AyG
Crazy Mango Extraordinaire
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Post by AyG on Feb 8, 2016 10:21:19 GMT 7
I'm thinking of adding a new holding to my portfolio. It's a toss up between these two. Both are long/short equity funds, so relatively uncorrelated with equity markets:  Fund A is clearly the more volatile and the riskier option; Fund B generates steady, if unspectacular returns. Which would you buy? Personally, I can't really see why anyone would buy B. However, B is £1,063 million fund, whilst A is a mere £266 million. Interestingly, A's R² (correlation with the stock market) is 0.0 (perfect non-correlation), whilst B's is 0.7 (pretty correlated), meaning A is the better hedge. A's maximum drawdown hasn't been too bad, at -5.84%, compared with B's -1.68%. Is there a compelling argument for investing in B? Anyone? For what it's worth, A is City Financial Absolute Equity, and B is Henderson UK Absolute Return. You can see a comparison report at www.trustnet.com/Tools/ComparisonReport.aspx?typeCodesCF=FBEF0,FEWK3 |
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Post by Fletchsmile on Feb 8, 2016 14:18:42 GMT 7
For me I tend to have my core funds and core portfolio I like. This is already reasonably diversified.
So if looking at a new investments it's usually to either add higher risk/ reward around the edges or dip my toes into something new with a view to adding more if it works out.
I'm not generally a fan of absolute funds and the few long/short funds I've held over the year have tended to be better in theory than practice. While in theory they can short in times were the market is falling, timing that is much more difficult in practice. Running an absolute fund is a skill in itself, so I'd be looking for a fund management stable that has a good track record in this area. Henderson is historically strong in investment trusts and some unit trusts, but can't say I've ever really considered them for absolute return funds.
As absolute funds, neither would probably fit the category for dipping my toes into to become core components later. So I'd rather go for the higher risk/ higher reward one.
I'd also take a look at how they performed in periods where equity markets were tanking. Quite often like I suspect will be the case for the Henderson one, they tend to just underperform in strong markets and do less bad in bear markets. Not good just less bad. So often they're just watered down long funds rather than real absolute return funds.
Fund A sounds more interesting, so would be interesting to see how it did in 2011 where many markets were lower and 2008 in particular where there were significant drops across the board.
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Post by rgs2001uk on Feb 8, 2016 14:54:30 GMT 7
Why does it need to be one or the other, why not split your money and buy both?
Back to horses for courses again, widows and orphans.
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AyG
Crazy Mango Extraordinaire
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Post by AyG on Feb 8, 2016 15:14:30 GMT 7
Why does it need to be one or the other, why not split your money and buy both? Back to horses for courses again, widows and orphans. I couple of reasons I'd not split: (1) It takes time to monitor investments (and I monitor not only my own investments, but also manage the investments of a few other people). For my own investments I strictly limit myself to a maximum of 30 holdings. To make a new investment I'll be ditching one of the existing ones. (2) I like to be 100% convinced before taking on any particular investment. Splitting to me would seem like indecision. |
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AyG
Crazy Mango Extraordinaire
Posts: 5,871
Likes: 4,555
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Post by AyG on Feb 8, 2016 15:43:53 GMT 7
For me I tend to have my core funds and core portfolio I like. This is already reasonably diversified. So if looking at a new investments it's usually to either add higher risk/ reward around the edges or dip my toes into something new with a view to adding more if it works out. I'm not generally a fan of absolute funds and the few long/short funds I've held over the year have tended to be better in theory than practice. While in theory they can short in times were the market is falling, timing that is much more difficult in practice. Running an absolute fund is a skill in itself, so I'd be looking for a fund management stable that has a good track record in this area. Henderson is historically strong in investment trusts and some unit trusts, but can't say I've ever really considered them for absolute return funds. As absolute funds, neither would probably fit the category for dipping my toes into to become core components later. So I'd rather go for the higher risk/ higher reward one. I'd also take a look at how they performed in periods where equity markets were tanking. Quite often like I suspect will be the case for the Henderson one, they tend to just underperform in strong markets and do less bad in bear markets. Not good just less bad. So often they're just watered down long funds rather than real absolute return funds. Fund A sounds more interesting, so would be interesting to see how it did in 2011 where many markets were lower and 2008 in particular where there were significant drops across the board. I share your lack of enthusiasm for absolute return funds. A lot of them have failed to live up to their promise. I remember all the hype surrounding BlackRock UK Absolute Alpha when it launched - the first absolute return fund for the masses. Over the last 5 years it has returned 5% - that's total, not annualised. With an AMC of 1.75% it's made much more money for the fund managers than for the investors. Not all absolute return funds are the same. I'm particularly skeptical of ones that depend too much on managers' abilities to predict economic change. The simpler long/short trading strategy, if backed up by good research, I think can work well. Personally, I'm at a stage in life where I am completely dependent upon my investments to survive, so I'm trying to diversify (further) and reduce risk. Decent, non-correlated returns are attractive to me. However, we're now living in a time where bond markets, stock markets and even property are much more tightly correlated globally than they used to be, so real diversification is a challenge. Here's the fund performance since inception. Barely a blip during 2011. The 50% fall in the first half of 2010, however, looks scary. The managers explain it away as their fault for drifting "off style", with a subsequent return to style returning positive performance. Not sure how much to believe this. If only I had a crystal ball to see whether there'll be another such wobble in the future.  |
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Post by rgs2001uk on Feb 8, 2016 15:58:27 GMT 7
Why does it need to be one or the other, why not split your money and buy both? Back to horses for courses again, widows and orphans. I couple of reasons I'd not split: (1) It takes time to monitor investments (and I monitor not only my own investments, but also manage the investments of a few other people). For my own investments I strictly limit myself to a maximum of 30 holdings. To make a new investment I'll be ditching one of the existing ones.(2) I like to be 100% convinced before taking on any particular investment. Splitting to me would seem like indecision. Concur. There is nothing to say you cant be 100% correct about them both. Why not sell two of your existing holdings and buy these two? Just because you dont but one today, doesnt mean you wouldnt buy it in say 3 months. |
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