Geronimo Funds, which aimed to bring absolute return funds to the masses, recently announced they are shutting all three of their mutual funds. The investment strategy of their multi-strategy fund was as follows:
The Fund seeks to provide annual Absolute Returns by following an investment strategy designed to provide investment returns similar to the returns produced by a broad range of hedge fund strategies represented in the investable HFRX Equal Weighted Strategies Index (which is designed to be representative of the main hedge fund strategies
available in the market place) published by Hedge Fund Research, Inc. (“HFR”).
I penned an article in the UK magazine “The Technical Analyst” about how the hedge fund indices are misleading. The article, “Comparing Returns: Market Timing vs. Hedge Fund Indices“, examines how the HFR investable indices trail the non-investable by ~400 basis points (ie the returns are overstated). Even without the 4% penalty, a simple asset allocation did just as well as the HFR FOF Index.
Thus, all of the studies/funds based on the HFR indices should prove to have returns closer to the investable indices. Layer on a 2% expense ratio and your fund is doomed. Add in too much leverage and you can see how GPHIX had a -6% day back in February. Does that mean all alternative funds are doomed? Not at all.
A couple quasi-alternative funds, HSGFX and CGMFX, have great track records – CGMFX is up almost 40% YTD. . .
And is a death in the family going to affect your CEO?