Steven Zoernack And The Bullion Fund Deploy Equity Long/short Strategy With Apple (aapl) And Researc

By Author: Taylor McDonald
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Steven Zoernack and the Socially Responsible (SRI) Bullion Fund Deploy Equity Long/Short Strategy with Apple (AAPL) and Research in Motion (RIMM). "We attempt to profit by buying companies with good bottom up fundamentals and sell closely related companies that are overvalued in relation to the companies we buy while minimizing correlation to the overall markets. In this case, we go long an equally dollar weighted amount of shares of Apple and sell short an equally weighted amount of shares of Research in Motion (RIMM). We believe these two companies fit the above criteria. Then we wait for prices to converge," according to Steven Zoernack.

Another recent example of this strategy would have been to purchase an equally weighted share of Visa (V) and sell an equally weighted share of MasterCard (MA), i.e. purchase 3,500,000 shares of Visa for every 1,000,000 shares of MasterCard sold short. The trade would have been successful whether the overall stock market went up or whether it declined considerably because of the correctly predicted declining relative difference in value between the two investments as it decreased (their ...
... prices converged) regardless of how the overall market performed. In 2008, for example, when the Dow was up 500 or down 500, the trade seemed to work either way," says Steven Zoernack.

Steven Zoernack, an ex Bear Stearns Vet, recently launched the Socially Responsible (SRI) Bullion Fund that will invest some of the firm's profits into African nations. Steven Zoernack's flagship offering launched on March 1, 2010 and is unique in that the Alternative Investment and Goodwill Fund will reinvest some of its own profits into African Nations' economies where needed most. "Rather than relying on the World Bank for additional debt", says Steven Zoernack, Portfolio Manager and Managing Partner, "The Bullion Fund helps give citizens of Emerging Nations the confidence to reinvest in their own economy by helping to open up their markets to free trade and encouraging Foreign Capital."

Other Strategies deployed by The Bullion Fund include Global Macro, Statistical Arbitrage, and some Directional equities and futures. The Bullion Fund's Global Macro strategy looks at the world as a whole, including global politics, interest rates, currency swings, international stock markets, and physical commodity prices when making investment decisions. According to Steven Zoernack, "We use a top down global approach and we invest in any market using any instrument to participate in expected price movements." These movements may result from forecasted shifts in world economies, political fortunes, or global supply and demand for resources, both physical and financial. This style of investing typically leads to some of the bigger single investment gains.

When Steven Zoernack and The Bullion Fund deploy their Statistical Arbitrage Strategy, the firm uses a heavily quantitative and computational approach to trading by utilizing a variety of automated trading systems which commonly make use of data mining, statistical methods and artificial intelligence techniques. A popular strategy is pairs trading, in which equities or futures are put into pairs by fundamental or market based similarities. When the poorer performing investment vehicle is expected to revert to the mean (improve), it is bought long. When the better performing vehicle of the pair is expected to revert to the mean (decline), it is sold short at the same time. In other words, when one equity or futures contract in a pair outperforms the other, the poorer performing vehicle is bought long with the expectation that it will climb towards its outperforming partner, the other is sold short. This strategy hedges risk from whole-market movements. Conversely, this Statistical Arbitrage convergence trade is often not affected by even the largest of market swings up or down, and performs on its own merits and often offers an excellent hedge against traditional buy long and hold substantial stock portfolios," says Steven Zoernack.

A small portion of The Bullion Fund is enhanced by directional trades in equities and futures to capitalize on long term trends. Currencies tend to form some of the longest directional trends and The Bullion Fund and Steven Zoernack attempt to identify the beginning of these trends before anyone else. A recent example of this strategy in Q1 2010 was to buy shares in the banking sector and to separately purchase crude oil.

