Tag Archives: mutual funds

Liquid Alternative Investments For Ordinary Investors

Barron’s did a nice special report this week on AQR’s liquid alternative investments. AQR, which is run by Cliff Asness, John Liew and David Kabiller, is a pioneer in the liquid alternatives space and manages an impressive $141 billion in assets. They also happen to be a competitor of mine. My partner, Dr. Phillip Guerra, has developed an entire suite of liquid alternative strategies based on many of the same principles used by AQR. As Barron’s writes, Since U.S. stocks peaked in July, few investments have produced strong returns. Global stocks, junk bonds, and most commodities have declined-in many cases, sharply. And many so-called alternative investments have failed to provide hoped-for diversification benefits. Just look at the big losses suffered by some notable hedge funds. The situation hasn’t been much better among liquid alternatives, or mutual funds that use hedge fund strategies such as merger and convertible arbitrage, long/short equity, and trend-following in futures markets. Yet, against this tough backdrop, a bunch of academics are delivering. Their firm, AQR Capital Management (AQR stands for applied quantitative research), is a distinctive investment manager that seeks to translate academic insights about finance and the markets-such as the appeal of value and momentum investing-into winning quantitative strategies for institutional and retail buyers… Indeed, the stock market selloff since the start of this year has shaped up as a key test of whether liquid alts can deliver the promised diversification and protect investors during downturns. Liquid-alt funds have been rightly criticized for generally disappointing returns during the recent bull market-and high fees, to boot. During a raging bull market, alternative strategies will almost always underperform… as will most traditional long-only active managers. It makes sense to dump every last cent into an S&P 500 index fund and be done. But the kind of market we’ve experienced since 2009 isn’t normal. It was a product of low valuations following the 2008 meltdown and the loosest monetary policy in history from the Fed. But with the market now in expensive territory and with the Fed’s easy money policies slowly on the way out, an alternative strategy makes all the sense in the world, at least with a portion of your portfolio. You want returns that are uncorrelated to the market. You’re not betting against the market, mind you. You’re just looking for something that marches to the beat of its own drum. I like what AQR is doing. But there’s a big problem with it: While they advertise that their alternative funds are liquid, they are all but unattainable for the vast majority of investors. The minimum investment on many of their mutual funds is as high as $1 million. We can do it better. With an investment of just $100,000 (and actually less with our robo-advisor option), we can execute a comparable strategy and do so with far lower fees. To see how our results stack up against AQR and the rest, take a look here . I’m a big believer in the benefits of a long-term buy-and-hold strategy, particularly for younger investors. But I’m also realistic and realize fully that a long-only strategy will go through long periods of underperformance. From 1968 to 1982 – a period of 14 years – long-only investors in U.S. stocks wouldn’t have earned a single red cent. Now, I have no way of knowing if we are about to enter a long dry spell like that. But if you are in or near retirement, doesn’t it make sense to have at least a portion of your portfolio in a strategy that zigs when the market zags? Disclaimer: This article is for informational purposes only and should not be considered specific investment advice or as a solicitation to buy or sell any securities. Sizemore Capital personnel and clients will often have an interest in the securities mentioned. There is risk in any investment in traded securities, and all Sizemore Capital investment strategies have the possibility of loss. Past performance is no guarantee of future results. This article first appeared on Sizemore Insights as Liquid Alternative Investments for Ordinary Investors

Brinker Capital Shutters Trio Of Absolute Return Funds

In 2009, Brinker Capital launched the Brinker Capital Crystal Strategy I, which, according to Brinker, was one of the world’s first absolute return strategies packaged in the Separately Managed Account (“SMA”) format. Five years later, the firm launched three alternative mutual funds, each based on the SMA strategy, but with varying investment objectives. Now, just over two years later, all three funds are shutting down, according to a February 22 filing Brinker made with the Securities and Exchange Commission (“SEC”). The three funds in question, all categorized by Morningstar as multi-alternative funds, are the Crystal Strategy Absolute Income Fund (MUTF: CSTFX ), the Crystal Strategy Absolute Return Fund (MUTF: CSRAX ), and the Crystal Strategy Leveraged Alternative Fund (MUTF: CSLFX ). CSTFX sought to provide current income and downside protection to conventional equity markets with absolute (positive) returns over full market cycles as a secondary objective; CSRAX pursued positive (absolute) returns over full market cycles; and CSLFX sought long-term positive absolute return with reduced correlation to conventional equity markets as a secondary objective. Shortly after the three funds were launched in December 2013 , Brinker Capital Vice Chairman John Coyne said, “We had high expectations for Crystal Strategy when we launched it four years ago, but the reception of financial advisors and their clients to the product surpassed anything we could have imagined.” Mr. Coyne also said the funds were launched in response to investor requests, but for the year ending January 31, 2016, all three funds ranked in the bottom 15% of their category: CSTFX posted one-year returns of -9.09% (bottom 15%), CSRAX returned -10.42% (bottom 10%), and CSLFX returned -16.99% (bottom 1%). Thus, it’s no surprise that Brinker decided that it was in the best interests of shareholders to terminate the funds’ operations. According to the SEC filing, all three funds stopped accepting new investors on February 23, and all shares will be liquidated as of March 18. Jason Seagraves contributed to this article.

