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COLUMBUS, Ohio (July 1, 2004) - June was a solid month for the Funds, providing a positive conclusion to a quarter that fell short of our expectations. The positive turn in performance during the final week of May continued into June and the first week of July. For the month, Antenor, Beaumont, and Curan produced returns of 1.4%, 0.6%, and –0.2%, respectively. For the year, the Funds have generated returns below our expectations at –0.3%, –2.4%, and –1.9%, respectively. However, Prospero's core equity strategy (Antenor) has produced positive returns in the trailing 1-year, 3-year, 5-year, and since inception periods (1/1/97), while the S&P 500 has declined by a cumulative –2.1% during the last 3 years and –10.5% during the past 5 years. Furthermore, during the last five years, Prospero has outperformed the S&P 500 by 9.9% per annum net of all fees, exceeding our goal of 7.0% per annum outperformance of the S&P 500.
Annualized net returns (-6/30/04):
| Antenor | S&P 500 | |
| June '04 | 1.4% | 1.9% |
| YTD | (0.3%) | 3.4% |
| 1-year | 11.5% | 19.1% |
| 3-year | 4.8% | (0.7)% |
| 5-year | 7.7% | (2.2)% |
| Inception (1997) | 13.6% | 7.5% |
During periods of adverse performance, Prospero believes it is important to uncover the driving forces behind the numbers, in order to improve our investment process. As many of you know, we are constantly refining our proprietary equity selection model in periods of both strong and weak performance. As highlighted in last month's newsletter, a liquidity squeeze throughout the U.S. equity markets reduced the benefit of the hedges represented by our short positions. In essence, many stocks during the second quarter emulated the market as a whole, rather than trading in line with company-specific factors, thereby creating an extremely challenging environment for effective hedging.
So what is Prospero doing internally to get performance back to the levels we have enjoyed since the beginning of 1997?
- Carefully monitoring portfolio and individual name liquidity, while simultaneously focusing on more paired position hedges (long/short) rather than individual short positions;
- Re-evaluating key risk factors behind each core holding to ensure that net exposures to each position and sector are appropriate;
- Maintaining strong hedges to diminish net market exposure in each Fund;
- Refining our rules-based system for taking profits in order to mitigate the full impact of mean reversion among our winners; and
- Building infrastructure by hiring an experienced capital raiser from a $1.2 billion fund-of-funds to help manage investor relations, capital raising, and operations.
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.