3 Alternative Fund Strategies

by noloadfundx on October 28, 2014

measuringtapeAlternative funds seek to offer investors an alternative to stock and bond funds. These funds often use complex strategies (some of which were once available only to very large investment accounts through hedge funds). Some alternative funds use options, arbitrage or alternative assets as a hedge against stocks.

Here are three common strategies, all available to retail investors:


1. Long-Short

Most stock funds “go long” on stocks by betting that a stock’s share price will rise. But funds can also bet that a stock’s price will decline by “shorting” a stock. Long-short funds include both long positions on stocks that the manager expects will go up, and short positions on stocks they expect to go down. The short positions act as a hedge against the long positions, resulting in lower volatility than the overall stock market.

Example: Wasatch Long/Short (FMLSX)

2. Merger/Arbitrage

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How Important is a Fund’s Manager?

by noloadfundx on October 23, 2014

billgross-janusWhen a “star” fund manager moves to a different company, as famed bond manager Bill Gross did last month, leaving PIMCO for Janus, investors often wonder if they should move on, too.

But there’s no way to know in advance if a management change will have a positive or negative impact on a fund. That’s why we focus on what we do know: how the fund performs compared to other funds with similar risk. By focusing on performance, we were led to sell Bill Gross’s PIMCO Total Return fund back in 2011.

Fund managers, like markets, change over time, and Upgrading leads us to respond to these changes. It kept us invested in Fidelity Leveraged Company Stock (FLVCX) for three years after its star manager, David Glancy, left. We held FLVCX from May 2003 to November 2006 (Glancy left in July 2003), and from November 2012 through October 2013.

Upgrading also led us through Jeffrey Gundlach’s move from TCW to DoubleLine. In 2009 Gundlach, manager of TCW Total Return Fund, was fired from TCW in an ugly falling out and promptly started DoubleLine funds. Both TCW and DoubleLine funds have done well, and we currently own funds from both families in the Flexible Income Portfolio.

Many Factors Affect Fund Performance

It’s unclear how much of a fund’s performance can be attributed solely to the fund’s manager. Most fund managers aren’t acting alone. They have teams of experienced analysts and are backed by top-notch research departments and efficient trading desks. Other factors affect a fund’s performance: a fund’s style (even the best value manager is unlikely to outperform when growth is in favor), its strategy, and even the corporate culture of the fund company can impact a fund’s performance.

Academic research also cast doubt on the importance of a fund’s manager. A June 2003 study by Emory University professor Klaas Baks traced the careers of over 2,000 managers who moved from one fund to another between 1992 and 1999. Baks found that “while mutual fund companies will undoubtedly continue to create star-managers and advertise their past track-record, investors should focus on fund performance.”

A September 26, 2014 Bloomberg article echoed this, noting that “the biggest firms, like Blackrock Inc. and Fidelity, now mostly do without big fund manager stars. That helps put the emphasis where it belongs—on performance.”

Judge Funds by Performance, Not Management

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3 Common Questions about Alternative Funds

October 21, 2014

Alternative funds have been attracting attention and assets recently. Lipper’s August 2014 fund flows report (PDF) noted that investors have poured money into alternative funds every month for over two years now. But there’s still a lot of confusion about alternative funds. Here are three common questions we get from investors, and our answers: 1. What […]

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6 Facts About the NASDAQ 100

October 14, 2014

The NASDAQ 100 has been one of the best performing indexes this year. It was up 5.5% for the third quarter, and 27.1% for the 12-months ending September 30, 2014, while the better-known S&P 500 gained just 1.1% for the quarter, and 19.6% for the year. Funds  that track the NASDAQ 100 index, like PowerShares […]

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On Forbes: 5 Large-cap Funds & ETFs to Own Now

October 9, 2014

Large-cap U.S. funds held up best in September, and in her latest Forbes article, FundX President Janet Brown shared five leading large-cap funds and ETFs. Click here to learn what 5 Large-cap Funds & ETFs to Own Now Current leading large-cap funds in NoLoad FundX  include “both actively managed funds like Dodge & Cox Stock […]

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Janet Brown’s October 2014 Market Update (video)

October 8, 2014

Stock markets retreated in September, but as FundX President Janet Brown explains in her latest video, “we remain focused on what’s working now, and that’s large-cap growth funds.” Large-caps have gains for the year, while many small-caps are barely positive, and, as Janet points out, this has led us to make some changes to NoLoad […]

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Large-Caps Lead

October 3, 2014

Stock and bond markets retreated in September. We know that periodic pullbacks are to be expected, not feared. Some pullbacks become severe, but most end as abruptly as they began. Large-cap U.S. funds held up best in the sell-off and for the quarter, while small-cap, value and international funds, lost more for the month and […]

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October 2014 Fund & ETF Changes

October 2, 2014

Each month, we highlight changes to the funds and ETFs listed in the monthly newsletter and online.  Renamed Class 2  TCW Value Opportunities N (TGVNX) renamed TCW Relative Value Mid Cap (TGVNX). Delisted Two funds in the online Supplement were delisted. Supplement to Class 2 Icon Europe (ICSEX) was liquidated on September 15, 2014. Supplement to Class […]

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3 Ways to Balance Your Portfolio

September 30, 2014

“I enjoy managing my stock funds,” a subscriber told us recently, “but I know I also need bond funds, and I’m just not comfortable selecting bond funds. What should I do?” Many investors feel like this subscriber: they know they need both stock funds for growth and bond funds for stability, but they find it […]

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What to do about PIMCO

September 26, 2014

It’s been a tough year for PIMCO. In January, PIMCO’s CEO Mohamed El-Erian left the firm, and today, Bill Gross, the firm’s co-founder, chief investment officer and star fund manager, shocked the investment world by announcing that he was leaving PIMCO, too. Gross co-founded PIMCO in 1971 with just $12 million in assets. Today, the […]

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