Do More of What Works and Less of What Doesn’t
Steve Clark’s fund, the Omni Global Fund, has achieved remarkable performance consistency. The strategy has been profitable in every year since its inception 10½ years ago (2001).1 The worst year was a 0.7 percent gain in 2011. Omni’s 19.4 percent average annual compounded return is impressive, but what truly sets Omni apart is that it achieved these strong returns while containing the worst peak-to-valley equity drawdown to a modest 7 percent. The fund’s Sharpe ratio is an extremely high 1.50. The Sharpe ratio, however, which makes no distinction between upside and downside volatility, understates the fund’s performance because volatility has been heavily skewed to the upside—there have been many months with gains above 4 percent, and some much higher, but only two months with losses above this level (both less than 5 percent). As a result of the combination of strong gains and moderate losses, the fund has an extremely high Gain to Pain ratio of 4.1. (See Appendix A for an explanation of the Gain to Pain ratio.) In 2008, an absolutely disastrous year for event-driven hedge funds—the Hedge Fund Research (HFR) index for this sector was down 22 percent for the year—Omni was actually up 15 percent. Warren Buffett has said that, “It’s only when the tide goes out that you discover who’s been swimming naked.” 2008 made clear that Omni was swimming fully clothed in multiple layers.
Steve Clark was brutally honest—probably ...