The secret is out on Toronto-based AlphaNorth Asset Management. The firm’s seven-month old Alpha Partners Fund, a small-cap long-bias hedge fund, returned 19.2% last month, bringing its year-to-date returns to 26.3%.
During the same period, the fund’s benchmark, the S&P/TSX Venture Composite Index, was down 7.2%.
Last month, the fund’s resource plays in coal, precious metals and energy stocks generated the bulk of its returns, according to Steven Palmer, co-founder.
“The Canadian market has a better outlook than the U.S. market because we don’t have the same problems here,” said Palmer. “It’s much more driven by commodities, which has been strong. A lot of the small cap stocks I‘m looking at are pretty beaten up and a good chunk of the portfolio is in biotechs, which has been down and out for two years.”
Palmer added that the fund’s short history of rosy returns is in jeopardy in July.
“July is not looking good, as you would expect. It’s been brutal,” he said. “The TXS Venture has been negative over the seven months that we’ve been around. It’s been whipsawing all over the place so it’s a pretty volatile period here.”
Going forward, Palmer said the firm is contemplating launching a mid-cap hedge fund to complement its US$23.7 million existing offering, which invests in less than US$100 million market cap companies. The new fund will look at US$100 million to US$1 billion market cap concerns, be more liquid and have less volatility.
“It’ll also be more consistently hedged whereas with the small cap fund, it’s very difficult to short and the risk/reward is very much against you,” he said.
The Alpha Partners Fund charges a 2% management fee and a 20% incentive fee with a C$150,000 minimum investment requirement.