Top Hedge Fund Wins by Controlling Risk and Seeing the Big Picture

Barron’s profiles Andrew Sandler of Sandler Capital Management because he is one of few hedge fund managers to come out ahead in 2015. “I’m very risk-averse by nature,” Sandler said, so when he took over the firm’s flagship fund his “mantra was to avoid losses and protect the goal line.” The article notes that he “embraces broad themes,” such as “the collapse of energy prices, the value in innovative original equipment manufacturers, and e-commerce’s systemic threat to bricks-and-mortar retailers.” Sandler notes, “our 15-person team of analysts and traders have done well seeing the larger picture.” The Sandler Plus fund, which is less conservative than the firm’s flagship Sandler Associates fund, beat the S&P 500 by 4.5% and the HFRI Equity Hedge [Total] Index by 8% over the last 10 years, and it posted a 13.3% return for 2015. It is also significantly less volatile than the market, even though it is more volatile than the Associates fund.

Sandler “generally makes small wagers on 75 to 100 positions on both the long and short side,” which helps him control volatility, especially because he “doesn’t hesitate to downshift equity exposure when he senses trouble.” For example, by cutting net long exposure 95% in 2007-08 he limited losses in 2008 to 8.1% while the S&P 500 fell 37%, thus preserving much of the fund’s 55% gains from 2007. Similar approaches helped the fund in 2011 and again in 2015, although the fund has also underperformed at times (2012 and 2013). Looking forward, Sandler expects volatility to continue through much of 2016. Barron’s reports that “he wouldn’t be surprised if his portfolio remains market-neutral for long stretches.”