High Fees Worth It for Investors in Boston Partners Fund

Josh Charlson: Boston Partners is one of our favorite alternatives firms, and Boston Partners Long/Short Equity is one of the top funds in the long/short equity category. A past Morningstar Alternatives Fund Manager of the Year winner, this fund has been run by Bob Jones since 2004, and it focuses on generating alpha from both the long and short books.

From a stock-selection standpoint, Jones uses Boston Partners' three circle concepts where they look at business fundamentals, valuation, and momentum in evaluating a stock, and they apply it on both the long and short sides. One of the things that's unusual about this fund is they do a fair amount of shorting of smaller-cap stocks, which can be riskier and is more expensive but has big upside.

This fund has outperformed the S&P 500 since Jones began managing it by 4% annualized, which is particularly impressive when you consider the fact that it has had less exposure than the market, typically around 50% to 60% net exposure on average. Jones will let the exposure fluctuate based on where he sees fundamental opportunities in the market. So, for instance, back in 2008 and 2009 he shifted exposure from about 60% net exposure at the end of 2008 to almost 100% exposure early in 2009, and that led the fund to an 82% return in 2009.

The main knock against this fund are its high expenses. It's one of the highest-cost funds in the long/short equity category, and this past year it actually raised expenses further. For that reason, we lowered its rating from Silver to Bronze. But for investors who are in this fund, we still think the fees are worth it.

Now the fund is closed to new investors in order to preserve its capacity and its ability to do things like shorting small caps. But for investors who are interested in accessing Boston Partners' long/short expertise, their Global Long/Short Fund is open to new investors, and it's a fund that's definitely on our analysts' radar.