Squeamish About the Market, but You Still Want Return?

There seem to be 3 investing camps out there, those that believe we are in stagflation, those that think we are in inflation and, lastly, those who can’t decide. The latter group is definitely both uncomfortable and squeamish. This is our topic today.

The crux of the problem is this. Investing for stagflation takes a different tactic than for inflation. For the stagflation crowd, proactive steps were elaborated on in my previous article. For the inflation prone, other approaches are suggested such as purchasing commodities, energy, natural resources, precious metals and Treasury Inflation Protected Securities (TIPS). But, this leaves the challenge. What is to be done for the ambivalent group?

Well, the Robeco Long-Short Equity Fund (BPLEX) thinks it has the answer. Its summary statement boldly states that it “seeks long-term capital appreciation and a total return greater than that of S&P 500 Index.”

We all know this is not an easy task. Everyone else is too and so many fail. Still it seems BPLEX has succeeded in the past.

BPLEX is a long-short fund. It prepares for any eventuality. Buying long means that an investor purchases a stock in the anticipation that it will rise in value. If it does, the buyer makes money. Short selling is the opposite. In the case of BPLEX the fund invests in long positions that the manager has identified as undervalued. He sells short stocks he has selected as overvalued. More about the fund can be found here. It has a Morningstar performance rating of five stars and a risk of four.

In the last 5 years the return on this fund has been around 15% compared to just less than 10 for the S&P. Though this is impressive, there is a negative. The expense ratio is extremely high, 2.75%, with the average for its category being 2.15. This drain from any gain will chip away at returns in the future just as it has in the past. Since the past is not guarantee of the future, returns may or may not be the same.

Still for the undecided, this fund may be an option. It is designed to prosper in an up market and be nearer neutral in a down.

More related to this subject:

Market neutral

Stagflation

Bear Market

If you can’t be right, don’t be wrong

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