Tag Archives: mutual funds

Fidelity Select Funds Portfolio Optimized For Low Volatility Performed Well In 2015

Summary LOW volatility portfolio: FIBIX, FSBIX, FSPHX, FSELX, FSCHX, FBMPX. MID volatility portfolio: FLBIX, FSBIX, FSPHX, FSELX, FSCHX, FBMPX. HIGH volatility portfolio: FLBIX, FIBIX, FSPHX, FSELX, FSCHX, FBMPX. The LOW volatility portfolio had a positive return so far in 2015 despite the interest rate uncertainty. In a previous article we presented the performance of a portfolio made up of five Fidelity select mutual funds. That portfolio had a stellar performance over the whole 27 year period starting in 1987. Back in July we decided to replace the GNMA fund (MUTF: FGMNX ) with two high quality government bonds. The performance of the two portfolios was discussed in the July article, the conclusion being that the new portfolio performed slightly better than the old one. In the first article I used a Relative Strength (RS) strategy based on a three-month look back evaluation period. In the second article I used a Mean-Variance Optimization (MVO) algorithm with 65-day look back evaluation period. While the MVO algorithm may approximate the RS algorithm if one selects the proper volatility target, the MVO strategy is very flexible, and it allows the investor to adapt it to the variable market environment. It turns out that during the first nine months of 2015 the RS strategy, as well as the Dual Momentum (DM) one, has performed poorly with a return of -15.22% for a 3-month look back, or -10.15% for a 12-month look back. The interested reader may verify the performance of Dual Momentum and Relative Strength on the portfoliovisualizer.com site. In this article we shall use only the MVO strategy and we want to emphasize the performance of the new portfolio during the first three quarters of 2015. We shall present three versions of this new portfolio for three levels of volatility: low, mid and high. The three versions are meant for investors with different risk tolerance. They also are meant for investors who may want to vary their risk level based on their evaluation of the markets. The portfolios are made up of the following funds: Fidelity Select Multimedia Portfolio (MUTF: FBMPX ) Fidelity Select Chemicals Portfolio (MUTF: FSCHX ) Fidelity Select Electronics Portfolio (MUTF: FSELX ) Fidelity Select Health Care Portfolio (MUTF: FSPHX ) Fidelity Spartan Long Term Treasuries Fund (MUTF: FLBIX ) Fidelity Spartan Intermediate Term Treasuries Fund (MUTF: FIBIX ) Fidelity Spartan Short Term Treasuries Fund (MUTF: FSBIX ) With the seven funds above, we created three portfolios to be used at three volatility levels: low, mid and high. All portfolios include the same four equity funds, but each one includes only two of the three treasury funds. The high risk uses FLBIX and FIBIX, the mid risk includes FLBIX and FSBIX, while the low risk has FIBIX and FSBIX. The data for the study were downloaded from Yahoo Finance on the Historical Prices menu for FBMPX, FSCHX, FSELX, FSPHX, FLBIX, FIBIX and FSBIX. We use the daily price data adjusted for dividend payments. The portfolio is managed as dictated by a variance-return optimization algorithm developed on the Modern Portfolio Theory ( Markowitz ). The allocation is rebalanced monthly at market closing of the first trading day of the month. In table 1 we present the performance of the portfolio for three levels of risk. Table 1. Portfolio performance from January 2007 to October 2015 TotRet% CAGR% VOL% maxDD% Sharpe Sortino 2015 return LOW risk 109.22 8.80 5.49 -7.50 1.60 2.10 1.75 MID risk 287.58 16.75 13.37 -16.97 1.25 1.69 -0.49 HIGH risk 569.16 24.26 20.22 -16.97 1.20 1.70 -2.45 The realized volatilities of the portfolios are in agreement with their names; the LOW risk had 5.49% annualized volatility, the MID had 13.37%, while the HIGH had 20.22%. Also, please notice the strong correlation between the returns CAGR and volatility of the portfolios. On the other hand, during 2015 the LOW volatility portfolio produced a positive return of 1.75%, while the MID and HIGH risk portfolio suffered negative returns. In figure 1 we show the graphs of the portfolio equities for the period from January 2007 to October 2015. (click to enlarge) Figure 1. Equity curves for three portfolios adaptively optimized for low, medium and high risk targets. Source: All charts in this article are based on EXCEL calculations using the adjusted daily closing share prices of securities. In figure 2, 3 and 4 we show the time variation of the percentage allocation of the funds for the period since January 2014 to October 2015. We opted for this shorter time period to get graphs that are easily readable. We are mostly interested in the allocations during 2015. (click to enlarge) Figure 2. Percentage allocation of the funds for low risk portfolio January 2014 to October 2015. One can see in figure 2 that most of the time the portfolio was invested about 50% in the short term treasury fund FSBIX. In figure 3 we show the time variation of the percentage allocation of the funds for mid risk. (click to enlarge) Figure 3. Percentage allocation of the funds for MID risk portfolio January 2014 to October 2015. (click to enlarge) Figure 4. Asset allocations for the portfolio adaptively optimized for the HIGH risk target January 2014 to October 2015.. Since July 2015 the high risk portfolio was invested 100% in treasuries; in FSLBX in July and August, and in FIBIX in September and October. The current fund allocations are shown in table 3. Table 3. Asset allocations for October 2015 FSELX FBMPX FSPHX FSCHX FLBIX FIBIX FSBIX LOW risk 0% 0% 0% 0% 0% 0% 100% MID risk 0% 0% 0% 0% 88% 0% 12% HIGH risk 0% 0% 0% 0% 0% 100% 0% Conclusion The low risk Fidelity select portfolio performed better than the mid and high risk portfolios. While the return of 1.75% is relatively modest, it is better than many other choices. The losses of the mid risk portfolio are very small at -0.49%, while the high risk portfolio lost the most at -2.45%. In hindsight, investing in a low risk portfolio was the better choice due to the fact that the market environment was very difficult since the beginning of 2015.

