Makuyana_Against-_Assignment2-_Hedge_Fudge(PDF)[1]

ROBERTT MUGAB ASSET MANAGEMENT fund “Here to lead…”

The Investor’s Report to the New

Gushungo-Plus Market Neutral Hedge Fund Prepared by Makuyana Against July 2014

ROBERTT MUGAB ASSET MANAGEMENT fund “Here to lead…”

Established in 2010

Robertt Mugab Asset Management fund is a registered financial services provider.

DDCRCP23 Reg. No. 2010/33023/47

CONTENT

PAGE

Message from the CEO and Hedge Fund Manager……………………………………………….……..….1

Numbers That Matter…………………………………..………………………………..…..………..……….……….2

Creation and Risk Management of the Gushungo-Plus Hedge Fund……..………….……….…….3

The Style-Bias and Stock-Picking of Shares……………………………………..………….………..….………6

How the Hedge Fund Performed………………………………………………………………………………….....8

Contact Details…………………………………………………………….……………………..…………………….…..10

MESSAGE FROM THE CEO AND HEDGE FUND MANAGER

Dear Valued Investor Here at Robertt Mugab Asset Management Fund, in line with our slogan “Here to lead,” we have remained on the spectacular edge of modern investing. We may be a relatively new player in the investing game, however, this only means that we innovative ideas to the table that have proven to be valuable, reliable and profitable. In these times of uncertainty and volatility in the local and global markets, one needs to ensure that they are somewhat immune to the consequences thereof. In the awake of this instability, the team and I at Robertt Mugab Asset Management fund have created a range of investment products that will ensure that you, as an investor, can rest assured that your investment will be impervious to the movements in the market. One such product that has proven to be an astounding success is the Gushungo-Plus Market Neutral Hedge Fund(GPMNHF). This hedge fund, as will become more evident in this report, was designed and managed to ensure that it is market-neutral and is minimally correlated to other factors that could affect returns on investments. Take for example the recent depreciation of the Rand against the Dollar. This saw the Rand trading above the R10/$ mark. While this will have affected the returns of

your other investments, this Fund’s reaction thereto was negligible. Furthermore, the markets also witnessed

a significant drop in the price of Platinum

– not seen in more than three decades.

This was mainly due to the persistent

Platinum Industry strikes which of late

been halted. The strikes have of recent

been spreading to other minerals with

Trade Unions representing the workers in

the metals Industry (Association of

Metalworkers and Construction Union's

(Amcu)) agitating for further strikes until

their wage demands are met. This saw

other metal prices declining with copper

falling to extremely low level as shown in

the graphs in June alone.

With all these Political, social and economic risks, the GPMNHF was unable to protect the investments and realized returns that outperformed the market at the same time. However we were able to minimize the extend of the losses that could have arose. Since economic conditions are set to

improve after the end of the famous

Platinum strikes, I therefore urge you to

peruse this report in order to discover the

remarkable performance of the GPMNHF

and to invest in it in order to harness all

the future growth in the hedge fund that

are set to occur.

Kind Regards

Makuyana Against : BAaccScie(Hons)-Wits, BSCT(Hons)-(UZ)

Signed : A.Makuyana

CEO:Robertt Mugab Asset Management Fund

IMPORTANT FINANCIAL

INFORMATION.

EXTRACT BALANCE SHEET AS AT

MAY 2014

Assets(cash + longs)

272289

Long positions 144854

Cash 127435

Equity(Balance) 112013

Liabilities 160275

Short positions 160275

Percentage Growth of Gushungo-Plus Market

Neural Hedge Fund= -1%

Percentage Growth of the All Shares Return = -

0,3283%

EXTRACT INCOME STATEMENT

FOR THE 10 WEEKS ENDED

2014

Net Fair value gains

(15,421.82)

Interest Income 2,857

Gearing Applied in Hedge Fund=

5%

Bank-Agreed Interest Rate : 6% -The highest money market rate:

Cadiz Money Money Market Fund

Explanatory Relationship of

Hedge Fund with the JSE

0.44%

COVER RATIO This ratio measures the solvency of the hedge fund. This should always be above 1 to avoid scrip lenders from demanding back borrowed shares. Range of Cover Ratio: 1.65– 1.85

NB: All the information provided above has been extracted from the

Hedge Fund Statistical Analysis Sheet in the Excel workings.

