Here is where such funds become relevant...

Posted by Fundmentals on November 06, 2009 at 19:11:20:

In Reply to: Have followed BPLEX, Robeco Long/Short...+67% ytd, my return was far superior to their's in market melt. I find similar patterns in these funds...not sure about the true value of placing $'s in these (eom) posted by catch22 on November 06, 2009 at 18:19:50:

Each such fund has its own characteristics in upside and downside. Some funds have higher upside and downside swings than others just like traditional funds.

They are useful for consideration only if they show asymmetric behavior. In other words, they are not equivalent to any traditional funds or static allocation portfolios on both upside and downside. Or to be more exact, they give a better upside than what a traditional fund or static allocation would do that has the same or less downside.

IF you are constructing a portfolio that tries to limit the downside without limiting the upside to the same extent a conventional portfolio designed to limit the downside to such an extent will, then you have two choices:

1. You do your own active management and do buys and sells as market conditions warrant as you have done (and I do in my retirement portfolio) and realize that asymmetrical return (limit downside, capture most of upside). So from this perspective such funds may not be useful to you at all.

2. You do a buy and hold portfolio allocation (as I want to do in my taxable portfolio where I do not want to trade much at all) using a combination of such funds selected for their asymmetrical behavior and decide on the allocation so that they satisfy your requirements for downside protection.

For example, if you had a very tight tolerance for downside, you only allocate a small amount to BPLEX and forgo some of its high gains on the upside and use other allocation funds similarly to diversify and reduce the risk of any one fund getting into problems to expect the upside potential and downside limits you would like (not that there are absolute guarantees on this as in any investing).

: : Hi, Fundmentals.

: : NCHPX is a fund of hedgy mutual funds. The link you provided describes their portfolio and its underlying allocation assumptions. The fund is small, reasonably successful (down 22% last year, up about 17% this year) and reasonably expensive (around 2% plus a 2% redemption fee). For what interest it holds, I've linked my original profile of the fund below.

: : As ever,

: : David

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Comments:	: Each such fund has its own characteristics in upside and downside. Some funds have higher upside and downside swings than others just like traditional funds. : They are useful for consideration only if they show asymmetric behavior. In other words, they are not equivalent to any traditional funds or static allocation portfolios on both upside and downside. Or to be more exact, they give a better upside than what a traditional fund or static allocation would do that has the same or less downside. : IF you are constructing a portfolio that tries to limit the downside without limiting the upside to the same extent a conventional portfolio designed to limit the downside to such an extent will, then you have two choices: : 1. You do your own active management and do buys and sells as market conditions warrant as you have done (and I do in my retirement portfolio) and realize that asymmetrical return (limit downside, capture most of upside). So from this perspective such funds may not be useful to you at all. : 2. You do a buy and hold portfolio allocation (as I want to do in my taxable portfolio where I do not want to trade much at all) using a combination of such funds selected for their asymmetrical behavior and decide on the allocation so that they satisfy your requirements for downside protection. : For example, if you had a very tight tolerance for downside, you only allocate a small amount to BPLEX and forgo some of its high gains on the upside and use other allocation funds similarly to diversify and reduce the risk of any one fund getting into problems to expect the upside potential and downside limits you would like (not that there are absolute guarantees on this as in any investing). : : : : Hi, Fundmentals. : : : : NCHPX is a fund of hedgy mutual funds. The link you provided describes their portfolio and its underlying allocation assumptions. The fund is small, reasonably successful (down 22% last year, up about 17% this year) and reasonably expensive (around 2% plus a 2% redemption fee). For what interest it holds, I've linked my original profile of the fund below. : : : : As ever, : : : : David
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