Almost all managed futures funds did not do well this year, but this one was making good money (10.8% since inception a year ago). Its brother TFSMX is the only alternative mutual fund receiving a Morningstar Analyst Rating of Gold, it was nominated today for Alternatives Fund Manager of the Year, but it is closed. Its other brother, TFSSX, is one of the best (though risky) small cap fund. Same managers manage all three funds; they invested at least 50% of their money in TFSMX, but there is no data about TFSHX since the fund is new. In general, TFS is a hedge fund company,
http://www.tfscapital.com/ Any opinion about these folks? The success of these three funds is intriguing...
Comments
Regards
Ted
TFS Hedged Futures -0.18 % 0.37 % 10.80 % 10.80 %
S&P 500 Index 1.19% 1.13% 16.26% 15.77%
Daily Month YTD Inception
Seriously folks, do you really need such a fund in your portfolio? Really!!!? or a long/short fund or just any of these alternative funds in general? geez, if you've run out of options for your stacks of cash I suppose but good gravy it just seems senseless for the average person to be messing with this stuff. It's even more ridiculous when you know that the average investor doesn't know what a 401k is much less what's in one and probably half of them don't know what a mutual fund is.
Andrei and Scott, just so you know, I'm not calling you stupid or judging your sanity or saying that you shouldn't go here because only you two know about your personal finances. I'm just making a general observation about the increasingly bizarre world of mutual fund offerings. Here's a little secret - most are set up just to rake in fees.
Regards,
Ted
It's okay, although alternative strategies seem to result in a level of upset and frustration from some that I find odd. If you don't like the music, don't listen.
If you are happy with what you are doing in terms of your investments, terrific.
There is not one way to invest for everyone (varying risk tolerance and a number of other factors) , despite what some seem to think.
I'm not saying that there aren't funds in the category that aren't very good, but long-short strategies, when in capable hands, can work very well. I'm pleased with funds like Marketfield and (so far) Whitebox Tactical Opportunities. David has had calls with a couple of similar funds recently, as well, and they've stated their cases.
"It's even more ridiculous when you know that the average investor doesn't know what a 401k is much less what's in one and probably half of them don't know what a mutual fund is."
And it's only their own fault that they don't take the initiative and learn (because, as I've discussed often on this board, it isn't going to be taught in schools even though it should), although I'm not quite sure what the average investor not knowing about what a 401K is has to do with someone on this board investing in alts.
"Here's a little secret - most are set up just to rake in fees."
lol. Collecting AUM as a core goal in the investment industry is not exactly an issue limited to alts.
That's all I'm going to say in this thread on the subject.
Since you do not intend to comment anymore on this thread I would like to invite you to open up a new thread detailing for me why these funds are important, and how much of one's portfolio should be allocated toward them. From my limited viewpoint I would think that if you are going to be making these kind of investment bets than your entire portfolio should be nothing but this. If you're going to go long and short the market then let the manager decide what your long and short of. Why have an otherwise diversified portfolio and then throw one of these in on top of it? Why not just a short fund then? There must be reasons that so far escape me so I'm open to hearing them.
Most importantly, since you brought it up, what percent of your "entire" portfolio is allocated to these alternative investments, and what percent do you think there should be in one's portfolio to have any meaningful impact?
However, in terms of a question asking more about alternatives, I'll offer my views.
Personally, I think what I'd recommend for someone is going to vary considerably depending on their age and risk tolerance. In past portfolios I've recommended when asked on this board, I've generally recommended in the neighborhood of 10% in alternative strategies, possibly a bit higher depending on age and risk tolerance. I forget, but - and I apologize if I'm mistaken - I believe poster Bob C has said he has clients in a 10-20% allocation to alternatives (he uses alternatives, but I forget to the exact degree.)
These investments also generally are less correlated (to some degree, all depends on what you're talking about) to the day-to-day movements of the market, and have the ability to provide some degree (again, depends on what) of buffer in times of market stress and especially sustained market stress.
