8/9/2019 DTAII 033110 Quarterly Letter (3)
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April 15, 2010
Dear Investor:
The value of your investment in Downtown Associates II
appreciated by +2.17% in the first quarter of2010, trailing the
broader market averages. The S&P 500 Total Return index was up
+5.39% and theRussell 2000 Total Return index was up +8.85%. Since
January 1, 2008, the approximate beginning ofthe bear market, DTA
II is up +9.07% as compared to the S&P 500 Total Return Index
which was down-16.03% and the Russell 2000 Total Return Index which
was down -8.35%.
Quarterly Performance Review
We continued to pare back our long positions during the quarter
given their substantial appreciation andincreased our hedges to
protect our portfolio. For the quarter our average gross long
exposure was 57%and our gross short exposure was 42% (substantially
all in highly liquid ETF hedges) resulting in net longexposure of
just 15%. Our gross long positions were up approximately +12%, and
when adjusted formarket exposure they contributed +7.4%. Our gross
hedges were down approximately -10.5%, and whenadjusted for market
exposure contributed -4.3%. The top portfolio performers for the
quarter were BGCPartners Inc. (up 32% during the quarter) and Super
Micro Computer (up 55% during the quarter).
Portfolio Strategy and Market Outlook
We are pleased that our stock selection has continued to deliver
strong performance during the quarterand we are comfortable with
our conservative portfolio posture given our view of current
valuations andeconomic conditions. It remains our objective to
deploy significant amounts of capital into new ideas asattractive
opportunities present themselves and to protect our assets in a
market decline.
We believe that patience is still a virtue. Downtown Associates
manages money with a long term
perspective, focused first on protecting your and our investment
assets. We will not chase performance when stocks are expensive the
ensuing returns are likely to be subpar. Instead we prefer to hold
cash,remain liquid and wait for attractive opportunities. Why
should todays opportunity set be the only onewe consider when
tomorrows is likely to be more fertile? By remaining disciplined in
our purchase
decisions, we seek to maximize future returns while limiting our
downside risk (the possibility of apermanent loss of investment
capital).
We prefer the risk of lost opportunity to the risk of lost
capital.
It can be painful to hold cash during a rising market. As a
result, many in our profession would ratherhold expensive
securities in an effort to hug the entire market indices and
thereby avoid any near-termunderperformance - inevitably this leads
to mediocre long term returns.
We believe strongly in our disciplined investment strategy and
our ability to generate strong long-terminvestment returns, while
protecting capital in weak market environments. Because we hold
aconcentrated portfolio, we only need a few select stocks to fall
to appetizing prices, not the broadermarket. We do not know when
great stock opportunities will present themselves and as a result,
it isimportant that we have cash available to position us to take
maximum advantage of sudden distressed andemotional sellers.
8/9/2019 DTAII 033110 Quarterly Letter (3)
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April 15, 2010Page Three
Client Conference Call
We are again planning to hold our Annual Client Conference Call
and have set a date of June 10, 2010.Please mark your calendars. We
will be sending more detailed information in the coming days.
Developments at Downtown Associates
We are pleased and excited to report that Emily Hannum joined
the Downtown Associates team as ournew Director of Marketing and
Client Relations earlier this month. Emily has over12 years of
highly successful investment marketing experience having worked in
bothEurope and the U.S. for a highly respected investment
management firm. Please join us in extending hera very warm
welcome. We hope that you will all have the opportunity to meet
Emily in the comingmonths.
Thank you for your continued confidence in Downtown
Associates.
If you have any questions, we would be happy to discuss them
with you at your convenience.
Sincerely,
DOWNTOWN ASSOCIATES, L.L.C.General Partner
