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Long/Short Funds -- General Thoughts?

What do folks here think of L/S funds as a "mutual fund asset class"? Too new (too trendy) to form an opinion?

Comments

  • There's a nice essay from Wasatch on using long/short funds as a core portfolio holding.

    I did interviews with or profiles of a series of long/short managers last summer and fall. My general impression:

    1. this is a very old strategy, actually. This is pretty much where the hedge fund industry started, back in the days when these were "hedged" funds. Done well, it makes sense.

    2. in general, most long/short funds are sorrowful. Most are expensive, undisciplined and surrender too much upside , though they do provide some downside protection.

    3. the long/short category actually covers a very different strategies, so side-by-side comparisons are not as straightforward as you might imagine.

    Folks to look at would include Aston/RiverRoad Long Short (ARLSX), Bridgeway Managed Volatility (BRBPX) and RiverPark Long Short Opportunity (RLSFX). The gold standard in the field is the closed Robeco Boston Partners Long/Short Equity fund (BPLEX). They have a second long/short fund (Research) which is interesting but it's no BPLEX. Marketfield, in adopting a sales load and a marketing machine, probably has taken itself out of the running.

    Just random thoughts on a Friday afternoon,

    David
  • David, thanks. Appears the Wasatch essay is no longer around (or is not visible to my browser). Cheers.

    D.S.
  • Reply to @David_Snowball: Some of us (me included) bought MFLDX before it adopted the sales load, so we can still buy it without any load. Are you skeptical about this fund because of the marketing machine? So far, it is doing really well, better than all funds mentioned above except the closed BPLEX.
  • edited March 2013
    The essay "Using a Directional Long/Short Fund as a Core Holding" (2012) can be found under White Papers (Literature & Forms tab) on the Wasatch web site
  • I'd really go with the more flexible, what I would call "second generation" of long/short funds, such as Marketfield (MFLDX) or the Robeco fund - funds that are not strict with the long/short definition and can dial up and down the amount of short positions based on the market environment. Whitebox Tactical (WBMRX) is another newer option, and Pimco Long/Short actually has done reasonably well lately after a so-so start.

    Marketing machine or not, Marketfield continues to exceed my expectations.
  • TFSMX was another good one (alas, it closed to new investors). Though it yielded more conservative returns, it was steady.

    MFLDX has performed well. I don't trust most of these other long-short vehicles.
  • I came across Barons Partners fund, BPTRX, that uses a shorting strategy. In this funds case, I woud have to say that shorting amplified returns rather than cushioned volatility.

    Also, if I were considering a fund strategy like this I would consider a long/short fund for the long term since its performance short term might disappoint. BPTRX definitely did in 2008.
  • Since David mentioned the Wasatch article, I am surprised no one brought up FMLSX. It has outperformed both MFLDX and BPLEX.
  • edited March 2013
    Reply to @bee: BPTRX has rarely if ever shorted, despite the ability to do so. However, if you are a Baron fund shareholder you get the option to go to their giant shareholder meeting in NYC, which offers CEO interviews and entertainment. From the fund's website: "As a thank you to our clients and shareholders, we have surprise entertainers who have included Stevie Wonder, Billy Crystal, Elton John, Cher, Jon Bon Jovi, Billy Joel, Bette Midler, Sting, Jerry Seinfeld, Rod Stewart, Neil Diamond, Paul Simon, Diana Ross, John Mellencamp, Sheryl Crow, Faith Hill, Lionel Ritchie and Bernadette Peters."
  • edited March 2013
    I sunk an initial position into the Aston fund ARLSX a couple of weeks ago. I'd been very skeptical of L-S funds in general, but decided that I like the Aston guys' (detailed!) process and the risk containment. So far it's had a 70-55 up-down capture ratio (compared to the S&P 500). It's still a test at this point, but looking okay so far.

    I looked at FMLSX, but the capture ratios aren't very good; for 1 and 3 years, the down-capture is greater than the up. In fact, generally speaking it's had about equal down-capture compared to the two large-blend, long-only funds I own, so it doesn't really fit what I'd want in an L-S fund.

    The Lipper awards are out for this year; those awards emphasize risk-adjusted return, and their 3y and 5y pick is the Robeco fund. 10y is the Schwab Hedged Equity Fund, which I haven't looked into. Typically if a fund is a 10y winner but not a winner lately, it's got a good history overall due to great work in the past, but not as good recently.

  • Reply to @andrei: The load is the key short term issue. The prospect that MainStay will need to bloat the fund in order to make back their purchase price is the longer term one. I agree that it is, especially for "grandfathered" investors, a very solid option.
  • Reply to @Bobpa: I do not think so: According to the charts from M*, MFLDX, since its inception, significantly outperformed FMLSX.
  • Reply to @scott:Once at the link,click
    'Perspective on short selling' in the video presentation. Like Mr Aronstein says,"we're short to make money".Also in the same video,click the 'Where does the Fund Fit'
    http://www.nylinvestments.com/MainStay/Features/MainStay-Marketfield-Fund
    Unfortunately,as David says,Marketfield has come under a corporate umbrella that has added sales fees to new investors.Scott's observation concerning the ability to dial up or down the exposure to short positions does make MFLDX more of a core holding than a possible L/S asset holding. I'm happy to hold MFLDX and FPACX for my short exposure since realizing I was too late to buy into the 'gold star" Boston Partners fund.
  • I just don't see a reason for categorized long/short fund. But on the other hand, I really like funds like FPACX where the manager has great flexibility in adjusting his/her portfolio. A caveat to that is I want the manager to have a "protect principle first" mentality - again like Steve Romick with FPACX.

    There are definitely other funds/managers having flexibility with a performance history worth investing in. But frankly, the great majority of so-called long/short funds are just disappointing. Speaking for myself, I can do without that category.
  • Reply to @bee: Baron Partners was a successul hedge fund for years, and one of the early converts to a mutual fund. I held it for several years, shortly after opening, but sold it when - as Scott notes - it became clear that they weren't actually willing to use shorts either offensively or defensively. The short position, during my tenure as a shareholder, was typically a percent or two. The proceeds from that sale became my core investment in FPA Crescent (FPACX), whose manager is noticeably more active in his management.

    David
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