Investor Letter - First Quarter 2010
The Tortoise And The Hare
Issue #22
 April 2010
In This Issue
Looking Down & Up
'Chicken' Positive
What To Watch For
Dear Clients and Friends,
 
The world's moving pretty fast these days... Employment is improving, oil's up, stocks are up, gold's up, interest rates are up -- the economy is clearly improving. We use a Tortoise strategy and the Hare is running. We're just over a year away from the market bottom last year and the world's a different place.

Worldwide government fiscal (big government spending) and monetary (low short-term interest rates) stimulus has stabilized economies and revived markets. We fear that as stimulus subsides, investors may realize that economies are still impaired. Fiscal deficit levels in the US, UK and others are unsustainably high and with the US Treasury not expected to cover the deficit via money printing as they did in 2009, some fear that long-term rates have nowhere to go but up. Furthermore, super-low short term interest rates have investors "reaching for yield" -- much like they did in 2007!

We are committed to our investment approach which has worked for us over the long term -- looking for diversified investment opportunities without taking undue risk. See below for the description of another recent purchase.

Over the past 6+ years, we've provided the stability and growth that help our clients feel secure about their investments and reaching their investment goals. Our significant investment alongside our clients reiterates our commitment to our investment process.

We believe our investment approach is appropriate for many prospects. We appreciate your confidence in us and thank you again for the continued flow of referrals.


Sincerely,

Charles Goldblum, CFA
Looking Down And Looking Up

From the outset, we've set a goal to keep up with the market in good times and protect capital in bad times. This protection comes at the price of having more modest returns in sharply rising markets, but should leave us ahead overall. Our performance numbers and chart below reflect these goals, with solid returns over the last five years and since inception for our Hurley Capital Core Equity Composite of accounts on an absolute and relative basis, while trailing the market over the last year. On a long-term basis, we're looking down at the market with 7.44% annualized returns since March 2005 versus 1.9% for the S&P 500 including dividends. On a short-term basis while on a short-term basis, we're looking up.

Performance as of 3.31.10 vs. S&P 500

All performance net of fees. Past performance is not indicative of future results.

Our first quarter performance was supported by performance of our newest investments, Coinstar and Yahoo! as well as our pipeline partnerships. Our biggest detractor was QAD, Inc., a small software company that reported subpar results but still trades at half what we believe the company could fetch in a sale.


Comparison Of Change In Value
of $10,000 Investment, Net Of Fees

 HC v SP 3.31.10
Past performance is not indicative of future results.
'Chicken' Positive

There's two ways to play shoot-'em-up video games -- one is to enter a fight with guns blazing, knowing you're likely to kill some baddies while getting taken out yourself. The second, is to stake out a spot behind a rock and pick them off one at a time. The first way costs a few of your lives and is more fun, while the second way conserves lives, requires patience, and often endures name calling of "chicken" -- or worse. Investing "chicken"-style calls for finding investments with a cheap enough valuation that should do great if things play out as expected and not too bad if they don't.
Per our market sentiment above, we're uncertain about potential effects of reduced stimulus, but acknowledge that the economy is recovering. Yahoo! is a company whose valuation is cheap enough that we expect appreciation in most economic scenarios, but if the economy continues to do well, shareholders could greatly benefit. Read on!

Recent Investment: Yahoo!, Inc.

Yahoo! is perceived by many to be in the same bucket as AOL -- yesterday's internet companies, quickly leaving the scene to the 'real innovators' like Google, Facebook and Twitter. While AOL is, in fact, a declining business thanks to it's legacy as a dial-up portal, Yahoo! is a media aggregator with #1 sites in:
  • homepages (ahead of Google and Facebook),
  • e-mail (bigger than Gmail and Hotmail combined),
  • finance,
  • news (ahead of NY Times and CNN.com), and,
  • sports (ahead of ESPN).
We think new management is right to re-position company as an online media company focused on providing advertising solutions for Global 2000 companies. When the market realizes that the competition is other advertising outlets in all channels beyond Google and the internet (billboard, radio, TV, etc.), and that online media companies are gaining share and can be quite profitable, Yahoo's valuation should benefit. In order for the re-positioning plan to work, Yahoo! must:
  • Have compelling content and link to compelling content, which will enable stable to growing market share,
  • Provide targeted and successful advertising options - the pinpoint demographics for Sony to advertise their 3D HDTVs before football season or for Pfizer to advertise Lipitor, and,
  • Keep up with innovation by providing mobile solutions that maintain and build usage of Yahoo! sites and services
Yahoo! currently trades at a trailing free cash flow yield of about 9%, when adjusting for the cash and publicly traded assets. With the current recovery in advertising spending and the ongoing migration of ad spending from offline to online, we think that the investment should do OK in a bad economy and quite well in a good one.
What To Watch For
We continue to diligently work to build and maintain conservative, value-oriented portfolios for our clients by talking to companies, their suppliers, customers and competitors. We strive to continue providing good risk-adjusted returns for our clients over the long-term. Our results to date reaffirm our strategy. For more information on Hurley Capital, including previous newsletters, please visit our website: Hurley Capital.

