Update, with holdings link -- Morningstar Inc. has picked the quant-heavy team that picks small-cap stocks (long and short) for West Chester-based, $1.8 billion-asset TFS Market Neutral as its first "Alternatives Fund Manager of the Year," alongside four other best-of teams (a Pimco bond team, stock teams from Mairs & Power and Virtus, a mixed stock-and-bond team from T. Rowe Price.)
The fund (ticker: TFSMX), managed by Eric Newman, Larry Eiben, Chao Chen, Yan Liu, and founding brothers Kevin and Richard Gates, returned 7.8% last year, which is below the S&P 500 but tops for "market-neutral" funds, which are supposed to lose less when the market falls (as well as often rising less when the market is up.)
The fund also ranked high for risk-adjusted return, and also "a significant positive alpha relative to the Russell 2000," as it has in past years: "It's unusual for a quantitiative fund to have such consistent, positive performance," said Morningstar analyst Nadia Papagiannis. It's the only "alternative" fund with a 5-star Morningstar rating.
Expenses are also high by mainstream fund standards, almost 2.5% of yearly assets, to pay for all that back-testing by programmers and analysts. TFS staff is required to eat its own cooking, investing 50% of their liquid net worth in TFS products, according to Morningstar.
The fund's largest holdings, all between one-third and one-half of one percent of its total, included Health Management Associates, Alon USA Energy, AECOM Technology, Old Republic International, and Tenet Healthcare Corp., which operates Hahnemann and St. Christopher's Hospitals in Philadelphia, among others, according to its December summary here.
The fund's largest short positions included Polypore International, Deckers Outdoor, Vivus Inc., McEwen Mining, and Philadelphia-based home-title insurer Radian Group, all of which are valued at between almost one-half and two-thirds of one percent of the fund's total.