Portfolio Manager Perspectives

Jeff Benjamin

How to play the rally —and potential pullbacks

Former hedge fund manager Jeffrey Beamer maintains constant hedges to reduce volatility in his Lacerte Guardian Fund

Dec 4, 2009 @ 2:08 pm

By Jeff Benjamin

The stock market's relentless charge from its March lows shouldn't be taken for granted, since no rally lasts forever, according to portfolio manager Jeffrey Beamer, who maintains a constant hedge on every position in his Lacerte Guardian Fund (LGFIX) offered by Lacerte Capital Advisers LLC.

“Right now, the trend is up, and the market is bullish,” he said. “But even if we don't break through these levels, our strategy can still make money in a pullback.”

The strategy, which had been managed by Mr. Beamer as a hedge fund from March 2007 until it was converted to a mutual fund in October, involves the use of put and call options to reduce the overall risk of the large-cap-blend portfolio.

Unique from some mutual fund strategies that might try to enhance performance by selling call options or bet on a downturn by buying put options, Mr. Beamer's strategy involves simultaneously buying puts and selling calls on everything he holds in the fund.

The concentrated portfolio of less than 20 positions is anchored by exposure to the broad market through the SPDR S&P 500 (SPY) exchange-traded fund offered by State Street Global Advisors.

From there, Mr. Beamer builds a portfolio of companies that meet various investment screens, but each position must also have a liquid options market.

He buys the puts to limit the downside on each stock and sells the calls to pay for the cost of buying the puts.

Selling call options, which creates an obligation to sell the underlying stock at a set price, can limit a stock's performance contribution to the larger portfolio, but that's part of the trade-off, according to Mr. Beamer.

“We're saying we can protect equity holders and give potential for returns through the buying and selling options around the stocks,” he said. “This is an all-weather strategy that makes even more sense right now because of the stock market's run-up.”

The strategy's focus on limiting volatility helped the portfolio post a 19% decline last year when it was a hedge fund, compared with the S&P 500's 38% plunge. This was despite the fund's having some positions that lost between 60% and 70%, Mr. Beamer said.

This year through Thursday, the strategy was up 13%, while the S&P was up 21.7%.

“In this fund, we're experiencing less than a third of the stock market's volatility,” he said. “We're not beating the market, but we're making money on significantly reduced risk.”

Portfolio Manager Perspectives are regular interviews with some of the most respected and influential fund managers in the investment industry. For more information, please visit InvestmentNews.com/pmperspectives .


What do you think?

View comments

Most watched


Young advisers envision a radically different business in five years

Fintech and sustainable investing are two factors being watched closely by some of the 2019 class of InvestmentNews' 40 Under 40.


Schwab's Jeff Kleintop: Prep for volatility given China trade uncertainties

China could be considered a developed market in five to seven years , according to Jeff Kleintop, chief global investment strategist, Charles Schwab.

Latest news & opinion

TIAA exits the life insurance business

The move is a big deal for RIAs, experts say, since TIAA was one of only a few insurers to offer fee-only life policies.

Advisers step up efforts to help clients manage student loan debt

As some Democrats campaign to wipe the slate clean, financial planners focus on limiting the amount students borrow.

Funding for Reg BI, other SEC advice reform efforts denied in Waters amendment

House likely to approve measure that effectively kills rule package, but it faces uphill battle in Senate

Wall Street lashes out at Sanders' plan to pay off student debt with a securities trading tax

Financial pros argue that a transaction levy will hurt mom-and-pop investors along with investment houses.

GPB paid B-Ds and reps steep commissions to sell troubled private placements

GPB paid commissions of 9.3%, or $167 million altogether, on the firm's private placements.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print