We are always available to discuss any additional concerns you may have.

Sincerely,

Charles Goldblum, CFA
Hurley Capital
 Hurley Capital, LLC
Core Equity Composite
Annual Disclosure Presentation
annual number since inception
Core Equity Composite contains fully discretionary core equity accounts and for comparison purposes is measured against the S&P 500. Since inception, the minimum account size for this composite has been $50 thousand.

Hurley Capital, LLC has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPSŪ).

Hurley Capital, LLC ("Hurley Capital") is an SEC registered investment adviser with its principal place of business in the State of New York. The firm maintains a complete list and description of composites, which is available upon request.

Results are based on fully discretionary accounts under management, including those accounts no longer with the firm. Prior to August 2004, the composite had 100% non-fee paying accounts in the composite. Since 2009, non-fee paying accounts have accounted for less than 2% of composite assets for each year end. Composite performance is presented net of foreign withholding taxes on dividends, interest income, and capital gains. Withholding taxes may vary according to the investor's domicile. Leverage/Derivatives may make up a material part of the composite strategy which includes short selling, with the short position covered by cash accounts that are marked to market on a daily basis. Past performance is not indicative of future results.

The U.S. Dollar is the currency used to express performance. Returns are presented gross and net of management fees and include the reinvestment of all income. Net of fee performance was calculated using actual management fees, including performance fees. The annual composite dispersion presented is an asset-weighted standard deviation calculated for the accounts in the composite the entire year. Additional information regarding the policies for calculating and reporting returns is available upon request.

The investment management fee schedule for the composite is 1.5% on the first $2 million, and negotiable thereafter, or 1% on all balances plus 10% of annual investment gains, subject to high-water marks. Actual investment advisory fees incurred by clients may vary.

The Core Equity Composite was created August 31, 2003. Hurley Capital, LLC's compliance with the GIPS standards has been verified for the period of August 31, 2003 through December 31, 2009 by Ashland Partners & Company LLP. In addition, a performance examination was conducted on Core Equity Composite beginning August 31, 2003. A copy of the verification report is available upon request.
Important Disclosure

The performance results presented herein reflect the performance of all actual client accounts invested in the Hurley Capital Core Equity Composite from inception (August 31, 2003) to December 31, 2009. The Hurley Capital Core Equity 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 Core Equity Composite may have varying allocations between equities and fixed income investments based on individual investment preferences. The performance results of the Hurley Capital Core Equity Composite are net-of-fees, brokerage commissions, and other expenses and include the reinvestment of dividends and capital gains.

Past performance of the Hurley Capital Core Equity Composite may not be indicative of future results and the performance of a specific individual client account may vary substantially from the composite results presented herein in part because client accounts may be allocated among several portfolios. Hurley Capital makes no representation that the results presented herein reflect the typical experience of a Hurley Capital client nor that current or prospective clients will experience similar results. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable.

Comparison of the Hurley Capital Core Equity Composite to the S&P 500 Index is for illustrative purposes only and the volatility of the S&P 500 Index may be materially different from the volatility of the Hurley Capital Core Equity Composite due to varying degrees of diversification and/or other factors. Economic factors, market conditions and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark. Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results.

Reference to the specific securities stated herein are for illustrative purposes only and are not being referenced as a favored investment of Hurley Capital. Hurley Capital is under no obligation to hold any equity position for any time period and Hurley Capital's current recommendations are subject to change at any time without notice. The securities mentioned herein should not be considered as personalized investment advice and should not be construed as an endorsement, solicitation or recommendation to purchase or sell any security. A list of all investment recommendations made by the adviser during the past year is available upon written request. This newsletter is a publication of Hurley Capital, LLC. It should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change.

Hurley Capital, LLC ("Hurley Capital") is an SEC registered investment adviser with its principal place of business in the State of New York. Hurley Capital and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which Hurley Capital maintains clients. Hurley Capital may only transact business in those states in which it is notice filed, or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by Hurley Capital with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of Hurley Capital, please contact Hurley Capital or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).

For additional information about Hurley Capital, including fees and services, send for our disclosure statement as set forth on Form ADV from Hurley Capital using the contact information herein. Please read the disclosure statement carefully before you invest or send money.