By Philip van Doorn, MarketWatch
This year has been tough for many stock market investors as benchmark indexes dropped close to 40% from peak to trough.
As a former hedge-fund manager, Mitch Rubin of RiverPark Advisors offers flexibility and downside protection, which many of his peers in the mutual fund business don’t have.
His RiverPark Long/Short Opportunity Fund is able to bet on both rising and falling stock prices. Most mutual funds may take only the long side.
RiverPark Advisors is based in New York and has $2.5 billion in assets under management, including about $900 million managed by Rubin, who co-founded the firm in 2009.
Rubin takes long positions in rapidly growing companies with strong cash flow and low debt, while short-selling slow-growth companies with high levels of debt. Examples of both are listed below.
The RiverPark Long/Short Opportunity Fund, as such, is “a hedge fund in a mutual fund wrapper,” he said. Both of the fund’s share classes have five-star ratings, the highest, from Morningstar, because of their outperformance against Morningstar’s “Long-Short Equity” category.
Rubin described his strategy in detail during an interview April 17. Before getting into the strategy, here’s the fund’s performance information.
So far in 2020, the RiverPark Long/Short Opportunity Fund’s institutional shares /zigman2/quotes/203026914/realtime RLSIX -2.50% have returned 15.5% through April 17, while the fund’s retail shares /zigman2/quotes/204607042/realtime RLSFX -2.43% have returned 15.4%, according to FactSet. (Mutual fund returns in this article are after expenses.) In comparison, the S&P 500 Index /zigman2/quotes/210599714/realtime SPX -2.11% was down 10.5%, with dividends reinvested.
• For three years through April 17, the fund’s average annual return was 15.1% for the institutional shares and 14.9% for the retail shares, compared with 9.1% for the S&P 500. This remarkable outperformance shows the advantage of having downside protection through a cycle that includes a market downturn.
• For five years through April 17, the average return was 9.4% for the institutional shares and 9.2% for the retail shares, compared with 8.9% for the S&P 500
“You learn as a ‘long’ investor that if you own a company with debt, the clock is ticking. If something bad happens, it puts bankruptcy on the table.”
Mitch Rubin of RiverPark Advisors
“In a straight-up market, hedging equity risk isn’t in favor,” he said. “If you are hedged at all, you will underperform an index during a long bull market.”
In 2019, when the S&P 500 returned 31.5%, the RiverPark Long/Short Opportunity Fund’s institutional shares returned 18.7% and the retail shares returned 18.5%.
“But in a recession, the worst businesses will die faster. The shorts will go down faster in a down market,” Rubin said.