Why Pay Extra for Underperformance?

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Mar 15, 2015
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Always Question the Recommendation

Do you own due diligence

Why would a major financial journal tout a mutual fund with a 5.75% front-end load and a 1.85% annual expense ratio? You would probably expect it to to be a star performer to be worth those hefty charges.

Barron’s presented the Neuberger Berman Long / Short Fund (Class A), symbol NLSAX, this week with the following headline.

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Columnist Sarah Max explained how the fund’s manager captures gains while supposedly cushioning declines by devoting a portion of the assets to short sales and hedges.

Perhaps she should have checked out the fund’s stats in more detail before endorsing this one.

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Was Lipper kidding around?

Lipper’s ratings on NLSAX are ‘above average’ in 4 out of 5 of their designated categories. Was the fund heavily penalized for that high expense ratio and front-end load? Lipper merely lowered NLSAX's ranking to ‘average’ in the ‘expenses’ category. I wonder what costs NLSAX would need to impose to score worse.

NLSAX has only been operating since Dec. 29, 2011. Did its very complex investment strategy produce excellent results? The fund’s long/short combination dramatically lagged the S&P 500 in each of the three full years so far.

Results do not seem to be going gangbusters YTD in 2015 (see chart below). Does it really matter that NLSAX is doing a bit better than its peer group when S&P index funds are kicking its ass, while charging just basis points in management fees?

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If you still care to learn more about this fund you can see further details by using the link below.

Neuberger Berman Long Short Fd. Cl. A (NLSAX, Financial)

Publications should take care to screen recommendations before lauding them. Lipper might want to examine its rating system to see if it truly reflects reality.

The public would be well served to conduct their own due diligence rather than blindly following headlined advice.

Disclosure: No position in NLSAX