This is the 15th piece in our Positioning for 2012
series. Readers can find the entire Positioning For 2012
John Del Vecchio, CFA is a Portfolio Manager for Ranger
Alternative Management, L.P., the portfolio manager for the
AdvisorShares Active Bear ETF (
). From 2003-2007, John served as an Analyst with David W. Tice
& Associates / Behind the Numbers, LLC selecting short sale
opportunities utilizing forensic accounting research on behalf of
institutional clients and the Prudent Bear Fund and prior to that
as an Analyst for the Center for Financial Research and Analysis
(CFRA) performing forensic accounting analysis for short sale
opportunities. For more information on the fund, its performance
How would you generally describe your investing
John Del Vecchio
We manage a short-only fund with a focus on companies with
aggressive accounting and/or weak balance sheets. We overlay this
with technical and tactical analysis in terms of position sizing
and overall exposures. We are actively managed and not tied to an
index. We do not use any leverage or derivatives.
Within equities, are there any particular sectors or themes you are
currently overweight or underweight? If so, why?
On the short side I like technology and consumer stocks. Within
technology there are many companies that fall by the wayside as the
market determines the "winners". This makes the sector ripe for
short positions regardless of the market cycle. Within consumer, we
not only see weak consumer spending, but building inventories,
questionable acquisition activity and overall low earnings quality.
Stocks such as Fossil (
), Deckers Outdoor (
), Green Mountain Coffee Roasters (
), and Iconix Brand Group (ICON) are among our favorite short
Name one investment that exceeded your expectations in 2011, and
one you had high hopes for that didn't pan out. Do you see any
particular investment surprising investors over the next year?
Juniper Networks (JNPR) was my favorite short idea coming into the
year and it played out just as we expected. On the flipside, Under
Armour (UA) has been a frustration. It's essentially flattish from
where we raised concerns, and it may take longer to play out than
expected. Currently, we no longer have a position.
To which index or fund - if any - do you benchmark your
performance? Has this changed recently, and if so, why?
We are not an inverse fund, nor are we tied to an index. I would
view our performance best relative to the average stock on an equal
weighted basis. The Value Line Arithmetic Index is representative
of the liquidity of the U.S. market and the average stock
performance because it is not market capitalization weighted. My
view has been the same for 12 years with respect to this index.
Some describe the current era as "The Great Deleveraging". Do you
agree/disagree, and does this macro consideration affect your
investment planning process?
Yes, I agree. It will continue to take years to deleverage. The
after-effect of inflated asset prices - purchased with special
financing that shouldn't have been available in the first place -
requires many years of "catch up" to make those assets attractive
2010-11 saw a notable rush for the exits from equities and equity
vehicles. Is this a cyclical, or secular shift? What would it take
to bring them back?
In my opinion, volatility will remain high. With high frequency
trading, index ETF rebalancing, hedge fund participation, and a
news-driven market the constants in today's world, volatility is
likely to remain extreme.
Do you believe gold is a genuine hedge in uncertain markets? If so,
how much exposure to it or other precious metals do you have? If
not, where are you turning for potential downside
Yes, I believe it is a hedge. It's been used in society for
thousands of years. Only in the U.S. do people walk into a shop to
sell their old jewelry for 50% of it's worth. Gold provides
stability to a portfolio and it's tangible. Gold prices were up in
2008. We do not own gold in our fund because we are a short only
fund. But, I've been substantially long gold for a decade.
Global Macro considerations dominated the headlines in 2011. Do you
see 2012 unfolding differently? If so, how?
I think we'll continue to be in a news-driven market. That will
lead to continued volatility in the markets both foreign and
Eurozone contagion: Will it continue to drive the market's
direction, and how are you protecting client assets from potential
A few of our short positions have substantial revenue exposure to
Europe. Particularly on the consumer side we see this as a negative
catalyst for those stocks.
How much exposure to emerging markets do you have both in terms of
stocks and bonds? Are China, India or other major EMs better
positioned to withstand a serious global economic downturn than the
: They are probably slightly better positioned than in the past as
they have a larger class of consumers of their own. But, the U.S.
consumer is still roughly one-quarter of global consumption. No one
can be immune from that. I'd argue that the U.S. has never come out
of the downturn.
We are coming up on an election year. Will this be good or bad for
markets? Are you positioning for different potential outcomes?
Personally, I don't think it matters. It may drive short-term
results. But, we focus on individual companies that are
experiencing weakening demand and they are pulling the wool over
investors' eyes through the use of accounting tricks. It doesn't
really matter to us who the President is or who controls
Housing market in U.S. - still an issue or not so much anymore?
Will prices continue to fall? Do you have exposure to either REITs
or residential real estate in client portfolios?
In my opinion, housing is in a generational downturn. The growth
was artificially inflated due to special financing that allowed
people to own homes that they couldn't have afforded in the first
place. Now people are stuck in their homes and credit is tighter.
Companies such as Pulte (PHM) have stated that their prospects are
dependent on unemployment turning and consumer confidence
improving. Unemployment - including those that are discouraged
workers - remains bogged down in a negative trend. Real incomes are
not growing. It's hard for the consumer to be confident.
Lowe's (LOW) has seen a dramatic increase in revenue from
maintenance rather than discretionary purchases. Buying a new home
is the furthest thing from most people's minds in this
AdvisorShares Active Bear ETF is short FOSL, DECK, GMCR, ICON and
Chesapeake Energy Is More Undervalued Than
Enterprise, Kinder Morgan