IMHO, we have so many brokerages with NTF funds, there aren't many funds you have to pay commission. And for those you need to buy absolutely be it FAIRX or COBYX or whatever, you can buy directly with company.
I cannot make an argument for ANY fund that justifies paying commission.

Hi, Bitzer!
If by "defensive" you mean "weakly correlated to the stock market," you might benefit by thinking about how equity-oriented funds minimize their correlation.
Some choose to short individual stocks, which allows them to maintain an effective (called "net") exposure that might be in the 40-60% range. Representative of such funds is ASTON/River Road Long-Short (ARLSX), LS Opportunity (LSOFX), RiverPark Long-Short Opportunities (RLSFX) and Wasatch Long-Short (FMLSX).
Some choose to sell options which generate income and rise in value, generally, when volatility is climbing. Representative of such funds is RiverNorth Dynamic Buy-Write (RNBWX), RiverPark Gargolye Hedged Value (RGHVX) and Bridgeway Managed Volatility (BRBPX).
Some choose to maintain high cash balances when the market does not represent a screaming buy. Representative funds include Bretton Fund (BRTNX), Cook and Bynum (COBYX), Pinnacle Value (PVFIX), all of the F P A funds (including Crescent and International Value), and Tilson Dividend (TILDX).
Some, of course, have hybrid stock/bond portfolios. I'd be cautious there about anything holding a bond portfolio with a maturity of more than five years. You could do worse than a fund like Greenspring (GRSPX) or Osterweis Strategic Investment (OSTVX).
Each approach has its special drawbacks and none are pure magic, but any of the strategies might work to help you find a long-term holding that you might choose to enlarge when your anxiety climbs.
For what it's worth,
David

I took a quick-look at "Kiplinger's 25 Favorite No-Load Mutual Funds," which come with following rationale:

Every year, we put together the Kiplinger 25, a list of our favorite no-load mutual funds. We favor funds run by seasoned managers who take a long view and have proved themselves able to weather many a storm. And we prefer low to below-average fees.

This is the kind of article I think a beginning or novice investor would take to heart.
Here's how they rate in the MFO system:


Not a bad list, just so many other top offerings do not appear, like: OAKIX, ARTKX, MAPOX, YACKX, BBTEX, SMVLX, COBYX, FMILX, SEQUX, VEIPX, BHBFX, ARDEX, GABCX, FPNIX, TGLMX, FILDX, MERDX, POAGX, NSEIX, BCSIX, FSCRX.
Often wonder if such lists are somehow sponsored by the fund companies, directly or indirectly. Hope not, just probably healthy be somewhat skeptical, which comes easier with age =).

Reply to @MikeM: Hey Mike. That's what I'm saying. They proved they are NOT different. And I never heard about their business plan about gathering assets till $3B until now.
Royce is "independently managed" from Legg Mason. LM does not interfere with how the funds invest. I hope no one will try to convince me LM has nothing to do with Royce starting funds left/right/center to gather assets.
Yet ANOTHER reason I find WGRNX, COBYX, PVFIX, etc. attractive. No bullshit about "large cap stocks did not do well, so I sucked too". Instead "this is the way I'm managing money, you like, you invest". These guys left Wasatch because "We really wanted to add value by managing a smaller amount of assets". THAT was in the interview done by Gardiner/Walker when they started their fund. There was no mention of this $3B business plan. To the contrary they know if they had blabbed their plan, less people would have invested and they know it.
Thank you for making me think and remember. People think no one will rememeber what they said 3,4 years again. And they can spin things as they like to justify their actions any time they want. It is even more clearer to me know these guys are no better than anyone else. I now KNOW I will be selling GPGOX at some point in the very near future. I might use it for "trading" but it has been part of my long term plans - NO MORE.

how much ultra concentration do we need? 17. Bah! :-)
I already own FAIRX and COBYX. I think I will pass for now

Not surprised David. I do agree with your two answers. BRTNX, COBYX, GOODX also come to mind.

