NuWave Investment Management

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  • 1. NuWave Investment Management March 2010 Combined Futures Portfolio The Combined Futures Portfolio ended the month of March with an estimated net loss of 0.32%. For the month, the portfolio generated noteworthy gains from trading in the U.S. dollar amid significant volatility in the currency markets. The greenback strengthened versus the Japanese yen, the euro and the British pound, as investor sentiment improved in the wake of renewed confidence in a U.S.-led economic recovery, while simultaneously weakening versus many of the commodity currencies (such as the Australian dollar and the Canadian dollar) amid a marked rise in raw material prices. Smaller gains were also recorded from long positions in the short-end of the yield curve amid little sign of hawkish rhetoric among the major central banks and renewed hope for a pan-European solution to the sovereign debt crisis, while short positions in the long-end of the U.S. yield curve generated modest gains in anticipation of improved long-term growth prospects. Additional profits were attributable to short positions in corn and wheat on the heels of ample supply figures, while long positions in live cattle also resulted in gains. These gains were more than offset by losses tied to short positions in metals and energies (although short positions in natural gas proved profitable), as basic raw material prices rallied in response to heightened demand expectations, while long positions in a number of global stock indices also yielded losses. As we look ahead to the second quarter of 2010, recent price activity across a variety of markets is thought by many to be indicative of the global economy having turned the corner. Historic gains in equity prices, a stronger U.S. dollar and rising raw material prices are cited as proof that the economy is now safely on the mend. Perhaps by these measures the economic climate has improved; however, complacency frequently comes at a price (in the form of a marked increase in volatility). The VIX Index, commonly referred to as Wall Street’s “Fear Index”, generally measures the implied volatility of the financial markets over the next thirty day period. It is interesting to note that historical highs and lows in the VIX Index are often indicative of turning points in the financial markets (i.e., overbought or oversold conditions), and are therefore viewed as a contrarian indicator by many. As of April 1, the VIX reading stood at 17.02 (before March of 2010, the VIX had not seen a reading of less than 18.0% since August of 2008 – just before the global financial collapse). Additionally, sovereign debt issues continue to threaten Europe, energy and base metal stockpiles continue to mount, the labor and housing markets remain stagnant, and the ultimate effects of various central bank policy initiatives (and their related exit strategies) are yet to be felt. Each of these factors, combined with the low VIX reading, increase the possibility of heightened near-term volatility in the markets. Given the uncertainty in the financial markets, the Combined Futures Portfolio remains rather defensively positioned. In this regard, NuWave’s Portfolio Risk Overlay continues to identify excessive risk across a number of markets, resulting in limited exposure relative to historical norms. The portfolio enters April with mixed positions versus the U.S. dollar, a short bias toward global equity indices, long positions in both debt and interest rate futures (with the exception of being short the long-end of the U.S. yield curve), and a decidedly short bias across the metal, energy and grain markets. As of April 1, NuWave’s principals have increased their proprietary investment in the Combined Futures Portfolio by approximately 10%, and we remain confident that the near-term environment is likely to provide enhanced profit opportunities, particularly in light of the increased possibility of significant directional volatility in the financial markets. NuWave Investment Mgmt. LLC ● International Investment Management 1099 Mt. Kemble Ave., Morristown, NJ 07960 Tel: (973) 888-6800 Fax: (973) 973-888-6810
  • 2. Long/Short Portfolio The Long/Short Portfolio generated an estimated net gain of 1.45% during the month of March, recording profits in 8 of the 10 sectors traded while posting a 3rd consecutive monthly gain for 2010. Persistent hopes for a sustainable economic recovery and landmark healthcare legislation sent U.S. equity prices higher in March, with the resulting directionality yielding significant profit opportunities for NuWave’s short-term divergence-oriented market neutral approach to trading the equity markets. For the month, the Long/Short Portfolio generated noteworthy gains from a long-biased exposure to the healthcare sector. Additional profits were recorded from long-biased exposures to telecom, energy, materials and technology issues, while more modest gains resulted from a short-biased exposure to financial stocks and a long-biased exposure to utility shares. Mixed exposures to consumer staple issues also yielded small gains. A portion of the portfolio’s overall gain for the month was offset by short-biased exposures to consumer discretionary and industrial stocks. The Long/Short Portfolio has now posted an estimated net gain of 3.21% for the first quarter of 2010, generating a compound annualized return of 12.84%, annualized standard deviation of 6.15% and a Sharpe ratio of 1.68 since the inception of “equities only” trading more than three years ago (having never posted a losing year). The Long/Short Portfolio employs a divergence-oriented trading strategy premised upon a series of pattern recognition-based algorithms that are similar in nature to those utilized by NuWave’s Combined Futures Portfolio (the firm’s flagship futures trading strategy), resulting in a return profile that is truly beta neutral in nature and devoid of any inherent long bias, while demonstrating a consistency of return that is unique among its peers (having posted a positive return in more than 76% of the months traded and a worst peak-to-valley drawdown since inception of just 4.02%). The unique risk return profile of the Long/Short Portfolio continues to attract interest from a variety of investors, with assets under management of more than $52 million and a return stream that has proven to be non- correlated to both traditional investments (exhibiting a daily correlation of the S&P 500 of -0.01) and a host of market neutral and long/short hedge fund indices. Existing clients and qualified investors are encouraged to contact a NuWave representative for a more detailed presentation of the Long/Short Portfolio. NuWave News We are pleased to announce that Craig Weynand has been elevated to the position of Chief Operating Officer, responsible for overseeing all aspects of NuWave's day-to-day business operations. Craig joined NuWave approximately one year ago as a Managing Director, following a career of nearly 20 years in the alternative investment industry. Craig's prior experiences include managerial oversight of a variety of functional areas (including trading, operations, due diligence, marketing, legal and compliance) at such distinguished firms as Morgan Stanley, Campbell & Company, Inc. and Graham Capital Management, L.P. We are also pleased to announce that Patrick Hannon has joined NuWave as a sales professional in the firm's Business Development group. Patrick comes to NuWave following ten years at Morgan Stanley's alternative investment group, where his responsibilities included various aspects of due diligence and manager selection for the Managed Futures department, as well as being charged with expanding the firm's business development and client education efforts. In the coming weeks, Patrick will be reaching out to many of you to personally introduce himself. In the meantime, please do not hesitate to contact us should you have any questions regarding NuWave or any of its alternative investment offerings. Sincerely, NuWave investment Management, LLC  Past performance is not necessarily indicative of future results. *Performance information set forth herein is net of all fees.