The fund equally weights all of the stocks in the S&P 500 index and rebalances its portfolio quarterly.
The Index Group, headquartered in Colorado Springs, Colorado. While they are legally permitted to Continue reading →
The Opportunity Fund seeks capital appreciation. They apply a value-oriented discipline to micro-, small- and mid-cap stocks in the US and other developed markets. In general, the managers look for companies with long, consistent, predictable track records of free cash flow yield generation and healthy organic growth. They identify undervalued securities by starting with balance sheet strength but they also consider qualitative factors (e.g., quality of the management) and the presence of a Continue reading →
The fund seeks long term capital growth through investing in what they deem to be 30 highly innovative, reasonably valued, companies from around the globe. They take an eclectic approach to identifying global innovators. They read widely (for example Fast Company and MIT’s Technology Review, as well as reports from the Boston Consulting Group and Thomson Reuters) and maintain ongoing conversations with folks in a variety of industries. That leads them to identify a manageable set of themes (from artificial intelligence to clean energy) which seem to be driving global innovation. They then identify companies substantially exposed to those themes (about 1000), then weed out the financially challenged (taking the list down to 500). Having identified a potential addition to the portfolio, they also Continue reading →
The managers seek to maximize long-term return on capital. They can invest in firms of any size, but mostly invest in mid- to large-cap US firms and invest through both common stocks and convertibles. They pursue a patient value approach to investing which favors companies which meet at least one of these three criteria Continue reading →
FTHNX pursues long-term capital appreciation. The managers invest in a diversified US small cap equity portfolio. The managers seek out stocks where other investors are likely to make behavioral mistakes. If they conclude that an investor mistake is likely and the company has solid fundamentals, the portfolio managers generally buy the stock. They sell when the misbehavior has run its course, which tends to lead to a high turnover portfolio. That said, they do not automatically buy or sell based on a single security’s characteristics; they impose a risk management overlay that helps control exposures to sectors, size, and other characteristics. The fund currently holds Continue reading →
Evermore Global Value Fund seeks capital appreciation by investing in a global portfolio of 30-40 securities. The Fund’s special situations strategy is to identify companies trading at substantial discounts to their estimates of intrinsic value, and where catalysts exist to close these gaps. Although they are opportunistic investors and can buy securities of any market capitalization, their sweet spot has been in micro to mid-cap opportunities. They also have the ability to invest beyond the equity market in “less liquid” investments, such as distressed debt, can hold short positions in merger/arbitrage situations or to hedge market risk, and are willing to hold a up to 15% in cash.
Evermore Global Advisors, LLC. Evermore was founded Continue reading →
This is an update of a profile first published in July 2011.
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 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 Continue reading →
The fund seeks a combination of growth and income. Northern Trust’s 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 ETFs. As of 12/31/2016, the fund held two Northern funds and nine ETFs.
Northern Trust Investments is part of Northern Trust Corp., a bank founded in 1889. The parent company provides Continue reading →
The Litman Gregory Masters Alternative Strategies Fund seeks to provide attractive “all-weather” returns relative to conservative benchmarks, but with lower volatility than the stock market. It seeks this objective through a combination of skilled active managers, high conviction “best ideas,” hedge fund strategies, low beta, and low correlation to stock and bond market indices.
The fund’s risk-averse managers, asset allocations, and hedging strategies position it as an alternative to traditional 80/20% or 60/40% bond/stock portfolios for conservative or Continue reading →
Grandeur Peak calls fast-growing, high-quality stocks with market capitalizations above $1.5 billion “stalwarts”. They are too big for Grandeur Peak’s small- and micro-cap funds, but too good to let go, so Grandeur Peak rolled out two funds to hold them.
It is a little appreciated fact that most of the gains in the stock market are driven by a handful of runaway winners; most stocks earn sub-par returns. Grandeur Peak’s strategy is to try to find them when they’re small—the tinier, the better—and ride them up. Founder Robert T. Gardiner made an ungodly sum of money applying this strategy for the lucky shareholders of Wasatch Micro Cap (WMICX) from 1995 to 2006. Continue reading →
The fund seeks long-term capital appreciation by investing, primarily, in domestic large cap growth stocks. The portfolio is diversified (typically 60-75 names) but not sprawling. Direct foreign investment is currently about 5.6%, which is modest but also above-average for its Morningstar peer group.