Hi again MJG. Thanks for kind words of encouragement on new rating system.
I do indeed have Mr. Martin's book, entitled "The Investor's Guide to Fidelity Funds - Winning Strategies for Mutual Fund Investing," where the retracement index (aka Ulcer Index) is introduced. It's a good book with several topics covered, including other risk measures, like beta and its relationship to theoretical Capital Asset Pricing Model (CAPM), which Prof Sharpe helped develop.
I thought it was interesting that when the book was first published in 1989, there was of course no mention of value or cap size parameters now recognized in the Fama/French three factor model. Think some day a momentum factor will be added? I believe Peter Martin and his co-author Byron McCann were both students of Prof Sharpe at Stanford, but have yet to confirm.
While the new return ratings key on Martin because of its sensitivity to both excess return and draw down, the risk ratings utilize three measures - standard deviation, downside, and Ulcer, which are the denominators of Sharpe, Sortino, and Martin, respectively.
Numerous risk and risk adjusted return measures have been developed, but Sharpe and Sortino certainly seem to be most popular, like you note. M* publishes these two along with beta, alpha, r-squared (correlation), Treynor, upside/down side capture. M* still has a place for something called "Bear Market Percentile Rank," which appeals to me, but its reference is so specific (the 5 year window) and is published so infrequently that I've stopped relying on it.
Other measures include Modigliani, Calmar, Sterling, and maximum draw down (MAXDD), which are tougher to find, like Ulcer and Martin. Maybe it's just because some of them are harder to calculate? I believe that the draw down measures are becoming more common in today's trading software programs.
After 2008, I think we all got more sensitive to draw down as a measure, but it's still not often published. For example, M* shows both gold rated funds DODGX and LLSCX performance at about -43% in 2008 or 6% below market. But they actually drew down nearly 60% by Feb 2009. MAXDD is included in the new MFO ratings tabulation, along with the Ulcer and Martin measures of draw down extent and duration. I suppose that given the choice, most folks would want to achieve comparable absolute return while experiencing less draw down. (But I'm heavy FAAFX, so I recuse myself from consideration.)
All these measures are so-called ex post...historical, after the fact. Beta has been shown to have tendency to persistent, but certainly alpha does not. I believe CAPM predicts that those investing in riskier funds can expect higher returns over time. But has the debate been settled on whether there is an "optimal" risk level for a portfolio?
I personally think Ulcer Index and attendant Martin Ratio are best measures available for identifying funds that have delivered superior returns while avoiding draw downs. In addition to the previous references posted, here are a couple supporting opinions: The Ulcer Index and The Ulcer Index: A better measure of risk. (I tried searching for contradictory opinions but came up empty.)
I do find it gratifying that the new system highlights top notch 20 year funds, like VWINX, PRWCX, VWELX, OAKIX, SEQUX, YACKX, FMILX, MERDX, BCSIX as well as perhaps lesser known GLRBX, MAPOX, BHBFX, GASFX. In the forthcoming 10, 5, and 3 years ratings, you will find WRHIX, TGLMX, ARTKX, SGOVX, VILLX, PAAIX, TBGVX, PONAX, NSTLX, WBALX, WSCVX, MFLDX, PVFIX, COBYX, AKRIX, AQMIX, VVPSX among the stand-outs.
Will their performance persist? So far so good, but your guess is probably better than mine regarding future. I do know that if Ulcer Index is creeping up on a fund I own, I'd want to know, especially if I expected it to maintain good down side behavior.
Our hope was that the MFO community would find the new ratings both unique and helpful, like the legacy Three Alarm system. The system is not all encompassing, as it emphasizes certain measures and is based strictly on historical numerical returns. No other due diligence performed. No assessment of fund shop, manager's strategy, style drift, stewardship, etc. Those assessments can be found in David's many profiles and commentaries, on the active MFO board, and elsewhere (like M* with premium membership).
Sorry for delayed response but have been a little busy lately and wanted to do the homework your posts often demand...to my betterment usually =).
Hope all is well and thanks again.

Reply to @Investor: Man you're tough. I agree with Accipiter. The new ratings help highlight funds that deliver superior returns while protecting against draw down...some of them persistently. For example, you often recommend VWINX and GLRBX on the board. I'd never even heard about the latter. But the system highlighted those very two funds just based on the numbers. I find similar results across all age groups, like COBYX in the 3 year group. Any system has its strengths and weaknesses, but I know the information in this one is not easily available anywhere else and provides another perspective for the MFO community when considering mutual funds.
The system does integrate all existing funds for all time periods evaluated when examining return group, but initially thought it best to tabulate the performance and risk measures only for the longest period applicable. An early version of the system did tabulate all 7000 funds for all five time frames, but it seemed overkill and kind of diluted the message. The interesting part was whether a fund's performance persisted versus the other funds in its category. I also found segregating the funds by age group helped evaluate peers and highlight standouts. In any case, working with David and Chip on how to best handle the full-up database. I trust you know by now that if you're not happy, I'm not happy =).

