In response to an emailed question, here are the US equity funds with the highest Martin ratios over the full market cycle that began in October 2007:
Reynolds Blue Chip Growth (RBCGX), 1.75
Intrepid Endurance (ICMAX), 1.67 (which I own shares of, fyi)
Yacktman Focused (YAFFX), 1.31
Eaton Vance Atlanta Capital SMID-Cap (EISMX),1.25, also a Great Owl
Parnassus Endeavor (PARWX), 1.20, Great Owl
Madison Dividend Income (BHBFX), 1.15, Great Owl
AMG Yacktman (YACKX), 1.14
Monetta Young Investor (MYIFX), 1.12
Brown Capital Mgt Small Cap (BCSIX), 1.11, Great Owl
Prospector Opportunity (POPFX), 1.08, Great Owl
Charles's "Great Owl" designation tracks the consistency with which a fund posts outstanding risk-adjusted returns. Technically, they are "top qunitile funds in their categories based on Martin for periods of 20, 10, 5 and 3 years, as applicable." All of the funds above have records of 10 or more years.
For what interest that holds,
David

We thought we’d continue catching up with the 130 U.S. equity funds which have passed their second anniversary but have not yet reached their third, which is when conventional trackers such as Morningstar and Lipper pick them up. (Technically, they're in the 1.9 year to 2.9 year age bracket.) As Charles has repeatedly demonstrated, the screener at MFO Premium allows you to answer odd and interesting questions. Our screeners are unusually risk-sensitive. That’s because the easiest way to make money, in the long term, is not to lose money in the short-term. The default risk measure in our ratings is the Martin Ratio, which is exceedingly sensitive to downside risk. (Charles can share the details, if you'd like.)
Here's the most disturbing finding of our search for the most risk-sensitive two-year-old funds: they're ETFs. At the very least, all of the ten best funds, measured by Martin Ratio, are ETFs. Here they are, from the safest young equity fund to the 10th safest:
State Street SPDR S&P 500 High Dividend ETF SPYD (Equity Income)
JPMorgan Diversified Return US Equity ETF JPUS (Multi-Cap Core)
ProShares S&P 500 Ex-Financials ETF SPXN (Large-Cap Core)
ProShares S&P 500 Ex-Energy ETF SPXE (Large-Cap Core)
ProShares S&P 500 Ex-Health Care ETF SPXV (Large-Cap Core)
ProShares Russell 2000 Dividend Growers ETF SMDV (Small-Cap Core)
Goldman Sachs ActiveBeta US Large Cap Equity ETF GSLC (Multi-Cap Core)
VictoryShares US Large Cap High Div Volatility Wtd Index ETF CDL (Large-Cap Growth)
Invesco PowerShares S&P 500 Momentum Portfolio SPMO (Large-Cap Core)
Xtrackers Russell 1000 Comprehensive Factor ETF DEUS (Multi-Cap Core)
Likewise, 9 of the best 10 funds measured by Sharpe ratio are ETFs.
Why's that disturbing? Because market-tracking products should have market-like risk, not vastly lower-than-market risk. So, what gives? As Charles pointed out in his September essay, there simply is no downside volatility being manifested in the market now which means that our screener has hundreds of US equity funds (rather more than 300) with incalculably high Martin ratios. In a normal market, a Martin Ratio of "3" is virtually unattainable; no U.S. equity fund has a 10- or 20-year Martin ratio that high. The best record for a fund that's been around at least 5 years is AQR Large Cap Defensive Style (AUEIX) with a lifetime Sharpe ratio of 11. To recap: in the long term, no US equity fund is capable of a Martin ratio of 3 (or even 2) and, in the medium term, 11 is incredibly high.
What about today? The highest calculable one-year Martin ratio we currently have is Calamos Dividend Growth (CIDVX) at 202,363. The fund's long term Martin ratio is 3.06.
As Charles noted in a recent tweet, the deception gets worse this month as the worst drawdowns from the 2007-09 crash disappear from funds' 10-year records.
Bottom line: common risk metrics, which focus on three year periods, are probably unreliable guides just now. You need to understand a potential investment's risk by (a) looking at the manager's risk-management discussions (if he doesn't have one, run away!) and (b) taking most seriously the risk characteristics in the two recent down markets (2000-02 and 2007-09) or across the whole market cycle, rather than getting lured in by shiny short-term numbers. We'll continue to try to do both for you; that is, we'll take the qualitative and long term quantitative together as we try to make sense of what's on offer.

