The Best And Worst Of January: Market-Neutral Funds

By | February 24, 2016

Scalper1 News

Market-neutral mutual funds and ETFs posted aggregated loses of 0.14% in January, bringing their one-year totals through January 31 to a near-flat +0.01%. Market-neutral funds, which seek a balance between long and short equity positions in pursuit of returns that are uncorrelated with the broad market, have had an ultra-low beta of 0.13, relative to the Barclays U.S. Aggregate Bond Index, for the year ending January 31, but have averaged just 0.04% of alpha over that time. Average volatility of the funds has been low, as the category has an aggregate one-year standard deviation of just 4.89%; but risk-adjusted returns have been unimpressive, with the average fund in the category sporting a one-year Sharpe ratio of -0.16. Top Performers in January The three best-performing market-neutral funds in January were: QuantShares U.S. Market Neutral Anti-Beta ETF (NYSEARCA: BTAL ) Hussman Strategic Growth Fund Inv (MUTF: HSGFX ) Cognios Market Neutral Large Cap Fund Inst (MUTF: COGIX ) The QuantShares U.S. Market Neutral Anti-Beta ETF ( BTAL ) was January’s top-performing market-neutral product, posting monthly gains of a whopping 9.48%! For the year ending January 31, the fund was up 6.24%, generating 9.81% of alpha with a beta of 3.96, relative to the Barclays U.S. Aggregate Bond Index. That high beta may not be attractive to market-neutral investors despite the bullish returns, and the ETF’s 13.58% one-year standard deviation falls at the top of the rankings for the category. Among the 58 funds in the category with a 1-year track record, BTAL earned a one-year Sharpe ratio – a measure of risk-adjusted performance – of 0.66, outperforming all but 13 funds. The Hussman Strategic Growth Fund Inv ( HSGFX ) was among the top-performing market-neutral mutual funds in January, ranking second only to the above ETF in the category. The fund’s January returns of +5.01% weren’t enough to push it into the black for the year, though, as it was down 6.91% for the 12 months ending January 31. HSGFX produced a -6.25% alpha over the past year, with a beta of 1.53 and volatility of 11.94%. This yielded a one-year Sharpe ratio of -0.55 – not the worst in the category, but certainly worse than the category average. The Cognios Market Neutral Large Cap Fund Inst ( COGIX ) ranked third in January, with returns of +4.29%. For the year ending January 31, the fund’s gains of 10.16% ranked in the top 2% of the Morningstar Market Neutral category. Those gains break down into a 1.66 beta and 10.27% alpha, with a very nice 1.26 Sharpe ratio and 7.88% volatility. The fund, which launched on the last day of 2012, had annualized three-year gains of 7.87%, earning it a five-star rating from Morningstar . Bottom Performers in January The three worst-performing market-neutral funds in January were: Highland HFR Event-Driven Activist ETF (NYSEARCA: DRVN ) Schooner Hedged Alternative Income Fund Inst (MUTF: SHAIX ) Turner Titan Long/Short Fund Inst (MUTF: TSPEX ) An ETF was the top-performing market-neutral fund in January, and an ETF was the worst performer: The Highland HFR Event-Driven Activist ETF ( DRVN ) fell 8.50% for the month, making it the category’s worst by a wide margin. The fund only launched on May 29, 2015, and thus, doesn’t have longer-term performance numbers to analyze. The Schooner Hedged Alternative Income Fund Inst ( SHAIX ) lost 3.91% in January, but still held on to a +1.88% one-year return through January 31. The fund had a beta of -1.58 over the past year and generated an alpha of 1.67%. Its annualized volatility of 6.62% was the lowest of any fund reviewed this month. All of this adds up to a decent Sharpe ratio of 0.30. Finally, the Turner Titan Long/Short Fund Inst (TPSEX) had the third-worst performance of all market-neutral funds in January, with its shares falling 3.24% for the month. Nevertheless, the fund maintained one-year returns of +3.50% (an alpha of 3.36%) through January 31, with a beta of -1.22. TPSEX had annualized volatility of 7.27% through January 31, and a Sharpe ratio of 0.50. Past performance does not necessarily predict future results. Jason Seagraves contributed to this article. Scalper1 News

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