The January 2024 monthly tear sheet for the Roubaix Fund Composite, a fundamental long/short equity strategy focused on small and mid cap U.S. stocks. During January, the Composite generated a net return of (3.05%) relative to a total return of 0.21% for the HFRI Equity Hedge (Total) Index and (3.89%) for the Russell 2000 Index. Average daily net exposure during January was 45.33% compared to 43.24% since inception in January 2010.
Q4 2023 hedge fund letters, conferences and more
Markets diverged in January with small caps significantly underperforming large caps. Continued strength of the largest tech stocks helped to sustain the outperformance trend that has been in place. Strong economic data put some upward pressure on interest rates and downward pressure on riskier parts of the markets. While this supports the idea that a recovery is underway, it delayed the near term set up for interest rate cut expectations. We expect earnings season to offer more insights into the market and our investments, and we are keen to capitalize on the various cycles present within sectors and stocks. We also believe the evolving stages of the recovery in industries we focus on can act as a catalyst for our positions to outperform and for the portfolio to continue to identify new investments.
Fundamental Long/ShortEquity Strategy -Small and Mid Cap U.S. Equities
Investment Philosophy: Structural inefficiencies in small-cap stocks - greater dispersion of returns, lower sell-side coverage, limited buy-side crowding - enable higher alpha generation on the long and short sides of the portfolio. Less diversified small businesses are inherently more affected by the drivers that create or destroy equity value over time. We believe the most important of these drivers are the strength or weakness of the business model itself, the advantages or challenges created by the company’s financial structure, and the quality of the fiduciaries involved.
We identify compelling long and short investment stories where these drivers are all moving towards either end of the quality spectrum, respectively, and systematically track ~300 companies in a dynamic focus list in our research management system. We then analyze an internal checklist of fundamental factors to determine whether each long or short story is also a viable stock investment at a given point in time and deploy capital when an attractive story becomes an equally compelling stock.
We generally concentrate our stock positions in 30-50 individual longs and shorts to maximize the value of our research and convictions, and likewise do not utilize ETFs or options to hedge. To manage risk, we generally maintain consistent net exposure, avoid leverage, and remain disciplined with our internal price targets and stop-loss levels.
See the full tear sheet here.