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Capital Management Group

There Are Hedge Funds... and There Are Hedge Funds

Valencia, CA (ots)

Recent articles about hedge funds in several
national publications have piqued public interest in this
increasingly hot investment. Since 1999, assets under management in
hedge funds have quadrupled to nearly $800 billion as investors have
flocked to these funds in search of better returns and some
protection from the increasingly wild stock market gyrations. One
good friend has recently stated, highly appropriately, we believe:
"The stock market is behaving like a deranged ping-pong ball." The
old fashioned "long-term" holds are usually not a good practice at
Keith Gilabert, founder of Capital Management Group in Valencia,
California, has stated in response to several of these articles:
"While it may be true in a number of instances that some hedge funds
aren't delivering much diversification to reduce portfolio risk, this
is not the case with Capital Management Groups funds." He points out:
"At any given time we have from 50 to 75 stocks in our portfolios and
we are always widely diversified in a number of industry groups and
sectors. Furthermore," he stated, "every stock position is protected
by a 'zero-cost' (or better) collar." He is quick to point out that a
"collar" is a way of protecting the portfolio against loss through
the use of option puts with a strike price at the purchase price of
each stock. The puts are paid for by the sale of call options on the
same stock, thus creating "zero-cost" collars. He noted: "If a stock
should fall below its purchase price, having the put in place is like
having zero-deductible fire insurance on a home... there is immediate
and full protection against any loss of value."
To illustrate, Gilabert pointed out how this strategy worked after
September 11, 2001. The market fell by 33 percent but the Capital
Management Group portfolios did not lose money because of the puts
that were in place. When the market bottomed after it reopened,
Gilabert noted: "Capital Management Group was able to take advantage
of the bounce and made more than 19 percent for investors, net of
fees, by the end of the year. We use this strategy, without
exception, in all market conditions on every stock we own. Our
average net annual return for our investors for the past seven years
has been somewhat more than 27 percent."
Gilabert stressed: "There are hedge funds and there are hedge
funds... some are good and some of them aren't. It's important to use
good judgment when selecting a fund. Do research before investing."
He said Capital Management Group prefers to call their funds
"performance based funds" instead of hedge funds. The reason, he
pointed out, is that if Capital Management Group fails to make a
profit for its investors, all fees are entirely waived. He also noted
there are never any sales charges, commissions, loads, or back-end
fees with any Capital Management Group fund.
As Gilabert discussed, is it also important to select a fund that
offers protection for assets. To that end one should always determine
that client funds are held by a large financial institution such as a
UBS Financial Services, Merrill Lynch, etc. and protected by SIPC.
"Do not ever put money in a fund where monies are privately held and
not protected," he emphasized. Also, he said: "Insist on regular and
complete monthly statements which document every holding in the
With market uncertainties as they are today, including the terror
threats we have all learned to live with, Gilabert believes it makes
good sense to have solid bottom-side protection for investment
portfolios. A well-managed fund of this nature is a sound way to
provide this protection, he stressed.


John Farrar
Phone +1/661/212-2559

Keith Gilabert
Phone +1/661/510-7777