Fund Suffers From Failure to Thrive

A lot of the columns I have written cover new products coming to the market, and I explore ways these new products might be integrated into a diversified portfolio. Over time, some new funds will prove to be excellent investments, and some won't.

One that is on its way to "won't" is the Old Mutual Long Short Fund (OLA - commentary - Cramer's Take). This closed-end fund goes long and short with primary objectives of high income and gains. As a secondary objective, it aims for long-term capital appreciation. So far it hasn't achieved the first two, and at this point I'm not bullish on chances of the latter. In fact, if you're intrigued by the concept of this fund, I'd wait for the same concept to come from another fund provider.

Lackluster First Year

The fund began trading last August, and the results so far have been less than inspiring. The chart compares the market price of the fund with the fund's net asset value (shown as ticker XOLAX in red) and the S&P 500 SPDR (SPY - commentary - Cramer's Take).

When possible, I like to track the NAV as opposed to the market price of a closed-end fund, because the NAV is a better measure of the manager's performance. The market price reflects fear and greed and is not necessarily a true measure of performance.

The fund has clearly had a noticeable lag. In fact, in addition to lagging since its inception, it lagged at six and three months.

Uninspiring The Old Mutual Long Short Fund's first-year performance has been unremarkable

Source: Yahoo! Finance

Harsh Exposure

While the nature of fund reporting makes it tough to know exactly why the Long Short Fund lags, the most recent position disclosure may give some insight. Positions were last disclosed May 31.

The largest short position was Kinder Morgan (KMI - commentary - Cramer's Take), which is being taken over by management at a healthy premium to the pre-takeover price. Second on the list of shorts is Heinz (HNZ - commentary - Cramer's Take), which is up 25% year to date after many months of no movement at all.

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At the time of publication, Nusbaum was long Heinz for client accounts, although positions may change at any time.

Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, Ariz., and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback; click here to send him an email.