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NEWPORT BEACH, California (April 23, 2006) - The first quarter of 2006 proceeded similarly to the end of 2005, with strong gains produced predominantly from the short side of our investment portfolios. This led to Prospero achieving another all-time high in assets under management and performance through April 21, 2006. While Beaumont and Curan have turned in strong results during the last 15 months, Antenor has now outperformed the S&P 500 Index by more than 6.5% per year (43% cumulatively) net of all fees and expenses during the last five years. Furthermore, the S&P 500 remains 7% below its August 2000 peak levels, while Antenor is up 48% during the same interval.
Through March 31, 2006, Prospero’s performance was consistently strong in both the short and long-term, as illustrated in the table below. Annualized net returns (through 3/31/06):
| Antenor | S&P 500 | Beaumont | Curan | |
| Feb '06 | 0.0% | 0.3% | 1.2% | 2.0% |
| Mar '06 | 0.9% | 1.2% | (0.1%) | (1.3%) |
| YTD (-4/21) | 4.7% | 5.5% | 5.8% | 4.0% |
| 1-year | 10.1% | 11.7% | 10.6% | 8.0% |
| 3-year | 18.5% | 17.2% | 11.2% | 4.5% |
| 5-year | 10.6% | 4.0% | ||
| Inception (1997) | 13.0% | 7.9% |
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 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.
During the first quarter, Prospero implemented several changes to our Fund holdings: In response to continued high oil prices, Prospero increased exposure to the energy sector by buying shares of Transocean (offshore oil drilling, ticker: RIG), while maintaining our position in Diamond Offshore (DO) through its parent corporation Loews Corp (LTR) and our position in integrated oil producer British Petroleum (BP). On the short side, Prospero maintained a short position in JetBlue (JBLU), which is struggling under the burden of higher fuel costs. Prospero selectively increased our weighting in the transport sector, adding to our position in short-line railroad operator Genesee & Wyoming (GWR). Finally, Prospero added value by modestly increasing exposure to India. As for overall 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, Energy and Utilities, and small net exposures to Basic Materials and Communications.
Prospero continues to believe that the US equity markets will appreciate by 10-12% in 2006, a slowdown from the S&P 500's 18% annualized pace of the first quarter. We also think that the bond market is overvalued, interest rates remain low by historic standards (and will not likely increase by more than 25-50 bps during the remainder of 2006), and real estate as an overall asset class no longer represents good value. In contrast, please consider that Prospero has produced annual net returns of 13% for our investors since the inception of our core equity strategy more than nine years ago.
If you would like to discuss Prospero in more depth or further explore our proprietary investment process, please call us at 949.219.0486 or visit our offices in Newport Beach. As always, we thank you for and value your loyal support as we charge ahead into our tenth year of dedicated service to our investors.
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.