CREATION AND RISK

MANAGEMENT OF THE

GUSHUNGO-PLUS HEDGE FUND

The hedge fund (“the Fund”) was created in the form of a self-funding investment vehicle. Cash investments made by investors are kept in an interest-bearing bank account. The total cash investment in the Fund was R140 000. The funds are used merely as collateral in the unlikely event that the Fund does not perform well or is required to fund margin calls. The Fund functions through a shorting and a longing process. In the shorting process, shares that are

expected to decrease in price are

borrowed from scrip lenders and then

sold in the market to be purchased at a

later date.

The funds obtained from that sale are then used to purchase shares whose share prices are predicted to increase. The exact process and analysis used in selecting the respective shares is explained in more detail in later pages. The primary purpose of this Fund is ensuring that its profitable performance is not affected the market (the JSE). As such, the Fund had no exposure to the market at inception. It also had no initial exposure to Resources, the ZAR/USD exchange rate and Brent Crude as depicted in the tables below:

LONG POSITIONS

MARKET Resource ZAR/USD Brent Crude

Code Cashflow Exposure Proportion Beta Exposure Beta Exposure Beta Exposure Beta Exposure

TCP 0 0.00% -0.017022 0 -0.15792 0 -0.7622 0 0.271338 0

FFB 9944.865822 7.10% -0.724272 -7202.79 -0.23197 -2306.91 0.34817 3462.508 -0.10224 -1016.75

CLI 16403.55772 11.72% 0.128775 2112.368 0.091699 1504.182 0.098443 1614.808 0.042239 692.8725

PGR 12714.95567 9.08% 1.2124409 15416.13 0.536842 6825.926 -0.42772 -5438.43 0.151222 1922.786

HDC 21834.1506 15.60% 0.719503 15709.74 0.402066 8778.773 -0.13569 -2962.77 0.133629 2917.684

SPG 13179.63192 9.41% 1.178479 15531.92 0.342276 4511.075 -0.16343 -2153.98 0.042037 554.0269

GRF 6241.474258 4.46% 0.8077598 5041.612 0.326074 2035.181 -0.46597 -2908.36 0.32736 2043.209

KAP 0 0.00% 0.3799996 0 0.207233 0 -0.41794 0 -0.04555 0

IVT 19561.12535 13.97% 0.4835111 9458.022 0.256448 5016.415 -0.04111 -804.127 0.12689 2482.113

MPT 0 0.00% 0.0656565 0 -0.11897 0 -0.35744 0 0.027694 0

CSB 0 0.00% 0.2435117 0 0.022609 0 -0.29622 0 0.03433 0

BLU 8925.378803 6.38% 0.4099085 3658.589 0.169207 1510.238 -0.18867 -1683.92 0.179411 1601.315

MTA 13384.17313 9.56% 0.2388318 3196.566 0.147995 1980.787 -0.03399 -454.88 0.084387 1129.448

ITE 17810.68673 12.72% 0.3690802 6573.573 0.124755 2221.978 0.020636 367.5376 0.175812 3131.33

AVERAGE 0.3925831 0.15131 -0.20165 0.103468

TOTAL 140000 100.00% 69495.73 32077.65 -10961.6 15458.04

This lack of initial exposures proved to be successful in protecting the Fund from external forces as evidenced by the 10.43% relationship between the daily movements in the JSE and this means the Hedge fund is well hedged against JSE All shares movements .This is illustrated:

SHORT POSITIONS

MARKET Resource ZAR/USD Brent Crude

Code Cashflow ExposureProportion Beta Exposure Beta Exposure Beta Exposure Beta Exposure

BTI -8794.34 6.28% 0.319713 -2811.67 0.099645 -876.314 0.419814 -3691.99 0.063354 -557.158

SAB -8488.64 6.06% 0.910814 -7731.57 0.444279 -3771.32 -0.07581 643.5502 0.376137 -3192.89

GLN -8943.17 6.39% -0.45681 4085.354 0.584139 -5224.05 0.457461 -4091.15 -0.83399 7458.527

CFR -1470.93 1.05% 1.288596 -1895.44 0.708563 -1042.25 -0.13826 203.374 0.389163 -572.432

NPN -9190.24 6.56% 1.145017 -10523 0.649711 -5971 -0.26826 2465.372 0.347048 -3189.45

APN -25105 17.93% 0.575485 -14447.5 0.184947 -4643.1 -0.18747 4706.549 0.221071 -5550

REM -27413.1 19.58% 0.676751 -18551.9 0.256628 -7034.96 -0.272 7456.457 0.14981 -4106.76

SHP -33635.7 24.03% 0.318682 -10719.1 0.010771 -362.295 -0.20293 6825.804 0.132785 -4466.31

ITU -2064.89 1.47% 1.023552 -2113.52 0.525097 -1084.27 0.058149 -120.072 0.31734 -655.272

MDC -14894 10.64% 0.321433 -4787.42 0.138854 -2068.09 0.230717 -3436.29 0.04205 -626.298

AVERAGE 100.00% 0.612323 0.360263 0.00214 0.120477

TOTAL -140000 -69495.7 -32077.6 10961.61 -15458

Exposure

Cashflow (0.00)

