March 2019 IssueLong scroll reading

15/15 funds, one year on

By David Snowball

Roller coaster? What roller coaster? After an anguished fall, the worst December market since the Great Depression, the Christmas Eve Massacre and a million howling headlines, we are pretty much back where we were in September with index values (and stock valuations) near historic highs.

As of the end of February, 2019, the Vanguard Total Stock Market Index Fund (VTSMX) was sitting just 3.66% below its September, 2019 level … and it was still rallying, picking up 0.69% on March 1, 2019.

In a singularly prescient moment, we reminded folks a year ago that “holding 15% cash is good. The stock market is teetering. Its valuations are at or near all-time highs by a variety of measures. Washington is somewhat unhinged. People, and machines, are primed for a panic. And the best way to survive a panic is to have a clear plan and cash on hand to move in when others are giving away their shares.”

Most of those same conditions exist today, though the Federal Reserve may well choose not to stir the pot nearly so much as many expected.

The 15/15 formula

We searched, a year ago, for equity funds that had two characteristics: in 2017, they held at least 15% cash and had a positive return of 15% or more.

It was ridiculously easy to make 15% total returns in 2017. 3406 funds managed the feat.

And it was not particularly hard to hold 15% cash in 2017, though it was certainly unpopular with investors. 970 funds held that level of cash, either as collateral on derivative purchases, as a defensive move or from the inability to find suitable investors.

Making 15% is good. It’s about 50% above the stock market’s historic rate of return and is a bit better than most balanced funds.

Holding 15% cash and still finding a way to make 15% in 2017 – that is, having both dry powder to profit in a crash while not sitting out the market’s rise – was rare, difficult and desirable. We celebrated the 15 funds that held cash in reserve, posted really solid absolute returns and were available to retail investors.

How did the 15/15 funds do subsequently? Relatively well, really. 75% of them outperformed their peer group during 2018’s turbulent market. Many enter 2019 with considerable dry powder still available for when the next shoe drops.

Here’s the two-year snapshot.

15/15 fund   2017 return 2017 Cash 2018 return 2018 cash
AMG Yacktman Focused Large Core 20.0% 23% 2.9% 20%
Port Street Quality Growth Large Blend 15.0 44 (0.7) 42
Hillman Large Value 16.4 15 (2.8) 5
Meeder Muirfield Tactical Allocation 20.3 30 (3.7) 72
Leuthold Core Investment Tactical Allocation 15.8 18 (6.2) 42
Tweedy, Browne Value Global Large Cap 16.5 33 (6.4) 40
Longleaf Partners International Int’l Large Core 24.2 22 (7.8) 5
Monongahela All Cap Value Mid-Cap Value 20.8 20 (8.1) 4
Meeder Dynamic Allocation Aggressive Allocation 21.2 20 (8.7) 24
Seven Canyons World Innovators (formerly Wasatch World Innovators) Global Small/Mid Cap 33.0 24 (10.4) 8
T. Rowe Price Intl Concentrated Equity Int’l Large Core 21.1 21 (10.7) 11
FPA International Value Int’l Small/Mid Blend 27.1 29 (10.8) 22
The Cook & Bynum Large Core 15.1 39 (13.4) 22
Quantified Market Leaders Mid-Cap Growth 16.9 20 (13.5) 17
US Global Investors Emerging Europe Emerging Europe 22.7 21 (17.0) 4
Segall Bryant & Hamill Fundamental Int’l Small Cap (formerly Westcore International Small-Cap) Int’l Small/Mid Growth 33.6 31 (23.0) 2

Green cells indicate performance in the top half of their respective peer groups.

We re-ran our screen in February 2019, looking for funds which came out of 2018 with both strong performance and a considerable commitment to cash. Only seven retail funds posted winning records last year (green cells under 2018 return), but we’re also including 16 other funds with exceptionally strong relative performances in 2018 paired, in almost all cases, with exceptional three-year records as well.

    Cash 2018 return 2018 %ile 3 year return 3 year %ile Risk
Artisan Thematic Investor Lg Gr 30 11.23 1
Biondo Focus Lg Gr 23 6.34 4 23.35 4 High
Federated Kaufmann Mid Gr 20 3.63 5 23.14 5 Average
AMG Yacktman Focused Lg core 24 2.88 1 14.72 35 Below Average
Marshfield Concentrated Opportunity Lg Gr 15 1.92 15 20.77 9 Low
Rational Dynamic Brands Lg Gr 30 0.63 22 12.65 Above Average
Kinetics Small Cap Opportunity Small Core 31 0.29 1 25.49 1 Average
Frontier MFG Global Plus Lg Gr 23 -0.12 28 13.04 88 Low
Meridian Enhanced Equity Large Gr 25 -0.64 34 21.98 5 High
Port Street Quality Growth Lg Core 42 -0.68 5 8.69 96 Low
Provident Trust Strategy Lg Gr 17 -1.22 39 14.71 73 Low
Sims Total Return Lg Value 21 -1.31 3 6.65 98 Low
Chesapeake Growth Lg Gr 15 -1.74 47 15.77 60 Above Average
Convergence Core Plus Lg Core 26 -1.92 9 13.35 62 Average
Yorktown Capital Income Global 24 -2.74 6 9.95 77 Below Average
Aspiriant Risk-Managed Equity Global 16 -3.52 10 10.98 62 Low
JHancock Technical Opportunities Lg Gr 22 -4.65 75 12.69 89 Above Average
Nuance Concentrated Value Lg Value 22 -4.72 14 12.15 54 Below Average
Catalyst/Lyons Tactical Allocation Lg Core 15 -4.96 39 7.89 97 Average
Kopernik International Intl Lg Val 35 -6.25 1 8.89 41 Above average
Tweedy Browne Global Value Intl Lg Val 42 -6.67 1 8.76 43 Low
FMI International Intl Lg Core 59 -9.46 8 8.05 67 Low
FPA International Value Intl SMID 22 -10.81 5 11.99 13 Low

The green cells represent particularly noteworthy values:

  • 2018 returns greater than zero
  • 2018 returns in the top half of their peer group
  • 3-year returns of 10% or more
  • 3-year returns in the top half of their peer group
  • Morningstar risk scores that were below average or low

Bottom line: Cash works. Portfolio hedges can be complex, expensive and iffy. Or they can be simple, cheap and reliable. Of all of the ways to guard your wealth, investing with professionals who are willing to hold cash in frothy markets and invest it in bloody ones has worked for a long while. Investors looking for a portfolio hedge, but who aren’t immediately drawn to complicated and costly hedging strategies, might want to start here.

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About David Snowball

David Snowball, PhD (Massachusetts). Cofounder, lead writer. David is a Professor of Communication Studies at Augustana College, Rock Island, Illinois, a nationally-recognized college of the liberal arts and sciences, founded in 1860. For a quarter century, David competed in academic debate and coached college debate teams to over 1500 individual victories and 50 tournament championships. When he retired from that research-intensive endeavor, his interest turned to researching fund investing and fund communication strategies. He served as the closing moderator of Brill’s Mutual Funds Interactive (a Forbes “Best of the Web” site), was the Senior Fund Analyst at FundAlarm and author of over 120 fund profiles. David lives in Davenport, Iowa, and spends an amazing amount of time ferrying his son, Will, to baseball tryouts, baseball lessons, baseball practices, baseball games … and social gatherings with young ladies who seem unnervingly interested in him.