What is your competitive edge over other mutual fund portfolio managers?
We believe there are many factors that give us a competitive advantage over other managers. TFS utilizes a team approach, which we believe greatly reduces the chance of irrational decision-making and limits dependence on a single individual. We also have a stated principle to limit growth because we believe that managing a smaller pool of capital, while investing heavily in research and development, generally permits more attractive investment opportunities. We believe that our objective decision-making and automated trade execution allows us to make faster adjustments to the portfolios being managed. Finally, our portfolio managers do not have traditional “Wall Street backgrounds” which we believe helps us to avoid overused analysis methods that may be losing their utility.
How do you make your investment decisions?
Our investment decisions are aided by our quantitative factor models which are developed through extensive research. As part of this strategy development process, TFS performs trading simulations so that we can evaluate a candidate strategy’s historical performance before utilizing it in the funds that we manage. Our factor models facilitate objective decision-making by the Portfolio Managers which we believe leads to better results.
Why is it important to be objective rather than subjective when making investment decisions?
We believe objective decision-making helps to avoid emotional reactions that can erode investment performance. We also find that an objective process allows us to more quickly evaluate securities and make necessary changes to a portfolio.
How long has the firm managed alternative investments?
The firm has utilized alternative investment strategies since its inception in 1997 and the portfolio management team has over fifty years of combined experience developing proprietary strategies.
Why does it matter to me that TFS is independent and employee-owned?
Independence from a larger “parent” company is important because it mitigates potential conflicts of interest and allows management to operate more efficiently. TFS is entirely employee-owned with greater than 25% of the employees having an ownership interest in the company. We believe this structure creates a higher level of employee commitment to the firm and its clients which we find leads to better results.
Why does it matter to me that the board of trustees for the mutual funds is independent?
The TFS Market Neutral Fund (ticker: TFSMX), the TFS Hedged Futures Fund (ticker: TFSHX) and the TFS Small Cap Fund (ticker: TFSSX) are overseen by a board of trustees that is comprised of a majority of independent members. A trustee is considered independent when he/she is not employed or otherwise compensated by one of the funds’ service providers (e.g., the portfolio manager), but rather exclusively by the fund itself. Independence ensures that the funds serve the best interest of shareholders and not that of the portfolio manager.
Why are the fees for the TFS-managed mutual funds high in comparison to other mutual funds?
The expense ratio for the TFS-managed mutual funds are high relative to many traditional long-only mutual funds and to some other funds with similar objectives. However, the expense ratios will generally be found to be less expensive than many comparable private funds (i.e., hedge funds and commodity pools). The expense ratios are generally higher than traditional mutual funds because our strategies require substantially more infrastructure to implement and oversee. Moreover, our strategies generally require continual monitoring and adjustment which requires a substantial ongoing investment in research and development relative to many other funds.
How much do the managers have invested in the funds?
The firm’s Code of Ethics requires that all principals and portfolio managers have at least fifty percent of their liquid net worth invested in the funds managed by TFS. For the specific dollar ranges invested in the mutual funds by the managers and trustees, please refer to the Statement of Additional Information located in the Literature section of our site.
What are the weaknesses of your investment style?
Because positions are usually not held for long periods of time, one significant weakness for the funds managed by TFS is that they are generally tax inefficient. As a result, they may be better suited for tax-deferred assets. There are many other factors to consider, however, so one should refer to the Prospectus located in the Literature section of our site.
Why would someone invest in your Huntrise private (“hedge”) funds rather than the TFS Market Neutral mutual fund given that both, for example, utilize a long-short equity strategy?
While the different investment vehicles do frequently utilize similar investment strategies, they are often very different. As such, one should not assume that they are similar and should read the mutual fund prospectus and private fund offering documents before investing. Moreover, there are many inherent differences between these investment vehicles that cause further deviations in portfolio management tactics and results. For instance, the TFS Market Neutral Fund has daily liquidity, which is convenient for investors but can hinder performance because it limits the manager’s ability to invest in less liquid securities. In addition, there are fewer restrictions on the investment manager in the hedge funds so, if successful, a manager will generally realize better performance in the less-restrictive hedge fund vehicle. Also noteworthy is that the hedge funds pay the manager a performance-based incentive fee, versus simply a fixed fee that is common for the mutual funds and is driven primarily by assets under management.