Hi Dex,
I copied and pasted below how the straegy works.
"The Market Leadership Strategy always has two holdings with nominal weighting of 50% each. Based on the rankings, one of the positions can be a money market fund. This strategy will buy the top two (2) ranked funds and hold them as long as they are ranked as a top-5 fund. If a holding drops below #5, the strategy will sell it and purchase the highest ranked style not already owned."
In addition, it is best that the strategy only make up a small part of your overall portfolio.
The way I use the strategy is to make sure I have an ample weighting in the favored assets within my portfolio. If I feel I am light in the favored assets then I'll reconfigure my holdings to better reflect more of the favored holdings.
Hope this helps.
Old_Skeet

2) So go ahead and go with indexes only? Or stick with those two (:)).

That is exactly the kind of conclusion one might make if one doesn't look at studies like this carefully. I have recommended both index funds and active funds for different situation so don't have a bone to pick in this debate. But the conclusion this study supports logically (without a confirmation bias) is that if you pick your actively managed funds by throwing a dart at all available (and defunct) funds, you have good odds of doing better than index funds in 4 out of 6 classes before fees and in some classes even after fees. Nothing more, nothing less.
But this isn't reality of how people pick funds, so the question to ask is whether any of the common criterion used to select funds change these odds and the performance measurement significantly.
Curiously, none of these people interested in accuracy and precision seem to go ahead and do this simple study. Or perhaps they have and don't like the results that don't fit the narrative. I don't know the reason but it is very odd. This might also explain the apparent contradiction between studies like this and the experience of people where they find most of their active funds handily outperforming. That explains your comment related to (1).
The counterargument to the above is to claim that even if you were able to select well, there is no persistency of performance and so futile leading to false conclusions such as your (3). Perhaps, one might think, the outperformance is only short term.
This does not follow from this study because of the artificial definition of persistence used. I will leave it as an exercise to the reader to show how an actively managed fund can handily beat the index over the long term and yet completely and consistently fail the persistence as defined in this study. Just taking your favorite fund and looking at its performance over the last 15 years in 5 year chunks will likely expose the problem with that definition.
The problem "junk science" studies like this persist is that people either don't have the critical thinking abilities or the patience to wade through details. Same reason why global warming skeptic "science" exists. All long prose is mistaken for correctness. For the choir, the confirmation bias doesn't allow them to subject such studies to the same level of critical analysis they would subject opposing studies (assuming they were capable of doing so).
As an exercise in critical thinking, I leave it to the reader to figure out the following flaws from the content in this study all of which are used to support religiously held views. These are the kinds of objections that would throw such papers out of any peer reviewed publication unless the peers were of similar ideological view.
1.

Kenneth French suggested in a 2008 paper that actively managed funds, in aggregate, are equal to the sum of the market, making active management a zero sum game, before trading costs and fees are applied. This implies that in aggregate, active managers will underperform the market by an amount equal to fees and expenses.

Think of a reason this implication is incorrect. Hint: Total market?
2.

Finally, through the process of researching this paper, a large amount of “noise” could be observed which was caused by the mismatch between funds’ strategies and their benchmarks.

The study includes an increasing number of funds with strategies for whom the performance criterion selection is irrelevant but skews the results for others. Can you think of which? Hint: Risk
3.

Another important metric to consider is the dispersion of manager performance. We measure this dispersion by interquartile spreads which is the top quartile subtracted by the bottom quartile. For example, if 100 managers were ranked by performance and 1 was the highest rank, the interquartile spread would be the 25th manager minus the 75th...... The size of this spread is a good indicator of how much value a “skilled” (or lucky) manager can add relative to an “unskilled” (or unlucky) manager. Another way to interpret these results is to think of the size of the spread as an indicator of how much potential value lies in selecting a superior active manager within these asset classes.

The metric chosen compares the spread between performance of the worst of the best and the best of the worst.
Can you think of a measure available in that data that would make this spread a poor measure of that difference in skills to draw any conclusions? Hint: A intra-quartile measure
4.

“Have markets become more efficient through time?”
The supporting argument for this thesis is that, as time passes, successful investment strategies become more widely known. As more managers adopt and execute the strategy, the informational advantages of the strategy decrease as more information is reflected in market prices, thus reducing arbitrage opportunities and mispricings.

