We here at Rock have started up another investment club and have found a number of investors, or clients if you will, to join the new investment club. The club is called Solid Growth Investment Club (SGIC). The basic idea is that investors pool their money together in an investment club, and Rock Capital then actively manages the investment club by investing in a variety of shares and financial products. Fees are reduced by the pooling of monies, meaning that transactions can be done for relatively cheaper as they are bigger. This leads to better returns for the individuals who are invested. In a sense, it is very much like a tiny little hedge fund.
We have undertaken to track SGIC very closely on our blog. In other words, every trade will be logged here, on this blog, for as long as SGIC remains active, which by all accounts, should be many years. Naturally, there are some trades or techniques that we wont give the exact details of as they can be considered trade secrets and we don't want to disclose all our methods to the public. Also, the names of the members will not be disclosed, the size of the club will not be disclosed and all reporting will be done in % terms.
SGIC is almost ready to start trading, all the first group members have joined and we have started the process of opening a new futures account of the club. Once the new account is open, monies will be transferred from the club's bank account and into the futures margin account.
Now comes the all important part, what are we going to buy once the account is open? We are going to implement a market neutral portfolio that we implemented on one of our hedge funds on Thursday last week. It has been performing really well and after all brokerage costs (both legs) are compensated for, the portfolio is around 5% up after just 5 trading days have passed. The success of this market neutral portfolio should be capitalised upon and therefore, we will be replicating it in SGIC (just on a much smaller scale as it is currently a small portion of one of our hedge fund's holdings).
We are going to be taking 10 long positions and 10 short positions, each position with the same amount of exposure. Working with futures, and therefore lots of 100, we will not be able to get it 100% equal, but as close to equal as we possibly can. Trading this portfolio into the market will bear a cost in terms of brokerage and SGIC will take this hit up front. Meaning that as soon as the portfolio is implemented, SGIC will be around 4% down as it must cover this brokerage fee. As mentioned earlier though, the tracking of this club's performance will compensate for the leg out as well. The reason is that we want to be able to see what the profit or loss is if we closed all positions right now. Therefore, the initial draw-down upon implementation will be indicated as around 8%. Also note that the other fees that are levied on the club are a 1% annual management fee (or 0.083% per month) and a 20% performance fee. All of these fee will be reported on as and when the investment club pays them. We feel that it is important that everyone who will be following the progress of this club understand exactly how it works.
Now, we did mention that there are certain things that can be considered trade secrets and we would like to keep them to ourselves. The shares that make up this market neutral portfolio is considered one such secret. We will however indicate what sectors the shares are in. So instead of saying we are long XYZ and ABC shares, we will say that we are long XYZ and ABC sector. All other trades that fall outside of the market neutral portfolio will be disclosed in detail and logged on our blog as promised.
We have the utmost confidence in our stock picking and valuation model and look forward to the Solid Growth Investment Club living up to its name.
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