This is the third posting in a row to use this chart design. It’s a good place to start in analyzing any fund product. At the top, the fund’s absolute return alongside a benchmark; in the middle, the return versus the benchmark, which makes the relative performance easy to see; and at the bottom, the fund’s assets.
The other postings were primarily about the difficulty of managing bloated funds. That’s potentially an issue here too, given the phenomenal rise in assets.
Under examination this time is the MainStay Marketfield Fund (MFLDX). It’s in the alternatives category (long/short division). I have written quite a bit about the rush into alternatives (mainly on the puzzle pieces site). Short summary: The industry is in a frenzy, selling high-fee products to people who generally don’t understand them.
How should one evaluate these funds? That was the topic of a Wall Street Journal article this weekend, much of it devoted to MFLDX. For a benchmark, the fund uses the S&P 500, as I have above, which sets up the pattern that you see in the chart — relative outperformance during declines and the opposite during advances.
In my consulting, I have found that people continue to struggle with alternatives in terms of how to categorize them and how to account for their attributes using the standard templates for reporting information. (I dealt with that a bit in my recent essay on chasing complexity.)
Check out the pie chart and its legend. They come from the MainStay website in regards to MFLDX. If this is the state of the art, we have some troubles. Morningstar and others have also been befuddled by some of the reporting issues presented by these vehicles.
I quite like the theme PDF that the portfolio managers of MFLDX have put together about their ideas, but I can’t pronounce the fund “good” or “not good” in any respect. However, look at that lower panel in the chart again. It is likely that past performance won’t be very helpful in assessing future prospects, given the assets then and the assets now. Unfortunately, many buyers and gatekeepers will proceed as if it is.
That’s the long and short of it. (Chart: Bloomberg terminal.)
Every few weeks I do a free newsletter focused on issues that the members of investment committees might want to think about (sign-up and back issues here). The latest edition includes links to readings on high-frequency trading, levels of engagement by equity owners, the asset management industry, and a look at Nate Silver’s The Signal and the Noise as it pertains to investment management.