Biotech Related
Biotech Selloff, EVENTIDE FUNDS Semi-Annual Report 31 December 2015
The Gilead Fund and Healthcare & Life Sciences Fund are both exposed to the biotech sector,
which normally is not correlated to the broader economy. The futures of companies in the
biotech industry are dependent on company-specific pipelines of new drugs.
Despite the worst selloff in biotech history, the fundamentals of the industry remain positive. The
decline may be due in part to the 2015 drug-pricing scare in which rising drug prices became a
political issue. In addition, biotech normally experiences one large selloff every year. But, most
likely, the decline is due to a broad flight from risk among investors, and biotech is risky.
As a result, we believe investors are pricing companies far below a rational consideration of value.
While price-to-earnings (“PE”) ratios aren’t normally a useful metric in the biotech sector, given
many companies are pre-earnings, the PE of the four largest companies show them trading
below the PE of the S&P 500. Normally they trade much higher, as earnings growth rates in the
sector typically outperform estimates. Small-cap biotech companies have plenty of cash —
enough to last them for an average of 6.6 years before needing additional investment. That’s
plenty of time to produce new drugs, and the industry has many exciting new drugs in the
pipeline. Finally, the regulatory environment is positive, with officials approving more new drugs
every year. In other words, the fundamentals in the sector are positive.
EVENTIDE FUNDS Semi-Annual Report 31 December 2015
https://materials.proxyvote.com/Approved/MC5611/20160129/SAR_275117.PDF
1 Day Y T D
FBIOX -4.08 -31.06
IBB -3.30 ( nav) -22.26
ETNHX -4.64 -27.50
PRHSX -1.39 -13.40
M* Health: Total Returns Y T D Ave -14.81
http://news.morningstar.com/fund-category-returns/health/$FOCA$SH.aspx

IBB: Political Posturing Sell-Off Presents Buying Opportunity
Mar. 8, 2016 4:49 PM ET
http://seekingalpha.com/article/3956759-ibb-political-posturing-sell-presents-buying-opportunity

Vice President Joe Biden dropped in to Tutta Bella’s Westlake Avenue location during a visit to Seattle on Monday and ordered four Neapolitan pies to go.
Biden was in Seattle to tour a research facility to promote a $1 billion proposal to cure cancer, announced in President Obama’s January State of the Union address.
http://www.pmq.com/March-2016/Vice-President-Orders-4-Pies-to-Go-from-Seattle-Pizzeria/

>> At the base of the market trough in February 2016, valuations were higher ... maybe broadly ... than they were at the peak preceding the 2007 crash.
Doesn't look like it, quite, but hard to tell :
http://www.multpl.com/shiller-pe/

PTIAX
Corrected per heezsafe
Total Assets Dec 31 Fact Sheet
$223.02 mil
Total Assets March 23, 2016 per M*
$ 370.3 mil
66 % increase in assets under management. Y T D
Management probably thought Who needs These ?'12B-1 Fee'
BREAKING DOWN '12B-1 Fee'
Back in the early days of the mutual fund business, the 12b-1 fee was thought to help investors. It was believed that by marketing a mutual fund, its assets would increase and management could lower expenses because of economies of scale. This has yet to be proved. With mutual fund assets passing the $10 trillion mark and growing steadily, critics of this fee, which today is mainly used to reward intermediaries for selling a fund's shares, are seriously questioning the justification for using it. As a commission paid to salespersons, it is currently believed to do nothing to enhance the performance of a fund.
Read more: 12B-1 Fee Definition | Investopedia http://www.investopedia.com/terms/1/12b-1fees.asp#ixzz43ljR5V55
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From November Discussion
Here's my response to RSIVX, In My Schwab I R A
PTIAX was a $5000.minimum @ Schwab now $100 (see Ted's post here;" Schwab Slashes Minimums On OneSource NTF Mutual
http://www.mutualfundobserver.com/discuss/discussion/comment/71734/#Comment_71734
PTIAX is no longer a Mutual Fund OneSource® fund.
Now (Minimum: $5,000.00 Additional $500.00) with transaction fee.
@MikeM and @BenWP
It was great @ Schwab while it lasted !

@MikeM: My bad. I just checked my Schwab transaction. I bought PTIAX on Dec 21 and paid no TF. When I wanted to add to the position, I discovered the fee and was surprised and kicked myself for what turned out not to be a mistake. I'm really cheap and hate those fees. I think Performance Trust modified its deal with Schwab for 2016.

