Long short Anyone?

sma3

Davids recent commentary with the ideas from Leuthold ( A very good usually bear biased firm) got me thinking about downside protection and long short funds. This would be a good time to start further review of various "alternative" funds that can mitigate any downside in the US equity market.

Caldwell and Orkin Market opportunity (COAGX) was up in the third quarter... there are a number of open L/S funds available but few are covered here...

I would appreciate anyone else's thoughts. I am putting some IRA money into COAG LCORX and BPRRX.. I think things are going to get nasty, especially in the Emerging Markets as China devalues again

wxman123

Not a big fan of long-short as a standalone strategy. The usual objective in buying such funds is to dampen volatility and limit the downside. That being said, over the long term you're almost sure to do better with something like VWIAX. If you want something in the alternative space, may I suggest a MASNX.

Edmond

I've looked for 'the holy grail' for some time -- a hedged or l/s fund that RELIABLY will deliver positive returns, I've not had much success OTHER than the Boston Partners funds (which I've no access to, as they are closed to new investors).

Other than that, I would actually 'second' wxman's reco re Wellesley. While its not marketed as an alternative strategy, the combination of its target bond/equity allocation, value/income tilt, ultra-low expenses make it's performance behave like a hedged strategy vehicle. --- I recommend you IGNORE for a moment its M* category, and simply compare its raw trailing & annual returns. -- They compare VERY FAVORABLY as a 'hedged vehicle' vis-a-vis most 'alternative funds'. Even more convincing: Wellesley has a historical track record which includes many market cycles. --- Contrast that with the relative new vintage of most alternative funds. Wellesley has proven itself, that cannot be said about most alternative funds. -- Compare COAGX's trailing returns > 1 year to VWIAX to see what I mean.

Lastly, whatever the theoretical efficacy of some of the alternative strategies, in most cases, E/R -- which strike me as very high vs conventional funds (and certainly vs Wellesley!) seem to end up devouring a lot of the returns, delivering "meh" returns over extended periods (where they even exist).

Wellesley -- its the "secret hedged-equity" vehicle. But that is strictly on the hush-hush.

kevindow

In the alternative and L/S space, I continue to like QLEIX and QMNIX, and we own the latter.

CHART

Kevin

wxman123

Kevin, I've looked at AQR funds for some time and you certainly cant argue with the performance numbers. What are your thoughts though on QMNIX which has delivered an 18% return over the past year? Can that really be market neutral? Or said an another way, would an investor have to be willing to accept an 18% decline in such a fund, which would be unacceptable in the market neutral space? Rarely is there a free lunch, but sometimes there is. I recall when Gundlach started Doubleline many said his "secret sauce" would be uncovered (if there was one) yet he has continued to deliver.

wxman123

Also. I'd still avoid L/S no matter the performance history. I'm sure most recall MainStay Marketfield!

AndyJ

wxman123 said:

What are your thoughts though on QMNIX which has delivered an 18% return over the past year? Can that really be market neutral?

If you're curious, wxman, look at the prospectus and the quarterly fact sheets for both funds to see what they're doing. Short answer for Equity Market Neutral: it's neutral over a cycle, not all the time. It was slightly net long earlier this year, and from the NAV movement lately, appears to be net short now (waiting for the 9/30 fact sheet to confirm).

Other things to know about the approach (both funds): it's global and extremely diversified. The two funds are very similar, the difference apparently being that L/S is biased slightly long and M/N is biased in the direction of (but not exactly) zero net equity exposure.

LewisBraham

COAGX is very streaky. So if you want to own it, be prepared to own it for a long time and expect that it will have periods where it will do nothing and then suddenly do well. It can be a good diversifier if you have the patience.

sma3

I agree bonds usually protect value in bear markets and VWIAX has all of the advantages mentioned. As an acid test I look at the 2008 losses to see what happens in the "perfect storm" ... VWIAX lost about 18%. If this was the loss of your entire portfolio for a long term investor that is probably acceptable, but it would do little to mitigate the 45% loss of the SP500. The other unknown is what happens to the bonds in VWIAX going in a major downward trend starting at the prices most bonds command now