Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Support MFO
Donate through PayPal
Bond Fund Alternative Is Turning Heads With Hot Performance
From the prospectus, "When the Fund writes a put option [on publicly traded stocks], it expects to profit if the underlying security prices remain the same or rise." Potential investors need to understand the complexities of this strategy. The goal is to achieve income in an investment that has "minimal correlation with traditional fixed income markets", but in doing so, the fund will be correlated to the stock market. The fund is new, so it has not gone through a truly rough stock market. As with any unique strategy, it works until it doesn't work.
all those gains were early on. for the last little while -- ie, ever since i bought it -- it's been treading water. i tend to agree w/ BobC's last line and am keeping an itchy finger on the selling trigger.
"This kind of low realized vol environment has made stars of managers who run risky long-tailed strategies that pick up pennies in front of steamrollers. Consider, for example, this account about a fund which holds cash and sells put options on stocks that is being marketed as (*shudder*) a fixed-income alternative. The lack of recent downside equity market volatility has made this strategy a stellar performer and put up a return of 12.7%, triple the stock market".
If the M* portfolio holdings detail and the fund fact sheet are to be believed, SHAIX is going for market neutral & low-ish volatiility. It's essentially long the S&P 500 and short an equivalent total percentage of 120+ stocks. Over the last month, its gains are down to 0.29%, so about 3.6% annualized, which is pretty much what I'd expect as a decent result from a market neutral fund.
The other fund in the stable, just plain Schooner (SCNIX), appears to be no great shakes, so doesn't inspire a lot of confidence that Hedged Alt Income is going to shoot out the lights.
Is it really being marketed as an FI alternative, in the sense of its being somehow equivalent? I don't see it in the fund literature, which (prospectus, fact sheet) just says that it's an income-oriented fund with little correlation to FI, expressed like this in the prospectus:
"Investment Objective. The investment objective of the Schooner Hedged Alternative Income Fund (the “Fund”) is long term appreciation through the generation of income using strategies that have minimal correlation with traditional fixed income markets."
I don't see any reason to get too excited, either positive or negative, about SHAIX.
P.S. Westwood recently came out with a "market neutral income" fund that sounds superficially like SHAIX (~ same objective, different methodology) - ticker is WMNIX.
@linter 1. M* shows a 30d SEC yield of (---). What is the distribution yield of this fund? If SHAIX produces an income stream, to compensate you for the market risk it is taking, to whom is it "streaming"--- to them, or to you? 2. The fund is hedged, and hedging costs money. The SEC now requires MF literature to state not only fund expenses, but it must also include a figure for transaction costs. For this fund, what is the difference between the two?
Comments
From the article:
"This kind of low realized vol environment has made stars of managers who run risky long-tailed strategies that pick up pennies in front of steamrollers. Consider, for example, this account about a fund which holds cash and sells put options on stocks that is being marketed as (*shudder*) a fixed-income alternative. The lack of recent downside equity market volatility has made this strategy a stellar performer and put up a return of 12.7%, triple the stock market".
The account referred to is SHAIX.
The other fund in the stable, just plain Schooner (SCNIX), appears to be no great shakes, so doesn't inspire a lot of confidence that Hedged Alt Income is going to shoot out the lights.
Is it really being marketed as an FI alternative, in the sense of its being somehow equivalent? I don't see it in the fund literature, which (prospectus, fact sheet) just says that it's an income-oriented fund with little correlation to FI, expressed like this in the prospectus:
"Investment Objective. The investment objective of the Schooner Hedged Alternative Income Fund (the “Fund”) is long term appreciation through the generation of income using strategies that have minimal correlation with traditional fixed income markets."
I don't see any reason to get too excited, either positive or negative, about SHAIX.
P.S. Westwood recently came out with a "market neutral income" fund that sounds superficially like SHAIX (~ same objective, different methodology) - ticker is WMNIX.
1. M* shows a 30d SEC yield of (---). What is the distribution yield of this fund? If SHAIX produces an income stream, to compensate you for the market risk it is taking, to whom is it "streaming"--- to them, or to you?
2. The fund is hedged, and hedging costs money. The SEC now requires MF literature to state not only fund expenses, but it must also include a figure for transaction costs. For this fund, what is the difference between the two?