FUNDX - A dog of a fund that has underperformed the S&P and its category seven straight years.

For the third time in 15 years, Eric Cinnamond is stuck on the sidelines watching many of his fund manager peers profit from a late-stage bull market.

How does the author know it is late-stage?

A post @ the M* Forum, a few hours ago - Another poster there calls this "PRICELESS"
Re: How tiresome....portfolio again not updated4 hours, 25 minutes ago |
--You guys will get a kick out of this. I just called to cancel my Premium membership (after years of frustration with myriad other reported problems which they willfully chose to ignore). The rep tells me "I'm sorry, but my system is very slow at the moment and I am having trouble looking up your account. I can take the information. Then when I am able to do it this afternoon, I will send you an email confirming the details."
What a fitting end to this miserable relationship.
Ralph

@MFO Members: Successful mutual fund investing is a marathon not a sprint ! Hope we don't have another repeat of this today.
Regards,
Ted

It's a mentality shaped by a market that has gone up constantly for a while now. Declines are met with, effectively, "It's not supposed to do that" and/or heightened concern. I don't have anything against these threads, but, would a 2-3% decline 7-10 years ago result in frequent discussions of "what's worked today?" Probably not.
I am pretty concerned with oil that doesn't seem to stop going down and interest rates where they are, but the market down a few %? It's one of those "Wake me when it's 15-20%."

looks like though being a premium member for so many years, I have to keep a portfolio copy in yahoo, to get current portfolio value, since I am seeing Jan2 valuation only even now. (unfortunately portfolio maintenance is not outsourced by m* so they can blame some one)
or are they aiming to get the dubious distinction of too big to fail ( saying take whatever we provide!!)

Dear friends,
You are cordially invited to join me on a conference call with Bernie Horn, founder of Polaris Capital Management and manager of Polaris Global Value (PGVFX). You’re receiving this note because you asked to be included on the Observer’s conference call notification list. The call will take place between 7:00 - 8:00 p.m., EST, this coming Tuesday, January 13th. To register, just follow this link.
Mr. Horn and the Polaris team advise Polaris Global Value and sub-advise funds for PNC and Pear Tree. Mr. Horn has been managing global portfolios since 1980, launched Global Value L.P. in 1989, founded Polaris in 1995 and launched PGVFX in 1998. The fund remains small but distinguished. It has a great long-term record and superb tax efficiency, but suffered a terrible ’07 and bad ’08. That cost the fund nearly two-thirds of its assets, though the fund’s assets are a small fraction of the firm’s total AUM. Mr. Horn and his team made substantial and thoughtful revisions since then, and the fund has been in the top 10% of world stock funds over the past 3 and 5 years.
We're likely to talk most about PGV but maybe a bit too about QUSOX, his really good international SCV fund.
If you can make it, you're more than welcome. If you can but you have questions you'd like me to raise with him, just post them below. I've logged the queries from AJ, Vert and Mike and it's likely he'll review this thread before the call. As always, it's just a telephone conference call and I'll try to post highlights and an mp3 afterward.
For what interest it holds,
David

Wow.
Took 6 years, but D&C is back to closing funds again.
c

Understand MikeM.
This is a tough one.
On the one hand, folks bailed on Buffett in 1999. He stayed the same. The world changed.
On the other, I remember when Charles Akre launched AKREX in 2009. He was such a downer. The fund did badly out of the gate. He was still sporting 2008 collapse.
But, quickly realized he was wrong and turned bullish. It served him well...and, investors.
So, question, is world out of whack...or, is Mr. Cinnamond?
And, what is the appropriate time frame to judge? Is it 1 year? (Taking my trend hat off.) Or, 3? Or, 5? The Three Alarm eval periods were 1, 3, and 5 years.
Honestly, I have more of an issue with the fund's expenses than the strategy, but that is true for just about every fund out there.
Here are the Three Alarm stats through November:

Actually OOBY, M* shows over the last 3 years that ARIVX has captured 29% of the upside while taking on 59% of the downside. For 1 year, it looks even worst, 11% upside capture while taking on 69% of downside. Not trying to bash the guy, but the numbers don't lie. Those are some of the worst capture ratio numbers I've ever seen. Hopefully he makes up for those numbers in the next bear.

