RC Strategy

Investment Process
The following outlines Emerald Waves investment process for managing the RC Strategy.

Portfolio Management

• Long/Short Equity with no more than 100% net long or 80% net short; Historically 60-100% net long
• Diversified across at least 4 of the 10 major economic sectors
• Position weightings based on total return potential/risk and volatility
• Current position weighting, and technical and valuation analysis used for adding and trimming positions

Selection of Long Position
(a security that increases in value due to an upward price movement)

• Total 18 Month Return Potential at Initiation: >30 percent including dividends
• Investment Style: Seeking undervalued companies with the ability to experience significant stock price appreciation without substantial dependence on positive economic activity
• Typical position: A company undervalued relative to future growth prospects, or undervalued relative to respective sector or historical valuation because of temporary misperception(s) of business

Selection of Short Position
(a security that increases in value due to a downward price movement)

• Investment Style: Seeking positions to hedge market risk. May target overvalued currencies, geographic regions and/or sectors with deteriorating fundamentals which may be due for a downturn
• Typical Position: S&P and/or Russell indices representing various market capitalizations. Currency, geographic and sector indices also used
• Purpose: Broad market indices are primarily used to protect long positions from downward market moves. Currency, geographic and sector indices are primarily active bets by the Portfolio Manager forecasting underperformance relative to long positions

Reasons to Sell/Trim a Position

• Original investment thesis proves to be incorrect
• Total return potential/risk is no longer favorable
• More compelling ideas
• Advantageous time to take a tax loss or gain
• Position size as a percentage of overall portfolio could be high (considered in combination with the above factors)
• To reduce exposure to a particular sector (considered in combination with the above factors)

Note: Emerald Waves Investments, LLC reserves the right to modify the information on this page. However, it is not the intention of Emerald Waves to frequently make changes.