Author Archives: Scalper1

Market Beating Performance Helped This Market Neutral Fund Grow Assets

Low correlation to traditional asset classes has always been one of the appealing features of alternative investments, but with the S&P 500 Index posting double-digit successive gains of 15.9%, 32.2%, and 13.6% from 2012 through 2014, low correlation hurt more alternatives than it helped. Even in 2015, a year marked by out-sized volatility, the S&P managed to eke out a modest gain of 1.36%, while most alternative categories posted losses in the aggregate. But not the LMCG Global Market Neutral Fund (MUTF: GMNIX ). Its annual gains of 4.82% in 2015 smashed the S&P 500’s returns and beat Morningstar’s Market Neutral category average by 507 basis points, and those returns followed a solid 9.99% return in 2014. Top Performance in 2015 This solid performance no doubt helped the fund attract interest from investors, pushing its assets under management (“AUM”) above $100 million by early 2016. While the fund’s 2015 performance fell a bit short of Morningstar’s Fund Manager of the Year award winner in the alternatives category, the Vanguard Market Neutral Fund (MUTF: VMNIX ), it did beat out 87% of its competitors in the market neutral category. In fact, the LMCG fund spent much less time underperforming over the course of 2015 than did the Vanguard fund. Click to enlarge “The fund has gained early traction with sophisticated advisors, who are familiar with alternative mutual funds and feel comfortable using it for a variety of goals,” said LMCG CEO Kenneth Swan, in a recent statement celebrating the milestone. “Traditional ‘low-volatility’ options such as bond funds or allocating to cash may not deliver the overall return profile these advisors are seeking. We designed this fund to offer investors a different option: to potentially generate positive returns regardless of the market’s direction.” The fund’s stock-selection process uses quantitative methodology that’s been “time-tested over 15 years and stress-tested in extreme market selloffs.” The strategy seeks capital preservation and is designed to generate positive returns in any market environment. Macro bets are avoided, and the fund does not use leverage. Volatility Likely to Continue “Equity markets could continue to be volatile in 2016,” said Gordon A. Johnson, Lead Portfolio Manager of the fund. “Our fund is designed to generate alpha on the long and short side – both domestically and internationally – and strives to provide a smoother ride for the investor whether the volatility that we are seeing continues or subsides.” The LMCG Global Market Neutral Fund is available in institutional ( GMNIX ) and investor (MUTF: GMNRX ) share classes, with respective net-expense ratios of 1.60% and 1.85%, excluding certain expenses as outlined in the prospectus. The minimum investment for GMNIX is $100,000, while the minimum for GMNRX is $2,500. Past performance does not necessarily predict future results. Jason Seagraves contributed to this article.

How Much Will China Affect Your Portfolio?

When Apple (NASDAQ: AAPL ) reported its fourth quarter earnings earlier this week, Tim Cook, the company’s CEO, noted signs of “economic softness” in the greater China region . Apple’s stock fell by more than 6% the next day. While China wasn’t solely responsible for this decline, it highlights how economic conditions on the other side of the world can affect US investors. How much will China’s financial travails affect your portfolio? You can have direct exposure to China by owning stock in Chinese companies (for example through mutual funds and exchange traded funds). As Apple shows, you can also have indirect exposure to China through companies based in other countries. The iPhone maker gets almost 25% of its revenue from greater China (meaning China, Hong Kong, and Taiwan). Apple is something of an outlier, however; overall only about 2% of large US companies’ revenue comes from China . The Chinese economy can also indirectly have an impact on companies around the world in other ways, such as by affecting commodity prices. So which countries are most closely tied to China? The graph above shows the correlations between the movements of Chinese stocks and many of the world’s other large stock markets during the past three years. Correlation is a statistical measure of how closely two things move together, where a correlation of 1 means they move in lockstep and -1 means they move exactly opposite each other. Other countries in the Asia Pacific region—South Korea, Taiwan, and Australia—have the highest correlations with China. Interestingly Japan, China’s neighbor across the East China Sea, has the lowest correlation of the countries examined. The US is in the middle of the pack. Perhaps the most striking aspect of these correlations, however, is that they’re all fairly closely bunched together. By contrast Chinese stocks have a correlation of only 0.35 with commodities, and a correlation of -0.14 with US investment grade bonds. That’s probably not because Chinese itself has a large effect on all the different countries’ stock markets, but rather that the same factors that affect Chinese stocks (such as the outlook for the global economy) affect stocks all around the globe. So while some particular companies (such as Apple) and some particular countries (such as South Korea) may add some additional “indirect” China exposure to your portfolio, it’s important not to lose sight of the bigger picture. No matter what happens in Chinese markets, your investment performance is likely to be driven more by your broader exposure to different asset classes than by particular companies or countries.