| Investor Letter - Second Quarter 2007
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Dear
Client/Friend,
As Hurley Capital closes in on its 4th Anniversary, we've
upgraded our newsletter to keep up with the times. We're happy
to have provided low-risk, uncorrelated, high absolute returns
using our value-oriented approach. Furthermore, as an
investment boutique, we have also been able
to provide a high level of personal customer service.
Performance and service have turned into new business; Client
asset levels are up over 50% since last June.
Thanks
again for your patronage. And remember, referrals are the
highest form of compliments.
Sincerely,
Charles Goldblum,
CFA
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Average Client Account Up 14.4% Year-To-Date Versus
7.0% for the S&P 500
Over the first six months of 2007, a
composite of accounts managed by Hurley Capital rose 14.4% net
of fees, as compared to the S&P 500, which rose 7.0%.
Leading gainers for clients so far this
year have been with specific media, technology, and energy
investments. As we have sidestepped recent weakness in banks,
homebuilders and specialty retailers, few clients had any
losing investments over the first six months. As we'll discuss
further below, the above gains came while client exposure has
been reduced through a new short position and the sale of a
long-term gain.
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Best of Hedge Fund Attributes Offered Here
When I
started Hurley Capital about four years ago, one of my first
clients said, "You should start a hedge fund instead." A hedge
fund structure allows only 'accredited investors', or those
with over $1.5 million in assets, and I chose the management
account structure, with each client having his/her own Schwab
account, so that I could attract both the affluent/accredited
investor and the emerging affluent. That said, investing with
Hurley Capital offers clients many of the attributes that
investors look for in hedge funds.
- Returns
Uncorrelated With the Stock Market: Hedge funds
offer differentiated & specialized strategies and
expertise that produce returns that are not correlated to
market returns. Theoretically, the market does not have to
do well for them to do well. A traditional measure of market
correlation is 'r-squared' a measure from -1 to +1, where +1
states that returns correlate exactly to market returns,
while -1 states inverse correlation. Many of the oldest
accounts with a sufficient timeframe to make such a measure
relevant show an 'r-squared' of approximately 0.2.
- Managed
Market Exposure: Unlike a
mutual fund that is typically fully invested in stocks,
hedge fund managers manage market exposure, swinging from
having high cash levels or short positions (low market
exposure), to leveraged long positions (more than 100%
market exposure), based on their view of the market. While
your range of exposure never exceeds 100%, we may choose to
raise cash levels or initiate short positions from time to
time.
- "Skin
In The Game": Hedge fund
managers typically invest a great deal of their net worth
alongside their clients thereby ensuring aligned interests.
Most of my investable money is invested in the same
investments as you.
Managing risk
and market exposure have been key contributors to our
performance during 2007. Client market exposure at June
30th, 2007 was about 65-85% (adjusting for cash,
short sales and Catalina Marketing, which has a binding
contract to be acquired) thereby reducing market
risk. | |
| What To Watch For
We continue to
spend our time building and maintaining conservative,
value-oriented portfolios for our clients; talking to
companies, their suppliers, customers and competitors. We are
pleased with the results year-to-date and look forward to
providing good risk-adjusted returns for clients over the
long-term. For more information on Hurley Capital, including
previous newsletters, please visit our website: Hurley Capital.
I'd
love your feedback on the new newsletter design as well as the
content.
Sincerely,
Charles
Goldblum
Hurley
Capital |
| Important Disclosure
The Hurley Capital
Managed Accounts Composite represents all actual client
accounts invested in this strategy for the entire year.
The Hurley Capital Managed Accounts Composite allocates client
portfolios in equity and fixed income investments, weighted
according to Hurley Capital's proprietary investment
strategy.
Actual client
accounts utilizing the Hurley Capital Managed Accounts
Composite may have varying allocations between equities and
fixed income investments based on individual investment
preferences. The results of the Hurley Capital
Managed Accounts Composite are net-of-fees, brokerage
commissions, and other expenses. Hurley Capital's
investment advisory fees are described in the disclosure
statement of Part II of the Form ADV which is available upon
request.
The results of the
Hurley Capital Managed Accounts Composite include the
reinvestment of dividends. Comparison of the Hurley
Capital Managed Accounts Composite to the S&P 500 and
NASDAQ Composite is for illustrative purposes only and the
volatility of the indices used for comparison may be
materially different from the volatility of the Hurley Capital
Managed Accounts Composite due to varying degrees of
diversification and/or other factors.
Past performance of
the Hurley Capital Managed Accounts Composite may not be
indicative of future results and the performance of a specific
individual client account may vary substantially from the
composite results above in part because client accounts may be
allocated among several portfolios. Different types of
investments involve varying degrees of risk, and there can be
no assurance that any specific investment will be
profitable.
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