Franklin K2 Launches Second Multi-Manager Alternative Fund

By DailyAlts Staff Franklin Templeton Investments’ 2012 acquisition of K2 Advisors gave the firm a significant foothold in the alternative investments arena. Since then, Franklin Templeton has relied upon K2’s expertise in the hedge fund space to launch a ’40 Act fund, the Franklin K2 Alternative Strategies Fund (MUTF: FAAAX ), which debuted November 2013. More recently, K2 founder David Saunders “solidified” his case for liquid alternatives . And now the firm has announced the launch of another ’40 Act alternative fund: the Franklin K2 Long Short Credit Fund (MUTF: FKLSX ). “For investors looking to complement their overall portfolios with a diversified, multi-manager approach with less correlation to traditional long-only fixed-income holdings, we believe this Fund can be an important tool,” said Mr. Saunders, the co-lead portfolio manager of the fund in addition to being K2’s founder, in a recent announcement. Fund Overview The Franklin K2 Long Short Credit Fund is a multi-manager fund that invests in a variety of credit strategies sub-advised by institutional quality hedge fund managers. The fund therefore provides retail investors with access to managers that may otherwise be unavailable to them. The fund’s objective is to provide total return, through a combination of current income and capital appreciation, over a complete market cycle. Capital preservation is also part of the fund’s objective. K2 pursues these ends by continually adjusting allocations to the sub-advisors, based on the top-down market views of the fund’s portfolio managers. In addition to Mr. Saunders, they include head of investment research Robert Christian, managing director of portfolio construction Jeff Schmidt, and managing director Charmaine Chin. Manager Structure The sub-advisors – which include Apollo Credit Management, Candlewood Investment Group, Chatham Asset Management, and Ellington Global Asset Management – employ credit long/short, structured credit, and emerging-market fixed-income strategies. The investments used by the sub-advisors may include: Corporate bonds; Mortgage-backed securities and asset-backed securities; S. government and agency securities; Collateralized debt and loan obligations; Foreign government and supranational debt securities; Loans and loan participations; Mortgage dollar rolls; Repurchase agreements and reverse repurchase agreements; and Mortgage REITs. By diversifying across asset classes and strategies, the Franklin K2 Long Short Credit Fund – like the Franklin K2 Alternative Strategies Fund before it – aims to dampen portfolio volatility and provide lower correlation to traditional long-only fixed-income strategies. K2 makes its allocations to the underlying managers, who then execute high-conviction long and short positioning in pursuit of the fund’s objectives. “With credit spreads tight relative to historical averages, investors may not want as much credit risk exposure by being long-only high yield or investment grade debt, and may want a more flexible long/short approach,” said Franklin Templeton Solutions head Rick Frisbie. “In a potentially rising rate environment, U.S. investors who invest in fixed income for diversification and risk mitigation purposes are potentially taking on more interest rate risk than their goals would dictate and may be open to looking for new ways to diversify their portfolio.” For more information, visit franklintempleton.com .

American Beacon Launches Multi-Manager Long/Short Fund

By DailyAlts Staff Multi-manager alternative mutual funds often give retail investors access to managers that were previously exclusive to institutions and high-net-worth individuals. The recently launched American Beacon Grosvenor Long/Short Fund (MUTF: GSVAX ) is one such fund, as it pursues a long/short global equities strategy under the guidance of GCM Grosvenor, one of the largest and most diversified independent alternative asset management firms in the world. “Providing our clients access to alternative sources of diversification has been a focus for American Beacon as we’ve looked to evolve our product line,” said American Beacon CEO Gene L. Needles, Jr., in a recent statement. “Our collaboration with GCM Grosvenor, one of the world’s most experienced and well respected hedge fund investors, on this new fund is another example of that strategy at work.” The new fund’s objective is to provide investors with long-term capital appreciation with a “balanced risk profile” intended to complement traditional long-only equity investments. The fund’s flexible mandate and multi-manager structure are intended to increase performance consistency and to dampen portfolio volatility. Grosvenor’s Director of Investments David Richter, Head of Portfolio Management Bradley Meyers, and Vice President Keith Friedman are the fund’s portfolio managers. Richter, Meyers, and Friedman have been in the industry since 1994, 1999, and 2002, respectively, and they will allocate the fund’s investments across the following underlying sub-advisors: Basswood Capital Management Impala Asset Management Incline Global Management Passport Capital Pine River Capital Management River Canyon Fund Management Tremblant Capital Group “Our specialized investment team is among the largest and most experienced in the industry, and this fund’s underlying hedge fund managers have strong capabilities in long/short investing,” said GCM Grosvenor CEO Michael Sacks. “This is a tremendous opportunity to deliver an exciting investment solution to the marketplace.” Shares of the fund are available in A ( GSVAX ), C (MUTF: GVRCX ), Y (MUTF: GVRYX ), institutional (MUTF: GVRIX ), and investor (MUTF: GVRPX ) classes. The investment management fee across all share classes is 1.55%, while A, C, and Y shares have respective net-expense ratios of 2.97%, 3.72%, and 2.67%; and institutional and investor class shares have respective fees of 2.57% and 2.97%. A and investor-class shares have an initial minimum investment of $2,500. The initial minimums for C and Y shares are $1,000 and $100,000, respectively, while the minimum for institutional shares is $250,000. For more information, download a pdf copy of the fund’s prospectus .