How Might Investing in the the Gotham Neutral Fund (GONIX) Affect Your Portfolio?


Nov. 20 2020, Updated 11:34 a.m. ET

Alternative mutual funds like GONIX

Alternative mutual funds, unlike traditional mutual funds, give retail investors access to modern hedge strategies such as market neutral, global macro, and arbitrage hedge among others. For example, the Gotham Neutral Fund Institutional Class (GONIX) uses a “market neutral” strategy to build a portfolio that has minimal correlation to the US stock market but still has the potential to generate income.

The top holdings of the fund include the following six stocks, among others:

The chart below compares the return performance of a mixed portfolio consisting 30% GONIX and 70% S&P 500 holdings, with the return performance of the S&P 500 index (VFINX) itself, for the year 2015.

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How market neutral funds like GONIX can reduce risk for investors

The S&P 500 index has outperformed the Gotham Neutral Fund Institutional Class (GONIX) in 2015, although both have given negative returns to their investors. Because GONIX is a “market neutral” fund, it can help reduce the overall risk of the S&P 500 portfolio while enhancing the downside protection of the overall portfolio. The trailing 12-month standard deviation of GONIX, for example, is 7.1%, whereas that of the S&P 500 index is 18.3%.

Conclusion: a question of scope and strategy

As we discussed previously in this series, the Gotham Neutral Fund Institutional Class (GONIX) seeks long-term capital appreciation with minimal correlation to the general stock market. Hence, the fund takes a combination of long positions and short positions in equities in an effort to reduce its overall risk while also maintaining the profit-making potential of the portfolio.

Similarly, many alternative mutual funds mimic different hedge fund strategies in order to increase the scope of investments for retail investors. The Merger Fund Class V (MERFX) is one such alternative fund that uses the “merger arbitrage” strategy to achieve its investment objective.

You can read our detailed series on The Merger Fund Class V for more information. For more analysis, check out Market Realist’s Active Management page.


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