Maredin Capital Advisors Investor Letter
Attached is the the preliminary first half 2014 report for our Zinn Fund Partnership. $MNKD #valueinvesting
ZINN FUND PARTNERSHIP
7700 North Kendall Drive, Suite 506
Miami, FL 331
56
305
-
6
48
-
6459
305
-
458
-
2975
Marcelo Zinn, General Partner
June
24
,
2014
Dear Partners,
Below is the preliminary first half
2014
report
.
Since this report only
provides preliminary
results
,
there may be a difference between the preliminary and actual
mid
-
year
results
(NAV)
calculated
on June 30
th
.
Included in this report are our current and historical results
,
a review of our portfolio, and
our
perspective
on
the current
economy and
investment environment
.
We hope this will help provide more
insight into our thought process and assist in any future capital allocation decisions you may have.
On a
separate, but
interesting note
, we will have an exciting announc
ement for all investors in
August.
A
teaser
:
we
are
creating
an investment vehicle
(called “Paragon”)
we can offer all investors,
not
only
those who are “accredited”
(net worth above $1M).
Paragon
will
facilitate
anyone
who wishes
to part
icipate in the
same
p
hilosophy and
investments
that investors in the Partnership have enjoyed for
nearly
5
½
years.
Our
reason
for
creating
Paragon
is our long
-
held desire to assist
any
one
with
navigating the
investing
landscape
.
We
are very excited with this vehicle as we
believe our competitive advantages
can make a real difference
for individual investors
.
I will be sending out an email detailing
Paragon
soon
.
If you would like to learn more, email me and I will put you on the li
st for the official
announcement.
Lastly, over numerous discussions we’ve had with many of you recently, we have decided to
shift from biannual reports to quarterly.
W
e
can
appreciate the desire for increased communication. As
such, we will begin providin
g these reports immediately.
RESULTS
Our preliminary result for the first half of
2014
wa
s a
n increase of
11
.
6
%
versus
6.
0
%
for the
S&P
500
(“S&P”)
and
3
.5
%
(estimate)
for the Barclay Hedge Fund Index
(“BHFI”)
.
S
ince inception
(
March
2009)
, we
have
returned
a cumula
tive
1
92.67
%
(net of fees) versus
1
6
8.58
%
for the S&P500
and
58.78
% for the
B
HFI
.
A
nnualized, we have
returned
2
2.22
% versus
2
0.26
% for the S&P500
and
10.03
% for the
B
HFI
.
We have continued our 5+ year outperformance over both the S&P500 and B
HFI
.
As everyone
already
knows
,
this is no easy task and something we are quite proud of.
Thankfully, our hard work,
philosophy, and contrarian investment style has paid off.
Do not be concerned.
These results do not
have us resting on our laurels.
Quite the contrary, we are more invigorated than ever.
We are highly
competitive and strive t
o be the best.
Hopefully Einstein's dictum holds true "the harder you work, the
luckier you get." We plan on continuing to work hard and hopefully we will remain lucky.
Performance
Year
-
to
-
Date
Return
Since
Inception
Av
era
g
e
Annual
ized
Return
Zinn Fund
11.6%
192.7%
22.22%
S&P500
6.0
%
168.6%
20.26%
Barclays HFI
3.5%
64.3%
9.75%
-40.00%
-20.00%
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Prelim Jun 2014
Zinn Fund
S&P 500
Barclay HFI
Zinn Fund, 292.67
S&P 500, 268.58
Barclay HFI, 164.34
0
50
100
150
200
250
300
350
Cumulative Returns
I
n short,
we are pleased with our first half performance
where we outperformed both the S&
P500
and BHFI while maintaining a balanced portfolio (i.e. both long and short positions).
F
irst half
performance
wa
s
a
combination
of
positive results in
Mannkind Corp (“MNKD”)
-
a company we have
been researching and investing in for well over 6 years
,
as well as
gains in
our overall portfolio.
As we discussed
we have a considerable position in
Mann
K
ind
Corp
.
The reason is rather
straight
-
forward:
it possess
es
all the
key ingredients
of a great investment. For starters, the company has
a great CEO in D
r. Alfred Mann. Second, their main product, Afrezza, is
pioneering
a new class of
“ultra
-
rapid”
insulin
treatment
that will revolutionize
diabetes
therapy worldwide. Third, the company
has two other drugs in their pipeline as well as a delivery combo devi
ce called Technosphere that alone
c
ould be worth multiples of the current stock price.
