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I purchased ARLSX and so far not so good

jerry
edited February 2014 in Fund Discussions
The purchase of ARLSX was on Jan 23 (not perfect timing ) but it didn't seem to protect me on the downside or participate on the upside. The loss is not big (-2%) but my readings about this asset class on this site suggested this type of investment usually does not work but it does for this fund. Did I misunderstand?
I am certainly not planning to sell soon but am having second thoughts.

Spelling of Fund symbol corrected(what was the position down 6% as noted by Scott

Comments

  • fundalarmfundalarm
    what's the ticker again?
  • TedTed
    Dear Jerry: Its the woodshed for you young man. There is no fund with the symbol ARSLX.
    Regards,
    Ted
  • scott
    edited February 2014
    ARLSX? The fund is probably facing some difficulty from its largest holding (6% of the fund) -22% YTD.
  • jerry
    Yup its ARLSX sorry.. But I did like the video although I wasn't rude like the boy .I did think based on the number of hits that the punishment did not fit the crime
  • finder
    It is not just the largest holding (ADT), but other large holdings are down about 10% year to date (GM, L, TGT, ASCMA).
  • TedTed
    Reply to @jerry: Upon further review, you trip to the woodshed has been rescinded.
    Regards,
    Ted
  • ducrow
    edited February 2014
    I Like MFLDX & WBMIX For My Funds In The Long Short Space.
  • fundalarmfundalarm
    Reply to @ducrow: why so loud?
  • AndyJ
    Several of ARLSX's shorts are up a lot short term, too - UNG, EA, and ESG about 20%, and UAL just shy of that. From a quick look at the full holdings (via M* premium), appears many of their shorts are up ... though again this is short term.
  • TedTed
    Reply to @ducrow: Using those Caps Lock, you know what that means, you guessed it assume the position.
    Regards,
    Ted
    Kevin Bacon: Assume The Position
  • scott
    Reply to @ducrow: Pimco's L/S fund also still rolling along after an exceptional year last year.
  • hank
    edited February 2014
    These types of funds are too cute by half. They usually work well for a few years - long enough to draw in lots of money. Why lots of money? Because there are a lot of people looking for "safe" investments and willing to pay up for promising performance in both up and down markets. In addition, these Charlatan funds tend to be in short supply compared to the large number of long only funds. So it's a lot easier to get a share of the market with one of these - as long as the manager can keep the party going.

    The manager has a lot harder job making one of these work. First, markets usually go up - so he or she's always tacking into the wind so to speak. Second, operating expenses are greater because they have to pay interest on their short positions. This cost is reflected in their typically high ERs. Third, once they sell a stock short, their losses are potentially unlimited because the stock theoretically can continue to rise forever. In contrast, when you buy a stock for $100 (or whatever it was selling for) that's usually the maximum you can loose (assuming it drops to 0) unless you employed some type of leverage. Fourth, their investors tend to be more fickle and prone to cutting and running when the fund begins to swan dive. They expected their long only funds to hit bad spells, but are often alarmed when a fund they considered "safe" begins to slide. These mass exoduses serve to intensify the fund's losses by forcing the manager to sell at the worst possible time. The relatively small size of most of these heightens that effect.

    BTW: There's many balanced or "hybrid" funds which are able to dampen (but not eliminate) share price volatility (without employing short sales) that carry ERs of only about half the 1.7% this fund sports.







  • kevindowkevindow
    Hi Jerry,

    I agree totally with Hank. To date, I have not read any convincing evidence which indicates that a well diversified portfolio must include exotic funds such as L/S, market neutral, hedge-equivalent, or the AQR-fund-du-jour. If you want less downside participation, consider owning funds such as BERIX, VWIAX, HBLIX, PRWCX, FPACX, SGENX-LW, and MQIFX.

    Kevin
  • finder
    edited February 2014
    Maybe the reason why people are looking for alternatives is due to the expectations that the success of the mechanism that made many of these funds work so well (balancing stocks and bonds) may not return back for quite a while. That is why FPACX has 50% in stocks and 2% in bonds and 44% in cash. If bonds are out, what can replace them? Another reason, for some of us, is that so far MFLDX is nearly 100% tax efficient, whereas bonds are not.
  • hank
    edited February 2014
    Reply to @finder: Good points. Agree that bonds look problematic going foreward. Everybody's scrambling to find work-arounds (witness T. Rowe's recent inception of RPGAX which invests around 10% in a Blackstone Hedge fund). The two you cite have impressive 5 year records, but not better than a good hybrid or balanced fund like PRWCX, which uses various hedging strategies including selling "puts" on stocks it owns for additional income, and can be had for less than .8% ER. Hmm ... I wish folks well who use these LS vehicles - but danged if I can justify them for myself. Hedge a bit on my own using cash-like instruments. That's a hefty price to pay too at these horrific low rates - but the cash is stable (in a sense) while these more complex short sales are pretty dicy. Regards
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