FYI: Large-cap stock mutual funds have trailed small- and midcap funds for much of the past 15 years.
How much would you have in your account now if you had invested $10,000 in the average large-cap fund on Dec. 31, 1999? You'd have $16,641 as of Jan. 9 this year, according to Morningstar Inc. data.
That's way below the $37,371 that the average small-cap mutual fund would have generated in that time and the $34,806 that the average midcap fund would have returned.
Regards,
Ted
http://license.icopyright.net/user/viewFreeUse.act?fuid=MTg5NjA5NzE=
Enlarged Graphic;
http://news.ptest.investors.com/photopopup.aspx?path=webLV021115.jpg&docId=738841&xmpSource=&width=1000&height=1063&caption=&id=738848

Good point about Don Hodges dying. Craig and two other Texans joined the HDPSX team in 2007. It's hard to know how much Hodges père was contributing in his later years or how much his absence will affect the funds.

If you're willing to go back thousands of years, the rate of return must be minuscule -- way, way under 1% annualized.

You must be looking at Jeremy Siegel's Stocks For The Long Run. There he shows inflation adjusted Total Real Return Indexes 1802-1997. $1 invested in gold worth
84 cents!!!! $1 invested in stocks worth $558,965!!!!!
When gold was allowed to trade freely in the 70s it immediately ran up to 100 to 200.
I recall trading it in the futures markets in the 200s. Then it ran up to over $800. So that is why I am so biased against gold. From its peak in late 79/early 80 above $800 what has it done??? Silver is even worse when it hit 50 in April 1980 when the Hunts cornered the market. Since seemingly my entire lifetime all I have heard from the gold and silver bugs is how there is a shortage and you better hoard all you can.

@BenWP Thanks. I hold BRUSX too. Bridgeway had a couple of miserable years, but they've come back recently. In general I like the way Bridgeway runs things and intend to stick around.

If you're willing to go back thousands of years, the rate of return must be minuscule -- way, way under 1% annualized.

The waiver is still in place, until at least February 28, 2016. Expenses, excluding "interest, taxes, dividend expense, borrowing costs, acquired fund fees and expenses, interest expense related to short sales, and extraordinary expenses" are limited to 1.35% and 1.60% for the institutional and investor class shares, respectively.
Take a look at the expense breakdown. "Dividend and interest expense on short sales" is 1.00%; "acquired fund fees" is 0.07%. Subtract their sum, 1.07%, from the ERs you quoted and you get ERs of 1.25% and 1.50% respectively - below the cap imposed by the fee waiver. So while the waiver is in place, the amount of fees waived is 0.
Actually, it's a bit worse than that. Like many fee waivers, this one has a claw back provision. If the actual ER comes out to be less than the waiver cap, then the fund will raise the ER up to the cap level, in order to recapture the fees that it waived over the past three years.
So here, because the actual ERs are 10 basis points below the promised caps (e.g. 1.25% is 0.10% below the cap of 1.35%), the fund will tack on an extra 10 basis points to get back the fees it waived in the past. It can only do this for three years, and only until it reclaims all the fees it waived. Still ...

I have held HDPSX for a while, but I am concerned about its asset bloat (approaching 2 bil). Other than what's on M* and the Hodges website, I don't know much about the new fund. It did very well last year. I agree with you about new funds from successful managers. I own some AKREX and quite a lot of Walthausen's two funds. I got burned in Bridgeway's microcap fund a few years ago; it got rolled into BRUSX, I think. However, I am a believer in small value in small packages, so I'm likely to move some dough over to HDSVX.

