Tactical concentration pays off for Agamemnon fund

The Tolhurst Agamemnon Equity trading fund has outperformed the Aussie market by sticking to large-caps and handling a small number of positions.
Agamemnon was a Greek commander and King of Mycenae. Among his many military accomplishments (and Grecian heresies), none included setting up an equity fund.

Stephen Ellis borrowed the name of the Greek hero when setting up the Tolhurst Agamemnon Equity Trading Fund. Tolhurst is an Australian private client brokerage that is now building a funds management business.

Unlike Agamemnon, who enjoyed the support of his eromenos Argynnus, Stephen Ellis has set up this fund virtually solo and it launched in November 2007. He used to work at Goldman Sachs, Deutsche Bank, Morgan Stanley and Salomon Brothers in Australia and England, in both equity and fixed-income departments.

Target size for this fund is $200 million within two years. The number of equity positions it holds at any one time fluctuates between two to 10. That means concentration risk is a real issue and investors are dependent on the fundamental analysis skills of Stephen Ellis. The portfolio includes big, liquid, blue-chip Australian names, such as Woodside Petroleum, ANZ and Macquarie Bank. There is no day trading of stocks and positions are generally held for periods up to three months in duration.

The fund has recorded a 15.3% gain in the nine months since its inception, versus a 22% loss for the S&P ASX200 index. In July 2008 it was up 2.3%. There hasnÆt been one big pay off trade that accounted for the lionÆs share of the return, but those returns have been split roughly between energy, financial and industrial plays. The target returns are 20% per year on volatility of 10%.

It is a long-only, absolute return fund. The way it works is that each investor is segregated into a separate managed account. For the first year, these accounts have all been run on an unleveraged basis, but in the future there is the scope to employ leverage, and each investor gets to opt whether they want their account leveraged or not.

The annual management fee ranges between 2.2% and 3.85%, depending on the arrangement with each investor. There is no performance fee.

Blackrock is the fund administrator and handles execution plus all the managed accounts. As there is no leverage used at present, and no stock borrowing, there is no prime broker.
¬ Haymarket Media Limited. All rights reserved.