In general, the fund’s subadvisor T. Rowe Price targets:
Their preference is for firms with a lucrative and defensible niche which allows them to Continue reading →
Pin Oak is a concentrated, all-cap fund. The portfolio currently holds 35 securities with much more exposure to small- and mid-cap stocks than its peers Portfolio construction begins with macro-level assessments of the economy, proceeds to analyses of industries and sectors, and then ends by buying and holding the most attractive stocks in the most attractive sectors. Oak Associates has a long and adamant tradition in favor of buying-and-holding just a few best-of-class stocks, so turnover is generally below 20%. Half of the portfolio’s 35 current stocks have been there for between five and 15 years.
Oak Associates, ltd. Founded in 1985 and headquartered in Continue reading →
The managers aim to provide “high total investment return, consistent with the preservation of capital and prudent economic risk.” The fund normally holds 50-75% in equities with the remainder in bonds and cash. The equity sleeve is mostly mid- to large-cap US stocks; direct foreign investment is minimal. The income sleeve is mostly high quality, intermediate-term bonds. The managers have the freedom to invest up to 25% in high-yield securities or in longer maturity bonds but, mostly, don’t.
AMG (Affiliated Managers Group) advises Continue reading →
The fund seeks “high income with the potential for some capital appreciation.” Their target is to maximize total return on a risk adjusted basis through a blend of high yield and global fixed income securities. They hope to achieve that end by investing primarily in income-producing instruments including:
The fund may invest entirely in dollar-denominated foreign securities; other than that, the restrictions in the prospectus come down Continue reading →
The fund pursues long-term capital appreciation. They invest in a portfolio of 60-70 small-cap stocks, mostly domiciled in the U.S. Their fundamental approach is value-oriented and broadly diversified across economic sectors. In general, each position in the portfolio starts out about equally weighted; 50 of the 65 current holdings are each between 1-2% of the portfolio. They hold minimal cash, currently about 4%. Portfolio turnover is in the range of 25-35%, far below the small cap average. Continue reading →
At the time of publication, this fund was named City National Rochdale Emerging Markets Fund.
The fund seeks to provide long-term capital appreciation primarily by investing in locally listed large, medium, and small quality companies broadly accessible to U.S. investors within Asian Emerging Markets. The Adviser conducts on-the-ground research to provide direct insight into these companies using its domain expertise in the region, and while it may invest in companies from any emerging market country, it expects to focus its investments in Asia.
The fund is intended for long-term investors who have a time horizon of at least 5 years but preferably 7-10. It was first mentioned in the April 2015 edition of MFO as Continue reading →
The fund seeks “above-average” long-term capital appreciation by investing in 40-45 small cap stocks. For their purposes, “small caps” have a market capitalization under $3.4 billion at the time of purchase. The manager is authorized to invest up to 25% of the portfolio in foreign stocks and to invest, without limit, in convertible securities (but he plans to do neither). Across all their portfolios, Mairs & Power invests in “carefully selected, quality growth stocks” purchased “at reasonable valuation levels.” Continue reading →
Ariel Global Fund’s fundamental objective is long-term capital appreciation. The manager pursues an all-cap global portfolio. The fund is, in general, currency hedged so that the returns you see are driven by stock selection rather than currency fluctuation. The manager pursues a “bottom up” discipline which starts by weeding out as much trash as humanly possible before proceeding to a meticulous investment in both the fundamentals of the remaining businesses and their intrinsic value. The fund is diversified and will generally hold 50-150 positions. As of July 2016, there are 84. Continue reading →
At the time of publication, this fund was named Catalyst/MAP Global Total Return Income.
