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Taiga’s Opportunity-Driven Net Exposure

Report: Systematic Strategies

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Stockholm (HedgeNordic) – Long-biased long/short equity vehicle Taiga Fund edged down 6.8 percent in 2022, as it “proved difficult to insulate the fund from a dismal year for small-caps in our region,” according to founder and co-portfolio manager Ola Wessel-Aas. Up 9.6 percent in the first two months of 2023, Taiga Fund has already recovered the losses incurred in last year’s challenging market environment.

“Positive exposure to select energy-related stocks has been a particularly solid foundation coming into this year,” Wessel-Aas explains the fund’s rapid recovery. “The fund also benefited from a recovery in small caps as well as strong underlying development in most portfolio companies,” he elaborates. The contribution from the short book was marginally negative in the first two months of 2023, but the impact on returns was small due to lower exposure to short positions in the last few months.

“Positive exposure to select energy-related stocks has been a particularly solid foundation coming into this year.”

Yet in 2022, Taiga Fund’s short-book had a record year both in terms of alpha generation and overall attribution to fund performance. “We built short exposure gradually through 2021, and added further following a surprising bear market rally in March as the instant shock of Russia’s invasion of Ukraine started to wane,” the manager writes in a recent letter to investors. “After the sell-off in equity markets in August and September, we decided to significantly reduce short-exposure as many of the names started to look crowded.” With an average short exposure of only 14 percent during 2022, the short-book attributed a positive 8.6 percent return to the fund.

“Net exposure increased by approximately 20 percentage points from the summer to the end of last year.”

“Net exposure increased by approximately 20 percentage points from the summer to the end of last year,” Wessel-Aas tells HedgeNordic. “Half of it due to covering shorts that had become overcrowded and the other half due to increasing the long book as we found more stocks represented attractive valuations in our universe,” he explains. The net exposure of about 79 percent into the new year, compared to a net exposure below 60 percent in the first half of 2022, helped Taiga Fund enjoy a strong recovery in the first two months of 2023.

The team running Taiga Fund does not target a specific gross or net equity exposure. “Equity exposure at any point in time is simply the aggregate of our single stock long and short investment ideas,” explains Wessel-Aas. Instead, the team focuses on limiting downside risk by measuring and controlling risk stemming from financial leverage, cyclicality, operational leverage, earnings visibility and valuation levels, a focus that has been reflected in the fund’s track record. The fund’s NOK share class has delivered an annualized return of almost 13 percent since mid-2009 with an annualized volatility of 10.2 percent, resulting in an inception-to-date Sharpe ratio of 1.25.

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Eugeniu Guzun
Eugeniu Guzun
Eugeniu Guzun serves as a data analyst responsible for maintaining and gatekeeping the Nordic Hedge Index, and as a journalist covering the Nordic hedge fund industry for HedgeNordic. Eugeniu completed his Master’s degree at the Stockholm School of Economics in 2018. Write to Eugeniu Guzun at eugene@hedgenordic.com

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