Is It Possible?
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[quote=Devil’sAdvocate]
I’ll need to look more into long/short funds. According to what I just read there are thirty or so of them and they are considered mutual funds.
A few years ago the ICA was modified to allow managers to be compensated as a percentage of portfolio performance if several stringent qualifcations were met.
It could be that at that time the ICA was also modified to allow certain fund families with certain experienced managers to engage in short selling.
From what I'm reading it seems that they, long/short funds, are not as liquid as a traditional fund and many of them have rather high minimum buy ins.
I'd be interested in hearing if anybody is using a long/short fund with qualified money--I would think it would be a compliance officer's nightmare.
[/quote]I have been, and it has been performing quite well.
Yes the Act was modified. He he knows all apparently has admitted that he may have clay feet.
And yes I know it's you. I can damn near smell your presence.
Which one have you used? What are the issues with liquidity? Are you using it with qualified money?
[quote=Devil’sAdvocate][quote=mktsystms] [quote=Devil’sAdvocate]That’s a good point–however the circuit breakers only stop a decline in one day.[/quote]
You asked if the DOW could lose 25% in one day. The answer is no, it can’t.
[quote=Devil'sAdvocate]
It is certainly possible for the market to lose 25% of its value as quickly as the circuit breakers will allow.[/quote]
And your point is ...what? The market can (and will) do whatever it wants to do. That's nothing new. Prudent money management strategies will protect profits and limit losses, no matter what the market does.
[/quote]
Which mutual funds are going to engage in short selling? How about put buying--how many mutual funds have as one of their objectives to manage money with the use of long puts?
Fund managers are required to manage their portfolios using techniques and strategies that are determined by the shareholders. A fund that buys puts is going to vastly underperform in a bull market and will at best hold their own in a bear market. In order to profit in a down market you have to sell short, and the Investment Company Act of 1940 forbids mutual funds from selling short.
Most firms will not allow qualified money to be placed into hedge funds--so the harsh reality is that most customers are going to take a bath in a bear market unless they go to cash.
If you're a compliance officer you get very nervous with the thought of a plaintiff's attorney getting a broker to admit that the strategies being employed by the hedge fund could result in unlimited losses--do you think it's a prudent idea to take retirement funds and invest them in such a way that unlimited losses can be suffered?
Things that you can do in your personal account are not allowed as a broker.
[/quote]Read what I wrote again: "Prudent money management strategies will protect profits and limit losses, no matter what the market does."
Allocating 100% of your investment capital into an equity mutual fund, and then treating it like a family heirloom and never responding to the ever changing dynamics of the market is not a prudent money management strategy.
By the way, there are indeed mutual funds that provide performance INVERSE to the SPX. For example, take a look at the the Ursa Fund.
I’ll ask the logical question. If you are so good at “Prudent money management” why are you trying to do something else with yourself–why not trade a few hours a day and play golf the rest of the time?
Something else I'm wondering about the handful of long/short funds is if they're intentionally keeping them small so as to be able to move in the market as easily as possible.
Is there one that has selling agreements with several of the major wirehouses, for example--or are they all pretty much a boutique item?
Actually as I think about them I believe what they are is a fund of funds approach.
The mutual fund cannot legally short stocks so what they do is go long a hedge fund that can short stocks.
The fund is the accredited investor, and the fund can provide a certain amount of liquidity by remaining partially in cash even though the hedge fund that is owned has a lock-up period. If there is a wholesale panic the fund's sponsor would have to use their own cash to satisfy liquidations--which would explain why discussions of them talk about liquidy problems not found in traditional funds.
The talk of additional fees is because the hedge fund that is the underlying security has a fee, as does the mutual fund that owns it. Two fees would be additional fees.
[quote=Devil’sAdvocate]
Something else I’m wondering about the handful of long/short funds is if they’re intentionally keeping them small so as to be able to move in the market as easily as possible.
Is there one that has selling agreements with several of the major wirehouses, for example--or are they all pretty much a boutique item?
[/quote]I know of at least one that can be sold by the wires. However, I am not going to be in the business of naming specific securities on this board. IT is part of a family distributed by Schwab.
How about that, you've almost admitted on this thread that there is a topic on which you are not already an expert?!? Feeling ok?
[quote=joedabrkr]
I know of at least one that can be sold by the wires. However, I am not going to be in the business of naming specific securities on this board. IT is part of a family distributed by Schwab.
[/quote]
Joeboy there is absolutely nothing wrong with naming a mutual fund in public.
Where one goes wrong is when they recommend a transaction in a security in a public forum due to suitability issues.
