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From the Tactical Hedged Futures Strategy fund prospectus: "ITB Capital Management, LLC, the Fund's sub-advisor (the "Sub-Advisor") focuses on writing call and put options that it expects to expire worthless. Call options expire worthless when the underlying index price is below the strike price at maturity (expiration date); while put options expire worthless when the underlying index price is above the strike price at maturity (expiration date). The Fund profits when written options expire worthless because it retains all of the original sales proceeds (option premium). The Sub-Advisor believes these written options will expire worthless because it selects call options with strike prices that are above the anticipated short-term trading range of the reference futures index, and selects put options with strike prices that are below the anticipated trading range of the underlying index. The Sub-Advisor forecasts index trading ranges based on its fundamental analysis of economic conditions, technical analysis of historical index prices and its general opinion of market direction. Additionally, the Sub-Advisor uses scenario analysis to assess risk and will adjust portfolio positions to reduce sensitivity to downside market movements."
Oy. Funds whose strategy just starts to get too esoteric. It's like a lot of ETFs where you look at it and - potential problems with the strategy aside - you can guess that there's likely just not going to be enough interest.
From the Tactical Hedged Futures Strategy fund prospectus: "The Sub-Advisor forecasts index trading ranges based on its fundamental analysis of economic conditions, technical analysis of historical index prices and its general opinion of market direction. Additionally, the Sub-Advisor uses scenario analysis to assess risk and will adjust portfolio positions to reduce sensitivity to downside market movements."
Oy. Funds whose strategy just starts to get too esoteric.
I'm sure Warren Buffett would say he doesn't do this because he has no idea where the market is headed short term based on fundamental analysis....technical analysis.....and general opinion......and scenario analysis.
Is the market predictable short term based on these factors?
How would this strategy have performed during prolonged bull markets, like the one we have been in since the closing low on March 9, 2009, when the S&P 500 closed at 677?
I'm sure based on fundamental analysis, the market should not have gone up 32.4% in 2013....should not have gone up in 1997, 1998, 1999.
I haven't looked at the expense ratio, but funds like these often have high expense ratios.
This fund seems like it's all about trying to outguess Mr. Market. I wish them luck, but I'm doubtful they will be successful over the longer term.
"How would this strategy have performed during prolonged bull markets, like the one we have been in since the closing low on March 9, 2009, when the S&P 500 closed at 677?"
The implosion of the fund/s run by Andrew Lo (from the article below: "The idea what that Dr. Lo, perhaps one of the most brilliant quantitative scientists and academicians in finance (MIT, Harvard, all kinds of awards, PhDs out the ass, etc), would be incorporating a variety of approaches to manage the fund using all asset classes, derivatives and trading methodologies that he and his team saw fit to apply. You would write Dr. Lo a check ten seconds after seeing him speak somewhere, trust me.") are, I think, an excellent summary of one aspect of why these funds haven't worked.
I think you have funds that are effectively quant funds run by very intelligent people who have a set of various rules and indicators who have done terribly in recent years because QE and ZIRP have effectively invalidated many of their rules that the investment decisions of these funds are based off of. These funds are black boxes, but as opaque as they are, there is highly likely a lengthy list of rules (and probably highly complex ones) that the fund operates with and uses to make its investment decisions.
So you have a fund going long and short based on what brilliant people think should work and they would have been better off just going long (and the more heavily shorted companies, the better) for the last 5 years or so.
" So you have a fund going long and short based on what brilliant people think should work and they would have been better off just going long (and the more heavily shorted companies, the better) for the last 5 years or so.
Remember the Long Term Capital Management hedge fund? If ever there were brilliant people, that was it. IIRC, possibly two Nobel Prize winners in that group of geniuses. It failed, and required a bail out from our government to prevent a wider spread financial crisis.
There was a book written about it [I haven't read it though]:
" So you have a fund going long and short based on what brilliant people think should work and they would have been better off just going long (and the more heavily shorted companies, the better) for the last 5 years or so.
Remember the Long Term Capital Management hedge fund?
Yeah, Jim Rickards - who I like quite a bit and follow (he's written two books and has an active Twitter) - was the principal negotiator in the bailout of LTCM. It's sort of like that - very intelligent people doing very complex things who are married (to at least some degree) to their economic theories.
MFO Members: Neither fund will be here in 2016 ! Regards, Ted
I'm in agreement with Ted's prediction regarding dead or alive. Not so sure it will occur quite that quickly [within 17 months], but it is very possible. Depends how patient the fund company is, and how much suffering they are willing to put up with.
Comments
Remind me to check in 5 years to see if either fund is still in existence.
Oy. Funds whose strategy just starts to get too esoteric. It's like a lot of ETFs where you look at it and - potential problems with the strategy aside - you can guess that there's likely just not going to be enough interest.
Is the market predictable short term based on these factors?
How would this strategy have performed during prolonged bull markets, like the one we have been in since the closing low on March 9, 2009, when the S&P 500 closed at 677?
I'm sure based on fundamental analysis, the market should not have gone up 32.4% in 2013....should not have gone up in 1997, 1998, 1999.
I haven't looked at the expense ratio, but funds like these often have high expense ratios.
This fund seems like it's all about trying to outguess Mr. Market.
I wish them luck, but I'm doubtful they will be successful over the longer term.
The implosion of the fund/s run by Andrew Lo (from the article below: "The idea what that Dr. Lo, perhaps one of the most brilliant quantitative scientists and academicians in finance (MIT, Harvard, all kinds of awards, PhDs out the ass, etc), would be incorporating a variety of approaches to manage the fund using all asset classes, derivatives and trading methodologies that he and his team saw fit to apply. You would write Dr. Lo a check ten seconds after seeing him speak somewhere, trust me.") are, I think, an excellent summary of one aspect of why these funds haven't worked.
A summary of the Lo situation:
http://www.thereformedbroker.com/2014/05/28/brokers-liquid-alts-and-the-fund-that-never-goes-up/
I think you have funds that are effectively quant funds run by very intelligent people who have a set of various rules and indicators who have done terribly in recent years because QE and ZIRP have effectively invalidated many of their rules that the investment decisions of these funds are based off of. These funds are black boxes, but as opaque as they are, there is highly likely a lengthy list of rules (and probably highly complex ones) that the fund operates with and uses to make its investment decisions.
So you have a fund going long and short based on what brilliant people think should work and they would have been better off just going long (and the more heavily shorted companies, the better) for the last 5 years or so.
If ever there were brilliant people, that was it. IIRC, possibly two Nobel Prize winners in that group of geniuses. It failed, and required a bail out from our government to prevent a wider spread financial crisis.
There was a book written about it [I haven't read it though]:
Regards,
Ted
Not so sure it will occur quite that quickly [within 17 months], but it is very possible.
Depends how patient the fund company is, and how much suffering they are willing to put up with.