When defining The Bullion Fund's correlation to the overall market, Steven Zoernack likes to utilize a positively biased portfolio in a bull market and a negatively biased portfolio in a bear market. A Portfolio with a correlation of +1.0 is a portfolio that tends to move 1 to 1 with the overall market; A Portfolio with a correlation of -1.0 is a portfolio that tends to move almost exactly opposite the overall market (for example, Portfolio is up 5% on a day that the Dow is down 500 points). A correlation of 0 is a portfolio that moves up or down in an unrelated correlation to the overall market. Steven Zoernack says "In the true sense of the word 'Hedge', we attempt to utilize a slightly negatively biased correlation of 0 to -.03 in a bear market (attempting to show positive returns when market is down) and a slightly positively biased correlation of 0 to +.03 (attempting to show positive returns when market is up)."

Diversification is another important strategy used in The Bullion Fund. According to Steven Zoernack "we spread the portfolio among multiple investment vehicles. Our funds include investments with varied risk levels so that losses in one area can be offset by gains in other areas. Additionally, we vary the risk in the securities by industry and by geography. This minimizes the impact of industry or location specific risks. Our portfolios diversify into each of the different strategies we utilize within our overall mandate. Although diversification reduces the risk of our portfolio, it does not necessarily reduce the returns."

In addition, The Bullion Fund and Steven Zoernack utilize both Horizontal and Vertical Diversification. Horizontal Diversification strategies diversify between same-type investments. It can be a broad diversification (like investing in several NASDAQ companies) or more narrowed (investing in several stocks in the same sector). Typically, the rule of thumb is that the broader the diversification the lower the risk from any one investment. Vertical Diversification, on the other hand, spreads risk between different types of investments. It can be a very broad diversification, such as diversifying between Stocks and bonds, or a more narrowed diversification, like diversifying between shares of stocks from companies in other countries. While horizontal diversification lessens the risk of investing entirely in one security, vertical diversification goes beyond that and protects against market and/or economical changes.

"The 2008 -2009 market deleveraging left many pricing dislocations within the capital structure," according to Steven Zoernack. As a result there are multiple opportunities to capitalize on mispriced assets. Much of the global equity, debt, currency and commodity markets still retain valuable relative value and unique opportunities."

"We have several other risks that we monitor when managing a portfolio," says Steven Zoernack. We place Risk Management in the same category as Investment Strategy because we are always considering risk versus reward when making our decisions. The transactional investment experience Steven Zoernack has gained over time attempts to assist in preserving capital and attempting to minimize the following Hedge Fund Risk Types:

a) Pricing and Net Asset Valuation Risk; b) Market Risk Management; c) Liquidity Risk; d) Counterparty Credit Risk; e) Leverage; f) Operational Risk; g) Compliance, Regulatory, Legal, and Governmental Risk; h) Model Risk; i) Systemic Risk; j) Insurance and Hedge Funds; k) Technology and System Risk; l) Fiduciary Risk; m) Capacity and Growth Size Monitoring; n) Transparency and Communication; o) Verification of Fees; p) Conflict of Interest and Special Networks; q) Expenses Monitoring; r) Special Reserves for Discrepancies and Variances; s) Electronic Reporting of Policies and Procedures.

In addition to performance, Steven Zoernack and The Bullion Fund have decided to use some of the firm's profits for Goodwill purposes. Steven Zoernack says we are very aware of the inflation and other challenges that Africa is facing right now. The Bullion Fund is unique in that the alternative investment and goodwill fund reinvests profits into the economies of African Nations where needed most, whether it be to: help maintain Peace and reduce violence, improve Global Image and counter negative publicity in the media, deliver food, invest in mineral and timber rights, assist in the cultivation and mining of Natural Resources, attract tourism by building resorts and by advertising globally, develop a Financial Center and open markets to free trade, assist in the cultivation and mining of natural resources, provide major financing for most project types, to build schools, roads, churches, medical facilities, shelters, housing, farms, power plants, mills, mines, other infrastructure.

The Bullion Fund seeks assistance from Agencies both in the United States and in Africa in locating worthy goodwill projects to invest in. Although our goals are lofty," says Steven Zoernack, we will start small and grow strong until we accomplish what we have set out to accomplish for our investors."

Investment in the Fund is not available to the general public.

The Bullion Fund
1701 Pennsylvania Avenue NW
Third Floor
Washington, DC 20006
(202) 747-7575
IR(at)goldvestfunds.com
Steven Zoernack