June felt like a tough month to make money. Most of the names we thought cheap had already rallied in the March-May period, and with the market having rallied as well, there wasn't much of a rising tide to give us a boost. Still, the book was up 80bps and year to date we are at +39%, net of 0/20 fees.
We sold 75% of our COT position during June, most of it above $6.50, which was a well-timed sale (today the stock closed at $5.52). Our rationale (recall in an earlier post I thought the stock could be worth $8 but I promised to sell well before then) was that at $6.50, the stock was trading at 13x our EPS target of $0.50 and that the valuation gap to KO, CCE, PEP, and PBG had already narrowed substantially.
We also exited RX, taking a small loss on the trade. We just lacked conviction on the trade beyond the low PE multiple and figured it was time to move on.
We started a small position in SDS, a short S&P etf. Although the worst may be over, it is still hard to imagine how the economy can meaningfully improve with unemployment headed to 10% or more and more likely staying in the high singe digits for a long time. Expectations are rising that 2010 will be better, but we aren't yet convinced that it will be so much better to justify the recent run-up.
Overall, the well-timed sale of COT was the biggest contributor to the positive June performance. With that sale, we now stand at 26% cash, a level we haven't been at since end of March when we were at 30% cash. Looking to find more deals and "cheap options" on solid assets (things like our TTWO position).
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