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Somewhat Interesting Tiny Fund: Whitebox Tactical Opportunities (WBMRX)

edited August 2012 in Fund Discussions
Run by a well-regarded Minneapolis hedge fund manager (Andrew Redleaf). Expenses are somewhat high,but not unusual for a fund that can short. Multi-cap.

Fund looks for contrarian plays, can go short either via options or futures, is US only and can use ETFS and closed-end funds. Is currently nearly 30% cash.

"The Adviser has wide latitude to allocate Tactical Opportunities Fund’s assets among common and preferred stocks, warrants,
fixed income securities, convertible securities, indexed securities and derivatives."

The last page of the current fact sheet provides a pretty lengthy and fairly compelling discussion on the fund's philosophies regarding hedging and alternative investing.

I'm not investing yet, but I think it's interesting. Has so far done better than the category.


  • 29% of the portfolio is in an S&P 500 index ETF (as of June 30) -- am I reading this right?
  • Scott...Thanks for posting this. Interesting fund and worth exploring more carefully.

    Do you know anything about the manager's hedge fund? Does it follow a similar strategy? Does it have a longer perf. record than the mutual fund? Would be interesting to know if the large cash position is one that fluctuates or remains fairly steady (like PVFIX).

    From the fact sheet, this seems to look like a domestic version of PMHIX... long-biased, value oriented domestic go anywhere fund with the ability to short.

  • Reply to @claimui: Looks that way.
  • edited August 2012
    Hi Scott- yes, that last page is very interesting. He vocalizes something that has always intuitively bothered me re hedging as a concept... if you are perfectly hedged, you might end up with no return at all. He also made me feel a lot better about our outsized current cash position, which by coincidence is also around 30%... that itself is a type of "hedge".

    Still, it would appear that he is (roughly) 30% in the S&P, 30% in cash, and 40% in everything else, primarily US investments. Interestingly, that isn't too far off my allocation exposure.
  • edited August 2012
    How in the world did you find this ?

    It also appears that this fund is NTF at Fidelity with 1000 min for IRA's. Very interesting.

  • edited August 2012
    Reply to @perpetual_Bull: Scott's link downloads their 2nd qtr commentary... skip down to "Top Ten Holdings" on page 4.

    (Note- this was a reply to pB which he evidently subsequently edited. Or possibly a MFO site malfunction, as it was acting a little flaky when I posted this, as evidenced by the large empty space in his post.)
  • Reply to @BWG: 2007 profile of manager and fund:

    Recent article by manager re: Nat Gas

    Another recent article re: Small Caps:

    Collection of articles and videos:

    Huffpost Articles:

    The S & P ETF holding may be part of the discussed trade re long large caps and short small caps. However, given that the fund maintains a similar cash % holding in recent time, this may be an error (?) The fund does seem fairly aggressive - from what I've read so far - in terms of attempting to dial up and down exposure, and I think may resemble Marketfield in attempts to dial up and down risk, whereas PMHIX seems geared towards - aside from the risk of its concentrated nature - a smoother ride. This fund also seems fairly heavily intent on what it believes to be contrarian plays.

    "Redleaf became a hero to his clients in 2007 when the market for subprime mortgage bonds collapsed. He had warned that would happen in a letter in December 2006. “Sometime in the next 12 to 18 months, there is going to be a panic in credit markets,” Redleaf wrote.

    Bearish Bet
    Whitebox bought credit-default swaps on mortgage-backed securities, betting on a decline. As a result, its Hedged High Yield Fund had a 33 percent return in 2007, according to investors. This is the same fund that made Whitebox’s ethanol investments.

    Redleaf then bought back into credit markets too soon during the crisis of 2008. His six funds fell an average of 40 percent. Whitebox recovered in 2009, with fund returns averaging 80 percent, investors say."

    "Redleaf completed undergraduate and master’s degrees in mathematics at Yale University in just three years, graduating in 1978. While there, he says, he developed a model for valuing stock options similar to the Black-Scholes method."
  • edited August 2012
    Reply to @perpetual_Bull: Sometimes I literally go through fund family after fund family, looking for funds that are unique/unusual, grab the interest in some way. Sometimes oddball is just oddball (or interesting but problematic in some way - see James Alpha Global Real Return, which another user mentioned earlier this week), but occasionally some funds are rather compelling.
  • edited August 2012
    The hedge fund also has a separate website: "Whitebox Selected Research", where they highlight recent investment articles of interest and contribute some of their own writings.


    The Whitebox Advisor articles on the website are manager Redleaf's newsletter.

    The latest one is here:

    Again, I don't know if I'm going to invest yet, but a pretty interesting little fund and the kind of thing that David may be interested in profiling in a future update for MFO.
  • Reply to @Old_Joe: Yeah, I think hedging is really a balancing act and it's difficult. I think his discussion of out of the money put options is particularly interesting and options are something I've considered trying at times. El-Erian has discussed "Armageddon Insurance" before in regards to the Harvard Endowment management and in Pimco Global Multi-Asset (although I'm not sure how much of the latter he's that responsible for). Pimco Global Multi-Asset has (or at least had for a really long time, I haven't looked at the fund in a while) far out of the money S & P put options as a form of relatively cheap insurance against disaster. He put it particularly well in that it's an attempt at insurance against a tornado (far out of the money puts that would pay off very well if there was a severe market downturn) versus trying to continually insure against blustery days (outright hedges against indexes.)

