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August 6, 2009

Hurry Up and Trade!

By Gregory Bresiger

The trading desk of money manager Galbraith Capital has little patience with stocks that don't produce immediate gains.

Steven Greczek, Galbraith Capital

So head trader Steven Greczek says the hedge fund takes very different positions over short time horizons. The portfolio is quite flexible. It could buy growth stocks in Europe at the same time it is buying lightly traded equities in emerging markets.

"We don't limit ourselves by market," says Greczek, who previously worked with Instinet on the electronic execution desk.

Galbraith's portfolio could be anywhere between 100 percent cash and 100 percent equities at any given time for clients. They are funds of funds, pension funds, and well-heeled individuals. They tend to give Galbraith a small piece of their assets.

This hit and fund philosophy paid off recently, when most funds and markets were crashing. In 2007, the fund was up 22 percent. Last year it was up 10 percent, Greczek says.

How has Galbraith been doing it?

The "beta neutral" fund seeks uncorrelated alpha, says the 34-year-old Greczek. That means it doesn't seek alpha in any one sector, exchange or kind of investing.

The portfolio relies on a proprietary model and can turn over 20 percent in a few days. Stocks are usually held for a week or less. This "move quickly" approach works when the desk finds uncorrelated alpha.

Correlated alpha is finding gains in one sector, say energy, Greczek explains. Groups of funds will exploit a sector or market. But Galbraith, he says, does the opposite.

"We don't correlate to value investing. We don't correlate to growth investing. We don't correlate to the market, which is beta. So the market is down 30 percent and we're up 10 percent. Here is proof that we're not correlated to the market," Greczek adds.

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Besides using a beta neutral concept, portfolio's gains come from having an equal amount of short and long exposure. About 90 percent of Galbraith's trades are done electronically. Brokers must have "an edge," Greczek says. If they are in a fragmented market they must have access to all the dark pools. In a bear market with lots of losers, what could hurt Galbraith's model?

"One of the risks could be the correlation of a portfolio could be out over the short term for a severe market move. This could be in our favor or against of course, but it is nevertheless a risk," according to Greczek. Portfolios are diversified as they typically trade large global baskets with low concentration and are invested for short periods. They can then spend extended periods in cash if no opportunities arise.

This period gives them time to "time to talk to clients and work on our research and models," Greczek says.

This is a time when Galbraith officials remain patient and wait for the next opportunity for uncorrelated alpha. Greczek says the key to success is scouring the global markets for available alpha combined with risk controls.

 

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