Greenwood Investors – In our brief, 2.5-page quarterly letter, we follow in the footsteps of the manifesto we published in December and discuss how our lollapalooza process has not only helped us to properly execute on investment opportunities, but has become our very own reason for being. Our purpose.

2016 Hedge Fund Letters

 

GreenWood Investors

In a speed read:

We had a solid second half, and our expectations vs. reality roadmap we highlighted in our third quarter letter helped us execute in the quarter
Through portfolio optimization, the risk-adjusted return profile of our portfolio has expanded in the second half of the year despite the positive momentum – from 27.2x to 38.2x.
Even still, our portfolio turnover decreased to 25.4% in the year
Like Bolloré, our most recent position, active management leads to better long-term returns and reduces opportunity cost risk
This means that our purpose is to always give investors a portfolio that is timely and right – actionable and attractive with every new month.

Greenwood Investors – Mental Model: Price Incentives

Letter

Wednesday, January 11, 2017

Dear GreenWood Investor:
What is the purpose of active management? It’s not merely the identification of sound investments, which we believe the vast majority of our industry is focused on. The identification process must also be properly executed upon. We’ve dedicated substantial sums of time over the past few years to improving our execution ability. We’re very focused on not only improving this execution, but also eliminating opportunity costs as much as humanly possible. There will come a day when our current investments and Southern Europe are no longer attractive relative to other opportunities in the world. But this constant process of change is the reason we whistle on our way into work, and is not only our purpose, but our delight.
We live in an inherently unpredictable world, quantum physicists have already confirmed the lack of predictability of any process which has more than one factor exerting influence upon it. Accordingly, we’ve incorporated findings from quantum mechanics in order to ensure our range of outcomes is skewed very favorably. Yet a skewed risk-adjusted return is not sufficient for a successful investment, the security must have attributes, which quantum mechanics would call preconditions, in order to lead to an increased likelihood of success. Last quarter, we discussed our newest lens in the expectations vs. reality roadmap, which helped us properly execute this quarter.
The new point we’d like to assert today is that the purpose of this exercise is to continuously offer a portfolio that renewably becomes an attractive and actionable investment opportunity in that very moment. Our growing pipeline of institutional investors frequently takes a wait and see approach to an investment in the portfolio, and we respect this tremendously simply because we use the same process for stock investments. But our goal is to ensure that every month we’ve rebalanced our opportunity set such that our portfolio is attractive, timely and executable, in that very moment. If you didn’t own anything today, would you be re-creating your exact portfolio as it is? While many would be silent in response to this question, our answer is an emphatic yes.

Exhibit 1: GreenWood’s Composite Performance 1 vs. MSCI ACWI All Cap (Net)

Traditional

Global

MSCI

Traditional

Micro

Correlation

8/1/08-12/31/08

-10.9%

-33.9%

88.6%

2009

155.3%

36.6%

77.7%

2010

28.5%

14.5%

27.3%

2011

-1.0%

-8.0%

68.9%

2012

-5.6%

16.4%

38.9%

2013

14.2%

18.0%

23.6%

70.5%

2014

0.1%

2.1%

3.8%

32.3%

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