Arquivos do autor: Editor Halloween é a época do ano para começar a pensar sobre o impacto das distribuições de ganhos de capital de seus fundos de investimento e ETFs. No CapGainsValet. Nós passamos o mês passado atualizando nosso site e construindo nossos bancos de dados gratuitos e Pro. Nós já fizemos duas passagens através de mais de 250 sites de empresas de fundos procurando por estimativas de distribuição de 2016. Como eu penso sobre como este ano se compara aos anos anteriores, eu tenho uma casa cheia de estudantes de alto nível vestidos para uma festa de Halloween. Alguns dos seus figurinos correspondem à minha leitura Continue Richard P. Cook e J. Dowe Bynum, gerentes e sócios fundadores. A pesquisa recentemente publicada lamenta o fato de que os fundos gerenciados ativamente se tornaram cada vez menos ativos e mais indexados ao longo do tempo. Os imperativos de mudança da indústria de fundos levaram muitos gerentes a se tornarem medíocres por design. Sua resposta é impulsionada pelo ansioso desejo dos chamados ativos pegajosos. A estratégia é simples: projete um produto para minimizar o risco de que ele sempre fará um percurso espetacular em seu grupo de pares. Se você faz seu fundo muito parecido com o seu benchmark, nunca mais será um desastre singular e, portanto, os investidores (investidores do plano de aposentadoria, em particular) nunca terão motivado para encontrar algo melhor. O fato de você nunca se destacar é irrelevante. O resultado é uma legião de fundos grandes, caros e indistintos que procuram segurança no rebanho. O Fundo Cook e Bynum (COBYX) me parece a antítese disso. Cuidadosamente construídos, bem focados e intencionalmente distintos. Na terça 5 de março, conversamos com Richard Cook e Dowe Bynum na primeira das três conversas com gerentes distinguidos que desafiam essa tendência através do compromisso com uma disciplina singular: comprar apenas o melhor. Para Richard e Dowe, isso se traduz em uma carteira com apenas sete participações e uma participação de 34 ações. Desde o início (até o início de março de 2013), eles conseguiram capturar 83 dos ganhos dos mercados com apenas 50 de sua volatilidade nos últimos doze meses, a Morningstar estima que capturou apenas 7 da desvantagem do mercado. Entre os destaques da chamada para mim: os caras estão dispostos a parecer estúpidos. Há momentos, como agora, quando eles não conseguem encontrar ações que atendam aos seus padrões de qualidade e avaliação. A regra para tais situações é simplesmente: quando as oportunidades atraentes não existem, é nossa obrigação não colocar o capital em risco. Eles admitem que outros fundos podem muito bem colher ganhos de curto prazo correndo com o pacote, mas você tem que estar disposto a parecer estúpido. Sua participação no caixa atual é de cerca de 34, o maior nível de caixa do fundo. Isso não é conduzido por uma chamada de mercado é um resíduo simples de sua incapacidade de encontrar grandes oportunidades. Os caras não estão dispostos a ser estúpidos. Richard e Dowe cresceram juntos e são confortáveis desafiando uns aos outros. Richard conhece os limites do conhecimento de Dowes (e vice-versa), por isso eram menos propensos a segurar as mãos e sair do penhasco juntos. Para evitar esse resultado, eles passam muito tempo descobrindo como não ser estúpido. Eles relegam algumas possibilidades intrigantes para a pilha muito difícil, os negócios que podem ter uma ótima história, mas cujo modelo de negócios ou financeiros são simplesmente muito difíceis de prever com confiança suficiente. Eles pensam em erros comuns (viés de compromisso, nossa capacidade de raciocinar por que não iria parar de fazer algo uma vez que iniciamos, principal entre eles) e geramos um conjunto de ferramentas realmente interessantes para ajudar a contê-las. Eles mantêm, por exemplo, uma lista de todas as razões pelas quais eles não gostam de suas participações atuais. Antes de qualquer compra, eles listam todas as condições em que theyd venderam rapidamente (se o CEO da sua estrela sair, também fazemos) e mantenha isso em cima de sua pilha de papéis sobre o estoque. Eles estão fazendo o que amam. Antes de iniciar Cook amp Bynum (a empresa), ambos os indivíduos tinham posições altamente visíveis e altamente compensadas em centros financeiros. Richard trabalhou para a Tudor Investments em Stamford, CT, enquanto Dowe estava com Goldman, Sachs em Nova York. Os caras acreditam em um processo de estoque por estoque fundamental, de valor e de pesquisa. O que eles estavam sendo pagos para fazer (com as estratégias de fundos de hedge de Tudors macro orientadas para eventos para Richard) era tão longe do que eles mais queriam como poderiam conseguir. E então eles desistiram, mudaram-se para o Alabama e criaram sua própria loja para gerenciar seu próprio dinheiro e os investimentos de indivíduos de alto valor líquido. Eles criaram o Cook amp Bynum (o fundo) em resposta a um pedido de investidores para um produto acessível a familiares e amigos. Os 250 milhões investidos com eles (cerca de 100 milhões no fundo) incluem 100 de seu próprio patrimônio liquido líquido, com seu investimento dividido entre o fundo e as parcerias. Uma vez que ambos os conjuntos de veículos usam as mesmas taxas e estrutura, não há conflito entre os dois. Eles fazem pesquisas prodigiosas sem sucumbir ao fato de comprar algo de impulso. Enquanto eles gastam a maior parte do tempo em seus escritórios, eles também estão confortáveis com passar duas ou três semanas de cada vez na estrada. O argumento é que eles conseguiram entender todo o ecossistema em que uma empresa opera a partir da qualidade de sua rede de distribuição para os sentimentos de seus clientes que eles só podem fazer de primeira mão. No entanto, eles foram muito bons em resistir ao impulso do negócio. Eles passaram, por exemplo, cerca de três semanas viajando pela Estônia, Polônia e Hungria. Não encontrou nada atraente. Percorreu a Grécia e a Turquia e aprendeu muito, incluindo o quão profundamente disfuncional da economia grega, mas não comprou nada. Eles estão dispostos a fazer o que você não vai. A maioria de nós professa uma compra baixa compre a ruptura não amada do rebanho abrace nosso ethos contrário interno. E a maioria de nós está enganada. Cook and Bynum parecem bastante menos: eles estão segurando dinheiro agora, enquanto outros compram ações depois que o mercado dobrou e as margens de lucros atingiram os recordes, mas na profundidade do colapso de 2008 eram compradores. (Eles relatam ter omitido presentes de Natal em 2008 para ter capital extra para investir.) À medida que o mercado atingiu o fundo em março de 2009, o fundo era inferior a 2 em dinheiro. Bottom Line: os caras parecem estar à procura de duas mercadorias indescritíveis. Um é um investimento que vale a pena perseguir. O outro é investir parceiros que compartilham sua paixão por investimentos convincentes e sua vontade de deixar outros investidores se apossarem num rebanho. Nem é tão comum quanto você pode esperar. O perfil: no dia 19 de fevereiro. Cerca de 50 pessoas telefonaram para ouvir nossa conversa com Andrew Foster, gerente do Seafarer Overseas Growth Income Fund (SFGIX e SIGIX). O fundo teve um primeiro ano excepcional: reuniu 35 milhões em ativos e retornou 18, enquanto o índice de mercado emergente MSCI obteve 3.8. O fundo tem cerca de 70 de seus ativos na Ásia, com o resto bastante dividido de forma uniforme entre a América Latina e a Europa emergente. Seu crescimento permitiu que eles instituíssem dois conjuntos de reduções de rácios de gastos, um formal e um voluntário. Entre os destaques da chamada, para mim: a China mudou. Andrew ofereceu uma discussão rica sobre sua decisão de lançar o fundo. A versão curta: no início de sua carreira, ele concluiu que a China emergente era a oportunidade mais avaliada do mundo 8217 e ele realmente queria estar lá. No final de 2009, ele notou que a China estava estruturalmente abrandando. Ou seja, era lento devido a características que não tinham solução ideal ou óbvia, em vez de serem lentas apenas como parte de um ciclo. Ele concluiu que 8220China nunca mais seria o mesmo.8221 Uma longa reflexão e investigação o levaram a começar a se concentrar em outros mercados, muitos dos quais eram novos para ele, que tinham muitas das mesmas características que tornaram a China excitante e rentável uma década antes. Dado o foco exclusivo e de princípios Matthews8217 na Ásia, ele concluiu que a única maneira de prosseguir essas oportunidades era deixar Matthews e lançar Seafarer. É hora de ser um pouco cauteloso. À medida que os mercados se tornaram um pouco esticados, os preços subiram 30 desde a recente parcela, mas os fundamentos não mudaram muito. 8211 he8217s se mudaram para as margens de nomes menores para firmas maiores e firmes. Ainda há melhores oportunidades em ações do que renda fixa, portanto, cerca de 90 em ações. O rendimento tem papéis importantes a desempenhar em seu portfólio. (1) Ele serve como um controle sobre a qualidade do modelo comercial de uma firma8217s. Na base, você pode pagar dividendos se você não estiver gerando fluxo de caixa substancial e sustentado e gerar esse fluxo é um sinal de um negócio saudável. (2) serve como uma métrica comum em vários mercados, cada um dos quais tem seus próprios esquemas e regimes contábeis. (3) Fornece pelo menos um pouco de buffer em mercados difíceis. Andrew comparou-o a uma âncora do mar, que ganhou, imediatamente, parar um navio apanhado em um vendaval, mas irá retardá-lo, estabilizá-lo e eventualmente interrompê-lo. O perfil: o caso para Seafarer é direto: será uma das suas melhores opções para manter a exposição a uma classe de ativos importante, mas desafiadora. Passamos uma hora na terça-feira, 22 de janeiro, conversando com Teresa Kong de Matthews Asia Strategic Income. O fundo tem cerca de 14 meses de idade, tem cerca de 40 milhões de ativos, retornou 13,6 em 2012 e 11,95 desde o lançamento (até 31 de dezembro de 2012). Isso é projetado para oferecer os retornos mais ajustados ao risco de qualquer um dos fundos Matthews. O gerente descreve o mercado de títulos dos EUA e, principalmente, os Treasuries, oferecendo 8220 de risco assimétrico8221 ao longo do prazo intermediário. Tradução: mais risco de queda do que oportunidade de ascensão. Dado algum valor em ter um componente de renda fixa de um portfólio de 8217, a renda fixa asiática oferece duas vantagens únicas em tempos incertos. Primeiro, os fundamentos do mercado asiático de renda fixa são muito fortes. Em segundo lugar, os mercados asiáticos têm um beta baixo em relação aos títulos do Tesouro intermediário dos EUA. O MAINX é um dos poucos fundos para ter posições na dívida asiática denominada em dólares e em moeda local (e, claro, também em ações). Em ações, Matthews procura ações com 8220 características parecidas a outras características.8221 a maioria dos concorrentes don8217t tem a profundidade de conhecimento necessário para maximizar seus retornos na Ásia. Os TK disseram explicitamente que não têm nenhuma posição neutra ou segmentam a alocação de alocações para qualquer coisa, ou seja, exposição cambial, soberano versus corporativo ou geografia. Eles tentam obter o maior golpe pelo nível de risco em todo o portfólio como um todo, com tanta estabilidade de preço 82208221 (ela disse que algumas vezes) como eles podem reunir. O perfil: MAINX oferece acesso raro e sensível a uma classe de ativos importante e sub-seguida. O longo historial dos fundos Matthews sugere que este será um veículo sólido, consciente de risco e gratificante para obter acesso a essa classe. O perfil de áudio MAINX Destaques da chamada: em dezembro de 2012, conversamos com Matt e Dan sobre a Estratégia Short Road Short Road, que também é usada neste fundo. No que diz respeito à estratégia, eles observaram: eles acreditam que podem superar o mercado de ações em 200 bps anos em um ciclo completo do mercado. Eles acreditam que podem manter beta em 0.3 a 0.5. Eles têm uma disciplina para reduzir a exposição ao mercado quando sua carteira longa excede 80 de valor justo. A gestão de riscos é mais importante do que o gerenciamento de retorno, de modo que as três disciplinas são ajustadas ao risco. A River Road está empenhada em manter a estratégia aberta por pelo menos 8 anos. O fundo pode ser considerado um substituto da equivalência patrimonial. Sua pesquisa sugere que uma alocação de 303040 (longo, longo prazo, títulos) tem uma alavanca muito maior do que uma carteira de 6040. O perfil: Longshort investing faz muito sentido na teoria, mas, muitas vezes, é terrível na prática. Depois de um ano, a ARLSX parece estar melhorando e seus gerentes têm uma explicação bastante convincente sobre o motivo pelo qual isso continuará sendo o caso. O perfil de áudio ARLSX Por cerca de uma hora em 29 de novembro, Mitch Rubin, gerente da RiverPark LongShort Opportunity (RLSFX) enviou perguntas aos leitores do Observer sobre sua estratégia de fundos e seu perfil de retorno de risco. Quase 60 pessoas se inscreveram para a ligação. A chamada começa com Morty Schaja, presidente da RiverParks, falando sobre a gênese dos fundos e o Sr. Rubin falando sobre sua estratégia. Depois disso, planteei cinco perguntas de Rubin e os chamadores entraram com outra meia dúzia. Gostaria especialmente de agradecer Bill Fuller, Jeff Mayer e Richard Falk pela meia dúzia de questões realmente afiadas e pensativas que eles colocaram durante o segmento de encerramento. Destaques da conversa: Rubin acredita que muitos gestores de fundos de investimento de longo prazo (em oposição aos gestores de hedge funds) são demasiado tímidos quanto ao uso de alavancagem. Ele acredita que os gerentes longshort como um grupo são muito esquisitos. Eles se obsessão com os macro-eventos de curto prazo (o penhasco fiscal) e diluem suas idéias tentando apostar em relação a grupos industriais ou contra eles (por curto-circuito dos ETFs, por exemplo) ao invés de se concentrar em identificar as melhores empresas nas melhores indústrias. A RiverPark se beneficia de ter seguido muitas das suas participações há quase duas décadas, seguindo sua trajetória de ações promissoras de crescimento (em que investiram), firmas maduras esfarrapadas (que venderam) e agora empresas antigas em indústrias desafiadas (que são pequenas). O perfil: todos os fundos de curto prazo têm o mesmo objetivo: fornecer uma fração relativamente grande dos ganhos de longo prazo nos mercados de ações com uma fração relativamente pequena de sua volatilidade de curto prazo. Todos investem muito no que acreditam ser os estoques de valor mais atraente e investem curtos, contraposta, os menos apreciados. Muitos gerentes imaginam suas carteiras compridas como ofensas e seu portfólio curto como defesa. Esse é o primeiro lugar onde o RiverPark se distingue. O Sr. Rubin pretende sempre ofender. Ele acredita que a disciplina RiverParks lhe permitirá ganhar dinheiro, em média e ao longo do tempo, em suas carteiras longas e curtas. O perfil de áudio Durante cerca de uma hora, em 13 de setembro, David Sherman, da Cohanzick Management, LLC, gerente do RiverPark Short Term High Yield (RPHYX) enviou perguntas aos leitores do Observer sobre sua estratégia de fundos e seu perfil de retorno de risco. Em algum lugar, entre 40 e 50 pessoas se inscreveram para o chamado RiverPark. Eles esperam poder retornar 300 8211 400 pontos base a mais do que um fundo do mercado monetário, eles conseguem minimizar o risco, não maximizar o retorno, eles não prevêem uma concorrência significativa por esses ativos, as despesas não deverão mover muito a volatilidade do VL é mais aparente do que o real 8211 Por qualquer medida que não seja um mercado monetário, é um NAV muito estável. A chamada em conferência (quando você clicar no link, o arquivo será carregado em seu navegador e começará a jogar após a sua carga parcial). O perfil: as pessoas estão começando a atrapalhar os encantos discretos e substanciais do RPHYX. Tanto o nome dos fundos como a atribuição da Morningstars ao grupo de pares de alto rendimento derrubaram alguns potenciais investidores. Para ser claro: este não é um fundo de obrigações de alto rendimento em qualquer sentido que você reconheça. LearnBonds Mutual Fund amp ETF Rating History e Focus LearnBonds (LB) Mutual Fund amp ETF Ratings foi lançado em dezembro de 2011 pelos seus co-fundadores Marc Prosser e David Waring. Marc Prosser é atualmente um colaborador da Forbes anteriormente, ele era o Diretor de Marketing da Forex Capital Markets (FXCM). David Waring era anteriormente o Diretor Gerente, desenvolvimento de negócios e estratégia, na Market Simplified Inc. Ao contrário dos pesos pesados da indústria, como Morningstar e Lipper, a LB Ratings se concentra em um número relativamente pequeno de fundos de títulos em um número limitado de categorias. Eles dividem os fundos em categorias com base em objetivos. As categorias atualmente listadas são fundos de títulos básicos, fundos de obrigações municipais, fundos de obrigações de curto prazo de baixa duração, fundos de obrigações de alto risco de crédito e fundos de longo prazo. A sua crença é que nenhum indivíduo ou família deve ter mais de 5 fundos orientados por objetivos em seu portfólio. É assim que David Waring descreve sua abordagem: temos um enorme respeito pelas classificações do fundo mútuo e do ETF Morningstar e Lippers. As classificações LB não substituirão essas ótimas ferramentas. No entanto, reconhecemos que muitos investidores acham essas ferramentas esmagadoras e complicadas para se candidatarem a fazer escolhas de investimento. Estamos a abordar a necessidade de um produto simplificado que exprima pontos de vista fortes sobre os fundos que um investidor deve possuir. Metodologia LB Ratings não usa uma fórmula matemática para identificar ou avaliar fundos individuais. Todos os fundos listados nas classificações da LB foram escolhidos pessoalmente e avaliados pelos co-fundadores. Em vez de análise mecânica, baseada em números e quantitativos, eles usam um conjunto específico de critérios para selecionar pessoalmente e avaliar fundos individuais. Os fatores incluem o desempenho do fundo de longo e curto prazo, níveis de risco, taxas associadas e qualidade e mandato de gerenciamento. Os fundos recebem um nível de classificação entre 1 e 5 estrelas, sendo 1 o menor e 5 o mais alto. O site descreve este método como classificações de opinião. Eles são claros e francos sobre seus métodos e sua crença de que todas as agências de rating de fundos e sites são inerentemente subjetivos. Isso faz com que as classificações de LBs sejam semelhantes às classificações dos analistas da Morningstars (as designações Gold, Silver). Todos os fundos listados são acompanhados por um relatório compacto e abrangente que descreve os seus pontos fortes e fracos, bem como o raciocínio por trás da classificação. Além das suas listas de fundos de obrigações e ETF, a LB Ratings também oferece links para títulos relacionados a títulos e títulos. Além disso, os visitantes do site podem se inscrever para um boletim informativo diário ou baixar o e-book gratuito como investir em títulos. O site é simples e direto, proporcionando listas restritas de fundos escolhidos pelos especialistas no campo. O relatório de classificação que acompanha cada fundo é claro e conciso, dando aos leitores informações que podem ser úteis para eles independentemente da classificação. Menos categorias e listas mais curtas podem ser menos estressantes para alguns investidores e ajudar a reduzir a confusão. O número limitado de categorias e fundos significa que, inevitavelmente, muitos candidatos fortes perderão. A natureza subjetiva das avaliações será muito abstrata para muitos. A falta de ferramentas e ferramentas comparativas em geral limitará o recurso do site8217 para os investidores que precisam de uma cobertura mais aprofundada. Uma preocupação prática que temos é que não há evidência de validade preditiva para os ratings da LB, e não têm provas de que seus fundos de cinco estrelas terão melhor desempenho no futuro do que os seus três estrelas. Heres Resposta do Sr. Prossers: quanto à análise preditiva. Eu faria o argumento de que pelo menos para os fundos de títulos negociados ativamente estamos em um período de tempo em que a análise quantitativa é difícil de empregar: os fundos mudaram radicalmente o perfil dos ativos que eles possuem e afastaram-se significativamente de seus benchmarks. Aqui estão dois exemplos simples, o Templeton World Bond Fund é agora um fundo de curta duração, com uma duração de dois anos menor do que seus pares. O PIMCO Total Return Fund agora é um grande detentor de munis. Que não estão incluídos na sua referência e nunca foram uma parte importante de suas participações. Em ambos os casos, estas são partidas radicais do passado. E ao mesmo tempo podem ser posições temporárias. Como resultado, mais do que nunca, você está escrevendo 8220betting8221 sobre a habilidade do gerente do fundo8217s. Ou dito de outra forma, historicamente, os fundos mútuos de títulos de melhor desempenho tiveram a maioria dos retornos gerados a partir da versão beta e agora eles estão gerando a partir de alfa. Em suma, eu não acho que os modelos de quant sendo empregados realmente capturam essa mudança. Avaliar esses fundos requer mais análise qualitativa. Bottom Line Embora as ofertas do site8217s sejam limitadas, muitos investidores podem preferir uma lista de escolhas escolhidas pelo ser humano ao longo de uma gerada por um computador. Para aqueles que não precisam ou provavelmente não usarão ferramentas como criadores e gráficos comparativos, a simples natureza direta das classificações LB será bem-vinda. Como o próprio site em si reconhece, um site de classificação de fundos é construído com base na confiança. A confiança é obtida ao longo do tempo e, em última análise, apenas o tempo indicará como as classificações de opiniões opcionais se aproximam dos métodos testados e testados dos pesos pesados do setor8217 em termos de desempenho. Por enquanto, concluímos que a LB tem um nicho sensível, que é interessante, vale a pena assistir e potencialmente útil, desde que você use suas classificações como ponto de partida em vez de uma palavra final. Caro leitor gentil, haverá uma ligeira demora na publicação da edição de maio de 2012 do Observer. Nas últimas 24 horas, tenho sido reduzido por um vírus particularmente atraente. Embora o nosso ensaio mensal tenha sido bastante feito, não consegui completar a revisão final da qualidade da pré-publicação. Com sorte (e muitos remédios), esperavam ter a edição de maio disponível na noite de 1º de maio. Os destaques de algumas das histórias foram perseguindo este mês incluem: o maior fundo que não é. A partir de meados de abril de 2012, os serviços de dados relataram um fundo com 180 retornos acumulados no ano. Acontece ser um amigo antigo e ocasionalmente incomodado que não é um fundo por muito tempo. The Return of the Giants, uma revisão da alegada noção de que os gerentes de estrelas recuperaram a base em 2012. Um Sorte de Gigante e Interesse de Investidor em Fundos Mútuos. Weve atualizou nosso link para a análise da Googles sobre os juros em fundos mútuos e a imagem não está ficando mais brilhante. Suspeitamos que as empresas de fundos, em muitos casos, incentivem o declínio através de comunicações insensíveis e desastrosas com seus acionistas, então falamos sobre uma boa comunicação dos acionistas e um novo serviço destinado a ajudar as empresas de fundos menores a melhorar. O Melhor da Web: Agregadores de Notícias Curriculares. O Google News consegue desenhar 100.000 cliques por minuto com sua coleção de conteúdo montado mecanicamente e organizado. Os agregadores de notícias oferecem um serviço útil e é possível que você faça muito melhor do que o conteúdo robo-editado. Junior destaca dois agregadores curadores humanos de primeira taxa (Anormal Returns and Counterparties). Como sempre, oferecemos perfis novos ou atualizados de quatro fundos legais (Amana Developing World, Artisan Global Value, FMI International e LKCM Balanced). Há notícias importantes de uma meia dúzia de empresas de fundos, incluindo um novo fundo de registro que representa uma colaboração de duas firmas finas, a RiverNorth e a Manning amp Napier. Com exceção de nossos destaques e comentários mensais, todo o novo conteúdo está disponível agora usando as guias de navegação ao longo do topo desta página. Obrigado pela sua paciência e arrependimentos pela demora, Objetivo e Estratégia O Fundo Bretton procura obter uma valorização do capital a longo prazo investindo em um pequeno número de títulos subvalorizados. O fundo investe em ações comuns de empresas de todos os tamanhos. Normalmente, possui uma posição central de entre 15 a 20 títulos cujas empresas subjacentes combinam uma vantagem competitiva defensiva, produtos relevantes, administração e crescimento orientados a acionistas, e um baixo nível de dívida. O gerente quer investir em negócios éticos, mas não usa telas ESG principalmente ele evita empresas de tabaco e jogos. Bretton Capital Management, LLC. A Bretton foi fundada em 2010 para assessorar este fundo, que é seu único cliente. Stephen Dodson. De 2002 a 2008, o Sr. Dodson trabalhou na Parnassus Investments em São Francisco, Califórnia, onde ocupou vários cargos, incluindo presidente, diretor de operações, diretor de conformidade e gerente de co-carteira de um fundo de títulos isentos de impostos de 25 milhões de dólares da Califórnia . Antes de ingressar na Parnassus Investments, o Sr. Dodson era um associado de capital de risco com a Advent International e um analista de banca de investimento da Morgan Stanley. O Sr. Dodson freqüentou a Universidade da Califórnia, Berkeley, e ganhou um B. S. Em Administração de Empresas da Haas School of Business. Participação da Administração8217 no Fundo O Sr. Dodson investiu mais de um milhão de dólares no fundo. A partir de 5 de abril de 2011, o Sr. Dodson e sua família possuíam cerca de 75 das ações dos fundos. Data de abertura 30 de setembro de 2010. Investimento mínimo 5000 para contas regulares, 1000 para IRAs ou contas estabelecidas com um plano de investimento automático. Os fundos disponíveis para compra através da ETrade e Pershing. Taxa de despesa 1,5 em 3 milhões de ativos. O Sr. Dodson é um profissional de investimento experiente, buscando uma disciplina simples. Ele quer comprar estoques com descontos profundos, mas não muitos deles. Onde alguns fundos promovem um foco de idéias melhores e, em seguida, possuem dezenas dos mesmos estoques de grandes capitais, Bretton parece significar isso quando ele diz o meu melhor. A partir de 93011, o fundo detinha apenas 15 ações. Destes, seis eram de grandes capitais, três meias-tampas e seis pequenas a micro-cap. Suas picaretas de micro-cap, onde ele muitas vezes discernem o maior grau de mispricing, são particularmente impressionantes. Bretton é um de apenas um punhado de fundos que possui os nomes menores de limites e geralmente compromete dez ou vinte vezes mais recursos do fundo para eles. Além de ser agnóstico sobre o tamanho, o fundo também não é constrangido por estilo ou setor. A metade das participações em fundos é caracterizada como ações de crescimento, metade não é. O fundo não oferece nenhuma exposição em todos os setores da indústria da Morningstars 11, mas é ponderado por 4: 1 nas finanças. Esta é a essência do gerenciamento ativo e a gestão ativa é a única maneira de distinguir-se de um índice de alta qualidade. O grau de concentração de Brettons não é bastante sem precedentes, mas é notável. Apenas seis outros fundos investem com confiança comparável (isto é, investe em um portfólio tão compacto) e cinco deles são opções pouco atraentes. O Biondo Focus (BFONX) detém 15 ações e (a partir de janeiro de 2012) usa alavancagem para aumentar a exposição ao mercado de 130. Destaca 3,1 e. r. Um investimento de 10.000 no fundo no dia em que lançou foi de 7800 no final de 2011, enquanto um investimento em seu número médio para o mesmo período teria crescido para 10.800. Huntington Technical Opportunities (HTOAX) detém 12 ações (brevemente: tem um volume de negócios de portfólio de 440), 40 em dinheiro e 10 fundos do índice SampP. A razão de despesa é de cerca de 2, que é acoplada a uma carga 4.75. Desde o início, 10 mil tornaram-se 7200, enquanto seu número médio seria de 9500. Midas Magic (MISEX). O antigo Fundo Midas Especial tornou-se Midas Magic em 4292011. Caro senhor. O ticker lê My Sex e o nome clama por Clara Peller para gritar Wheres The Magic. O fundo informa 0 turnover, mas encontrou a causa de cobrar 3.84 em despesas de qualquer maneira. Vejamos: desde o início (1986), o fundo obteve um desempenho muito inferior ao SampP500, seu grupo de pares de grande capitalização, fundos de obrigações de curto prazo, ouro, munis e moeda. Ele fez melhor do que os Chicago Cubs, mas isso é sobre isso. Possui 12 ações. O Crescimento informado dos investidores da Monteagle (MIIFX) possui 12 ações (muito brevemente: relata um índice de rotatividade de 750) e 20 em dinheiro. A retórica dos relatórios anuais (o objetivo dos Fundos é investir nessas ações ordinárias com interesse e participação de investidores informados e demonstrados, bem como, fundamentos de lucros sólidos) é reduzida por um período de espera médio de seis semanas. O fundo teve um brilhante mês, novembro de 2008, quando ele subiu 36 como o mercado perdeu 10. Desde então, foi incrivelmente inconsistente. Rochdale Large Growth (RIMGX) detém 15 ações e 40 em dinheiro. Desde o lançamento até o final de 2011, atingiu 10 mil a 6300, enquanto o grupo de pares de grandes capitais foi de 10,6 mil. O Cook amn Bynum Fund (COBYX) é o mais interessante do lote. Possui 10 ações (duas das quais são Sears e Sears Canada) e 30 em dinheiro. Desde o início, ele tem correspondido bastante aos retornos de um grupo de pares de grande valor, mas o fez com uma volatilidade muito menor. E assim os fãs de investimento realmente focado têm dois candidatos plausíveis, COBYX e BRTNX. Dos dois, Bretton tem um registro muito mais impressionante, embora mais curto. Desde o início até o final de 2011, 10 mil investidos em Bretton teriam crescido para 11,500. Seu grupo de pares teria produzido um retorno médio de 10.900. Para 2011 como um todo, os retornos da BRTNXs estavam no top 2 de seu grupo de pares, pelo cálculo Morningstars. Lipper, que classifica isso como valor multi-cap, relata que teve o quarto melhor registro de qualquer fundo comparável em 2011. Em particular, o fundo superou seus pares em cada mês, quando o mercado estava em declínio. Essa é uma conquista particularmente impressionante dada a concentração de fundos e a exposição de microcapas. Bottom Line Bretton tem a coragem de suas convicções. Essas convicções são fundamentadas em uma leitura inteligente da literatura de investimento e apoiada por um enorme compromisso financeiro pelo gerente e sua família. É um veículo fascinante e merece atenção. Site do Fundo Mutual Fund Observer, 2012. Todos os direitos reservados. A informação aqui reflete informação disponível publicamente atual no momento da publicação. Para direitos de reimpressão entre em contato conosco. Fornecer aos acionistas valorização do capital a longo prazo em um portfólio bem diversificado. Eles investem principalmente em mid-to big caps de Estados Unidos, embora a carteira ofereça alguma exposição internacional (cerca de 10 em meados de 2011) e alguma pequena exposição da empresa (cerca de 2). Em média, 80 da carteira estão no mercado de ações, enquanto o resto é em dinheiro, títulos de curto prazo e outros equivalentes de caixa. O gerente procura comprar ações que estão incorretamente subestimadas, 8221, embora a Morningstar geralmente descreva o portfólio como uma mistura de estilos. O núcleo do portfólio está em 8220 empresas de negócios com líderes dedicados e talentosos8221, embora eles possam, ocasionalmente, investir de forma oportunista em empresas que podem não ter uma dessas qualidades.8221 A carteira contém cerca de 80 ações e o volume de negócios é de 30 por ano. Spectrum Advisory Services, uma empresa de consultoria de investimento baseada em Atlanta, cujos clientes incluem indivíduos de alto patrimônio líquido e planos de participação em lucros e lucros. Além