HYBRID VIGOR: VOL 3 ISSUE 28 "Out of the Hole"

Amidst the upheaval and tragedy in the world, it’s easy to overlook a little but important data point here at Hillside.  Our flagship HOCS 100 index, which has performed splendidly both in ten years of back-testing and in live testing in 2015, has been mired in what Queen Elizabeth once called an “annus horribilis.” But it finally pulled itself out last week, getting to positive 73 basis points for the year.  Not much, but better than the alternative.

We thought it would be interesting to compare this with our initial HOCS 20 lists at the beginning of the year. It turns out that original-recipe HOCS 20, held steady instead of rebalanced weekly, would have returned 80 basis points year to date. China-free would have done much better, up 2.46%, because Dycom 0.75% made the cut and has returned over 20%.  The China-free portfolio from the beginning of the year had a return pretty similar to many of the individual funds we track.

In a future issue we’ll provide the returns you’d get from rolling the HOCS 20 every week.  One thing we see, which is consistent with studies of market timing:  you get a lot of return from a small number of names and a small number of days.  So you have to keep your skin in the game.

Speaking of skin in the game, long-suffering Herbalife convertible holders finally got paid last week.  Early action this morning seems to confirm Friday’s performance, which screamed short-covering. Also speaking of skin in the game, we talk in this issue about the benefits, at least in relative performance, that would have accrued hypothetically to GBX shareholders who took the leap and swapped from shares to convertibles at a nominal premium to take advantage of a bad borrow that subsequently improved.

We go off the reservation a bit this week to introduce readers to an interesting alternative to Treasury and agency issues. Contributor Jeff Gross explains the opportunities available in Small Business Administration (SBA) certificates.  We also provide updates from Jeff Alton and Dennis Dowden on two quirky names that have been going up but still offer above-market upside.

(This is the cover letter for the subscription-based weekly Hillside's Hybrid Vigor newsletter. For a complete copy, please contact John Anderson at + 1 (646) 712-9289 x 107).