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I Was Thinking About Buying It Last Year Because Of All The Interest About It, Im Glad Now That I Did Not Buy It. I Do Own One Long Short Fund, WBMIX Which I Bought a Few Years Ago After Scott Mentioned It. I Am Satisfied With Its Performance. Its Up 3.21% ytd.
Looking at the behavior of this fund over the last 3 years, they don't seem to be good at it.
Don't know much about this fund regarding strategy but they don't seem to take big macro or fundamentals based bets on the short side. They have no short positions in their top 20 positions, just enough to hedge. They have made big long bets on some small and mid caps that have suffered terribly this year which implies their stock picking skills aren't that great either.
Compare the positions to a good L/S fund like BPLEX that is willing to take big short bets when macro conditions warrant it and benefits from it. Boston Partners seem to be the only fund family that really knows how to do L/S right. They will lag a bit in roaring bull markets but definitely exploit down and sideways markets as L/S should (as opposed to hedged market neutral funds). Much better full cycle returns.
ARLSX looks more like a market neutral fund and not a good one.
It is a bit odd to judge a L/S fund by returns over less than a market cycle let alone less than 3 years in a relatively straight up bull market. Better to understand the portfolio and strategy instead if you want to take a chance on new funds. Make sure any statistics you use are meaningful.
Whitebox may turn out to be a good fund. It seems to take big falling tide sector bets on short side rather than big short bets on individual stocks unlike BPLEX or the primarily long ARLSX. How they handle the reversals in the sectors will determine how the fund does. BPLEX performance will depend on how they pick stocks and net positions in a sector. It went market neutral in 2013 and lagged. So, all strategies have good and bad scenarios.
The only meaningful hint in WBMAX lifetime so far has been the small correction in 2012 and its behavior during that time wasn't great but too short a period and too few data points to judge.
Well, I think we all realize that if there is one important space in the mix we have yet to fill with a satisfying pick then dis is it. And that makes us needy, and that can lead to reading more into the numbers than is warranted. Hope is not an investment strategy.
I'm with cman; based on the data, BPLEX is really all we have that comes close to measuring up. Perhaps there are other funds on the current landscape that will prove their worth, and the markets since 2009 have been pretty lousy for most L/S strategies to show this. And so we watch and wait, and not give in?
And maybe, just maybe, our patience will be rewarded, and something like the Robertson Stevens Global L/S fund of the late 1990s will come along [damn, was that gal good].
This is a great thread. Thanks to all for your opinions. I had been researching LS funds for some time and eventually I stayed with American Century whom I have most of my assets with. I selected ACDJX and it has done fairly well so far. I understand the volatility aspect of these funds and how this fund along with most others is using the short aspect of the fund to increase returns and not for protection.
I ran a two year chart of ACDJX and ARLSX and came up with this. Any thoughts? Edit; I did a two year chart because ACDJX hasn't been out for three years .
Sorry for the link. I haven't checked how to insert images yet.
No argument on shorter lives of Aston and Whitebox relative to Boston Partners and Mainstay. But much of MFO is about bringing attention to younger funds, not yet recognized...certainly, these two are worth noticing.
With Whitebox too we could trace a bit further back to hedge fund days.
Hey, for me it's more than just the good numbers with these two shops since inception.
I like the PMs. Their processes. Several good ways the fund companies treat shareholders.
But absolutely, both are still relatively young, so time will tell...as it does with so many things.
@JohnChisum, what is the rationale for owning a fund like ACDJX over an SP500 index or a large value index? Not trying to make any indexology points, just trying to see what I might have missed in this particular fund. Any positive alpha generated by this fund seems to have gone primarily into paying their ER.
Don't know anything about this fund other than the current snapshot I can see on M*.
From performance, it seems to work like a competent low volatility mid cap value fund - what XMLV should be but isn't. That seems to be consistent with their stated objective. They have delivered on that in their brief existence as a retail fund, so that is a good thing. How they might deal with a 2001 or a 2008/9 as a retail fund is unknown, of course.
I have no reason to believe that they will not deliver on that objective at the current low asset base where it is easier and cheaper to hedge. Will that strategy scale up if and when their asset base grows? I have no information to say one way or another.
Looking at the last snapshot portfolio, they are extremely good at stock picking or extremely good at end of quarter window dressing or both.
I would consider a fund like this in the portfolio allocation for midcaps in a managed fund bucket to fit a volatility profile rather than to fill an alternative strategy bucket. For me, the latter funds need to be somewhat uncorrelated with the relevant index in some noticeable ways than just managing volatility or providing capital/downside protection.
