With Maglan Capital’s event-driven hedge fund up just over 11 percent on the year, the firm’s leadership is positive on the markets going forward.

Maglan capital performance

Maglan Capital: Economic fundamentals are “not perfect”

In a letter to investors, Steven Azarbad, the fund’s chief investment officer and David D. Tawil, president, say the economic fundamentals are “not perfect” and concerns that “the equity market can’t go up forever will persist,” the bankruptcy specialists say improving corporate data and performance can’t be ignored.

maglan compounded returns

Maglan invests in companies experiencing financial distress, bankruptcy or restructuring. With under $100 million under management, the nimble fund delivered 58 percent returns last year.

maglan comparitive results

While positive Azarbad and Tawil note seasonality is a concern. “Summer is a potentially perilous time for the price of securities because of the seasonally lower volume, especially the volume driven by investment professionals,” they write.

Maglan performace comparison

If the market does move lower, it could fall materially. But this shouldn’t be a debilitating concern.  “A material drop could result even on the basis of macro or geo-political events (like, war or terrorist activity) that are seemingly unrelated to the underlying investment,” the investment letter said, warning that the negative impact could hit smaller cap stocks more than the bigger names.

Maglan Capital: Geopolitical concerns

When considering recent world events, the investment letter notes concern, particularly with regards to Ukraine, the potential never ending war in Israel and the shifting sands in Syria. The investor letter noted with concern the Argentina bond default, a renewed call to consider Greek economic reforms and Puerto Rico’s road forward from insolvency.

“As we learned in the 3rd quarter of 2011, contagion poses a formidable challenge to the pricing of our investments,” the letter obliquely noted.

In regard to US economic policy, the letter notes the US Federal Reserve isn’t moving quickly and the bull-market the US central bank created was done “by partially detaching the market from the economy.”  The Fed’s hope is “that the economy can catch up, which it seems to be getting there. That will provide the Fed with the necessary ‘escape velocity,’” the report said.

Maglan encourages patience and optimism

The fund encourages both patience and optimism. “As Carl Icahn recently said with respect to his investment in Family Dollar Stores, Inc. (NYSE:FDO), ‘Sometime these things take a long time.’ We are always tempering our ambition and drive for immediate success and profitability with patience and preference for doing things right.”

In regards to fund positions, they are almost entirely correlated to equities, with the top holdings being FairPoint Communications Inc (NASDAQ:FRP), MGM Studios and Madalena Energy Inc (CVE:MVN) (OTCMKTS:MDLNF).  In terms of sectors, they are primarily exposed to Telecomm, Media and Energy.

Maglan capital portfolio composition

July 2014 Maglan Tearsheet Template(Long) by ValueWalk

July 2014 Monthly Letter by ValueWalk