Noster Capital up nine per cent year-to-date

Date: 15 Nov 2011

Citywealth

During October many global equity indices increased more than 10 per cent in value, making it one of the best months for equity markets in several decades. This caught many investors off-guard, especially after the horrendous end-of-quarter that we witnessed in September. The Noster Global Value fund increased 1.5 per cent during October, which compares rather well to the 2.8 per cent lost by the hedge fund industry during the same period. As of the end of October, the fund has gained nine per cent since January 1st, versus the Hedge Fund industry’s -11.5 per cent year-to-date return.

Noster Capital’s equity positions performed well during the month, contributing 5.2 per cent to the fund’s performance. Offsetting that strong result was the four per cent loss incurred in the CDS positions which is precisely the inverse of that position’s contribution during September. Net they have not made any money in their CDS’ since the end of August, but they have not lost any money in that position either.The CDS’ hedged them when they should have, and weakened when expected.

In regards to investment opportunities, there are ad-hoc opportunities that Noster are trying to take advantage of, acting
carefully on their investors’ behalf, and only when the margin of safety is such that they are comfortable with the risk or reward of the investment.

For instance, Noster Capital are currently building a position in a large cap energy concern. What strikes them as incredible is that, at the current share price, the company’s risked unproved oil and gas resources (which contain enough energy to power every American household for 28 years) are free to investors – as their value is not discounted into the current share
price. The experts can only conclude that near-sighted investors are not taking into account the potentially massive long-term uplift in earnings power that will result when the company is able to extract this resource. But as they are not paying for this expectation, they should not be harmed should these resources not be brought to market. And, as the remainder of the
business is priced reasonably, Noster Capital experts view this asymmetric reward profile to be especially compelling.