Long Short Funds Excel At Charging Fees, Investing….Not So Much
December 27, 2007
Today’s Wall Street Journal takes a look at the often questionable performance of mutual funds looking to profit from the market’s ups and downs:
These investments, often referred to as 'long-short' or 'market-neutral' funds, aim to zig while the markets zag, and potentially even profit in declining markets. However, a handful of them are in the red this year, even as the Dow Jones Industrial Average is up 8.7% and the Standard & Poor's 500 stock-index is up 5.6%.
The worst performer: Forward Long/Short Credit Analysis fund, which invests in primarily low-quality municipal and corporate bonds, and is down 17% year-to-date, according to research firm Morningstar Inc.
Other funds down this year include Analytic Global Long-Short fund, down 4.7% year-to-date, Robeco Boston Partners Long/Short Equity, down 3.9%, State Street Global Advisors' Directional Core Equity fund, down 3.8%, and DWS Disciplined Market Neutral fund, which is down 3.6%.
In one case, Phoenix Market Neutral fund, the directors have taken the unusual step of proposing to change its managers. The fund is down 2.7% year-to-date, and among the worst performers in this category over the three- and five-year periods according to Morningstar."
Image Source: Wall Street Journal
We’ve been critical of this category in the past but have been recommending some long-short funds in our Powerfund Portfolios this year, notably American Century Long-Short Equity Inv (ALHIX) which was up 7.6% for the year through yesterday. This decent return disguises a very scary patch for this fund in August during the market gyrations that sent many heavily shorted stocks up, up, and away (and many funds that short down big on certain days). This fund has closed to new investors.
We also recommended both 1st Source Monogram Long/Short (FMLSX) (up 6.34% this year) and SSGA Directional Core Equity (SDCQX) (down 3.84% this year and one of the stinkers noted in the WSJ article) as alternatives to ALHIX for Powerfund Portfolios investors.
A third Powerfund Portfolios alternative was Laudus Rosenberg U.S. Large/Md Cap Long/Short Equity (RMNIX) which was acquired by Vanguard and converted into Vanguard Market Neutral Fund (VMNFX). The fund is up 12.90% for the year. Now that Vanguard has their hands on it, the fund is the lowest fee long short fund in the business with a sub-1% expense ratio (and a $250,000 or $5 million minimum depending on share class). Those who bought before the conversion were grandfathered into the newly cheap Vanguard version.
Today’s Wall Street Journal takes a look at the often questionable performance of mutual funds looking to profit from the market’s ups and downs:
These investments, often referred to as 'long-short' or 'market-neutral' funds, aim to zig while the markets zag, and potentially even profit in declining markets. However, a handful of them are in the red this year, even as the Dow Jones Industrial Average is up 8.7% and the Standard & Poor's 500 stock-index is up 5.6%.
The worst performer: Forward Long/Short Credit Analysis fund, which invests in primarily low-quality municipal and corporate bonds, and is down 17% year-to-date, according to research firm Morningstar Inc.
Other funds down this year include Analytic Global Long-Short fund, down 4.7% year-to-date, Robeco Boston Partners Long/Short Equity, down 3.9%, State Street Global Advisors' Directional Core Equity fund, down 3.8%, and DWS Disciplined Market Neutral fund, which is down 3.6%.
In one case, Phoenix Market Neutral fund, the directors have taken the unusual step of proposing to change its managers. The fund is down 2.7% year-to-date, and among the worst performers in this category over the three- and five-year periods according to Morningstar."
We’ve been critical of this category in the past but have been recommending some long-short funds in our Powerfund Portfolios this year, notably American Century Long-Short Equity Inv (ALHIX) which was up 7.6% for the year through yesterday. This decent return disguises a very scary patch for this fund in August during the market gyrations that sent many heavily shorted stocks up, up, and away (and many funds that short down big on certain days). This fund has closed to new investors.
We also recommended both 1st Source Monogram Long/Short (FMLSX) (up 6.34% this year) and SSGA Directional Core Equity (SDCQX) (down 3.84% this year and one of the stinkers noted in the WSJ article) as alternatives to ALHIX for Powerfund Portfolios investors.
A third Powerfund Portfolios alternative was Laudus Rosenberg U.S. Large/Md Cap Long/Short Equity (RMNIX) which was acquired by Vanguard and converted into Vanguard Market Neutral Fund (VMNFX). The fund is up 12.90% for the year. Now that Vanguard has their hands on it, the fund is the lowest fee long short fund in the business with a sub-1% expense ratio (and a $250,000 or $5 million minimum depending on share class). Those who bought before the conversion were grandfathered into the newly cheap Vanguard version.
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