“Never risk what you have and need
for what we don’t have and don’t need.”
December reminded us of how quickly the music can stop. The SP500 fell 9% turning a modest annual gain into a loss. Those hugging the S&P were the lucky ones.
Touchstone Small Company (SAGWX) was off 13.4%. Invesco S&P SmallCap Health Care ETF (PSCH) was off 16.1%. Both are dual MFO Great Owl and Honor Roll funds, which means they have a track record of top quintile risk adjusted and absolute return versus peers.
Other notables: Parnassus Endeavor (PARWX) off 13.8%, Hotchkis & Wiley Mid-Cap Value (HWMIX) off 15.2%, and Miller Opportunity (LMOPX) off 18.7%.
We first introduced Bear Market Rating in the April 2015 commentary with “Identifying Bear Market Resistant Funds During Good Times.” The Bear Rating represents decile ranking (1 to 10 where 1 is most bear market resistant fund) of funds in a given category, based on bear market deviation (BMDEV). The deviation indicates typical percentage decline based only on a fund’s performance during bear market months, which Morningstar defines as a 3% drop for equity funds.
A look at the funds listed above on the MFO Premium site shows all but SAGWX have elevated Bear Market Ratings based on the last five years of the current bull market, which started in March of 2009 or 118 months ago … even if we shift the evaluation period to November before December’s decline. So, none really, except perhaps SAGWX, would have given past indications that they can resist drawdown when the overall market drops. Most in fact are experiencing their worst drawdowns in 5 years, through December anyway.
Going forward, we thought it be interesting to pull-up which funds appear to be the most resistant to future market pull-backs, based strictly on past performance during bear market months, again over the last five years of the current bull market.
Screening for Large-Cap, Mid-Cap, Small-Cap and Multi-Cap US Equity Lipper categories within the Mutual Fund and ETF universe, the table below lists the top ten by annualized return. Most are MFO Great Owls and Honor Roll funds. Invesco S&P MidCap Low Vol ETF, Akre Focus (AKREX) and AQR Large Cap Defensive Style (AUEIX) have among the lowest bear market deviations BMDEVs while still sporting strong absolute returns.
If December’s drawdown caused you more discomfort than you like or expected, as it did for me in January 2016 and all of us in 2008, than MFO’s Bear Market Rating and its attendant deviation BMDEV would seem like a good metrics to help select funds that mitigate drawdown of your portfolio.