But naming a fund is not recommending it. I would think that after all your years in the biz you'd know that.
[quote=Devil’sAdvocate]
[quote=joedabrkr]
I know of at least one that can be sold by the wires. However, I am not going to be in the business of naming specific securities on this board. IT is part of a family distributed by Schwab.
[/quote]
Joeboy there is absolutely nothing wrong with naming a mutual fund in public.
Where one goes wrong is when they recommend a transaction in a security in a public forum due to suitability issues.
But naming a fund is not recommending it. I would think that after all your years in the biz you'd know that.
[/quote]Suitability issues and as well NASD rules regarding firm monitoring of communication, etc.
I've given you a pretty good hint. You have time on your hands. Go find it if you really need to.
[quote=joedabrkr]
Suitability issues and as well NASD rules regarding firm monitoring of communication, etc.
I've given you a pretty good hint. You have time on your hands. Go find it if you really need to.
[/quote]
In other words you don't know what you're talking about?
[quote=Devil’sAdvocate]
Actually as I think about them I believe what they are is a fund of funds approach.
The mutual fund cannot legally short stocks so what they do is go long a hedge fund that can short stocks.
The fund is the accredited investor, and the fund can provide a certain amount of liquidity by remaining partially in cash even though the hedge fund that is owned has a lock-up period. If there is a wholesale panic the fund's sponsor would have to use their own cash to satisfy liquidations--which would explain why discussions of them talk about liquidy problems not found in traditional funds.
The talk of additional fees is because the hedge fund that is the underlying security has a fee, as does the mutual fund that owns it. Two fees would be additional fees.
[/quote]You are wrong, again. The Act, or at least the SEC's interpretation of the Act, was changed to allow mutual funds to dedicate a limited portion of their portfolio to short positions. That change was made about 5 years ago. Most likely you missed the press release because you were busy smoking cigars and drinking martinis in Boca with a bunch of other useless leeches.
[quote=joedabrkr]
You are wrong, again. The Act, or at least the SEC's interpretation of the Act, was changed to allow mutual funds to dedicate a limited portion of their portfolio to short positions. That change was made about 5 years ago.
[/quote]
Odd, I can't find anything on that, and at my old firm they don't know about it either.
As one of the lawyers pointed out the SEC cannot interpret ".....may not engage in short selling...." any other way and Congress would have to pass an ammendment to the Investment Company Act of 1940. It's a law after all.
The mutual fund guru is out but an associate said that I am right, the way mutual funds package "long/short" funds is to actually buy shares of a hedge fund. So the underlying asset can sell short, but the fund itself is not shorting.
That also explains the lack of liquidity since most hedge funds have a lock-up period as well as the additional fees because there are two layers of managers--the hedge fund and the mutual fund, although it is passive management so the expense ratio is very small.
It is not a good idea to doubt what I say Joeboy.
go to Morningstar’s fund screener and sort by Morningstar Category “long-short”. Yes they have a whole category devoted to funds that have the ability to sell short.
But with an average of 67 posts per day, how can you expect one to keep up with the latest industry info?
Devil’sAdvocate:
Are you saying that $10,000 invested today will be worth $60,000 in 2026--or are you using 20/20 hindsight?
Does past performance indicate future results?
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In terms of your future postings to this forum; yes, I can confidently guarantee that you will continue to meet the low standards established by your previous namesakes.
So, in your case, and that of any future namesakes you choose to adopt, past performance does indicate future performance (or lack thereof).
[quote=Devil’sAdvocate]
[quote=joedabrkr]
You are wrong, again. The Act, or at least the SEC’s interpretation of the Act, was changed to allow mutual funds to dedicate a limited portion of their portfolio to short positions. That change was made about 5 years ago.
[/quote]
Odd, I can't find anything on that, and at my old firm they don't know about it either.
As one of the lawyers pointed out the SEC cannot interpret ".....may not engage in short selling...." any other way and Congress would have to pass an ammendment to the Investment Company Act of 1940. It's a law after all.
The mutual fund guru is out but an associate said that I am right, the way mutual funds package "long/short" funds is to actually buy shares of a hedge fund. So the underlying asset can sell short, but the fund itself is not shorting.
That also explains the lack of liquidity since most hedge funds have a lock-up period as well as the additional fees because there are two layers of managers--the hedge fund and the mutual fund, although it is passive management so the expense ratio is very small.
It is not a good idea to doubt what I say Joeboy.
[/quote]While I will concede the possibility that I may have actually LEARNED something from you today(and it pains me to do so), I would suggest that it is ALWAYS a good idea for me to doubt what you say.