Figure 6 plots the prior week's returns by index and asset class exposures. Short exposures are highlighted in red. Shorts are sourced through the imbedded leverage had by double inverse ETFs and from directly shorting ETFs. Long positions are colored green.

The New

This week we will be selling (covering) EEV. We will then look for an opportunity to short the iShares MSCI Euro Monetary Union Index (EZU) with the same exposure as we had to EEV. We also will soon be selling the PowerShares FTSE RAFI US 1000 (PRF) and Telecom Holders Trust (TTH). The proceeds from these sales will be used to buy the PowerShares Nasdaq-100 Index (QQQQ).

Figure 7 depicts the average return of all shorts and longs (indexes & assets classes) held in 2009. Absent our nimble trading of short positions, the portfolio would be at a loss in 2009. Without short positions, AI 75/50 would still be outperforming the S&P 500 in 2009, but it would be lagging the HFRX, our absolute return benchmark. The results below assume that all positions were held from January 1, 2009 through the close on March 13, 2009, which was not the case for AI 75/50. We frequently review the static returns of aggregate longs and shorts to evaluate our asset selection process. In any long/short portfolio, absolute returns are more likely when short positions (absent inverse leverage) decline more than long positions.

Below are asset weightings for each position, our beta/non-beta balances, source of return themes, gross, short and net long percentages and other relevant currently held position data. To the far right, are strategy views that express core holdings and tactical trades. We are targeting gross exposure of 115% down from our current 133%.

John Serrapere is the investment analyst and portfolio strategist for Foster Holdings Inc. in Pittsburgh. He also works on research and consulting projects through Arrow Insights.

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