Informative description on the strategy. Goes to show that the M* L/S category is way too broad covering a wide variety of strategies and investment styles and so the average for that entire category is meaningless to compare against.
A couple of small problems with the writeup:
For the retail fund, it is misleading to compare its performance against the SP500. It would be more meaningful to compare it to a midcap value index given its portfolio. Comparing it to something like IWS will make the cost of hedging apparent in rising markets rather than make it look like it is a free lunch. The downside protection is evident but nothing to get excited about. The yellow line is IWS.
The style may have been different when it was a hedge fund but if they had the same style even then, they are not being "honest" by calling themselves large value and dipping into the higher returns in riskier midcaps to compensate for hedging costs. That is how the "strategy works".
This is why I suggested that it is a fund to consider in the midcap value allocation, not LCV as the writeup suggests.
Also, you don't sell call options to nervous investors unless one is talking about investors nervous that the market will go up! You sell it to bullish investors that want to bet on the upside so you can hedge your downside as you keep the premium if the market falls or remains the same. The more you sell, less exposure to the market's upside as you have to pay the increase over the strike price + premium.
You sell put options to nervous investors as insurance who are trying to hedge their downside and so not what the fund would want to do since the fund also wants the same protection. The fund could buy put options for downside protection but then it would land up paying the premium.
The writeup is a bit confusing on what they are actually doing because of the above.
I am not seeing compelling reason to buy rghvx or that other schwab hedged equity fund if one is looking for l/s fund. That's like buying a geo metro if you are looking for a car
David also hosted an hour phone call/teleconference with the PMs at RGHVX, which I thought was very informative...like just about all these calls. Here is link to the summary and mp3:
I am thankful for David doing these calls and getting access to these fund managers.
But I still see the same problem in the summary of this call. Why is RGHVX fund being compared to LCV when it is index hugging MCV in portfolio returns via its composition?
>> The downside protection is evident but nothing to get excited about.
ytd (Feb dip comparisons) shows what appears to be nontrivially superior performance, not that anyone should decisively go with ytd. My chief interest here is downside protections.
This has been a great discussion on these L/S funds. cman asked me a direct question so I will attempt to give a reasonable answer. My logic however will not compare with his.
I bought this fund for the L/S feature and also to get more exposure to tech and related stocks which this fund invests in. The comparison to the SP500 may not be valid as the fund tries to meet or beat the Russell 1000 Growth Index. Yes I could have bought IWF much cheaper but sometimes there are reasons one cannot do so such as what kind of account the money is in at the moment.
Using the Nasdaq compare page on their website I ran a comparison of many of the funds discussed here and included IWF too. ACDJX seems to be very competitive with them all. So far in the brief history I have had the fund, I am happy. That is the most important thing.
As these kind of funds keep coming up I'm sure there will be more discussions on them. I have enjoyed this thread and I thank everyone including cman for their opinion and comments.
But aren't they man's last hope for satisfactory absolute returns? Come bull or bear?
LOL
Maybe. But you are assuming the manager of said fund is better at calling markets than you are. He's certainly not as nimble as you or I. I'd imagine shifting investment stance for one of these bulging funds would be akin to turning a battleship around. With you or me, it's more like steering a 40' Four Winns.
If you like selling short (I don't) there's funds like BEARX that will give you effectively a short position.
In theory, yes. Retail investors can do a lot of things that big funds cannot - be nimble, for example. I have been doing this in my play money portfolio so the following is from hands-on experience and consequent scar marks than any science or theory.
Hedges can help reduce market exposure without triggering tax consequences in non tax-deferred portfolios or face redemption constraints in mutual funds. Down markets can be exploited for gains.
But there are serious limitations.
Hedging more than $100k-$200k is not easy because of the size of lots involved in hedging whether it is options or short instruments. Wrong bets can hurt IF you are betting enough to make a difference on the up side or hedging enough to protect large amounts.
It requires much more active participation than one may expect to do. If you have a trading platform that allows you to program in conditional buy/sell orders more complex than stop limits, you can be a bit more hands off. Otherwise, the entry or exit points can happen anytime and you need to be monitoring them. It doesn't require you to trade daily necessarily, but might require you to monitor very frequently (if you have any significant positions).
There are no guarantees that any particular hedges or inverse bets will work. Whether you use fundamentals or technicals, there will always be false starts and positions that don't work. You are aiming for net gains.
Because of the volatility, there will be no opportunities most of the time unless you want to become a day trader. It requires patient waiting for the right entry points to occur. Most money is made in a period when the market in that asser class heads up or down without much volatility for a long enough period and you have the right bets in that direction (like the use of leveraged long funds last year).
