Wednesday, December 2, 2009

Dennis Gartman's Horizons AlphaPro Gartman ETF- Thus Far More Sizzle than Steak

It is always interesting to see how a "pundit" (usually a strategist) does when they take their hand in the real investment world, with a public track record.  Most of the current "celebrities" on CNBC are personal traders, strategists, or economists - without a public track record to be found.  But they sound like they are right about 98.2% of the time - no one is that right, except Goldman Sachs.  [Nov 4, 2009: Goldman Sachs Q3 Winning Percentage: 98.4%] (frankly, this is why when readers throw "pundit stuff" at me, or "Joe Blow on CNBC said this", I mostly ignore it - unless it's a hedge fund manager i.e. Doug Kass - or mutual fund manager whose returns I can eye for myself.  Being on TV means nothing to me in terms of a person being good at investing - legend Julian Robertson makes 1 CNBC appearance a year.) :)

One major beef I have with CNBC America, is they rarely talk about people's past calls or previous appearances - not just the stock pickers but even the economists who have been wrong over and over... yet still get huge amounts of air time.  Meanwhile on CNBC Europe, I've seen emailers write in (and the hosts actually read the email on air) lambasting people for bad calls and asking for explanations.  Therefore, everyone seems like a genius on the American version of financial entertainment information.  There is no issue with being wrong... everyone is wrong at times; just be frank about it.

Dennis Gartman, the 'king of commodities' and respected newsletter writer is one of the most followed voices on financial entertainment TV.  We noted he had launched a hedge fund this summer [Aug 21, 2009: Dennis Gartman Launches River Crescent Hedge Fund] and thus far we don't have any results but apparently he also launched a Canadian ETF at the market bottom in March 2009.  As you know by now, any 3 year old ... parakeet... could make money picking any asset on Earth, if you started in March 2009.  Do we thought it would be interesting to see how things turned out when actual transactions had to be made, rather than recommendations in a daily missive.  It seems, thus far, seems Gartman is struggling with this instrument.

To be fair, Gartman is trying to run a market neutral strategy like we are - that is, something that works in any environment and the direction of the market should not matter - and the past 2 years has been awful for any sort of balanced approach.  You either want to be "all in" long or short ( I call it student body trading)... at least since summer 2008.  (from fall 2007 to  summer 2008 you could be long commodities and short anything else that moved, a strategy we were hiding out in)  That said, as the king of commodities during a period where commodities are king... you'd think he would be doing very well. I like to think a 3 year track record really is a better place to judge so more important will be how he is doing circa early 2011.   I'm also going to be very interested in how his hedge fund is doing...

However, Fabrice Taylor at The Globe and Mail is not so patient, in fact he calls Dennis Gartman a bubble.  Ouch.
  • Dennis Gartman never shies away from declaring a bubble when he sees one, or thinks he does.  Today the bubble is in gold. Mind you, the bubble was in gold several months ago, too. If it was a bubble at $700 (U.S.), I suppose, it's an even bigger bubble today. But that doesn't prevent Mr. Gartman from owning gold. The man works in mysterious ways.
  • Vox rarely declares a bubble, but we make an exception today: The bubble is in Dennis Gartman. When you start calling Warren Buffett an "idiot" while you lose money for your own investors, you're way too big for your britches.  Mr. Gartman is, of course, author of the eponymous newsletter on all things investable.
  • The author is very opinionated and speaks with great conviction, which is a rare and attractive quality. Most money managers are guarded, circumspect bores on the record. Mr. Gartman is fun to read and listen to. That's probably why he gets so much media attention and, in turn, is able to raise money.
  • Mr. Gartman is also famous for his trading rules, of which there are 17, ranging from the sensible ("mental capital trumps real capital") to the ambiguous ("trade like a mercenary soldier"). By and large, though, his philosophy can be summed up as "Go with Big Mo" - meaning be a momentum trader (or as he puts it, "We're not a business of buying low and selling high; we're a business of buying high and selling higher").  (very true, he often says buy things that start in the bottom left of the screen and are going to the top right,...nothing wrong with that)

