Manager: Don Peters
Model: QFT Long Short
My long/short model buys stocks with strong fundamentals and technicals and shorts stocks with weak fundamentals and technicals. The strategy is currently (as of 5/9/11) 70% long and 30% short. Despite the continuing bull market, I will always maintain an allocation on the short side, though there will be minor adjustments to the allocation from time to time.
My targets for this model are for good absolute returns, whereas many managers are looking for good returns just relative to the market. Taking a loss of 20% does nothing for me, even when the market is down 40%. A loss is still a loss, and I developed this strategy to aim for positive returns in any type of market. Two other benefits from a long/short model are that it is expected to have low volatility relative to the market as well as low correlation, so when combined in a portfolio with long positions it may provide excellent diversification.
In spite of the rising market, the strategy has profited on some of the short trades made so far, including closed trades on A123 Systems, Inc. (NASDAQ: AONE), USEC Inc. (NYSE: USU), Energy Conversion Devices, Inc. (NASDAQ: ENER), BPZ Resources, Inc. (NYSE: BPZ) as well as positions in Voyager Oil & Gas, Inc. (AMEX: VOG) and InterOil Corporation (NYSE: IOC) that are still open.
Overall the long trades have been disappointing, but the model cuts losses short and lets profits run, so the model has already sold some stocks for a loss that haven’t worked out – among them, Innophos Holdings, Inc. (NASDAQ: IPHS) and SLMS.
The model has also taken some profits, including positive returns on LSB Industries, Inc. (NYSE: LXU), Credit Acceptance Corp. (NASDAQ: CACC), Omega Protein Corporation (NYSE: OME), and Westlake Chemical Corporation (NYSE: WLK).
On a regular basis I analyze my results and my strategy to see how it can be improved. This is a new model and I have been executing the trades somewhat like I do my shorter term personal strategies, but it has some different characteristics that require a slightly different approach and I have already made some minor adjustments that I believe will help.
My strategy is based on finding stocks that have characteristics that have been shown to be profitable in the past, and I regularly review performance and update my models as necessary. None of this is dependent on predicting the future, which is simply impossible to do consistently.
