Year's Best Fund Focuses On Shorting 'Poorly Designed' ETFs

Ted

FYI:
In a year that is shaping up to be the worst for hedge funds since at least 2011, one little-known long-short mutual fund manager is beating some of Wall Street’s biggest names at their own game.

David Miller, 35, is doing so largely by using options to short leveraged exchange traded funds which are ETFs that offer two or three times the daily positive or negative return of an index and which have become increasingly popular among hedge funds and other traders as the broad U.S. market has flatlined. Leveraged ETFs have seen inflows of $9.5 billion this year, according to Lipper data.

In what may be a cautionary tale for investors who have been drawn to leveraged funds, Miller's $155.6 million Catalyst Macro Strategy fund, has posted returns of nearly 47 percent over the last year by focusing on their flaws. That performance makes Miller's fund the best performer among all actively-managed equity funds tracked by Morningstar this year, and nearly 20 percentage points greater than the next-best performing fund.
Regards,
Ted
http://www.reuters.com/article/us-catalyst-fund-etf-idUSKBN0TW0TX20151213

MM* Snapshot MCXCX: http://www.morningstar.com/funds/XNAS/MCXCX/quote.html

Lipper SnapshotMCXCX: http://www.marketwatch.com/investing/Fund/MCXCX?countrycode=US

little5bee

Thanks, Ted! Very enlightening to MCXAX/MCXIX shareholders.

PRESSmUP

Hi little5bee,

I noted this firm earlier from a comment of yours many months ago. Is this the specific fund you own? If yes, any hints that someone else may have "broken their code" to render their strategy moot? The tax efficiency on Morningstar makes no sense to me...with 600% turnover, I would think there would be a big tax hit. What's been your experience.

thanks,

press

Mark

I wonder how many shareholders hung on from start to finish during the January 2015 time period. Quite the ride.

little5bee

@PRESSmUP My initial buy was in the March/April 2015 time frame, so this will be my first CG distribution for the fund (12/17 or 12/18, I think). I have read several articles about the fund and manager, but the article Ted posted is the first time the ETF inefficiency strategy has been revealed. In the other articles I read, it seemed like the manager primarily utilized an options strategy. At this point, I really don't care...as long as it works! The last few days have been unusually benign for the fund...it has declined a little, but nothing like the market...and nothing like the wild swings over the last few months. The rest of my portfolio is boring, so the small positions I own of the fund in my taxable account and Roth have been entertaining. I wish I were brave enough to buy more!

PRESSmUP

Thanks...I have some mad money in IRA and taxable, so depending on distributions this may be a good candidate for one or the other.

I suppose the caveat here, is that a lot of strategies work...until they don't.

press

little5bee

@PRESSmUP FWIW I'm going to add after distribution, but I'm a little concerned about future performance now that the secret recipe has been made public

PRESSmUP

Thanks....FYI, I was up in Novi this past weekend for an unusually temperate visit with family. Nice area, with great restaurants and markets. I think you are generally familiar with the area....or at least that one school close by.

little5bee

@PRESSmUP You mean TSUN?

PRESSmUP

That might be it...the one without the gladiator, but with the mascot resembling a large weasel.

little5bee

PRESSmUP said:

That might be it...the one without the gladiator, but with the mascot resembling a large weasel.

This coming from someone who has a NUT for a mascot?!?!?

PRESSmUP

Yes, but it's a MIGHTY nut!!!

little5bee

@PRESSmUP

Valid point