Beating the Bear

Things aren’t terribly great when you get excited about a money manager who succeeded in giving a negative return to his investors in 2008. But such is the accomplishment of Bo Beckman, senior portfolio manager at the Oxford Private Client Group, a money management firm in Minneapolis.

Truth be told, his –3 percent is a remarkable achievement. Last year, the Standard & Poor’s 500 index was down 39 percent. Bonds were crushed. Commodities collapsed. Investors stampeded to what they thought was the only safe haven in the market—Treasury bills. For some maturities, the prices actually went into the negative yield category, meaning that investors were willing to buy the U.S.–issued securities at a loss.

But Beckman, who says he saw the bear market coming, scrambled out of stocks and into cash. He also shorted the market, saving his investors from huge losses while positioning himself for an economic recovery. Now that’s an accomplishment.

You managed to close out 2008 with just a 3.28 percent loss. How did you do that?

Beckman: I called this bear period back in 2007. By the time we rolled into 2008, we had dramatically modified our asset allocations, having a very large portion in cash. We did not own a lot of stocks.

As of September 30 last year, stocks were 35 percent of your portfolio. That must have been a good position given the downdraft in September and October.

Beckman: The equity component of our portfolio was actually below that. We hedged off a lot of our existing equity exposure using an exchange-traded fund through Proshares [a firm that sells short and leveraged exchange-traded funds], which is a pool of put options. But because it trades like a stock, it goes into the equity category.

What dragged you below break-even for the year?

Beckman: We lost money in the fourth quarter because of our equity exposure, but mostly because of our money market exposure, and also because we had some of our cash in the Reserve Money Market Fund [run by the Reserve, an investment firm in New York]. The fund ‘broke the buck’ in the third quarter when it got itself in trouble with notes backed by bankrupt Lehman Brothers. We figured, it’s the oldest money market in the country, they know how to run their shop. We lost 3 percent for the year on those positions. We didn’t know what the net result was going to be from the Reserve Fund until the fourth quarter.