I'll disagree. While I can question whether or not buybacks are always effective (some companies do them really badly), they fall under fiduciary duty (as Charles noted.)
What the issue is is the idea that the government has been entirely focused on raising asset prices, at the expense of just about everything else. It creates a period that looks good/very good on the surface, but has considerable problems underneath ("Castles built on sand", in other words.)
""Wealth concentration at the top is not good for the nation as a whole." True or not?"
That's kind of true (lot of layers), but I think the bigger issue is when the country's government decides to devote its resources heavily to catering to those who already own assets rather than trying to create opportunities and improve quality of life (I know that's broad, but it's early) for the whole. I'm not saying fairness, I'm not saying anything like that - things aren't fair, that's reality.
I'm simply saying, it's not good for the majority of wealth to be in the 1%, but it's really not good when the government basically tilts the game in their favor by devoting resources and effort to them versus the traditional task of the government of looking after the whole, which seems to have gone out the window years ago. You devote enormous resources to assets, while ignoring infrastructure, education and all manner of other things. The 1% is a-okay, while the rest of the country becomes increasingly less competitive versus the rest of the globe.
""Adjusted for inflation, public university tuition—once mostly covered by the states—has more than doubled over the past 30 years, burying recent graduates under $1.2 trillion in student debt." True or not?"
http://www.cnbc.com/id/102028451#.
Student debt at all-time high of $1.2 trillion
"Labor’s steadily falling share of GDP has inevitably depressed consumer demand, resulting in slower economic growth." True or not?
http://research.stlouisfed.org/fred2/series/LABSHPUSA156NRUG
Too lazy and it's too early to research the rest, but looks accurate.

It's all very easy to dismiss an article such as that by suggesting that it is "rife with political undertones" and "considering the source". Such emotional responses do more to suggest that the article may be worth consideration than not.
If in fact there are "political overtones", does that then automatically negate each and every point made in the article? Since when do "political overtones" equate to an accusation of falsehood? That article seemed to me to have plenty of references which could be fairly easily checked for accuracy.
How about a proper rebuttal based on an examination of the premises of the article, or the introduction of contrary opinions based upon other references?
"the shift toward stock-based compensation helped drive the rise of the 1 percent by inflating the ratio of CEO-to-worker compensation from twenty-to-one in 1965 to about 300-to-one today" True or not?
"Labor’s steadily falling share of GDP has inevitably depressed consumer demand, resulting in slower economic growth." True or not?
"Over the past decade, the companies that make up the S&P 500 have spent an astounding 54 percent of profits on stock buybacks." True or not?
"Federal spending on economically crucial research and development has plummeted 40 percent, from 1.25 percent of GDP in 1977 to only 0.75 percent today." True or not?
"Adjusted for inflation, public university tuition—once mostly covered by the states—has more than doubled over the past 30 years, burying recent graduates under $1.2 trillion in student debt." True or not?
"Wealth concentration at the top is not good for the nation as a whole." True or not?

"Vanguard will launch with two share classes: the “Investor” class (VUSFX) will sport of ratio of 0.2% and an initial investment of $3,000; Vanguard’s “Admiral” share class (VUSFX) will carry a 0.12% expense ratio and a minimum investment of $50,000."
-
Interesting. Price came out with same concept two-three years ago. I own TRBUX and was surprised to see tonight that its ER Is only .35%. Vanguard wins on cost - but not by much.
Minimums appear similar. At Price it's $2500 for a regular account and $1,000 for an IRA.
I realize folks won't be pounding a path in the ground racing to get into these things at current rates. Currently, TRBUX yields only slightly more than a money market fund - or effectively nothing.

msf as usual is on target.
I recall that up until about 10 years ago, long-short funds hid the interest they paid on short sales by adding it to brokerage costs rather than including it the (much more visible) expense ratio. New SEC reporting requirements put a stop to that practice and mandated those costs be included in the ER.
The net result was an "overnight" jump of around 1% (give or take) in the reported ERs for these funds. (I tried to find that ruling but could not.) The fund companies, as you might expect, objected.
An ER of 2-2.5% on a fund that routinely shorts equities is not unusual. If I liked the fund, I'd consider that reasonable for these funds.

Apparently I wasn't the only one... but hopefully we'll all make a lot of money in the next few years!!

