"This month we begin by renewing the 2009 profile of a distinguished fund, Wasatch Long/ Short (FMLSX) and bringing a really promising newcomer, Aston / River Road Long- Short (ARLSX) onto your radar.
Our plans for the months ahead include profiles of Aston/MD Sass Enhanced Equity (AMBEX), RiverPark Long/Short Opportunity (
RLSFX), RiverPark/Gargoyle Hedged Value (RGHVX), James Long-Short (JAZZX), and Paladin Long Short (PALFX). If we’ve missed someone that you think of a crazy-great, drop me a line. I’m open to new ideas."
There have been few successes in the long-short field in part because of the inflexibility of the funds - these were largely presented as "hedge funds for the masses", but in many cases are not flexible enough to be really functional in this market. They're just not hedge funds and if the funds are not "fully functional" in a way that can pull of the strategy, they disappoint . See the Rydex Managed Futures fund, which was "ahead of its time" as the first Managed Futures fund, but after it worked in 2008 when everything went in one direction, it has seemed broken ever since because of the fact that the long-short fund only repositions once a month (and I believe is sector specific - if it's short ag, it's short ag across the board rather than specific commodities.) Managed futures as a strategy has not been outstanding in the mutual fund space over the last few years, but a number of large managed futures hedge funds that are vastly more flexible have done fine. However, something that updates its positions once a month in this market is going to be continually off unless you get one long, continuous move either way.
Additionally, many long-short funds often seem to take the long-short mentality too literally - those funds that can dial up and down risk with much greater flexibility (Marketfield, the Robeco fund) are the few that have held up better than the rest. Those who seem to continually have to be short with a good deal of the portfolio have not. Those who have tried to discuss fundamentals in a time of the easiest monetary policy in history (Hussman) have not. Nakoma, well...
As for the James fund, didn't they have a Market Neutral fund that imploded not that long ago? That fund was down 28% between 11/08 and when it folded in June of last year.
Look at what Leuthold Hedged equity turned into (or not.), as well. As for Leuthold....
"I’ve been wondering, lately, whether there are better choices than Leuthold Global (GLBLX) for part of my non-retirement portfolio."
Yes, yes there is. The Leuthold funds continue to be disappointing and I think it became clear that the hundreds of indicators that Leuthold was using were no longer all that functional in a market like this as maybe they used to be.
I mean, from an article on hedge funds and being in a market where one "has to change algorithms":
http://www.reuters.com/article/2012/05/21/us-trading-blackbox-idUSBRE84K07320120521"NEW ALGORITHMS
In the middle of a trading floor overlooking the Thames, a huge screen flashes with the deals - everything from interest rate futures to oil contracts - made by AHL's black-box computer.
The firm has recently had a rough ride: its portfolio fell almost 17 percent in 2009 and lost 6.8 percent last year when the fund's assets shrank 11 percent to $21 billion, dragging the share price of its parent, Man Group.
"We've learned our lessons," says boss Tim Wong. The fund is now keenly aware of the need to pay attention to what its rivals may be doing, he says.
But AHL isn't out to match Winton's ancient data - its chief scientist Anthony Ledford argues that modern markets behave very differently than they did 50 or 100 years ago. ************* Winton sends researchers to libraries and archives across the world to find numbers held in books and on microfilms. It has found barley and sesame prices from ancient Babylon, and English wheat prices going back to 1209. It now employs more than 90 researchers, including extragalactic astrophysicists, computer scientists and climatologists. The company hired a meteorologist who had researched the "El Nino" phenomenon.************** The physics graduate - Winton wants to keep his name secret for fear a rival might poach him - works in London correlating weather data to crops such as corn, wheat and soybeans. That data can be used to forecast how prices might fluctuate with the weather.
Instead, it is sharpening up its processes. AHL has cut back its short-term algorithms, and is developing codes to profit from different market patterns away from trend-following - for example, betting on the fact that markets tend to iron out short-term anomalies over time, or revert to the mean.
With volatility so high now, it is also developing new algorithms that try to predict, and trade on, the changing volatility of different assets.
Its approach gets support from some investors.
"The old CTAs are relying too much on the past," said Monty Agarwal, an author and founding partner of Managed Futures Fund, which invests in both its own and external CTAs. "The new strategies that we see thriving are mean reversion, which is trend anticipation, and pattern recognition - artificial intelligence."
The funds know they need something new to generate 'alpha', or outperform the market. AHL's Ledford isn't sure whether short-term codes will ever work again. "It's either taken an extremely long time for the alpha to come back from those frequencies or it's not coming back," he said. "And I still don't know the answer to that."
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Or, as Lord Rothschild (or "Lord Vader", perhaps) simply said a couple of days ago, "Unless one has a long horizon, investment success in
public markets has become a game of timing rather
than fundamentals."
You have an investment market where people have to research grain prices from ancient Babylon in order to try and get that extra leg up over their computer-driven competition. No comment really necessary.
Overall, another really terrific article this month, and keep up the wonderful work with MFO.
