In re-reading all four posts it is not clear why I am being asked to review the previous analysis. As I read the old posts I note the results were good but the nature of the fund appeared to be very complex and that I generally prefer simple where possible. Back then the fund had over 1300 holdings and the manager in the CNBC interview said there is a lot of turnover.
The chart is from Morningstar which I believe is the best way to chart a mutual fund because it accounts for the payouts. It captures TFSMX in dark blue against the Rydex Managed Futures Fund (RYMFX) in green (which has been my preferred choice in the space and we which we still own), the SPDR S&P 500 ETF (SPY) in yellow and the market neutral category in orange.If you've ever used a market neutral fund, why did you use it? What were you hoping for? Did it do what you wanted when you wanted? There is no single answer for any of those questions but I think they are relevant as there are many funds in this space and they can behave differently during different market conditions.
The context that I've written about these funds is to have something that zigs when the market zags. When I wrote about RYMFX for the first time at the Street.com in March 2007 the editors actually included the words zig and zag in the title. When the market is doing poorly I hope this exposure will help avoid the full brunt of the decline and when the market is doing well then I expect nothing out of the fund. Some readers will see it the same way and some will view the role of these funds differently.
I believe the chart shows some of what I mean. The start date is the day that I first wrote about the fund. In one of the subsequent posts I noted the drop in TFSMX in the second half of 2008 and said that the decline would have been a disappointment for certain expectations including mine. As the market headed lower in 2008 RYMFX went up and TFSMX went down with the market; less than the market but at the same time as the market. Per the Morningstar chart $10,000 invested in TFSMX on the day of the post July 9, 2008 would have shrunk to $8381.01 by November 30, 2008 versus $9703.22 for the market neutral category and $10, 582.19 for RYMFX. For the effect I am seeking that would have been a very disappointing result had I owned TFSMX.
Over the longer term, like since July 9, 2008 through to today the fund has had about the same return as SPY but with a much smoother ride and over that same almost three-year period it has done much better than RYMFX. Someone looking for more of an equity-like result over a few year period but with a smoother ride would probably be pretty happy with TFSMX.
I think I've been clear since I started writing about this type of fund that I prefer a low correlation-zigzag effect not a muted equity proxy. Clearly TFSMX is a better muted equity proxy but for my money RYMFX is the better tool as part of a defensive strategy.The picture, totally unrelated to this post, is from nearby. We have an actual road to nowhere here in Prescott (it is supposed to connect to another road eventually).
17 comments:
Surely you can squeeze an investing metaphor out of road to nowhere, Roger :)
that is funny. obviously I take some pics specifically for the blog but this one really speaks for itself
"In re-reading all four posts it is not clear why I am being asked to review the previous analysis."
It is not for everybody but some may like it.
Sounds like free advertising to me, so I would expect more requests by them and others in the future.
SEG
interesting point SEG, thank you
Yeah, I was gonna suggest they're looking to create google hits.
i think it is more that they have "accumulated some pride" as Ken Fisher might say over their results
Roger,
There's an interesting article in today's business section of the Los Angeles Times which ties in with your past columns on Columbia and farmland as investment themes.
With the explosive demand for new cars in emerging markets, worldwide rubber prices have doubled since 2007.
Currently 94% of the world's supply comes from SE Asia. Come to find out, rubber trees can also can grow well in may parts of Columbia where new acreage of rubber trees is estimated to triple by 2016. It's already grown tenfold in the last decade.
thanks for the heads up Max
I can't recall where, but I read somewhere a few weeks ago that a decent market neutral strategy would produce an annual return of 8% uncorrelated with the S&P 500. That seems too good to be true. Using the numbers from the posted chart, I come up with an annualized return of about 5%.
Slightly off topic-- do these Morningstar charts, or any online charts for that matter, include fees. I find it very difficult to accurately compare two investments.
Thanks again for the blog Roger.
the reported NAV of any mutual fund (traditional, closed end, exchange traded) is net of fees.
That doesn't tell you the fee you need to look it up but in terms of charting a fund and comparing it the fees are netted out.
I grew up in South Florida. Many roads to nowhere led to land owned by commissioners who wanted good access to land locked property. Needless to say, development would follow the access. If you are really interested, I suspect you will find that the road leads to someone's speculative land purchase who is politically connected.
Isn't a problem when looking at just NAVs, a chart fails to show compounded returns?
WH, Morningstars charts smooth that out, the question was about fees
I actually bought TFSMX in the summer of 2008, along with a dedicated bear fund. Both did badly in August, when the SEC suddenly decided that the solution to the meltdown in financial stocks was to ban shorting them. Funds whose strategy depended on shorting had to unwind their positions, so having the correct strategy turned out be counterproductive.
I wonder how Rydex managed to avoid that problem.
the rules for client holding RYMFX are much simpler
Roger,
I'm late to seeing this post but thought I'd weigh in anyway. I bought in TFSMX about 4 1/2 yrs. ago. Bottom line is this fund has delivered base on 3 & 5 yr. and since inception returns. This fund is not really market neutral but rather 60/40. Where a lot of funds have failed in this area (NARFX, ALPHX, and HSGFX) TFSMX has been a success.
As to why to invest here - I like a good chunk of my portfolio in lower volatility with perhaps some flexibility types of funds. It's easier to ride out the ups and downs - especially if alpha can be delivered. Other funds that have had success here are FPACX, GRSPX, BERIX and of course the very large PIMCO funds run by Arnott.
A good chunk of TFSMX assets came into the fund in 2009, after the decline. It did a hard close in early 2010 but did just reopen to existing holders. It has 1.5 bil. in assets now - this compares to over 5 bil. in HSGFX and over 30 bil. in Arnott's PIMCO funds.
I guess a good question is why would they send you a comment?
Roger,
I also wanted to mention (you probably are aware of this but maybe some readers are not) that there is a managed futures ETF from Wisdom Tree (WDTI) which I think is the same as RYMFX but with a 1.0 cheaper expense ratio!
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