Dennis Gartman is a frequent fixture in the media circuit (some examples here, here and here) and his Gartman letter is apparently widely read and often quoted in the press. For instance, the Financial Post ran a story today that Gartman is warning “very real damage” to the gold market. It’s all fascinating stuff but Mr. Gartman’s advice doesn’t appear to be all that profitable. Just ask the investors in the Horizons AlphaPro Gartman ETF (TSX: HAG) which says that it provides “access to one of the world’s most famous traders”. The access comes at a steep price: the fund’s management fee is 0.75% plus a performance fee of 20% payable when the fund exceeds a high water mark set by the Government of Canada 1-year T-bill rate. The ETF can employ leverage up to 125% of its NAV and employ long/short strategies. The ETF turns over its portfolio at a manic pace: in 2010, the portfolio turnover rate was 284%.
The predecessor Horizons AlphaPro Gartman Fund (TSX: HAG.UN) was offered to investors at $10 per share and launched with much fanfare on March 26, 2009. Mr. Gartman even provided a statement in the fund prospectus:
Each investment is made with specific risk management parameters in place. The goal is to enhance profits by quickly and, as we can, repeatedly adding to successful investments and by promptly and decisively reducing exposure to losing investments. We take no pleasure in being right or wrong, only in positive absolute returns. We are, as we like to say, “investment mercenaries” seeking to fight on the winning side and risking little real or mental capital in fighting losing battles. We are in the business of buying assets high and selling higher believing that strength begets strength and weakness begets weakness. While it is critical to understand the macro-economic fundamentals that drive the market, it is equally critical to understand the technical indicators, investing bullishly or bearishly only when these indicators support such action, always cognizant of Lord Keynes warning that “markets can remain illogical far longer than you or I can remain solvent.” As such, risk management is of primary importance. We are in the business of generating profits but always remain mindful of the critical importance of first and foremost protecting principal
So, what returns have investors in the ETF received for steep fees, furious trading and rather flowery statements? Not very much even though one would think that the Canadian T-bill rate isn’t all that high a hurdle to clear. The ETF closed today at $7.83 and no distributions were made in the past. Now let’s see: a fund launched pretty much at the bottom of one of the biggest bear markets ever manages to lose 21% of its capital in the roaring bull market that followed. If you want to keep score, the TSX Composite opened at 8,939 on March 26, 2009. It closed today at 12,053 for a gain of 34% not including dividends.
There is a bright side to the story: investors seem to have clued in to the effectiveness of Mr. Gartman’s trading strategies. The fund, which raised $55 million at launch, has seen a steady stream of redemptions and now has just under $12 million in assets.
PS: I shamelessly copied the title of today’s post from Larry Swedroe who frequently asks if some actively managed fund or other adds value on his blog. I can’t think of a better headline.