We have not taken note of hedge funds with low returns last year as we have been preoccupied with compiling lists of the best performing hedge funds of 2012. Clareville Capital’s Pegasus fund ended at +1.1 percent in last year, while we have seen worse, Pegasus' returns appear even more dull when we put them against the high gains of Equity Long/Short strategy in 2012. Equity L/S was up 8 percent and ranked among the top gaining strategies of last year.
It looks like investing in the oil sector was a mistake for Pegasus, the fund has high exposure in the oil services sector through core holdings in John Wood Group PLC (LON:WG), Hunting plc (LON:HTG) and The Weir Group PLC (LON:WEIR). These posiitions were marginally profitable for the fund. Both Hunting plc (LON:HTG) and The Weir Group PLC (LON:WEIR) are frequently shorted positions in UK, for more information read the entire list of short disclosures from the UK here.
The Pegasus managers steered clear of financials last year, which neither did good nor bad for the returns. In the short portfolio, Pegasus profited from MAN GROUP PLC (PINK:MNGPF) (LON:EMG), while losing in Supergroup PLC (LON:SGP). The fund profited from its long position in Dixons Retail PLC (LON:DXNS) (PINK:DSITY).
In the outlook for next year, the portfolio managers are tilting away from excessive short exposure. Judging by the individual performance of Pegasus' short book and the overall returns of the Hedge Fund Short Bias strategy, this is a well rounded approach. Short Bias was the among the losing strategies last year and most of the forecasts from hedge funds are looking at a rosier 2013. The letter also comments that British news broadcasting channels indulges in magnifying the negative part and ignoring the positive side, this inculcates a pessimistic approach in viewers, which does not help anyone in the long run.
Pegasus is also bullish on the US oil and natural gas sector. U.S is all set to outpace Saudi Arabia and Russia as the largest producer of oil in the world till 2017. Pegasus' own calucaulations estimate that till Spring 2013, oil production from North Dakota and Eagle Ford Texas will exceed the daily generation of Qatar.