de assessorar esse fundo, a Spectrum gerencia mais de 415 milhões em contas tributáveis, de aposentadoria e de caridade para indivíduos e instituições de alto patrimônio líquido. Marc S. Heilweil. O Sr. Heilweil é presidente do Spectrum. Ele fundou a empresa em 1991 e administrou a Marathon desde o início de 2000. Ele recebeu tanto o seu B. A. E seu J. D. de Yale. Gestão de participações no fundo O Sr. Heilweil tem mais de 1 milhão investido e é o principal acionista do fundo8217. Data de abertura O fundo original lançado em 12 de março de 1998, mas foi reorganizado e reiniciado sob nova administração em março de 2000. Investimento mínimo de 2.500 em geral. Taxa de despesas 1,23 em ativos de 41 milhões (a partir de 6302011). Atualize 8211 1,25 em ativos de quase 42 milhões (a partir de 1152012.) It8217s não é difícil encontrar fundos com excelentes retornos. Morningstar lista-os diariamente, as poucas revistas financeiras sobreviventes listá-los mensalmente e The Wall Street Journal os lista trimestralmente. It8217s consideravelmente mais difícil de encontrar fundos que farão muito dinheiro para você. A realidade incontestável é que os investidores ficam gananciosos a qualquer momento em que o mercado não caiu em 12 meses e é delirante sobre sua capacidade de manter um investimento de alto retorno. Many funds with spectacular absolute returns have earned very little for their investors because the average investor shows up late (after the splendid three-year returns have been publicized) and leaves early (after the inevitable overshoot on the downside). The challenge is to figure out what your portfolio needs to look like (that is, your mix of stocks, bonds and cash and how much you need to be adding) in order for you to have a good chance of achieving your goals, and then pick funds that will give you exposure to those assets without also giving you vertigo. For investors who need core stock exposure, little-known Marathon Value offers a great vehicle to attempt to get there safely and in comfort. The manager8217s discipline is unremarkable. He establishes a firm8217s value by looking at management strength (determined by long-term success and the assessment of industry insiders) and fundamental profitability (based on a firm8217s enduring competitive advantages, sometimes called its 8220economic moat8221). If a firm8217s value exceeds, 8220by a material amount,8221 its current share price, the manager will look to buy. He8217ll generally buy common stock, but has the option to invest in a firm8217s high-yield bonds (up to 10 of the portfolio) or preferred shares if those offer better value. Occasionally he8217ll buy a weaker firm whose share price is utterly irrational. The fund8217s April 2011 semi-annual report gives a sense of how the manager thinks about the stocks in his portfolio: In addition to Campbell . we added substantially to our holdings of Colgate Palmolive in the period. Concerns about profit margins drove it to a price where we felt risk was minimal. In the SampP 500, Colgate has the second highest percentage of its revenues overseas. Colgate also is a highly profitable company with everyday products. Colgate is insulated from private label competition, which makes up just 1 of the toothpaste market. Together with Procter amp Gamble and Glaxo Smithkline . our fund owns companies which sell over half the worlds toothpaste. While we expect these consumer staples shares to increase in value, their defensive nature could also help the fund outperform in a down market. Our holdings in the financial sector consist of what we consider the most careful insurance underwriters, Alleghany Corp . Berkshire Hathaway and White Mountain Insurance Group . All three manage their investments with a value bias. While Berkshire was purchased in the funds first year, we have not added to the position in the last five years. One of our financials, U. S. Bancorp (7) is considered the most conservatively managed of the nations five largest banks. The rest of our financial holdings are a mix of special situations. There seems nothing special about the process, but the results place Marathon among the industry8217s elite. Remember: the goal isn8217t sheer returns but strong returns with limited risk. Based on those criteria, Marathon is about as good as a stock fund gets. For 8220visual learners,8221 it8217s useful to glance at a risk-return snapshot of domestic equity funds over the past three years. Here8217s how to read the chart: you want to be as close as possible to the upper-left corner (infinite returns, zero risk). The closer you get, the better you8217re being served by your manager. Five funds define a line of ideal riskreturn balance those are the five dots in a row near the upper-left. Who are they From lower returnlower risk, they are: First Eagle US Value (FEVAX): five stars, 1.8 billion in assets, made famous by Jean-Marie Eveillard. Marathon Value (MVPFX): five stars for the past three-, five - and ten-year periods, as well as since inception, but with exceedingly modest assets. Sequoia (SEQUX): five stars, 4.4 billion in assets, made famous by Bill Ruane and Bob Goldfarb, closed to new investors for a quarter century. Nicholas (NICSX): five stars for the past three years, 1.7 billion, low turnover, willing to hold cash, exceedingly cautious, with the same manager (Ab Nicholas) for 41 years. Weitz Partners Value (WPVLX): five stars over the past three years, 710 million in assets, run by Wally Weitz for 28 years. That8217s a nice neighborhood, and the funds have striking similarities: a commitment to high quality investments, long-tenured managers, low turnover, and a willingness to hold cash when circumstances dictate. Except for Marathon, they average 2 billion in assets. Fans of data could search Morningstar8217s database for domestic large cap stock funds that, like Marathon, have 8220low risk8221 but consistently better long-term returns than Marathon. There are exactly three funds (of about 1300 possibles) that meet those criteria: the legendary Sequoia . Amana Income (AMANX) and Auxier Focus (AUXFX), both of which are also profiled as 8220stars in the shadows.8221 Regardless of how you ask the question, you seem to get the same answer: over Mr. Heilweil8217s decade with the fund, it has consistently taken on a fraction of the market8217s volatility (its beta value is between 74 and 76 over the past 3 10 years and Morningstar calculates its 8220downside capture ratio8221 as 68). Alan Conner from Spectrum reports that Marathon is the 11 th least volatile large core fund of near 1800 that Morningstar tracks. At the same time, it produces decent if not spectacular returns in rising markets (it captures about 82 of the gains in a rising market). That combination lets it post returns in the top 10 of its peer group over the past 3 10 years. Because Mr. Heilweil is in his mid 60s and the fund depends on his skills, potential investors might reasonably ask about his future. Mr. Conner says that Heilweil intends to be managing the fund a decade from now. The fund represents a limited piece of Heilweil8217s workload, which decreases the risk that he8217ll become bored or discouraged with it. Bottom Line If you accept the arguments that (a) market volatility will remain a serious concern and (b) high-quality firms remain the one undervalued corner of the market, then a fund with a long record of managing risk and investing in high-quality firms makes great sense. Among funds that fit that description, few have compiled a stronger record than Marathon Value. Fund website Marathon Value Portfolio, though the website has limited and often outdated content. Mutual Fund Observer, 2011. All rights reserved. The information here reflects publicly available information current at the time of publication. For reprinte-rights contact email160protected . Objective and Strategy Tocqueville Select Fund pursues long-term capital appreciation by investing in a focused group of primarily small and mid-sized U. S. stocks. The portfolio, as of 93011, is at the high end of its target of 12 to 25 stocks. The managers pursue a bottom-up value approach, with special delight in 8220special situations8221 (that is, companies left for dead by other investors). The fund can hedge its market exposure, but cannot short. It can invest in fixed-income instruments, but seems mostly to hold stocks and cash. Cash holdings are substantial, often 10 30 of the portfolio. Tocqueville Asset Management, which 8220has been managing private fortunes for more than 30 years.8221 They serve as advisor to six Tocqueville funds, including the two former Delafield funds. The Advisor has been in the public asset management business since 1990 and. as of January, 2011, had more than 10.8 billion in assets under management. J. Dennis Delafield, Vincent Sellecchia, and Donald Wang. Mr. Delafield founded Delafield Asset Management in 1980 which became affiliated with Reich amp Tang Asset Management in 1991. He and his team joined Tocqueville in 2009. Mr. Sellecchia worked with Delafield at Reich amp Tang and Delafield. He and Delafield have co-managed The Delafield Fund since 1993. Mr. Wang seems to be the junior partner (though likely a talented one), having served as an analyst on The Delafield Fund and with Lindner funds. Mr. Sellechia was the first manager (1998) of the partnership on which this fund is based, Mr. Wang came on board in 2003 and Mr. Delafield in 2005. Management8217s Stake in the Fund Messrs Delafield and Sellecchia have each invested between 100,000 500,000 in Select and over 1 million in Delafield . As of last report, Mr. Wang hadn8217t joined the party. Half of the funds trustees (4 of 8) have investments in the fund. Opening date Good question Select is the mutual fund successor to a private partnership, the Reich amp Tang Concentrated Portfolio L. P . The partnership opened on July 31, 1998. On September 28 2008, it became Delafield Select Fund (a series of Natixis Funds Trust II) and one year later, it became The Select Fund (a series of The Tocqueville Trust). This is to say, it8217s a 13-year-old portfolio with a three-year record. Minimum investment 1000 for regular accounts, 250 for IRAs Expense ratio 1.4 on 102 million in assets. Assets jumped from 60 million to 100 million in the months after Morningstar, in September 2011, released its first rating for the fund. There8217s also a 2 redemption fee on shares held under 120 days. Have you ever thought about how cool it would be if Will Danoff ran a small fund again, rather than the hauling around 80 billion in Contrafund assets Or if Joel Tillinghast were freed of the 33 billion that Low-Priced Stock carries In short, if you had a brilliant manager suddenly free to do bold things with manageable piles of cash If so, you grasp the argument for The Select Fund. Tocqueville Select Fund is the down-sized, ramped-up version of The Delafield Fund (DEFIX). The two funds have the same management team, the same discipline and portfolios with many similarities. Both have very large cash stakes, about the same distribution of stocks by size and valuation, about the same international exposure, and so on. Both value firms with good management teams and lots of free cash flow, but both make their money off 8220financially troubled8221 firms. The difference is that Select is (1) smaller, (2) more concentrated and (3) a bit more aggressive. All of which is a very good thing for modestly aggressive equity investors. Delafield is a great fund, which garners only a tiny fraction of the interest it warrants. Morningstar analysis Michael Breen, in September 2010, compared Delafield to the best mid-cap value funds (Artisan, Perkins, Vanguard) and concluded that Delafield was decisively better. Its 11.4 annual gain for the past decade is the best in its category by a wide margin, and its 15-year return is nearly as good. And a look at upside and downside capture ratios shows this fund is the only one in the group that greatly outperformed the Russell Mid Cap Value Index in up and down periods the past 10 years. Delafield Select was ever better. Over the ten years ending 12292011, the Select Portfolio would have turned 10,000 into 27,800 returned 14.5 while an investment in its benchmark, the Russell 2000, would have grown to 17,200. Note that 70 of that performance occurred as a limited partnership, though the partnership8217s fees were adjusted to make the performance comparable to what Select might have charged over that period. That strong performance, however, has continued since the fund8217s launch. 10,000 invested at the funds inception would now be worth 13,200 the benchmark return for the same period would be 11,100. The fund has also substantially outperformed its 1.3 billion sibling Delafield Fund . both from the inception of the partnership and from inception of the mutual fund. The red flag is volatility. The fund has four distinctive characteristics which would make it challenging as a significant portion of your portfolio: Its very concentrated for a small cap fund, it might hold as few as a dozen stocks and even its high end (25-30 stocks) is very, very low. It looks for companies which are in trouble but which the managers believe will right themselves. It invests a lot in microcap stocks: about 30 at its last portfolio report. It invests a lot in a few sectors: the portfolio is constructed company by company, so its possible for some sectors (materials, as of late 2011) to be overweighted by 600 while theres no exposure at all to another six half sectors. Its not surprising that the fund is volatile: Morningstar ranks is as above average in risk. What is surprising is that its not more volatile by Morningstars measurement, its downside capture has been comparable to its average small-value peer while its upside has been substantially greater. Bottom Line This is not the only instance where a star manager converted a successful partnership into a mutual fund, and the process has not always been successful. Baron Partners (BPTRX) started life as a private partnership and as the ramped-up version of Baron Growth (BGRFX), but has decisively trailed its milder sibling since its launch as a fund. That said, the Delafield team seem to have successfully managed the transition and interest in the fund bounced in September 2011, when it earned its first Morningstar rating. Investors drawn by the prospects of seeing what Delafield and company can do with a bit more freedom and only 5 of the assets might find this a compelling choice for a small slice of a diversified portfolio. Fund website Mutual Fund Observer, 2012. All rights reserved. The information here reflects publicly available information current at the time of publication. For reprinte-rights contact us . The fund seeks a combination of growth and income. Northerns Investment Policy Committee develops tactical asset allocation recommendations based on economic factors such as GDP and inflation fixed-income market factors such as sovereign yields, credit spreads and currency trends and stock market factors such as domestic and foreign earnings growth and valuations. The managers execute that allocation by investing in other Northern funds and outside ETFs. As of 6302011, the fund holds 10 Northern funds and 3 ETFs. Northern Trust Investments. Northerns parent was founded in 1889 and provides investment management, asset and fund administration, fiduciary and banking solutions for corporations, institutions and affluent individuals worldwide. As of June 30, 2011, Northern Trust Corporation had 97 billion in banking assets, 4.4 trillion in assets under custody and 680 billion in assets under management. The Northern funds account for about 37 billion in assets. When these folks say, affluent individuals, they really mean it. Access to Northern Institutional Funds is limited to retirement plans with at least 30 million in assets, corporations and similar institutions, and personal financial services clients having at least 500 million in total assets at Northern Trust. Yikes. There are 51 Northern funds, seven sub-advised by multiple institutional managers. Peter Flood and Daniel Phillips. Mr. Flood has been managing the fund since April, 2008. He is the head of Northerns Fixed Income Risk Management and Fixed Income Strategy teams and has been with Northern since 1979. Mr. Phillips joined Northern in 2005 and became co-manager in April, 2011. Hes one of Northerns lead asset-allocation specialists. Management8217s Stake in the Fund None, zero, zip. The research is pretty clear, that substantial manager ownership of a fund is associated with more prudent risk taking and modestly higher returns. I checked 15 Northern managers listed in the 2010 Statement of Additional Information. Not a single manager had a single dollar invested. For both practical and symbolic reasons, that strikes me as regrettable. Opening date Northern Institutional Balanced, this funds initial incarnation, launched on July 1, 1993. On April 1, 2008, this became an institutional fund of funds with a new name, manager and mission and offered four share classes. On August 1, 2011, all four share classes were combined into a single no-load retail fund but is otherwise identical to its institutional predecessor. Minimum investment 2500, reduced to 500 for IRAs and 250 for accounts with an automatic investing plan. Expense ratio 0.68, after waivers, on assets of 18 million. While theres no guarantee that the waiver will be renewed next year, Peter Jacob, a vice president for Northern Trust Global Investments, says that the board has never failed to renew a requested waiver. Since the new fund inherited the original funds shareholders, Northern and the board concluded that they could not in good conscience impose a fee increase on those folks. That decision that benefits all investors in the fund. Update 8211 0.68, after waivers, on assets of nearly 28 million (as of 12312012.) Update Our original analysis, posted September, 2011, appears just below this update. Depending on your familiarity with the research on behavioral finance, you might choose to read or review that analysis first. 2011 returns . -0.01. Depending on which peer group you choose, thats either a bit better (in the case of moderate allocation funds) or vastly better (in the case of world allocation funds). 2012 returns, through 829 . 8.9, top half of moderate allocation fund group and much better than world allocation funds. Asset growth . about 25 million in twelve months, from 18 8211 45 million. This is a rare instance in which a close reading of a funds numbers are as likely to deceive as to inform. As our original commentary notes:The funds mandate changed in April 2008, from a traditional stockbond hybrid to a far more eclectic, flexible portfolio. As a result, performance numbers prior to early 2008 are misleading. The funds Morningstar peer arguably should have changed as well (possibly to world allocation) but did not. As a result, relative performance numbers are suspect. The funds strategic allocation includes US and international stocks (including international small caps and emerging markets), US bonds (including high yield and TIPs), gold, natural resources stocks, global real estate and cash. Tactical allocation moves so far in 2012 include shifting 2 from investment grade to global real estate and 2 from investment grade to high-yield. Since its conversion, BBALX has had lower volatility by a variety of measures than either the world allocation or moderate allocation peer groups or than its closest counterpart, Vanguards 14 billion STAR (VGSTX) fund-of-funds. It has, at the same time, produced strong absolute returns. Heres the comparison between 10,000 invested in BBALX at conversion versus the same amount on the same day in a number of benchmarks and first-rate balanced funds: BBALX holds a lot more international exposure, both developed and developing, than its peers. Its record of strong returns and muted volatility in the face of instability in many non-U. S. markets is very impressive. BBALX has developed in a very strong alternative to Vanguard STAR (VGSTX). If its greater exposure to hard assets and emerging markets pays off, it has the potential to be stronger still. The case for this fund can be summarized easily. It was a perfectly respectable institutional balanced fund which has become dramatically better as a result of two sets of recent changes. Northern Institutional Balanced invested conservatively and conventionally. It held about two-thirds in stocks (mostly mid - to large-sized US companies plus a few large foreign firms) and one-third in bonds (mostly investment grade domestic bonds). Northerns ethos is very risk sensitive which makes a world of sense given their traditional client base: the exceedingly affluent. Those folks didnt need Northern to make a ton of money for them (they already had that), they needed Northern to steward it carefully and not take silly risks. Even today, Northern trumpets active risk management and well-defined buy-sell criteria and celebrates their ability to provide clients with peace of mind. Northern continues to highlight A conservative investment approach. strength and stability. disciplined, risk-managed investment. As a reflection of that, Balanced tended to capture only 65-85 of its benchmarks gains in years when the market was rising but much less of the loss when the market was falling. In the long-term, the fund returned about 85 of its 65 stock 35 bond benchmarks gains but did so with low volatility. That was perfectly respectable. Since then, two sets of changes have made it dramatically better. In April 2008, the fund morphed from conservative balanced to a global tactical fund of funds. At a swoop, the fund underwent a series of useful changes. The asset allocation became fluid. with an investment committee able to substantially shift asset class exposure as opportunities changed. The basic asset allocation became more aggressive. with the addition of a high-yield bond fund and emerging markets equities. The fund added exposure to alternative investments. including gold, commodities, global real estate and currencies. Those changes resulted in a markedly stronger performer. In the three years since the change, the fund has handily outperformed both its Morningstar benchmark and its peer group. Its returns place it in the top 7 of balanced funds in the past three years (through 82511). Morningstar has awarded it five stars for the past three years, even as the fund maintained its low risk rating. Over the same period, its been designated a Lipper Leader (5 out of 5 score) for Total Returns and Expenses, and 4 out of 5 for Consistency and Capital Preservation. In the same period (04012008 08262011), it has outperformed its peer group and a host of first-rate balanced funds including Vanguard STAR (VGSTX), Vanguard Balanced Index (VBINX), Fidelity Global Balanced (FGBLX), Leuthold Core (LCORX), T. Rowe Price Balanced (RPBAX) and Dodge amp Cox Balanced (DODBX). In August 2011, the fund morphed again from an institutional fund to a retail one. The investment minimum dropped from 5,000,000 to as low as 250. The expense ratio, however, remained extremely low, thanks to an ongoing expense waiver from Northern. The average for other retail funds advertising themselves as tactical asset or tactical allocation funds is about 1.80. Bottom Line Northern GTA offers an intriguing opportunity for conservative investors. This remains a cautious fund, but one which offers exposure to a diverse array of asset classes and a price unavailable in other retail offerings. It has used its newfound flexibility and low expenses to outperform some very distinguished competition. Folks looking for an interesting and affordable core fund owe it to themselves to add this one to their short-list. Fund website Mutual Fund Observer, 2012. All rights reserved. The information here reflects publicly available information current at the time of publication. For reprinte-rights contact us . Wedgewood pursues long-term capital growth, but does so with an intelligent concern for short-term loss. The manager invests in 20-25 predominately large-cap market leaders. In general, that means recognizable blue chip names (the top four, as of 0811, are Google, Apple, Visa, and Berkshire Hathaway) with a market value of more than 5 billion. They describe themselves as contrarian growth investors. That translates to two principles: (1) target great businesses with sustainable, long-term advantages and (2) buy them when normal growth investors often momentum-oriented managers are panicking and running away. They then tend to hold stocks for substantially longer than do most growth managers. The combination of a wide economic moat and a purchase at a reasonable price gives the fund an unusual amount of downside protection, considering that it remains almost always fully-invested. RiverPark Advisors, LLC. Executives from Baron Asset Management, including president Morty Schaja, formed RiverPark in July 2009. RiverPark oversees the five RiverPark funds, though other firms manage three of the five. Until recently, they also advised two actively-managed ETFs under the Grail RP banner. A legally separate entity, RiverPark Capital Management, runs separate accounts and partnerships. Collectively, they have 100 million in assets under management, as of August 2011. Wedgewood Partners, Inc. manages 1.1 billion in separate accounts managed similarly to the fund and subadvises the fund and provides the management team and strategy. David Rolfe. Mr. Rolfe has managed the fund since its inception, and has managed separate accounts using the same strategy since 1993. He joined Wedgewood that year and was charged with creating the firms focused growth strategy. He holds a BA in Finance from the University of Missouri at St. Louis, a durn fine school. Managements Stake in the Fund Mr. Rolfe and his associates clearly believe in eating their own cooking. According to Matt Kelly of RiverPark, 8220not only has David had an SMA invested in this strategy for years, but he invested in the Fund on day 18221. As of August 1, David and his immediate family8217s stake in the Fund was approximately 400,000. In addition, 50 of Wedgewoods 401(k) money is invested in the fund. Finally, Mr. Rolfe owns 45 of Wedgewood Partners. 8220Of course, RiverPark executives are also big believers in the Fund, and currently have about 2 million in the Fund.8221 Opening date September 30, 2010 Minimum investment 1,000 across the board. Expense ratio 1.25 on assets, in the retail version of the fund, of 200,000 (as of 73111). Including the lower cost institutional shares (RWGIX), the fund has about 30 million (as of 82411). Update 8211 1.25 with waivers, on assets of 85.6 million (as of 12312011). Americans are a fidgety bunch, and always have been. Alexis de Tocqueville observed, in 1835 no less, that our relentless desire to move around and do new things ended only at our deaths. A native of the United States clings to this world8217s goods as if he were certain never to die and he is so hasty in grasping at all within his reach that one would suppose he was constantly afraid of not living long enough to enjoy them. He clutches everything, he holds nothing fast, but soon loosens his grasp to pursue fresh gratifications. Our national mantra seems to be dont just sit there, do something That impulse affects individual and professional investors alike. It manifests itself in the desire to buy into every neat story they hear, which leads to sprawling portfolios of stocks and funds each of which earns the title, it seemed like a good idea at the time. And it leads investors to buy and sell incessantly. We become stock collectors and traders, rather than business owners. Large-cap funds, and especially large large-cap funds, suffer similarly. On average, actively-manage large growth funds hold 70 stocks and turn over 100 per year. The ten largest such funds hold 311 stocks on average and turn over 38 per year The well-read folks at Wedgewood see it differently. Manager David Rolfe endorses Charles Elliss classic essay, The Losers Game ( Financial Analysts Journal . July 1975). Reasoning from war and sports to investing, Ellis argues that losers games are those where, as in amateur tennis, The amateur duffer seldom beats his opponent, but he beats himself all the time. The victor in this game of tennis gets a higher score than the opponent, but he gets that higher score because his opponent is losing even more points . Ellis argues that professional investors, in the main, play a losers game by becoming distracted, unfocused and undistinguished. Mr. Rolfe and his associates are determined not to play that game. They position themselves as contrarian growth investors. In practical terms, that means: They force themselves to own fewer stocks than they really want to. After filtering a universe of 500-600 large growth companies, Wedgewood holds only the top 20 of the 40 stocks we really want to own. Currently, 63 of the funds assets are in its top ten picks. They buy when other growth managers are selling. Most growth managers are momentum investors, they buy when a stocks price is rising. If the company behind the stock meets the firms quantitative (return on equity gt 25) and qualitative (a dominant product or service that is practically irreplaceable or lacks substitutes) screens, Wedgewood would rather buy during panic than during euphoria. They hold far longer once they buy. The historical average for Wedgewoods separate accounts which use this exact discipline is 15-20 turnover where, as I note, their peers sit around 100. And then they spend a lot of time watching those stocks. Thinking and acting like business owners reduces our interest to those few businesses which are superior, Rolfe writes, and he maintains a thoughtful vigil over those businesses. For folks interested in looking over their managers shoulders, Wedgewood has posted a series of thoughtful analyses of Apple. Mr. Rolfe had a new analysis out to his investors within a few hours of the announcement of Steve Jobs resignation: Mr. Jobs is irreplaceable. That said. in the history of Apple, the company has never before had the depth, breadth, scale and scope of management, technological innovation and design, financial resources and market share strength as it possesses today. Apples stock will take its inevitable lumps over the near-term. If the Streets reaction is too extreme we will buy more. (With our expectation of earnings power of 40 per share in F2012, plus 100 billion in balance sheet liquidity by year-end 2011, the stock is an extreme bargain even before todays news.) Beyond individual stock selection, Mr. Rolfe understood that you cant beat an index with a portfolio that mirrors an index and so, we believe that our portfolios must be constructed as different from an index as possible. And they are strikingly different. Of 11 industry sectors that Morningstar benchmarks, Wedgewood has zero exposure to six. In four sectors, they are overweight or underweight by margins of 2:1 up to 7:1. Technology is the only near normal weighting in the current portfolio. The funds market cap is 40 larger than its benchmark and its average stock is far faster growing. None of which would matter if the results werent great. Fortunately, they are. Returns are high. From inception (992) to the end of the most recent quarter (611), Wedgewoods large growth accounts returned 11.5 annually while the Russell 1000 Growth index returned 7.4. Wedgewood substantially leads the index in every trailing period (3, 5, 7, 10 and 15 years). It also has the highest alpha (a measure of risk-adjusted performance) over the past 15 years of any of the large-cap growth managers in its peer group. Risk is moderate and well-rewarded. Over the past 15 years, Wedgewood has captured about 85 of the large-cap universes downside and 140 of its upside. That is, they make 40 more in a rising market and lose 15 less in a falling market than their peers do. The comparison with large cap mutual funds is striking. Large growth funds as a whole capture 110 of the