Can you think of a characteristic of the evolution of the fund industry where the use of the specific statistical measure of this study alone can explain the change in measured value than any reduction in opportunities? Hint: sample space and spread.
5.

It shows that, across the board, median manager alpha declined over the past ten years relative to the period that came before. This supports the theory that markets have continued to become more efficient through time within every major asset class.

Given 4 above, can you spot the fallacy in the conclusion above? Hint: garbage in, garbage out.
6.

Examining the possibility of increased market efficiency further, the following chart shows the spread between the top and bottom quartile of Domestic Large Cap Core managers through time. Although the interquartile spread did increase during recession periods like 2001 and 2008, the general trend has been one of decline. In other words, the trend since 1979 has been a decreasing amount of difference between the best and worst performing U.S. equity managers.

Can you see what might happen to the trend line in that chart if the measuring period started from 1983 after the extreme overperformance of active managers in the couple of years before it? Can you think of the most obvious market condition that determines this measure and hence its efficacy in supporting market efficiency theories? Hint: Markets go up and they go down.
7.

To further clarify this point, the following chart shows the trend of the top and bottom quartile managers in the large cap core asset class. As before, we see that the distance between these two lines has been decreasing (i.e., the spread has shrunk), but perhaps more interestingly, the chart shows that this decrease has not been perfectly symmetrical. The trend in the bottom quartile managers has increased by 2 bps per year, but the trend of the top quartile managers has decreased by 6 bps per year. This indicates that the majority of the decrease in interquartile spreads came from a reduction in the potential upside rather than from a decrease in potential downside.

Same as 6 above. If the measuring period started from extreme underperformance, the results would be opposite.
8.

This analysis indicates that managers who outperformed over a five-year period were no more likely to outperform over the next five-year period than any other manager selected at random.

Can you see why there will be a lack of correlation between this measure and the ability of the manager to outperform over that entire period? Hint: Look at the results of several of your funds over the last 10 years.
9.

Although this paper has provided strong evidence against persistence within manager performance, it is important to note that we have not controlled for any other factors and therefore do not make any statement about manager skill. These factors include but are not limited to Macroeconomic Timing, Style, Sector, or Industry concentrations and variation, and overall active risk.15 It is possible that, after controlling for these factors, an investor may be able to identify managers who possess skill but exhibit a lack of persistent outperformance due to the cyclicality of these factors or the market rather than any cyclicality of the manager’s skill.

Can you spot the logical fallacy in the above statement regarding skills and market conditions?:Hint: dependent vs independent variables.
The point of this post is not to get into this debate from one side or the other. It is futile to do so with junk science and people who follow them because there are infinite ways to come up with logical fallacies and bad math. That is not even considering obfuscation via tangential arguments and appeal to emotion via prose. So, one lands up with an interminable debate knocking down fallacies only to face more. Life is too short for that.
What is more valuable in this nondeterministic activity called investing is practical and constructive advice, suggestions and experiences even if you don't necessarily agree with it without resorting to such junk science which is not worth the time (and not falling for confirmation bias on what you ignore). That should prevent a lot of the unpleasant exchanges and attacks whether direct or passive aggressive, authoritative or disguised in false humility.

