Further we are most apt to make an investing mistake when our emotions are elevated. Fewer periods of elevated emotions could mean fewer mistakes.
Additionally from my standpoint I would rather spare a client undo angst if I can.
There have been quite a few comments left on the blog about the Nakoma Absolute Return Fund (NARFX), charted to the left.It attempts to produce an absolute return regardless of market conditions by going long and short individual stocks.
It has not been around that long (the chart captures when Yahoo says the inception was) but you can see the fund has offered holders a much smoother ride than the S&P 500 during both dips.
There was a comment left criticizing the fund for its weighting in Taser (TASR), which according to Yahoo was 3.32% as of August 31. As another reader noted the fund has owned TASR for a while and it is possible that the stock has grown to the August 31 weight but of course due to way mutual funds report the stock could be long gone too.
I am not sure it is wrong for a low octane fund to own high octane stocks. Really I don't see the problem at all. I think that given the objective and the result it has had in its short life it is safe to say the manager has an inkling.
In general terms the portfolio result should be more important than the result of any individual holding. If it has held TASR all this time, well that looks like some good (or lucky) stock picking. At the same time the fund was (or maybe still is, no way to know) short energy stocks and I found some commentary on their website saying that the energy shorts were a drag on the portfolio.
Most diversified portfolios are a mix of winners and losers (or maybe just laggards). If the stock market was up 20% one year, I was reasonably close either way and a stock or two dropped 30% along the way I wouldn't care in the least (regardless of whether I had sold).
There is no way to look forward and know that NARFX will be able to keep performing as the chart shows but the idea of smoothing out the ride in this manner resonates with what I try to do. To be clear this is not a recommendation.
Amusing anecdote: I called the fund to ask for an interview for either TSCM or the blog. I was told that if they were interested someone would call me back. Maybe I shouldn't hold my breath.
9 comments:
Roger, you ought to check out www.fundalarm.com that comes out on the 1st of every month in specifically http://www.fundalarm.com/hilights.htm They cover new funds and really tiny ones.
They looked at Nakoma Absolute Return (NARFX) in the last year: http://www.fundalarm.com/nakom01.htm
Some other similar funds to NARFX that attempt to have a 00 correlation:
Hussman Strategic Growth (HSGFX)
James Market Neutral (JAMNX)
Analytic Global Long-Short Instl (ANGLX)
JPMorgan Multi-Cap Market Neutral A (OGNAX)
Interestingly enough a couple of balanced funds that have similar behavior are:
Vanguard Wellesley Income (VWINX) which has a correlation of 22 to 35 depending on who's reporting it and appears to behave like an absolute return fund over time.
Berwyn Income (BERIX) which is another balanced fund that happens to short stock. Look at it's chart during 2001 and 2002.
Paul
NARFX may have shorted energy looking forward because historically the last few years the energy sector suffers just after Labor Day and usually bottoms in December. You can track this in most energy stock charts. This year is just different.
I didn't like the Taser holding being so high on their list since I considered that call to be a gamble. That's all. Gamble plays should be at the bottom of your stock picking list, not the top IMO.
But my biggest problem though is the high expenses in the fund. Long term it's better to buy and hold index funds or ETFs. But some folks can't sleep at night after watching financial shows on the tube. For them this fund may be a perfect solution. For me 'the solution' is the highest possible returns over the long haul in a diversified portfolio. You cannot get that with a 2.39 expense ratio in a fund that is deigned long term to correlate to returns in the S&P 500 IMHO. So I wouldn't recommend the fund.
Jack S.
The fund IS expensive and I should have touched on it.
There was one comment that said the fee did not matter. While I won't go that far, it does become a little less important for people who do have trouble sleeping...if the fund can keep doing what it is doing, which as I said is not knowable.
I think the last blogger missed the distinction between return and risk-adjusted return. Anyone can get high return. Hint: buy 2x leveraged market index fund durning a bull market. The problem is you will get 2x worse return during a down market. So taking more risk is not necessary for everyone. If an investing scheme can generate a decent return(not even necessarily beating the S&P 500), a lot of people would want to learn how it can be done. Educational not judgemental, I believe that is what this blog is about. BTW, the expense ratio drops when a fund gains in asset basis.
true about the expense but are they trying to get bigger? despite what you might think that is not clear to me.
Roger,
Is that forest fire 10 mi. south of Prescott near you? I understand it's still not contained.
it's at palace station which is on the way to crown king, a very long way for a wildfire in November.
Anon 9:30.
Actually I didn't miss the distinction between return and risk-adjusted return because I clearly mentioned a "long term" objective.
And your notion that "Anyone can get high return...." using 2x leveraged market index funds is flawed, especially long term. Why? Because no can ever accurately gauge what the market is going to do. That is, when to get in and when to get out in a buy and hold portfolio. And investing in that type of portfolio was the crux of my statement.
Jack S.
http://www.toalfinancial.com/volatility.php
The above link is an article talking about the impact of volatility(risk) on returns. You get higher compounded returns wiith a fund with low volatility than a fund with high volatility. Thus why professionals stress on risk-adjusted returns and not just returns.
Post a Comment