Author: Mark Holder
Models: Opportunistic Arbitrage Long Only
Disclosure: Long RDWR, CCIH, LNC
March was another volatile month. The month ended on a solid note with the Opportunistic Arbitrage Long Only model ending with a 1.7% gain compared to a slight loss for the S&P500. Considering this model ended the month fully invested with aggressive small and mid cap stocks, it’s always very gratifying when it outperforms the market in negative months, even if the broad market’s loss was negligible.
As mentioned in the March investment report, I believed the market was in need of a selloff and the S&P500 got that in the form of a strong drop to the intraday low of 1,249 on March 16th. While many experts expected and continue to expect a larger selloff, in our view this was a buying opportunity. (Source: Yahoo Finance)
Staying Fully Invested
Though the market had a roughly 7% selloff from the February highs to the mid March lows, this model stayed fully invested, as I did not want to incur costly transactions or capital gains in order to trade the market. At times, this model will cut back investments if a major correction is expected. It’ll also be opportunistic and rotate from richly valued sectors to ones underfollowed at the moment.
No Sells Yet
No positions were sold in March, as the market selloff left stocks more attractive to buy then sell. With the additional positions added in January and February – Radware (NASDAQ: RDWR), ChinaCache (NASDAQ: CCIH) and Lincoln National (NYSE: LNC) – the current holdings list has reached a level higher then the historical average for this model and above my desired level.
In the next few months, I expect the position total to drop back to the expected upper limit of 25, via either outright sells or position consolidations like the Alpha Natural Resources (NYSE: ANR) buyout of Massey Energy (NYSE: MEE). Also, Cephalon (NASDAQ: CEPH) recently got a bid from Valeant Pharma (NYSE: VRX), leaving the likelihood that this model will cash out of CEPH with the stock already trading above the $73 offer, as of April 1.
Conclusion
The market remains attractive at these levels. Expect some bumpy earnings reports as some sectors like technology could have Q1 numbers impacted by the disaster in Japan. Though this model is virtually fully invested, any selloffs in leading technology companies would be seen as buying opportunities and not a reason to panic sell.
Source:
Valeant Makes $5.7 Billion Hostile Bid for Cephalon” Michael De La Merced, New York Times 3/29/11 http://dealbook.nytimes.com/2011/03/29/valeant-makes-5-7-billion-hostile-bid-for-cephalon/