Which Alternate MF you recommend in place of Whitebox Tactical Opportunities fund ?
I have held it for more than years and it has not moved an inch in these two years. Usually, I give at least 3 years for a fund after I chose, but this is a fund I bought without much conviction. Actually, the entire segment is like that, difficult to choose one with conviction.

Hi Puddnhead,
Since I like the combination of humor and insight in your posts so much, here's where I would start if I was undertaking the effort:
I screened for open equity funds with average market cap less than $500MM this time and Perritt Microcap Opportunities, PRCGX and Bridgeway Ultra Small Companies Market, which is still open, are the two positively rated funds by M*. They are bronze funds.
When I look at category ranks, and they would be ranked against small cap growth, blend or value funds, there's a lot of consistently low ranks. RBC Microcap Value, TMVAX, seems to be the most consistently well ranked of the crowd. The Ancora fund, ANCCX, also does pretty well. Over 10 years, there are only 3 funds ranked in the top 50%, Teton, Wasatch Microcap Value and the Satuit fund. Over 5 years, its a little better, there are 5 better than average, including the RBC and Ancora funds. Over 3 years there are 10 in the top half with 3 of those by the skin of their teeth. The RBC and Ancora funds are again in the mix.
My impression is that these funds are pretty volatile and not very often better than small cap funds with higher average market caps. If you think about small cap funds generally you would expect 1 out of every 5 to be in the top 20%. In the case of these funds, its running more like 1 out of 5 or 1 out of 10 being in the top 50%. I would prefer to see better performance for the extra risk.
Good luck!
LLJB

Dear friends,
Rather more than 50 folks dialed in and participated on our call with Matthew and Ian today. I'm suffering from some combination of a major head cold, the side effects of the OTC meds I'm taking for it and the gallon or so of green tea with honey and lemon that I've chugged this morning, so I'm only guessing when I nominate these as highlights of the call.
The guys run two strategies for US investors. The older one, Global Innovators, is a growth strategy that Guinness has been pursuing for 15 years. The newer one, Dividend Builder, is a value strategy that the managers propounded on their own in response to a challenge from founder Tim Guinness. These strategies are manifested in "mirror funds" open to European investors. Curiously, American investors seem taken by the growth strategy ($180M in the US, $30M in the Euro version) while European investors are prone to value ($6M in the US, $120M in the Euro). Both managers have an ownership stake in Guinness Atkinson and hope to work there for 30 years, neither is legally permitted to invest in the US version of the strategy, both intend - following some paperwork - to invest their pensions in the Dublin-based version. The paperwork hang up seems to affect, primarily, the newer Dividend Builder (in Europe, "Global Equity Income") strategy and I failed to ask directly about personal investment in the older strategy.
The growth strategy, Global Innovators IWIRX, starts by looking for firms "doing something smarter than the average company in their industry. Being smarter translates, over time, to higher return on capital, which is the key to all we do." They then buy those companies when they're underpriced. The fund hold 30 equally-weighted positions.
Innovators come in two flavors: disruptors - early stage growth companies, perhaps with recent IPOs, that have everyone excited and continuous improvers - firms with a long history of using innovation to maintain consistently high ROC. In general, the guys prefer the latter because the former tend to be wildly overpriced and haven't proven their ability to translate excitement into growth.
The example they pointed to was the IPO market. Last year they looked at 180 IPOs. Only 60 of those were profitable firms and only 6 or 7 of the stocks were reasonably priced (p/e under 20). Of those six, exactly one had a good ROC profile but its debt/equity ration was greater than 300%. So none of them ended up in the portfolio. Matthew observes that their portfolio is "not pure disruptors. Though those can make you look extremely clever when they go right, they also make you look extremely stupid when they go wrong. We would prefer to avoid that outcome."
This also means that they are not looking for a portfolio of "the most innovative companies in the world." A commitment to innovation provides a prism or lens through which to identify excellent growth companies. That's illustrated in the separate paths into the portfolio taken by disruptors and continuous improvers. With early stage disruptors, the managers begin by looking for evidence that a firm is truly innovative (for example, by looking at industry coverage in Fast Company or MIT's Technology Review) and then look at the prospect that innovation will produce consistent, affordable growth. For the established firms, the team starts with their quantitative screen that finds firms with top 25% return on capital scores in every one of the past ten years, then they pursue a "very subjective qualitative assessment of whether they're innovative, how they might be and how those innovations drive growth."
In both cases, they have a "watch list" of about 200-250 companies but their discipline tends to keep many of the disruptors out because of concerns about sustainability and price. Currently there might be one early stage firm in the portfolio and lots of Boeing, Intel, and Cisco.
They sell when price appreciates (they sold Shire pharmaceuticals after eight months because of an 80% share-price rise), fundamentals deteriorate (fairly rare - of the firms that pass the 10 year ROC screen, 80% will continue passing the screen for each of the subsequent five years) or the firm seems to have lost its way (shifting, for example, from organic growth to growth-through-acquisition).
The value strategy, Dividend Builder GAINX is a permutation of the growth strategy's approach to well-established firms. The value strategy looks only at dividend-paying companies that have provided an inflation-adjusted cash flow return on investment of at least 10% in each of the last 10 years. The secondary screens require at least a moderate dividend yield, a history of rising dividends, low levels of debt and a low payout ratio. In general, they found a high dividend strategy to be a loser and a dividend growth one to be a winner.
In general, the guys are "keen to avoid getting sucked into exciting stories or areas of great media interest. We’re physicists, and we quite like numbers rather than stories." They believe that's a competitive advantage, in part because listening to the numbers rather than the stories and maintaining a compact, equal-weight portfolio both tends to distance them from the herd. The growth strategy's active share, for instance, is 94. That's extraordinarily high for a strategy with a de facto large cap emphasis.
For those interested but unable to join us, here's a link to the mp3.
I'd be delighted to hear others' reactions to the call.
David