Lots of good funds listed in this post, seems to me, but some can be very volatile.
Below is tabulation with emphasis on lifetime downside and drawdown performance. I broke into older and younger bunches, so not direct comparison over same period, just trying to get feel for up versus down.
First the older bunch, all living through 2008, sorted by Martin Ratio:

Next, younger bunch, from 2009, sorted by Sortino ratio (since we've basically not had much in way of drawdowns):

PONDX amazing of course. BPLEX, MAPIX, PRHSX, MACSX all have strong returns and good downside protection. Investor is right about extreme ER for Robeco's LS fund...high even for this already high category. I added WBLFX, which David profiled this month...a tale of two funds.
See that PETDX was basically left for dead in 2009 with Max Drawdown MaxDD of -73%. I for one could probably not tolerate such a decline, even if it was "only" on paper. Ditto for MAPTX and PRNHX.
Please beware of RYOIX. It has the highest Ulcer Index of any fund on list. Handle with care.
As for the younger funds, MAINX continues to post impressive numbers. So does PGDIX. I added AQRIX, ARLSX, and COBYX to list.
I let out a sigh thinking about WBMIX. Unless things pick-up next week, April numbers will not look so good. If I remember, Mr. Redleaf has been shorting high yield bonds and he remains bullish financials. More on Whitebox later.

Reply to @Investor:
Looking at some other profiled funds:
COBYX -0.73%
SFGIX -1.63%
MAPIX -1.46%
MACSX -1.08%
MAINX -0.18%
APPLX -2.87%
Long/Short or Hedged equity style investing funds:
ARLSX -1.54%
RLSFX -1.61%
WBLSX +0.10%
MFLDX -1.91%
FMLSX -2.52%
BPLSX -0.28%
BPRRX -1.17%

Reply to @Charles:
Ummm, you can't spend risk adjusted returns. :)
Thanks for using the same time frame. I should have been paying more attention.
COBYX has been a very good fund with nominal returns but their success is really year 2011. Can they do the same?They say they do. i wish them luck. I am just not comfortable with that small portfolio. A mistake and you will get a big hit suddenly. Call me chicken.
Update: I would be more interested on GOODX vs COBYX. I wished David profiled GOODX and had a conf. Call with their managers (former FAIRX managers prior to 2008)

Reply to @Investor: Thanks man. I will often present performance numbers over lifetime of funds, but in this case, I believe I met your demand to compare performance of the funds over same 43 months, since COBYX inception. So, the performance for COBYX, SEQUX, MAPOX, YAFFX, DWGIX, ICMBX, FPACX, BRK.B were all computed using monthly total returns from Aug 2009 through Feb 2013. (ARKEX is a slight exception since it is a couple months younger.) Otherwise, apples to apples.
I tried to make sure that was clear with the note in the lower left hand corner of the table:

Based on monthly returns from COBYX inception Aug 2009 thru Feb 2013, except AKREX from Oct 2009.

COBYX has outperformed these other 5-star funds over the very same time period. But I think I am getting to know you well enough to anticipate your next critique: "You can't spend risk adjusted returns..." =).

Yes, this part about quality stocks always confused me. According to M*, such funds like JENSX invest in quality stocks, and of course by definition GMO Quality III GQETX invests in quality stocks. Performance of GQETX practically coincides with that of JENSX, but, unlike JENSX, GMO fund GQETX is extremely tax inefficient for a stock fund, and you can buy it only if you have $10M or more to invest there. Perhaps using VIG may help, or maybe COBYX? Any comments about BEGIX, which looks pretty stable and did very well for almost 10 years since inception?

Hi David.
Thanks for March commentary. I agree with STB65 =).
I will never forget this one and repeat it often: "Let’s be blunt about this. If this fund fails, it’s pretty much time for us to admit that the efficient market folks are right and give up on active management." I hope MJG doesn't make us eat our words...D&C stock picking really seems awful the past few years. Wonder if it is a change of style/expertise...or, just comes with territory of value seeker.
Sweet piece on Tweedy.
"...Longleaf freakishly closed its new Longleaf Partners Global Fund (LLGFX) after just three weeks. Given that Longleaf hadn’t launched a fund in 15 years, it seemed odd that this one was so poorly-planned that they’d need to immediately close the door." PERFECT!
Love the quotes by Bill Bernstein and have added Investor’s Manifesto to reading list. Hope you are right about Artisan. Think your piece will keep us cautiously optimistic, but still wary.
Really great profile update on Seafarer. High hopes for Andrew Foster. With a little more luck, trust he will reach $100M AUM in not too distant future.
Steven Romick and Andrew Redleaf seem to be reading tea leaves same. Their implementation is different, however. FPACX is cash heavy, while WBMIX is shorting high yield bonds. Good alert on FPACX closing. And, good to see FPA_Funds dropping loads, which seem antiquated to me.
"The real reason to leave is about size, the funds just kept taking in money." Amazing quote on the record from Dale Harvey.
Looking forward to the upcoming calls. Good to have a read-ahead on COBYX.
Yeah, think portfolio analyzers will be having harder time as funds include risk-parity, long-short, buy-write, options, etc, etc.
Thanks again for all you do with MFO.