Market (0.00)

Resource (0.00)

ZAR\USD (0.00)

Brent Crude (0.00)

Copper -3509.246

Gold -2539.236

Variance Long 59822512

Variance Short 121688468

Std Dev 181510979

The scatter plot above also shows the alpha and beta of the hedge fund. The beta of the fund is 51.72%, while the alpha is 0.06% per day. Due to a large number of shares that constitute the fund being in the resources sector (all in the short positions) or being

affected by the ZAR/USD exchange rate, the fund was intentionally built such that the exposure to these factors was zero. Of late, the Rand has been trading around LESS the R10.00-level against the US Dollar – the effect of which the Fund was not exposed to:

y = -0.5172x - 0.0006 R² = 0.1043

-3%

-2%

-1%

0%

1%

2%

3%

-2% -1% -1% 0% 1% 1% 2%

Series1

Linear (Series1)

Hedge Fund related to All shares Index Hedge Fund related to All shares Index

Daily AllShare Index Returns

Daily

Hed

ge Fun

d R

etu

rns

y = 0.0961x - 0.001 R² = 0.0059

-3%

-2%

-1%

0%

1%

2%

3%

-2% -1% 0% 1% 2%

Series1

Linear (Series1)

Hedge Fund Related to ZAR/US$

Daily ZAR/US$ Mvt

Daily H

F Re

turn

The Fund is, naturally, exposed to other market factors. This exposure was not calculatedly eliminated at the inception of the fund. However, the fund remained largely unaffected by the movements in these indices. These included the Platinum, Copper, Brent Crude, Gold, the SA Financial and Industrial indices. The correlations thereto (two of which have been illustrated below) were minute.

As such, the Fund remained largely unaffected by external market phenomena and outperformed all the indices and markets displayed. The HF line below clearly shows the Fund‟s performance exceed that of the JSE (All Share Unit line) and the other market factors

y = -0.1856x - 0.0011 R² = 0.0364

-3%

-2%

-1%

0%

1%

2%

3%

-3% -2% -1% 0% 1% 2% 3%

Series1

Linear (Series1)

Hedge Fund Related to SA Resources

Daily SA Resorce Returns D

aily HF R

etu

rns

y = -0.1058x - 0.001 R² = 0.01

-3%

-2%

-1%

0%

1%

2%

3%

-4% -2% 0% 2% 4%

Series1

Linear (Series1)

Hedge Fund Related to Oil mvt

Daily Oil mvt(%)

Daily H

F Re

turn

(%)

y = -0.2424x - 0.0011 R² = 0.0469

-3%

-2%

-1%

0%

1%

2%

3%

-3% -2% -1% 0% 1% 2% 3%

Series1

Linear (Series1)

Hedge Fund Return related to Gold mvt(%)

Daily Gold mvt(%)

Hed

ge Fun

d R

eturn

y = 0.0619x - 0.001 R² = 0.0046

-3%

-2%

-1%

0%

1%

2%

3%

-4% -2% 0% 2% 4%

Series1

Linear (Series1)

Hedge Fund related to Copper

Daily Copper mvt(%)

Daily H

ed

ge Fun

d R

eturn

y = -0.0064x - 0.0011 R² = 5E-05

-3%

-2%

-1%

0%

1%

2%

3%

-4% -3% -2% -1% 0% 1% 2% 3%

Series1

Linear (Series1)

Daily H

F Re

turn

Hedge Fund Related to platinum mvt

Daily Platinum mvt(%)

y = -0.5236x - 0.0004 R² = 0.1053

-3%

-2%

-1%

0%

1%

2%

3%

-2% -1% 0% 1% 2%

Series1

Linear (Series1)

Hedge Fund Return related to SA Financials &Ind

SA Financials &Industrials return(%)

Daily H

F Re

turn

y = -0.0878x - 0.001 R² = 0.0034

-3%

-2%

-1%

0%

1%

2%

3%

-3% -2% -1% 0% 1% 2%

Series1

Linear (Series1)

Hedge Fund Related to S&P 500

Daily S&P Return

Daily H

F Re

turn

While remaining as unexposed to the market as possible, the fund is required to remain liquid as well. This level of liquidity is measured by the cover ratio in order to fund any possible margin calls. As mentioned, shares are borrowed from scrip lenders and then sold in the market to finance the purchase of the longs.