  • Whether you're just vaguely acquainted with his work or an avid reader, you must have asked yourself at one point if Mr. Gartman actually makes any money for himself or for his readers by trading. Until recently, there's never been a reliable way to gauge. Now there is, and it's not particularly impressive.
  • Launched last March, the Horizons AlphaPro Gartman ETF is managed by the man himself using the wisdom he dispenses in his newsletter.  The fund launch was well-timed, coming as it did just as stocks were about to start one of the greatest runs of all time.
  • Mr. Gartman's investors, though, are down. The units, sold to investors for $10 a few months ago, closed at $9.12 on Friday, giving the ETF a market cap of about $52.5-million.  Now, we have to be fair: For starters, about 50 cents of the purchase price was eaten up in underwriting fees. We can't blame Mr. Gartman for that.
  • And the net asset value of the fund is, as of the most recent calculation, $9.35. So while investors are down about 9 per cent, Mr. Gartman's picks have only cost them 3 per cent.  (So in American language it sounds like a "loaded" ETF - never heard of such a thing in the States.... meaning you have to give 5% just to buy into the ETF  i.e. the manager has to make you more than 5% just to break even)
  • But the market is up 30 per cent since the fund launched. (I am not sure where the 30% comes from, maybe the Toronto Index, although I thought it had done much better since March than 30%?) What's up with that?
  • Mr. Gartman didn't get back to me, but the people at Horizons AlphaPro tell me the fund is intended to be market neutral, meaning it won't move with the market. Why? Because it's long and short, and supposedly constructed in such a way that the market's performance has no net effect on the returns. The only thing that does have an effect, in theory, is the manager's skill. It may be early days, but Mr. Gartman's performance has been found wanting.
  • He's expected to return between 6 and 12 per cent regardless of the market. (not sure where the writer gets that 'expectation'... you could never offer such estimations in US fund literature - the SEC would laugh) Eight months in, he's nowhere near that.
  • And by the way, I don't see any mention of market neutral in the prospectus,  (snippy, snippyand I don't recall Mr. Gartman being a market-neutral enthusiast, although he hedges many of his trades

Here is the writer's takeaway:
  • What's troubling about Mr. Gartman as a money manager is that while he gives good quotes and speaks with conviction, he doesn't invest with quite the same resolve. If gold is a bubble, why buy gold? (well, because you can make money in bubbles... as long as you jump of the ship before its hulk disappears under the ocean surface) And if it's because gold is going up, even if you don't think it should, why am I paying you for your management skill? I don't need help buying whatever is going up.
  • Maybe the most telling anecdote is this: In the early days of launching his fund, Mr. Gartman had the brilliant idea to short Berkshire Hathaway, and short it hard: almost 10 per cent of the fund's value. By the end of October, he had closed off that trade. Mr. Gartman's rule No. 1: Never, ever, ever, under any circumstance, add to a losing position ... ever!.  (well, there is no defense on that one - I guess he broke his own rules)  Berkshire, run by that "idiot" Warren Buffett, is up 17 per cent since the Gartman fund launched.
  • Perhaps Mr. Gartman should add another rule: People who live in glass houses shouldn't throw stones. Never, ever, ever.

Takeaway:  please have your pundits with many servings of salt... especially if they don't have a public record.

As for Mr. Gartman, I am unfamiliar with the ETF and any restrictions so the hedge fund results will mean a lot more to me, since he should be able to do whatever he wishes without restriction.  Something to keep an eye out for in 2010.


p.s. just as Jim Cramer, contrary to his 'spin' today, was telling you to get out of the markets on the Today Show the week the market bottomed in early March, Dennis Gartman still was looking for more "capitulation" selling as of March 9th, 2009.  That boggles me considering the S&P 500 was a historical 40% below the 200 day moving average as we were pointing out (we had been trying to get "long" unsuccessfully for the 2 weeks prior to March 6th... i.e. we were 'early' to the bull side and took some flesh wounds due to that)  [Aug 29, 2009: March 6, 2009 as a Generational Bottom? What was 'Fund My Mutual Fund' Saying that Week?] So what Gartman would consider more "capitulation" at that point is beyond me.... people were stocking beans and guns!  But perhaps it helps explain some of his Canadian ETF's struggles, the rally caught him off guard at the beginning.

(for fun, Jim Cramer video on March 3rd below... when he now says he was in there with Doug Kass calling the bottom.... yep! But don't bother asking him about it, because he will say this video means nothing and he changed his mind just days later. ;) Did I mention the salt?)

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