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NEWPORT BEACH, California (January 18, 2006) - 2005 was the year of the "hedge" at Prospero Capital. In addition to each of our three Funds outperforming the S&P 500 Index and achieving all-time highs in assets under management and performance through year-end, it was our market-neutral Curan Fund that performed best. Net of all fees and expenses, year-end returns for Antenor, Beaumont, and Curan were 6.8/7.5/7.9%, respectively, versus only 4.9% for the S&P 500 Index. Antenor has now outperformed the market by 8% per year (47% cumulatively) net of all fees and expenses during the last five years. Furthermore, the S&P 500 Index remains 10% below its August 2000 peak levels, while Antenor is up 45% during the same period.
As of December 31, 2005, Prospero’s performance was consistently strong in both the short and long-term, as illustrated in the table below. Annualized net returns (through 12/31/05):
| Antenor | S&P 500 | Beaumont | Curan | |
| Dec '05 | 1.8% | 0.0% | 3.1% | 4.9% |
| 1-year | 6.8% | 4.9% | 7.5% | 7.9% |
| 3-year | 16.7% | 14.4% | 9.2% | 3.6% |
| 5-year | 8.5% | 0.5% | ||
| Inception (1997) | 13.0% | 7.6% |
For nearly ten years, Prospero's investors have been rewarded by an active risk management program, coupled with superior equity selection, to produce net performance significantly in excess of the S&P 500 Index with low volatility. The long-term success of Prospero's long-only Antenor Fund led to the formation of our hedged products (Beaumont and Curan) in 2002, which utilize risk management strategies to produce more stable returns. By combining short positions with Antenor's long-term holdings, Prospero has been able to produce positive net returns, as illustrated above, while exposing our investors to reduced levels of market risk.
In 2005, Prospero’s success resulted from winners on both the long and short sides of the portfolio balance sheet. Through December 31, our long alpha (outperformance versus the market) was 5.0% and our short alpha was 2.9%, resulting in Curan being Prospero's top performing Fund in 2005. As for sector exposures, Prospero maintained overweight positions in Consumer Staples (particularly tobacco), Financials, and select Transports (railroads), while remaining underweight in Capital Goods and Consumer Cyclicals. We maintained in-line weightings in Healthcare, Technology, and Utilities, and small net exposures to the lower-weighted sectors of the S&P 500 Index (Basic Materials, Communications, and Energy). Recent additions to natural gas, India, and major pharmaceuticals also boosted returns for the year.
Prospero believes that the US equity markets will increase by 10-12% in 2006. We continue to believe that the bond market is extremely overvalued, interest rates remain low by historic standards (and will not likely increase by more than 50 bps in 2006), and real estate as an overall asset class no longer represents good value. As for foreign equities, while less expensive than their US counterparts in many cases, they carry with them sovereign risk, currency risk, and operational risk and must be monitored carefully. Prospero currently is invested in five non-US based companies, although many of our US-based investments have substantial international exposures.
Given Prospero's consistently strong track record, please consider the following facts when evaluating your 2006 portfolio allocation:
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Prospero has produced annual returns of more than 13% for its investors since
inception nine years ago in 1997 (net of all fees and expenses);
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Prospero has generated a positive 45% net return for its investors
during the last five years, during which time the S&P 500 Index has
declined by a cumulative (10)%.
Happy New Year and Best Wishes for continued success in 2006 from the entire team at Prospero Capital!
Prospero Capital Management is an investment advisory company delivering superior financial results and service to clients through detailed fundamental research and investment insight. Contact Prospero at 866.377.7677 or invest@prosperofunds.com for more information.