2009 Headlines
Cayuga Fund returns to positive territory in the third quarter of 2009
Strategy of prudent risk-taking continues to help student-run hedge fund weather market volatility
October 18, 2009 | Ithaca, NY | Cornell's Johnson School's student-run Cayuga MBA Fund returned to positive quarterly territory in the third quarter, posting a quarterly return of 0.37%, compared to -2.93% for the HFR Equity Market Neutral Index and a solid 5.30% for the HFR Equity Hedge Index. The Cayuga MBA Fund's third quarter performance mirrored the slow but consistent rebound in equity markets first seen in the second quarter of 2009.
"The third quarter showed largely what we expected: modest signs of some economic stabilization," said Courtney Wilkinson, MBA Candidate 2010, and the Cayuga Fund's student investor relations representative. "Going into the fourth quarter, our eyes are on the dollar, consumer holiday spending and of course jobs and the employment market which continues to create stalls within the market. Going forward, the Cayuga Fund will continue with its strategy of selective stock picking and prudent risk management."
Nu Skin Enterprises (NUS) was one of the Cayuga Fund's strongest long positions. Founded in 1984, Nu Skin manufacturers and distributes personal care, home care, and nutritional care products around the world. The company's product is sold primarily through independent retailers in the U.S., however NUS also operates approximately 45 branded retail stores in China. NUS closed the quarter at $18.50, a 21% increase in the quarter, due to expectations of a strong product introduction of age LOC, Nu Skin's anti-aging solution to be introduced worldwide at the company's 25th anniversary convention. Management has also forecasted strong 2010 growth due to the weakened dollar and Nu Skin's strong presence in Japan (35% company revenue), where anti-aging is a very profitable market.
K-Swiss (Nasdaq: KSWS) proved to be a strong short performer this quarter. Headquartered in California and manufacturing and distributing athletic and casual footwear under the K-Swiss, K-Swis, Royal Elastics, and Palladium brand names, K-Swiss also sells men's and women's clothing, accessories, and fitness apparel throughout various retailers in the United States. Sales were down over 30% in the second quarter of 2009, with analyst forecasts pointing towards continued brand deterioration, especially in Europe, through the end of 2009. The stock has dropped from approximately $11 in late July 2009, to $8.30 by the end of September, and off of its 52-week high of $15.94.
Economic expectations are calling for a slow and steady rebound for the remainder of 2009 and looking forward to 2010. The consensus unemployment rate is expected to peak at about 10.2% in early 2010, and interest rates are expected to be raised from their current 0% levels to 0.25% in mid-2010. Federal stimulus policies continue to be a hot-button issue, both politically and economically, as the timing and methodology of federal policy easing will have to balance inflationary fears with stable and positive economic fundamentals. We expect inflation to remain a smaller threat in the near term, with consumers only slowly re-entering the marketplace and manufacturing capacity indices still showing a slower-than-expected rebound (52.6 in September 2009 compared to expectations of 54) We believe that the balance of 2009 will show a continued, slow, rebound in the global equity markets. Increased corporate merger activity and a slow but steady uptick in positive economic fundamentals lead us to have a cautious, but optimistic, forecast for the fourth quarter of 2009 in the equity markets.
The Cayuga MBA Fund is an investment vehicle that aims to provide a competitive rate of risk-adjusted return to its investors while enhancing the educational and professional opportunities of Cornell's Johnson School MBA students. It is supported by the analytical platform of the Parker Center, cutting-edge research by faculty members, and extensive participation by student portfolio managers. The Parker Center is a classroom providing real-time stock quotes, international data feeds, and financial analysis software and data valued at more than $1.8 million per year in licensing fees and comparable, if not better, than the resources found at many Wall Street firms.
The Cayuga MBA Fund is managed by 28 portfolio managers, including one quantitative analyst, a trader, and an investor relations manager who, under the guidance of faculty and outside investment advisors, work to fulfill the investment objective of the fund to achieve consistent positive returns that are uncorrelated with equity market benchmarks, and to maintain significantly lower volatility than the broader market.
More information on the Cayuga Fund and the Parker Center can be found on the Parker Center Web site.