When you have a position, you have to be OK with significant drawdowns in that position if you are effectively hedging a bigger position. The overall volatility can be lower from long/short positions but the volatility of each position can be high. Pulling the trigger early from loss aversion in each such position won't make you money nor will it hedge effectively.
This is one strategy that is best left to people that do this for a living. Many of those don't do well either. Requires a lot of research or data analysis and sound strategy.
Not recommended except for play money or to generate small alphas if you have the time and inclination. It is fun when it works.
I'm terrible enough picking long to even think about shorting ever...again.
(Ha...my one naked short was Staples just about the time Office Depot and OfficeMax merged...was able to unwind without getting hurt...and I still think it was the right play...but shorting is fraught with hazards, as you note.)
But, oh to be like David Einhorn and his staff at Greenlight.
Or, Andy Redleaf and his staff at Whitebox.
Etc, etc.
When it comes to L/S, I will personally stay on the trading sidelines...but invest with the experts and shops I like.
Comments
Don't know much about this fund regarding strategy but they don't seem to take big macro or fundamentals based bets on the short side. They have no short positions in their top 20 positions, just enough to hedge. They have made big long bets on some small and mid caps that have suffered terribly this year which implies their stock picking skills aren't that great either.
Compare the positions to a good L/S fund like BPLEX that is willing to take big short bets when macro conditions warrant it and benefits from it. Boston Partners seem to be the only fund family that really knows how to do L/S right. They will lag a bit in roaring bull markets but definitely exploit down and sideways markets as L/S should (as opposed to hedged market neutral funds). Much better full cycle returns.
ARLSX looks more like a market neutral fund and not a good one.
Whitebox may turn out to be a good fund. It seems to take big falling tide sector bets on short side rather than big short bets on individual stocks unlike BPLEX or the primarily long ARLSX. How they handle the reversals in the sectors will determine how the fund does. BPLEX performance will depend on how they pick stocks and net positions in a sector. It went market neutral in 2013 and lagged. So, all strategies have good and bad scenarios.
The only meaningful hint in WBMAX lifetime so far has been the small correction in 2012 and its behavior during that time wasn't great but too short a period and too few data points to judge.
I'm with cman; based on the data, BPLEX is really all we have that comes close to measuring up. Perhaps there are other funds on the current landscape that will prove their worth, and the markets since 2009 have been pretty lousy for most L/S strategies to show this. And so we watch and wait, and not give in?
And maybe, just maybe, our patience will be rewarded, and something like the Robertson Stevens Global L/S fund of the late 1990s will come along [damn, was that gal good].
I ran a two year chart of ACDJX and ARLSX and came up with this. Any thoughts?
Edit; I did a two year chart because ACDJX hasn't been out for three years .
Sorry for the link. I haven't checked how to insert images yet.
http://www.nasdaq.com/aspx/mutual-fund-chart.aspx?timeframe=2y&index=&symbol=ARLSX&symbol=ACDJX&selected=ARLSX
With Whitebox too we could trace a bit further back to hedge fund days.
Hey, for me it's more than just the good numbers with these two shops since inception.
I like the PMs. Their processes. Several good ways the fund companies treat shareholders.
But absolutely, both are still relatively young, so time will tell...as it does with so many things.
RGHVX
sorry
From performance, it seems to work like a competent low volatility mid cap value fund - what XMLV should be but isn't. That seems to be consistent with their stated objective. They have delivered on that in their brief existence as a retail fund, so that is a good thing. How they might deal with a 2001 or a 2008/9 as a retail fund is unknown, of course.
I have no reason to believe that they will not deliver on that objective at the current low asset base where it is easier and cheaper to hedge. Will that strategy scale up if and when their asset base grows? I have no information to say one way or another.
Looking at the last snapshot portfolio, they are extremely good at stock picking or extremely good at end of quarter window dressing or both.
I would consider a fund like this in the portfolio allocation for midcaps in a managed fund bucket to fit a volatility profile rather than to fill an alternative strategy bucket. For me, the latter funds need to be somewhat uncorrelated with the relevant index in some noticeable ways than just managing volatility or providing capital/downside protection.
http://www.mutualfundobserver.com/2014/03/riverparkgargoyle-hedged-value-rghvx-2/
A couple of small problems with the writeup:
For the retail fund, it is misleading to compare its performance against the SP500. It would be more meaningful to compare it to a midcap value index given its portfolio. Comparing it to something like IWS will make the cost of hedging apparent in rising markets rather than make it look like it is a free lunch. The downside protection is evident but nothing to get excited about. The yellow line is IWS.