Hi mrdarcy,
I appreciate your extra effort to secure a copy of Professor Kaushik’s report.
I suspect you and I are in substantial agreement that study findings are always tightly coupled to its methodology. Details just don’t simply matter, they matter greatly, and can reverse conclusions. In reviewing all research work, one conundrum is to identify which studies are of sufficiently high quality to accurately reflect the real world marketplace.
Even with our current shortfall with regard to some details of Kaushik’s procedures and data qualifying techniques, it is clear that his data preferences depart from those used by S&P and by the MIG organization.
For example, Kaushik used Morningstar as his primary data source for the small cap category; MIG used the Russell 1000 Value category benchmark. S&P typically accesses the University of Chicago CRSP data. By itself, the data source benchmark can invert conclusions. Here is a Link to a fine summary paper, “Lessons Learned from SPIVA”, generated by the Journal of Indexes that supports that observation:
http://www.etf.com/publications/journalofindexes/joi-articles/11140-lessons-learned-from-spiva.html
I direct your attention specifically to Lesson 6, Benchmark Choice Matters in the Active-Passive Debate. In this instance for Small Caps, the active managers outperformed its Russell 2000 benchmark by a smidgen for the time period considered, but active managers underperformed when measured against the S&P Small Cap 600 standard.
The referenced article has a wealth of actionable conclusions. Please access it.
The S&P summary review and the earlier mentioned MIG report both document that any active fund management excess returns is very time dependent, and erode as the timeframe expands. Managers enjoy momentary success, but that success crumbles to negative integrated outcomes relative to a benchmark. The referenced S&P paper also addresses this issue.
Persistent positive Alpha performance escapes all but a few active managers. The most devastating illustration of that overarching conclusion is provided as the Manager 5-year Persistence graph near the end of the MIG report. No trend-line, no pattern is discernable; it is a shotgun blast.
As stressed previously, the MIG release provides superb charting evidence of active managers volatile performance relative to their benchmarks. Indeed, active management can enhance outcomes, but they also can substantially detract. Subtraction is hard to take. This time dependent data is included as Appendix C in the MIG paper.
Since we are focusing on Small Cap results, please examine the chart titled “Russell 1000 Value”; it is located on page 20 of the report. It depicts aggregate SCV active manager outcomes measured against their benchmark. The data is displayed from 1979 to 2012. Note the random and spiky nature of the curve, and that it shows mostly negative relative performance years.
Also note that the SCV curve had a respectable positive bump in the 1999-2002 and the 2007-2009 timeframes. These were the glory years for active managers in that fund category. That glory has faded recently. The persistency handicap strikes once again. It’s a tough marketplace for active fund management.
I find the empirical evidence undeniable. Sure some active managers will outdistance their benchmark during short periods. But that advantage is ephemeral for almost all survivors.
In their 2012 SPIVA report, S&P concludes that “The annual league tables over the past 10 years demonstrate that short-term outcomes (such as one-year performance figures) of the index versus active debate are less consistent than longer-term outcomes.” Some things remain fairly stable. For completeness, here is the Link to that S&P document:
http://www.spindices.com/documents/spiva/spiva-us-year-end-2012.pdf
I never tell folks how to invest; that’s always their personal choice. However, I have no qualms about presenting them with the relevant statistics. It is their job to weigh the odds and the expected excess Alpha potential.
It is a daunting task to identify consistent fund manager winners. Perhaps dedicated and well informed mutual fund buyers can discover a glittering gem in the treacherous terrain. Good luck to them, and even to myself since I plan to do a little of that dubious exploration.
Best Wishes and Happy Easter.

NHMAX: 8.55%
DFE: About 7%
WAFMX: about 5%
HDV: About 4.5%
PONDX: about 3.5%
The only significant (more than 5% of portfolio) position is HDV.

Thanks for your reply mrdarcey. I was unable to find that info. that you provided on their website. According to Morningstar, each fund had a different top holding as of 1/31/14 and only 1 common stock among their top 5 holdings. WSCVX had 56.45% invested in small market cap and WSVRX had 55.45% invested in small market cap. I appreciate the info you provided, but we still don't have an answer. Thank's also to JimJ for bringing WSVRX to my attention.

Wow, this thread has extended itself nicely! My top 3 mutual funds ytd (18th April:)
1. TRAMX +9.41%
2.PREMX +4.74
3.MAINX +3.04
Honorable Mention: DLFNX +2.95 .....SFGIX +2.64
THREE bond funds in the top 5. Not big positions. Pity.

Just finished his book Global Value (Kindle for PC).
I was impressed with the book.
He says that the U.S. stock market is the most overvalued stock market in the world now, based on the CAPE ratio. The CAPE for the U.S. is roughly 25.
He says that at a minimum, we should have 50% of our equities outside the U.S., since that is a market cap weighting. But.....a global GDP weighting would only have 20-40% of the equities as U.S. stocks.
However, to have an equity allocation aligned with the theme of his book, he states: "Similarly, ponder a value approach to your equity allocation. Consider overweighting the cheapest countries and avoiding the most expensive ones. Currently, this would mean a low, or zero, allocation to US stocks. Note: This does not mean simply picking one or two countries, but rather a basket of the cheapest countries – 10 is a reasonable number."
Looks like his Cambria Global Value, GVAL would accomplish that.

FYI:
Regards,
Ted
http://online.wsj.com/news/articles/SB10001424052702303603904579491784057393534#printMode

From the Walthausen website and fact sheets, Select Value has a market cap limit of $5B, and a soft total securities limit of between 40 or 50.
Small Cap Value has a cap limit of $2B, and currently holds over 80 securities.
There looks to substantial overlap in some names. They each have the same top holding.