In order to prevent the scrip lenders from demanding the shares back, the cover ratio is always required to be above 1. The Fund has managed to keep the cover ratio well above the minimum with the range throughout the life of the fund being 1.65 – 1.85 during the trading period:

0.8

0.85

0.9

0.95

1

1.05

1.1

1.15

Thursday,February 20,

2014

Thursday,March 20,

2014

Sunday, April20, 2014

Tuesday, May20, 2014

Friday, June20, 2014

HF Unit

All Shares Unit

SAR Units

Rand/US$ Units

Brent Oil Unit

Market Factors: All shares,Resources,Rand/$,Oil

THE STYLE-BIAS AND STOCK-PICKING OF SHARES

Selecting shares that will constitute the Fund requires analysis of the characteristics of the shares based on past performance of shares with similar qualities. The Fund must purchase shares (long positions) whose share prices are expected to increase in future. The shares on the JSE with the following characteristics were elected as long shares:

.Low price-earnings ratio (i.e. value shares with high earnings yields)

.Non-resource sector shares

.Small capitalisation shares relative to other companies listed on the JSE

.Leading (shares that have had a high growth rate in the past 6 months and are expected to continue in such a manner)

.Value shares-shares with a low P/E ratios.

Shares with the above-listed characteristics have proven historically to outperform other shares. In addition to the above characteristics, preference was given to shares with high dividend yields.

1.50

1.55

1.60

1.65

1.70

1.75

1.80

1.85

Thursday,February 20,

2014

Thursday,March 20, 2014

Sunday, April20, 2014

Tuesday, May20, 2014

Friday, June 20,2014

Cover Ratio

Cover Ratio

Thus, the following shares constituted the long shares of the fund:

Company Code % of Long Portfolio TCP 0.00%

FFB 7.10%

CLI 11.72%

PGR 9.08%

HDC 15.60%

SPG 9.41%

GRF 4.46%

KAP 0.00%

IVT 13.97%

MPT 0.00%

CSB 0.00%

BLU 6.38%

MTA 9.56%

ITE 12.72%

In order to make the fund profitable, the short-positioned shares must decrease in price or increase in price at a smaller extent than that of the longs shares. Also, the long and short positions must not be highly correlated. Implicitly, the characteristics of the short shares should counter those of the longs. As such, the short-positioned shares selected, were, relative to other JSE-listed shares,

.growth shares (higher price-

earnings ratios with low earnings

yields)

.in the non-resources sector

.Large Cap (in that their market

capitalisations were of the Highest

on the JSE)

.Neither lagging nor leading (their

growth in the past 6 months had been comparably moderate) .

Similarly, preference was given to shares with low dividend yields. The demand for low dividend-yielding shares will decrease due to dividend-seeking investors

avoiding such shares. As such, this is a contributing factor to the expected decline in the price of these shares.

All taken into account, the following shares were borrowed as short shares:

Company Code % of Short Portfolio

BTI 6.28%

SAB 6.06%

GLN 6.39%

CFR 1.05%

NPN 6.56%

APN 17.93%

REM 19.58%

SHP 24.03%

ITU 1.47%

MDC 10.64%

An intentional attempt was made to ensure that the investments in both the short and long portfolios were as equal-weighted as possible. This is due to the fact that equally weighted portfolios have historically proven to outperform unequally-weighted portfolios. This is as a consequence of to the distribution of risk and diversification that occurs in equally-weighted funds.

Within the trading period, the value of the long position increased by 3.47% while the value of the short position increased by 14.4%. These movements were both not in the Fund’s favour. This means that when the short shares are eventually bought back from the market and returned to the scrip lenders, the fund will be in a net cash outflow position.

0

0.2

0.4

0.6

0.8

1

1.2

1.4

Thursday,February 20,

2014

Thursday,March 20, 2014

Sunday, April20, 2014

Tuesday, May20, 2014

Friday, June 20,2014

Long Unit

Short Unit

Cash Unit

HF Unit

Hedge Fund Unit Ex-Cash

Below is the Hedge fund graph, including the relative performance of the Longs against the shorts as shown by the Relative performance line. The line is

decreasing down, indicating that the shorts (liabilities) are increasing at a faster rate than the longs (assets). This is a sign of a disastrous fund, not performing well.

