Unconvincing summer for Gentle Persuader fund

* Lost 36.2 pct in May due to poor market timing, leverage
* Rose 313.5 pct in 2009, one of top-performing hedge funds
* To hold lower leverage after May’s losses
* Says stocks looking cheap

By Laurence Fletcher
LONDON, Aug 19 (BestGrowthStock) – The Gentle Persuader, one of last
year’s top performing hedge funds, has run up big losses in a
volatile summer that has seen many managers struggle.
The $67 million fund, run by Swiss-based Fat Tail Capital,
lost 36.2 percent in May after selling stocks as investors
fretted over Europe’s response to its sovereign debt crisis,
only to buy them back again just before the market fell, its
manager said.

The fund was brought back down to earth after making returns
of more than 300 percent during last year’s market rally.

“We didn’t play May especially well in hindsight. There was
an element of us making the wrong market timing decisions,”
manager Michael Loefman said in an interview on Thursday. “We
had exposure in stocks that fell more than average.”

Loefman said the fund, which invests in mid and small-cap
stocks, suffered due to its holdings in housebuilders and banks
as well as its leverage.

The losses make the Gentle Persuader fund one of the worst
performers over the three months to end-July among hedge funds
tracked by Lipper, a Thomson Reuters company. And that was
despite the fund gaining 4.3 percent in June and around 11
percent in July.

May, which also saw the Dow Jones index’s “flash crash”, was
an awful month for hedge funds, with the average portfolio down
2.76 percent, according to Credit Suisse/Tremont, the biggest
fall since the nadir of the credit crisis in November 2008.

Many hedge funds have changed tactics this summer to deal
with such volatile conditions, focusing on short-term trends
rather than holding positions for too long.

Loefman said Gentle Persuader would change its approach
after May’s losses by holding lower leverage in future,
particularly in stocks that had risen strongly.

Its losses stand in stark contrast to the huge gains
recorded in 2009 by the fund, which launched just eight days
before the market bottomed on March 9 and went on to rise 313.5
percent that year.

“People were almost giving them (stocks) away. Some rose
four- or fivefold,” said Loefman.

He added he thought many stocks were cheap, but like many
investors was wary of the economic situation.

“I’m scared like everyone else concerning the macro. But if
you let that get in the way, you can miss cheap stocks.”
(Editing by Will Waterman)
(To read the Reuters Funds Blog click on
http://blogs.reuters.com/fundshub; for the Global Investing Blog
click on http://blogs.reuters.com/globalinvesting/)

Unconvincing summer for Gentle Persuader fund