch HF Equity Hedged Index which from Dec 31 2007 to Dec.31 2009 returned -17.5% with 15.1% volatility and the TSX Composite Index which from Dec 31 2007 to Dec.31 2009 returned -15.1% with 23.2% volatility. During the same period, the Lightwater strategy returned 8.19% with 7.7% volatility.
** Black boxes commonly refer to quantitative or computer driven investment strategies where there is little visibility into the decision making or security selection process. Lightwater does not employ any quantitative or computer driven investment strategies.