For a long/short equity hedge fund, Clareville Capital’s Pegasus Fund is killing it this year. While the August numbers are very dull, the fund has netted a 41 percent gain through August of this year. The hedge fund was down 4.9 percent in the last month.
David Yarrow jokes in the monthly letter about how dismal August is for hedge funds and how most fund managers suffer through losses at these times when market news is slow and most people in the business are on vacation. He says,
“Since 2000 if I had taken a £100 each time a fund manager moaned about August and exclaimed ‘I should have just stayed on the beach’, I could almost have afforded to stay on the beach too.”
Despite already marking a hefty return in the greater part of this year, Yarrow and Angus Donaldson are cautious about the last four months of this year. The managers think that this would not be the time for the fund to pick stocks but to just balance the P&L through the last part of the year.
Increasing position in Ocado Group
The UK-based hedge fund has a long position in Ocado Group PLC (LON:OCDO), which was increased in the last month. Ocado has gained 320 percent a year to date so this could be one of Pegasus’ best performing positions. Ocado is a short position of Jim Chanos and John Griffin’s Blue Ridge Capital.
The fund sounds very confident about consumer stocks, specifically UK based companies, and believes that they will have a good run through the rest of the year. The bullish take on the UK economy is based on the rising consumer confidence, improving house prices and low interest rates in the region, which mark a stark change from the patchy growth that UK has seen since the financial crisis. According to PMs of Pegasus, this is the time to over-allocate in UK equities.
Pegasus loses in easyJet, Lancashire Holdings
The largest detractor to August performance was easyJet plc (LON:EZJ). Pegasus also lost in Lancashire Holdings Limited (LON:LRE) and Rightmove Plc (LON:RMV), but was not shaken by what it calls “a little mean reversion,” and increased the positions in the period. More losses were taken in Ashtead Group plc (LON:AHT) and Booker Group Plc (LON:BOK).
The fund was, however, disappointed with the losses in John Wood Group PLC (LON:WG), one of its best performing positions of the year. The company John Wood Group PLC (LON:WG) revised down its earnings forecast for 2H2013 on August 20 on account of slower sales in Western Canada. Pegasus has reduced the position but still thinks that Wood Group should be valued higher based on its successful PSN arm.
Other major holdings
Pegasus has long positions in Bank of Ireland (NYSE:IRE), The Weir Group PLC (LON:WEIR), ASOS plc (LON:ASC) and Britvic Plc (LON:BVIC).