The most profitable strategy of Q1 is shaping up to be, not surprisingly to Zero Hedge readers, identifying and shorting Chinese fraud stocks. As one of the premier hunters of reverse merger fraud, Kerrisdale Capital, notes, it generated an unbelievable 89.1% return gross of fees and 73.2% net, beating the performance of the S&P by about 68%. Since inception, the fund is up 299.5% net of fees and 405.6% gross of fees. Kerrisdale notes: "As one of the first funds to expose scams within the U.S.-listed Chinese reverse merger universe, we benefited from our intimate knowledge of the sector. Most of the frauds exposed this quarter contributed to our returns in some shape or form, as did equity declines in many Chinese fraudcaps that were not exposed." Indeed, as we predicted back in November 2010, Chinese fraud hunting would soon be a pervasive and very profitable strategy. We hope many readers turned a profit as Zero Hedge tracked and pursued various frauds, and as our own internal "fraudcap" short bucket generated returns of over 30%. And since neither NYSE, nor Nasdaq, and certainly not the SEC cares one bit about investment integrity, we anticipate many more profitable days for those who focus purely on isolating market fraud. "The Chinese “fraudcap” space imploded this quarter. Chinese reverse merger stock scams were down anywhere from 10% to 80%, with many stocks down 50%+. On average, 1-2 frauds were exposed per week, with long, detailed reports put out by a wide variety of research firms, including Muddy Waters LLC, Glaucus Research, Citron Research, etc." Don't worry: there is plenty of it to go around.
Full report by Kerrisdale:Kerr is Dale Letter