Today The Investor’s Edge Editor Joseph Shaefer recommends a value fund with a twist.
“RiverPark/Gargoyle Hedged Value Fund (RGHVX) is a long-term mid-cap and large-cap value fund with a kicker: they hedge a portion of market risk by selling index calls. This is not a ‘buy/write’ fund; they are hedging market risk, not attempting to gather extra income from their value holdings. Such an approach may be just right for a down market — and if their analysis is correct and they are nimble, in an up market as well.
“By deciding how many index options to sell, they can change the extent to which shareholders are exposed to the market. Their stated plan is to keep net market exposure somewhere in the range of 35%-65%, and enjoy high income from the written options.
“RGHVX uses quantitative analysis to decide which tocks to include. They buy those trading at values below the competition and the stock’s own historic averages.
“While the fund itself is just over a year old, the managers also manage $250 million in separate managed accounts that have consistently outperformed the S&P500 over 23 years of good markets and bad. The managers and employees of Gargoyle, the adviser to the fund, have over $10 million of their own money invested in the fund. It has a $1,000 minimum purchase and expenses of 1.5%.
“Some might say, ‘Why pay 1.5% to someone else to buy and sell and write the appropriate level of index options?’ I would respond, ‘Would you rather make 9% a year, less 1.5%, as they have done for the years, predating their organization as a mutual fund, or the less than 2% the S&P returned over that same time?’ ... We will be buying $100,000 of the RiverPark/Gargoyle Hedged Value Fund at market close on Monday, July 8.”
Joseph L. Shaefer, The Investor’s Edge, www.investorsedge.us, 800-253-2088,
July 2013