You are recommending a load fund with a non-low ER? Where do you get it on the cheap?
Looks okay otherwise. Terrible dip in 08-09, took 3y to get back to zero.
PRBLX, YACKX, FLPSX, and FCNTX all look preferable since 1983. Good comeback since the 09 depths, esp the last couple years.

@alaska: SHRAX, over the last 15 years Richy Freeman have beaten the S&P 500 by 2.52%, and the Large-Cap Growth Fund Category by 3.47%. He has managed this fund since its inception in 1983.
Regards,
Ted

Hi Guys,
Thank you for the really nice exchange coupling charts like those generated by Callan and a reversion-to-the-mean investment strategy. A discussion of the merits and shortfalls of those charts and how they can be interpreted to improve investment outcomes was the main purpose of my original post.
I have been familiar with both the Callan charts and the reversion concept for many years. I am a fan of both. About a decade ago I asked myself the same question that is currently being explored on this thread.
Can you exploit the Callan rankings to better your investment returns?
A decade ago I did some analyses on this specific question; my answer was NO. Investing in last year’s top ranking winners or last year’s bottom ranking losers did more poorly than the S&P 500 Index as a benchmark. Unfortunately, I can not find my analyses, so I am reporting results from memory alone. That’s not reliable enough.
The good news is that professional financial organizations have completed similar analyses. These studies are just a little dated but they backstop my own work. One report is from Bearing the Bull that uses a J. P. Morgan chart similar to the Callan study. Here is the reference:
http://bearingthebull.com/2012/02/01/the-callan-conundrum/
This article demonstrates the benefits and the shortfalls of asset allocations. One shortfall is that a diversified portfolio has a low likelihood of reaching the best performance ladder heights. The benefits are that annual losses are never maximized and that portfolio volatility is significantly reduced.
Given that diversification lowers return standard deviations, here is a Link to a short Fidelity report that provides some excellent practical examples:
https://www.fidelity.com/learning-center/investment-products/mutual-funds/diversification
By exploring enough options, it is almost always the case that some correlation can be identified that ties one variable to some desired output. Of course, the challenge is to locate a strategy that holds water over the long-term future. It seems like holes always develop in the water buckets and leakage compromises the “great” correlation.
It appears that the Callan-like charts provide no immediate solutions other than the promise that portfolio diversification is a pretty good plan. That’s something. Enjoy the references.
Best Wishes.

Hi alaska.
Couple more questions...
What's your risk tolerance? On a scale 1 to 5. 1 being Very Conservative, hate seeing even slight temporary pull backs. To, 5 being Very Aggressive, which means you're ok with 50-60% drawdowns as long is there is no permanent loss of capital ... and any decline will recover over say 4-6 years.
What's your investment time horizon? 1, 3, 5, 10, or 20 years?
Of the two, the former is probably most important. So, be as sure as humanly possible in your self assessment.
c

...who am I to second guess Cinnamond...

Hi NumbersGal. Well since you asked, you are the person paying above average fees for some really bad sector-picking choices by this manager. I think you have a right to second guess this guy. I also think Cinnamond has shown himself to be the quintessential value trapped manager. He went heavy into basic materials/mining stocks years too early. Either his poor judgment or his ego wouldn't allow him to adjust. That's why the bleak record.

VGSIX quietly had a stellar year (up 30%). It has annualized a 8.4% return over the last 10 years. It was out paced by US Small Cap and US Mid Cap sectors by just 1 % over the last decade. US Mid caps exhibited the lowest volatility of the three. Its the volatility that I wanted to address with this thread that ultimately might lead to help creating an inflation beating portfolio.
Volatility has been one the REIT sector's Achilles heal. I am trying to pair other investments that provides a blended performance that helps lowers year to year volatility. Over the last decade TIPs would have been one pairing option. Going forward their will be more and more investor focus on their attempts to stay ahead of inflation. I believe the two sectors (REITs and TIPs) paired together will provide a better inflation beating performance than owning just TIPs alone.
Here's how the last decade looked.
Three portfolios:
100% VGSIX (Blue Line)
100% TIP (Yellow Line)
A combination of the two, 50% VGSIX & 50% TIP (Orange Line)

