The Absolute Capital Opportunities Fund (CAPOX) seeks to achieve long-term capital appreciation with a lower sensitivity to traditional financial market indices such as the Standard & Poor’s 500® Index. It uses a flexible approach to value investing and seeks to generate returns from multiple sources. It is sub-advised by a team at Chicago-based Kovitz, led by Mark C. Rosland and Joel D. Hirsh. The team at Kovitz varies the fund’s net exposures (long and short) and utilizes tail-risk hedging to potentially benefit from volatility.
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The fund’s minimum investment is $2,500.
Mark C. Rosland is a principal and investment committee member at Kovitz. He serves as a portfolio manager for the Kovitz Hedged Equity strategy. Mark manages the wealth management division of Kovitz and is also a member of the firm’s executive committee, supervising firm-wide operations and business strategy. He also serves on the firm’s marketing and risk management committees.
Joel D. Hirsh serves as principal and co-chief investment officer of the investment team in Chicago. In this role, Joel is responsible for leading the firm’s equity research process, as well as developing portfolio construction for Kovitz’ Core Equity and Hedged Equity strategies. He also serves as a member of the firm’s fiduciary board and executive committee, supervising daily operations and business strategy implementation.
I spoke with Mark and Joel on July 6.
Tell me about the Absolute Capital Opportunities Fund, ticker symbol, CAPOX. What is the fund’s mandate?
Joel: We’re looking to put together a fund with the goal of generating capital appreciation, but the secondary goal is to have less risk than unhedged equities have historically produced. We think about that by having a fundamentally driven portfolio of stocks and wrapping a hedging program around it. In our opinion, this has the opportunity to produce a payoff profile that goes up and down, but can be more attractive than a typical 60/40 allocation to equities and high-quality fixed income, especially in the historically low interest rate environment we find ourselves in today.
Kovitz is a subadvisor to the fund. What is Absolute Investment Adviser’s role in the fund? What is the history of Kovitz and what led you to introduce this fund?
Mark: Kovitz has been managing a hedged-equity portfolio since the late 1990s in a private partnership fashion. In 2007, we partnered with Absolute Investment Advisers, which has been one of the pioneers of alternative investment strategies in the mutual fund space. We served as a sub-advisor for its multi-strategy fund and implemented our hedged equity strategy in a mutual fund format, so we have a lot of experience in managing this strategy within the confines of the 40 Act restrictions and providing daily liquidity to investors.
The Absolute Capital Opportunities Fund was started in 2016 as an alternative mutual fund to be focused solely on the equity space versus all the other alternative strategies that were part of the multi-strategy fund. Absolute Investment Advisers is the sponsor of the fund. It handles most of the marketing and back-office operations, while Kovitz is the manager in charge of managing the fund’s assets.
The fund’s returns are solid since its inception on December 31, 2015. As of May 31st, 2020 its cumulative return was 29.49% versus 1.03% for the HFRX equity hedge index. That’s a cumulative outperformance of 2,846 basis points, net of fees. How did you so well compared to that benchmark?
Joel: It’s hard for us to know exactly the attribution versus the HFRX, because we don’t have a position-by-position of the constituency. But generally speaking, we try to structure a payoff profile for the fund in a way that there are multiple ways to generate a return. We can benefit either from long-stock relative performance versus underlying investments we use to hedge, from large movements in equities up or down, or increases in volatility. Those are the three different ways we attempt to generate a return.
This period from 2015 to 2020 was when being somewhat humble in questioning whether the U.S. stock market could keep going up proved to be helpful. Within this overall time frame there have also been periods when the fund benefited from each of the three return drivers, and I think we generally see one to two of them in any given period. There were periods when increasing stock market volatility was helpful. Obviously the stock market has also made very large moves (both up and down), so there were periods when that’s been helpful as well.
Read the full article here by Robert Huebscher, Advisor Perspectives
