Greenblatt's new magic formula funds attract $5b

[oddballstocks]

I thought this was a good article about his funds and approach.  It's worth noting that he spent $35m of his own money and about 10 years researching this strategy.  It'll be interesting to see where this goes.

 

On another level Greenblatt is a genius.  His spin-offs and special situations strategy worked well but it wasn't scalable.  He realized that and came up with this relative valuation system that's extremely scalable.  He's managing 10x more money  now than he was in the past.  Even without taking 20% of the profits he's doing well with is 3% fee, which is absurd in the mutual fund world.

 

The guy has built a moat around his products via his own research.  They have their own database with modified financials for every company out there.

 

http://www.nytimes.com/2014/10/23/your-money/a-book-four-funds-and-a-flood-of-cash-.html?_r=1

[peter1234]

Thanks, great article.

:)

[Liberty]

Thanks, interesting piece, especially in light of what Murray Stahl has been saying about indexation lately.

[CorpRaider]

I can't remember what thread we were discussing Gotham's long short strategy and how that conflicted with earlier statements he made about the magic formula research, but I came across this FAQ posted to the Gotham website wherein they address that that question.  See below:

 

https://www.gothamfunds.com/UploadFiles/a0ea6e51-a.pdf

[AzCactus]

Oddball ---The 3% fee is pretty much outrageous.  Few managers are justified in charging that over a long period of time.  A couple of managers who charge more reasonable fees and earn them include Berkowitz (FAIRX), Sequoia (SEQUX) and Riverpark/Wedgwood (RWGFX). 

[Guest]

Oddball ---The 3% fee is pretty much outrageous.  Few managers are justified in charging that over a long period of time.  A couple of managers who charge more reasonable fees and earn them include Berkowitz (FAIRX), Sequoia (SEQUX) and Riverpark/Wedgwood (RWGFX).

 

Don't forget the guys from Primecap and Dodge and Cox.

 

I'm not a huge fan of Wedgewood though. I would consider Rolfe a "B" manager. Good but not elite.

[CorpRaider]

Just a point of fact, the mgmt fee is 2% and the expense cap is 2.25% through 2017.  The actual ratio for garix is running @ 2.2%.  Alternatively you can do a 1% and 10% performance fee in the hedge fund structure.  The unhedged mf are not really the same animal.  You could compare fairx strategy of being unhedged and concentrated with Greenblatt's old strategy, of course Berkowitz would probably not enjoy being compared to that record.

[innerscorecard]

I called and after a brief discussion Gotham Funds was quite willing to waive the $250,000 minimum.

[Lance]

I called and after a brief discussion Gotham Funds was quite willing to waive the $250,000 minimum.

 

Hello - how low would they go?

 

Thanks,

Lance

[CorpRaider]

http://www.alphaarchitect.com/blog/2014/10/31/long-cheap-short-expensive-buyer-beware/

[KCLarkin]

http://www.alphaarchitect.com/blog/2014/10/31/long-cheap-short-expensive-buyer-beware/

 

Interesting but a long/short fund would normally be part of the "alternatives" portion of the portfolio. The timing of the max drawdown (internet bubble) and the low correlation to the SP500 would make it a very attractive hedge. In a diversified portfolio, with re-balancing, the results would likely be spectacular for that time period (internet bubble).

[andyinsandiego]

Devoured his books in high school, but 3% is flat out brutal. Although I hope he beats that hurdle!

[OracleofCarolina]

Tough year for the Gothom Funds