downside and 106 of the upside. That is, Wedgewood falls far less in falling markets and rises much more in rising ones, than did the average large-growth fund over the past 15 years. Statisticians attempt to standardize those returns by calculating various ratios. The famous Sharpe ratio (for which William Sharpe won a Nobel Prize) tries to determine whether a portfolio8217s returns are due to smart investment decisions or a result of excess risk. Wedgewood has the 10 th highest Sharpe ratio among the 112 managers in its peer group. The information ratio attempts to measure the consistency with which a managers returns exceeds the risks she takes. The higher the IR, the more consistent a manager is and Wedgewood has the highest information ratio of any of the 112 managers in its universe. The portfolio is well-positioned. According to a Morningstar analysis provided by the manager, the companies in Wedgewood Growths portfolio are growing earnings 50 faster than those in the SampP500, while selling at an 11 discount to it. That disconnect serves as part of the margin of safety that Mr. Rolfe attempts to build into the fund. Is there reason for caution. Certo. Two come to mind. The first concern is that these results were generated by the firms focused large-growth separate accounts, not by a mutual fund. The dynamics of those accounts are different (different fee structure and you might have only a dozen investors to reason with, as opposed to thousands of shareholders) and some managers have been challenged to translate their success from one realm to the other. I brought the question to Mr. Rolfe, who makes two points. First, the investment disciplines are identical, which is what persuaded the SEC to allow Wedgewood to include the separate account track record in the funds prospectus. For the purpose of that track record, the fund is now figured-in as one of the firms separate accounts. Second, internal data shows good tracking consistency between the fund and the separate account composite. That is, the fund is acting pretty much the way the separate accounts act. The other concern is Mr. Rolfes individual importance to the fund. Hes the sole manager in a relatively small operation. While hes a young man (not yet 50) and passionate about his work, a lot of the funds success will ride on his shoulders. That said, Mr. Rolfe is significantly supported by a small but cohesive and experienced investment management team. The three other investment professionals are Tony Guerrerio (since 1992), Dana Webb (since 2002) and Michael Quigley (since 2005). Bottom Line RiverPark Wedgewood is off to an excellent start. It has one of the best records so far in 2011 (top 6, as of 82511) as well as one of the best records during the summer market turmoil (top 3 in the preceding three months). Mr. Rolfe writes, We are different. We are unique in that we think and act unlike the vast majority of active managers. Our results speak to our process. Because those results, earned through 18 years of separate account management, are not well known, advisors may be slow to notice the funds strength. RWGFX is a worthy addition to the RiverPark family and to any stock-fund investors due-diligence list. Fund website Elliss Losers Game offers good advice for folks determined to try to beat a passive scheme, much of which is embodied here. I dont know how long the article will remain posted there, but its well-worth reading. Mutual Fund Observer, 2011. All rights reserved. The information here reflects publicly available information current at the time of publication. For reprinte-rights contact email160protected . . from the archives at FundAlarm These profiles have not been updated. The information is only accurate as of the original date of publication. FundAlarm Annex 8211 Fund Report The fund seeks long-term growth by investing in common stocks, as well as convertible and preferred shares. While Morningstar classifies it as a mid-cap growth fund, the firm claims to follow a 8220value approach to investing8221 in looking at stocks with favorable potential over the next one to four years. They list a variety of predictable factors (revenue growth, pe and pb ratios, industry position and so on) in their selection criteria. No more than 5 of the fund may be invested in foreign companies. Saturna Capital. Saturna oversees four Sextant funds, the Idaho Tax-Free fund and two Amana funds. The Amana funds invest in accord with Islamic investing principles and were recognized as the best Islamic fund manager for 2005. Nicholas Kaiser. Mr. Kaiser is president and founder of Saturna Capital. He has degrees from Chicago and Yale. In the mid 1970s and 1980s, he ran a mid-sized investment management firm (Unified Management Company) in Indianapolis. In 1989 he sold Unified and subsequently bought control of Saturna. As an officer of the Investment Company Institute, the CFA Institute, the Financial Planning Association and the No-Load Mutual Fund Association, he has been a significant force in the money management world. Hes also a philanthropist and is deeply involved in his community. By all accounts, a good guy all around. Morningstar must think so, too, because he8217s a finalist for its 2006 Domestic Manager of the Year award. December 30, 1990, though its name was then Northwest Growth Fund. Morningstar insists that the Growth Fund was launched in 1987. Saturna claims 1990, either October or December, for its predecessor fund and 1995 for the fund under its current configuration. Minimum investment 1,000 for regular accounts, 100 for IRAs. Expense ratio 1.24 on an asset base of about 14 million. Theres a considerable performance adjustment built into the fee: management fee will change by as much as .3 based on performance in the trailing year. Theres also a 2 redemption fee. This seems like a wonderfully admirable little fund. It should, in principle, do well. Expenses are quite low for such a tiny fund and management has linked its compensation to a solid performance fee. Its base management fee is 0.60 and the performance fee of up to 0.30 can cut the managers profits by half if he screws up. The fund holds stocks across all market capitalizations and ranges from deep value to growth holdings. The portfolio is pretty compact at 55 names, the manager is tax-sensitive and turnover is virtually non-existent. Morningstar reports 4 turnover, Saturna reports 0 for the year ending in May 2006. The fund reports virtually no frictional loss to taxes that is, the annual tax cost on unsold shares trims less than 0.20 from the funds pre-tax returns. Finally, the manager, his employees and their families own nearly 40 of all outstanding shares. Which is good, since Mr. Kaisers pay is remarkably modest: 81,360 in total compensation for calendar 2005. Happily, principle is aligned with practice. Sextant Growth has compiled a remarkable record for consistent excellence. It is one of just a tiny handful of equity funds that seems always above average, at least as measured by Morningstars metrics. Sextant Growth currently qualifies as four-star fund, but has also earned four stars for the preceding three-year, five-year and ten-year periods. For every trailing period, Morningstar gives it 8220above average8221 returns and 8220below average8221 risk. Sextant Growth ranks in the top 15 of mid-cap growth funds over the long term, but the comparison is not terribly meaningful since the fund does not particularly target mid-caps (or, for that matter, growth stocks). It has returned 11.6 annually over the past decade and has substantially led the SampP 500 for the preceding three, five and ten years. It does tend to lag, but perform well, in growth markets: for example, it had a bottom decile rank in 2003 but still racked up gains of 26 and a bottom third rank in 99 with returns of 41. Bottom line The 8220Growth8221 name and 8220value8221 claim notwithstanding, this strikes me as a really solid core holding. The manager is experienced, the fund has prospered in a wide variety of market conditions, and the management firm seems highly principled. Kind of like a tiny little version of T. Rowe Price. Its well deserving of substantially greater attention. Company link The fund seeks returns which are competitive with the broad market, while at the same time providing some capital protection during 8220sustained8221 bear markets. Stocks are selected from a broad universe of mid - to large-cap stocks 8212 including international and emerging markets 8212 based on high free cash flow, high dividend yields, and low likelihood of, well, bankruptcy. This is a quant fund which rebalances only once each year, although the managers reserve the right to add or drop individual holdings at any time. Their target audience is investors seeking a fundamentals-based alternative to indexing. Manning amp Napier Advisors, LLC. Manning amp Napier was founded in 1970, and they manage about 43 billion in assets for a wide spectrum of clients from endowments and state pension plans to individual investors. About 17 billion of that amount is in their mutual funds. The firm is entirely employee-owned and their 22 funds are entirely team-managed. The firm8217s investment team currently consists of more than 50 analysts and economists. The senior analysts have an average tenure of nearly 22 years. The firm reorganized on October 1, 2011. That reorganization reflected succession planning, as the firms owner William Manning entered his mid-70s. Under the reorganization, the other employees own more of the fund and outside investors own a bit of it. Managed by a team of ten. They actually mean 8220the team does it.8221 Manning amp Napier is so committed to the concept that they don8217t even have a CEO that8217s handled by another team, the Executive Group. In any case, the Gang of Many is the same crew that manages all their other funds. Management8217s Stake in the Fund Only one team member has an investment in this fund, as of 33111. All of the managers have over 100,000 invested in Manning amp Napier funds, and three of the eight have over 500,000. Opening date November 7, 2008 Minimum investment 2,000, which is waived for accounts established with an automatic investment plan (AIP). Expense ratio 0.60 after a 500 bp waiver, on 72 million in assets (as of 93011). Update 8211 102 million in assets, as of 12312012 Dividend Focus invests in a diversified portfolio of large - and mega-cap stocks. The managers select stocks based on three criteria: 8220High free cash flow (i. e. cash generated by a company that is available to equity holders). Minimum free cash flow yield must exceed the yield of high quality corporate bonds. Dividend yield equal to or exceeding the dividend yield of the broad equity market. Not having a high probability of experiencing financial distress. This estimate is based on a credit scoring model that incorporates measures of corporate health such as liquidity, profitability, leverage, and solvency to assess the likelihood of a bankruptcy in the next one to two years.8221 The portfolio currently (93111) holds 130 stocks, about a quarter international including a 3 emerging markets stake. Why consider it There are three really good reasons. First, its managed by the best team youve never heard of . Manning amp Napier launched at the outset of 8220the lost decade8221 of the 1970s when the stock market failed to beat either inflation or the returns on cash. The 8220strategies and disciplines8221 they designed to survive that tough market allowed them to flourish in the lost decade of the 2000s: every MampN fund with a ten-year record has significant, sustained positive returns across the decade. Results like that led Morningstar, not a group enamored with small fund firms, to name Manning amp Napier as a finalist for the title, Fund Manager of the Decade. In announcing the designation, Karen Dolan of Morningstar wrote: The Manning amp Napier team is the real hidden gem on this list. The team brings a unique and attractive focus on absolute returns to research companies of all sizes around the globe. The results speak for themselves, not only in World Opportunities, but across Manning amp Napier8217s entire lineup. (The Fund Manager of the Decade Finalists, 111909) More recently, Morningstar profiled the tiny handful of funds that have beaten their category averages every single year for the past decade (Here Come the Category Killers , 102311). One of only three domestic stock funds to make the list was Manning amp Napier Pro-Blend Maximum (EXHAX), which they praised for its team of extremely long-tenured portfolio managers oversee the fund, employing a strategy that overlays bottom-up security selection with macroeconomic research. MNDFX is run by the same team. Second, its the cheapest possible way of accessing that teams skill . Manning amp Napier charges 0.60 for the fund, about half of what their other (larger, more famous) funds charge. Its even lower than what they typically charge for institutional shares. Its competitive with the 0.40 0.50 charged by most of the dividend-focused ETFs. Third, the fund is doing well and achieving its goals . Manning was attempting to generate a compelling alternative to index investing. So far, theyve done so. The fund returned 9 through the first ten months of 2011, placing it in the top 2 of comparable funds. The fund has outperformed the most popular dividend-focused index funds and exchange-traded funds since its launch. In the long run, the evidence is unequivocal: a focus on high-quality, dividend-paying stocks are the closest thing the market offers to a free lunch. That is, you earn slightly higher-than-market returns with slightly lower-than-market risk. Dividends help in three ways: They8217ve always been an important contributor to a fund8217s total returns (Eaton Vance and Standard amp Poor8217s separately calculated dividend8217s long-term contribution at 33-50 of total returns) The dividends provide an ongoing source of cash for reinvestment, especially during downturns when investors might otherwise be reluctant to add to their positions and, Dividends are often a useful signal of the underlying health of the company, and that helps investors decrease the prospect of having a position blow up. Some cynics also observe that dividends, by taking money out of the hands of corporate executives and placing in investors8217 hands, decreases the executives8217 ability to engage in destructive empire-building acquisitions. Bottom Line After a virtually unprecedented period of junk outperforming quality, many commentators from Jeremy Grantham to the Motley Fools 8211 predict that high quality stocks will resume their historic role as the most attractive investments in the U. S. market, and quite possibly in the world. MNDFX offers investors their lowest-cost access to what is unquestionably one of the fund industry8217s most disciplined and consistently successful management teams. Especially for taxable accounts, investors should seriously consider both Manning amp Napier Tax-Managed (EXTAX) and Dividend Focus for core domestic exposure. Fund website Mutual Fund Observer, 2011. All rights reserved. The information here reflects publicly available information current at the time of publication. For reprinte-rights contact email160protected . The fund seeks high current income and capital appreciation consistent with the preservation of capital, and is looking for yields that are better than those available via traditional money market and short term bond funds. They invest primarily in high yield bonds with an effective maturity of less than three years but can also have money in short term debt, preferred stock, convertible bonds, and fixed - or floating-rate bank loans. RiverPark Advisers. Executives from Baron Asset Management, including president Morty Schaja, formed RiverPark in July 2009. RiverPark oversees the five RiverPark funds, though other firms manage three of the five. Until recently, they also advised two actively-managed ETFs under the Grail RP banner. A legally separate entity, RiverPark Capital Management, runs separate accounts and partnerships. Collectively, they have 90 million in assets under management, as of May 2011. David Sherman, founder and owner of Cohanzick Management of Pleasantville (think Reader8217s Digest ), NY. Cohanzick manages separate accounts and partnerships. The firm has more than 320 million in assets under management. Since 1997, Cohanzick has managed accounts for a variety of clients using substantially the same process that they8217ll use with this fund. He currently invests about 100 million in this style, between the fund and his separate accounts. Before founding Cohanzick, Mr. Sherman worked for Leucadia National Corporation and its subsidiaries. From 1992 1996, he oversaw Leucadias insurance companies investment portfolios. All told, he has over 23 years of experience investing in high yield and distressed securities. He8217s assisted by three other investment professionals. Management8217s Stake in the Fund 30 of the fund8217s investments come from RiverPark or Cohanzick. However, if you include friends and family in the equation, the percentage climbs to about 50. Opening date September 30, 2010. Minimum investment Expense ratio 1.25 after waivers on 20.5 million in assets. The prospectus reports that the actual cost of operation is 2.65 with RiverPark underwriting everything above 1.25. Mr. Schaja, RiverPark8217s president, says that the fund is very near the break-even point. Update 8211 1.25, after waivers, on 53.7 million in assets (as of 12312011.) The good folks at Cohanzick are looking to construct a profitable alternative to traditional money management funds. The case for seeking an alternative is compelling. Money market funds have negative real returns, and will continue to have them for years ahead. As of June 28 2011, Vanguard Prime Money Market Fund (VMMXX) has an annualized yield of 0.04. Fidelity Money Market Fund (SPRXX) yields 0.01. TIAA-CREF Money Market (TIRXX) yields 0.00. If you had put 1 million in Vanguard a year ago, you8217d have made 400 before taxes. You might be tempted to say 8220that8217s better than nothing,8221 but it isn8217t. The most recent estimate of year over year inflation (released by the Bureau of Labor Statistics, June 15 2011) is 3.6, which means that your ultra-safe million dollar account lost 35,600 in purchasing power. The 8220rush to safety8221 has kept the yield on short term T-bills at (or, egads, below) zero. Unless the U. S. economy strengths enough to embolden the Fed to raise interest rates (likely by a quarter point at a time), those negative returns may last through the next presidential election. That8217s compounded by rising, largely undisclosed risks that those money market funds are taking. The problem for money market managers is that their expense ratios often exceed the available yield from their portfolios that is, they8217re charging more in fees than they can make for investors at least when they rely on safe, predictable, boring investments. In consequence, money market managers are reaching (some say 8220groping8221) for yield by buying unconventional debt. In 2007 they were buying weird asset-backed derivatives, which turned poisonous very quickly. In 2011 they8217re buying the debt of European banks, banks which are often exposed to the risk of sovereign defaults from nations such as Portugal, Greece, Ireland and Spain. On whole, European banks outside of those four countries have over 2 trillion of exposure to their debt. James Grant observed in the June 3 2011 edition of Grants Interest Rate Observer . that the nation8217s five largest money market funds (three Fidelity funds, Vanguard and BlackRock) hold an average of 41 of their assets in European debt securities. Enter Cohanzick and the RiverPark Short Term High Yield fund. Cohanzick generally does not buy conventional short term, high yield bonds. They do something far more interesting. They buy several different types of orphaned securities exceedingly short-term (think 30-90 day maturity) securities for which there are few other buyers. One type of investment is redeemed debt. or called bonds. A firm or government might have issued a high yielding ten-year bond. Now, after seven years, they8217d like to buy those bonds back in order to escape the high interest payments they8217ve had to make. That8217s 8220calling8221 the bond, but the issuer must wait 30 days between announcing the call and actually buying back the bonds. Let8217s say you8217re a mutual fund manager holding a million dollars worth of a called bond that8217s been yielding 5. You8217ve got a decision to make: hold on to the bond for the next 30 days during which time it will earn you a whoppin8217 4166 or try to sell the bond fast so you have the 1 million to redeploy. The 4166 feels like chump change, so you8217d like to sell but to whom In general, bond fund managers won8217t buy such short-lived remnants and money market managers can8217t buy them: these are still nominally 8220junk8221 and forbidden to them. According to RiverPark8217s president, Morty Schaja, these are 8220orphaned credit opportunities with no logical or active buyers.8221 The buyers are a handful of hedge funds and this fund. If Cohanzick8217s research convinces them that the entity making the call will be able to survive for another 30 days, they can afford to negotiate purchase of the bond, hold it for a month, redeem it, and buy another. The effect is that the fund has junk bond like yields (better than 4 currently) with negligible share price volatility. Redeemed debt (which represents 33 of the June 2011 portfolio) is one of five sorts of investments typical of the fund. The others include Corporate event driven (18 of the portfolio) purchases, the vast majority of which mature in under 60 days. This might be where an already-public corporate event will trigger an imminent call, but hasn8217t yet. If, for example, one company is purchased by another, the acquired company8217s bonds will all be called at the moment of the merger. Strategic recapitalization (10 of the portfolio), which describes a situation in which there8217s the announced intention to call, but the firm has not yet undertaken the legal formalities. By way of example, Virgin Media has repeatedly announced its intention to call certain bonds in August 2011. The public announcements gave the manager enough comfort to purchase the bonds, which were subsequently called less than 2 weeks later. Buying before call means that the fund has to post the original maturities (five years) despite knowing the bond will cash out in (say) 90 days. This means that the portfolio will show some intermediate duration bonds. Cushion bonds (14), refers to a bond whose yield to maturity is greater than its current yield to call. So as more time goes by (and the bond isn8217t called), the yield grows. Because I have enormous trouble in understanding exactly what that means, Michael Dekler of Cohanzick offered this example: A good example is the recent purchase of the Qwest (Centurylink) 7.5 bonds due 2014. If the bonds had been called on the day we bought them (which would have resulted in them being redeemed 30 days from that day), our yield would only have been just over 1. But since no immediate refinancing event seemed to be in the works, we suspected the bonds would remain outstanding for longer. If the bonds were called today (630) for a 730 redemption date, our yield on the original purchase would be 5.25. And because we are very comfortable with the near-term credit quality, we8217re happy to hold them until the future redemption or maturity. Short term maturities (25), fixed and floating rate debt that the manager believes are 8220money good.8221 What are the arguments in favor of RPHYX It8217s currently yielding 100-400 times more than a money market. While the disparity won8217t always be that great, the manager believes that these sorts of assets might typically generate returns of 3.5 4.5 per year, which is exceedingly good. It features low share price volatility. The NAV is 10.01 (as of 62911). It8217s never been higher than 10.03 or lower than 9.97. Almost all of the share price fluctuation is due to their monthly dividend distributions. A 0.04 cent distribution at the end of June will cause the NAV will go back down to about 9.97. Their five separately managed accounts have almost never shown a monthly decline in value. The key risk in high-yield investing is the ability of the issuer to make payments for, say, the next decade. Do you really want to bet on Eastman Kodak8217s ability to survive to 2021 With these securities, Mr. Sherman just needs to be sure that they8217ll survive to next month . If he8217s not sure, he doesn8217t bite. And the odds are in his favor. In the case of redeemed debt, for instance, there8217s been only one bankruptcy among such firms since 1985. It offers protection against rising interest rates. Because most of the fund8217s securities mature within 30-60 days, a rise in the Fed funds rate will have a negligible effect on the value of the portfolio. It offers experienced, shareholder-friendly management. The Cohanzick folks are deeply invested in the fund. They run 100 million in this style currently and estimate that they could run up to 1 billion. Because they8217re one of the few large purchasers, they8217re 8220a logical first call for sellers. We know how to negotiate purchase terms.8221 They8217ve committed to closing both their separate accounts and the fund to new investors before they reach their capacity limit. Bottom Line This strikes me as a fascinating fund. It is, in the mutual fund world, utterly unique. It has competitive advantages (including 8220first mover8221 status) that later entrants won8217t easily match. And it makes sense. That8217s a rare and wonderful combination. Conservative investors folks saving up for a house or girding for upcoming tuition payments need to put this on their short list of best cash management options. Financial disclosure. I intend to shift 1000 from the TIAA-CREF money market to RPHYX about one week after this profile is posted (July 1 2011) and establish an automatic investment in the fund. That commitment, made after I read an awful lot and interviewed the manager, might well color my assessment. Caveat emptor. Note to financial advisers. Messrs Sherman and Schaja seem committed to being singularly accessible and transparent. They update the portfolio monthly, are willing to speak individually with major investors and plan assuming the number of investors grows substantially to offer monthly conference calls to allow folks to hear from, and interact with, management. Fund website Mutual Fund Observer, 2011. All rights reserved. The information here reflects publicly available information current at the time of publication. For reprinte-rights contact email160protected . The fund pursues long-term growth by investing in 30-50 undervalued global stocks. Generally it avoids small cap caps, but can invest up to 30 in emerging and less developed markets. The managers look for four characteristics in their investments: A high quality business With a strong balance sheet Shareholder-focused management Selling for less than it8217s worth. The managers can hedge their currency exposure, though they did not do so until they confronted twin challenges to the Japanese yen: unattractive long-term fiscal position plus the tragedies of March 2011. The team then took the unusual step of hedging part of their exposure to the Japanese yen. Artisan Partners of Milwaukee, Wisconsin. Artisan has five autonomous investment teams that oversee twelve distinct U. S. non-U. S. and global investment strategies. Artisan has been around since 1994. As of 3312011 Artisan Partners had approximately 63 billion in assets under management (March 2011). That8217s up from 10 billion in 2000. They advise the 12 Artisan funds, but only 6 of their assets come from retail investors. Update 8211 Artisan Partners had approximately 57.1 billion in assets under management, as of 12312011. Daniel J. O8217Keefe and David Samra, who have worked together since the late 1990s. Mr. O8217Keefe co-manages this fund, Artisan International Value (ARTKX) and Artisan8217s global value separate account portfolios. Before joining Artisan, he served as a research analyst for the Oakmark international funds and, earlier still, was a Morningstar analyst. Mr. Samra has the same responsibilities as Mr. O8217Keefe and also came from Oakmark. Before Oakmark, he was a portfolio manager with Montgomery Asset Management, Global Equities Division (1993 1997). Messrs O8217Keefe, Samra and their five analysts are headquartered in San Francisco. ARTKX earns Morningstar8217s highest accolade: it8217s an 8220analyst pick8221 (as of 0411). Management8217s Stake in the Fund Each of the managers has over 1 million here and over 1 million in Artisan International Value. Opening date December 10, 2007. Minimum investment 1000 for regular accounts, reduced to 50 for accounts with automatic investing plans. Artisan is one of the few firms who trust their investors enough to keep their investment minimums low and to waive them for folks willing to commit to the discipline of regular monthly or quarterly investments. Expense ratio 1.5, after waivers, on assets of 57 million (as of March 2011). Update 8211 1.5, after waivers, on assets of 91 million (as of December 2011) . Artisan Global Value is the first 8220new8221 fund to earn the 8220star in the shadows8221 designation. My original new fund profile of it, written in February 2008, concluded: 8220Global is apt to be a fast starter, strong, disciplined but as a result streaky.8221 I have, so far, been wrong only about the predicted streakiness. The fund8217s fast, strong and disciplined approach has translated into consistently superior returns from inception, both in absolute and risk-adjusted terms. Its shareholders have clearly gotten their money8217s worth, and more. What are they doing right Two things strike me. First, they are as interested in the quality of the business as in the cost of the stock. O8217Keefe and Samra work to escape the typical value trap (8220buy it It8217s incredibly cheap8221) by looking at the future of the business which also implies understanding the firm8217s exposure to various currencies and national politics and at the strength of its management team. One of the factors limiting the fund8217s direct exposure to emerging markets stocks is the difficulty of finding sufficiently high quality firms and consistently shareholder-focused management teams. If they have faith in the firm and its management, they8217ll buy and patiently wait for other investors to catch up. Second, the fund is sector agnostic. Some funds, often closet indexes, formally attempt to maintain sector weights that mirror their benchmarks. Others achieve the same effect by organizing their research and research teams by industry that is, there8217s a 8220tech analyst8221 or 8220an automotive analyst.8221 Mr. O8217Keefe argues that once you hire a financial industries analyst, you8217ll always have someone advocating for inclusion of their particular sector despite the fact that even the best company in a bad sector might well be a bad investment. ARTGX is staffed by 8220research generalists,8221 able to look at options across a range of sectors (often within a particular geographic region) and come up with the best ideas regardless of industry. That independence is reflected in the fact that, in eight of ten industry sectors, ARTGX8217s position is vastly different than its benchmark8217s. Too, it explains part of the fund8217s excellent performance during the 2008 debacle. During the third quarter of 2008, the fund8217s peers dropped 18 and the international benchmark plummeted 20. Artisan, in contrast, lost 3.5 because the fund avoided highly-leveraged companies, almost all banks among them. Why, then, are there so few shareholders Manager Dan O8217Keefe offered two answers. First, advisors (and presumably many retail investors) seem uncomfortable with 