Q:  Would you give an overview of the company? A : Sherwood Forest Capital Management is a SEC registered investment advisor located in Charlottesville and Richmond, Virginia. The firm was launched in April 2007 and currently offers a Long/Short Mutual Fund along with several managed account programs. Presently, the firm manages a total of $31 million in assets. Q:  What core beliefs drive your investment philosophy? A : We are committed to finding opportunities in both bull or bear markets with our unbiased and opportunistic investing methodology. Our fund is designed to seek profits in both up and down markets. We believe in overweighting the strongest areas of the market when investing ‘long,’ or the weakest areas when investing ‘short,’ with the goal of achieving strong returns. In the last ten years, several mutual funds under the banner of the long/short style deployed absolute return, merger arbitrage and hedged equity investment strategies. Many of these long/short funds in the industry have a long-bias. While these investment strategies aim to provide steady returns in the rising or sideways market, they invariably fall short in the down markets because of their long bias. Our investment strategy allows us to benefit from the rising and declining trends. We also have the ability to hold up to 100% of the portfolio in cash when trend opportunities are limited. Q:  How do you transform this investment philosophy into the fund’s investment strategy? A : The Sherwood Forest Long/Short Fund uses price and technical analysis to identify trends and invest in Exchange Traded Funds. Our objective is to determine the current trends in the market and align our portfolio accordingly. Our strategy is not about predicting or forecasting but about following the price action. The Long/Short fund has no directional bias. If the trends are up, we can be invested up to 100% long with no shorts, and if we recognize the trend is down, we can be up to 50% short with no longs. We primarily invest in domestic equity ETFs, but also invest in ETFs that invest in international stocks, commodity, fixed income and currencies. The strategy does not have a mandate or requirement to stay invested in the market all the time. We can stay out of the market if we do not find any opportunity at a given time. Q:  How do you identify a trend? A : We identify a trend through many different technical indicators such as a key moving average crossover at a particular historical support point. When identifying a trend, we employ several simple tools. One of the key things we do is looking at roughly fifty-five ETFs. We believe that markets are correlated in direction but they differ greatly in magnitude and timing. When we seek to identify a trend, we use discretion because we are less focused on the performance of each position and more focused on the experience and the Net Asset Value of the entire fund. With discretion, we would be matching our positions based on the risk, divergences, and how things may be expanded. Q:  Would you provide more information about some of the trends that you follow? A : Each time we see the beginning of a trend, we put a small position there and get the stock up and to capture that trend while it is really there. Of the fifty-five ETFs that we follow, each one is independent of any other. We look at market cycles on a cyclical basis for individual trends. For example, from 2004 to 2007, when energy and gold were strong, we consider this an environment were significant profits would be sought after. Another relevant example is the overall domestic markets in December 2010, which from an April high to the June, July bottom was a 17% pullback of the S&P 500, and we experienced a 5% drawdown. After the trend began to establish itself after finding a low in June and July, in the fourth quarter of 2010 we experienced slightly more than a 10% overall growth in our NAV. In the fourth quarter of 2010, the areas where the opportunities were good were not only the emerging markets but also the smaller gold miners along with the Russell 2000 index or small cap companies. They all outperformed the S&P 500 Index. Q:  What role do themes play in your process? A : There are many other active forces in the markets other than the general types of themes. Instead of drawing a theme and developing a portfolio around that theme, what we have found more enlightening to us is to allow the price action to drive our portfolio. Then, we step back and, looking at how our portfolio is positioned, we can better understand the current trends and risks by looking at our holdings. We do not claim to be fundamental investors. Following the price allows us to avoid being wrong. Our objective in any timeframe is to make a little bit of money, make a lot of money and sometimes lose a little bit of money, but never lose a lot of money. Collectively, over years, that would make us winners. What is more important for us than recognizing just the profits is avoiding significant losses and cyclical bear markets. We primarily seek to limit losses due to the combination of flexibility and discipline. Q:  What is your research process for picking ETFs? A : We monitor the selections of ETFs quite carefully. At no time are we concerned with the forces that drive a particular ETF, but we rigorously follow the ETF’s own price action and its price pattern. For instance, when we are buying a Russell 2000 ETF, we are not trying to access the Russell 2000. Instead, we are trying to assess the index performance in the market. We do not try to match a benchmark’s performance. What we do is analyze the ETF itself and determine what its price action is. The research analysis components are all in-house proprietary-based methodologies. We carefully monitor what we currently own rather than tracking the index that it is supposed to represent. Q:  How do you execute your portfolio construction? A : Our basket of about 55 ETFs is normally diversified and offering full liquidity. The maximum position size per ETF is 5%. The fund’s portfolio can be fully in cash or fully invested depending on the market environment. We will utilize cash at times when the strategy does not find any opportunities in ETFs. We can position the portfolio in the direction of the trends we identify without maintaining a particular static exposure to the market. Being strictly focused on how much risk we have in each position, we are determined to find out how much drawdown we can take in that position. In terms of asset allocation, our portfolios are about 75% in equities, 15% to 20% in commodities and 5% to 10% in currencies. As far as our preferences are concerned, the strongest trend might take a priority. For instance, if one ETF is creating more new highs and another is also trending higher, we will determine how these two ETFs are different and will have exposure to both of them to some degree. Q:  What is your sell discipline? A : We pride ourselves on the concept that we will not lose a lot of money with our strategy. There are quite a few reasons to get out of a trend. One possible reason could be allowing a sell signal to occur. Then, there is also a discretionary sell. We may also not like to allow more than a single digit loss on our positions. Furthermore, if the portfolio is very exposed and if we see a significant resistance, we trim the portfolio, or if the position is showing a trend trigger, we will trim that position too. Q:  What do you perceive as risk in your portfolio? How do you mitigate it? A : We associate money exposed to any market with risk. Our risk management is designed to limit large losses and drawdown in our portfolio. On an individual basis, any time we invest in the market, we do not want to have a significant loss. But the most fundamental way for us to control risk is that as soon as we start losing money we get out of the position.