Many long-short funds have not worked, and it's been my view that the "Hedge Funds for the Masses" movement that has come and gone didn't fare well for a number of reasons, such as limited flexibility and being too strict with the definition of long/short. The funds that have stood apart in the category in the last few years are funds that have displayed skill at dialing up and down risk and having a much more variable degree of exposure. The Robeco fund is another strong example, and the two funds that David has profiled seem promising.
Managed futures hasn't done well as a strategy, although the above fund is different in its approach. Trend following funds did quite well in 2008 when the trend was down. An example is the Rydex Managed Futures fund, which gained a lot of attention when it made 8% in 2008. Since then, the fund would appear broken. You have a fund that only updates its positions once a month, which essentially - in this day and age - makes it a Fisher Price My First Hedge Fund. The way that commodity and financial markets are these days, it continually has been off on timing as what it follows whips around, and I've said it should be updated or just discontinued. These funds have not done well, and I question a bit whether managed futures as a strategy (in terms of the trend-following variety) can really work in a mutual fund structure in most market environments. If there's another 2008, they'll probably work just fine again, although not to the degree that will make up for the opportunity cost during the period they didn't.
Managed futures hedge funds can be far more nimble than updating positions once a month, and - as a result - the fund (and category) may not fare well. However, a number of managed futures hedge funds, which have the ability to be far more nimble - have fared better in recent years. The strategy is intended to deliver mild returns during most (not all, some years the strategy doesn't fare as well) good and bad years.
As for the managed futures fund that is the subject of this thread, I suppose I view it as something of a global macro hedge fund, able to make bets long/short across multiple asset classes in a broad fashion. There are many global macro hedge funds, and it comes down to management as to whether they can pull off the strategy consistently - in terms of to what degree, I don't see a stated goal. I don't own the fund and I don't have a place for it, but it's interesting and I don't have an issue with it (aside from not really seeing a stated performance goal, although maybe I just missed it.)
Are there gimmicky alt funds or funds that are too esoteric? Sure. A particularly good example is the James Global Alpha Real Return fund, an absolute return emerging market and commodity fund from the former manager of Pimco Commodity Real Return. A number of these funds, even if they do well, will probably not attract enough AUM to continue.
I also tend to think that the alternatives mutual fund sector has not attracted the talent, as why wouldn't someone open a hedge fund and have a greater degree of flexibility, restrictions on withdrawals from the fund and greater fees? A number of notable long-only mutual fund managers have also left for hedge funds in recent years.
There are also merger arbitrage funds, which go long a company being bought and short the company doing the buying. This has traditionally resulted in "singles" (single digit returns, maybe low double digit in a good year) in good and bad years. In the last 3 years, not that appealing. In 2008, appealing. For an old, retired person looking to have some equity exposure in a strategy that has pretty consistently churned out a few % a year in good times and bad, they may find it a very comfortable position for a small part of their portfolio.
"Why not just a short fund then? "
I'm getting a long-only manager to (hopefully) find opportunities long. I'm getting a long-short manager to (hopefully) find opportunities in both directions. Where I think a number of funds in the category have faltered in recent years is their inability to dial-up and down exposure - just because a fund is long-short does not mean it continually has to devote a substantial portion of the portfolio to shorts. Maybe there are times when it will find few short opportunities, and that's okay. I think that's what you've seen with Marketfield and the Robeco fund that have allowed them to be standouts in the category - that multi-speed approach to the strategy that, in theory, limits the drawdowns in bad years and to dial-up risk again when the manager feels appropriate. While past performance is no guarantee of future results (which can certainly be said about any strategy), the Robeco and Marketfield funds and their handling of 2008/2009 are good examples.
I'm largely long (and a mix of funds and single names), but I do find allocating to a manager that is largely global and multi-asset in its long-short flexibility (Marketfield) to be considerably appealing. I have funds both US and foreign where the intended goal is for the manager to find opportunities long-only, and I have a few funds that have some degree of flexibility long-short across multiple asset classes and find opportunities in both directions.