8220global8221 funds. Because they cannot control the fund8217s asset allocation, such funds mess up their carefully constructed plans. As a result, many prefer picking their international and domestic exposure separately. O8217Keefe argues that this concern is misplaced, since the meaningful question is neither 8220where is the firm8217s headquarters8221 or 8220on which stock exchange does this stock trade8221 (the typical dividers for domesticinternational stocks) but, instead, 8220where is this company making its money8221 Colgate-Palmolive (CL) is headquartered in the U. S. but generates less than a fifth of its sales here. Over half of its sales come from its emerging markets operations, and those are growing at four times the rate of its domestic or developed international market shares. (ARTGX does not hold CL as of 33111.) His hope is that opinion-leaders like Morningstar will eventually shift their classifications to reflect an earnings or revenue focus rather than a domicile one. Second, the small size is misleading. The vast majority of the assets invested in Artisan8217s Global Value Strategy, roughly 3.5 billion, are institutional money in private accounts. Those investors are more comfortable with giving the managers broad discretion and their presence is important to retail investors as well: the management team is configured for investing billions and even a tripling of the mutual fund8217s assets will not particularly challenge their strategy8217s capacity. What are the reasons to be cautious There are three aspects of the fund worth pondering. First, the expense ratio (1.50) is above average even after expense waivers. Even fully-grown, the fund8217s expenses are likely to be in the 1.4 range (average for Artisan). Second, the fund offers limited direct exposure to emerging markets. While it could invest up to 30, it has never invested more than 9 and, since late-2009, has had zero. Many of the multinationals in its portfolio do give it exposure to those economies and consumers. Third, the fund offers no exposure to small cap stocks. Its minimum threshold for a stock purchase is a 2 billion market cap. That said, the fund does have an unusually high number of mid-cap stocks. Bottom Line On whole, Artisan Global Value offers a management team that is as deep, disciplined and consistent as any around. They bring an enormous amount of experience and an admirable track record stretching back to 1997. Like all of the Artisan funds, it is risk-conscious and embedded in a shareholder-friendly culture. There are few better offerings in the global fund realm. Fund website Mutual Fund Observer, 2011. All rights reserved. The information here reflects publicly available information current at the time of publication. For reprinte-rights contact email160protected . . from the archives at FundAlarm These profiles have not been updated. The information is only accurate as of the original date of publication. FundAlarm 8211 Highlights amp Commentary 8211 (Updated 1st of Each Month) David Snowball8217s New-Fund Page for February, 2010 You cant imagine the sinking feeling I had at the beginning of January, when I read the headline 8220Stocks have best first week since 1987.8221 Great, start with parallels to a year that had one of the markets greatest-ever traumas. I was somehow less disturbed to read three headlines in quick succession at the end of that same month: 8220January barometer forecasts a down 20108221 and 8220Three crummy weeks for stocks8221 on the same day as 8220Growth hits 6-year high8221 and 8220Energy prices dip in January.8221 Theres such a sense of disconnect between Wall Streets daily gyrations (and clueless excesses) and the real-world that theres not much to do, other than settle back and work toward a sensible long-term plan. Portfolio Peeking Season As is our tradition, Roy and I take a few minutes each February to share our portfolios and the thinking that shapes them. Our hope is that our discussions might give you the courage to go look at the bigger picture of your own investments and might, too, give you some guidance on how to make sense out of what you see. My portfolio lives in two chunks: retirement (which used to be 15 years away but now, who knows) and not. My retirement portfolio is overseen by three entities: TIAA-CREF, T. Rowe Price, and Fidelity. Within each retirement portfolio, I have three allocation targets: 80 equity 20 income (which includes real estate) 50 domestic 50 international in the equity sleeve 75 developed 25 developing in the international sleeve Inevitably things vary a bit from those weightings (TIAA-CREF is closer to 75 domestic 25 international, for example), but I get pretty close. Over the past decade, that allocation and good managers have allowed me to pretty consistently outperform the Vanguard Total Stock Market (VTSMX) by 1 to 2 per year. In 2008, I lost about 36 8212 a percent better than Vanguards Total Stock Market but a percent worse than my benchmark composite. In 2009, I gained about 37 8212 eight percent better than Vanguards Total Stock Market, almost five percent better than either Vanguards Total World Stock Market ETF (VT) or my benchmark. The same factors that drove the portfolio down in 2008 (a lot of international exposure and a lot of emerging markets exposure) drove it back up in 2009. Early in 2009 I rebalanced my account, which meant adding equity exposure and, in particular, emerging market equity exposure. None of my funds earned less than 20 and four of them T. Rowe Price International Discovery (PRIDX), T. Rowe Price Emerging Market Stock (PRMSX), Fidelity Emerging Middle East and Africa (FEMEX) and Wasatch Microcap Value (WAMVX, in a Roth IRA) returned more than 50. My non-retirement portfolio is considerably more conservative: its supposed to be about 25 US stocks, 25 foreign stocks, 25 bonds and 25 cash. It lost about 20 in 2008 and made about 30 in 2009. Right now thats accomplished with six funds: TIAA-CREF Money Market, which generates income of 2.66 for every 1000 in my account. Sigh. T. Rowe Price Spectrum Income (RPSIX): a fund of Prices income-oriented funds. Technically a multi-sector bond fund, its relative performance is often controlled by what happens with the one stock fund thats included in its portfolio. In general, it serves as a low-volatility way for me to keep ahead of inflation without losing much sleep. Its pretty consistently churned out 5-6 returns and has lost money only during the 2008 meltdown. I could imagine being talked into a swap for Hussman Strategy Total Return (HSTRX), which didnt lose money in 2008 and which also offers a low-volatility way to keep ahead of inflation. It has pretty consistently outperformed Price by 2-3 annually, but HSTRXs fate lies in the performance of one guy John Hussman, PhD while Price is spread across eight or nine managers. Artisan International Value (ARTKX): a very solid fund run by two Oakmark alumni. Made 33 in 2009, while lagging the vast majority of its peers. Im fine with that, since leading in a frothy market is often a sign of an undisciplined portfolio. My only question is whether Id be better in Artisan Global Value (ARTGX), which is smaller, more flexible and run by the same team. Leuthold Global (GLBLX) is one manifestation of my uncertainty about the global economy and markets. Its a go-anywhere (really: think 8220pallets of palladium in a London warehouse8221) fund driven by a strict quantitative discipline. I bought it because of my admiration for the long-term success of Leuthold Core (LCORX), of which this is the 8220global8221 version. It made about 32 in 2009, well beyond its peers. Id be substantially happier if it didnt cost 1.82 but Im willing to give Leuthold the chance to prove that they can add enough value to overcome the higher cost. Finally, my portfolio by enlivened by the appearance of two new players: FPA Crescent (FPACX) and Matthews Asian Growth amp Income (MACSX). I started 2009 with a pile of cash generated by my sale of Utopia Core (which was closed and liquidated, at a painful loss) and Baron Partners (which talked big about having the ability to take short positions which I hoped would provide a hedge in turbulent markets but then never got around to actually doing it). After much debate, I split the money between FPA and Matthews. FPA Crescent is a no-load fund from a mostly 8220loaded8221 family. Its manager, Steven Romick, has the flexibility to invest either in a companys stock or its bonds, to short either, or to hold cash. This has long been a fixture of Roys portfolio and I finally succumbed to his peer pressure (or good common sense). The Matthews fund is about the coolest Asian fund I know of: strong absolute returns and the lowest risk of any fund in the region. Once it reopened to new investors, I began piling up my pennies. In 2009, it did what it always does in soaring markets: it made a lot of money in absolute terms (about 40) but trailed almost all of its peers (97 of them). Which is just fine by me. A more rational person might be drawn to MACSXs sibling fund, Matthews Asia Dividend (MAPIX). Over its first three years, it has actually outperformed MACSX (by almost 2:1) with no greater risk. 8220Bob C.,8221 on the FundAlarm discussion board, mentioned that hed been moving some of his clients assets into the fund. In retrospect, that looks like a great move but Im reluctant to sell a fund thats doing what I bought it to do, so Ill probably watch and learn a bit longer. What does the next year bring Not much. Most of my investment success has been driven by two simple impulses: dont take silly risks (which is different from 8220dont take risks8221) and save like mad. I continue to gravitate toward conservative managers who have a fair amount of portfolio flexibility and a great record for managing downside risks. And I continue saving as much as I can: about 13.5 of my annual income goes to retirement, my employer Augustana College contributes the equivalent of 10, and about 10 of my take-home pay goes into the funds Ive just mentioned. While college professors dont make a huge amount of money, the fact that all of my investments are set on auto-pilot helps me keep with the program. Although Ive profiled several incredibly intriguing funds over the past year, Ill probably not add any new funds right now I dont have any really obvious holes and Im not great at keeping control of large numbers of funds. Roy writes: Alas, I am quite a bit less systematic than David in designing my portfolio, not that there is anything wrong with David8217s approach (in fact, it is quite good). Basically, I try to keep my portfolio roughly divided into broad capitalization 8220thirds8221 8212 one-third each large cap, mid-cap and small-cap funds 8212 and within each third roughly divided into value, blend, and growth orientation. In other words, I try to fill each square of the venerable, nine-square Morningstar style box with a roughly equal percentage of my portfolio, with a further goal to have about 15 of my portfolio in foreign stocks, and an overweight in the health care, technology and fiancial services sectors (I8217ll get back to you in about 10 years on that last one). To get an overview of my portfolio for this purpose, I use the Morningstar portfolio X-ray tool (which, by the way, is available free on the T. Rowe Price WSeb site). Roy8217s Mutual Fund Portfolio (as of December 31, 2009, in alphabetical order within each percentage category) More than 15 by dollar value Buffalo Small Cap (BUFSX) iShares Russell 3000 Index ETF (IWV) Less than 15 by dollar value Allianz RCM Global Technology D (DGTNX) Bridgeway Ultra-Small Company Market (BRSIX) Cohen amp Steers Realty Shares (CSRSX) Fidelity Select Brokerage amp Investment (FSLBX) FPA Crescent (FPACX) Vanguard 500 Index (VFINX) Vanguard European Stock Index (VEURX) Vanguard Health Care (VGHCX) Vanguard Total Stock Market ETF (VTI) Wasatch Global Technology (WAGTX) Weitz Partners Value (WPVLX) In early 2010, shortly after the snapshot above, I sold Bridgeway Ultra-Small Company Market . due to poor performance, and invested the proceeds in Wasatch Mid Cap Value (WAMVX). I also have arranged to invest this year8217s retirement plan contributions in WAMVX. To simplify things a bit, I probably should sell my shares of Vanguard 500 Index (VFINX) and invest the proceeds in iShares Russell 3000 Index ETF. But I hold the VFINX in a taxable acccount, and my desire not to pay capital gains tax outweighs my need to tidy up. Likewise, to reduce the number of my holdings, I should sell my shares of Vanguard Total Stock Market ETF (VTI) and invest the proceeds in iShares Russell 3000 Index ETF (IWV), which plays a very similar role in my portfolio (the shares of VTI are held in a retirement account so, in this case, such a sale would have no tax consequences). Here, I just don8217t want to pay the transaction fees which, while minor, ultimately strike me as unnecessary. Back to David Forward LongShort Credit Analysis: a clarification and correction In January, I profiled Forward LongShort Credit Analysis (FLSRX), a unique fund which takes long and short positions in the bond market. The funds appeal is due to (a) its prospects for extracting value in an area that most other mutual funds miss and (b) its pedigree as a hedge fund. Forwards president was particularly proud of this latter point, and took some pains to dismiss the efforts of competitors who could come up with nothing more than hedge fund wannabes: Unlike the 8220hedge fund light8221 mutual funds, this one is designed just like a hedge fund, but with daily pricing, daily liquidity, and mutual fund-like transparency. Forwards commitment to the funds hedge roots was so strong that it was initially available only to qualified investors: folks with a net worth over 1.5 million or at least 750,000 invested in the fund. Since Forward says that FSLRX models a Cedar Ridge hedge fund, but doesnt specify which hedge fund they mean, I guessed that it was Cedar Ridge Master Fund and highlighted Cedar Ridges performance as an illustration of FSRLXs potential. I was wrong on two counts. First, I had the wrong hedge fund. 8220Evan,8221 one of our readers, wrote to inform me that the correct fund was Cedar Ridge Investors Fund I, LP. Second, the Investors fund record raises serious questions about FSLRX. The Cedar Ridge Master Fund lost 6 in 2008, a respectable performance. Cedar Ridge Investors, however, lost 31 8212 which is far less reassuring. Worse, there was a cosmic gap between the 2009 performance of Cedar Ridge Investors (up 98) and its doppelganger, FSLRX (up 47). When I asked about the gap in performance, the folks at Forward passed along this explanation: The Forward LongShort Credit Analysis Fund is based on the Cedar Ridge Investors I. The performance difference in 2009 between the two is easily explained. Compared to the Cedar Ridge fund, FLSRX fund is more diversified and uses less leverage to be able to provide daily liquidity and operate as a fund for retail investors. Somehow that 2:1 return difference is making the Forward fund look pretty durned 8220hedge fund light8221 about now. (Many thanks to Evan for pointing me, finally, in the right direction.) Akre Focus: Maybe it is worth all the fuss and bother In the January issue, I took exception to the uncritical celebration by financial journalists of the new Akre Focus (AKREX) fund. Manager Chuck Akre intends to manage AKREX using the same strategy he employed with the successful FBR Focus (FBRVX) fund, and Akre is the only only manager FBRVX has ever known. AKREX for all intents and purposes is FBRVX: same manager, same expenses, same investment requirement, same strategy. I was, however, still suspicious: FBRVX has a very streaky record, Mr. Akres entire analyst team resigned in order to stay with the FBR Fund and, in doing so, they were reported as making comments that suggested that Mr. Akre might have been something less than the be-all and end-all of the fund. I e-mailed Akre Capital Management in December, asking for a chance to talk but never heard back. Victoria Odinotska, president of a public relations firm that represents Akre Focus, read the story and wrote to offer a chance to chat with Mr. Akre about his fund and his decision to start Akre Focus. I accepted her offer and gave our Discussion Board members a chance to suggest questions for Mr. Akre. I got a bunch, and spent an hour in January chatting with him. Our conversation centered on three questions. Question One: Why did you leave Answer: Because, according to Mr. Akre, FBR decided to squeeze, if not kill, the goose that laid its golden eggs. As Mr. Akre, explained, FBR is deeply dependent on the revenue that he generated for them. He described his fund as contributing 822080 of FBRs assets and 100 of net income.8221 While I cannot confirm his exact numbers, there8217s strong evidence that Focus is, indeed, the lynchpin of FBRs economic model. At years end, FBR funds held 1.2 billion in assets. A somewhat shrunken Focus fund accounted for 750 million, which works out to about 63 of assets. By Mr. Akres calculation, he managed 1 billion for FBR, which represents about 80. More importantly, most of FBRs funds are run at a substantial loss, based on official expense ratios: Expense ratio before waivers Source: FBR Annual Report . 8220Financial Highlights, Year Ending 1031098221 Based on these numbers, virtually all of FBRs net income was generated by two guys (Mr. Akre, whose Focus fund generated 10.8 million, and David Ellison whose two Financial funds chipped in another 3.5 million), as well as one modestly over-priced index fund (which grossed 1.5 million) FBR underwent a 8220change of control8221 in early 2009 and, as Mr. Akre describes it, they decided they needed to squeeze the goose that was laying their golden eggs. After a series of meetings, FBR announced their new terms to Akre, which he says consisted of the following: He needed to take a 20 cut in compensation (from about 55 basis points on his fund to 45 basis points), a potential cash savings to management that he did not believe would be passed on to fund shareholders. He would need to take on additional marketing responsibilities, presumably to plump the goose. And he had eight days to make up his mind. Mr. Akre said 8220no8221 and, after consulting with his team of three analysts who agreed to join him, decided to launch Akre Focus. The fund was approved by the SEC in short order and, while his analysts worked on research back at the home office, Mr. Akre took a road trip. Something like three days into that trip, he got a call. It was his senior analyst who announced that all three analysts had resigned from his new fund. The next day, FBR announced the hiring of the three analysts to run FBR Focus. FBR has been taking a reasonably assertive tack in introducing their new portfolio managers. They dont quite claim that theyve been running the fund all this time, but they come pretty close. FBR Focuss Annual Report . January 2010, says this: 8220Finally, we are pleased to be writing this letter to you in our expanded role as the Funds co-Portfolio Managers. We assumed this position on August 22, 2009, after working a cumulative 23 years as the analysts responsible for day to day research and management of the Funds investments (emphasis added).8221 Mr. Akre takes exception to these claims. He says that his analysts were just that 8212 analysts 8212 and not shadow managers, or co-managers, or anything similar. Mr. Akre notes, 8220My analysts havent run the fund. They have no day-to-day investment management experience. They were assigned to research companies and write very focused reports on them. As a professional development opportunity, they did have a chance to offer a recommendation on individual names. But the decision was always mine.8221 Mr. Akres recollection is certainly consistent with the text of FBRs annual and semi-annual reports, which make no mention of a role for the analysts, and dont even hint at any sort of team or collegial decision-making. Question Two: How serious is the loss of your entire staff. Answer: not very. After a national search, he hired two analysts who he feels are more experienced than the folks they replaced: Tom Saberhagen: Since 2002, a Senior Analyst with the Aegis Value Fund (AVALX), which Ive profiled as a 8220star in the shadows8221. John Neff, who has been in the financial services industry for 15 years. He was a sell-side equity analyst for William Blair amp Company and previously was in the First Scholar program at what was then First Chicago Corporation (now JP Morgan). Question Three: What can investors expect from the new fund Mr. Akre has some issues with how the size of FBR Focus was managed at the corporate level. It8217s reasonable to assume that he will devote significant attention to properly managing the size of his own fund. In general, Mr. Akre is very concerned about the state of the market and determined to invest cautiously, 8220gingerly8221 in his terms. He plans to invest using precisely the discipline that hes always followed, and seems exceptionally motivated to make a success of the fund bearing his name. In recognition of that, Ive profiled Akre Focus this month as a 8220star in the shadows.8221 Thanks again to Mr. Akre for taking the time to talk with me, and for giving us some rare behind-the-scenes views of fund management. Of course, if there are credible viewpoints that differ from Mr. Akre8217s, we8217d like to hear them, and we8217ll carefully consider printing them as well. Noted briefly: RiverNorth Core Opportunity(RNCOX), was recognized by Morningstar as the top-performing moderate allocationhybrid fund over the past three years. My profile of RNCOX was also the subject of vigorous discussion on the FundAlarm Discussion Board, where some folks were concerned that the closed-end market was not currently ripe for investment. (Source: Marketwire, 11210) Manning amp Napier, Matthews Asia and Van Eck were recognized by Strategic Insight (a research firm) as the fastest-growing active fund managers in 2009. I know little about Van Eck, but have profiled several funds from the other two firms and they do deserve a lot more attention than theyve received. (Source: MutualFundWire, 11410) T. Rowe Pricewas the only pure no-load manager to make Lipper Barrons list of 8220best fund families, 2009.8221 The top three families overall were Putnam (1 who would have guessed), Price and Aberdeen Asset Management. Top in U. S. equity was Morgan Stanley, Price topped the world equity category, and Franklin Templeton led in mixed stockbond funds. Fidelity ranked 2661 while Vanguard finished 40 th. (Source: 8220The New Champs,8221 Barrons . 20110). Raising the prospect that Forward LongShort Credit Analysis (FSLRX, discussed above and profiled last month) might be onto something, Michael Singer, head of alternative investments for Third Avenue Management, claims that the best opportunities in 2010 will come distressed debt (a specialty for the new Third Avenue Focused Credit (TFCVX) fund), long-short credit ( la Forward) and emerging markets. Regarding long-short credit, he says, 8220Last year, making money in long-short credit was like shooting fish in a barrel. This year talented traders can make money on both the long and short side, but you better be in the right credits.8221 (Source: 8220Tricky Sailing for Hedge Funds,8221 Barrons . 20110). In closing. Ive written often about the lively and informative debates that occur on FundAlarms discussion board. For folks wondering whether supporting FundAlarm is worth their time, you might consider some of the gems scattered up and down the Board as I write: 8220 MJG8221 linked to the latest revision of well-regarded Callan Periodic Table of Investment Returns. which provides in a single, quilt-like visual 20 years worth of investment returns for eight different asset classes. 8220Bob C8221 had reservations about the charts utility since it excludes many au currant asset classes, such as commodities. After just a bit of search, Ron (a distinct from rono) tracked down a link to the Modern Markets Scorecard which provides a decades worth of data on classes as standard as the SampP500 and as edgy as managed futures. You can find the Scorecard here: Link to Scorecard (once you get to this page, on the Rydex Web site, click on the appropriate PDF link). After a January 28 market drop, 8220Fundmentals8221 offered up a nice piece of reporting and interpretation on the performance of variously 8220hedged8221 mutual funds . Posted by Fundmentals on January 28, 2010 at 20:02:18: The longshort category in M includes many different strategies which may not be correlated with each other but days like this expose the different strategies and how they behave. I have divided the funds into several behavioral categories Long huggers: These are the category equivalent of closet indexers in active long-only funds. Their shorthedging positions don8217t prevent them from being close to the market movements (say upto -1 on a day like this). These should be avoided if they do this consistently. Examples include: Astor LongShort ETF I ASTIX -0.71 (try shorting for a change bud) Old Mutual Analytic Z ANDEX -1.01 (need more analytics it seems) Schwab Hedged Equity Select SWHEX -0.85 (hedged try again) Sound Mind Investing Managed Volatility SMIVX -0.90 (no one with sound mind will think this is managing volatility) The Collar COLLX -0.67 (cute name but is the manager a dog) Threadneedle Global Extended Alpha R4 REYRX -0.94 (What alpha Missing the needle) Virtus AlphaSector Allocation I VAAIX -0.71 (Pick whether you want to be an alpha fund or a sector fund) Wasatch-1st Source LongShort FMLSX -0.95 (Perhaps time to try the 2nd Source for ideas) Wegener Adaptive Growth WAGFX -1.12 (Sorry bud, you ain8217t adapting nor growing) Long-biased: These hedgeshort sufficiently to reduce downside but still manage to lose with some correlation to the market (say around -0.5 on a day like this. Examples include AQR Managed Strategy Futures N AQMNX -0.51 (future ain8217t looking bright with t his) Beta Hedged Strategies BETAX -0.41 (need more cowbells. er. hedging) Glenmede LongShort GTAPX -0.37 (a bit more short perhaps) Highland LongShort Equity Z HEOZX -0.56 (High on long) ICON LongShort Z IOLZX -0.58 (Not too long if you please) Janus LongShort T JLSTX -0.51 (More like long T-shirt, try a short size) Nakoma Absolute Return NARFX -0.55 (absolute loss) Market neutral: These funds are hedgedshort sufficiently to provide a return largely unrelated to the market movement (say between -0.3 to 0.3 on a day like this). Most of them fall here and are what you need in this category Alpha Hedged Strategies ALPHX -0.30 Alternative Strategies I AASFX -0.16 American Century Lg-Shrt Mkt Netrl Inv ALHIX 0.20 Arbitrage R ARBFX -0.08 DWS Disciplined Market Neutral S DDMSX 0.22 First American Tactical Market Oppt Y FGTYX -0.1 GMO Alpha Only III GGHEX 0.00 Goldman Sachs Absolute Return Tracker IR GSRTX -0.11 ING Alternative Beta W IABWX -0.18 Merger MERFX 0.06 MFS Diversified Target Return I DVRIX -0.22 Robeco LongShort Eq Inv BPLEX 0.12 TFS Market Neutral TFSMX -0.33 Turner Spectrum Inv TSPCX 0.18 Vantagepoint Diversifying Strategies VPDAX -0.20 Short biased: These are hedgedshort sufficiently that they are mostly inverse correlated with the market but do have some upside in up markets (say around 0.5 on a day like this) None I can find Short huggers: This is the opposite of the long huggers who are so hedgedshort that they are more correlated with inverse funds than being short biased and are likely to do poor ly in up markets. Avoid if they do this consistently. Examples Hussman Strategic Growth HSGFX 0.95 (The strategy is to grow only when everyone is shrinking) In addition to well-earned words of thanks, many of the 20 replies offered up other hedged and risk-diversifying funds worthy of consideration and suggestions for ways to interpret the inconsistent ability of managers to live up to the 8220market neutral8221 moniker. Of the 20 funds with 8220absolute8221 in their names, precisely half have managed to break even so far in 2010. Only two 8220absolute return8221 funds actually managed to achieve their goal by staying above zero in both 2008 and 2009 8212 Eaton Vance Global Macro Absolute Return (EAGMX) and RiverSource Absolute Return Currency amp Income (RARAX). Both also made money in January. In common with many nervous investors, 8220Gandalf8221 was curious about how much investable cash other folks were holding in the face of the markets (so far) minor correction. You might be interested to read why several respondents were at 75 cash and what they intended to do next. The joys of the board are varied, but fleeting after a week to 10 days, each post passes into The Great Internet Beyond so that we can make room for the next generation. As we pass the 280,000 post mark, the members of the discussion community have offered up a lot of good sense and sharp observations. Roy and I invite you to join in the discussion. and to help provide the support that makes it all possible. Please do let us know, via the board or e-mail, what you like, what makes you crazy and how we can make it better. We love reading this stuffMonthly Archives: December 2012 By David Snowball Objective and Strategy To provide high current return with less short-term risk than the stock market, the Fund buys and sells a combination of stocks, options, futures, and fixed-income securities. Up to 75 of the portfolio may be in stocks and options. They may short up to 35 via index futures. At least 25 must be in stocks and no more than 15 in foreign stocks. At least 25 will be in bonds, but those are short-term Treasuries with an average duration of five months (the manager refers to them as the anchor rather than the sail of the fund). They will, on average, hold 150-200 securities. Bridgeway Capital Management. The first Bridgeway fund Ultra Small Company opened in August of 1994. The firm has 11 funds and 60 or so separate accounts, with about 2 billion under management. Bridgeways corporate culture is famously healthy and its management ranks are very stable. Richard Cancelmo is the lead portfolio manager and leads the trading team for Bridgeway. He joined Bridgeway in 2000 and has over 25 years of investment industry experience, including five years with Cancelmo Capital Management and The West University Fund. He has been the funds manager since inception. Managements stake Mr. Cancelmo has been 100,000 and 500,000 invested in the fund. John Montgomery, Bridgeways president, has an investment in that same range. Every member of Bridgeways board of trustees also has a substantial investment in the fund. Opening date Minimum investment 2000 for both regular and tax-sheltered accounts. Expense ratio 0.94 after an apparently-permanent fee waiver on assets of 24 million. Thats the same fee Bridgeway charged when the fund had 130 million and 75 million in 2010. After waivers, the fund generated 28,000 in revenue for Bridgeway in the most recent fiscal year. They were one of the finest debate teams I encountered in 20 years. Two young men from Northwestern University. Quiet, in an activity that was boisterous. Clean-cut, in an era that was ragged. They pursued very few argumentative strategies, but those few were solid, and executed perfectly. Very smart, very disciplined, but frequently discounted by their opponents. Because they were unassuming and their arguments were relatively uncomplicated, folks made the (fatal) assumption that theyd be easy to beat. Toward the end of one debate, one of the Northwesterners announced with a smile: Our strategy has worked perfectly. We have lulled them into mistakes. In dullness there is strength Bridgeway Balanced is likewise. This fund has very few strategies but they are solid and executed perfectly. The portfolio is 25 75 mid - to large-cap domestic stocks, the remainder of the portfolio is (mostly Treasury) bonds. Within the stock portfolio, about 60 is indexed to the SampP 500 and 40 is actively managed using Bridgeways computer