The style may have been different when it was a hedge fund but if they had the same style even then, they are not being "honest" by calling themselves large value and dipping into the higher returns in riskier midcaps to compensate for hedging costs.
This is why I suggested that it is a fund to consider in the midcap value allocation, not LCV as the writeup suggests.
Also, you don't sell call options to nervous investors unless one is talking about investors nervous that the market will go up! You sell it to bullish investors that want to bet on the upside so you can hedge your downside as you keep the premium if the market falls or remains the same. The more you sell, less exposure to the market's upside as you have to pay the increase over the strike price + premium.
You sell put options to nervous investors as insurance who are trying to hedge their downside and so not what the fund would want to do since the fund also wants the same protection. The fund could buy put options for downside protection but then it would land up paying the premium.
The writeup is a bit confusing on what they are actually doing because of the above.
http://www.mutualfundobserver.com/2014/03/riverparkgargoyle-hedged-value-rghvx-3/
And, here is link to similar call with the good folks at ARLSX:
http://www.mutualfundobserver.com/2014/02/astonriver-road-long-short-arlsx/
But I still see the same problem in the summary of this call. Why is RGHVX fund being compared to LCV when it is index hugging MCV in portfolio returns via its composition?
Isn't that a critical piece of evaluating a fund?
>> The downside protection is evident but nothing to get excited about.
ytd (Feb dip comparisons) shows what appears to be nontrivially superior performance, not that anyone should decisively go with ytd. My chief interest here is downside protections.
I bought this fund for the L/S feature and also to get more exposure to tech and related stocks which this fund invests in. The comparison to the SP500 may not be valid as the fund tries to meet or beat the Russell 1000 Growth Index. Yes I could have bought IWF much cheaper but sometimes there are reasons one cannot do so such as what kind of account the money is in at the moment.
Using the Nasdaq compare page on their website I ran a comparison of many of the funds discussed here and included IWF too. ACDJX seems to be very competitive with them all. So far in the brief history I have had the fund, I am happy. That is the most important thing.
As these kind of funds keep coming up I'm sure there will be more discussions on them. I have enjoyed this thread and I thank everyone including cman for their opinion and comments.
Maybe. But you are assuming the manager of said fund is better at calling markets than you are. He's certainly not as nimble as you or I. I'd imagine shifting investment stance for one of these bulging funds would be akin to turning a battleship around. With you or me, it's more like steering a 40' Four Winns.
If you like selling short (I don't) there's funds like BEARX that will give you effectively a short position.
Hedges can help reduce market exposure without triggering tax consequences in non tax-deferred portfolios or face redemption constraints in mutual funds. Down markets can be exploited for gains.
But there are serious limitations.
Hedging more than $100k-$200k is not easy because of the size of lots involved in hedging whether it is options or short instruments. Wrong bets can hurt IF you are betting enough to make a difference on the up side or hedging enough to protect large amounts.
It requires much more active participation than one may expect to do. If you have a trading platform that allows you to program in conditional buy/sell orders more complex than stop limits, you can be a bit more hands off. Otherwise, the entry or exit points can happen anytime and you need to be monitoring them. It doesn't require you to trade daily necessarily, but might require you to monitor very frequently (if you have any significant positions).
There are no guarantees that any particular hedges or inverse bets will work. Whether you use fundamentals or technicals, there will always be false starts and positions that don't work. You are aiming for net gains.
Because of the volatility, there will be no opportunities most of the time unless you want to become a day trader. It requires patient waiting for the right entry points to occur. Most money is made in a period when the market in that asser class heads up or down without much volatility for a long enough period and you have the right bets in that direction (like the use of leveraged long funds last year).
When you have a position, you have to be OK with significant drawdowns in that position if you are effectively hedging a bigger position. The overall volatility can be lower from long/short positions but the volatility of each position can be high. Pulling the trigger early from loss aversion in each such position won't make you money nor will it hedge effectively.
This is one strategy that is best left to people that do this for a living. Many of those don't do well either. Requires a lot of research or data analysis and sound strategy.
Not recommended except for play money or to generate small alphas if you have the time and inclination. It is fun when it works.
I'm terrible enough picking long to even think about shorting ever...again.
(Ha...my one naked short was Staples just about the time Office Depot and OfficeMax merged...was able to unwind without getting hurt...and I still think it was the right play...but shorting is fraught with hazards, as you note.)
But, oh to be like David Einhorn and his staff at Greenlight.
Or, Andy Redleaf and his staff at Whitebox.
Etc, etc.
When it comes to L/S, I will personally stay on the trading sidelines...but invest with the experts and shops I like.
Hope all is well.
Charles