The manager attempts to preserve capital while generating a combination of current income and moderate long-term capital gains. The portfolio has four sleeves:
The portfolio is unconstrained by geography, credit quality or market cap. The manager is risk conscious, looking for securities that combine undervaluation with a definable catalyst which will lead the market to recognize its intrinsic value. Continue reading →
The fund pursues long-term capital appreciation by investing in high quality small cap equities, which they’ll only buy and hold when they’re undervalued. “Small stocks” are stocks comparable in size to those in common indexes like the Russell 2000; currently, that means a maximum cap of $6.5 billion. The fund can hold domestic and international common stocks, preferred stocks, convertible preferred stocks, warrants, and options. They typically hold 15-50 securities. High quality businesses, typically, are “internally financed companies generating cash in excess of their business needs, with predictable revenue streams, and in industries with high barriers to entry.” The managers calculate the intrinsic value of a lot of small companies, though very few are currently selling at an acceptable discount to those values. As a result, the fund has about two-thirds of its portfolio in cash (as of March 2016). When opportunities present themselves, though, the managers deploy their cash quickly; in 2011, the fund moved from 40% cash down to 20% in the space of two weeks.
Intrepid Capital Management. Intrepid was founded in 1994 by the father and son team of Forrest and Mark Travis. It’s headquartered in Jacksonville, Florida; the location is part of a conscious strategy to distance themselves from Wall Street’s groupthink. Rather distinctively, their self-description stresses the importance of the fact that their managers have rich, active lives (“some of us surf … others spend weekends at kids’ football games”) outside of work. That focus “makes us a better company and better managers.” They are responsible for “approximately $800 million for individuals and institutional investors through a combination of separately managed accounts, no-load mutual funds, and a long/short hedge fund.” They advise six mutual funds.
Jayme Wiggins, Mark Travis and Greg Estes. Mr. Wiggins, whose first name is pronounced “Jay Mee,” is the lead manager and the guy responsible for the fund’s day-to-day operations. His career is just a bit complex: right after college, he joined Intrepid in 2002 where he worked as an analyst on the strategy before it even became a fund. In 2005 Jayme took over the high-yield bond strategy which, in 2007, was embodied in the new Intrepid Income Fund (ICMUX). In 2008, he left to pursue his MBA at Columbia. While he was away, Endurance’s lead manager Eric Cinnamond left to join River Road Asset Management. Upon his return in September 2010, Jayme became lead manager here. Mr. Travis is one of Intrepid’s founders and the lead manager on Intrepid Capital (ICMBX). Mr. Estes, who joined the firm in 2000, is lead manager of Intrepid Disciplined Value (ICMCX). Each member of the team contributes to each of the firm’s other funds.
The managers would likely begin discussions about the fund’s assets when it approaches the $1 billion level, but there’s no firm trigger level. What they learned from the past was that too great a fraction of the fund’s assets represented “hot money,” people who got excited about the fund’s returns without ever becoming educated about the fund’s distinctive strategy. When the short-term returns didn’t thrill them, they fled. The managers are engaged now in discussions about how to attract more people who “get it.” Their assessment of the type of fund flows, as much as their amount, will influence their judgment of how and when to act.
All of the fund’s managers have personal investments in it. Messrs. Travis and Wiggins have between $100,000 and $500,000 while Mr. Estes has between $10,000 and $50,000. The fund’s three independent directors also all have investments in the fund; it’s the only Intrepid fund where every director has a personal stake.
The underlying small cap strategy launched in October, 1998; the mutual fund was opened on October 3, 2005.
$2,500 for Investor shares, $250,000 for Institutional (ICMZX) shares.
1.40% on assets of approximately $250 million (as of 3/30/16).
Start with two investing premises that seem uncontroversial:
If those strike you as sensible premises, then two conclusions flow from them:
The average investor, individual and professional, consistently disregards those two principles. Cap-weighted index funds, by their very nature, are designed to throw your money at whatever’s been working recently, regardless of price or quality. If Stock A has doubled in value, its weighting in the index doubles and the amount of money subsequently devoted to it by index investors doubles. Conversely, if Stock B halves in value, its weighting is cut in half and so is the money devoted to it by index funds.
Most professional investors, scared to death of losing their jobs because they underperformed an index, position their “actively managed” funds as close to their index as they think they can get away with. Both the indexes and the closet indexers are playing a dangerous game.