models. Within the actively managed part, half of the picks lean toward value and half toward growth. (Yawn.) But also heres the exciting dull part particularly within the active portion of the portfolio, Mr. Cancelmo has the ability to substitute covered calls and secured puts for direct ownership of the stocks (If youre tingling now, its probably because your legs have fallen asleep.) These are financial derivatives, called options. Ive tried six different ways of writing a laypersons explanation for options and they were all miserably unclear. Suffice it to say that the options are a tool to generate modest cash flows for the fund while seriously limiting the downside risk and somewhat limiting the upside potential. At base, the fund sacrifices some Alpha in order to seriously limit Beta. The strategy requires excellent execution or youll end up losing more on the upside than you gain on the downside. But Bridgeway seems to be executing exceedingly well. From inception through late December, 2012, BRBPX turned 10,000 into 15,000. That handily beats its longshort funds peer group (12,500) and the 700-pound gorilla of option strategy funds, Gateway (GATEX, 14,200). Those returns are also better than those for the moderate allocation group, which exposes you to 60 of the stock markets volatility against Bridgeways 40. Theyve accomplished those gains with little volatility: for the past decade, their standard deviation is 7 (the SampP 500 is 15) and their beta is 0.41. This occurs within the context of Bridgeways highly principled corporate structure: small operation, very high ethical standards, unwavering commitment to honest communication with their shareholders (if you need to talk to founder John Montgomery or Mr. Cancelmo, just call and ask the phone reps are in the same office suite with them and are authorized to ring straight through), modest salaries (they actually report them Mr. Cancelmo earned 423,839 in 2004 and the company made a 12,250 contribution to his IRA), a commitment to contribute 50 of their profits to charity, and a rule requiring folks to keep their investable wealth in the Bridgeway funds. Very few people have chosen to invest in the fund net assets are around 24 million, down from a peak of 130 million. Not just down, but steadily and consistently down even as performance has been consistently solid. Ive speculated elsewhere about the cause of the decline: a mismatch with the rest of the Bridgeway line-up, a complex strategy thats hard for outsiders to grasp and to have confidence in, and poor marketing among them. Given Bridgeways commitment to capping fees, the decline is sad and puzzling but has limited significance for the funds shareholders. Bottom line In dullness, there is strength For folks who want some equity exposure but cant afford the risk of massive losses, or for any investor looking to dampen the volatility of an aggressive portfolio, Bridgeway Managed Volatility like Bridgeway, in general deserves serious consideration. Company website Mutual Fund Observer, 2013. All rights reserved. The information here reflects publicly available information current at the time of publication. For reprinte-rights contact us . By David Snowball AdvisorShares Recon Capital Alternative Income ETF AdvisorShares Recon Capital Alternative Income ETF (PUTS) will seek consistent, low volatility returns across all market cycles. The managers will do that by selling put options on equities in each of the ten sectors of the SampP 500 Index, using a proprietary selection process. Kevin Kelly and Garrett Paolella of Recon Capital Partners have managed the fund since 2011 (an intriguing claim for a fund launched in 2013). Expenses not yet set. Avatar Capital Preservation Fund Avatar Capital Preservation Fund seeks to preserve capital while providing current income and limited capital appreciation. The fund will invest primarily in ETFs and ETNs. Their investment universe includes short-, intermediate-, and long-term investment grade, taxable U. S. government, U. S. Agency, and corporate bonds, common and preferred stocks of large capitalization U. S. companies and, to a lesser extent, international companies. In addition, the Fund may use leverage to hedge portfolio positions and manage volatility, andor to increase exposure to long positions. The managers use a Global Tactical Asset Allocation model to select investments. Much of the investment strategies strikes me as regrettable mumbling (The advisers investment decision-making process is grounded in the use of comprehensive tactical asset allocation methodology). Ron Fernandes and Larry Seibert, co-CIOs of Momentum Investment Partners are co-managers of the fund. The minimum initial investment 1,000 for regular accounts and (heres an odd and, I think, unprecedented move) 2500 for tax-qualified accounts such as IRAs and 401(k) plans. Expenses are not yet set. Avatar Tactical Multi-Asset Income Fund Avatar Tactical Multi-Asset Income Fund seeks current income. The fund will invest primarily in ETFs and ETNs. Their investment universe includes short-, intermediate-, and long-term investment grade, taxable U. S. government, U. S. Agency, and corporate bonds, common and preferred stocks of large capitalization U. S. companies and, to a lesser extent, international companies. In addition, the Fund may use leverage to hedge portfolio positions and manage volatility, andor to increase exposure to long positions. The managers use a Global Tactical Asset Allocation model to select investments. Much of the investment strategies strikes me as regrettable mumbling (The advisers investment decision-making process is grounded in the use of comprehensive tactical asset allocation methodology). Ron Fernandes and Larry Seibert, co-CIOs of Momentum Investment Partners are co-managers of the fund. The minimum initial investment 1,000 for regular accounts and (heres an odd and, I think, unprecedented move) 2500 for tax-qualified accounts such as IRAs and 401(k) plans. Expenses are not yet set. Avatar Absolute Return Fund Avatar Absolute Return Fund seeks a positive total return in all market environments. The fund will invest primarily in ETFs and ETNs. Their investment universe includes short-, intermediate-, and long-term investment grade, taxable U. S. government, U. S. Agency, and corporate bonds, common and preferred stocks of large capitalization U. S. companies and, to a lesser extent, international companies. In addition, the Fund may use leverage to hedge portfolio positions and manage volatility, andor to increase exposure to long positions. The percentage of the Funds portfolio invested in each asset class will change over time and may range from 0-100, and the Fund may experience moderate volatility. The managers use a Global Tactical Asset Allocation model to select investments. Much of the investment strategies strikes me as regrettable mumbling (The advisers investment decision-making process is grounded in the use of comprehensive tactical asset allocation methodology). Ron Fernandes and Larry Seibert, co-CIOs of Momentum Investment Partners are co-managers of the fund. The minimum initial investment 1,000 for regular accounts and (heres an odd and, I think, unprecedented move) 2500 for tax-qualified accounts such as IRAs and 401(k) plans. Expenses are not yet set. Avatar Global Opportunities Fund Avatar Global Opportunities Fund will seek maximum capital appreciation through exposure to global markets. The fund will invest primarily in ETFs and ETNs. Their investment universe includes short-, intermediate-, and long-term investment grade, taxable U. S. government, U. S. Agency, and corporate bonds, common and preferred stocks of large capitalization U. S. companies and, to a lesser extent, international companies. In addition, the Fund may use leverage to hedge portfolio positions and manage volatility, andor to increase exposure to long positions. The managers use a Global Tactical Asset Allocation model to select investments. Much of the investment strategies strikes me as regrettable mumbling (The advisers investment decision-making process is grounded in the use of comprehensive tactical asset allocation methodology). Ron Fernandes and Larry Seibert, co-CIOs of Momentum Investment Partners are co-managers of the fund. The minimum initial investment 1,000 for regular accounts and (heres an odd and, I think, unprecedented move) 2500 for tax-qualified accounts such as IRAs and 401(k) plans. Expenses are not yet set. Investors Variable NAV Money Market Fund Investors Variable NAV Money Market Fund will seek to maximize current income to the extent consistent with the preservation of capital and maintenance of liquidity by investing exclusively in high-quality money market instruments. The fund is managed by Northern Trust Investments, though no individuals are named. The expense ratio is 0.35 and minimum initial investment is 2500, 500 for an IRA and 250 for accounts established with an automatic investment plan. They are simultaneously launching three other variable-NAV money market funds: Investors Variable NAV AMT-Free Municipal Money Market, Variable NAV U. S. Government Money Market and Variable NAV Treasury Money Market Fund. LSV Small Cap Value Fund LSV Small Cap Value Fund will seek long-term growth by investing in stocks with a market cap under 2.5 billion (or the highest market cap in the Russell 2000 Value Index, whichever is greater). Their goal is to find stocks which are out-of-favor but show signs of recent improvement. They use a quant investment model to match fundamentals with indicators of short-term appreciation potential. The fund will be managed by Josef Lakonishok, Menno Vermeulen, and Puneet Mansharamani. Lakonishok is a reasonably famous academic who did some of the groundbreaking work on behavioral finance, then translated that research into actual investment strategies. His LSV Value Equity Fund (LSVEX) turned 10,000 in 22,000 since launch in 1999 its average peer would have earned 16,200 and the SampP, 14,200. The minimum initial investment is a bracing 100,000. The expense ratio is 0.85. SMI Dynamic Allocation Fund SMI Dynamic Allocation Fund seeks total return through a dynamic asset allocation investment strategy in which it invests in the most attractive three of six major asset classes: U. S. equities, international equities, fixed income securities, real estate, precious metals, and cash. Theyll look at momentum, asset flows and historical volatility, among other things. The asset allocation and equity sleeve is managed by a team from Sound Mind Investing (Mark Biller, Eric Collier and Anthony Ayers). The two Sound Mind funds tend to below average returns but low volatility. The fixed income sleeve is managed by Scout Investments Reams Asset Management Division. The Reams team (Mark M. Egan, Thomas M. Fink, Todd Thompson, and Steven T. Vincent) are really first-rate and were nominated by Morningstar as a 2012 Fixed Income Manager of the Year. The minimum initial investment is 2500. Expenses not yet set. SPDR SSgA Large Cap Risk Aware ETF SPDR SSgA Large Cap Risk Aware ETF seeks to provide competitive returns compared to the large cap U. S. equity market and capital appreciation. Ill let the managers speak for themselves: invests in a diversified selection of equity securities included in the Russell 1000 Index that they believes are aligned with predicted investor risk preferences. During periods of anticipated high risk, the Adviser will adjust the Portfolios composition to be defensive and may increase exposure to value companies. (The assumption that value and low-risk are interchangeable seems, to me, to be debatable.) In low risk periods, theyll emphasize riskier assets and in periods of moderate risk theyll look more like the Russell 1000. The fund is non-diversified. The fund will be managed by Gary Lowe, Simon Roe and John OConnell, all of SSgA. Expenses not yet set. SPDR SSgA Risk Aware ETF SPDR SSgA Risk Aware ETF seeks to provide competitive returns compared to the broad U. S. equity market and capital appreciation. Ill let the managers speak for themselves: invests in a diversified selection of equity securities included in the Russell 3000 Index that they believes are aligned with predicted investor risk preferences. During periods of anticipated high risk, the Adviser will adjust the Portfolios composition to be defensive and may increase exposure to large cap andor value companies. In low risk periods, theyll emphasize riskier assets and in periods of moderate risk theyll look more like the Russell 3000. The fund is non-diversified. The fund will be managed by Gary Lowe, Simon Roe and John OConnell, all of SSgA. Expenses not yet set. SPDR SSgA Small Cap Risk Aware ETF SPDR SSgA Small Cap Risk Aware ETF seeks to provide competitive returns compared to the small cap U. S. equity market and capital appreciation. Ill let the managers speak for themselves: invests in a diversified selection of equity securities included in the Russell 2000 Index that they believes are aligned with predicted investor risk preferences. During periods of anticipated high risk, the Adviser will adjust the Portfolios composition to be defensive and may increase exposure to value companies. In low risk periods, theyll emphasize riskier assets and in periods of moderate risk theyll look more like the Russell 2000. The fund is non-diversified. The fund will be managed by Gary Lowe, Simon Roe and John OConnell, all of SSgA. Expenses not yet set. Stone Toro Relative Value Fund Stone Toro Relative Value Fund will seek capital appreciation with a secondary focus on current income by investing, primarily, in US stocks. Up to 40 of the portfolio may be invested in ADRs. The managers warn us that The Funds investment strategy involves active and frequent trading. They dont say much about what theyre up to and they use a lot of unnecessary quotation marks when they try: The Adviser employs a unique proprietary process, the Relative Value Process (the Process), to identify special investment value. The Process is managed by Michael Jarzyna, Founding Partner and CIO of Stone Toro. He spent a year or so (2008-09) as Associate Portfolio Manager of Blackrock Value Opportunity Fund. From 1998-2006, he managed the technology portions of Merrill Lynchs small and mid-cap value funds. The minimum initial investment is 1,000. The expense ratio is 1.57. Because bond fund managers, traditionally, had made relatively modest impacts of their funds absolute returns, Manager Changes typically highlights changes in equity and hybrid funds. By David Snowball Weve been listening to REMs Its the End of the World (as we know it) and thinking about copyrighting some useful terms for the year ahead. You know that Bondpocalypse and Bondmageddon are both getting programmed into the pundits vocabulary. Chip suggests Bondtastrophe and Bondaster. Bad asset classes (say, TIPs and long bonds) might be merged in the Frankenfund. Members of the Observers discussion board offered bond doggle (thanks, Bee), the Bondfire of the Vanities (Shostakovichs entry and probably our most popular), the New Fed (which Hank thinks well be hearing by years end) which might continue the racetodebase (Rono) and bondacious (presumably blondes, Accipiters best). Given that snowstorms now get their own names (on the way to Pittsburgh, my son and I drove through the aftermath of Euclid), perhaps market panics, too Wed start of course with Market Crisis Alan. in honor of The Maestro, but we havent decided whether that would rightly be followed by Market Crisis Ben, Barack or Boehner. Hopeful that they couldnt do it again, we could honor them all with Crash B3 which might defame the good work done by vitamin B3 in regulating sex and stress. Feel free to join in on the 2013 Word of the Year thread, if only if figure out how Daisy Duke got there. The Big Bond Bubble Boomnanza Im most nervous when lots of other folks seem to agree with me. Its usually a sign that Ive overlooked something. Ive been suggesting for quite a while now that the bond market, as a whole, might be in a particularly parlous position. Within the living memory of almost the entire investing community, investing in bonds has been a surefire way to boost your portfolio. Since 1981, the bond market has enjoyed a 31-year bull market. What too many investors forget is that 1981 was preceded by a 35-year year bear market for bonds. The question is: are we at or near another turning point The number of people reaching that conclusion is growing rapidly. Floyd Norris of The New York Times wrote on December 28 th. A new bear market almost certainly has begun (Reading Pessimism in the Market for Bonds ). The Wall Street Journal headlined the warning, Danger Lurks Inside the Bond Boom amid Corporate-Borrowing Bonanza, Some Money Managers Warn of Little Room Left for Gains (12062012). Separately, the Journal warned of a rude awakening for complacent bond investors (12242012). Barrons warns of a Fed-inflated bond bubble (12172012). Hedge fund manager Ray Dalio claims that The biggest opportunity in 2013 will be and it isnt imminent shorting bond markets around the world (our friends at LearnBonds have a really good page of links to commentaries on the bond market, on which this is found). I weighed in on the topic in a column I wrote for Amazons Money and Markets page. The column, entitled Trees Do Not Grow to the Sky , begins: You thought the fallout from 2000-01 was bad You thought the 2008 market seizure provoked anguish Thats nothing, compared to what will happen when every grandparent in America cries out, as one, weve been ruined. In the past five years, investors have purchased one trillion dollars worth of bond mutual fund shares (1.069 trillion, as of 112012, if you want to be picky) while selling a half trillion in stock funds (503 billion). Money has flowed into bond mutual funds in 53 of the past 60 weeks (and out of stock funds in 46 of 60 weeks). Investors have relentlessly bid up the price of bonds for 30 years so theyve reached the point where theyre priced to return less than nothing for the next decade. Morningstar adds that about three-quarters of that money went to actively-managed bond funds, a singularly poor bet in most instances. I included a spiffy graph and then reported on the actions of lots of the countrys best bond investors. You might want to take a quick scan of their activities. Its fairly sobering. Among my conclusions: Act now, not later. Act is not investment advice, its communication advice. Start talking with your spouse, financial adviser, fund manager, and other investors online, about how theyve thought about the sorts of information Ive shared and how theyve reacted to it. Learn, reflect, then act. We8217re not qualified to offer investment advice and we8217re not saying that you should be abandoning the bond market. As we said to Charles, one of our regular readers, I8217m very sensitive to the need for income in a portfolio, for risk management and for diversification so leaving fixed-income altogether strikes me as silly and unmanageable. The key might be to identify the risks your exposing yourself to and the available rewards. In general, I think folks are most skeptical of long-term sovereign debt issued by governments that are 8230 well, broke. Such bonds have the greatest interest rate sensitivity and then to be badly overpriced because they8217ve been 8220the safe haven8221 in so many panics. So I8217d at the very least look to diversify my income sources and to work with managers who are not locked into very narrow niches. MFWire . Stock Fund Flows Are Turning Around MF Wire recently announced Stock Funds Turn Around (December 28, 2012), which might also be titled Investors continue retreat from U. S. stock funds. In the last full week of 2012, investors pulled 750 million from US stock funds and added 1.25 billion into international ones. Forbes . Buy Bonds, Sleep Well Our take might be, Observer . buy bonds, sleep with the fishes. On December 19 th. Forbes published 5 Mutual Funds for Those Who Want to Sleep Well in 2013. Writer Abram Brown went looking for funds that performed well in recent years ( always the hallmark of good fund selection: past performance) and that avoided weird strategies. His list of winners: PIMCO Diversified Income (PDVDX) a fine multi-asset fund. MFS Research Bond R3 (MRBHX) R3 shares are only available through select retirement plans. The publicly available A shares carry a sales load, which has trimmed about a percent a year off its returns. Russell Strategic Bond (RFCEX) this is another unavailable share class the publicly available A shares have higher expenses, a load, and a lower Morningstar rating. TCW Emerging Markets Income (TGEIX) a fine fund whose assets have exploded in three years, from 150 million to 6.2 billion. Loomis Sayles Bond (LBFAX) the article points you to the funds Administrative shares, rather than the lower-cost Retail shares (LSBRX) but I dont know why. Loomis might illustrate some of the downsides to investing in the past. Its famous lead manager, Dan Fuss, is now 79 years old and likely in the later stages of his career. His heir apparent, Kathleen Gaffney, recently left the firm. That leaves the fund in the hands of two lesser-known managers. Im not sure of how well most folks will sleep when their managers toting 40-100 emerging markets exposure or 60 junk bonds when the next wave crashes over the market, but its an interesting list. Forbes is, by the way, surely a candidate for the most badly junked up page in existence, and one of the least useful. Only about a third of the screen is the story, the rest are ads and misleading links. See also 10 best mutual funds does not lead to a Forbes story on the subject it leads to an Ask search results page with paid results at top. Vanguard: The Past 10 Years In October we launched The Last Ten, a monthly series, running between now and February, looking at the strategies and funds launched by the Big Five fund companies (Fido, Vanguard, T Rowe, American and PIMCO) in the last decade. Here are our findings so far: Fidelity . once fabled for the predictable success of its new fund launches, has created no compelling new investment option and only one retail fund that has earned Morningstars five-star designation, Fidelity International Growth (FIGFX). We suggested three causes: the need to grow assets, a cautious culture and a firm thats too big to risk innovative funds. T. Rowe Price continues to deliver on its promises. Of the 22 funds launched, only Strategic Income (PRSNX) has been a consistent laggard it has trailed its peer group in four consecutive years but trailed disastrously only once (2009). Investing with Price is the equivalent of putting a strong singles-hitter on a baseball team its a bet that youll win with consistency and effort, rather than the occasional spectacular play. PIMCO has utterly crushed the competition, both in the thoughtfulness of their portfolios and in their performance. PIMCO has, for example, about three times as many five-star funds both overall and among funds launched in the last decade than youd predict. The retirement of Gus Sauter, Vanguards long-time chief investment officer, makes this is fitting moment to look back on the decade just past. Measured in terms of the number of funds launched or the innovativeness of their products, the decade has been unremarkable. Vanguard: Has 112 funds (which are sold in over 278 packages or share classes) 29 of their funds were launched in the past decade 106 of them are old enough to have earned Morningstar ratings 8 of them has a five star rating (as of 122712) 57 more earned four-star ratings. Morningstar awards five-stars to the top 10 of funds in a class and four-stars to the next 22.5. The table below summarizes what youd expect from a firm of Vanguards size and then what theyve achieved. This is not to suggest that Vanguard has been inattentive of their shareholders best interests. Rather they seem to have taken an old adage to heart: be like a duck, stay calm on the surface but paddle like hell underwater. Im indebted to Taylor Larimore, co-founder of the Bogleheads, for sharing the link to a valedictory interview with Gus Sauter, who points out that Vanguards decided to shift the indexes on which their funds are based. That shift will, over time, save Vanguards investors hundreds of millions of dollars. It also exemplifies the enduring nature of Vanguards competitive advantage: the ruthless pursuit of many small, almost invisible gains for their investors, the sum of which is consistently superior results. Celebrating Small Cap Season The Observer has, of late, spent a lot of time talking about the challenge of managing volatility. Thats led us to discussions of longshort, covered call, and strategic income funds. The two best months for small cap funds are January and February. Average returns of U. S. small caps in January from 1927 to 2011 were 2.3, more than triple those in February, which 0.72. And so we teamed up again with the folks at FundReveal to review the small cap funds weve profiled and to offer a recommendation or two. 153 million in assets, 75 microcaps, top 1 of small value funds over the past five years, driven by a 91 return in 2009. Artisan Small Cap (ARTSX) 700 million in assets, a new management team those folks who manage Artisan Mid Cap (ARTMX) 8211 in 2009 have revived Artisans flagship fund, risk conscious strategy but a growthier profile, top tier returns under the new team. ASTONRiver Road Independent Value (ARIVX) 720 million in assets. The fund closed in anticipation of institutional inflows, then reopened when those did not appear. Let me be clear about two things: (1) its going to close again soon and (2) youre going to kick yourself for not taking it more seriously. The manager has an obsessive absolute-return focus and will not invest just for the sake of investing hes sitting on about 50 cash. Hes really good at the wait for the right opportunity game and hes succeeded over his tenure with three different funds, all using the same discipline. I know his trailing 12-month ranking is abysmal (98 th percentile in small value). It doesnt matter. You can reach the individual profiles by clicking in the Funds tab on our main navigation bar. Were in the process of updating them all during January. Because our judgments embody a strong qualitative element, we asked our resolutely quantitative friends at FundReveal to look at our small caps and to offer their own data-driven reading of some of them. Their full analysis can be found on their blog . FundReveals strategy is to track daily return and volatility data, rather than the more common monthly or quarterly measures. They believe that allows them to look at many more examples of the managers judgment at work (they generate 250 data points a year rather than four or twelve) and to arrive at better predictions about a funds prospects. One of FundReveals key measures is Persistence, the likelihood that a particular pattern of risk and return repeats itself, day after day. In general, you can count on funds with higher persistence. Here are their highlights: The MFO funds display, in general, higher volatility than the SampP 500 for both 2012 YTD and the past 5 years. The one fund that had lower volatility in both time horizons is Pinnacle Value (PVFIX) . PVFIX demonstrates consistent performance with low volatility, factors to be combined with subjective analysis available from other sources. Two other funds have delivered high ADR (Average Daily Return), but also present higher risk than the SampP. In this case Southern Sun Small Cap (SSSFX) and Walthausen Small Cap (WSCVX) have high relative volatility, but they have delivered high ADR over both time horizons. From the FundReveal perspective, SSSFX has the edge in terms of decision-making capability because it has delivered higher ADR than the SampP in 10 Quarters and lower ADR in 6 Quarters, while WSCVX had delivered higher ADR than the SampP in 7 Quarters and lower ADR in 7 Quarters. So, bottom line, from the FundReveal perspective PVFIX and SSSFX are the more attractive funds in this lineup. Some Small Cap funds worthy of consideration: Schwartz Value fund (RCMFX): Greater than SampP ADR, Lower Volatility (what we call A performance) for 2012 YTD and 2007-2012 YTD. It has a high Persistence Rating (40) that indicates a historic tendency to deliver A performance on a quarterly basis. Third Avenue Small-Cap Fund (TVSVX): Greater than SampP ADR, Lower Volatility with a medium Persistence Rating (33). Wasatch Micro Cap Value fund (WAMVX): Greater than SampP ADR, Lower Volatility 2007-2012 YTF, with a medium Persistence Rating (30). No FundReveal covered Small Growth funds delivered A performance in 2012 YTD. (WAMVX is half of Snowballs Roth IRA.) Pinnacle Value Fund (PVFIX): An MFO focus fund, discussed above. It has a high Persistence Rating (50). Intrepid Small Cap Fund (ICMAX ): Greater than SampP ADR, Lower Volatility for 2007-2012 YTF, with a high Persistence Rating (55). Eric Cinnamond, who now manages Aston River Road Independent Value, managed ICMAX from 2005-10. ING American Century Small-Mid Cap Value (ISMSX): Greater than SampP ADR, Lower Volatility for 2007-2012 YTF, with a medium Persistence Rating (25). If youre intrigued by the potential for fine-grained quantitative analysis, you should visit FundReveal. While theirs is a pay service, free trials are available so that you can figure out whether their tools will help you make your own decisions. Ameristocks Curious Struggle Nick Gerbers Ameristock (AMSTX) fund was long an icon of prudent, focused investing but, like many owner-operated funds, is being absorbed into a larger firm. In this case, its moving into the Drexel Hamilton family of funds. Ou não. While these transactions are generally routine, a recent SEC filing speaks to some undiscussed turmoil in the move. Heres the filing: As described in the Supplement Dated October 9, 2012 to the Prospectus of Ameristock Mutual Fund, Inc. dated September 28, 2012, a Special Meeting of Shareholders of the Ameristock Fund was scheduled for December 12, 2012 at 11:00 a. m. Pacific Time, for shareholders to vote on a proposed Agreement and Plan of Reorganization and Termination pursuant to which the Ameristock Fund would be reorganized into the Drexel Hamilton Centre American Equity Fund, a series of Drexel Hamilton Mutual Funds, resulting in the complete liquidation and termination of the Ameristock Fund. The Special Meeting convened as scheduled on December 12, 2012, but was adjourned until December 27, 2012. The Reconvened Special Meeting was reconvened as scheduled on December 27, 2012, but has again been adjourned and will reconvene on Thursday, January 10, 2012 Should Old Acquaintance Be Forgot and Never Brought to Mind How long can a fund be incredibly, eternally awful and still survive The record is doubtless held by the former Steadman funds, which were ridiculed as the Deadman funds and eventually hid out as the Ameritor funds. They managed generations of horrible ineptitude. How horrible In the last decade of their existence (through 2007), they lost 98.98. Thats the transformation of 10,000 into 102. Sufficiently horrible that they became a case study at Stanfords Graduate School of Business. In celebrating the season of Auld Lang Syne, I set out to see whether there were any worthy successors on the horizon. I scanned Morningstars database for funds which trailed at least 99 of the peers this year. And over the past five years. And 10 and 15 years. Five funds actually cropped up as being that bad that consistently. The good news for investors is that the story isnt quite as bleak as it first appears. The Big Losers Name Jaffes Year-End Explosion ASTONRiver Road Long-Short Conference Call When you click on the link, the file will load in your browser and will begin playing after its partially loaded. If the file downloads, instead, you may have to double-click to play it. If youd like a preview before deciding whether you listen in, you might want to read our profile of ARLSX (theres a printable. pdf of the