The elevator discussion in David's Jan. commentary caught my attention. If I understand it correctly, the strategy of SDRIX is to stay fully invested at all times in a generally large cap value manner while hedging against a bear market using puts that only come into the money when the market is down 10%. Unlike most long-short strategies, it's not hedging against individual securities nor is it trying to time moves in and out of the market (as does Hussman, I believe?). So the fund can have good success either in a big up year or in a big down year. Its worst case scenario seems to be a year with the market down 9% (so the hedge isn't quite triggered) while the market is led by growth stocks (so the value tilt causes under-performance). This year, a flat market led overwhelmingly by a couple of big growth stocks, SDRIX was down less than 5%, so I'm guessing that down 15% really would be a rock-bottom scenario for it. It's a nice thought that your fund would do okay in a roaring bull market while thriving in a devastating bear.
FWIW, this is the first vehicle I've seen that pretty much implements the investing ideas that Mark Spitznagel puts forth in his very interesting book, The Dao of Capital. The main difference so far as I can recall is that Spitznagel suggests a breakpoint of 20% or 30% for your hedge instead of 10%, I presume because of cost.
Any comments?
Comments
(And is somewhat expensive, with an ER of 1.19% [per M*] for $100,000 minimum!)
I am looking at similar (perhaps, in that it uses options, but with a different strategy...) GTSOX which appears (?) to be 'better' from a risk perspective than the Swan Fund, and which only has an ER of 0.87% and is available at my discount broker.
Aside: Wonder why GTSOX was not mentioned by M*... Also, since the M* article was written, Schooner has collapsed. (Why?)
What do you think of Glenmede fund?
See Risk Link, below, and then add GTSOX to the [Compare]
SDRIX RISK LINK
http://performance.morningstar.com/fund/ratings-risk.action?t=SDRIX
GLENMEDE SECURED OPTIONS
http://www.morningstar.com/funds/XNAS/GTSOX/quote.html
https://www.glenmede.com/pdf/GTSOX.pdf
https://www.glenmede.com/glenmede_investment_management/gim_liquid_alternative_mutual_funds
SCHOONER PERFORMANCE
http://quotes.morningstar.com/chart/fund/chart?t=SCNIX
Not value, per se. They own equal amounts of nine ETFs, one representing each major industry. Some of the ETFs are quite growth-y, some are not. They periodically rebalance to get everyone back to an equal weight. For now, that means buying the energy ETF regularly. They own lots of shares of it which, in theory, might pay off big in an energy rebound.
Load-waived shares of SDRAX ($2,500) are widely available, but they're not going to be mistaken for a Vanguard fund (1.58% e.r.).
David
But more importantly, both articles discuss funds that use collar strategies (that "collar" or constrain both upside and downside). The difference among the funds in the articles seems to be in how they adjust the parameters (e.g. how far out of the money the options are).
In contrast, it looks like GTSOX just writes covered call and "covered" put options. "The Portfolio is called 'Secured Options' because the call and put options it writes will be covered by [what the portfolio owns]". That's from the prospectus.
That strategy generates income, but doesn't provide the same direct protection as do protective puts. SDRAX buys puts to protect against bear markets, and (with parameters adjusted differently) Gateway seems to use them to protect against market corrections.
What do you think of Glenmede fund?
Speaking as someone who knows practically nothing about option investing, I can only echo what msf says. It seems to be a conservative fund that uses only covered options. FWIW, so far it has delivered about 2/3 of the S&P's returns with about 2/3 of the S&P's standard deviation.
Not value per se, but my understanding is that any of these equal-weighted rebalancing schemes give you a value tilt. If you like Morningstar's classifications, they have SDRIX at 42% value and 25% growth.