Sitka Pacific 2008 2nd Quarter Performance

Most regular readers of this blog know that I am an investment advisor representative for Sitka Pacific. The thoughts on this blog, however, represent my personal viewpoints, not necessarily the viewpoint of Sitka Pacific itself. At Sitka, trades are made based on what the market is doing, not what we think it ought to.

I restrict mentioning Sitka on a day to day basis, only posting general information if we have a major change in attitude towards the market. I will now post quarterly returns for those who may be interested.

Here are charts since inception of our two main strategies, Hedged Growth, and Absolute Return. The charts are through June 30.

Hedged Growth



click on chart for sharper image

Hedged Growth Performance Summary

2005 (June-December) +12.0%
2006 +13.0%
2007 +9.5%
2008 YTD (Through Q2) 14.8%

Since Inception
Portfolio Annualized Gain 16.6%
S&P 500 Annualized Gain 1.2%
Monthly Average 1.4%
Monthly Standard Deviation 3.4
Monthly Correlation to S&P 500 0.20

Hedged Growth Description

Hedged Growth is a long-short equity strategy, primarily domestic, that is always 1/3 long and 1/3 short. The remaining 1/3 is either cash or long. We decide what the discretionary 1/3 will do based on a variety of technical and fundamental factors.

Hedged Growth was fully hedged (1/3 long, 1/3 short, 1/3 cash) from August of 2007 until late March. At that time we went long (2/3 long, 1/3 short) for a period of about 6 weeks. In early May we returned to a fully hedged stance and have remained fully hedged ever since. This can change at any time, and without warning.

Our performance comes from the ability to pick decent longs vs. decent shorts regardless of which direction the stock market is headed. Until recently we have been heavily short financials (in a relative sense). We are now more balanced in our stock selections. We do not disclose specific short positions.

For more details please see The Hedged Growth Portfolio Overview.

Absolute Return


click on chart for sharper image

Absolute Return Performance Summary

2005 (August-December) +3.4%
2006 +16.8%
2007 +4.2%
2008 YTD (Through Q2) 15.1%

Since Inception
Portfolio Annualized Gain 11.6%
S&P 500 Annualized Gain 1.5%
Monthly Average 1.1%
Monthly Standard Deviation 2.2
Monthly Correlation to S&P 500 0.30

Absolute Return Description

Absolute Return is a flexible wealth management strategy that can take positions in foreign and domestic stocks, energy trusts, gold, silver, treasuries, and currencies. All of the preceding are by equity positions in individual stocks or various ETFs.

Absolute Return hedges with covered calls and starting in 2008 via inverse index funds in the Russell and S&P 500. 2007 was a flattish year (+4.2%) with much of the time sitting very high in cash. The decision to take inverse positions as a hedge in early 2008 opened up more opportunities for us to take more equity positions.

For more details please see The Absolute Return Portfolio Overview.

Fees

Both charts are after fees. Fees are 1.75% annually taken incrementally (a tiny fraction of 1.75% each trading day). Trading fees are not marked up. Trading fees will vary but .2% is a reasonable guess. There are no other fees and no input or exit restrictions.

Two Final Important Points

Here are two important points I would like to make. The first is on correlation to the S&P and the second is on Value at Risk (VAR).

Correlation To S&P

Notice that the Monthly Correlation to S&P 500 is 0.30 for Absolute Return and .20 for Hedged Growth.

Correlations run in the range of +1 to -1 with +1 being perfect correlation (e.g. a strategy that buys the S&P index components) and -1 showing perfect inverse correlation (e.g. a strategy that shorts the S&P index components). Zero would be no correlation to the market at all.

Our correlations are very low . On average, over reasonable periods of time, we do not depend on a rising or falling market to make our gains. That is a good thing.

Value At Risk

Sitka Pacific often has high cash positions (33%). Cash positions have no market risk. Our hedges further reduce value at risk. On a risk adjusted basis our returns are conceptually higher than appears.

Disclaimer

The investment choices and services in this document are provided as general information only and are not intended to provide investment or other advice. This material is not to be construed as a recommendation or an offer to buy or sell or the solicitation of an offer to buy or sell any security, financial product or instrument or to participate in any particular trading strategy. Not all securities, products or services described are available in all countries, and nothing in this
document constitutes an offer or solicitation of these securities, products or services in any jurisdiction where their offer or sale is not qualified or exempt from registration or otherwise legally permissible.

Although this material is based upon information that Sitka Pacific Capital Management considers reliable and endeavors to keep current, Sitka Pacific Capital Management does not assure that this material is accurate, current or complete, and it should not be relied upon as such.

The fact that Sitka Pacific Capital Management has made the investment choices and services provided herein available to the reader does not constitute a representation that any product described herein is suitable or appropriate for the reader.

Many of the products described herein involve significant risks and the reader should not enter into any transactions unless the reader has fully understood all such risks and has independently determined that such transactions are appropriate for the reader. The reader should not construe any of the material contained herein as business, financial, investment, hedging, trading, legal, regulatory, tax or accounting advice and the reader should not act on any information in this service without consulting its business advisor, attorney and tax and accounting advisors concerning any contemplated transactions.

Past results are not necessarily indicative of future results. Historically broadly diversified portfolios have all produced gains and losses due to changes within the equity, interest rate, credit and currency markets. Additionally, gains and losses are impacted to varying degrees by investment acumen, public and private market volatility, corporate activity, securities selections, regulatory oversight, trading volume, money flows and governmental policies. These elements and/or their rate of change may not be present in the future, and thus future performance may be impacted.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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