The red line indicates that, relative to the long positions, the short positions continued to increase in value at an increasing rate. The average increase in the price of the shares in the long position during the trading period ended 24 June 2014 was 3% and the total movement was 3%.

Meanwhile, the average increase in the price of the shares that constituted the short potion of the Fund was 8% and the total movement was 14%. Since the increase in the shorts(liabilities) was higher than the increase in the

longs(assets), this resulted in the continuous negative performance of the Fund (as represented by the purple line above which is dwindling down!!!).

NB: All the information provided

above has been extracted from

the Hedge Fund Statistical

Analysis Sheet in the Excel

workings.

A detailed analysis of the performance of the fund is found below.

0.000

0.200

0.400

0.600

0.800

1.000

1.200

1.400

Thursday,February 20,

2014

Thursday,March 20,

2014

Sunday,April 20,

2014

Tuesday,May 20,

2014

Friday, June20, 2014

Long Unit

Short Unit

Relative=Long Unit/Short

HF Unit

Hedge Fund Units-ex Cash and Long-short Relativitiness

HOW THE HEDGE FUND PERFORMED

The fund generated a return of -1% within the trading period from 20 February 2014 and 24 June 2014. This return, in comparison to the return

on the JSE in the same period, is very

poor. Within the same period, the return

on the JSE All Share was -0,328%. Included

in the graph below is the Satrix 40, FTSE

100 and S&P 500 which grew by -0.566%, -

0,215% and -0,013% respectively. NB: All

the information provided above

has been extracted from the

Hedge Fund Statistical Analysis

Sheet in the Excel workings.The

decrease of the Fund exceeded that of the

JSE and the other markets throughout the

duration of the trading period as

illustrated below:

The highest interest rate that could be

obtained in a money market fund is 6%. A

comparison is shown below between the

performance of an investment in a money

market account and in the Fund.

The decreasing relative performance of

the Hedge fund against the Cash(money

market), shown by the relative

performance line ,demonstrates that the

Money market created greater value for

the investment during the period than our

Gushungo-Plus Market Neutral Fund .

0.000

0.200

0.400

0.600

0.800

1.000

1.200

Thursday,February 20,

2014

Thursday,March 20,

2014

Sunday, April20, 2014

Tuesday, May20, 2014

Friday, June20, 2014

HF Unit

All Shares Unit

Top 40 Units

Satrix40 Units

S&P 500 Units

FTSE 100 Units

The performance of the hedge fund was further amplified by the gearing of the fund. Both portfolios were created using a gearing of 5% of the initial R140 000 investment. This means that the Fund was exposed to 1.05 of the actual returns of the shares. Performance and transaction fees have

not been taken into account in the

determination of the returns stated in this

report. However, these are minimal in

relation to the gross return generated by

the Fund.

IN CONCLUSION This report has shown how an investment into the Gushungo-Plus Market Neutral Fund will yield negative returns that are below most performance

benchmarks(market factors and resources). However, this negative performance is mainly due to the poor performances shown by these selected companies in the past six months which has resulted in most of their shares not performing as expected in the last five months due to reasons explained in the CEO report(such as strikes and poorly performing economy). We do not expect this poor performance of these companies to persist since most of the strikes have since ended (after Minister Adv Ngoako Ramatlhodi’s intervention) . Therefore we expect the economy to recover and all the selected companies to do well. With the Fund being protected from the market and other market elements, the potential for growth of the investment is nothing short of phenomenal.

0.800

0.850

0.900

0.950

1.000

1.050

Thursday,February20, 2014

Thursday,March 20,

2014

Sunday,April 20,

2014

Tuesday,May 20,

2014

Friday, June20, 2014

Cash Unit

HF Unit

Relative Performance of Fundover Cash

Hedge Fund related to Cash and the Relativeness of the fund over Cash

To partake in this Fund, please see the

contact details provided below:

Should you wish to find out more about the Gushungo-Plus Market Neutral Hedge Fund, please feel free to contact us through any of the methods below: CONTACT DETAILS

Fund Manager: Makuyana Against Email: zim.president@ Roberttmugab.co.za Tel: +27 (0) 11 7170965 Cell: O783656946 Fax: +27 (0) 11 147 0588 Twitter: @makuya.against Information Centre Email: info@ Roberttmugab.co.za Tel: +27 (0) 11 456 1000 Fax: +27 (0) 11 456 1200 Roberttmugab Offices Physical Address 9009 Logarithms Rd Melridge House Melrose 6134 Postal Address PO Box 7172 Melrose, Johannesburg 3223 South Africa Website www. Roberttmugab /hedgefunds.co.za Twitter @Roberttmugab-zim