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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.

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a (down) day in the life of the market

In the context of investment performance and choice, one day is meaningless except, perhaps, as a tool to pique curiosity and encourage a bit more investigation. So, what might one be curious about after the "oops" on Thursday? I'm curious about the funds that I track on your behalf and, in particular, the funds which should hedge your portfolio (to some degree) from the stock market's antics.

Here are three benchmarks that I looked at:

Vanguard Total Stock Market (VTSMX): unhedged domestic equity performance
Vanguard Balanced Index (VBINX): 60% equity exposure
IQ Alpha Hedge Strategy (IQHOX): a well-regarded attempt to market the performance of a broad index of hedge funds

VTSMX: down 1.39%
VBINX: down 0.78%
IQHOX: down 0.74%

So here's a thought: if your hedged fund lost less than 0.75% on Thursday, it's acting respectably. In that camp we have:

• Robeco Boston Partners L/S Equity 0.69
• Hussman Strategic Growth 0.20
• Hussman Strategic International 0.20
• Forward Credit Analysis Long/Short 0.13
• Hussman Strategic Total Return 0.09
• T. Rowe Price Strategic Income 0.09
• Fidelity Strategic Income 0.00
• Arbitrage R -0.08
• Pacific Financial Tactical -0.10
• Merger -0.18
• Whitebox Long Short Equity -0.38
• ASTON/River Road Long-Short -0.42
• TFS Market Neutral -0.43
• Diamond Hill Long-Short -0.51
• Gateway -0.52
• GRT Absolute Return -0.54
• Quaker Event Arbitrage -0.60
• Bridgeway Managed Volatility -0.61
• New Century Alternative Strategies -0.61
• RiverNorth Dynamic Buy-Write -0.66
• MainStay Marketfield -0.72

If you think it's also reasonable that they should have produced about 60% of the market's 25% gains this year, that list contracts:

• Diamond Hill Long-Short 19.17
• ASTON/River Road Long-Short 15.14
• MainStay Marketfield 13.45

If you have the more-modest goal of matching the YTD performance of the industry's best hedged fund, Boston Robeco Partners L/S (up 8.3% YTD), you'd add:

• Quaker Event Arbitrage 9.08 (the former Pennsylvania Avenue Event Driven)

More modest still? Perhaps just have bragging rights over the folks who are surrendering 2-and-20? Roughly that would mean north of 4.3%, the YTD return of IQ Alpha Hedge Strategy. You start adding covered call funds to the mix:

• Bridgeway Managed Volatility 7.08
• Whitebox Long Short Equity 6.63
• Gateway 6.19
• New Century Alternative Strategies 5.03
• RiverNorth Dynamic Buy-Write 4.88

Finally, is an "absolute value" strategy, marked by concentrated portfolios, concern about valuations and still on cash the answer? Here I looked at funds with 15% or more in cash that either I've profiled or ridiculed (Oceanstone) or that you've gotten all tingly about (Yacktman).

The columns represent Thursday's loss (under 0.75% would be nice) and YTD gains (over 14% is tingle-worthy):

• Oceanstone -0.23 29.7
• FPA International Value -0.42 15.9
• Pinnacle Value -0.45 10.9
• FPA Crescent -0.51 17.8
• Cook & Bynum -0.52 10.1
• Beck, Mack & Oliver -0.66 18.1
• Aston River Road Indep Value -0.70 5.3
• Oakseed Opportunity -0.91 20.2
• Bretton -0.96 21.0
• Yacktman -1.08 24.3

Oceanstone, F P A Crescent, and Beck, Mack & Oliver Partners make the cut. Since Aston and Pinnacle are small cap value funds, you might ask how they did against 60% of the Vanguard Small Cap Value (VISVX) index. That target would be down 1% on the down (both did much better than that) and up 16% on the year (neither's closer, though Pinnacle is a lot closer).

