Forward Management announced Tuesday a new mutual fund based on a hedge fund strategy that seeks to profit from both up and down market movements: the Forward Tactical Enhanced Fund. The company’s Tactical Growth Fund, designed for investors seeking to preserve capital, has attracted $860 million in assets from its launch in mid-September 2009.
“Broadmark, which has been running the strategy of both funds, hasn’t had a down year since 2001, including in 2008,” said Jeff Cusack, President of Forward Management in San Francisco, in a telephone interview. The 2010 annualized return for the Tactical Growth Fund was 2.57%.
The new fund will use the same strategy but is tailored for investors seeking higher-than average absolute return who want to take advantage of a more volatile market. It allows greater leverage and more trading around the portfolio’s core holdings.
Forward’s managers are looking for both undervalued and overvalued stocks, sectors or industries, blending top-down analysis of the economy and investor sentiment with a quantitative-driven response to market momentum. The fund will invest in both U.S. and overseas securities, primarily through futures and exchange traded funds. The goal is above-average, risk-adjusted returns, with shallower dips down than the S&P 500 Index.
"With the traditional investment approach of being long-only and fully invested at all times, there's no way to sidestep market downturns,” Cusack said. “Many of us grew up in the 1980s and 1990s in a generally trending up market. That’s where you get the number stocks return 10% of year, which gets plugged into financial planning models. Then in the oughts we got no returns. The old approach doesn’t work anymore.”
Cusack argues that the strategy is appropriate for all investors. “All investors should be thinking of managing market exposure at all ages. The first fund was often used as a core strategy. We expect the new one to be a portion of the alternative-investment allocation because it has higher return and volatility.”
During the U.S. market melt-down in the first quarter of 2009, Tactical Growth Fund went into 100% cash. “When we saw a bottom in March, we reinvested 25% Nasdaq, 25% Russell, and 50% in emerging markets,” Cusack said. “There’s really no appropriate benchmark,” he added, although people use the S&P 500 or the HFR Hedge Fund benchmark.