July 2016


CAPITAL INVESTMENT FUND

  • -1.1277% (Class A)
  • -1.0778% (Class F)

OPPORTUNITIES FUND

  • +2.0785% (Class A)
  • +2.0251% (Class F)

It's mid August now and it seems most people are thinking about golf games and summer vacations and not the markets, so why not take some space and quickly define a few terms that apply specifically to Ross Smith funds that perhaps you don't know "exactly" what they mean.

Hedge Fund - this one seems basic but I get the question all the time, "how is a hedge fund different from a mutual fund?"  In the simplest terms, mutual funds are more regulated than hedge funds.  Because of this mutual funds cannot use leverage, take short positions, or buy other derivative instrument.  hedge funds can do all of these should the manager cvhoose to.  Some funds, like ours, use leverage conservatively and use derivate instruments to lower risk as opposed to increase it.  All depends on the stated goal of the hedge fund you choose to invest in.

Market Neutral - this means Sharthan an investment vehicle's returns are not correlated, or very loosely correlated with the performance of the "market" as a whole.  The "market" is typically measured by an index like the TSX 300, the S&P 500, or the Dow Jones Industrial Average.  In the case of Ross Smith, we aim to deliver consistent, conservative returns regardless of whether the markets are up or down.  You may miss out when the market offers large, irregular, positive returns, but the goal is that you also miss out on large, irregular, negative moves.  If you recall in late June the UK leaving the EU (Brexit) sent the S&P 500 down over 5% in two trading sessions.  Based on our internal NAV, the Ross Smith Investment Fund was up 0.5% and the Ross Smith Opportunities Fund was down only 1.29% over that same period. 

Sharpe Ratio - This is a performance measure that has become very popular in the hedge fund community and is defined by the returns of an investment vehicle divided by the risk taken to get those returns (a higher number is better).  For example, if a fund returned 8% and took a small amount of risk to get that 8%, say 4% (measured by standard deviation), that would be a Sharpe of 2.  If a fund delivered a return of 30% but took 50% risk to get that return, that would deliver a Sharpe of 0.6 and also means that the investment, should the risk profile stay the same, could also show large negative returns the next year.  As a point of reference, assuming a 50/50 investment in both of our funds over the past 4 years Ross Smith would have produced a Sharpe of 2.1.

Our Investment Fund was given the First Place Award for Bet 5 Year Sharpe Ratio at the 2015 Canadian Hedge Fund Awards among the Market Neutral Category.

Sincerely,

Jai Hawker

Alan Chu