The Fund continued its trend of outperformance by returning 10% year to date; this puts the Fund up 80% since inception. In 2016, HIT Capital has outperformed the S&P 500 by 6% (S&P returned 4%) and the Hedge Fund Index by 9% (HFI returned 1%).
The fund’s outperformance continued to be primarily attributed to Beta Slippage and was accompanied to a lesser extent by Contango. While our third strategy, Value Investing, did not contribute to the fund’s outperformance year to date, we did increase our allocation to the strategy by means of the oil and gas business, Jones Energy. As of June 30, 2016 our allocations were as follows:
A temporary supply glut in oil and its corresponding drop in price presented us with a unique buying opportunity. Staying within our realm of expertise and focusing on the independent producers, we ran our quantitative analysis tool to rank the sector. For us, the price drop to oil producers appeared similar to the ocean tide going out on swimmers. The reduction in revenue, activity, and overall profits allowed us to rank the businesses and gave us a good indication of who had their shorts on, who was in the process of losing their shorts, and whose shorts were swept away with the tide. With a clearer picture of who was weathering the tide, we invested in a cheap and profitable producer that held premium acreage and was setup to come out of the downturn stronger than they went into it. An even better scenario would be if this producer, Jones Energy, took the opportunity to save the shorts of their less fortunate competitors as they declare bankruptcy and shed valuable assets. If it interests you, we published some of the steps used to identify Jones Energy here.
During the remainder of 2016 we will continue to work on our rationality and risk adjusted returns through the awareness of our natural human biases, the optimization of our core strategies and the research and testing of new ones.
Thank you for choosing HIT Capital and until next time we wish you a safe and prosperous investment future.
Recently I sat down with Emerging Manager Hub’s Patrick Meister to discuss a bit of my background and our fund HIT Capital. You can view the interview here; using the password hitcapital.
Patrick launched the Emerging Manager Hub after having worked for a hedge fund for multiple years. He learned about many of the challenges emerging managers faced, with finding investors being the biggest. The goal of Emerging Manager Hub is to help bridge this gap between the allocator and the investor.
Special thanks to Artifacts Gallery on 302 Main in hosting Emerging Manager Hub’s inaugural interview with Stephen Read and HIT Investments.