And The Winner Is? . . .
According to Morningstar, the best-performing long/short equity mutual fund so far this year was the ABR Dynamic Blend Equity & Volatility Fund (ABRVX), which returned 39.6% through April 30. That fund also had the top annualized three-year return of 15.9%. Here’s the rub: It might not be a long/short equity fund.
That same fund was rated by Lipper as No. 1 in its large-cap core funds category for one-year performance. And Taylor Lukof, the founder and CEO at ABR Dynamic Funds, thinks the fund should be classified as a managed futures product. In fact, the company’s other mutual fund, the ABR Dynamic Short Volatility Fund (ABRSX), was tops in Lipper’s alternative managed futures category.
“When people look to long/short equity, they’re looking for positive correlation in a bull market and a negative correlation in a bear market or crisis,” says Lukof. “The problem is that most long/short equity strategies don’t necessarily deliver.”
He says his ABR Dynamic Blend Equity & Volatility Fund is a long-volatility product—all its alpha is derived from volatility signals while it simultaneously uses equities as a hedge.
“This fund is very differentiated from the normal long/short equity,” Lukof adds. “Our correlation is very dynamic.” He says it can go from a beta of 1 to the equity market to “significantly negative in a crisis event.”
He posits that the best way to use his company’s two products is by combining them as a 75/25 long/short blend—75% in the ABR Dynamic Blend Equity & Volatility Fund and 25% in the ABR Dynamic Short Volatility Fund.
“That blend is up about 25% this year, but it was also up about 25% last year,” Lukof says. “We’ve given people an equity-like return in bull markets while still ‘owning’ the crisis. Anyone who was up 25% this year probably wasn’t up 25% last year.”