Argonaut Capital, a Tiger Cub managed by David Gerstenhaber, was down 2.2 percent last year. The final quarter of 2012 was probably the best performing period of the year, with the fund posting a 3.2 percent gain. Argonaut Capital’s winning investments were in European sovereign debt, shorts in yen, longs in Brazilian interest rates and Colombian sovereign bonds. The fund lost in gold, detracted moderately in short euro positions and showed mixed performance in long US equities, over the course of 4Q2012.
However, its strong Q4 was unable to quell the losses the fund suffered in the first three quarters, with large detraction coming from longs in US equities, short positions in European currencies and longs in European fixed income rates.
Pros And Cons Of Tail Risk Funds
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Outlook And Portfolio Positioning For 2013
Going forward, the fund has long positions in sovereign debt of peripheral European countries, which for now its focusing only in Portugal. The fund was profitable in its position in Portuguese debt in 3Q2012. The fund thinks there is a lot of volatility in Italy and Spain despite the near certainty that OMT program will commence sooner or later, giving sovereign bonds a boost. Therefore it is steering clear of Spain and Italy for present, with chances of short term opportunistic investments. The careful positioning in European debt puts the fund in line with another hedge fund, North Asset Management’s MaxQ Fund. However, MaxQ has a long position in Spanish sovereign debt.
Like a bunch of other hedge funds, Argonaut is also shorting JPY against USD. In addition to Shinzo Abe’s aggressive yen weakening plan, the fund managers also see the yen losing strength as Japan’s trade surplus falls against a backdrop of slower global growth.
Argonaut takes a moderate position in Chinese economy for this year, where there are negligible chances of any record breaking growth, but significant potential to spring back to some extent, in case of selected equities.
In other emerging economies, like Australia, New Zealand, Columbia and Brazil, the fund takes a long position in fixed income assets, with the expectation that central banks will infuse further monetary easing.
In US, Argonaut expect the housing and auto sectors to grow in the running year with fuel from Federal Reserve’s QE plans of 2012 and a rush of new investments. Furthermore, with better indicators from employment numbers and household income, the fund is positioning for longs in equities and shorts in interest rates.