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Investment Strategy Approach

The fund is a long/short bottom up fundamental SMID Cap hedge fund.  Most investment ideas are generated by fundamental industry and company research independently performed by Sword.  Generally, when a new investment idea is generated, we conduct more in-depth research, which includes channel checks, financial analysis, and financial modelling.  Prospective position size is also generally analyzed.  This analysis depends on various factors, which may include, level of conviction, liquidity of the security, short interest, exposure to the theme or trend, exposure to the subsector and/or different end-markets in the subsector, etc.  Once an investment opportunity is identified, Sword generally conducts a 3 step research process, which often results in an out of consensus view on target investments, whether the investment is a long or short idea:

Primary Research

The use of non-Wall Street sources of information such as channel checks, interviews with customers, suppliers, competitors and other industry experts to gather as much information on the industry and the company;

Management Meetings

Due diligence meetings or conference calls with company management to cross check information learned from industry experts; and

Financial Forecasts

Constructing financial models based on the information learned from the fundamental research and from financial statements (income statements, balance sheets and cash flow) to derive base, best and worst case estimates.

​​Sword uses short positions to generate investment returns as well as hedge against market risk.  Sword seeks to focus on specific negative catalysts and take short positions in the Securities of companies based on one or more of the following:

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  • Financial Weakness

  • Poor Management

  • Corporate Governance

  • Earnings Risk

  • Customer Risk

  • Competitive Risk

  • Business Model Risk
     

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Sword may seek to hedge the portfolio by employing one or more of the following:

  • Portfolio, macro-economic and industry hedges against long/short positions

  • Use of options, ETFs and other equity/derivative trading tools

  • Combination of fundamental and technical analysis

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