FYI: I make investment changes at a glacial speed. The last change was about five years ago when I combined micro-cap stocks with small-cap value stocks to reduce the number of funds in the portfolio. Before that, I eliminated a preferred stock allocation, which was fortunately done right before the financial crisis. Over the coming year, I believe the opportunity may present itself for another change.
Currently, 70% of my stock allocation is in US equity and 100% of my bond allocation is in US bonds. Sometime in 2015, I may shift my portfolio to a more global stock and bond allocation
Regards,
Ted
http://www.rickferri.com/blog/investments/my-expected-investment-changes-in-2015/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+RickFerri+(Rick+Ferri+Blog)

Hi Guys,
http://awealthofcommonsense.com/
I too consider this chart one of my favorites. It presents extremely broad asset class returns over a 10-year period.
The chart once again illustrates the random nature, the patternless character, the ramblings of the various major asset classes over the last decade. Good luck on consistently picking these winners ahead of time.
This is a big reason why active mutual fund managers have such a challenging task to outdistance an appropriate benchmark. It adds another dimension to investment risk. Forecasters can’t forecast with any reliability. It’s that reason plus the additional handicap of higher expenses in several directions that dampen active mutual fund returns. There’s an easy lesson here.
Please give the chart a little time. It’s worth the effort, and just might contribute to a more profitable 2015. I hope so. Good luck and good health to all.
Best Regards.

Great chart. Now that sets up a challenge for everyone. Rearrange the blocks for 2015. Commodities are down 45% last 4 years, but I am loathe to pick them above water. I like aggregate bonds over 5%.

Hi Tanpabay, Hi Mrdarcy,
Thank you for reading and reacting to my posts. I really appreciate feedback since that implies that I reached both your minds and your emotions.
But I didn’t expect the harsh nature of your highly charged replies. I suppose football does cause such sharp reactions from some loyal fans; football touches many emotions and nerves. I’m not one who is so influenced by football.
I didn’t comment or forecast the outcome of the Rose Bowl game because I simply did not care one way or the other. I had no skin in the game although I have a close relative who has both her undergraduate and graduate degrees from Florida State. I try to never forecast since that is a Loser’s game.
My primary purpose in referencing the Oregon-Florida State game was to introduce the investment reversion-to-the-mean concept in a manner that would attract MFO readership.
From your replies, I succeeded, but not in the way I wanted. You focused on the peripheral introductory football analogy, and not on the main investment regression topic. I’m disappointed.
You guys misinterpreted the extent and the thrust of my football analogy. I was surely not writing about the Florida State 2012 and 2013 seasons. They were superb and honestly earned by a superior football squad directed by a Heisman quality quarterback in 2013.
My comments centered only on Florida State’s 2014 season. The 2014 team did not dominate opponents like in previous years. They fell behind in a majority of their 2014 games by huge negative margins, and were very fortunate (lucky) to pull these games out of the fire. Their escapes baffled handicappers. Professional odds makers estimate that the team had something like a 1 in 10,000 chance of winning all those games. I wanted to illustrate how quickly luck can evaporate.
Also, the Florida State quarterback in 2014 did not play to the high performance standards he established in his Heisman trophy year. Statistically, the Oregon quarterback possessed a much more impressive 2014 record. That’s why he won the trophy this year. In the future, he too will likely suffer a regression-to-the-mean.
I’m sorry that you fellows are so sensitive to the Rose Bowl outcome. It neither pleased me or displeased me whatsoever. My posting was designed to direct attention to the random, checkerboard character of major investment classes, their non-predictability, and their reversion-to-the-mean tendency. The football commentary was meant to be merely ancillary.
By the way, I do Las Vegas about three times a year, and sometimes (rarely) leave with a fatter wallet. I also ran a small consulting firm after retiring as the head of a major research operation. The lesson here is to not make wild guesses or false assumptions. You never know who is on the other end of the exchanges.
I really take no umbrage from your comments. Once again, thanks for reading my posts.
Best Wishes.

Thanks @MJG for that comment. Charlie Munger believes in efficient spending of money not matter the purpose or the entity whether you and I or the government. Waste is waste.
While my views of Buffet have gone south in recent years, I alway enjoy reading anything by Charlie Munger. I will have to check out your recommendation above.
All the best.

Thanks @MJG. I appreciate your linking to those charts.
Oregon is a football machine. The big boys of old had better take notice. Oregon has been good for some years now but this years the stars aligned for them. It must be those cattle rancher's sons from the east side of the state. Bucking bales of hay before they go to grade school in the morning makes them strong. I don't know what they buck there in Florida?