Polygon Global Partners, a London-based hedge fund, is up 7.11% in 2014 after posting 2.69% positive returns in February, according to an investor letter reviewed by ValueWalk. On a macro level the fund benefited from the February equity market rally and a corresponding sharp decline in volatility from a peak of 21.5%.

Individual holdings in EU stocks

One beneficial position the fund has is in Inmobiliaria Colonial SA (BME:COL), the little-known Spanish real estate company that the fund believes to own “the best portfolio of prime offices available for rent in Madrid and Barcelona.” Citing Inmobilaria Colonial’s board approval of a €1 billion capital increase, 50% underwritten by three anchor shareholders, the letter noted “that should solve the company’s excessive financial leverage,” the letter said. Given the much-increased visibility over its future, as well as the depressed valuations of the portfolio at the moment, the shares in the company have started re-rating ahead of the capital increase and subsequent debt refinancing.”

The Polygon letter noted that Inmobiliaria Colonial SA (BME:COL) is not “currently widely researched and therefore not immediately visible to the wider investment community for the moment,” and said the investment was early stage.

Polygon also had a long position in Vodafone Group Plc (ADR) (NASDAQ:VOD) (LON:VOD), which on February 24 started to ex the consideration received for the sale of Verizon Communications Inc. (NYSE:VZ).  “As a result, the company is now a focused European business with desirable and sizeable growth operations in Africa and India and, as such, a much cleaner investment proposition in our view,” the letter said. “Once the index and other technical implications were digested by the market, in our view the story has benefitted from increased transparency and visibility and the share price has re-rated to valuation levels closer to those of the company’s European peers. Ploygon expects the firm to be an acquisition target for “any major telecom company with global ambitions.”

Confidence in losing position in Dutch telecom

Among Polygon’s losing positions were Koninklijke KPN N.V. (AMS:KPN) (OTCMKTS:KKPNY), as the Dutch telecom operator fell under continued pressure in the domestic mobile business.  Polygon is nonetheless bullish and thinks the firm has “an enviable position in its home market that should stabilize going forward, and that it is undervalued by the market at the moment.”

Polygon hit by exposure in Eastern Europe

Another unprofitable position was one held in Raiffeisen International Bank, the Austrian-listed bank with exposure to Eastern Europe and the Former Soviet Union (FSU) region and appears somewhat skeptical.  Shares of Raiffeisen Bank International AG (VIE:RBI) (OTCMKTS:RAIFY) were down 11% on the month as the unrest in Ukraine.  In the letter Polygon said “We are closely monitoring the situation and do not expect to hold the shares for as long as originally anticipated.”

Portfolio positioning

Polygon top ten positions

The fund’s top three net long exposures were industrials, consumer discretionary and healthcare, the biggest short sector being materials. The fund remained highly liquid, with the ability to liquidate approximately 60% of the portfolio in about 18 trading days or 80% in circa 63 days, the report said.