@MikeM, I hear you about the alt categories' shortcomings, but I also think 4+ years is more than a brief moment. They're both closed to new investors now, so aren't that plugged up with assets.
(As usual, I reserve the right to change my mind and sell at any time. Which I tend to do not all that infrequently.)
Cheers - AJ
P.S. @davidmoran, QM's neutral and QL is the same neutral strategy + up to 50% long as an addon. QM usually runs at sort of a bond-ish level of volatility (M* compares the up-down capture to the AGG), and it tends to pick up the slack when both stx and most bonds take a hit.

If ever a board of directors deserved to be sued for allowing such nonsense to continue for so many years it was this one.

I cannot remember the last time anyone here seriously discussed what used to be the common investment risk parameters. Those are considerations like age, years to retirement (or years in retirement), risk tolerance, additional assets or sources of income, and one’s overall situation. It’s not something you turn “on” or “off” depending on whether you believe in Trump, like the economy, or think equities are going higher or lower. Those basic parameters (actually constraints) have always existed and been important. I can’t tell you we’ll enter a prolonged bear market this year or next. I can, however, assure you there will be another one someday. Acceptance of that reality is the only reason I can think of why risk exposure / asset allocation should be a consideration for most.

Hi @Crash, with rising rates, in general, prices fall and yields increase.
As far as HY goes, an old rule of thumb is buy HY at a spread to Treasuries of around 8 and sell around 4 **. If you look at the last ten years on this FRED chart, 8 was way too soon during the financial crisis, but about right at the peak spreads of 2011 and 2016. The spread dipped below 4 about the beginning of Q2 this year and continued slowly down till toward the end of October, and is mainly up since.
** That 'rule' refers to HY in general, on average, as that FRED chart tracks. Differently rated HY credits typically run at different spreads, so there's more nuance to get into for real junk aficionados.

Thanks @Ted.
From the article:
"No doubt about it, stocks today are expensive."
I see this narrative a bunch. Yes - forward PE ratios are high. But not when considered against inflation. And earnings yields are more than twice treasury yields.
Context is everything.
The market climbs a wall of worry built on a bedrock of statements like "stocks are too expensive." As Clements wrote: "I’ve been writing about the stock market for 32 years, and in every one of those years folks have complained that stocks were expensive."

One commentator for this article; although perhaps borrowing the thought from another source, presents the most likely scenario result from passage of the "tax legislation" relative to corporate taxation, IMHO. One of their investment choices may be worth observation, going forward, if the legislation passes.
"With the tax plan progressing in congress and the good possibility of profits being repatriated, I'm wondering if this bull market hasn't another 2 or 3 years left to run. I'm looking at PKW (PowerShares Buyback Achievers Fund) because I believe rather than plowing cash into salaries, R&D or new plant and equipment, corporations are going to simply buyback shares which will effectively lower the P/E ratios of their stocks, thus benefiting stockholders, albeit not the US economy as a whole."

Hi @Art,
Below are some funds that I own (by sleeve and my classification) that kick off some good income.
In world equity I use CWGIX, DEQAX & EADIX
In domestic equity I use ANCFX, FDSAX & SVAAX
In global hybrid I use CAIBX, PMAIX & TIBAX
In domestic hybrid three I favor of seven owned are AMECX, FRINX & HWIAX.
In hybrid income three I favor of seven owned are APIUX, FKINX & PGBAX
In tactical hybrids (income) I use BAICX & PCGAX
Funds of funds I use CTFAX, ISFAX & LABFX
Multi sector bond funds I use LBNDX, NEFZX & TSIAX
I am not saying these are the current very best funds to own; but, they are the ones I have would up with through my many years of investing; and, I feel they have treated me well.
Know that I own some other funds as well (in the growth area of my portfolio) that kick off some good income in the form of capital gains with some paying dividends as well
Global growth sleeve I own ANWPX, SMCWX & THOAX
Large mid cap sleeve I own AGTHX, AMCPX & SPECX
Small mid cap sleeve I own IIVAX, PCVAX & PMDAX
Specialty & theme sleeve I own LPEFX, NEWFX & PGUAX
In short words most funds that I own kick off some good income in some form and fashion. Usually, my portfolio's distribution yield usually runs from a range of 4 to 6 percent which includes interest, dividends and capital gain distributions. Over the past five years my total return ranges form 8 to 12 percent. Generally, I take no more than one half of my five year average return has been. In this way, principal builds over time.
Old_Skeet