These funds (like Marketfield and Whitebox) are hedged to a varying degree and I do not expect them to beat the S & P 500 (although wouldn't complain if they did, certainly.) If someone has a portfolio where every investment has a goal of beating the S & P 500 and they can tolerate volatility over the long-and-short term, fine. Personally, I have risk in the areas/sectors/investments where I want to have risk, and I find less volatile funds like Marketfield and others to provide a reasonably good counter-balance.
Additionally, funds like these provide flexibility (which hasn't been as important in the last 3-4 years where there hasn't been a sustained period of market stress, but I continue to think flexibility will be important over the next 5-10 years), less volatility and are not heavily correlated to the day-to-day market movements. There are no expectations of utopia, certainly, but simply - in this day and age - looking for the combination of skilled managers and a greater degree of flexibility and options for those managers to approach the market across different environments good and bad.
If I'm asking a fund manager to go solely short, I'd better be willing to endure loss due to inflation and possibly long market rallies. However, there are short opportunities in good markets and bad, and I think it's appealing to have a manager that has the flexibility to go after those, to some degree depending on market environment. A solely short fund to me is really a more tactical call, and more of a short-term trading vehicle than something that I would have for any great length of time.
The average person should not heavily venture into one fund or strategy, for any number of reasons. They go full Heebner (or Hussman, odd both H's) for a few years or more, for example. There really isn't anything much like Marketfield, in terms of that fund's global approach.
" I'd say conservatively off-hand that 90% of investors don't fit that criteria. "
Most people don't want to do the homework about basic long-only investments and I doubt that schools will start teaching personal finance at the high school level. Or, people just don't want to learn about investing and pay someone else to invest for them. That doesn't mean that these strategies aren't useful when used by skilled management.
Additionally, in terms of saying 90% of investors, interesting that the top 1% of wealthy in the US own a little over half the stocks, bonds and mutual funds. 90-99% own 39.4%, The other 90% owns about 9.3% (the bottom 50% of that owns 0.5%).
http://www.businessinsider.com/15-charts-about-wealth-and-inequality-in-america-2010-4#half-of-america-has-only-05-of-americas-stocks-and-bonds-3
Perhaps you did not notice that the fund that I discussed, TFSHX, is not long/short but Hedged Futures fund. The reason why some of us are interested in long/short and hedged futures is that there are not so many tools for diversification of the portfolio. The standard one, bonds, will be with us perhaps few months more, perhaps a year, maybe two. Once interest rates start rising, bonds will start falling and people will run from them. Meanwhile hedged futures may work, and they may make your portfolio less risky. Usually people allocate only a small part of their portfolio to hedged futures, and most of us do not have any access to such trading strategies. That is why it may be interesting that we may have access to it by investing in TFSHX. It is better to do it in IRA or 401k.
Of course, many people do not know about it, but this website is for those who wants to learn. For a full disclosure, I did not buy this fund, I bought a bit of PONDX instead, but once bonds stop serving us well I will return to this fund and re-evaluate it.
The reason I referenced 401k's is that I believe that's where most folks get their exposure to mutual funds. I don't have any figures to show you but I believe that those of us who go out and purchase a mutual fund on our own outside of work retirement plans, and/or without the help or assistance of some financial adviser or planner are quite small in number. When I see alt funds I often wonder who is the audience they're targeted at.
I can certainly buy TFSHX in my 403b account (similar to 401k for educators). Not many people expect these funds, or any other alternatives, to outperform stocks over the long run. The main reason to add them to a portfolio is the same as with bonds: Each of the sources of your gains or losses experiences some kind of Brownian motion (stochastic jumps). If all of them jump in the same direction, it can be pretty scary. Bonds and stocks often jump in different directions at different times. The same is with other alternative investments. If they work well, they can make the ride more smooth. Like salt and pepper, they should be only a small part of your portfolio. But they may improve the taste.