NEW YORK (TheStreet) -- An investment fund is using a quirky arbitrage play to generate big returns from all those annoying digital ads and banners that we see every day while surfing the Net.

The Harbor City Capital Management fund boasts returns of 60% in its first year, and is currently delivering 5% monthly returns to investors by tapping niches in the $131 billion online advertising market.

So, how does it do it?

Basically, Harbor City is making what it calls a digital marketing arbitrage on this booming marketplace. It's betting that it can sniff out online leads and generate sales for businesses at a cheaper cost than the businesses are willing to pay for those leads. In other words, the spread - or difference - between the sale price per lead and the actual cost of capturing that lead could generate hefty profits for the company - and investors in the fund.

So far, it seems to be working.

JP Maroney, the brains behind the concept, is an entrepreneur and investor with more than 25 years of experience starting, buying and selling companies. His business chops come from years of working as a consultant, business growth strategist and client acquisition consultant for such firms as Wells Fargo, Metric Property Management (a unit of BlackRock Realty Advisors,) Precision AutoTune and other corporations.

Since 2004, he's focused on online advertising and marketing. "We would put in a dollar on advertising, and in a short period - three or four days - we'd get back [a] $1.50, $3 and sometimes $5 return on our money," he said.

As he watched money flood into the digital advertising world, Maroney had an "a-ha" moment: He wondered if he could use his business and digital marketing expertise to raise a fund that could invest in this sector.

"This is a $131 billion a year industry, and over 60% of the dollars being spent on online advertising right now are being spent on performance marketing," where the ads don't just advertise a brand - they actually target specific customers, who will click on the ad and buy a product, said Maroney, Harbor City's founder. "It's a big big business."

So, he started meeting hedge fund managers and high net-worth buddies, asking how he could set up a fund. He launched it in December 2013. Instead of purchasing stock, the fund buys traffic and advertising on platforms, such as Facebook (FB) , Google (GOOG) , email, and RTB (real-time bidding networks), and arbitrages the difference between the cost of the traffic and the amount a client pays for a lead or sale. "If we're getting paid $50 for a lead, and we can generate that lead for $25, we're doubling our money every time someone fills out an application form," he said.

Of course, not every business deal works. If, after initial research and test marketing, Maroney feels the company can't generate the leads or sales for the amount of money being paid, the firm turns down the business offer. "We're not getting paid for clicks - we're getting paid for results," he said.

Raising the fund has allowed Harbor City to significantly scale up its business and expand into multiple niches, ranging from reverse mortgages to insurance. By purchasing traffic in bulk, it can negotiate a lower price, which keeps its costs low. "Instead of maybe paying 50 or 70 cents for email traffic, we might get them to 35 or 40 cents a click, and that makes all the difference in the margin," he said.

Even more important is the goldmine of information it gets from all that traffic data and cookies. "We invested heavily in research tools that tell us about a particular demographic or market - the types of sites they're visiting, where they're going to, where they're coming from, how much time they're spending on these websites, what topics they're interested in, what emails they open, what subject lines interest them - we're obsessed with testing every single component!" he said. The firm then uses all of this info to refine and revise digital ads to better target customers, who will click to a client's site and purchase a product.

It also gives Harbor City an advantage over small mom-and-pop digital marketing companies that are rampant in this sector. "There is an edge in having this kind of data and knowledge," said Maroney.

But how does Maroney and his eight-member team have the expertise to advertise and target potential customers in so many different fields at a cheaper price than a small company that specializes in a particular niche? Maroney said he hires experts on a contract basis to advise on different sectors as the firm enters new niches.

"We take every niche one at a time and research the niche, understand the market, wrap our head around it, understand where they're hanging out, where they're visiting - the pages and websites - the psychology behind them - all of the things that go into understanding a market," he said. "Then, and only then, do we create the right kind of bait or hook to attract those kind of people."

So far, Maroney said his company is exceeding financial projections since its inception in December 2013. His initial goal was to raise $1 million the first year, but expects to have more than twice that amount by year-end. Investors from the U.S., the U.K, and Dubai are already lining up with new money commitments for 2015, according to Maroney.

"My goal was to bring in $1 million the first year, $25 million by 2016 and $100 million by the fifth year, but I think we're going to get there in two to three years," he said. "It's becoming a new investment class."