Hare and Hedged Hare Portfolios

As announced yesterday, I have put together an aggressive growth portfolio that I am calling a "hare" portfolio. Because most of the stocks in this portfolio are high beta, momentum based selections I have also constructed a fully hedged "Hedged Hare" portfolio that shorts the ETF's of three broad market indices that this portfolio tracks. Specifically it is short 40% FXI, 40% VWO and 20% SPY. The short sale rebate is invested in the short term treasury ETF, SHY. This portfolio will probably not be beta neutral, but I will try my best to keep the beta near zero (or negative). If necessary I will make changes to the hedge during the quarter to make sure it is accomplishing its goal. I will not change the core Hare Portfolio holdings themselves until the beginning of Q1 2008.

The stock selection strategy was a little different from my Equity Select Portfolio. Equity Select focuses on growth stocks with strong franchises, strong management, leadership in their market with the wind at their back. The goal with Equity Select is to identify companies that can be held for 5 years.

The Hare Portfolio strategy is quite different. It seeks to identify momentum stocks that have a significant change to outperform over a 3-6 month time horizon. Stock selection was accomplished through a combination of methods:

1. A simple momentum and growth stock screen;
2. Best ideas from a few top of the line hedge fund managers (Gendell, Klarman etc.);
3. A dolop of good old fashioned gut feeling.
   

If anything I think this portfolio will provide a fun ride. Don't be surprised if at the end of the quarter one stock is up over 50% and another is down over 50%.

The 10 stocks held are as follows:

1. VMware (VMW) is a provider of virtualization solutions.
2. Vimpel Communications ADR (VIP) is a Russia-based provider of wireless telecommunications services in Russia, Kazakhstan, Ukraine, Tajikistan, Uzbekistan, Georgia and Armenia
3. Smith International (SII) is a global provider of products and services to the oil and gas exploration and production industry.
4. Companhia Vale do Rio Doce (RIO) is a diversified metals and mining company.
5. China Life Insurance Company Limited (LFC) is an insurance company in the People's Republic of China.
6. KHD Humboldt Wedag International Ltd. (KHD) is an industrial plant engineering and equipment supply company.
7. Freeport-McMoran Copper & Gold (FCX), through its majority-owned subsidiary, PT Freeport Indonesia, is engaged in copper, gold and silver mining and production operations.
8. Cummins Inc. (CMI) designs, manufactures, distributes and services diesel and natural gas engines, electric power generation systems and engine-related component products, including filtration and emissions solutions, fuel systems, controls and air handling systems.
9. Baidu.com, Inc. (BIDU) is a Chinese-language Internet search provider.
10. America Movil (AMX) is a provider of wireless communications services in Latin America.

Looking at this portfolio you probably noticed a few major themes:

• Strong International and Emerging Market exposure.
• Sectors: Energy, Telecom, Materials, Tech, Industrials.
• Strong momentum.
• An almost complete disregard for valuation.
  

Here's three days worth of performance on the portfolio. Obviously this isn't long enough to tell anything about the portfolio:

Here's the three days performance on the Hedged Hare Portfolio (notice the negative beta):
Tomorrow I will post the tortoise portfolio as well as the hedged tortoise and the hedged Equity Select Portfolio. I'm starting to think that market neutrality might be a very useful thing over the next 12 months.

Tortoise and Hare Portfolios

I have designed 2 new tracking portfolios and will be launching them this week. The stocks have been selected and I will start the tracking from the open of the market on Monday (the beginning of the quarter). The first portfolio is an aggressive growth "hare" portfolio and the second is a conservative growth "tortoise" portfolio. The management of the portfolios will mimic that of the Equity Select Portfolio:

1) The portfolios will have a long only, buy and hold mandate.
2) The portfolios will remain 100% invested in equities at all times.
3) The tortoise portfolio will have a maximum of 5 equity positions, the rabbit will have 10.
4) There will be no market cap limitations on the portfolios. Domestic and international equities can be utilized.
5) Starting with the first trading day of each quarter there will be a 10 trading day period in which changes can be made to the portfolio.
6) A strong emphasis will be placed on limiting portfolio turnover.
7) The portfolio will be tracked and performance reported on this site at least quarterly.

I expect to get the portfolios up by the end of the day.