The Best And Worst Of February: Long/Short Equity
Long/short equity mutual funds and ETFs suffered another month of losses in February, falling 0.33% in the aggregate versus a drop in the S&P 500 Index of 0.13%. Of the universe of 179 funds with a full month of performance in February, only 65 managed to post monthly gains, but there were some particularly strong standouts. Nevertheless, the category saw total outflows of $399 million over the month and more than $3.9 billion for the year ending February 29, 2015. Will long/short equity funds be able to rebound and stem the outflows, or will the category continue to lose assets in March? Time will tell. Best Performers in February The three best-performing long/short equity funds in February were: QuantShares Hedged Dividend Income Fund (NYSEARCA: DIVA ) Gotham Absolute 500 Fund (MUTF: GFIVX ) Gotham Total Return Fund (MUTF: GTRFX ) The 1-year old QuantShares fund, with $3.6 million in assets, was February’s top performer, returning an astounding 9.26% for the month. For the year ending February 29, however, the fund was down 1.97%, but this was surprisingly good enough to rank in the top decile of the category. The fund’s one-year beta, relative to the S&P 500, was 0.45, but its alpha of -0.21% resulted in a Sharpe ratio of -0.35. Still, given the category’s substandard performance overall, investors invested a net $1.23 million in the fund for the year ending on Leap Day. Gotham’s pair of funds – GFIVX and GTRFX – ranked #2 and 3, respectively. The former returned +5.66% in February, giving it one-year returns of -2.83% through the end of the month, handily beating the S&P 500 Index, which fell 6.19% over the same period; while the latter returned +5.08% for the month, and didn’t have one-year returns since it launched on March 31, 2015. GFIVX, the more mature fund, had a 0.72 beta, alpha of 1.77% and volatility of 11.55% for the year ending February 29. This resulted in a one-year Sharpe ratio of -0.20, compared to that of the Index of -0.45. Worst Performers in February The three worst-performing long/short equity funds in February were: Neuberger Berman Global Long Short Fund (MUTF: NGBAX ) Catalyst Insider Long/Short Fund (MUTF: CIAAX ) Caldwell & Orkin Market Opportunity Fund (MUTF: COAGX ) The Neuberger Berman Global Long Short Fund was February’s worst-performing long/short equity fund, losing a stunning 8.59% for the month. This dropped its one-year return to -14.46% through the end of February, ranking in the bottom 10% of its category. Surprisingly, the fund enjoyed positive net flows for the year ending February 29, with investors putting $4.1 million more into the fund than they withdrew. Perhaps they’re attracted to the fund’s -0.06 beta coefficient, which is about as close to “uncorrelated” as you can get. But with a -15.40% one-year alpha, the fund’s low correlation hasn’t helped its investors much. The Catalyst Insider Long/Short Fund suffered monthly losses of 5.62% in February, which brought its one-year return through the end of the month to -3.21%. This was good enough to rank in the top quarter of the category, but not good enough to convince investors to stick with the fund – it suffered outflows of more than $7 million for the year. Perhaps investors looked past its attractive 1.47% alpha to its 17.33% annualized volatility, which ranked fourth out of the category’s 142 funds with one-year track records. Finally, the Caldwell & Orkin fund was the month’s third-worst performer with losses of 4.88%, but the fund ranked in the top 7% of its category based on its one-year returns of +1.38%. This was undoubtedly one of the reasons it received a whopping $87.47 million in net inflows for the year. Its one-year beta (-0.07), alpha (+1.26%), Sharpe ratio (0.19), and volatility (8.75%) were all attractive relative to the category averages, too. Past performance does not necessarily predict future results. Jason Seagraves contributed to this article. MPT statistics (alpha and beta) are relative to the S&P 500 Index.