@ron et al.
FRIFX, if you have access to Fidelity, is a nice conservative real estate fund. The category ranking of FRIFX for real estate related funds at M* ,won't set a viewers buying thoughts on fire, at first glance; as this fund is currently about 44% equity and 44% bond, with the remainder in cash. The normal mix for this fund generally tends towards a higher % mix of bonds.
Fidelity composition link Click onto other tabs at the top of the data area for summary, etc.
M* upside/downside risk At this link, scroll down the page to view the upside/downside for the past several years. You will note that the related category (SR) listed will have more upside and also more downside than FRIFX.
The fund is fairly steady; although is subject to interest rate jitters, along with other bonds. When the Fed folks were jabbering about killing some of the current QE policy, this fund dropped 4.3% from May 2 - June 5, 2013. Then proceeded to move upward again as the Fed starting jabbering some more about, well, their plan.
We have held this fund through the thick and thin for 5 years. Current 30 day yield is about 3.8%.
Sidenote: YTD, +6%
Regards,
Catch

All three of my top funds are emerging markets:
#1 GPEOX +6.34% but I bought a week into January so I'm up 7.52%
#2 EMBCX +5.93% even EM bonds have helped
#3 WAFMX +4.82%
These 3 are 15% of my mutual fund portfolio and closer to 10% of my total portfolio.
I only have 1 domestic stock fund that's positive so far this year and not by much.

Hi mrdarcy,
Thank you so very much for alerting me to Radford University Professor Abhay Kaushik’s work. I was completely unaware of it.
Since Kaushik’s results appear to contradict others in the active-passive fund management debate, I am excited and anxious to examine his study. Unfortunately, the Link you provided does not permit access to his full report; it merely yields an abstract of his paper. I still have not seen his complete report.
However, a quick Internet search uncovered a few reviews of his effort. I dislike these secondary sources and greatly prefer the primary report which still eludes me. However, perfect knowledge is rarely accessible in the investment world, so I’ve made a temporary assessment with imperfect information. Nothing new to investors in this regard.
I basically examined two secondary sources on this matter: BAM Alliance’s Larry Swedroe and Morningstar’s John Rekenthaler. Here are the Links to their reviews:
http://www.cbsnews.com/news/dont-believe-everything-you-read-this-post-excluded/
http://news.morningstar.com/articlenet/article.aspx?id=608086
Notwithstanding my reservations, here are my present thoughts on Professor Kaushik’s research and how it integrates into the impressive body of earlier works.
At first glance, the referenced work might appear to be an anomaly since, on the surface, it seems to depart from a bevy of academic and industry studies. That is not necessarily so upon slightly deeper thinking.
Much depends upon the design of the experiment, its timeframe, and the selected benchmarks. Also the inclusion or not of fund survivorship bias in the study is unclear. Unfortunately, these are unknowns to me at this juncture and cloud a final quality judgment. Not all academic and industry empirical studies are of equal quality or scope.
Also, it is important to recognize the overarching conclusion of all the work in this field. There is no fundamental reason why either active or passive fund management is superior for all circumstances, An Iron Law on this matter does NOT exist. Most active/passive studies demonstrate that superior performance is achieved by a passive discipline, but it is not a universal truism. Much depends upon the meticulousness of the screening process and the timeframes considered.
When the Meketa group did its work, they concluded that passive fund management outdistanced active elements in both the Large and Small Cap equity arenas. However, when they parsed these categories into value and growth units, Meketa discovered that Small Cap Value active fund managers did generate positive Alpha. Results do depend on the fineness of the category structuring.
Additionally, study outcomes depend upon timeframe. The Meketa studies are longitudinally (time dependent) sensitive. MIG concluded that some active management categories produced positive Alpha during market meltdown years. Situational awareness is needed when interpreting all research findings.
In MIG’s world, the developed foreign markets were modeled as a single entity; apparently in Kaushik’s world, that same category was subdivided into 13 distinct groupings. Of course, each of these separate units was measured against specific benchmarks. It is not surprising that with this finer structure, some generated positive Alpha winners and some did not. The Kaushik abstract suggests total victory; the actual results tell a more complex ending.
The referenced abstract summary overstates the universality of its findings. Within its 13 sub-groups, some passive units outperformed the actively managed funds. The abstract was not sufficiently nuanced to acknowledge that detail.
How the fund survivorship bias is handled in any serious study is a major issue. Note the extreme care that the MIG team exercised when assembling their database. The first few pages of their report emphasize and document the potential impact that fund survivorship bias has on any final findings. It is not clear how Kaushik addressed this likely high impact parameter when organizing his research.
The relative gaps between active and passive fund management is a temporal thing; it is dynamic. The longitudinal charts that are an Appendix in the MIG report documents the performance gaps time-sensitive nature. As information becomes more widely accessible, apparently active management positive Alpha becomes more challenged.
The referenced work is surely controversial. Although I believe there is no Iron Law that dictates active versus passive performance outcomes, I do subscribe to the market’s regression-to-the-mean rule that seems to enforce a negative feedback loop that limits market distortions. Even the referenced work finds that, in some instances, weaker earlier fund actors outperformed their previously superior counterparties at a later time. Persistency is a hard nut in the marketplace.
I love these types of controversies. They inspire more careful research. That’s a good thing. A huge majority of the current findings fall in favor of passive fund management, but not always and not under certain circumstances. Overall. it is a conditional finding.
Before I became acquainted with this recent research, I was strongly influenced by the S&P SPIVA and persistency scorecards. They too demonstrated that a universal law simply doesn’t apply, but the odds favor the passive management approach. Exceptions exist in certain categories and under certain market conditions.
The bulk of research in this arena concludes that under most conditions, and for many investment categories, actively managed funds underperform competitive passive products. I find this assemblage of studies persuasive. I put more trust in these composite findings, especially since most of the contradictory evidence can be explained by details in the applied methodology.
As an acknowledgement to these numerous studies, I concluded that my portfolio needs an adjustment. Its present allocation is roughly a 50/50 split between actively and passively managed funds; I plan to settle on a 20/80 mix that is heavy in less costly passive products. I appreciate and honor the fact that, under certain circumstances, the active products can earn their higher cost drag. The Kaushik study has not caused me to revise my plan.
Sorry for my incomplete and imperfect reply. I simply do not have the primary report for a more comprehensive review. Incomplete knowledge is one universal constant when investing.
I hope this is helpful. Once again, thanks for your post.
Best Wishes.

