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This Expensive Fund May Be Worth It

Tue, 22 Jul 2014

This fund has to overcome a major hurdle with its expenses, but it has far exceeded expectations in a short time frame.


Video Transcript

A.J. D'Asaro: The Morningstar Fund Medalist of the Week is Gotham Absolute Return Fund. It's a long-short equity fund which seeks to provide a smoother ride for investors who wish to gain exposure to the equity market. It does this by taking simultaneous long and short positions, which offset some but not all of the market exposure of the fund. This fund is managed by Joel Greenblatt and Robert Goldstein--two managers [who] have been running concentrated long-short equity strategies in their hedge fund, Gotham Capital, over the past 25 years.

This fund has only been around for a year and a half, but it has far exceeded expectations. In 2013, the fund delivered 29.8% returns compared to 14.5% for the long-short equity category. Up until May 2014, this fund was actually outperforming the S&P 500 since its September 2012 inception date. That's even more impressive considering that the fund only has a weekly beta of 0.67 over that time period and is 60% net long. [One would expect a fund with a beta of 0.67 to produce only two thirds of the stock market's upside.]

This fund is expensive, but it may be worth it. The 2.2% expense ratio represents a major hurdle that the fund has to overcome before it can start delivering positive benefits to investors. However, management has shown that they can deliver this benefit and be worth the price.

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