The Future Is in Long-Short Funds

I’m an optimizer by nature. In the investment arena, that means I typically look for the best long-term results, which means stocks of course. I acknowledge too that I have a higher than ordinary tolerance for risk.

Because of these two attributes, I used to wonder why people would consider buying bonds; and, I had no worries about piling into the market with the resources I could muster after the tech wreck and after 9/11.

Despite this sang-froid characteristic, I confess that I was not nearly so placid in the 2007-2009 market crash. The reason is that in the previous crashes I never for a moment had any doubt about the soundness of our institutions or leadership, which has not been the case more recently — but that’s a story for another time.

In any event, the 2007-2009 market upheaval for the first time gave me an appreciation for the value of a smoother investment ride. So it is with interest that I spoke briefly with Robert Kaimowitz, the CEO of Bull Path Capital Management, which operates both private hedge funds and a retail long-short fund aptly named The Long-Short Fund (BPFIX).

Long-short funds are not easy to define.

At this early stage in their development, they vary greatly in terms of what they invest in and how they invest. They mostly invest in stocks, but some invest in bonds.

They can use leverage and short positions and have more flexibility in going to cash than your standard stock fund — but they vary greatly in the extent to which they employ these methods.

According to Morningstar, there are currently 110 distinct portfolio long-short funds, of which 25 have 5 or more years of performance history. 

But back to Kaimowitz. He’s a trendsetter in the realm of hedge funds going retail.

The hedge fund industry was shaken up by the fallout over Bernie Madoff’s scheme, and smart managers are looking to diversify their assets as Kaimowitz is doing by bringing hedge fund techniques to Main Street mutual fund investors.