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MFLDX - Is this what leverage looks like?

edited October 2012 in Fund Discussions
Hello everyone. I have a simple Excel spreadsheet that I use to tabulate my asset allocation in percentages of stocks, bonds, and cash. The Mainstay Marketfield Fund Portfolio summary (as of 9-30-12) has been posted (see link below):

http://www.nylinvestments.com/portal/site/MainStay/menuitem.c708121e407f11409a05ec10ea48c1ca/?vgnextoid=160869b0cdb8c110VgnVCM740000ae841cacRCRD&vgnextfmt=default&fundVcmId=d6a6aee0dc07c110VgnVCM740000ae841cacRCRD&aID=231

What I need help with is how to characterize (in terms of percentage) the "stock" portion of the fund. According to the Website, MFLDX's portfolio consisted of 87% equity long and 38% equity short. This implies a "net long" equity position of 49% correct? But it implies that it has an 125% equity position - correct???? That's my question. Is the fund leveraged by 25%?

Bottom line - help me fill in my Excel cell for "stocks" in my spreadsheet. Is it 49% or 125%? Thanks for all the help you can provide.

Satisfied Shareholder,
Mike_E

Comments

  • yes. you use the net position, and yes, the 125% is the fund's gross exposure or 1.25 leverage.
  • Thanks fundalarm for your input. I know I'm slow, but ... from an asset allocation perspective, there's a difference between being 49% long equity with 51% cash and being 125% gross equity.

    Here's why: Assume the market corrects 10%. A net 49% long would imply a 5% correction. But what if the long positions fell more than anticipated (beta >1) and the shorts rose less than anticipated (beta < 1)? This would leave you with a much greater loss than 5%. Do you see what I'm getting at?

    I agree that the portfolio is "net" 49% long, but I am not yet convinced that "net" long captures a fund's true equity exposure (hence, beta).

    Thoughts?
  • edited October 2012
    it is NET equity exposure that should concern you from the asset allocation perspective. 51% should not be added to cash. When the stocks are sold short, the resulting proceeds are kept as collateral. the possibilities of underperformance of longs vs shorts and therefore larger losses or gains compared to the net exposure is the manager's ability to pick the right stocks to buy and sell, i.e. alpha, not beta.
  • edited October 2012
    Hello,

    I have been looking at this fund to purchase and, with that, studying it. However, the min. for an investor to purchase the A share class is $25,000.00.

    Here is how Morningstar breaks down the allocation. I have linked it below for your easy viewing. They have it as being 133.85% long and 33.86% short.

    http://portfolios.morningstar.com/fund/summary?t=MFLDX&region=USA&culture=en-US

    Hope this helps.

    Skeeter
  • edited October 2012
    Reply to @Skeeter: MFADX (Marketfield A Shares) are $1,000 min (or at least listed as that) at A'trade.
  • Please don't rely on Morningstar for correct allocation on Marketfield (or other funds, for that matter). Your best option is to go directly to the fund's web site or use that most current quarterly report information. Most leveraging nd derivatives a fund employs is shown as cash by M*. Crazy, I know. But, like most everything they do, they have to put things in a box or existing category some way. Because MFLDX is actively managed, there is no way to acertain what the performance will be compared to the S&P 500, at least with any accuracy. But if you look at how the fund performed during the 2008-2009 meltdown (it started in 2007), and in subsequent bear market periods, you will get a pretty good idea of what you might expect in similar situations. In 2008, it lost 12% while the market dropped 36%. In the 2010 second-quarter drop, the fund lost 7% while the index dropped 12%. In the 2011 3rd quarter selloff, MFLDX was off 5% and the index dropped 14%. In the second quarter of this year, MFLDX gained 2% while the market lost 3%. The 5-yr Beta is 0.56, while Alpha is 7.69. It has captured 71% of the market's upside and only 41% of the downside. I will take those numbers any time.

    fundalarm's comments are right on the mark. We have used this fund since early 2008, and it is a core hold for most client accounts.
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