HEDGENERGY's investment strategy combines extensive top-down energy industry macro analysis with the ability of its energy investment professionals to selectively identify, through intensive bottom-up company analysis and proprietary analytical tools, specific companies where undervaluation exists. These relatively undervalued companies form the core of the Fund's long portfolio and include some micro-cap, small-cap, and mid-cap public energy companies with management teams whose reputation for growing companies, building value per share, controlling balance sheet risk, and corporate governance are known to HEDGENERGY's investment team. These same tools disclose companies that are significantly overvalued relative to their underlying asset base, have weak management teams, deteriorating fundamentals, as well as poor future prospects, and are therefore candidates for short positions. Furthermore, management of the Fund involves active sector rotation strategies, shifting assets between different segments and market capitalizations within the energy industry to enhance and maximize absolute returns. As activist investors, HEDGENERGY's principals take a proactive role in advising the Fund's portfolio companies with respect to increasing shareholder value, particularly with its micro-cap and small-cap portfolio, which many times results in enhanced relative valuations.
In addition to shorting equities, a variety of option strategies are utilized to hedge portfolio risk exposure in various time frames and market conditions. The strategies implemented are based on the macroeconomic environment and the particular risk/reward characteristics of each position in the context of overall portfolio exposure. The energy sector is quite volatile and HEDGENERGY's goal is to strike a balance between uncertainty and the risk of opportunity loss by taking advantage of this excess volatility through an optimal hedging program which includes put/call purchases, spreads, covered and uncovered writes, collars, and synthetics.