Hey, 3yards.
Sorry, not trying to snub anybody.
Here's my fundamental problem: I'm concerned that the market is currently forked up. Really. Zero and negative interest rate policies fundamentally distort investors' allocations. Why are interest rates at or below zero? Because, despite falling unemployment, global growth is at or below zero. We're about to register a fourth consecutive quarter of falling year-over-year earnings (Factset, March 2016). And still the stock market is rising at above average rates over the past three years; VTSMX is up 11% annually in that period. At the base of the market trough in February 2016, valuations were higher (at least in small caps, maybe broadly) than they were at the peak preceding the 2007 crash. The liquidity available to fixed income market makers is down by 90% since the end of the crisis. In theory, those guys provide the circuit breaker in a falling market: if you want to sell a share of Google, they'll buy it immediately then sell it as quickly as they can find an ultimate buyer for it which pocketing a few bps for their trouble. In the absence of that sort of liquidity, selloffs accelerate.
That's relevant here because I'm reluctant to make too strong an argument against what appears to be a sensible strategy that's performing poorly in a senseless market, especially when the manager has reasonable arguments about the malformations in the market. Similarly, I'm about to buy a small cap fund that's 50-80% cash and that most of you folks think of as appropriate for the Thanksgiving table.
In short, I own RSIVX personally and in an account for MFO. The positions aren't huge, but then none of mine are. I'm not happy that the strategy has been losing money over the past several quarters but I'm also not selling based on that experience nor am I willing to say that the strategy is a bad one. I am pretty happy with RPHYX (up 1% YTD) which continues to be a low-vol alternative to cash for me.
As ever,
David

@Derf MSCI has been changing their indexes around quite a bit the past couple of years, and if they continue the trend then their indexes won't be very useful as benchmarks for anything, IMO. Nevertheless, JoJo26 is getting warmer and is probably as close to the mark as you're gonna get.
Some recent thoughts from Ben Carlson on some pitfalls he is seeing re. benchmarking in today's markets:
http://awealthofcommonsense.com/2016/03/what-constitutes-a-valid-benchmark/

I sold it last year and moved to PTIAX. A multisector bond fund that has been around at least 5 years with high returns and below average risk. Happy with this one.
And that's what I was hoping for with RSIVX. RSIVX is a pretty good example of a group-think fund, I believe. Why gamble with a fund with little to no tract record? Because the manager did well with another new fund, RPHYX? And that manager gets rave reviews here. But as it turns out, that doesn't mean very much.
By the time I'm dead, I plan to make every investment mistake possible, but hopefully fewer in-between as I learn along the way. This was mistake number 128 if we're keeping tract :)

@Derf- from Schwab:

Note that the MSCI index used is probably more relevant, since GPROX does have investments in the US.

RSIVX is currently my worst performing fund for 2016 (bond or stock fund). It went down .44% yesterday, none of my other funds came close. I've owned the fund since Dec. 2013 and I'm down 1.5%. I could do better in cash. At least I would break even. I'm starting to wonder if there is any point in owning this fund? I am still curious if David Snowball still owns the fund, but he snubbed me when I originally presented the question. Should I continue to hold this fund?

Apparently he didn't share with Andy Acker, the manager of Janus Global Life Sciences:

On a subsector basis, pharmaceuticals were the largest detractor from relative performance. Much of the underperformance was due to one holding, Valeant Pharmaceuticals. The stock sold off after some politicians criticized the company for high drug prices for some of its products treating cardiac conditions. A short seller also questioned the company’s relationship with a specialty pharmacy that distributed some of its drugs. Valeant has since severed its relationship with the specialty pharmacy, and restructured how it will sell its dermatology products. We think the concerns that weighed on the stock this quarter are more than priced in at Valeant’s current valuation. (4Q15 Report)

That's the same language used in the report for the Janus Global Research Growth
Equity Composite. The Janus Global Research Fund team varies the wording but not the message:

We believe many of Valeant’s strengths have recently been overlooked, including a number of strong global brands, a high margin, decentralized operating model, and a strong pipeline. We also see further potential for shareholder value creation through deleveraging and bolt-on acquisitions.

Contrarily, Barney Wilson of Janus Fund says, "The Fund’s position in Valeant has added to our overall performance since we first bought the stock. Nevertheless, we sold our shares in the company during the quarter (4Q15) on concerns about some of those business practices."
Doug Rao, who handles their Concentrated Growth separate accounts also bailed, and did so for entirely rational, shareholder-sensitive reasons:

Valeant Pharmaceuticals also detracted. We exited our position due to concerns of some aggressive business practices. We felt the level of uncertainty surrounding those business practices created too high of a risk for a position in a high-conviction portfolio.

