March 12, 2010 11:32 AM ET

Focus

Status

Finance Professional

Asset class

All US equities

Cap bias

No specific

Position type

Long and short

Approach

Fundamental

Trade frequency

Less than 10 trades per month

Holding period

Buy and hold

Diversification

11 to 20 holdings

Profile Feedback

Alejandro Paschalides

Strategy Energy Specific

Category Sector Focus

Average trade replication time 2 minutes

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1 Subscribers

Model risk score 4

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Investment Strategy

Summary
Approach
Research
Allocation Discipline
Sell Discipline
Exceptions

Focusing solely in the energy sector, uses a top-down approach to qualitatively narrow down investment options. Then, applies quantitative analysis to identify specific opportunities. Focus on fossil fuels, as they represent the overwhelming majority of the sector, but open to alternative energy plays if valuation is attractive.

Analyzes global energy and commodities trends to gauge how these will influence the overall economy. Screens out, on a qualitative basis, which energy companies are poised to take advantage of changes within the industry. Then quantitative analysis determines if an attractive investment opportunity exists. Looks at the entire energy spectrum, but places an emphasis on fossil fuels, since they... [more +]

Research includes industry journals and newsletters, technical books, academic and institutional reports, etc. to discover overall energy trends. Quantitative analysis is focused on standard financial metrics, but also industry-specific, such as reserves, day rates, rig counts, etc. Outsized returns are generated by knowing something the general market doesn’t, so manager makes it a point to gather... [more +]

Seeks few positions and low portfolio turnover because commissions are costly given typical small account size. Seeks 10 to 20 positions in account, each comprising about 5% to 10% of the portfolio. Given low number of positions, seeks to spread out transactions over time. Nevertheless, will not do multiple trades on a single security, since transaction costs make that too costly for the typical... [more +]

Sells when a trend has played itself out or if valuation no longer reflects fundamentals. Does not have % exit targets in the up or down direction. Sells if foresees increased downside risk arising from demand retrenchments.

Invests in ETFs to capitalize on macro-level trends while eliminating company-specific risks. May go long or short companies in other industries affected by energy trends if the market has yet to realize the potential impact.

Investment Report

February 2010

Made a variety of trades in January to take advantage of some potential long-term trends in the energy space. Tried to keep a long/short balance in new investments, as up until now the portfolio consisted solely of long positions (even the short on DUG functions as a long because DUG is a double inverse fund). I believe equities will have a hard time continuing their run, and energy equities might suffer in the short term as a result. For the shorts, I sought stocks that look undesirable from a long-term perspective.

The shorts done this month were (along with a brief qualitative description of rationale) : Tesoro, an oil refiner. Oil refining is at a general overcapacity, and companies that are solely refiners are at risk of performing poorly. There is still more downside despite the large drops these companies have seen the past few years. PACCAR, a truck manufacturer. Trucking is much more inefficient compared to rail with regard to energy consumption. As a result, if energy prices rise (or the general economy worsens), this stock is poised to decline. Navistar, a truck manufacturer. Same logic as PACCAR, adding some diversification to reduce risk. Alaska Airlines. Similar rationale to PACCAR; a more "discretionary income" type of airline, since most travel to Alaska is tourism related. Discretionary income is cut dramatically in the event of higher energy prices. Copano, LLC, a midstream nat gas company. Added this to add some shorts in the energy space. Midstream firms are generally valued as bonds, which would imply safer, but if yields rise on current bonds, that makes Copano less attractive on a relative value basis, and it cannot raise its yield as quickly, since it has different drivers.

A new relative value trade:
Long: Powell Industries
Short: American Superconductor

Both of these provide fairly similar services, but on a quantitative basis, American Superconductor is much higher growth and is valued more speculatively. If the general economy worsens over the next few months, Powell Industries, which is a more stable firm, should outperform American Superconductor.

New long trades: Baker Hughes, Schlumberger, Tidewater, Weatherford.