The first 2 are ETFs - but hey it looks like money to me.
#1 CNDA +9.78% A long way till I'm whole again
#2 IXC +5.23%
#3 FLTMX +3.35%
Rob Arnot and PAUIX received negative feedback last year (on the M* boards) but its in my top 5 YTD at +3.2%

I had some issues accessing the sight last night from about 11:50pm to 12:20am Pacific. Kept getting one of those cloudflare pages.

thanks jliev - this is exactly what could be useful in this particular discussion.
date , time and timezone when it is slow. simple concise. and only info pertaining to
slow - and data and time.

Thanks Charles,
My allocations are small making gains helpful, but from a portfolio standpoint I am -4.5% off YTD High and 0.12% off its recent YTD low. Many of these funds had some catching up to do though I can't complain about the consistent performance of GASFX and TOLSX (TOLLX).
Old_Skeet seems to get my nod for overall YTD portfolio performance.

@Old_Skeet. Looks like commodities, infrasturtcure/real estate lead the pack this year.

I have to agree GASFX (+10.48%), VNQ (+11.15%), PETDX (+16.5%)
Also happy with performances from:
BRUFX(+7.19%) Moderate Allocation
TRAMX (+9.66%) Africa, Middle East, & Mediterrean
PRLAX (+5.55%) Latin America
VDE (+7.22%) Energy / Natural Resources

FRUAX 10.56
MMUIX 7.74
ABEMX 4.28
Seems like many of us had some emerging market funds in the top 3. Good to see. Have no idea where they go from here , I keep hearing dire predictions on where EM are going, but keeping mine right where they are. You know how accurate predictions can be :)

Skeet,
Of course you are aware that the more funds (15 listed) you own the more likely your results will be average, right? I quickly checked two of my balanced faves, GLRBX and ICMBX, and saw their ytd was ~2.3% and ~4%. Just sayin'.

FKUTX +10.52%
FPPTX +3.91%
NEFZX +3.56%
Archaic

FKINX +5.04%
VGHCX +4.78%
MAPTX +3.92%
Sector rotation has been very interesting.