For what discussion it spurs,

David

Comments

  • edited November 2013
    (Deleted by owner)
  • Well, it isn't a typical "hedging" type fund, but VVPSX, has been having a bizarre time of it lately. It's lagged severely over the last three months (was in either 98th or 99th %ile). Then yesterday led all sc funds by losing only .37% compared to -1.6% for the Russell 2000. Vulcan sells itself as a Graham-style investment house, highly concerned with downside protection, but that is extreme. Am wondering if its recently increased AUM, which is now at 700mm, is due to M* and Barron's "discovering" it, and whether Fitzpatrick is sitting on a pile of cash he can't deploy?
  • Ballast in my portfolio yesterday came from the same funds that provided ballast during 2008-2009: VWELX and TBGVX. MAINX, too, this time (though my position is tiny). ARIVX and MFLDX provided slightly less ballast, so I am getting some answers for my own portfolio.
    ARTMX took it on the chin, VEXMX almost as much.
  • Sorry, guys. I couldn't for the life of me figure out how to embed an html table. That was the source of the Alcatraz ethos in the draft posting. If only Charles (or chip or Accipiter) were here, they'd make it all better!

    David
  • Hedging for me with mutual funds is not considered. Only asset allocation and cash.
  • Reply to @InformalEconomist: TBGVX lost 38+% in 2008, not much ballast there in my opinion!? I didn't check out VWELX for that time period.
  • edited November 2013
    >>>If you think it's also reasonable that they should have produced about 60% of the market's 25% gains this year, that list contracts:<<<<


    Not exactly a great way to accumulate wealth for a comfortable retirement if that is one's goal each year. I have to say, the mindset of the investors of today differs markedly from those of the 80s and 90s. I suppose because of 2000-02 and especially 2008. As for the hedged funds or "more modest still", we don't even want to go there.

    Edit: My reference above are for those under 60 and still in the accumulation phase.
  • David: thanks for your time on this one down day exam of some of the funds talked about on MFO. I was wondering what 4-5 days of down turn would show ? Hopefully it will be sometime in the distant future!

    Have a good weekend, Derf
  • Reply to @Derf: Heigh ho! I actually do track things when we have extended down periods, a sort of informal and undisciplined "downside capture" inquiry. They've just be rare of late, but I'll keep an eye out.

    Take care,

    David
  • Reply to @David_Snowball: "What A Difference A Day Makes"
    FYI:
    Regards,
    Ted
    U.S. Markets 1:09 PM CST: http://www.cnbc.com/id/100003242
  • Reply to @Junkster: I don't think the "60% of 25%" refers to an entire portfolio, but only to the upside return of a hedging position.
  • edited November 2013
    Hi all,

    I compare my portfolio against the Lipper Balanced Index. Yesterday, I was down 0.55% while the Lipper Balanced Index was down 0.77%. Year-to-date I am up 12.1% while it is up 12.7%. I contibute my trailing in the upside to the large cash position that I am holding. However, at these elevated valuations I feel caution is warranted.

    Skeeter
  • VBINX up 14% YTD
  • edited November 2013
    Hi brucea,

    Yes, a little better at 14.03%. But it xrays at holding only 3% in cash. I am happy with my results considering the amount of cash I am holding. Anyway, I have generated more than enough off my principal this year to more than meet my needs. Why take more risk than is needed? Its five year annual return is 12.6% while mine is 15.8%. I was taking more risk five years ago and I have been dialing my risk down as equity valuations have elevated and I have now become of retirement age.

    Should we get a good size market pull back ... (5% to 10% perhaps more) ... it is in my blood line, most likely, to ramp up my equity allocation and put more risk on. Again, I feel caution is somewhat warranted at these current elevated valuations.

    Skeeter
  • edited November 2013
    Today's an excellent day to check the rate sensitivity of all those non-traditional, junky, 'limited duration,' multi-sector, etc. bond funds.
  • Reply to @AndyJ:

    Hi AndyJ,

    OSTIX was down 0.25% which seems like a bit of a hit as relates to PIMIX which was down 0.32% and VWEAX which was down 0.17%.

    Mona
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