RAB Special Situations (fka RAB)

[Tackler]

Hedge fund article discusses RAB...

http://www.safehaven.com/article-3168.htm

A good example of this phenomenon is the extraordinary performance of RAB Capital's Special Situations fund, which returned an amazing 2000%+ over about two years. RAB performance is somewhat more transparent than many funds because the manager is a publicly quoted company, listed in London. The team is highly professional, and expert at what it does, but the up and downward journey in the returns of RAB's premier fund tells an interesting story.

The fund's main area of investment has been junior mining shares, which started severely out of favor, and "off the radar screens" of most hedge funds and large institutional investors. RAB invested where others feared to tread. A fall in the dollar, and resulting rise in gold and commodity prices have brought these smaller companies very much into favor. In the past two years, the sector was "discovered" and the crowd rushed in and bid up valuations. The RAB fund benefited enormously, because the small size of these companies meant that valuations rose quickly as the liquidity flowed in.

But cyclical thrusts do not go on forever in a straight line. The dollar's slide stopped at the end of 2004, and since then the dollar has bounced, rising about 7.5% from its year-end low. Initially gold and gold stocks held, but in the past two months with the latest rally in the dollar and the de-gearing in the hedge fund sector, gold shares have slid in value as money flowed out of these shares. Like other investors in the mining sector, the RAB fund's performance has been hit, and they have suffered a drawdown. The result is ironic. Those who avoided the fund 2-3 years ago because the small cap mining sector was too tiny to be of interest missed out on the outsized returns. Eventually many were convinced by the strong performance and jumped in after the mining sector's market capitalisation grew and it became fashionable. Those who invested recently may be regreting their late arrival as the fund finally got hit with losses from a downcycle. RAB invests in small and mid-cap companies. Some of these shares are relatively illiquid, so it is not able to shift easily its overall position from long to short*. RAB has seen these shifts in investor preference before, and they prefer to ride out the correction, because they are convinced the the longer cycle is still up. (Indeed, they talk of a possible super up-cycle in commodities, lasting more than a decade.) Last year, the fund suffered a dip of 20% in its performance, but then went on to achieve a subsequent +100% return. Hurray for the big cycle, which has been so profitable to ride.