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Amid the current market turmoil, this is our regular report on hedge fund and alternative asset managers who are bucking the trend.

Nimble repositioning to benefit from tremendous disruptions

Annie Erner, founder of New York-based Iridium Management, launched her hedge fund Iridium 77 Partners, a long/short hedge fund that invests in U.S. equities focused on the consumer, in May 2016. The fund was up +0.8% (net) for the month of March and down -0.7% for the first quarter of 2020, annualising +0.5% since inception.

Iridium 77 Partners employs a strategy that takes advantage of frequent market dislocations in the consumer space, both on the long and short sides, to generate superior risk-adjusted returns, regardless of the strength and direction of the overall stock market.

"The fund started the quarter with longs at 50% and shorts at 24% of capital, and a net long exposure of 26%," says a quarterly commentary seen by Opalesque. "At the end of the quarter, our longs were 42% of capital and our shorts were 28%, reflecting a net long exposure of 13%. As usual, these long and short exposures have been adjusted to include the value of in-the-money options. For the first quarter, our longs cost us 12.7% and our shorts made us 12.5%. We are beginning the second quarter with 41 longs and 65 shorts. Our top 10 longs make up 22% of our capital, and are (in order of size) Hain Celestial, D.R. Horton, Constellation Brands, Sherwin-Williams, Microsoft, Restaurant Brands International, Target, Electronic Arts, Dollar Tree, and Stanley Black and Decker. Three of these companies are new or have returned to our top ten holdings. None are new to the portfolio. Our top 10 shorts make up 11% of our capital."

Prior to launching this hedge fund, Ms. Erner managed a hedge fund using the same strategy at P.A.W. Partners from 2006 to 2012. The fund never had a down year, not even in 2008. She also doubled the return of the S&P 500 during the six-years of operation of that fund, with a low-net exposure and without the use of leverage or indexes. From 2012 to 2015, she managed a book of assets for Guggenheim Global Trading/Deimos Asset Management and generated solid returns under a strict market-neutral discipline.

Capturing VIX asymmetry in Australia

The ARVIX Fund is up +19.8% YTD after returning +15.5% in March. It is a quantitative relative value volatility fund targeting absolute returns through the implementation of three core strategies: VIX futures spreads, Short VIX option call spreads, and Option replacement and 6 Sigma protection. The VIX Index was up 33.5% during March.

"ARVIX's positioning for the capture of potential VIX asymmetry performed well in March 2020," comments portfolio manager Trevor Easterbrook in a monthly report seen by Opalesque. "Putting the result into perspective, inclusive of our backtest to September 2007, March 2020 was the largest monthly gain that reflected the exceptional speed of the volatility move and related stresses.

"Have invested missed the boat for the ARVIX to generate ongoing return? Certainly not! As a relative volatility product, the ARVIX is now in a sweet spot (arguably much stronger than the GFC 2008 lows) for continuing delivery of non-correlated alpha due to the ongoing equity market stress and uncertainty. This is reflected in stubbornly high VIX cash levels (circa 40+) even though equities are substantially off March lows, continued wide and random equity market trade ranges, heavily discounted VIX futures and high Vol of Vol (options on VIX futures). This is a strong market set up to deliver ongoing defensive non-correlated alpha which is not reliant on clear equity market direction."

The Australian dollar-denominated fund was launched in October 2016 and is managed by Levitas Capital, based in Sydney. One of the fund's investors is the Australian Catholic Super and Retirement Fund, an AU$9 billion retirement plan, which first invested in 2016 and bolstered its stake at the end of 2019.

New macro fund in Hong Kong

The Watercourse Macro Fund SP (Class C) has generated +10% net return after gaining +12.8% in March. It has annualised +6.8% since inception in March 2019, compared to +3.4% for the HFRI Marcro Total Index and -7.5% for the MSCI AC Asia Pacific TR (Gross) index.

The strategy is contrarian, trading-oriented and theme-centered. The investment process is designed to identify and anticipate tactical trading opportunities, as well as strategic investment themes. Trading views are expressed by taking long and short positions in highly liquid, transparent, easy to-price instruments across equities, commodities, bonds, and currencies with no necessary bias. It is managed by Epiphany Asset Management, based in Hong Kong.

"Profits were generated from our equity book and commodities book: betting on a severe global recession, we placed a few concentrated shorts (in Taiwan, Hang Seng, Nifty futures) from early March and caught most of the drastic sell-off in equities, but gave back some in the last week after the Fed fired its bazooka," says founder and manager Ms. Wei Liao in a monthly report seen by Opalesque. "In commodities, we caught the selloff in copper and traded gold well tactically (a timely gold put contributed most of the profits). We lost money in fixed income as we got whipsawed by deflationary/recessionary force (USTs positive) and liquidation pressure (USTs negative). In currencies, we were flat - gains from CNH shorts were offset by losses in EUR and JPY."

At the thematic level, the fund made money in all three major themes - 'Risk Off', 'Global Slowdown', and 'China Slowdown'.

Related article: OPIM to launch Watercourse Macro Fund SP in January 2018

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Prior issues of The Corona Fighters Report:
Report 1; Report 2; Report 3; Report 4; Report 5; Report 6; Report 7; Report 8; Report 9; Report 10; Report 11; Report 12; Report 13; and Report 14.

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Disclaimer: This is not investment advice. Opalesque has not verified this information and gives no warranty of accuracy or completeness. Past performance is not indicative of future results. See our Terms & Conditions for more information.

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