A. J. D'Asaro: The Morningstar Medalist of the Week is TFS Market Neutral (TFSMX). The reason we are highlighting this fund right now is because it has recently opened to new investors. It was previously closed. Also, the fund has recently lowered fees to 1.9%, which is still [above the category average of 1.7%]; but we think, in this case, the fund is worth its fees.
This fund follows a quantitative market-neutral strategy. The fund goes long and short. Short-term trades are based on fundamental factors (such as earnings surprises), following the smart money (such as insider trading), and trading imbalances (such as a stock that is incredibly overbought or oversold).
This fund performed exceptionally well from 2006-09. And for that reason, investors piled into the fund and forced it to close at $1.8 billion. Since then, performance has been above average but perhaps not quite up to these investors' expectations. And for that reason, assets have dropped to $700 million, and that's why the fund has reopened.
In addition to solid performance, TFS has an exceptional stewardship profile. It's 100% employee-owned, and the top seven employees have a mandate to invest 50% of their net worth in the firm's funds. We like how this aligns the fundholders' interests with the managers'.
TFS Market Neutral has a Silver rating, and it remains an attractive option to take risk off the table for investors who might feel that the market is getting overvalued.