How dangerous? The folks at Intrepid offer this breakdown of some of the hot stocks in the S&P 500:
Four S&P tech stocks—Facebook, Amazon, Netflix, and Google (the “FANGs”)—accounted for $450 billion of growth in market cap in 2015, while the 496 other stocks in the S&P collectively lost $938 billion in capitalization. Amazon’s market capitalization is $317 billion, which is bigger than the combined market values of Walmart, Target, and Costco. These three old economy retailers reported trailing twelve month GAAP net income of nearly $17 billion, while Amazon’s net income was $328 million.
As of late March, 2016, Amazon trades at 474 times earnings. The other FANG stocks sell for multiples of 77, 330 and 32. Why are people buying such crazy expensive stocks? Because everyone else is buying them.
That’s not going to end well.
The situation among small cap stocks is worse. As of April 1, 2016, the aggregate price/earnings ratio for stocks in the small cap Russell 2000 index is “nil.” It means, taken as a whole, those 2000 stocks had no earnings over the past 12 months. A year ago, the p/e was 68.4. In late 2015, the p/e ratios for the pharma, biotech, software, internet and energy sectors of the Russell 2000 were incalculable because those sectors – four of five are very popular sectors – have negative earnings.
“Small cap valuations,” Mr. Wiggins notes, “are pretty obscene. In historical terms, valuations are in the upper tier of lunacy. When that corrects, it’s going to get really bad for everybody and small caps are going to be ground zero.”
At the moment, just 50 of 2050 active U.S. equity mutual funds are holding significant cash (that is, 20% or more of total assets). Only nine small cap funds are holding out. That includes Intrepid Endurance whose portfolio is 67% cash.
Endurance looks for 30-40 high-quality companies, typically small cap names, whose prices are low enough to create a reasonable margin of safety. Mr. Wiggins is not willing to lower his standards – for example, he doesn’t want to buy debt-ridden companies just because they’re dirt cheap – just for the sake of buying something. You’ll see the challenge he faces as you consider the Observer’s diagram of the market’s current state and Endurance’s place in it.
It wasn’t always that way. By his standards, “that small cap market was really cheap in ‘09 to fairly-priced in 2011 but since then it’s just become ridiculously expensive.”
For now, Mr. Wiggins is doing what he needs to do to protect his investors in the short term and enrich them in the longer term. He’s got 12 securities in the portfolio, in addition to the large cash reserve. He’s been looking further afield than usual because he’d prefer being invested to the alternative. Among his recent purchases are the common stock of Corus Entertainment, a small Canadian firm that’s Canada’s largest owner of women’s and children’s television networks, and convertible shares in EZcorp, an oddly-structured (hence mispriced) pawn shop operator in the US and Mexico.
While you might be skeptical of a fund that’s holding so much cash, it’s indisputable that Intrepid Endurance has been the single best steward of its shareholders’ money over the full market cycle that began in the fall of 2007. We track three sophisticated measures of a fund’s risk-return tradeoff: its Sharpe ratio, Sortino ratio and Martin ratio.
Endurance has the highest score on all three risk-return ratios among all small cap funds – domestic, global, and international, value, core and growth.
We track short-term pain by looking at a fund’s maximum drawdown, its Ulcer index which measures the depth and duration of a drawdown, its standard deviation and downside deviation.
Endurance has the best or second best record, among all small cap funds, on all of those risk measures. It also has the best performance during bear market months.
And it has substantially outperformed its peers. Over the full cycle, Endurance has returned 3.6% more annually than the average small-value fund. Morningstar’s Katie Reichart, writing in December 2010, reported that “the fund’s annualized 12% gain during [the past five years] trounced nearly all equity funds, thanks to the fund’s stellar relative performance during the market downturn.”
Endurance is not a fund for the impatient or impetuous. It’s not a fund for folks who love the thrill of a rushing, roaring bull market. It is a fund for people who know their limits, control their greed and ask questions like “if I wanted to find a fund that I could trust to handle the next seven to ten years while I’m trying to enjoy my life, which would it be?” Indeed, if your preferred holding period for a fund is measured in weeks or months, the Intrepid folks would suggest you go find some nice ETF to speculate with. If you’re looking for a way to get ahead of the inevitable crash and profit from the following rebound, you owe it to yourself to spend some time reading Mr. Wiggins’ essays and doing your due diligence on his fund.