@Shadow & MFO Members: Brown Management was founded by Eddie Brown, a guest on Louis Rukeyser's Wall Street Week for many years.
Regards,
Ted

Hank,I got started late with Roths, I always used IRAs for income reduction in my high income years, later I realized Roths could be an annual source of income in retirement, without taxes...now playing catch up best I can, even doing some conversions, while staying in same low tax brackets,
Bonds have been a cash substitute for me while they continue to bring in earnings, also I keep funds open in all my various accounts for easy movement of cash, from equity sales. drags total returns slightly, but necessary evil/convenience

I'm hoping/expecting to join the call, but here are the questions I have so far.
1. How do you weight the different aspects of innovation against price? For instance, does a longer history of innovation as you view it trump a particularly insightful innovation without the history? And how do you choose between a company that has been particularly innovative but also sells at a smaller discount to your estimate of intrinsic value compared to a company that may not be as innovative but sells for less?
2. How would you describe the difference between the way you evaluate innovation compared to others who offer funds that are also pursuing innovative companies? (a duplication of davidmoran's question)
3. Is your portfolio primarily large cap because your approach to innovation requires a company to achieve a size where they “need” to innovate? Or do you also try to find particularly innovative small or mid-size companies that have the potential to grow much bigger?
4. When you look for innovative companies, or when you’re invested in them, how often is that innovation “people dependent” and how often is it built into the culture of the business? And, for example, if you viewed Apple as particularly innovative “because” of Steve Jobs, would his departure make you sell the stock?
5. Your positions are mostly US companies currently and of your purchases in the last 2 plus years, they've also been two-thirds US companies. Is that balance primarily being driven by where you're able to find innovation or is it just where the price of innovation has been more attractive in the last few years?
Thanks for arranging this! I own the fund thanks to reading about it on MFO and am looking forward to hearing from the managers.