profile on Astons website and an audio profile. which we discuss below). Here are some of the highlights of the conversation: they believe they can outperform the stock market by 200 bpsyear over a full market cycle. Measuring peak to peak or trough to trough, both profit and stock market cycles average 5.3 years, so they think that8217s a reasonable time-frame for judging them. they believe they can keep beta at 0.3 to 0.5. They have a discipline for reducing market exposure when their long portfolio exceeds 80 of fair value. The alarms rang in September, they reduce expose and so their beta is now at 0.34, near their low. risk management is more important than return management, so all three of their disciplines are risk-tuned. The long portfolio, 15-30 industry leaders selling at a discount of at least 20 to fair value, tend to be low-beta stocks. Even so their longs have outperformed the market by 9. River Road is committed to keeping the fund open for at least 8 years. It8217s got 8 million in asset, the e. r. is capped at 1.7 but it costs around 8 to run. The president of River Road said that they anticipated slow asset growth and budgeted for it in their planning with Aston. The fund might be considered an equity substitute. Their research suggests that a 303040 allocation (long, longshort, bonds) has much higher alpha than a 6040 portfolio. An interesting contrast with RiverPark, where Mitch Rubin wants to 8220play offense8221 with both parts of the portfolio. Here the strategy seems to hinge on capital preservation: money that you don8217t lose in a downturn is available to compound for you during the up-cycle. Conference Calls Upcoming: Matthews, Seafarer, Cook amp Bynum on-deck As promised, were continuing our moderated conference calls through the winter. You should consider joining in. Heres the story: Each call lasts about an hour About one third of the call is devoted to the managers explanation of their funds genesis and strategy, about one third is a QampA that I lead, and about one third is QampA between our callers and the manager. The call is, for you, free. Your line is muted during the first two parts of the call (so you can feel free to shout at the danged cat or whatever) and you get to join the question queue during the last third by pressing the star key. Matthews is the fund worlds best, deepest, and most experienced team of Asia investors. They offer a variety of funds, all of which have strong and occasionally spectacular long-term records investing in one of the worlds fastest-evolving regions. While income has been an element of many of the Matthews portfolios, it became a central focus with the December 2011 launch of MAINX. Ms. Kong, who has a lot of experience with first-rate advisors including BlackRock, Oppenheimer and JPMorgan, joined Matthews in 2010 ahead of the launch of this fund. Why might you want to join the call Bonds across the developed world seem poised to return virtually nothing for years and possibly decades. For many income investors, Asia is a logical destination. Three factors support that conclusion: Asian governments and corporations are well-positioned to service their debts. Their economies are growing and their credit ratings are being raised. Most Asian debt supports infrastructure, rather than consumption. Most investors are under-exposed to Asian debt markets. Bond indexes, the basis for passive funds and the benchmark for active ones, tend to be debt-weighted that is, the more heavily indebted a nation is, the greater weight it has in the index. Asian governments and corporations have relatively low debt levels and have made relatively light use of the bond market. An investor with a global diversified bond portfolio (70 Barclays US Aggregate bond index, 20 Barclays Global Aggregate, 10 emerging markets) would have only 7 exposure to Asia. However you measure Asias economic significance (31 of global GDP, rising to 38 in the near future or, by IMF calculations, the source of 50 of global growth), even fairly sophisticated bond investors are likely underexposed. The question isnt should you have more exposure to Asian fixed-income markets, but rather should you seek exposure through Matthews The answer, in all likelihood, is yes. Matthews has the largest array of Asia investment products in the U. S. market, the deepest analytic core and the broadest array of experience. They also have a long history of fixed-income investing in the service of funds such as Matthews Asian Growth amp Income (MACSX). Their culture and policies are shareholder-friendly and their success has been consistent. Ms. Kong has outstanding credentials and has had an excellent first year. How can you join in Click on the register button and youll be taken to Chorus Calls site, where youll get a toll free number and a PIN number to join us. On the day of the call, Ill send a reminder to everyone who has registered. Would an additional heads up help About a hundred readers have signed up for a conference call mailing list. About a week ahead of each call, I write to everyone on the list to remind them of what might make the call special and how to register. If youd like to be added to the conference call list, just drop me a line . Podcasts and Profiles If you look at our top navigation bar, youll see a new tab and a new feature for the Observer. Were calling it our Podcast page, but its much more. It began as a suggestion from Ira Artman, a talented financial services guy and a longtime member of the FundAlarm and Observer community. Ira suggested that we archive together the audio recordings of our conference calls and audio versions of the corresponding fund profiles. Good idea, Ira We went a bit further and create a resource page for each fund. The page includes: The funds name, ticker symbols and its managers name Written highlights from the conference call A playabledownloadable. mp3 of the call A link to the fund profile A playabledownloadable. mp3 of the fund profile. The audio profiles start with the print profile, which we update and edit for aural clarity. Each profile is recorded by Emma Presley, a bright and mellifluous English friend of ours. A link to the funds most recent fact sheet on the funds website. We have resource pages for RiverPark Short Term High-Yield . RiverPark LongShort Opportunity and AstonRiver Road Long Short . The pages for Matthews Asia Strategic Income . Seafarer Overseas Growth amp Income, and Cook and Bynum are in the works. Observer Fund Profiles Each month the Observer provides in-depth profiles of between two and four funds. Our Most Intriguing New Funds are funds launched within the past couple years that most frequently feature experienced managers leading innovative newer funds. Stars in the Shadows are older funds that have attracted far less attention than they deserve. This months lineup features a single Star in the Shadows: Bridgeway Managed Volatility (BRBPX): Dick Cancelmo appreciates RiverNorth Dynamic Buy-Writes strategy and wishes them great success, but also points out that others have been successful using a similar strategy for well over a decade. Indeed, over the last 10 years, BRBPX has quietly produced 70 of the stock markets gains with just 40 of its volatility. BRBPX and the Mystery of the Incredible Shrinking Fund While its not relevant to the merit of BRBPX and doesnt particularly belong in its profile, the collapse of the funds asset base is truly striking. In 2005, assets stood around 130 million. Net assets have declined in each of the past five years from 75 million to 24 million. The fund has made money over that period and is consistently in the top third of longshort funds. Why the shrinkage I dont know. The strategy works, which should at least mean that existing shareholders hang on but they dont. My traditional explanation has been, because this fund is dull. Dull, dull, dull. Dull stocks and dull bonds with one dull (or, at least, technically dense) strategy to set them apart. Part of the problem is Bridgeway. This is the only Bridgeway fund that targets conservative, risk-conscious investors which means the average conservative investor would find little to draw them to Bridgeway and the average Bridgeway investor has limited interest in conservative funds. Bridgeways other funds have had a performance implosion. When I first profiled BRBPX, five of the six funds rated by Morningstar had five-star designations. Today none of them do. Instead, five of eight rated funds carry one or two stars. While BRBPX continues to have a four-star rating, there might be a contagion effect. Mr. Cancelmo attributes the decline to Bridgeways historic aversion to marketing. We had, he reports, the if you build a better mousetrap mindset. Weve now hired a business development team to help with marketing. That might explain why they werent drawing new assets, but hardly explains have 80 of assets walking out the door. If youve got a guess or an insight, Id love to hear of it. (Dick might, too.) Drop me a note . As a side note, Bridgeway probably offers the single best Annual Report in the industry. You get a startling degree of honesty, thoughtfulness and clarity about both the funds and their take on broader issues which impact them and their investors. I was particularly struck by a discussion of the rising tide of correlations of stocks within the major indices. Heres the graphic they shared: What does it mean Roughly, a generation ago you could explain 20 of the movement of the average stocks price by broader movements in the market. As a greater and greater fraction of the stock markets trades are made in baskets of stocks (index funds, ETFs, and so on) rather than individual names, more and more of the fate of each stock is controlled by sentiments surrounding its industry, sector, peers or market cap. Thats the steady rise of the line overall. And during a crisis, almost 80 of a stocks movement is controlled by the market rather than by a firms individual merits. Bridgeway talks through the significance of that for their funds and encourages investors to factor it into their investment decisions. The report offers several interesting, insightful discussions, making it the exact opposite of for example 8211 Fidelitys dismal, plodding, cookie cutter reports. Heres our recommendation: if you run a fund, write such like Bridgeways 2012 Annual Report. If youre trying to become a better investor, read it Launch Alert: RiverNorthOaktree High Income (RNHIX, RNOTX) RiverNorthOaktree High Income Fund launched on December 28. This is a collaboration between RiverNorth, whose specialty has been tactical asset allocation and investing in closed-end funds (CEFs), and Oaktree. Oaktree is a major institutional bond investor with about 80 billion under management. Oaktrees clientele includes 75 of the 100 largest U. S. pension plans, 300 endowments and foundations, 10 sovereign wealth funds and 40 of the 50 primary state retirement plans in the United States. Their specialties include high yield and distressed debt and convertible securities. Until now, the only way for retail investors to access them was through Vanguard Convertible Securities (VCVSX), a four-star Gold rated fund. Patrick Galley, RiverNorths CIO, stresses that this is a core credit fund (managed by Oaktree) with a high income opportunistic CEF strategy managed by RiverNorth. The fund has three investment strategies, two managed by Oaktree. While, in theory, Oaktrees share of the portfolio could range from 0 100, as a normal matter theyll manage the considerable bulk of the portfolio. Oaktree will have the freedom to allocate between their high-yield and senior loan strategies. RiverNorth will focus on income-producing CEFs. For those already invested in RiverNorth funds, Mr. Galley explained the relationship of RNHIX to its siblings: We are staying true to the name and focusing on income producing closed-end funds, but unlike RNSIX (which focuses on income producing fixed income) and RNDIX (which focuses on income producing equities) and RNCOX (which doesnt have an income mandate and only distributes once a year), RNHIX will invest across the CEF spectrum (i. e. all asset classes) but with a focus on income without sacrificingrisking total return. The argument for considering this fund is similar to the argument for considering RiverNorthDoubleLine Strategic Income. Youre hiring world-class experts who work in inefficient segments of the fixed-income universe. RiverNorth had the risk and return characteristics for a bunch of asset classes charted. You might read the chart as saying something like: this is a strategy that could offer equity-like returns with more nearly bond-like volatility. In a world where mainstream, investment-grade bonds are priced to return roughly nothing, thats an option a reasonable person would want to explore. The retail expense ratio is capped at 1.60 and the minimum initial investment is 5000. Funds in Registration New mutual funds must be registered with the Securities and Exchange Commission before they can be offered for sale to the public. The SEC has a 75-day window during which to call for revisions of a prospectus fund companies sometimes use that same time to tweak a funds fee structure or operating details. Every day we scour new SEC filings to see what opportunities might be about to present themselves. Many of the proposed funds offer nothing new, distinctive or interesting. Some are downright horrors of Dilbertesque babble. Funds in registration this month wont be available for sale until, typically, the beginning of March 2013. We found 15 funds in the pipeline, notably: Investors Variable NAV Money Market Fund, one of a series of four money markets managed by Northern Trust, all of which will feature variable NAVs. This may be a first step in addressing a serious problem: the prohibition against breaking the buck is forcing a lot of firms to choose between underwriting the cost of running their money funds or (increasingly) shutting them down. LSV Small Cap Value Fund is especially notable for its management team, led by Josef Lakonishok is a reasonably famous academic who did some of the groundbreaking work on behavioral finance, then translated that research into actual investment strategies through private accounts, hedge funds, and his LSV Value Equity Fund (LSVEX) fund. Details on these funds and the list of all of the funds in registration are available at the Observers Funds in Registration page or by clicking Funds on the menu atop each page. On a related note, we also tracked down 31 fund manager changes. including a fair number of folks booted from ING funds. Briefly Noted According to a recent SEC filing, Washington Mutual Investors Fund and its Tax-Exempt Fund of Maryland and Tax-Exempt Fund of Virginia make available a Spanish translation of the above prospectus supplement in connection with the public offering and sale of its shares. The English language prospectus supplement above is a fair and accurate representation of the Spanish equivalent. Im sure there are other Spanish-language prospectuses out there, but Ive never before seen a notice about one. Its especially interesting given that tax-exempt bond funds target high income investors. Effective January 1, DWS is imposing a 20year small account service fee for shareholders in all 49 of their funds. The fee comes on top of their sales loads. The fee applies to any account with under 10,000 which is regrettable for a firm with a 1,000 minimum initial investment. (Thanks to chip for having spotted this filing in the SECs database. Regrets for having gotten friends into the habit of scanning the SEC database.) Eaton Vance Atlanta Capital SMID-Cap (EAASX) is closing to new investors on Jan. 15. More has been pouring in (on the order of 1.5 billion in a year) at least in part driven by a top-notch five-year rating. Walthausen Small Cap Value (WSCVX) closed to new investors at the end of the year. At the same time, the minimum initial investment for the 1.7 million Walthausen Select Value Investor Class (WSVIX) went from 10,000 to 100,000. WSCVX closed on January 1 at 560 million which might explain was theyre making the other funds institutional share class harder to access. William Blair International Growth (WBIGX) closed to new investors, effective Dec. 31. Old Wine in New Bottles American Century Inflation Protection Bond (APOIX) has been renamed American Century Short Duration Inflation Protection Bond . The fund has operated as a short-duration offering since August 2011, when its benchmark changed to the Barclays U. S. 1-5 Year Treasury Inflation Protected Securities Index. Federated Prudent Absolute Return (FMAAX) is about to become less Prudent. Theyre changing their name to Federated Absolute Return and removed the manager of the Prudent Bear fund from the management team. Prudential Target Moderate Allocation (PAMGX) is about to get a new name (Prudential Defensive Equity), mandate (growth rather than growth and income) and management structure (one manager team rather than multiple). It is, otherwise, virtually unchanged. Prudential Target Growth Allocation (PHGAX) is merging into Prudential Jenison Equity Income (SPQAX). U. S. Global Investors Global MegaTrends (MEGAX) is now U. S. Global Investors MegaTrends and no longer needs to invest outside the U. S. William Blair Global Growth (WGGNX) will change its name to William Blair Global . and William Blair Emerging Leaders Growth (WELNX) will change its name to William Blair Emerging Markets Leaders . Small wins for investors Cook amp Bynum Fund (COBYX), a wildly successful, super-concentrated value fund, has decided to substantially reduce their expense ratio. President David Hobbs reports: given our earlier dialogue about fees, I wanted to let you know that as of 1113 the all-in expense ratio for the fund will be capped at 1.49 (down from 1.88). This is a decision that we have been wrestling with for some time internally, and we finally decided that we should make the move to broaden the potential appeal of the fund. With the funds performance (and on-going 5-star ratings with Morningstar and SampP Capital IQ), we decided to take a calculated risk that this new fee level will help us grow the fund. Our 2012 profile of the fund concluded, Cook and Bynum might well be among the best. Theyre young. The fund is small and nimble. Their discipline makes great sense. Its not magic, but it has been very, very good and offers an intriguing alternative for investors concerned by lockstep correlations and watered-down portfolios. That makes the decreased cost especially welcome. (They also have a particularly good website .) Effective January 2, 2013, Calamos Growth and Income and Global Growth and Income Funds re-opened to new investors. (Thanks to The Shadow for catching this SEC filing.) ING Small Company (AESAX) has reopened. Its reasonably large and not very good, really. JPMorgan (JPM) launched Total Emerging Markets (TMGGX), an emerging-markets allocation fund. Fund firms have been cutting expenses of late as they pressure to gather and hold assets builds. Fidelity has reduced the minimum investment on its Advantage share class from 100,000 to 10,000. The Advantage class has lower expense ratios (which is good) and investors who own more than 10,000 in a funds retail Investor class will be moved automatically to the less-expensive Advantage class. Fido also dropped the minimums on nearly two dozen index and enhanced index products from 10,000 to 2,500, which gives a lot more folks access to low-cost passive (or nearly-passive) shares. Fido also cut fees on eight Spartan index funds, between one to eight basis points. The Spartan funds had very low expenses to begin with (10 basis points in some cases), so those cuts are substantial. GMO Benchmark-Free Allocation (GBMFX) has decreased its expense ratio from 87 basis points down to 81 bps by increasing its fee waiver. The fund is interesting and important not because I intend to invest in in soon (the minimum is 10 million) but because it represents where GMO thinks that an investor who didnt give a hoot about other peoples opinions (thats the benchmark-free part) should invest. Effective January 1, Tocqueville Asset Management L. P. capped expenses for Tocqueville International Value at 1.25 of the funds average daily net assets. Until now investors have been paying 1.56. Also effective January 1, TCW Investment Management Company reduced the management fees for the TCW High Yield Bond Fund from 0.75 to 0.45. Vanguard has cut fees on 47 products, which include both ETFs and funds. Some of the cuts went into effect on Dec. 21, while others went into effect on Dec. 27th. The reductions on eleven ETFs 8212 four stock and seven bond 8212 on December 21. Those cuts range from one to two basis points. That translates to reductions of 3 15. Off to the Dustbin of History The board of trustees of Altrius Small Cap Value (ALTSX) has closed the fund and will likely have liquidated it by the time you read this. On the one hand, the fund only drew 180,000 in assets. On the other, the members of the board of trustees receive 86,000year for their services, claim to be overseeing between 97 100 funds and apparently have been doing so poorly, since they received a Wells Notice from the SEC in May 2012. They were bright even not to place a penny of their own money in the fund. One of the two managers was not so fortunate: he ate a fair portion of his own cooking and likely ended up with a stomach cramp. American Century will liquidate American Century Equity Index (ACIVX) in March 2013. The fund has lost 75 of its assets in recent years, a victim of investor disillusionment with stocks and high expenses. ACIVX charged 0.49, which seems tiny until you recall that identical funds can be had for as little as 0.05 (Vanguard, naturally). Aston Asset Management has fired the Veredus of AstonVeredus Small Cap Growth (VERDX) and will merge the fund in Aston Small Cap Growth (ACWDX). Until the merger, it will go by the name Aston Small Cap. The much-smaller AstonVeredus Select Growth (AVSGX) will simply be liquidated. But were struggling. Federated Capital Appreciation . a bottom 10 kind of fund, is merging Federated Equity-Income (LEIFX). LEIFX has been quite solid, so thats a win. GMO is liquidating GMO Inflation Indexed Plus Bond (GMIPX). Uhh, good move. Floyd Norris, in The New York Times . points out that recently-auctioned inflation-protected bonds have been priced to lock in a loss of about 1.4 per year over their lifetimes. If inflation spikes, you might at best hope to break even. HSBC will liquidate two money-market funds, Tax-Tree and New York Tax-Free in mid-January. ING Index Plus International Equity (IFIAX) has closed and is liquidating around Feb. 22, 2013. No, I dont know what the Plus was. Invesco is killing off, in April, some long-storied names in its most recent round of mergers. Invesco Constellation (CSTGX) and Invesco Leisure (ILSAX) are merging into American Franchise (VAFAX). Invesco Dynamics (IDYAX) goes into Mid Cap Growth (VGRAX), Invesco High-Yield Securities (HYLAX) into High Yield (AMHYX), Invesco Leaders (VLFAX) into Growth Allocation (AADAX), and Invesco Municipal Bond (AMBDX) will merge into Municipal Income (VKMMX). Any investors in the 1990s who owned AIM Constellation (I did), Invesco Dynamics and Invesco Leisure would have been incredibly well-off. Leuthold Global Clean Technology (LGCTX) liquidated on Christmas Eve Day. Steve Leuthold described this fund, at its 2009 launch, as the investment opportunity of a generation. Their final letter to shareholders lamented the funds tiny, unsustainable asset base despite strong performance relative to its comparable benchmark index and noted that the Fund operates in a market sector that has had challenging. Losses of 20 per year are common for greencleanalternative funds, so one can understand the limited allure of strong relative performance. Lord Abbett plan to merge Lord Abbett Stock Appreciation (LALCX) into Lord Abbett Growth Leaders (LGLAX) in late spring, 2013. Munder International Equity (MUIAX) is merging into Munder International Core Equity (MAICX). Natixis Absolute Asia Dynamic Equity (DEFAX) liquidated in December. (No one noticed.) TCW Global Flexible Allocation Fund (TGPLX) and TCW Global Moderate Allocation Fund (TGPOX) will be liquidated on or about February 15, 2013. Effective the close of business on February 8, 2013, the Funds will no longer sell shares to new investors or existing shareholders. These consistent laggards, managed by the same team, had only 10 million between them. Durn few of those 10 million came from the managers. Only one member of the management team had as much as a dollar at risk in any of TCWs global allocation funds. That was Tad Rivelle who had a minimal investment in Flexible. In Closing Thank you all for your support in 2012. There are a bunch of numerical measures we could use. The Observer hosted 78,645 visitors and we averaged about 11,000 readers a month. Sixty folks made direct contributions to the Observer and many others picked up 88,315.15 worth of cool loot (3502 items) at Amazon. And a thousand folks viewed something like 1.6 million discussion topics. But, in many ways, the note that reads coming here feels like sitting down with an old friend and talking about something important is as valuable as anything we could point to. So thanks for it all. If you get a chance and have a suggestion about how to make the Observer better in the year ahead, drop me a note and let me know. For now, well continue offering (and archiving) our monthly conference calls. During January well be updating our small cap profiles and February will see new profiles for Whitebox Long Short Equity (WBLSX) and PIMCO Short Asset Investment (PAIUX). Until then, take care. With hopes for a blessed New Year, Highlights of the call: In December 2012, we spoke with Matt and Dan about the River Road Long Short Strategy, which is also used in this fund. With regard to the strategy, they noted: they believe they can outperform the stock market by 200 bpsyear over a full market cycle. they believe they can keep beta at 0.3 to 0.5. They have a discipline for reducing market exposure when their long portfolio exceeds 80 of fair value. risk management is more important than return management, so all three of their disciplines are risk-tuned. River Road is committed to keeping the strategy open for at least 8 years. The fund might be considered an equity substitute. Their research suggests that a 303040 allocation (long, longshort, bonds) has much higher alpha than a 6040 portfolio. The profile: Longshort investing makes great sense in theory but, far too often, its dreadful in practice. After a year, ARLSX seems to be getting it right and its managers have a pretty cogent explanation for why that will continue to be the case. The ARLSX audio profile For about an hour on November 29th, Mitch Rubin, manager of RiverPark LongShort Opportunity (RLSFX) fielded questions from Observer readers about his funds strategy and its risk-return profile. Nearly 60 people signed up for the call. The call starts with Morty Schaja, RiverParks president, talking about the funds genesis and Mr. Rubin talking about its strategy. After that, I posed five questions of Rubin and callers chimed in with another half dozen. Id like to especially thank Bill Fuller, Jeff Mayer and Richard Falk for the half dozen really sharp, thoughtful questions that they posed during the closing segment. Highlights of the conversation: Rubin believes that many longshort mutual fund managers (as opposed to the hedge fund guys) are too timid about using leverage. He believes longshort managers as a group are too skittish. They obsess about short-term macro-events (the fiscal cliff) and dilute their insights by trying to bet for or against industry groups (by shorting ETFs, for example) rather than focusing on identifying the best firms in the best industries. RiverPark benefits from having followed many of their holdings for nearly two decades, following their trajectory from promising growth stocks (in which they invested), stodgy mature firms (which theyd sold) and now old firms in challenged industries (which they short). The profile: All long-short funds have about the same goal: to provide a relatively large fraction of the stock markets long-term gains with a relatively small fraction of its short-term volatility. They all invest long in what they believe to be the most attractively valued stocks and invest short, that is bet against, the least attractively valued ones. Many managers imagine their long portfolios as offense and their short portfolio as defense. Thats the first place where RiverPark stands apart. Mr. Rubin intends to always play offense. He believes that RiverParks discipline will allow him to make money, on average and over time, on both his long and short portfolios. The audio profile By Charles Boccadoro From the Mutual Fund Observer discussion board, December 2012, compiled from original five parts He said, 8220The accumulated data finds that only a small percentage of wizards beat their proper benchmarks annually, and that percentage drops precipitously as the time horizon is expanded. Superior performance persistence is almost nonexistent.8221 So I dug into it a bit. Here are the results, divided into five sections: Summary, Equity, Asset Allocation, Fixed Income, and Money Market. The table below summarizes how many funds have beaten the market since their inception (or since Jan 1962, as far back as my Steele Mutual Fund Expert database goes). I used only whole months in the calculations so that I could be consistent with two market benchmarks, the SP500 total return (since 1970, price only before) and the 30-day Treasury Bill. Nearly 9000 mutual funds and ETFs were evaluated. I used load adjusted returns and only the oldest share class. I apologize to the bench mark police for using only SP500 and T-Bill. Nonetheless, I find the results interesting. First, MJG is right. Less than half of all equity funds have beaten the SP500 over their life times in fact, one in four have not even beaten the T-Bill, which means their Sharpe Ratios are less than zero Second, nearly all fixed income funds have beaten T-Bill performance, which is re-assuring, but fuels the perception that you can8217t lose money with bonds. The money market comparison is a bit skewed, because many of these funds are tax exempt. Still, expense ratios must be having their negative effect as only one in five such funds beat the T-Bill. Digging a bit further, I looked at how the funds did by inception date. Here is a result I can8217t yet explain and would ask for the good help on MFO to better understand. It seems like the period from 1998 to 2002, which book-end the tech bubble, is a golden age, if you will, for funds, as more than 60 of the funds initiated during this period have beaten the SP500 over their life times. That8217s extraordinary, no I thought maybe that it was because they were heavily international, small cap, or other, but I have not yet found the common thread for the superior performance. On the other hand, the period from 1973 to 1982 was abysmal for funds, since only one in ten equity funds created during these years have beaten the SP500 over their life times. And it is not much better between 1983 and 1992. I next broke-out this same performance by type: equity, asset allocation, fixed income, and money market: Note that fixed income funds helped contribute to the 8220golden period8221 as more than a quarter of those incepted between 1998 and 2000 beat the SP500. Some other interesting points: Relatively few money market funds have been created since the cash bull run of the 821780s. But otherwise, fund creation is alive and well, with nearly 2000 funds established in the past three years, which accounts for one fifth of all funds in existence. Fixed income fund performance has dropped a bit this year with 15 out of 100 losing money. I next looked at the best and worst performers in their respective time frames. Best being top three funds, typically, producing highest APR