Joel Greenblatt’s Performance Could Be A Sign Of Overheated Stock Market via Antoine Gara, Forbes
Value investing guru Joel Greenblatt of Gotham Asset Management authored two of the all-time great investing guides, The Little Book That Beats The Market and You Can Be A Stock Market Genuis. But, after returning to the hedge fund industry in 2009, and bringing his strategy to wealthy mutual fund investors in 2012, Greenblatt is having trouble doing just that. This year, all of Joel Greenblatt’s mutual funds have suffered losses, with his biggest funds down between 6%-to-10%, and none of his funds have outperformed the S&P 500 Index’s total return since their inception.
For Gotham, which has a total of $5.3 billion in mutual fund assets under management as of the second quarter, the performance may raise questions about its strategy of shorting a diverse basket of hundreds of mid-to-large cap stocks deemed overvalued on the basis of cash flow, returns on invested capital, balance sheet health, and valuation — and buying shares of a similar number of undervalued stocks. Once Gotham’s 2%-to-3% in total expenses are factored in, outperformance is a far way off.
In theory, shorting a basket of expensive stocks and buying cheap stocks seems like a winning strategy, especially when its done by Joel Greenblatt, an investing legend who celebrates his so-called ‘Magic Formula’ to investing and generated 30%-plus annualized returns after launching Gotham in 1985.
Over $3 billion in assets have rushed into Gotham’s Absolute Return Fund (Ticker: GARIX), down 6.48% in 2015 and up 39.06% since inception in August 2012, under-performing the S&P 500?s 55.7% total return. An additional $1.3 billion has moved into the Gotham Enhanced Return Fund (Ticker: GENIX), down 6.66% in 2015 and performing in-line with the S&P 500 Index’s 32% gain since inception at the end of May 2013. Gotham’s smaller funds, the Gotham Absolute 500 Fund (Ticker: GFIVX) and its Gotham Neutral Fund (Ticker: GONIX) have underperformed year-to-date and since inception.
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