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Has anyone considered long/short or market neutral given where we are today?

I have not been a proponent for these strategies, at least not as a long term strategy, but I'm considering selling a couple non-equity fund/ETF's and going that path with some money. Thought I'd reach out to see if anyone else is thinking similarly or has already done so. If so, what would be your suggested choices.

The basis for this is that I think we are in for a fairly long duration of economic whoa and we will be testing new lows in the market over the next year. That's my crystal ball. Some think the S&P 500 may not bottom until the 1500-1800 range. That's an additional drop of 30-40% from Fridays close. Maybe I'm just reacting to my morning coffee and Barron's paper but I certainly don't see a V shape recovery to this 'yet to be announced recession'.

In any case, I'm considering selling my gold ETF and a bond fund and putting that money into one or 2 of these funds. I did some initial research on Schwab and re-read a commentary David had here from Feb. 2019.

My short list:
- GSSFX (TF at schwab)
- FVALX (TF at schwab)
- MNWAX a very consistent though muted return trend up in all markets

I refuse to pay the TF so I guess 2 on my short list won't happen, sadly. I'm leaning to the last 2 on the list.


  • Nope, for 2 reasons.

    1. Determining to 'buy' equities is hard enough. They are studies and articles out there that show even the considered best pundit's only get it right half the time. Determining to 'sell them short' is even harder. I'm willing to bet the success ratio here would be considerably lower. Just today, would you buy Tesla or sell it short? Feel free to stick whatever other company name you'd like to into that question.

    2. Personally I wouldn't be buying any equity at this time, the uncertainties are just not in my favor. My feelings are that people are indiscriminately selling most anything that isn't nailed down and still presents value. I'd rather wait for things to recover even if I end up paying more.
  • edited April 2020
    @MikeM I got burned pretty badly on QLEIX, a L/S fund that I purchased on the recommendation of "Sam" who used to post on this board. Another fund that was "good until it wasn't". This experience helped formulate my "core and explore" strategy that I described in the DSENX thread. I will likely stick mostly with target date and index funds from now on.

    I noticed BTAL a few days ago during a search for alternative ETFs. Who couldn't help but notice its excellent performance? What is their "secret sauce" and how long will it be until it's "good until it isn't"?

    The JPMorgan L/S offerings look pretty good if I decide to stray from target date funds and index ETFs.
  • edited April 2020
    @MikeM: I mentioned in the DSENX thread (I think) that I had sold a chunk of that fund and that I started a position in RLSFX. The fund is not only NL/NTF at Schwab, but it’s on the Select List.
  • edited April 2020
    Hi @MikeM

    I'm a nope, too; with @Mark . Too many spinning wheels; and mood swings/whims of the managers must also be taken into account.

    You can build your own long/short/neutral fund.
    At times one of the choices will be "long", meaning a better return and at other periods the other choice will be "short", not performing as well. In either case, the anticipated blend return could keep you ahead and no less than "neutral", meaning "flat".

    The two choices are AGG (mixed bonds) and QQQ (large cap growth). Below is the average return of both combined, with the assumption that annually one would have to rebalance to maintain a 50/50% mix. I picked these two for the long term data available, and QQQ in particular, as I maintain that large growth will still perform better going forward in the equity world.

    YTD = -10.6% (to be determined, eh?)
    1 year = +4.8%
    3 year = +8.6%
    5 year = +8%
    10 year = +9.7%
    15 year = +8.3%
    Life = +5.6% (AGG incep. = Sept. 2003, QQQ incep = Mar. 1999)

    Compare these returns to the time periods available for the funds you noted, and then make your choice.

    Be well.

  • QQQ is the Nasdaq 100, more precisely.

    At some point I am planning on doing something quite like this, in my case 1/3 - 1/2 BND (slightly superior to AGG and the others) and the rest in CAPE and VOOG.
  • edited April 2020
    Hi @davidrmoran

    Oh, yes. There are other decent choices for a quality bond etf or fund.
    Build your own allows for the flex.
  • edited April 2020
    Yes @BenWP, your comment in the other thread along with rono's comments about gold-paper are what got me thinking about this move. I also have a gut feeling this down turn will be here to stay for quite some time with more potential downside than up. Some of the funds I started to research are pretty darn consistent in both type markets. I just don't like the bond market right now and the risk in gold pricing has me nervous. An alternative with some of that money is what has got me thinking.