relative to SP500 for equity and asset allocation types and relative to T-Bill for fixed income and money market types, color coded purple. Best also includes funds with highest Sharpe Ratios, color coded blue, when different from top APR funds. Again, I tried to pick three if there were enough funds for the inception period evaluated. Worst being relative APR, color coded yellow. I included other notables based on David8217s fund profiles (there are nearly 70 in the index ), suggestions by other MFO folks, a few runner-ups, and some funds of my own interest. First up, equity funds8230 Some items that jump out: ETFs take top and bottom APR slots in recent years, but their volatility is frighteningly high. If you invested 10,000 in Fidelity Magellan Fund FMAGX in June of 1963 (fourteen years prior to Peter Lynch8217s rein), you are looking at more than 15 million today. Can you believe Of course, to MJG8217s point, the fund8217s best years were in the 8217608217s when it had two 10er years, then again during Lynch8217s reign from 1977 to 1990, when it averaged more than 29 APR. Unfortunately, you have less money today than you did in 2000. Oceanstone Fund OSFDX made all its gains in 2009 with an extraordinary 264 return. That said, it avoided the 2008 financial collapse with only a -10 loss versus -37 for the SP500, and it retains the highest Sharpe Ratio of ALL funds five years or older, except PIMCO Equity Series LongShort Institutional PMHIX. And, the mysterious OSFDX is up about 21 YTD or 7 higher than the SP500. Four notable funds score top life time Sharpe Ratio for their periods, but did not beat the SP500: Calamos Market Neutral Income A CVSIX and Merger MERFX, both 20 year funds, Gabelli ABC AAA GABCX, a 15 year fund, and AQR Diversified Arbitrage I ADAIX, a 3 year fund. I would think all would be considered as alternatives to bond funds. (Note: MERFX and GABCX are both no load and open to new investors.) Similarly, Pinnacle Value PVFIX from the 7 year class, MainStay Marketfield I MFLDX from the 5 year class, and The Cook amp Bynum Fund COBYX from the 3 year class all have superior life time Sharpe performance with STDEVs less than SP500. On the other hand, Evermore Global Value A EVGBX is not yet living up to expectations. It was first reviewed on MFO in April 2011. Guinness Atkinson Alternative Energy GAAEX is doing downright terribly. It was first reviewed in FundAlarm in September 2007. Next up, a review of asset allocation8230 Asset Allocation Funds Asset allocation or so-called balanced funds, of which there are more than 1200 (oldest share class only). This type of fund can hold a mixed portfolio of equities, bonds, cash andor property. I followed consistent methodology used for the equity funds. Again, I realize that balanced funds do not use either SP500 or T-Bill as a benchmark, but nonetheless I find the comparison helpful. More than one in four such funds actually have beaten the SP500 over their life times. It8217s a bit re-assuring to me, since these funds typically have lower volatility. And, nearly nine in ten have done better than cash. In the tabulation below, purple means the fund was a top performer relative to SP500 over its life time, blue represents highest Sharpe (if not already a top APR), and yellow represents worst performing APR. I included other notables based on David8217s commentaries, past puts by catch22, scott, and other folks on MFO, and some funds of my own interest. Here8217s the break-out, by inception date: If you invested 10K in Mairs amp Power Balanced MAPOX in Jan 1962, you would have more than 1M today and nearly four times more than if you had invested in American Funds American Balanced ABALX. But ABALX has 56B AUM, while the five star MAPOX has attracted less than 300M. Value Line Income amp Growth VALIX does not even warrant coverage by M. 2008 was a really bad year. Some attractive ETFs have started to emerge in this generally moderate fund type, including iShares Morningstar Multi-Asset Income IYLD. Putnam Capital Spectrum A PVSAX, managed by David Glancy, has outperformed just about everybody in this category since its inception mid 2009. RiverNorth Core Opportunity RNCOX, first reviewed on MFO in June 2011, has had a great run since its inception in 2007. Unfortunately, its availability is now limited. Next up, fixed income funds. Fixed Income Funds A review of fixed income funds, which for this post includes funds that invest in government or corporate bonds, loan stock and non-convertible preferred stock. This type of fund has been getting considerable attention lately on MFO with a growing concern that investors could be lulled into false sense of security. To recap a little, there are about 1880 funds of this type, of which 30 have actually delivered higher life-time returns than the SP500, and more importantly and relevant, 98 have beaten cash. In the tabulation below, purple means the fund was a top performer relative to T-Bill over its life time, blue represents highest Sharpe (if not already a top APR), and yellow represents worst performing APR. I included other notables based on David8217s profiles, numerous suggestions in the various threads by MFO readers (bee, catch22, claimui, fundalarm, hank, Hiyield007, Investor, johnN, MaxBialystock, MikeM, Mona, msf, OldJoe, scott, Shostakovich, Skeeter, Ted and others), and some of my own interest. A reminder that I only used oldest share class, so for popular funds like PONDX, you will find PONAX, similarly MAINX is MINCX, etc. Here8217s the break-out, by fund inception date: Every fund listed (5 years or older) with current yields of 6 or more, lost more than 20 of its value in 2008, except three: PIMCO Income A PONAX, which lost only 6.0 TCW Total Return Bond I TGLMX, which lost only 6.2 (in 1994) and First Eagle High Yield I FEHIX, which lost 15.8. In fact, of all fixed income funds more than five years or older that have current yields of 6 or more, nearly 3 out of 4 had a down-year of 20 or more. Those yielding 5 or more did not do much better. For what it8217s worth, the break point appears to be between 4 and 5. Funds with less than 4 current yield did much, much better. Here is summary8230 Just glance over the list8230you will see that PIMCO has produced many top performing fixed income funds. Fortunately, again, nearly every fixed income fund existing today has beaten cash over its life time, some 98. The 44 funds with negative Sharpe actually fall into two distinct categories: First, those with negative Sharpe, but positive life-time APR. These are generally funds with short duration andor tax exempt funds. Second, those with negative Sharpe and negative life-time APR. There are 25 such funds, but it8217s reassuring to find only 3 older than three years old, which presumably means fixed income funds that actually lose money don8217t stay around very long. The three enduring poor performers, tabulated below, are: AMF Ultra Short AULTX, SEI Instl Mgd Enhanced Income A SEEAX, and WisdomTree Euro Debt EU. Both AULTX and EU have less than 10M AUM, but SEEAX is fairly substantial AUM at 170M, which is simply hard to believe8230 Money Market Funds The last part 8211 money market funds, which tend to offer lowest risk, but with attendant lowest return over the long run. There have been times, however, when money market or 8220cash8221 has ruled, like from 1966 8211 1984 when cash provided a strong 7.8 APR. Here8217s a reminder from Bond Fund Performance During Periods of Rising Interest Rates : Some observations up-front: There are only 500 or so money market funds. The earliest inception date is 1972. It belongs to American Century Capital Presv Investor CPFXX. (But it is not one of better offerings.) Few new money market funds have been created in recent years. Few MFO readers discuss them and none have been profiled. M does not appear to rate them or provide analyst reports of money market funds. No money market funds have loads, but many impose 12b-1 fees. The average EP is 0.5. Fortunately, none have a negative absolute return over their life times. There are two main categories of money market funds: taxable and tax-free. The latter have existed since 1981 and represent about a third of offerings today. This plot summarizes average performance for the two types compared to the T-Bill: Since 1981, the annualized return for T-Bill is 5.0. For money market funds, the average APR is 4.6 for the taxable (about the difference in average EP), and 2.9 for tax-free. Only 1 in 3 taxable money market funds have beaten the T-Bill over their life times. And virtually no tax-free funds have beaten, as you would expect. Because of the strong tax dependency with these funds, I broke out this distinction in the tabulation below. Purple means the fund was a top performer relative to T-Bill over its life time, and yellow represents worst performing APR. (For the money market funds, I did not break-out top Sharpe in blue, since APR ranking relative T-Bill is fairly close to Sharpe ranking.) Here8217s the break-out, by fund inception date: For those interested, I8217ve posted results of this thread in an Excel file Funds That Beat The Market 8211 Nov 12 . For about an hour on September 13th, David Sherman of Cohanzick Management, LLC, manager of RiverPark Short Term High Yield (RPHYX) fielded questions from Observer readers about his funds strategy and its risk-return profile. Somewhere between 40-50 people signed up for the RiverPark call. they expect to be able to return 300 8211 400 basis points more than a money market fund they manage to minimize risk, not maximize return they do not anticipate significant competition for these assets expenses are unlikely to move much NAV volatility is more apparent than real 8211 by any measure other than a money market, it8217s a very steady NAV. The conference call (When you click on the link, the file will load in your browser and will begin playing after its partially loaded.) The profile: People are starting to catch on to RPHYXs discrete and substantial charms. Both the funds name and Morningstars assignment of it to the high yield peer group threw off some potential investors. To be clear: this is not a high yield bond fund in any sense that youd recognize. By Charles Boccadoro From the Mutual Fund Observer discussion board, December 2012 Current trend on MFO is discussion of negative impact to bond-heavy income and retirement portfolios, if and when rates rise. In David8217s inaugural column on Amazon money and markets 8220Trees Do Not Grow To The Sky8221. he calls attention to: 8220If interest rates and inflation move quickly up, the market value of the bonds that you (or your bond fund manager) hold can drop like a rock .8221 And there have been several recent related posts about an impending 8220Bond Bubble.8221 Here8217s look back at average intermediate term bond fund performance during the past 50 years: Background uses same 10-year Treasury yield data that David highlights in his guest column. Also plotted is the downside return relative to cash or money-market, since while these funds have held up fairly well on absolute terms, on relative terms the potential for under-performance is quite clear. More dramatic downside performance can be seen the higher yield (generally quality less than BB) bond funds, where relative and even absolute losses can be 25: Taking a closer look, the chart below compares performance of intermediate, high-yield, and equities when interest rates rise (note year, 10-year Treasury yield, and rate increase from previous year): I included for comparison 2008 performance. Here declines were not driven by increasing rates, but by the financial crisis, of course. Presumably, such strong relative performance for intermediate bonds in 2008 is what has driven the recent flight to bonds. That said, several previous periods of increasing rates happened during bear markets, like 1974, making alternatives to bonds tough to find. Over the (very) long run, equities out-perform bonds and cash, as is evident below, but may not be practical alternative to bonds for many investors, because of investment horizon, risk-tolerance, dependence on yield, or all the above. What8217s so interesting about this look-back are the distinct periods of 8220ideal8221 investments, by which I mean an investment vehicle that both outperformed alternatives and did not incur a sharp decline, as summarized in table below: In the three years from 1963-65, stocks were the choice. But in the 19 years from 1966-84, cash was king. Followed by the extraordinary 15-year bull run for stocks. Ending with the current period, if you will, where bonds have been king: first, intermediate term bonds from 2000-08, but most recently, alluring high yield bonds since 2009. Despite its flat-line performance since 2009, cash is often mentioned as a viable alternative (eg, Scout Unconstrained Bond Fund SUBFX and Crescent Fund FPACX are now cash heavy). But until I saw its strong and long-lived performance from 1966-84, I had not seriously considered. Certainly, it has offered healthy growth, if not yield, during periods of rising interest rates. By David Snowball And now, we wait. After the frenzy of recent months, that seems odd and unnatural. Will and his minions wait for the holidays, anxious for the last few weeks of school to pass but secure in the knowledge that their folks are dutifully keeping the retail economy afloat. Photo by Drew Barnes 821714, Augustana Photo Bureau My colleagues at Augustana are waiting for winter and then for spring. The seemingly endless string of warm, dry weeks has left much of our fall foliage intact as we enter December. As beautiful as it is, were sort of rooting for winter, or at least the hope of seasonal weather, to reassert itself. And were waiting for spring, when the 13 million renovation of Old Main will be complete and we escape our warren of temporary offices and ersatz classrooms. Ive toured the half-complete renovation. Its going to be so cool. And investors wait. Most of us are waiting for a resolution of the fiscal cliff (alternately: fiscal slope, obstacle course, whatchamacallit or, my favorite, Fiscal Clifford the Big Red Dog), half fearful that they wont find a compromise and half fearful that they will. Then there are The Two Who Wouldnt Wait. And they worry me. A lot. Weve written for a year or so about our concerns that the bond market is increasingly unstable. That concern has driven our search for tools, other than Treasuries or a bond aggregate, that investors might use to manage volatility. In the past month, the urgency of that search has been highlighted by The Two. One of The Two is Jeffrey Gundlach, founder of the DoubleLine funds and widely acknowledged as one of the best fixed-income managers anyway. Gundlach believes that deeply indebted countries and companies, which Gundlach doesnt name, will default sometime after 2013 (Bond Investor Gundlach Buys Stocks, Sees 8216Kaboom8217 Ahead. 11302012). Gundlach says, I dont believe youre going to get some sort of an early warning. You should be moving now. Gundlach, apparently, is moving into fine art. GMO, the other of The Two, has moved. GMO (Grantham, Mayo, van Otterloo) has an outstanding record for anticipating asset class crashes. They moved decisively in 2000 and again in 2007, knowing that they were likely early and knowing that leaving the party early would cost them billions (one quarter of the firms assets) as angry investors left. But when the evidence says run, they ran. In a late-November interview with the Financial Times . GMOs head of asset allocation revealed that, firm-wide, GMO had sold off all of their bond holdings (GMO abandons bond market. 11262012). Weve largely given up on traditional fixed income, Inker says, including government and corporate debt in the same condemnation. They dont have any great alternatives (high quality US stocks are about the best option), but would prefer to keep billions in cash to the alternatives. I dont know whether you should wait. But I do believe that you should acquaint yourself with those who didnt. The Last Ten: PIMCO in the Past Decade In October we launched The Last Ten, a monthly series, running between now and February, looking at the strategies and funds launched by the Big Five fund companies (Fido, Vanguard, T Rowe, American and PIMCO) in the last decade. Here are our findings so far: Fidelity . once fabled for the predictable success of its new fund launches, has created no compelling new investment option and only one retail fund that has earned Morningstars five-star designation, Fidelity International Growth (FIGFX). We suggested three causes: the need to grow assets, a cautious culture and a firm thats too big to risk innovative funds. T. Rowe Price continues to deliver on its promises. Of the 22 funds launched, only Strategic Income (PRSNX) has been a consistent laggard it has trailed its peer group in four consecutive years but trailed disastrously only once (2009). Investing with Price is the equivalent of putting a strong singles-hitter on a baseball team its a bet that youll win with consistency and effort, rather than the occasional spectacular play. And just as youre about to conclude that large fund companies will necessarily produce cautious funds that can aspire just to pretty good, along comes PIMCO. PIMCO was once known as an almost purely fixed-income investor. Its flagship PIMCO Total Return Fund has gathered over a quarter trillion dollars in assets and tends to finish in the top 10 of its peer group over most trailing time periods. But PIMCO has become more. This former separate accounts managers for Pacific Life Insurance Company now declares, We continue to evolve. Throughout our four decades we have been pioneers and continue to evolve as a provider of investment solutions across all asset classes. Indeed they have. PIMCO has spent more time thinking about, and talking about, the global economic future than any firm other, perhaps, than GMO. More than talk about the changing sources of alpha and the changing shape of risk, PIMCO has launched a bunch of unique funds targeting emerging challenges and opportunities that other firms would prefer simply to ignore (or to eventually react to). Perhaps as a result, PIMCO has created more five-star funds in the last decade than any other firm and, among larger firms, has a greater fraction of their funds earning four - or five-stars than anyone else. Heres the snapshot: PIMCO has 84 funds (which are sold in over 536 packages or share classes) 56 of their funds were launched in the past decade 61 of them are old enough to have earned Morningstar ratings 20 of them have five-star ratings (as of 111412) 15 more earned four-star ratings. How likely this that In each Morningstar category, the top 10 percent of funds receive five stars, the next 22.5 percent receive four stars, and the next 35 percent receive three. In the table below, those are the expected values. If PIMCO had just ordinary skill or luck, youd expect to see the numbers in the expected values column. But you dont. In January, well continue the series of a look at Vanguard. We know that Vanguard inspires more passion among its core investors than pretty much any other firm. Since were genial outsiders to the Vanguard culture, if youve got insights, concerns, tips, kudos or rants youd like to share, dear Bogleheads, drop me a note . RiverPark LongShort Opportunity Conference Call Volatility is tremendously exciting for many investment managers. Youd be amazed by the number who get up every morning, hoping for a market panic. For the rest of us, its simply terrifying. For the past thirty years, the simple, all-purpose answer to unacceptable volatility has been add Treasuries. The question we began debating last spring is, where might investors look if Treasuries stop functioning as the universal answer We started by looking at longshort equity funds as one possible answer. Our research quickly led to one conclusion, and slowly to a second. The quick conclusion: longshort funds, as a group, are a flop. Theyre ridiculously expensive, with several dozen charging 2.75 or more plus another 1.5-2 in short interest charges. They offered some protection in 2008, though several did manage to lose more that year than did the stock market. But their longer term returns have been solidly dismal. The group returned 0.15 over the past five years, which means they trailed far behind the stock market, a simple 6040 hybrid, moderate allocation funds, very conservative short-term bond funds. about the only way to make this bunch look good is to compare them to market neutral funds (whose motto seems to be, we can lose money in up markets and down). The slower conclusion: some long-short funds have consistently. in a variety of markets, managed to treat their investors well and a couple more show the real promise of doing so. The indisputable gold standard among such funds, Robeco Long Short (BPLEX) returned 16 annually over the past five years. The second-best performer, Marketfield (MFLDX) made 9 while funds 3 ( Guggenheim Alpha ) and 4 ( Wasatch LongShort ) made 4. Sadly, BPLEX is closed to new investors, Guggenheim has always had a sales load and Marketfield just acquired one. Wasatch Long-Short (FMLSX), which we first profiled three years ago, remains a strong, steady performer with reasonable expenses. Ultimately we identified (and profiled) just three, newer long-short funds worthy of serious attention: Marketfield. RiverPark LongShort Opportunity (RPLSX) and ASTONRiver Road Long Short (ARLSX). For about an hour on November 29th, Mitch Rubin, manager of RiverPark LongShort Opportunity (RLSFX) fielded questions from Observer readers about his funds strategy and its risk-return profile. Nearly 60 people signed up for the call. For folks interested but unable to join us, heres the complete audio of the hour-long conversation. It starts with Morty Schaja, RiverParks president, talking about the funds genesis and Mr. Rubin talking about its strategy. After that, I posed five questions of Rubin and callers chimed in with another half dozen. When you click on the link, the file will load in your browser and will begin playing after its partially loaded. If the file downloads, instead, you may have to double-click to play it. If youd like a preview before deciding whether you listen in, you might want to read our profile of RLSFX (theres a printable. pdf of the profile on RiverParks website). Here are some of the highlights of the conversation: Rubin believes that many longshort mutual fund managers (as opposed to the hedge fund guys) are too timid about using the leverage allowed them. As a result, theyre not able to harvest the full returns potential of their funds. Schaja describes RLSFXs leverage as moderate, which generally means having investments equal to 150-200 of assets. The second problem with longshort managers as a group, he believes, is that theyre too skittish. They obsess about short-term macro-events (the fiscal cliff) and dilute their insights by trying to bet for or against industry groups (by shorting ETFs, for example) rather than focusing on identifying the best firms in the best industries. One source of RLSFXs competitive advantage is the teams long history of long investing. They started following many of the firms in their portfolio nearly two decades ago, following their trajectory from promising growth stocks (in which they invested), stodgy mature firms (which theyd sold) and now old firms in challenged industries (which are appearing in the short portfolio). A second source of advantage is the teams longer time horizon. Their aim is to find companies which might double their money over the next five years and then to buy them when their price is temporarily low. Id like to especially thank Bill Fuller, Jeff Mayer and Richard Falk for the half dozen really sharp, thoughtful questions that they posed during the closing segment. If you catch no other part of the call, you might zoom in on those last 15 minutes to hear Mitch and the guys in conversation. Mr. Rubin is an articulate advocate for the fund, as well as being a manager with a decades-long record of success. In addition to listening to his conversation, there are two documents on the LongShort funds homepage that interested parties should consult. First, the fund profile has a lot of information about the funds performance back when it was a hedge fund which should give you a much better sense of its composition and performance over time. Second, the managers commentary offers an intriguing list of industries which they believe to be ascendant or failing. Its sort of thought-provoking. Conference Calls Upcoming: Great managers on-deck As promised, were continuing our moderated conference calls through the winter. You should consider joining in. Heres the story: Each call lasts about an hour About one third of the call is devoted to the managers explanation of their funds genesis and strategy, about one third is a QampA that I lead, and about one third is QampA between our callers and the manager. The call is, for you, free. Your line is muted during the first two parts of the call (so you can feel free to shout at the danged cat or whatever) and you get to join the question queue during the last third by pressing the star key. Our next conference call features Matt Moran and Dan Johnson, co-managers of ASTON River Road Long Short (ARLSX). Ive had several conversations with the team and they strike me as singularly bright, articulate and disciplined. When we profiled the fund in June, we noted: The strategys risk-management measures are striking. Through the end of Q1 2012, River Roads Sharpe ratio (a measure of risk-adjusted returns) was 1.89 while its peers were at 0.49. Its maximum drawdown (the drop from a previous high) was substantially smaller than its peers, it captured less of the markets downside and more of its upside, in consequence of which its annualized return was nearly four times as great. Among the crop of newer offerings, few are more sensibly-constructed or carefully managed that ARLSX seems to be. It deserves attention. If youd like to share your attention with them, our call with ASTON River Road Long Short is Monday, December 17, from 7:00 8:00 Eastern . To register for the call, just click on this link and follow the instructions. Ill send a reminder email on the day of the call to all of the registered parties. Were hoping to start 2013 with a conversation with Andrew Foster of Seafarer Overseas Growth amp Income (SFGIX), one of the best of a new generation of emerging markets funds. Were also in conversation with the managers of several seriously concentrated equity funds, including David Rolfe of RiverParkWedgewood Fund (RWGFX) and Steve Dodson of Bretton Fund (BRTNX). As a service to our readers, weve constructed a mailing list that well use to notify folks of upcoming conference call opportunities. If youd like to join but havent yet, feel free to drop me a note . Fidelitys Advice to Emerging Markets Investors: Avoid Us Fidelity runs several distinct sets of funds, including Fidelity, Fidelity Advisor, Fidelity Select, and Fidelity Series. In many ways, the most interesting are their Strategic Adviser funds which dont even bear the Fidelity name. The Strategic Adviser funds are exclusive to clients of Portfolio Advisory Services. They allow Strategic Advisers to hire (and fire) sub-advisers as well as to buy, sell, and hold mutual funds and exchange-traded funds (ETFs) within the fund. In short, these are sort of best ideas funds, two of which are funds of funds. Which led to the question: would the smartest folks Fidelity could find, who could choose any funds around which to build a portfolio, choose Fidelity In the case of emerging markets, the answer is uhh no. Heres the portfolio for Strategic Advisers Emerging Markets Fund of Funds (FLILX). Total portfolio weights as of Why, exactly, the managers have invested in three different classes of the same Fidelity fund is a bit unclear but at least they are willing to invest with Fido. It may also speak to the continuing decline of the Fidelity equity-investing side of the house while fixed-income becomes increasingly A Site Worth Following: Learn Bonds Junior Yearwood, our friend and contributing editor who has been responsible for our Best of the Web reviews, has been in conversation with Marc Prosser, a Forbes contributor and proprietor of the Learn Bonds website. While the greatest part of Marcs work focuses broadly on bond investing, he also offers ratings for a select group of bond mutual funds. He has a sort of barbell approach, focusing on the largest bond fund companies and on the smallest. His fund ratings, like Morningstars analyst ratings, are primarily qualitative and process-focused. Marc doesnt yet have data by which to assess the validity of his ratings (and, indeed, is articulately skeptical of that whole venture), so we cant describe him as a Best of the Web site. That said, Junior concluded that his site was clean, interesting, and worth investigating. It was, he concluded, a new and notable site . Launch Alert: Whitebox Long Short Equity (WBLSX, WBLRX, WBLFX) On November 1, Whitebox Advisors converted their Whitebox Long Short Equity Partners hedge fund into the Whitebox Long Short Equity Fund which has three share classes. As a hedge fund, Whitebox pretty much kicked butt. From 2004 2012, it returned 15.8 annually while the SampP500 earned 5.2. At last report, the fund was just slightly net-long with a major short against the Russell 2000. Theres great enthusiasm among the Observers discussion board members about Whiteboxs first mutual fund, Whitebox Tactical Opportunities (WBMAX). which strongly suggests this one warrants some attention, if only from advisors who can buy it without a sales load. The Investor shares carry at 4.5 front load, 2.48 expense ratio and a 5000 minimum initial investment. You might check the funds homepage for additional details. Observer Fund Profiles Had I mentioned that we visited RiverNorth Each month the Observer provides in-depth profiles of between two and four funds. Our Most Intriguing New Funds are funds launched within the past couple years that most frequently feature experienced managers leading innovative newer funds. Stars in the Shadows are older funds that have attracted far less attention than they deserve. This months lineup features Artisan Global Equity Fund (ARTHX): you know a firm is in a good place when the most compelling alternatives to one of their funds are their other funds. Global, run by Mark Yockey and his team, extends on the long-term success of Artisan International and International Small Cap. RiverNorth Dynamic Buy Write (RNBWX): one of the most consistently successful (and rarely employed) strategies for managing portfolios in volatile markets is the use of covered calls. After spending several hours with the RiverNorth team and several weeks reading the research, we may have an answer to a version of the old Ghostbusters question, who you gonna (covered) call Funds in Registration New mutual funds must be registered with the Securities and Exchange Commission before they can be offered for sale to the public. The SEC has a 75-day window during which to call for revisions of a prospectus fund companies sometimes use that same time to tweak a funds fee structure or operating details. Every day we scour new SEC filings to see what opportunities might be about to present themselves. Many of the proposed funds offer nothing new, distinctive or interesting. Some are downright horrors of Dilbertesque babble. Funds in registration this month wont be available for sale until, typically, the beginning of February 2013. Since firms really like launching by December 31 st if they can, the number of funds in the pipeline is modest: seven this month, as compared to 29 last month. That said, two of the largest fixed-income teams are among those preparing to launch: DoubleLine Floating Rate Fund . the tenth fund advised or sub-advised by DoubleLine, will seek a high level of current income by investing in floating rate loans and other