Stockholm (HedgeNordic) – Stockholm-based long/short equity fund Gladiator Fond received the title of the Best Nordic Hedge Fund for 2018 after gaining almost 20 percent in a year most investors and fund managers incurred losses. 2019, however, was not very kind to portfolio manager Max Mitteregger (pictured) after his fund booked a loss of 19.6 percent. In an open letter to investors, Mitteregger explained why the fund’s performance was so poor last year.
“Over the past eight years, the fund has maintained very low exposure to the stock market, with an average net positive exposure of around 15 percent,” writes Mitteregger. The low exposure to the market stems from his “bleak view of the world economy.” As Mitteregger previously told HedgeNordic, he turned bearish on equities after 2010 on concerns around the uncertain effects of the massive printing of money by central banks. “Gladiator has been run with a low net market exposure since then.” Despite maintaining low exposure to the market, Gladiator Fond managed to generate an annualized return of about 16 percent since 2009 to the end of 2018.
“This has been a successful strategy as a whole since the fund’s holdings fared significantly better than the index,” Mitteregger explains in the recent letter. The fund’s underperformance in 2019, however, is attributable to the “very weak development” of the fund’s core holdings, as well as the low net market exposure achieved by selling futures and buying put options on stock market indices. “Of the fund’s three largest holdings, only one rose as much as the index (Astra),” writes Mitteregger. Another holding was unchanged (SAAB), and one fell by about 20 percent (SOBI).
“The strategy of removing market risk by selling futures and owning put options on the index was, of course, a terrible strategy when the fund’s long holdings had such a weak development,” acknowledges Mitteregger. Because the portfolio manager continues to see a positive outlook for the core holdings and because equity valuations experienced a substantial increase across the board last year, he “will not make any major changes” for the year ahead. “I will patiently continue to work in the same way as I have done for the past eight years,” concludes Mitteregger. The low net market exposure paid off in January, as the fund gained 5.1 percent for the month.