    @Bitzer, BTAL was the ETF I planned to buy tomorrow. I sure wish you didn't refer to the "secret sauce". Made me cringe:)

    @Mark, @catch22, I've always thought the same way and I know over time a good balanced fund will beat the pants off these alternatives. But, I'm thinking how do I diversify or potentially limit losses over a long recession? Cash for sure. Bonds though scare me and gold ETFs are starting to give me the same feeling where risk may be higher than reward. I hear you though.
  • I made the decision to invest in assets rather than strategies. I started investing in 2000 after I sold the farm to pay debts and send my son to college. After reading an interesting bio, my first mf was First Eagle Global and the manager was a proponent of gold as an alternative asset. I also bought the First Eagle Gold fund when stocks started to slide shortly after my start. I made a lot of return through the dot-com recession, and it made me a believer. All this before the advent of so many ETF’s and Alternatives. Gold has held value throughout time, we have Fort Knox, the pharaohs too, stockpiled it. And the draw seems universal, both the Spanish and the Aztecs held it as valuable at he same time. I also follow Jean Marie Evillard’s thoughts on bonds and only hold treasuries as an alternative to stocks. I use common stocks to invest in the corporate scheme of assets.
    While I am certainly not the smartest guy in the room, and while I have tried different assets and strategies, I have pretty much have always returned to equities, treasuries and gold ( and cash). It makes investing manageable for me and I haven’t had many regrets.
  • I've used a variety of l/s funds ,market neutral and multialternative funds. As was said before, they work until a change in market sentiment occurs, and then they generate unexpected losses. I'm currently invested in MERFX MASNX and HMEAX . ARBFX and GADVX are inconsistent, as well as some l/s funds run by American Century.
  • Still own Calamos Market Neutral (CVSIX) and Invenomic Investor class (BIVRX). Bought BIVRX about a month before the market fell off a cliff. Waiting for BIVRX's NAV to climb again.

    I have had CVSIX for many years so I am still ahead with it.
  • Portfolio Visualizer offers a free tool to test various combinations of funds and ETFs in one portfolio to see how they perform together. They have some pre-loaded combinations if you click on the gear icon above Portfolio 1 or 2 or 3. You can choose your benchmark, and how often it rebalances. Of course, past performance is no guarantee of future results.

  • catch22 said:

    Hi @davidrmoran

    Oh, yes. There are other decent choices for a quality bond etf or fund.
    Build your allows for the flex.

    Well, open to ETF suggestions, have been researching the area intensively, can see why Bogle, or maybe it's Buffett, like good MMF instead.
  • @MikeM I'm not trying to give you a hard time here, just looking to join the fun on a boring Sunday evening

    Re: BTAL I took another look at BTAL against my favorite benchmark, VTI. Ok, I know VTI is the wrong benchmark, but that (or a target date fund) is where my money goes without a better (for me) idea.

    Taking a look at BTAL for each calendar year of it's existence (ok, I know that's the wrong comparison tool), I see that VTI had greater returns, except for 2018 and 2020 (thus far) when BTAL clobbered VTI.

    It looks like BTAL only came to life in the past 6 weeks or so. I'm looking to invest some "fun money" but I think I can do better than BTAL.

    Does anyone understand how that fund works?
  • Bitzer said:

    Does anyone understand how BTAL works?

    It tracks the Dow Jones Market Neutral Anti-Beta Index. Here's the index website. You can download the methodology and read exactly how they do it. Basically, long 200 low beta stocks and short 200 high beta stocks.
  • Badly burned by Qleix. JP Morgan L/S is still net (+) from when I switched the AQR dog to JP Morgan.
  • Take a look at SWAN.
  • edited April 2020
    Hi @Bitzer. No worries on a hard time. I'm looking for my thoughts to be challenged:) and I appreciate all feedback. But what you said is exactly my point for possibly picking up a L/S fund now. "BTAL clobbered VTI in 2018, 2020". My crystal ball sees more downside in 2020 and maybe beyond, and that ball works 50% of the time!

    I'm not looking for a long term holding here. I've always been an advocate against these funds long term (balanced funds will always win is my motto). I'm looking for something that holds up in a recession environment better that straight equities - VTI. I mentioned above, I think bonds are risky and corporate bonds may become even more so. Gold ETFs, "paper" as described by some, may also have more risk than I appreciated and I don't need another IOFAX surprise.

    I don't plan to sell any equity funds. Probably to late for that. Just looking for diversification with possibly less risk than bonds and gold ETFs - during this upcoming recession.

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