Best And Worst Q1’16: All Cap Growth ETFs, Mutual Funds And Key Holdings

The All Cap Growth style ranks seventh out of the twelve fund styles as detailed in our Q1’16 Style Ratings for ETFs and Mutual Funds report. Last quarter , the All Cap Growth style ranked sixth. It gets our Neutral rating, which is based on aggregation of ratings of 17 ETFs and 568 mutual funds in the All Cap Growth style. See a recap of our Q4’15 Style Ratings here. Figures 1 and 2 show the five best and worst-rated ETFs and mutual funds in the style. Not all All Cap Growth style ETFs and mutual funds are created the same. The number of holdings varies widely (from 20 to 2206). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the All Cap Growth style should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2. Figure 1: ETFs with the Best & Worst Ratings – Top 5 Click to enlarge * Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings Five ETFs are excluded from Figure 1 because their total net assets are below $100 million and do not meet our liquidity minimums. Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5 Click to enlarge * Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings Catalyst/Lyons Hedged Premium Return Fund (MUTF: CLPFX ) is excluded from Figure 2 because its total net assets are below $100 million and do not meet our liquidity minimums. iShares Core US Growth ETF (NYSEARCA: IUSG ) is the top-rated All Cap Growth ETF and JPMorgan Intrepid Growth Fund (MUTF: JGISX ) is the top-rated All Cap Growth mutual fund. IUSG earns an Attractive rating and JGISX earns a Very Attractive rating. Calamos Focus Growth ETF (NASDAQ: CFGE ) is the worst-rated All Cap Growth ETF and Sparrow Growth Fund (MUTF: SGFFX ) is the worst-rated All Cap Growth mutual fund. CFGE earns a Neutral rating and SGFFX earns a Very Dangerous rating. Gilead Sciences (NASDAQ: GILD ) is one of our favorite stocks held by JGISX and earns a Very Attractive rating. Gilead is also one of only seven S&P 500 stocks to rise 10% or more in 2008 . Over the past 10 years, Gilead has grown after-tax profits ( NOPAT ) by 43% compounded annually. The company has consistently earned a double-digit return on invested capital ( ROIC ) and currently earns a top-quintile ROIC of 80%. Despite the impressive growth in profits and profitability throughout its history, GILD is currently undervalued. At its current price of $90/share, Gilead has a price to economic book value ( PEBV ) ratio of 0.7. This ratio means that the market expects Gilead’s NOPAT to permanently decline by 30% from current levels. If Gilead can grow NOPAT by just 13% compounded annually for the next five years , the stock is worth $170/share – an 88% upside. Splunk Inc. (NASDAQ: SPLK ) is one of our least favorite stocks held by ITCBX and earns a Dangerous rating. Splunk was placed in the Danger Zone in July 2015 . Throughout its history, Splunk has failed to convert robust revenue growth into real profits. In fact, since 2013, Splunk’s NOPAT has fallen from -$20 million to -$260 million over the last twelve months. Making matters worse, Splunk’s NOPAT margin has fallen from -10% to -44% over the same time frame, and the company currently earns a bottom-quintile -25% ROIC. Despite these issues, investors have driven SPLK to an astronomical valuation. To justify its current price of $49/share, Splunk must immediately achieve NOPAT margins of 4% and grow revenue by 30% compounded annually for 19 years. In this scenario, Splunk would be generating just over $69 billion in revenue in 19 years, which would be equal to Comcast’s (NASDAQ: CMCSA ) 2014 revenue. The future cash flow expectations embedded in the current stock price are dangerously high. Figures 3 and 4 show the rating landscape of all All Cap Growth ETFs and mutual funds. Figure 3: Separating the Best ETFs From the Worst Funds Click to enlarge Sources: New Constructs, LLC and company filings Figure 4: Separating the Best Mutual Funds From the Worst Funds Click to enlarge Sources: New Constructs, LLC and company filings D isclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, style, or theme. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.