These are all equipment and service companies, as wanted to raise the portfolio's exposure to this sub-sector. These companies stand to benefit tremendously as energy continues to become increasingly scarce over the coming years. Trinity was bought to get exposure to rail and wind.

Portfolio is fully invested now, so I don't expect much action over next few months, but that all depends on what the overall market does.

February 2010

More +

Personal Background

Graduated magna cum laude from the Wharton School of Business with concentrations in finance and real estate
Finance professional with prior experience in private equity, currently a consultant to a hedge fund
Passionate about the energy industry, possesses a constantly expanding network within the sector

Experience on Covestor.com^‡

Alejandro Paschalides's Covestor.com Profile

Overperformed S&P 500 for 13 of their 34 months on Covestor.com^#
Return Since Inception: -56.32% (May 2007)
Last 3 Months Return: -6.50% (S&P 500 0.81%)
Annualized Return: -25.52%
Sharpe Ratio: -0.84 (S&P 500 -0.08)
Maximum Drawdown: -64.46% (S&P 500 -56.78%)

Performance

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	S&P500
	Manager

Custom

YTD

Inception August 26, 2009	Model Manager	S&P 500
Return Since Inception (%)	(4.03)	11.88
Annualized Return (%)	(7.34)	23.12
Month to Date Return (%)	3.14	4.14
Calendar 3 Month Return (%)	(4.56)	(0.39)
Sharpe Ratio	(0.43)	1.44

Monthly Performance (%)

Month	Return	S&P500	Outperformance
Feb	0.65	2.85	(2.21)
Jan	(4.99)	(3.70)	(1.30)
Dec	0.87	1.78	(0.91)
Nov	(0.66)	5.74	(6.40)
Oct	(5.34)	(1.98)	(3.36)
Sep	2.59	3.57	(0.99)

The performance of the model manager's account has been calculated by CVIM on a daily time-weighted basis including cash and broker commissions. These returns do not reflect any CVIM suitability or risk score restrictions and are exclusive of CVIM fees. Therefore, they do not represent the performance of the CVIM model available for subscription. Benchmark returns have been calculated by CVIM using a time-weighted calculation of daily valuations and do not include cash or transaction costs. Please see the additional disclosures below.

Top Holdings

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Symbol	Security	Exchange	Allocation (%)
Cash	n/a	n/a	37.19
ACI	Arch Coal, Inc.	NYSE	10.63
ALK	Alaska Air Group, Inc.	NYSE	(10.51)
CEO	CNOOC Limited	NYSE	8.66
NAV	Navistar International Corporation	NYSE	(8.36)

Total Holdings 23

Data displayed is as of market close: March 11, 2010

Recent Transactions

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Symbol	Security	Type	Price
AMSC	American Superconductor Corporation	Sell Short	$39.74
POWL	Powell Industries, Inc.	Buy	$31.19
ALK	Alaska Air Group, Inc.	Sell Short	$36.29
BHI	Baker Hughes Incorporated	Buy	$46.29
CPNO	Copano Energy LLC	Sell Short	$24.75

Data displayed is as of market close: March 11, 2010

* The Subscription Minimum is the minimum subscription required to follow a particular model. The minimum amount is determined by CVIM, based on the characteristics of the underlying model. It should not be considered as specific investment advice for your investment situation.

^‡ Covestor.com performance data has been calculated by Covestor on a daily time-weighted basis of the equity positions of the account and is exclusive of any commissions and cash in the portfolio. The member's performance on Covestor.com, based on a separate account, may not reflect the strategy employed to manage the model available for subscription on CVIM. Please see additional disclosures below.

^# Since the model manager's inception in Covestor.com

It should not be assumed that any information discussed herein will prove to be profitable or that decisions in the future will be profitable or provide similar results. The information set forth herein is not a substitution for personalized investment advice, and should not be construed as a recommendation to purchase or sell a particular security or to subscribe to a particular model.

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