I don't think this is a 'challenge' at all and in fact I think it supports this theory. I understand Gundlach as warning that investors are too interested in bonds that have interest rate risk and they most likely don't understand what will happen when rates go up.
Here's another piece on Gundlach's current perspective and hopefully it hasn't been posted before: https://advisorperspectives.com/articles/2017/11/17/gundlachs-top-etf-recommendation?
He warned of dangers in the high-yield market. “Covenant-lite” (bonds with weak protections for investors) as a percentage of total loan issuance has averaged over 70% for the last three years, versus never being above 33% from 2003 to 2012.
With regard to the investment-grade market, he said the average duration is 7 but investors “don’t think prices can go down. Watch out, they have interest-rate risk.”
Is there any way to evaluate whether a high yield manager is investing in "covenant-lite" bonds? I presume the ratings of bonds don't tell you as they focus on the health of the company and the risk they'll default rather than the protections investors have if they do default.

Chuck shows ALMGX inception as 12/29/16. MS the same. That would make it 2 years young 12/29/18.
Derf

Thanks @Ted.
El-Erian has been on the "policy stimulus takeover from central bank stimulus" kick for at least 6 years. I don't think he's wrong.
As for the exchange below, I would add preferred stock as a relatively illiquid market that could suffer in a market downturn.
With regard to liquidity, you wrote that investors have been “enticed to become increasingly exposed to historically illiquid asset class segments.” Are there any of those historically illiquid asset classes that investors should be wary of, because their liquidity will not withstand a market downturn?
Yes, those whose dedicated investor base is relatively narrow in comparison to the potentially more volatile “cross-over” money that has flowed in. As an illustration, this would include parts of the high yield corporate bond markets and certain segments of emerging markets.

Connecting the David Swenson discussion dots:
https://mutualfundobserver.com/discuss/discussion/36708/conversation-with-david-swenson#latest
@MikeM2, using VWINX (VWENX) as a retirement distribution strategy is also another worthy attribute of the fund.

VWINX is the clear winner. Providing 25 years of inflation adjusted 4% annual distributions with a residual value over 89% greater than its beginning value

long-term-growing-income-open-end-mutual-fund-possible

**But Yale’s allocation to U.S. stocks is simply too low. And Swensen may need to acknowledge that the passive strategies he derides have stacked up well against endowments in the past 10 years.**
In Dr. Swenson's book he lays out a passive portfolio with Vanguard funds for the average investor(like me). Derides seems a little strong. The article didn't mention the portfolio's standard deviation relative to the SP500 or a 80/20 stock bond portfolio. Something else I find interesting is that Vanguard's Wellesley Income (40%dividend/value stock/60% income) has a 10 year record competitive with the SP500 if you consider that that the Admiral shares are 15 basis points and the 10 yrs STD deviation is 6.34.
JMHO,
Mike

FYI: Mohamed A. El-Erian is the chief economic advisor for Allianz SE. Before joining Allianz, Dr. El-Erian held positions as chief executive and co-chief investment officer of PIMCO and president and CEO of Harvard Management Company, the entity that manages Harvard’s endowment and related accounts. Dr. El-Erian was also a managing director at Salomon Smith Barney/Citigroup in London and spent 15 years with the International Monetary Fund in Washington, DC.
Dr. El-Erian has published widely on international economic and finance topics. His 2008 best-seller, When Markets Collide, was named a book of the year by The Economist, and one of the best business books of all time by The Independent (UK). He was one of Foreign Policy’s “Top 100 Global Thinkers” for four years in a row, and is a contributing editor for the Financial Times. His newest book – The Only Game in Town: Central Banks, Instability and Avoiding the Next Collapse – is another New York Times best-seller.
Regards,
Ted
https://www.advisorperspectives.com/articles/2017/11/15/mohamed-el-erian-which-asset-classes-are-most-vulnerable

*hmgodwin

Thank you, openice. I didnt know that the past commentaries were available. Such is sufficient to determine if a personal investment is warranted. Thank you for the knowledge.