  • Good catch, Scott; definitely one for the read, research, and watch list. There'll be a fairly large 401k rollover at this house in the next year or so, & I'm working on a shopping list for a Fido IRA.
  • Reply to @Old_Joe: "if you are perfectly hedged, you might end up with no return at all." Actually, you'll end up with negative return. The hedges are not free. Whether it is via options (premia, commissions), swaps (libor +) or shorting (cost of borrow, paying dividend to the long holder). That's why a lot of very complex and sophisticated strategies have very mixed returns.
  • Reply to @fundalarm: Suspicions confirmed. Thanks FA.
  • Reply to @scott: Scott..Thanks for the links. Very helpful. You are right..more like an aggressive MFLDX than PMHIX. Thanks again for highlighting this fund.

  • Scott, I am sure you know this and overlooked in your opening post that it makes it easier for us to research the fund if you also mention the fund ticker in the body of the message. MFO converts it link to a popup which links to popular sites for that fund.

  • edited August 2012
    Reply to @Investor: Yes, thanks, I was more concerned with giving background and additional links regarding management and the fund company at the time.

    As for fund tickers, hopefully the fund will not be another NARFX - although Whitebox as a hedge fund seems to have more of a backstory/record.
  • Reply to @BWG: I don't think it's an apples-to-apples comparison to either fund really, but I think I wanted to lean towards MFLDX to give a more likely sense of volatility. PMHIX has been - aside from a somewhat bumpy start - an enjoyably sleepy/low key little fund.
  • SCOTT, thanks for finding this fund, i am always on the hunt for new and unique funds that have intelligent managment and low asset base and reasonable fees. this fund might find a place in my portfolio. it would be nice if david could do some research and profile this fund. i have been looking to replace my fpacx holdings for a long time, just maybe this fund could be it.
  • edited August 2012
    Reply to @ducrow:

    Happy to help! Some thoughts

    1. New fund. A hedge fund may not always translate to a good mutual fund. See NARFX (which was sold and turned into another fund.) Not comparing management of NARFX to this fund or anything, but I suppose it's a belief that a hedge fund strategy does not always carry over to the mutual fund world. However, the Whitebox fund is doing well so far.

    2. FPA Crescent (FPACX) may have a couple of issues (structural - it could probably close), but I think it's still an excellent fund with a great manager in Romick (whose views I continue to agree with a great deal.) Personally, I don't know if I'd replace it or if this is an apples-to-apples replacement. The Whitebox fund is a new fund, but I think this is going to be a unique/unusual offering in that part of the stock holdings may be broad, but there may be a sizable portion in contrarian ideas/plays/themes - a further discussion by the manager regarding his nat gas theme is available in this Barrons article (

    Also note, from the Whitebox quarterly report: "Our fund is not currently “market neutral.” We have a strong “long-bias”. At
    other times we may have a strong short bias. Our returns will reflect at least a
    portion of day to day, normal market volatility. Our goal is to outperform not by
    delivering smooth returns all the time. Our goal is to outperform by doing two
    things. (1) Avoiding catastrophic capital losses that can derail an investment
    program for years, or forever. (2) Being invested in areas of exceptional
    opportunity wherever in securities markets those opportunities arise."

    So, the fund definitely has the flexibility to dial up and down risk, to the point where it can have a "strong short bias."

    3. Amusing name. Whitebox is a play on the opaque "black box" strategies that hedge funds often have. Their big thing is being transparent with shareholders in communications and otherwise.

    4. Again, while the hedge fund may be highly regarded, new mutual fund. However, there is a lot available online about the manager. Their "Whitebox Selected Research" is enjoyable reading, both from the articles from others and the articles from Whitebox. Redleaf wrote a book, "Panic", about the financial crisis, which does not appear to be available new anymore from amazon, but is available used, and got good reviews.

    5. One other interesting note: the co-manager of the fund is ROB VOGEL
    Rob Vogel joined Whitebox Advisors, LLC in 1999 as a convertible bond trader. From 1995 – 1999, Rob was a convertible bond trader for EBF & Associates of Minneapolis. From 1991 – 1995, Rob was an actuary and ran statistical models to estimate insurance reserves. Rob holds an MBA from the University of Minnesota and a BS in Applied Mathematics and Statistics from the University of Florida.

    If you look under the Whitebox Selected Research, there is an article from Hedge Fund Review, awarding "Whitebox Concentrated Convertible Arbitrage" the "Best Non-Directional Hedge Fund Over 10 Years"

    So, beyond what's available on Redleaf, this gives you some idea about the background of another manager on the fund:

    Under that article about the convertible arb hedge fund: "The fund’s investments are
    guided by Whitebox’s distinctive
    market philosophy. One of the core
    themes is to “be more invested at the
    bottom than the top”. This reflects
    Whitebox’s view that contrary to
    conventional investment theories,
    markets actually tend to be more
    risky when they are less volatile."
    “When markets are less volatile,
    prices are generally higher, which
    probably makes them riskier,” Vogel
    explains. “We aim to be less exposed
    when markets are tranquil so that,
    if the cycle turns and prices get
    cheaper, we can add to positions.”

    As for the last manager, I think this is awfully interesting: " Prior to joining Whitebox Advisors, LLC in 2002, Jason spent two years working with Nobel Laureate Myron Scholes at Oak Hill Platinum Partners where he developed models for long/short equity strategies. "


    Lastly, I don't really want to tell David what to do, but I do agree this is really a fund that would be perfect for a profile. It only has 9.5M under management, but a pretty highly regarded management team.

  • I did speak with the advisor.
    they do expect the convertible fund to open in a few months
  • Outstanding Scott. Absolutely fascinating. Have very much enjoyed reading up on Whitebox Advisors and Mr. Redleaf. Agree with your observations and assessment. Thanks for sharing.
  • WBMIX is available at TDA for low minimum plus T/F in non-taxable accounts. Trade went through this morning. Will see if it gets reversed in a couple of days.
  • Is this worth buying in a taxable account with potential for high turnover and short term cap gains?
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