Fourth, the price doesn’t properly reflect our
estimate of intrinsic value
,
which is why we see a significant investment opportunity.
Excluding MannKind, we
had succ
ess in
several positions including
a few new
ones
. Most
notably would be Amazon.com
, a
compan
y
we believe ha
s
significant runway. Everyone is familiar with
Amazon
. R
emarkably
however
,
our analysis
concludes
that
it remains considerably undervalued
long
-
term
as most investors and analysts are underestimating their true earnings power. Many analysts have
actually become bearish on their future outlook. Th
eir reasoning
is
based on poor short
-
term
clarity in
gauging earnings power
. Several analysts w
ant Amazon to
focus on current earnings (wrong decision
long term) instead of
being laser focused on
future earnings (correct decision).
Amazon has correctly
chosen to focus on the long
-
term.
While we’re pleased with
our first half performance, especially
when compared to the S&P and
BHFI, it was not perfect.
A few of our long positions underperformed
while
most
short positions have
continued to
serve as
a
restrain
t
on
current results
. However,
we believe that long
-
term
,
holding a
balanced portfolio
is a
highly effective way to attain
superior
results. This is especially true when the
market eventually turn
s
south,
has increased volatility, becomes less ebullient in certain industries, or
sobers up to the economic realities of some countries fate
.
Regard
less, overall, we continue to search for good investment ideas and believe we remain well
positioned for long
-
term success.
Zinn Fund , $292,670.00
S&P 500, $268,580.12
Barclay HFI,
$164,339.07
$-
$50,000.00
$100,000.00
$150,000.00
$200,000.00
$250,000.00
$300,000.00
$350,000.00
Relative Performance of $100,000
PORTFOLIO
Our
current
portfolio consists
of
3
2
positions
o
f
which
1
5
are long and
1
7
are short
(through
a
long position
we benefit if
the price appreciate
s
, whereas a
short position
we benefit when
the price
decline
s)
. Depending on how you invest,
both strategies
can
help balance a portfolio and increase results
long
-
term
.
Geographically
,
2
5
are US based companies,
1
is
D
utch
,
1
is Bermud
i
an
,
1 is Australian,
and 1 is
Italian (
3
positions
are
location
-
less
, i.e.
currency,
derivatives)
.
O
ur portfolio
is industry
diverse and
our
holdings
range in size from Micro Capitalization (below $100 Million) to Mega Capitalization (ov
er
$100 Billion).
As detailed below, we are heavily weighted in the Financial,
Consumer Goods, Technology,
and
Healthcare
sectors.
Our
five
largest positions comprise
63
%
of the portfolio
. Being heavily weighted in
a few large positions is
likely to
r
emain
consistent in future periods since
we
allocate the largest amount
of resources to our best ideas.
Longs
Positions
%
Consumer Goods
4
23.90%
Services
1
10.27%
Industrial Goods
2
13.61%
Energy
1
2.49%
Healthcare
2
19.39%
Finance
5
49.64%
Total
15
119.30%
Shorts
Positions
%
Technology
9
-
16.88%
Consumer Goods
2
-
7.28%
Basic Materials
1
-
2.22%
Industrial Goods
1
-
1.78%
Energy
1
-
2.53%
Other
3
-
15.61%
Total
17
-
46.30%
Total/Net
3
2
73.00%
Currently we are
119.3
%
long and 4
6.3
% short, for a net long position of
73
%.
Since we
generally prefer to maintain a lower borrow, we will, in the coming months, be reducing both our long
and short book in order to return to a more muted position. However, w
e
will
remain largely
net long as
we continue to identify more long
idea
s than short
.
Should we
feel
the market become “overheated” or
“frothy”, we will increase our systematic
and alpha
hedges.
Over the past six months our portfolio has taken an interesting turn in terms of
positioning. This
is due to our i
nvestment in a few
companies
experiencing
rapid growth and
remain
ing
highly
underappreciated by the market.
This is
un
common.
