The overwhelming majority of the time, I focus on funds that do a great job at managing volatility and protecting capital. This fund is definitely an exception to that, with a standard deviation that is nearly double the MSCI World Index, a beta that is well north of 1, and upside and downside capture ratios that will leave you shaking your head.
Managed by Noah Blackstein, this is a concentrated portfolio of 20 to 30 companies from around the world that he believes to have the best growth prospects, strong earnings momentum and a history of upside earnings surprises.
At the end of September, it had exposure to only three sectors; technology, consumer discretionary and healthcare. Tech names made up more than half the fund, and consumer names were 30%. Mr. Blackstein’s style is very active, with levels of portfolio turnover averaging more than 200% a year for the past five years. This approach is very successful when markets are rallying sharply higher, but it can be devastating when markets get hit.
For example, in 2008, the MSCI World Index was down by nearly 30%, while this fund was down by 47%. It recovered nicely, gaining 30% in 2009, more than doubling the 13% rise in the index. So far this year, it has matched the performance of the index, but still finished easily in the top quartile. In October, it gained 6.76%, more than four times the 1.6% gain in the index.
Obviously given the risk reward profile of this fund, it is definitely not for everybody. Nor should it be viewed as a core equity holding. Instead, I see this as a fund that should only be considered by those who have a risk tolerance that is well above average, and are comfortable with the potential of losing a big chunk of their money over a relatively short period of time. But if you can stomach the ride, the potential for outsized gains as we move into the last couple months of the year remains strong.