Another chock full commentary, thank you David.
On outflows, I still struggle a bit on relative significance here...

In the last full week of 2012, investors pulled $750 million from US stock funds and added $1.25 billion into international ones.

Again, I believe there is something like $18 Trillion in US equities. Think AndyJ and I believe that while these flows are large in absolute terms, they seem fairly insignificant compared to relative overall investment, no?
Here's life-time performance summary of the bond fund picks in the Forbe's article you reference:

FWIW, the Loomis Sayles Bond fund lost more than 20% in 2008.
Looking forward to the MFO conference call with Teresa Kong, manager of Matthews Asia Strategic Income MAINX.
Glad to see Cook & Bynum Fund COBYX reducing its expense ratio.
Podcasts page is a good addition to the MFO website.
Glad to see you will be profiling Whitebox Long Short Equity WBLSX and PIMCO Short Asset Investment PAIUX.
Thanks again for all the good work...and, Happy New Year!

Sweet. David, whether we ultimately decide to pass or invest, thanks to you and MFO for getting and keeping unique funds like COBYX on our radar.

Hi, guys.
COBYX passed their third anniversary on July 1. The folks at Morningstar said they release a fund's star rating on the third trading day of the following month. Given the appearance of low volatility (just looking at the NAV price chart) and high performance, five stars seemed likely. David Hobbs, C&B's president, wrote today to confirm that.
Just in case you'd missed it,
David

Reply to @Charles:
- Regarding fees, it should bother you not only that the expenses could rise, but that there's a claw back provision, where the fund expenses could be high not only because that's what the fund costs, but because the fund is reclaiming expenses that it waived the prior three years (this is not uncommon, but something that's significant if the AUM is not rising quickly)
- Many share classes is quite common for funds sold in Canada; not something I'd worry about
- I see several question marks with the supposed sector concentrations:
-- The fund says it made a complete change in direction - it supposedly was a global fund, now it's a Canadian fund; it was an infrastructure fund, now it's a "broader" Equity Income fund.
-- The prospectus says that it will now focus in just three areas (energy, real estate, infrastructure); how much of its performance (past, based on infrastructure), or current (adding energy and real estate, still a narrow focus) is because of that charter and tailwinds?
-- How honest is this declaration of focus (energy, real estate, infrastructure)? First, we have the hidden double-counting of energy (S&P defines infrastructure as energy, utilities, and transportation). Second, we have the fact that as of its last semi-annual report (March 31), it was 24% into financials; financials falling within neither its old nor its new prospectus charter.
In this era of online data, it's easy to find anything that exists. While I question the meaningfulness of finding a fund that has better performance and lower volatility for a given period, here are a couple of answers:
- Legacy Dynamic Equity and Income Fund (a fund offered for sale in Canada) has a 10 year record of 11.61% (through Aug 7) and std dev of 12.40 (through July 31); the latter is above the average for its category (Canadian Dividend/Income Equity). It is surpassed by Sentry Canadian Income with 13.41% and 11.96 respectively. Also a Canadian Div/Income Fund.
- DWGIX's 3 year figures are 14.44% (through Aug 7) and 10.17 (through July 31). There are of course lots of bond funds that can beat these figures. Also Cook & Bynum (COBYX), at 14.90% and 9.05 respectively. A generic US large cap value fund. There are also real estate and utility funds - exactly the sectors that DWGIX is supposed to now and always focus on (thus reinforcing the question about how much of its good numbers come from a tailwind that could shift).

Yesterday, BRTNX was up 0.62% despite downer day on Wall Street, propelled by its second largest holding, Gap, Inc, up 12.75%. Today, the fund is up another 1.76%. YTD, it's up 17.02%. Like Bruce Berkowitz's Fairholme Allocation Fund FAAFX, Stephen Dodson's Bretton Fund has the courage of its convictions with only 16 stock holdings. Its two top holdings, Ross Stores and Gap, are each up 80% this past year. MFO first reviewed Bretton in February. The other intriguing high concentration fund of late is Cook & Bynum Fund COBYX, reviewed by MFO this week.
Since Bretton's inception late 2010, it's actually bested them both, along with SP500:

In fact, Bretton has done better than several other notables, including FPA_Crescent FPACX, Oakmark Equity & Income OAKBX, Dodge & Cox Balanced DODBX, Parnassus Equity Income PRBLX, and even Sequoia SEQUX:

Can you believe?

Nice review David.