Conversely, we have identified numerous
technology companies whose market capitalization refl
ects a world in which fundamentals
are
irrelevant
. This is an interesting juxtaposition as both would
be
labeled “
growth”
stocks
and yet they
couldn’t be more
diametrically opposed
fr
om a long term value stand
-
point
.
Since many of the
companies
we are sh
ort
have
erratic
stock prices
(people are heavily involved
emotionally, not logically)
, we have chosen to invest in several of them in smaller increments instead of
focusing on a
select
few and being
heavily
concentrated as we normally would. This is pure
ly a
defensive decision as the stock market continues to reward the most irrational companies. We are
certain this will end poorly for the most egregious companies, but the timing is anything but obvious.
We are monitoring this closely and will
modify
ou
r positions as necessary.
CURRENT VIEW
T
he economy has continued
on its growth
trajectory
over the first half of the year,
with
the stock
market
reflecting
reasonably robust conditions. In the last 6 months we have witnessed
multiple
occasions
where
the market
has
reach
ed
all
-
time highs. This is in the context of continu
ed
high
unemployment, stagnant wage growth, low inflation, and historically low interest rates.
T
his, along with
numerous other indicators
,
signals
the
overall
market is no long
er
“c
heap”
,
unl
ike a few years ago
.
One of the more interesting aspects of the current environment has been the number of IPO’s
of
companies without earnings. We have had more launches than any other time since the dot
-
com bubble
of the late 1990’s. This
is clearly a reflection of the positive sentiment and growing disconnect between
price and value with a large swath of
the
technology
sector
.
During the mid
-
part of the first half of 2014, we did witness a
short
-
lived rebirth
of
logical
investment conscio
usness which precipitated an ~20% decline in the most speculative of all tech stocks.
We found this to be healthy as it removed some of the froth
in this
overheated industry. As expected,
irrationality
has
return
ed
only a few short m
onths later.
On the
opposite side of the market, we have numerous companies which have been neglected
a
nd
are
on sale
at
significant discounts
.
Chief
among them are financial companies, which continue to
remain “unloved” by the market.
While, o
ne might argue that participan
ts have yet to forget the pain
endured during the previous crisis, we d
oubt
the markets memory is that long. More likely is the
continued sluggish return to growth of the housing and industrial sectors which drive loan demand.
Also to blame
is
the low
interest rate environment which is hurting lenders
at the expense of
borrowers. Normally this is a
net
positive
,
but not at the extremes. Current rates
have been so low for
so long that
it’s only marginally helping
borrowers
-
which do not really need an
y additional access to
cheap
funds
. This is
holding back lending,
hurting savers, and slowing growth in the economy
.
In the medium term, we fully expect inflation expectations to increase which will force the FED
to start raising rates later this year o
r early next year. This will be a boon to
the economy
–
for reasons
mentioned above, and
help underpin
a much
needed psychological reinforcement
:
the economy is doing
well enough that it no longer needs
any
assistance.
SUMMARY
We are pleased with our
current period results, but remain more satisfied with our long term
performance
(
both relative and absolutely
)
. There are always reasons to be
concerned
and
the constant
deluge of
information from new
s
outlets
that
can cause
even the most rationale
investors to make rash
decisions
or inaction, two fac
tors that may lead to
underperforman
ce.
T
his is what we believe has
occurred
over the past 5 years as the overwhelming number of
investors,
hedge funds
,
and other investment vehicles have severely underperformed the market.
Our
strategy o
f
keeping our heads down,
ignoring the crowd and sticking to what we are goo
d at: identifying
individual investments
has been a
successful
recipe
for MCA
.
We thank all of our partners who have entrusted us with their hard
-
earned money over the years.
We understand how difficult of a decision it is to part with ones’ money for the prospect of earning
more.
Thankful
ly our hard work has produced results
for which all have benefited.
Things are far from euphoric but that is unquestionably a positive. A slow but steady market is
ideal for stock
-
pickers such as ourselves and we continue to identify good places to inves
t. As long as
there are no major existential shocks to the world economy, we fully expect things to continue
positively. This goes for the economy, stock market, and our investment portfolio.
Lastly, as we mentio
ned in our performance section, we are not resting on our laurels. We will
continue to work hard for all our partners as this is not only
our job, but our passion.