floating rate investments. The fund will be managed by Bonnie Baha and Robert Cohen. Ms. Baha was part of Mr. Gundlachs original TCW team and co-manages Multi-Asset Growth . Low-Duration Bond and ASTONDoubleLine Core Plus Fixed Income . PIMCO Emerging Markets Full Spectrum Bond Fund will invest in a broad range of emerging market fixed income asset classes, such as external debt obligations of sovereign, quasi-sovereign, and corporate entities currencies, and local currency-denominated obligations of sovereigns, quasi-sovereigns, and corporate issuers. The manager has not yet been named but, as we noted in our lead story, the odds are that this is going to be a top-of-class performer. Details on these funds and the list of all of the funds in registration are available at the Observers Funds in Registration page or by clicking Funds on the menu atop each page. On a related note, we also tracked down 40 fund manager changes. down from last months bloodbath in which 70 funds changed management. The Observer in the News Last month, we ran our annual Honor Roll of Consistently Bearable Funds, which asks the simple question: which mutual funds are never terrible Our basic premise is that funds that earn high returns but crash periodically are, by and large, impossible for investors to hold. And so we offered up a list of funds that have avoided crashing in any of the past ten years. As it turns out, by managing beta, those funds ended up with substantial alpha. In English: they made good money by avoiding losing money. Chuck Jaffe has been looking at a related strategy for years, which led him to talk about and elaborate on our article. His story, A fund-picking strategy for nervous investors , ran on November 19 th. ended up briefly ( very briefly: no one can afford fifteen minutes of fame any more) on the front page of Google News and caused a couple thousand new folks to poke their heads in at the Observer. Briefly Noted. Artisan Partners has again filed for an initial public offering. They withdrew a 2011 filing in the face of adverse market conditions. Should you care Investors can afford to ignore it since it doesnt appear that the IPO will materially change operations or management it mostly generates cash to buy back a portion of the firm from outsiders and to compensate some of the portfolio guys. Competitors, frankly, should care. Artisan is about the most successful, best run small firm fund that I know of: theyve attracted nearly 70 billion in assets, have a suite of uniformly strong funds, stable management teams and a palpable commitment to serving their shareholders. If I were in the business, Id want to learn a lot and think a lot about how theyve managed that feat. Sudden access to a bunch more information would help. One of The Wall Street Journal columnists surveyed financial advisers, mutual-fund experts and academics in search of the five best books for beginning investors. Other than for the fact that they missed Andrew Tobiass The Only Investment Guide Youll Ever Need . its a pretty solid list with good works from the efficient market and behavioral finance folks. SMALL WINS FOR INVESTORS Clipper (CFIMX), Davis New York Venture (NYVTX), and Selected American Shares (SLASX) have waived their 30-day trading restriction for the rest of 2012, in case investors want to do some repositioning in anticipation of higher capital gains tax rates in 2013. DreyfusThe Boston Company Small Cap Growth (SSETX) reopened to new investors on Nov. 1. Victoria 1522 (VMDIXVMDAX), an emerging markets stock fund, is cutting its expense ratio by 40 basis points. Thats much better news than you think. Glance at Morningstars profile of the lower-minimum Advisor shares and youll see a two-star fund and move on. That reading is, for two reasons, short-sighted. First, the lower expense ratio would make a major difference the institutional shares, at 25 bps below the Advisor shares, gain a star (as of 113012) and this reduction gives you 40 bps. Second, the three-year record masks an exceedingly strong four-plus year record. From inception (1008) through the end of 1112, Victoria 1522 would have turned a 10,000 investment into 19,850. Its peer over the same period would have returned 13,500. Thats partly attributable to good luck: the fund launched in October 2008 and made about 3 in the quarter while its peers dropped nearly 21. Even excluding that great performance (that is, looking at 109 1112), the fund has modestly outperformed its peer group despite the drag of its soon-to-be-lowered expenses. ManagerJosephine Jimnez has a long, distinguished record, including long stints running Montgomery Asset Managements emerging markets division. (Thanks to Jake Mortell of Candlewood Advisory for the heads up) Wells Fargo has reopened the Class A shares of its Wells Fargo Advantage Dow Jones Target funds: Target Today, 2010, 2020, 2030 and 2040. AllianceBernstein Small Cap Growth (QUASX) will close to new investors on January 31, 2013. Thats all I noticed this month. OLD WINE, NEW BOTTLES Calvert Enhanced Equity (CMIFX) will be renamed Calvert Large Cap Core in January 2013. Actually, this one is a little bit more like old vinegar in new bottles. Dominion Insight Growth Fund was reorganized into the Shepherd Large Cap Growth Fund in 2002. Shepherd LCG changed its name to the Shepherd Fund in 2008. Then Shepherd Fund became Foxhall Global Trends Fund in 2009, and now Foxhall Global Trends has become Fairfax Global Trends Fund (DOIGX). In all of the name changes, some things have remained constant: low assets, high expenses, wretched performance (theyve finished in the 98 th -99 th percentile for the trailing one, three, five and ten year periods). Forward Aggressive Growth Allocation Fund became Forward Multi-Strategy Fund on December 3, 2012, which is just a bit vanilla. The 50 other multi-strategy funds in Morningstars database include Dynamic, Ethical, Global, Hedged and Progressive flavors of the marketing flavor du jour. In non-news, Marathon Value Portfolio (MVPFX) is moving from the Unified Series Trust to Northern Lights Fund Trust III. Thats their third move and I mention it only because the change causes the SEC to flag MVPFX as a new fund. It isnt new, though it is a five-star, Star in the Shadows fund and worth knowing about. Wells Fargo Advantage Total Return Bond (MBFAX) will be renamed Wells Fargo Advantage Core Bond sometime in December. OFF TO THE DUSTBIN OF HISTORY Geez, the dustbin of history is filling up fast. BNY Mellon Intermediate U. S. Government (MOVIX) is merging into BNY Mellon Intermediate Bond (MIIDX) in February, though the manager is the same for both funds. Buffalo plans to merge Buffalo China (BUFCX) into Buffalo International (BUFIX) in January, 2013. The fund was originally sub-advised by Jayhawk Capital and I long ago wrote a hopeful profile of the then-new fund. Jayhawk ran it for three years, making huge amounts twice (2007 and 2009), lost a huge amount once (2008), lived in the basement of a highly volatile category and were replaced in 2009 by an in-house management team. The fund has been better but never rose to good and never drew assets. Dreman is killing off five of the six funds: Contrarian International Value (DRIVX), Contrarian Mid Cap Value (DRMVX), Contrarian Value Equity (DRVAX), High Opportunity (DRLVX), and Market Over-Reaction (DRQLX). Mr. Dreman has a great reputation and had a great business sub-advising load-bearing funds. Around 2003, Dreman launched a series of in-house, no-load funds. That experiment, by and large, failed. The funds were rebranded and repriced, but never earned their way. The fate of their remaining fund, Dreman Contrarian Small Cap Value (DRSVX), is unknown. DreyfusThe Boston Company Small Cap Tax-Sensitive Equity (SDCEX) will liquidate on January 8, 2013 and Dreyfus Small Cap (DSVAX) disappears a week later. Dreyfus is also liquidating a bunch of money market and state bond funds. Fidelity is pulling a rare 5:1 reverse split by merging Tax Managed Stock (FTXMX), Advisor Strategic Growth (FTQAX), Advisor 13030 Large Cap (FOATX), and Large Cap Growth (FSLGX) into Fidelity Stock Selector All Cap (FSSKX). Guggenheim Flexible Strategies (RYBSX) (formerly Guggenheim Long Short Interest Rate Strategies) is slated to merge into Guggenheim Macro Opportunities (GIOAX). Henderson Global is liquidating their International All Cap Equity (HFNAX) and the Japan Focus (HFJAX) funds in December. Legg Mason has decided to liquidate Legg Mason Capital Management Disciplined Equity Research (LGMIX), likely on the combination of weak performance and negligible assets. Munder International Equity (MUIAX) will merge into Munder International Core Equity (MAICX) on Dec. 7. The board of Northern Funds approved the liquidation of Northern Global Fixed Income (NOIFX) for January 2013. Pear Tree Columbia Micro Cap (MICRX) just liquidated. They gave the fund all of one year before declaring it to be a failed experiment. RidgeWorth plans to merge RidgeWorth Large Cap Core Growth Stock (CRVAX) will be absorbed by RidgeWorth Large Cap Growth Stock (STCIX). Turner is merging Turner Concentrated Growth (TTOPX) into Turner Large Growth (TCGFX) in early 2013. Westwood has decided to liquidate Westwood Balanced (WHGBX) less than a year after the departure of longtime lead manager Susan Byrne. In February, Wells Fargo Advantage Diversified Small Cap (NVDSX) disappears into Wells Fargo Advantage Small Company Growth (NVSCX), Advantage Equity Value (WLVAX) into Advantage Intrinsic Value (EIVAX) and Advantage SmallMid Cap Core (ECOAX) into Advantage Common Stock (SCSAX). Well Fargo is also liquidating its Wells Fargo Advantage Core builder Series (WFBGX) in early 2013. Coming Attractions The Observer is trying to help two distinct but complementary groups of folks. One group are investors who are trying to get past all the noise and hype. (CNBCs ratings are dropping like a rock, which should help.) Were hoping, in particular, to help folks examine evidence or possibilities that they wouldnt normally see. The other group are the managers and other folks associated with small funds and fund boutiques. We believe in you. We believe that, as the industry evolves, too much emphasis falls on asset-gathering and on funds launched just for the sake of dangling something new and shiny (uhh the All Cap Insider Sentiment ETF ). We believe that small, independent funds run by smart, passionate investors deserve a lot more consideration than they receive. And so we profile them, write about them and talk with other folks in the media about them. As the Observer has become a bit more financially sustainable, were now looking at the prospect of launching two sister sites. One of those sites will, we hope, be populated with the best commentaries gathered from the best small fund managers and teams that we can find. Many of you folks write well and some write with grace that far exceeds mine. The problem, managers tell me, is that fewer people than youd like find their way to your sites and to your insights. Our technical team, which Chip leads, thinks that they can create an attractive, fairly vibrant site that could engage readers and help them become more aware of some of the smaller fund families and their strategies. We respect intellectual property, and so wed only use content that was really good and whose sharing was supported by the adviser. Thats still in development. If you manage a fund or work in support of one and would like to participate in thinking about what would be most helpful, drop Chip a note and well find a way to think through this together. (Thanks) Small cap funds tend to have their best performance in the first six weeks of each year and so were planned a smallcapfest for our January issue, with new or revised profiles of the most sensible small cap funds as well as a couple outside perspectives on where you might look. In Closing. I wanted to share leads on three opportunities that you might want to look in on. The Observer has no financial stake in any of this stuff but I like sharing word of things that strike me as really first-rate. QuoteArts is a small shop that consistently offers a bunch of the most attractive, best written greeting cards (and refrigerator magnets) that Ive seen. Steve Metivier, who runs the site, gave us permission to reproduce one of their images (normally the online version is watermarked): The text reads 8220A time to quiet our hearts8230 (inside) to soften our edges, clear our minds, enjoy our world, and to share best wishes for the season. May these days and all the new year be joyful and peaceful.8221 It strikes me as an entirely-worthy aspiration. The best book there is on the subject of practical persuasion is Robert Cialdinis Influence: The Psychology of Persuasion (revised edition, 2006). Even if youre not impressed that Ive used the book in teaching persuasion over the past 20 years, you might be impressed by Charlie Mungers strong endorsement of it. In a talk entitled The Psychology of Human Misjudgment , Munger reports being so impressed with Cialdinis work that he read the book, gave copies of it to all his children and sent Cialdini (chawl-dee-nee, if you care) a share of Berkshire Hathaway in thanks. Cialdini has since left academe, founded the consulting group Influence at Work and now offers Principles of Persuasion workshops for professionals and the public. While I have not researched the workshops in any depth, I suspect that if I were a small business owner, marketer or financial planner who needed to both attract clients and change their behavior for the better. Id take a serious look. Finally, at Amazon8217s invitation, I contributed an essay that will be posted at their new 8220Money and Markets8221 store from December 5th until about the 12th. Its original title was, 8220It8217s time to go,8221 but Amazon8217s project director and I ended up settling on the less alarming 8220Trees don8217t grow to the sky .8221 If youve shopped at, say, Macys, youre familiar with the store-within-a-store notion: free-standing, branded specialty shops (Levengers, LUSH, FAO Schwarz) operating within a larger enterprise. It looks like Amazon is trying an experiment in the same direction and, in November, we mentioned their Money and Markets store. Apparently the Amazonians noticed the fact that some of you folks went to look around, they followed your footprints back here and did some reading of their own. One feature of the Money and Markets store is a weekly guest column and the writers have included Jack Bogle and Tadas Viskanta, the founder of Abnormal Returns which is one of the webs two best financial news aggregators. In any case, they asked if Id chip in a piece during the second week of December. We8217re not allowed to repost the content for a week or so, but I8217ll include it in the January cover essay. Feel free to drop by if youre in the area. In the meanwhile, I wanted to extend sincere thanks from all of the folks here (chip, Anya, Junior, Accipiter and me) for the year youve shared with us. You really do make it all worthwhile and so blessings of the season on you and yours. By David Snowball Objective and Strategy The fund seeks to maximize long-term capital growth. They invest in a global, all-cap equity portfolio which may include common and preferred stocks, convertible securities and, to a limited extent, derivatives. Theyre looking for high-quality growth companies with sustainable growth characteristics. Their preference is to invest in firms that benefit from long-term growth trends and in stocks which are selling at a reasonable price. Typically they hold 60-100 stocks. No more than 30 of the portfolio may be invested in emerging markets. In general they do not hedge their currency exposure but could choose to do so if they owned a security denominated in an overvalued currency. Artisan Partners of Milwaukee, Wisconsin with Artisan Partners UK LLP as a subadvisor. Artisan has five autonomous investment teams that oversee twelve distinct U. S. non-U. S. and global investment strategies. Artisan has been around since 1994. As of 9302012, Artisan Partners had approximately 70 billion in assets under management. Thats up from 10 billion in 2000. They advise the 12 Artisan funds, but only 5 of their assets come from retail investors. Barry P. Dargan is lead portfolio manager and Mark L. Yockey is portfolio manager. Dargan and Yockey are jointly responsible for management of the fund, they work together to develop investment strategies but Mr. Dargan generally exercises final decision-making authority. Previously, Mr. Dargan worked for MFS, as an investment analyst from 1996 to 2001 and as a manager of MFS International Growth (MGRAX) from 2001 to 2010. Mr. Yockey joined Artisan in 1995 and is the lead manager for Artisan International (ARTIX) and Artisan International Small Cap (ARTJX). The fact that Mr. Dargans main charge handily outperformed ARTIX over nearly a decade might have helped convince Artisan to bring him on-board. Management8217s Stake in the Fund Mr. Dargan has over 1 million invested with the fund, and Mr. Yockey has between 500,000 and 1 million invested. As of December 31, 2011, the officers and directors of Artisan Funds owned 16.94 of Artisan Global Equity Fund. Opening date Minimum investment 1,000, which Artisan will waive if you establish an account with an automatic investment plan. Expense ratio 1.50, after waivers, on assets of 16.7 million. There is a 2 redemption fee for shares held less than 90 days. Q: What do you get when you combine the talents of two supremely successful international stock managers, a healthy corporate culture and a small, flexible fund A: Artisan Global Equity. The argument for considering ARTHX is really straightforward. First, both managers have records that are both sustained and excellent. Mr. Dargan managed, or co-managed, six funds, including two global funds, while at MFS. Those included funds targeting both U. S. and non-U. S. investors. While I dont have a precise calculation, its clear he was managing more than 3 billion. Mr. Yockey has famously managed two Artisan international funds since their inception, was once recognized as Morningstars International Fund Manager of the Year (1998). For most trailing time periods, his funds have top 10 returns. International Small Cap received Morningstars highest accolade when it was designated as the only Gold fund in its peer group while International was recognized as a Silver fund. Based on head-to-head comparisons from 2001-2010, Mr. Yockey is really first rate and Mr. Dargan might be better. (Being British, its almost certain that he has a cooler accent.) Second, Artisan is a good steward. The firms managers are divided into five teams, each with a distinctive philosophy and portfolio strategy. The Global Equity team has four members (including Associate Portfolio Managers Charles Hamker and Andrew Euretig who also co-manage International Small Cap) and their discipline grows from the strategies first employed in ARTIX then extended to ARTJX. Artisan has a very good record for lowering expenses, being risk conscious, opening funds only when they believe they have the capacity to be category-leaders (and almost all are) and closing funds before theyre bloated. Third, ARTHX is nimble. Its mandate is flexible: all sizes, all countries, any industry. The funds direct investment in emerging markets is limited to 30 of the portfolio, but their pursuit of the worlds best companies leads them to firms whose income streams are more diverse than would be suggested by the names of the countries where theyre headquartered. The managers note: Though we have outsized exposure to Europe and undersized exposure to the U. S. we believe our relative country weights are of less significance since the companies we own in these developed economies continually expand their revenue bases across the globe. Our portfolio remains centered around global industry leading companies with attractive valuations. This has led to a significant overweight position in the consumer sectors where many of our holdings benefit from significant exposure to the faster growth in emerging economies. Since much of the worlds secular (enduring, long-term) growth is in the emerging markets, the portfolio is positioned to give them substantial exposure to it through their Europe and US-domiciled firms. While the managers are experienced in handling billions, here theyre dealing with only 17 million. The results are not surprising. Morningstar believes that their analysts can identify those funds likely to serve their shareholders best they do this by looking at a series of qualitative factors on top of pure performance. When they find a fund that they believe has the potential to be consistently strong in the future, they can name it as a Gold fund. Here are ARTHXs returns since inception (the blue line) against all of Morningstars global Gold funds: Not to say that the gap between Artisan and the other top funds is large and growing, but it is. Bottom Line Artisan Global Equity is an outstanding small fund for investors looking for exposure to many of the best firms from around the global. The expenses are reasonable, the investment minimum is low and the manager is first-rate. Which should be no surprise since two of the few funds keeping pace with Artisan Global Equity have names beginning with the same two words: Artisan Global Opportunities (ARTRX) and Artisan Global Value (ARTGX). Fund website Mutual Fund Observer, 2012. All rights reserved. The information here reflects publicly available information current at the time of publication. For reprinte-rights contact us . LearnBonds Mutual Fund amp ETF Ratings History and Focus LearnBonds (LB) Mutual Fund amp ETF Ratings was launched in December 2011 by its co-founders Marc Prosser and David Waring. Marc Prosser is currently a Forbes contributor previously he was the Chief Marketing Officer at Forex Capital Markets (FXCM). David Waring was formerly the Managing Director, business development and strategy, at Market Simplified Inc. Unlike industry heavyweights such as Morningstar and Lipper, LB Ratings focuses on a relatively small number of bond funds in a limited number of categories. They divide funds into categories based on purpose. The categories currently listed are core bond funds, municipal bond funds, short termlow-duration bond funds, high credit risk bond funds and long duration funds. Their belief is that no individual or family should have more than 5 purpose driven funds in their portfolio. This is how David Waring describes their approach: We have tremendous respect for Morningstar and Lippers mutual fund and ETF ratings. LB Ratings will not replace these great tools. However, we recognize many investors find these tools overwhelming and complicated to apply to making investment choices. We are addressing the need for a simplified product which expresses strong views as to which funds an investor should own. Methodology LB Ratings does not use a mathematical formula to identify or rate individual funds. Every fund listed on LB ratings was personally chosen and rated by the co-founders. Instead of mechanical, number-based, quantitative analysis, they use a specific set of criteria to personally select and rate individual funds. Factors include fund performance both long and short term, risk levels, associated fees and quality and tenure of management. Funds are given a rating level between 1 and 5 stars, 1 being the lowest and 5 the highest. The website describes this method as opinionated ratings. They are clear and upfront about their methods and their belief that all fund rating agencies and websites are inherently subjective. This makes LBs ratings akin to Morningstars Analyst Ratings (the Gold, Silver designations). Every fund listed is accompanied by a compact but comprehensive report that outlines its strengths and weaknesses, as well as the rationale behind its rating. In addition to their bond fund and ETF lists, LB Ratings also offers links to bond and fund related articles. Additionally, website visitors can sign up for a daily newsletter, or download the free e-book How to Invest in Bonds. The website is simple and straightforward, providing shortlists of funds that were hand chosen by experts in the field. The rating report that accompanies each fund is clear and concise, giving readers information that can be useful to them independent of the rating. Fewer categories and shorter lists may be less stressful to some investors and help to reduce confusion. The limited number of categories and funds means that inevitably many strong candidates will be missing. The subjective nature of the ratings will be too abstract for many. The lack of comparative tools and tools in general will limit the site8217s appeal to investors who need more in-depth coverage. One practical concern we have is that theres no evidence of predictive validity for the LB ratings that is, they dont have proof that their five star funds will perform better in the future than their three star ones. Heres Mr. Prossers response: As far as predictive analysis. I would make the argument that at least for actively traded bonds funds we are in a period of time where quantitative analysis is difficult to employ: Funds have radically changed the profile of the assets they hold and significantly drifted away from their benchmarks. Here are two easy examples the Templeton World Bond Fund is now a short-duration fund, with a duration two years shorter than its peers. The PIMCO Total Return Fund now is a large holder of munis. which are neither included in its benchmark nor have they ever been a major part of its holdings. In both cases, these are radical departures from the past. and at the same time might be temporary positions. As a result, more than ever youre 8220betting8221 on the skill of the fund8217s manager. Or put another way, historically the best performing bond mutual funds had most their returns generated from beta and now they are generating it from alpha. In short, I don8217t think the quant models being employed really capture this shift. Assessing these funds requires more qualitative analysis. Bottom Line Although the website8217s offerings are limited, many investors may prefer a human chosen shortlist of choices over one generated by a computer. For those who don8217t need or likely will not use tools such as screeners and comparative charts, the simple straightforward nature of LB Ratings will be welcome. As the website itself acknowledges though, a fund rating website is built on trust. Trust is earned over time, and ultimately only time will tell how the opinionated ratings approach fares against the tried and tested methods of the industry8217s heavyweights in terms of performance. For now, we conclude that LB has a sensible niche, that its interesting, worth watching and potentially useful, so long as you use their ratings as a starting point rather than a final word. By David Snowball DoubleLine Floating Rate Fund DoubleLine Floating Rate Fund will seek a high level of current income by investing in floating rate loans and other floating rate investments. The other includes floating rate debt securities inflation-indexed securities certain mortgage - and asset-backed securities, including those backed by collateral that carry an adjustable or floating rate of interest, such as adjustable rate mortgages certain collateralized loan obligations certain collateralized debt obligations certain collateralized mortgage obligations adjustable rate mortgages floaters inverse floaters money market securities of all types repurchase agreements and shares of money market and short-term bond funds. The fund will be managed by Bonnie Baha and Robert Cohen. Ms. Baha was part of Mr. Gundlachs original TCW team. No word on Mr. Cohens background. The minimum initial investment is 2000, reduced to 500 for IRAs. Expenses not yet set. Epiphany FFV Global Ecologic Fund Epiphany FFV Global Ecologic Fund will seek long-term capital growth by investing in a global portfolio of common and dividend-paying preferred stocks. They seek to encourage environmentally responsible business practices and a cleaner environment by investing in environmentally responsible and sustainable companies. They anticipate holding about 50 names and, they assure us, theyll invest no more than 5 in pure play renewable energy. The managers will be Frank Morris, founder and CEO of Ecologic Advisors andSamuel J. Saladino, CEO of Trinity Fiduciary Partners and the manager of Epiphany FFV Fund and Latin America Fund. The former is a tiny, perfectly respectable US large cap fund. The latter is new but doing well so far. FFV refers to Faith and Family Values and represents the underlying theme of the social and moral screening. The minimum initial investment is 1000, reduced to 100 for accounts set up with an automatic investing plan. The expense ratio is 1.56. Lyrical U. S. Value Equity Fund Lyrical U. S. Value Equity Fund will seek to achieve long-term capital growth by buying the stocks of companies that the Adviser believes are undervalued, the undervaluation to be temporary, the underlying business to have sufficient quality and durability, and the estimated discount in the stock price to be large enough to compensate for the risks of the investment. Good companies temporarily down. Consegui. The fund will be managed by Andrew Wellington, Chief Investment Officer of Lyrical Asset Management. The manager ran a hedge fund for a while, managed institutional midcap value money for Neuberger and was a founding member of Pzena Investment Management. The minimum investment is 10,000, reduced to 1,000 for IRAs. The expense ratio is 1.45. Market Vectors High-YieldTreasury Bond ETF Market Vectors High-YieldTreasury Bond ETF will track an index that invests in global high yield bonds and shorts U. S. Treasuries in order to hedge interest rate sensitivity. Michael Mazier and Francis Rodilosso of Van Eck will manage the fund. Expense not yet set. MCM All-Cap Growth Fund MCM All-Cap Growth Fund (MCAEX) will seek capital appreciation by investing in 25-50 smaller cap US growth stocks. The fund will be managed by Rich Jones and Jonn Wullschleger, both of Mitchell Capital Management. Their separate account composite, for accounts managed in this style, modestly outperformed the Russell 3000 Growth Index pretty consistently. The minimum initial investment is 2500. Expenses are capped at 1.0. PIMCO Emerging Markets Full Spectrum Bond Fund PIMCO Emerging Markets Full Spectrum Bond Fund will pursue maximum total return, consistent with prudent investment management. The plan is to invest in a broad range of emerging market fixed income asset classes, such as external debt obligations of sovereign, quasi-sovereign, and corporate entities currencies, and local currency-denominated obligations of sovereigns, quasi-sovereigns, and corporate issuers. The managers will actively manage both the asset allocation and security selection. The benchmark asset allocation is 50 JPMorgan Global Bond Index Emerging Markets - Global Diversified, 25 JPMorgan Emerging Markets Bond Index Global and 25 JPMorgan Corporate Emerging Market Bond Index Diversified. They can implement their allocation plan directly by buying securities or indirectly by investing in funds and ETFs. The manager has not yet been named. There will be a 1000 investment minimum for the no-load D shares. Expenses have not yet been set. Shelton Green Alpha Fund Shelton Green Alpha Fund will seek a high level of long-term capital appreciation by investing in stocks in the green economy. The prospectus is bereft of potentially useful details, such as what theyll charge and wholl manage the fund. We do know that its a no-load fund, that the minimum investment is 1000, and that green funds have largely been a disaster for both sponsor and investor. I wish them well. Because bond fund managers, traditionally, had made relatively modest impacts of their funds absolute returns, Manager Changes typically highlights changes in equity and hybrid funds.
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