Lord Abbett has two funds, LMIYX and LMVYX, that seem to be institutional in nature but I never trust M*'s purchase information so I'm listing them just in case
Allianz has GMACX that carries a load but maybe there are places you can get it with the load waived
AMG Managers Essex fund, MBRSX, seems to be more widely available and without a load.
DFA has a fund, DFSCX, but I think DFA funds are only available through advisors. M* says its available at Scottrade with a transaction fee but that doesn't make a lot of sense to me considering what I've read about DFA.
RBC offers TMVAX with a load, and the institutional class without a load, but its offered broadly so maybe someone waives the load.
Perritt offers a couple of funds that are on Ted's list, PRCGX (bronze fund at M*) and PREOX
Rice Hall James, who I've never heard of, has RHJSX which seems to be broadly available.
Jacob has a tiny fund, JMCGX, that again I've never heard of but with an expense ratio over 2% and only $13 MM in assets I imagine a guy sitting in his basement managing money for his brother-in-law
Victory Integrity has a fund, MMEAX, that normally carries a load but might be load-waived at Schwab. Alternative class MMECX seems to be more broadly available with a deferred load but a much higher expense ratio
Robeco offers WPG Small/Microcap Value, WPGTX, which seems to be only an institutional class but available at the major fund supermarkets so maybe someone drops the minimum initial investments
Those, along with the Royce and Wasatch funds you mentioned and the Oberweis fund I mentioned, have all been around at least 10 years. It seems Wasatch has a second micro-cap fund, WMICX, that has also been around for 10 years and Royce has an international micro-cap fund, ROIMX that has less than 5 years of history.
Acuitas has a fund, AFMCX, that seems to be offered at Fidelity but there's only an institutional class with $100K minimum, unless someone waives that. History? Less than one year.
AlphaOne has a fund, AOMAX, that's supposedly available at Fidelity and has been around more than 3 years
Ancora has a fund, ANCCX, that is theoretically available to Fidelity retail customers. This is the institutional class, but according to M* it has the same minimum $5K investment, its available the same places, but it has a much lower expense ratio and no 12b-1 fee. It has more than 5 years of history.
BMO has a fund, BMMYX that seems to be available at Fidelity NTF but only $4MM in assets and between 1 and 3 years old
Foundry's FMCIX seems only to be a TD Ameritrade Trust fund so not sure you'll find it anywhere
Ivy has a fund, IGWAX, that seems to have a lot of share classes, but they look like other funds I've research more where those other classes are historical in nature and only available to investors who hold those classes. The symbol I included refers to the share that carries a load which may be waived at a few places like Schwab and/or JP Morgan. History is more than 5 years but less than 10
James has a fund, JMCRX, with 3 years of history but not 5. It seems to be available on most of the fund supermarkets but not without a transaction fee if I'm reading things right (and if M* has their information right)
Morgan Dempsey, another name I've never heard before, has MITYX which seems to be available at a handful of places and for a tiny little fund actually has a reasonable expense ratio
North Star has NSMVX, which has been around for a couple years but M* doesn't even list an expense ratio. Not sure what's going on there
Paradigm has a fund, PVIVX, that seems to be available on most fund supermarkets and has more than 5 years of history
Thomson Horstmann & Bryant, which sounds more like a law firm than a money manager, has THBVX which has somewhere between 1 and 3 years of history
Finally, Westcore has WTMIX which has been around for more than 5 years.
The Driehaus fund I mentioned has only been around a few years. Some of the funds mentioned above, and probably others, didn't come up on my list because they don't have 'micro' in the name. The Franklin funds on Ted's linked list also didn't come up, but maybe they're close because I screened for funds that are open. In theory Grandeur Peak will eventually offer a global micro cap fund and it seems like the consensus has it being later this year but who knows.
Good hunting! Maybe if you tell Duke you're going hunting for a good micro-cap fund he'll be more excited :)
LLJB

FAMFX is micro in market cap and quite small in size. Only a couple of years old and only holds a small number of stocks (23 last time I checked). Not too expensive, either, for a microcap fund.