Appreciate that!
@lewis braham
Thanks for your cautionary remarks about composite returns -- well-taken. I also find these returns helpful but not definitive.
Here is a summary of what I learned from a call this morning with Louis Shapiro, one of the PMs-- what he said and what he's verified from my own research/assessment.
The managers have never had liquidity issues in the small cap composite despite having concentrated positions. At the same time, he acknowledges that liquidity could happen in the funds -- a point you raised. What they are hoping for is that the new funds will have sticker assets as well. (Of course, this is unknown,)
His feeling is based on holders in the composites having been long-term investors who have invested more when markets have done well and in those that have done poorly -- a conclusion I reached and brought to his attention after seeing the performance statistics for all their calendar years. He said that they will see how new fund investors react to dislocations in the markets and with more AUM in these funds.
Last, he feels that the new products are repeatable and scalable for those who are not chasing performance, who understand the strategies because they are clearly communicated, e.g., the funds do well in up markets but also see that most of the money is made when stocks fall out of favor for certain periods. (The practical qualifiers)
The funds are now available at Schwab:
SMID Funds: Basic and IRA-- SHDYX N Class $100 basic and IRA; SHDIX I Class 250K; SHDYX Y Class 100K
All-Cap Funds: Basic and IRA -- SHXPX N Class, SHXYX Y Class, and SHXIX -- Ibid.
So currently, the preceding is all I can write. I will remain cautious in view of what you've said and the summary above.

Thought this link was worthy of the thread.
The article's introduction grabs you like a good novel:

It had been a little over a week since anyone had seen Karina Chikitova. The forest she had walked into nine days prior was known for being overrun with bears and wolves. Luckily, she was with her dog and it was summer in the Siberian Taiga, a time when the night time temperature only dropped to 42 degrees (6 Celsius). However, there was still one major problem — Karina was just 4 years old.

a-little-knowledge-is-dangerous
Could be Russian Fake news, but I hope not:
dailymail.co.uk/news/article-2721673/The-real-Mowgli-Russian-girl-survives-11-days-nights-lost-Siberian-wolf-bear-infested-wilderness.html

As far as the CD - ZEOIX comparison, ZEOIX has averaged about 3% return over the last 5 years, 2.8% over the last 3. You can now get a CD through Goldman Sachs Bank at 2.4%. Personally, if you are working outside a brokerage, I would ladder 5 year CDs as opposed to owning ZEOIX, but to each their own.

Well, Zero and Zeo are similar sounds. If R stands for Return then Zeo, lacking an R sure enough is not impressive in the R department. But ZEOIX is not for accumulating wealth.
BTW, why go with a brokerage when you can go directly to the fund transfer agent and pay no fee?
As for CD rates even at 6 years I don't see anything right now quite as "high" as ZEOIX's modest returns. In a mutual fund the money is liquid. But yeah, CDs are likely to go up. But meanwhile......
I appreciate everyone's opinion, including Ted's, even though I think I disagree about this fund's turkeyness. Thanks for chiming in. However my real question is "why is Chips's 2014 evaluation described by MFO as "mixed"?

I see pluses and minuses for the fund. I looked at it a couple years ago in my IRA and decided it wasn't worth the cost, high exp. ratio and TF at Schwab. If you are using it as a "superior mattress fund" outside a brokerage, wouldn't buying a 5 year CD be even more comfy thean that mattress fund? CD's make about the same yearly return and (IM<HO) CD's have no place to go but up. HY bonds, even very short term, you can't guarantee the same. In fact down is more likely.
You won't get very good CD or money market rates at a brokerage, so if that's the case ZEOIX may be a good option. But if you are talking money that has more options, money that you want to stash in a safe place, I wouldn't go there. I'd start looking at CD's.