Chicago-based hedge fund manager AM Capital Advisors is confident its fund can generate alpha in the next 36 months. AM Advisors President Aaron Miller made the statement as the long/short U.S. equity fund generated 12% gains through April (+3.89% month-to-date) versus the DOW index +0.05%, (+0.74% MTD), NASDAQ -1.09% (-2.49% MTD), and the S&P 500 index at +2.06% (+0.53%. MTD).
He said in an interview, "We're not bearish we just think its going to be difficult with for big advances because [Janet] Yellen would put the brakes on by raising rates. If one were to have this opinion we feel concentrated positions with a realistic catalyst combined with selling derivatives is a good strategy for a market that might not appreciate significantly anytime soon. We feel this provides the best risk reward by essentially locating companies that are trading at a significant discount to their peers and overall market and shorting companies that are trading at overvalued multiplies compared to their peers and the market."
Since inception in July 2009, the hedge fund returned 137.99% versus the DOW index 96.28%, NASDAQ 122.87%, and the S&P 500 index at 104.59% during the same period.
Miller explained that decent stock selection, selling derivatives wisely, and reallocating positions once the risk reward changes do to price movements, were all factors that affected the fund's performance the last several months.
While Miller says 2014 started with an extended time frame of losses for the overall indexes, he believes AM Capital would continue to outperform. He went on to say, "We plan on outperforming by vigorously researching stocks that have a good balance sheet, have some sort of catalyst to increase in value and have a concentrated portfolio with only a few positions at any given time. On the short side, identify stocks that are trading significantly expensive compared the peer groups and the overall market. Additionally, be disciplined and take profits when we can."
According to him, the hedge fund conducts extensive research on stocks that have a catalyst for increasing in value whether a good balance sheet, trading at a low valuation, have excess cash to buy back stock, and those that do not have plenty of outstanding shares.
If there are positive news on a particular stock that has the potential to advance quickly, AM Capital will "investigate" and determine if it is a candidate for takeover or activist investors, he said.
Amongst those with potential opportunity are gold positions. Big hedge funds names like John Paulson and George Soros are believers in gold potential. In their latest 13F filings, Paulson said he has maintained his stake in SPDR Gold Trust, the world's biggest gold-backed exchange-traded fund as bullion prices rebounded from their biggest annual loss in 32 years in 2013.
For his part, Soros raised his stake in Barrick Gold Corp and gold mining companies ETFs, suggesting the big names in hedge funds took advantage of lower gold prices to increase positions in the precious metal used by many as a hedge. Investors pay close attention to the quarterly filings by Paulson and other notable hedge fund managers because they provide the best insight into whether the so-called "smart money" has lost faith in gold as a hedge against inflation and economic uncertainty.
Interestingly, United States Bureau of Mines said the state of Idaho had more mineable gold than any other state. Because of the higher gold prices, many investors and businessmen again took interest in gold mining in the state, resulting in the reopening of many old mines.
Premium Exploration's Idaho Gold Project, for example, is said to potentially have several bulk tonnage deposits within the 180 square meter area in Elk City, Idaho County in north-central Idaho.
It has seen historic mining and exploration activity since the 1980s and historical regional production was estimated to more than 8 million gold ounces. It was once known as the Elk City Mining District or Idaho Gold Belt.