SWHEX - Schwab Hedged Equity

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Schwab Hedged Equity (SWHEX)
Expense Ratio: 1.46%
Expected Lifetime Fees: $41,458.45

The Schwab Hedged Equity fund (SWHEX) is a Long/Short Equity fund started on 09/3/2002 and has $204.40 million in assets under management. The current manager has been running Schwab Hedged Equity since 01/22/2006. The fund is rated by Morningstar. This fund does not charge 12b-1 fees.

MarketRiders Prefers The Following ETF

IQ Hedge Multi-Strategy Tracker ETF (QAI)
Expense Ratio: 0.77%
Expected Lifetime Fees: $23,484.12

The IQ Hedge Multi-Strategy Tracker ETF (QAI) is an Exchange Traded Fund. It is a "basket" of securities that index the Long/Short Equity investment strategy and is an alternative to a Long/Short Equity mutual fund. Fees are very low compared to a comparable mutual fund like Schwab Hedged Equity because computers automatically manage the stocks.

The Following Long/Short Equity Funds Have Lower Fees Than Schwab Hedged Equity (SWHEX). Why are these metrics important?
Mutual Fund Name Ticker Symbol Turnover Assets (M) Annual Fees
Aberdeen Equity Long-Short Inst GGUIX 62.7% 518 1.34%
ASTON/MD Sass Enhanced Equity Fund Class I AMDSX 87.4% 145 0.99%
ASTON/MD Sass Enhanced Equity N AMBEX 87.4% 145 1.24%
Caldwell & Orkin Market Opportunity COAGX 493.0% 253 1.28%
Diamond Hill Long-Short A DIAMX 50.0% 1,900 1.40%
Diamond Hill Long-Short I DHLSX 50.0% 1,900 1.15%
Federated Market Opportunity A FMAAX 129.0% 521 1.37%
Federated Market Opportunity Instl FMIIX 129.0% 521 1.12%
Forester Value Fund Class I FVILX 35.3% 234 1.02%
Forester Value N FVALX 35.3% 234 1.28%
Forward Tactical Growth Fund Institutional Class FTGWX 387.0% 858 1.41%
Forward Tactical Growth M FTGMX 387.0% 858 1.41%
Gateway A GATEX 3.0% 5,700 0.94%
Gateway Y GTEYX 3.0% 5,700 0.70%
Hussman Strategic Growth HSGFX 67.0% 5,200 1.05%
Wasatch Long/Short FMLSX 82.0% 1,200 1.30%

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Why Are These Metrics Important?

Turnover represents how much of a mutual fund's holdings are changed over the course of a year through buying and selling. Active mutual funds have an average turnover rate of about 85%, meaning that funds are turning over nearly all of their holdings every year. A high turnover means you could make lower returns because: 1) buying and selling stocks costs money through commissions and spreads and 2) the fund will distribute yearly capital gains which increases your taxes. Look for funds with turnover rates below 50%. For comparison, ETF turnover rates average around 10% or lower.

Generally, smaller funds do better than larger ones. The more assets in a mutual fund, the lower the chance that it will beat its index. Managers outperform an index by choosing stocks that are undervalued. In order to find these undervalued stocks, the manager has to know more than his competitors to develop an "edge." There are only a finite number of stocks a mutual fund manager can reasonably analyze and actively track to gain such a competitive edge. When the fund has more assets, the manager must analyze large companies because he needs to take larger positions. Large companies are more efficiently priced in the market and it becomes increasingly difficult to get an edge.