As always, i
f you have any questions regarding this report, i
nvesting, or anything else for that
matter, please feel free to contact me at 305
-
6
48
-
6459
(office), 305
-
458
-
2975 (cell) or email me at
marcelo@maredin.com
.
Thank you and
we
look forward to discussing our results
at year
-
end
.
Sincerely,
Marcelo Zinn
A
R
eminder
:
Partners must inform me by Ju
ly
14
th
of your intention to either make a contribution or
withdrawal from the Partnership
.
There is no need to contact me should you not desire to make any
changes
.
THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, (A) BY ANYONE IN ANY STATE OR JURISDICTION IN WHICH SUCH AN OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH AN OFFER OR
SOLICITATION I
S NOT QUALIFIED TO DO SO, OR (B) TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION.
THE DOCUMENT CONTAINS FORWARD
-
LOOKING STATEMENTS
.
FORWARD
-
LOOKING
STATEMENTS ARE STATEMENTS THAT ESTIMATE THE HAPPENING OF FUTURE EVENTS, ARE NOT
BASED ON HISTORICAL FACT AND ARE “FORWARD
-
LOOKING STATEMENTS” WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
.
FORWARD
-
LOOKING
STATEMENTS MAY BE IDENTIFIED BY THE USE OF FORWARD
-
LOOKING TERMINOLOGY SUCH AS
“MAY,” “WILL,” “EXPEC
T,” “SHOULD,” “COULD,” “ESTIMATE,” “ANTICIPATE,” “POSSIBLE,”
“PROBABLE,” “CONTINUE,” OR SIMILAR TERMS, VARIATIONS OF THOSE TERMS OR THE
NEGATIVE OF THOSE TERMS
.
THE “CERTAIN RISKS” SET FORTH IN THIS DOCUMENT
CONSTITUTE CAUTIONARY SPECIAL CONSIDERATIONS AN
D STATEMENTS IDENTIFYING
IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE IN THE FORWARD
-
LOOKING STATEMENTS
.
THE FORWARD
-
LOOKING STATEMENTS
CONTAINED IN THIS DOCUMENT HAVE BEEN COMPILED BY THE GENERAL PARTNER AND THE
PARTN
ERSHIP ON THE BASIS OF ASSUMPTIONS MADE BY THE GENERAL PARTNER AND
CONSIDERED BY THE GENERAL PARTNER TO BE REASONABLE
.
FUTURE OPERATING RESULTS OF
THE PARTNERSHIP, HOWEVER, ARE IMPOSSIBLE TO PREDICT AND NO REPRESENTATION,
GUARANTY, OR WARRANTY IS TO BE IN
FERRED FROM THOSE FORWARD
-
LOOKING
STATEMENTS
.
THEREFORE, PROSPECTIVE PURCHASERS OF INTERESTS ARE URGED TO CONSULT
WITH THEIR ADVISORS (THE OPINIONS OF WHICH MAY DIFFER FROM THOSE SPECIFIED IN
THOSE FORWARD
-
LOOKING STATEMENTS) WITH RESPECT TO THOSE ASSUMPT
IONS OR
HYPOTHESES.
THE ASSUMPTIONS USED FOR PURPOSES OF THE FORWARD
-
LOOKING STATEMENTS SPECIFIED
IN THIS DOCUMENT REPRESENT ESTIMATES OF FUTURE EVENTS AND ARE SUBJECT TO
UNCERTAINTY AS TO POSSIBLE CHANGES IN ECONOMIC, LEGISLATIVE, INDUSTRY, AND OTHER
CIR
CUMSTANCES
.
AS A RESULT, THE IDENTIFICATION AND INTERPRETATION OF DATA AND
OTHER INFORMATION AND THEIR USE IN DEVELOPING AND SELECTING ASSUMPTIONS FROM
AND AMONG REASONABLE ALTERNATIVES REQUIRE THE EXERCISE OF JUDGMENT
.
IF THE
ASSUMED EVENTS DO NOT OCCUR
, THE OUTCOME MAY VARY SUBSTANTIALLY FROM
ANTICIPATED OR PROJECTED RESULTS, AND ACCORDINGLY, NO OPINION IS EXPRESSED ON THE
ACHIEVABILITY OF THOSE FORWARD
-
LOOKING STATEMENTS.
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