I love a good mystery. WPG Partners Select Hedged is one. It is live, tracked by Morningstar, and available through Schwab, but appears on neither the Boston Partners nor WPG websites. Here’s what to know.
On May 31, 2024, Boston Partners launched WPG Partners Select Hedged, a long/short small-cap fund from its WPG Partners subsidiary. Boston Partners manages about $101 billion in assets through 18 strategies, including three long/short strategies. Weiss, Peck & Greer (WPG Partners) was founded in 1970, sold to Robeco in 1998, and merged with Boston Partners in 2002. WPG Partners invests about $1.5 billion in US microcap and small-cap value stocks. The fund is managed by Eric Gandhi, CAF, who also manages the WPG Select Small Cap Value strategy. He joined WPG in 2012 and is a portfolio manager on the WPG Partners Small and Micro Cap Value team.
What the fund does: they invest in undervalued small-cap stocks, then short overvalued ones. It appears that they hold 40-80 short positions and 30-50 long ones, which implies that the short positions are small on average. According to their latest portfolio report filed with the SEC, their largest long positions are Perella Weinberg Partner, a New York M&A firm with a microcap stock, and PagSeguro Digital, a small-cap Brazilian fintech firm. Together those appear to account for about 1.6% of the portfolio, the same weight as their largest short position, the small-cap, Terex Corp. It appears that they have 117 holdings, long or short, in the initial portfolio.
Why it might be interesting: Two reasons. First, Mr. Gandhi and WPG have been crushing their peers with their long portfolios, which are embodied in both the Select Small Cap Value Fund and the longer-running strategy.
Comparison of Lifetime Performance (01/2022-06/2024)
| Annual return | Maximum drawdown | Ulcer Index |
Sharpe Ratio |
|
| WPG Partners Select Small Cap Value Fund | 11.4 | -18.8 | 6.9 | 0.37 |
| Lipper Small Core Category | -0.1 | -22.9 | 11.8 | -0.18 |
For the strategy, which has been offered in separate accounts since December 2018, the average annual return since inception is 18.13% versus 6.26% for its benchmark.
Second, most small-cap stocks are sort of junk. By Glenmede’s calculation, 40% of all Russell 2000 stocks have negative earnings as do 60% of all new listings. Northern Trust calculates that such stocks have about an 80% probability of trailing the small-cap universe as a whole, often by 600 basis points or more, over any given three-year period. In short, there’s a lot to like about shorting there.
The question is whether WPG’s excellent performance with long portfolios will carry over to shorting. Boston Partners, of course, manages three solid long/short funds which offer some reasons for hope. If so, there are some intriguing possibilities here. If not, WPG Partners Select Small Cap Value is coming up on its three-year anniversary and, independently, has a splendid record.
Administrative details: the fund charges 1.51% on assets of just over $50 million. Nominally the minimum initial investment is $100,000 but Schwab provides access for $2,500 plus a $50 transaction fee. WPG’s website is worth scanning.
WPG Partners homepage. And WPG Partners Select Small Cap Value Fund at Boston Partners.
