 |
NEWPORT BEACH, California (October 25, 2005) - Prospero Capital achieved an all-time high in assets under management and performance as of September 30, 2005. By comparison, the S&P 500 Index was 12% below its August 2000 peak levels and has produced a negative return during the last five years. During the first nine months of 2005, the power of Prospero’s hedging was most evident in the strong net returns of our Beaumont (long/short) and Curan (market-neutral) Funds. Curan, with no net market exposure, increased a net 7.8% (through 9/30/05) and 11.0% for the twelve months ending September 30. Beaumont, Prospero's long/short equity fund, produced net returns of 5.9% and 14.2% during the same intervals.
As of September 30, 2005, Prospero’s performance was consistently strong in both the short and long-term, as illustrated in the table below.
| Antenor | S&P 500 | Beaumont | Curan | |
| Sept '05 | 1.3% | 0.8% | 2.2% | 2.9% |
| YTD | 4.1% | 2.8% | 5.9% | 7.8% |
| 1-year | 15.0% | 12.2% | 14.2% | 11.0% |
| 3-year | 19.0% | 16.7% | ||
| 5-year | 7.7% | (1.5%) | ||
| Inception (1997) | 13.1% | 7.6% |
Since 1997, our 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 less volatility. The long-term success of Prospero's long-only Antenor Fund led to the formation of our hedged products in 2002, which utilize hedging strategies to better manage risk and 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. To illustrate, Curan Fund, which has equal dollar investments long and short, has produced a net double-digit return for its investors during the last twelve months entirely independent of the direction of the market. Beaumont Fund, our long/short equity fund, produced returns double that of the S&P 500 Index through 9/30/05, while utilizing a significant hedging strategy to protect against market declines.
In 2005, Prospero’s success continues to result from winners on both the long and short sides of the portfolio balance sheet. Through September, our long alpha (outperformance versus the market) was 3.7% and our short alpha was 4.1%, 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).
Prospero continued to focus on risk management in the third quarter, carefully avoiding momentum stocks and sectors, while still finding sufficient growth to drive performance. Prospero did not get caught in the recent unwinding of the oil/energy play, instead benefiting from the impact of higher oil prices on our short positions in the retail and airline sectors. Prospero maintained a disproportionately large weighting in financials, despite the prospect for higher interest rates, as we disagree with Wall Street’s overly simplistic view that financials universally underperform when rates move higher. That being said, we are carefully monitoring the slope of the yield curve and its impact on our financial sector holdings.
As indicated in our July newsletter, Prospero is cautiously optimistic about the prospect for the stock market and expects the overall market to end the year with high single-digit returns. That portends a strong finish to 2005, which may extend into the first quarter of 2006. Prospero continues to believe that the bond market is extremely overvalued, interest rates remain low by historic standards (and will not likely increase more than 25 bps throughout the remainder of 2005), 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, after adding some exposure to India during the 3rd quarter.
Given Prospero's consistently strong track record, please consider the following facts when evaluating your year-end portfolio allocation:
-
Prospero has produced positive, double-digit net annual returns of more than 13%
for its investors since inception almost nine years ago in 1997 (net of all fees
and expenses);
-
Prospero has generated a positive 44% net return for its investors
during the last five years, during which time the S&P 500 Index has
declined by a cumulative (7)%.
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.