New York Hedge Fund Embraces Volatility, Gains 20% In May

Jun 2 2010 | 12:31pm ET

In a month that saw most hedge funds struggle to keep losses to a minimum, one New York-based firm bucked the trend, gaining 20% in May.

Continental Capital Advisors, which was co-founded in March 2009 by a pair of former analysts at long/short hedge fund Pilot Advisors, welcomed the volatility in May that brought so many of its peers to their knees. The hedge fund is now up 6% year-to-date.

"Our strategy is to capitalize on asset price deflation using several instruments—currencies, commodities, equities globally—currently that's a long-bias toward precious metals, while we short largely domestic-only U.S. companies," Daniel Aaronson, co-founder and portfolio manager of the firm, told FINalternatives. "The problem started with America and it's going to end with America, so that's where we want to be attacking on the short side."

The pair's core thesis is that the Dow Jones Industrial Average and gold will equal 1 to 1. "It happened in 1932 at that bear market bottom and in 1980 at that bear market bottom...with gold at 1,200 today and the Dow at 10,000, our core thesis is that they probably meet around 5,000, so we will be able to profit significantly from the Dow falling from 10,000 to 5,000 and gold rising from 1,200 to 5,000," says Lee Markowitz, co-founder and portfolio manager of the firm.

It hasn't been all roses for the fund, which last year declined 9% and is down 3% since inception, but Markowitz points out that the fund has outperformed the increase in the Dow-to-gold ratio by 16%.
 
"As May shows, we are really a great hedge and insurance policy to anyone's portfolio," says Markowitz, adding that the bulk of his net worth and that of his partner are invested in the fund. "Where other people shy away from volatility, we really embrace it, because we are so certain of our views and our research that we will use the volatility to our advantage as we saw in our May performance."

Continental Capital uses Grace Financial Group as is prime broker and Yulish & Associates as its administrator.


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