For what interest it holds,
David

FYI: How about some laurels for those managers who rode the stock higher but had the sense to get out when things turned ugly?
This blog noted that Weitz Investment Management sold all of its shares in embattled Valeant back in November. Regulatory filings show that Weitz had been gradually reducing its Valeant stake since the middle of 2013.
Fidelity Institutional Asset Management (FIAM LLC), formerly Pyramis Global Advisors, appears to have trimmed a long-time stake a couple times last year before ultimately selling roughly 4 million shares, or 65% of their holding, in the fourth quarter. Likewise for BMO Global Asset Management, which dumped 3.2 million shares, or 45% of its holding last quarter. Janus Capital Management (JNS) and Franklin Resources (BEN) likewise appeared to exit on top.
Regards,
Ted
http://blogs.barrons.com/focusonfunds/2016/03/22/these-fund-companies-cut-stakes-in-valeant-in-4q/tab/print/

Hi Guys,
The writer makes a case for portfolio diversification during retirement. I don’t object to that conclusion, but I do think that the method used to justify that conclusion was heavy-handed and a little deceitful. He also did not report on the tradeoff that exists with portfolio survival probability and likely median end wealth. These are easily estimated using Monte Carlo codes.
In arriving at his conclusion, the author honestly admits that he selected an especially poor time period for the equity marketplace (like since 2000). That’s an especially weak approach if general conclusions are the goal of the study. His conclusions would be far more convincing if he had done multiple simulations using data from several timeframes. Again, this is easily accomplished using a Monte Carlo tool like from the PortfolioVisualizer website.
I did precisely that. I ran a half dozen reasonable simulations in about 6 minutes.
To get a respectable number of portfolio failures, I assumed a slightly high initial 4.5% drawdown rate, both adjusted for inflation and not so. I made runs using the entire available market data sets and similar runs using only the data starting from the year 2000.
Not unexpectedly, more portfolio failures were predicted for a 100% US Equity portfolio over a 60/40 US Equity/Total Bond portfolio for the more recent 2000 starting point. In a sense, the chosen data timeframe preordained the outcome.
Using the full market data sets, portfolio survival estimates were 80% for the all Equity portfolio and 87% for the 60/40 Mixed portfolio. Using market returns data starting in 2000, portfolio survival rates dropped to 50% and 67% for the all Equity and the Mixed portfolios, respectively.
What the author failed to report is that the end wealth for the surviving all Equities portfolio was always much higher than that for the Mixed portfolio. The differences were substantial. Therein rests the usual tradeoff: More risk; higher rewards.
I did a perturbation case that demonstrated portfolio survival odds would increase substantially if inflation drawdown increases were not needed,
The referenced piece would have been far more complete and more compelling if a simple analysis of the type I just described had been performed. The work required approaches zero. I’m astonished that many folks, including professionals, do not take advantage of this powerful tool when doing investment studies or making investment decisions.
As the writer said: “Sizable bond allocation cushions market volatility”. But there is a price for that cushion.
Best Wishes.

FYI: Stocks have outperformed other investments over almost all 30-year rolling periods. If you’ve got the time and the stomach, nothing else belongs in your portfolio.
Regards,
Ted
http://www.marketwatch.com/story/why-a-100-stock-portfolio-can-ruin-your-retirement-2016-03-22/print

FYI: The U.S. stock market has rallied into slightly positive territory for 2016, bouncing back from an early-year swan dive.
How are your funds doing? Goldman Sachs’ U.S. stocks guru, David Kostin, crunches the numbers on mutual and hedge fund performance year to date. One would think that massive stock swings would be a stockpickers’ dream. Higher volatility tends to create greater dispersion between winners and losers. A wide array out stock moves is generally more conducive to stockpicking and long/short funds because fundamentals get play out a bit more, unlike during bull-market rallies, when stocks tend to march higher in together
Regards,
Ted
http://blogs.barrons.com/focusonfunds/2016/03/21/wheres-the-beef-the-sp-500-is-beating-mutual-and-hedge-funds-in-2016/tab/print/

@Mona: No, I am saying that markets do not like uncertainty and that the intentional creation of uncertainty is a warning. But it's a general warning not a prediction of some specific event, e.g. problems with Valiant. How confident are you with regard to the health sector as we approach the Presidential Nominating Conventions? Are there less-risky investment alternatives?
There were also other warnings that healthcare might become a risky investment:
http://www.nytimes.com/2016/02/03/business/drug-makers-calculated-price-increases-with-profit-in-mind-memos-show.html?_r=0

I voted against the reorganization (though now I remember why I didn't turn in the proxy initially - if they don't get a quorum, it fails).
All the reasons given amounted to "because nothing will change":
(1) The management companies support it (why?)
(2) The investment objectives won't change
(3) The day to day management won't change
(4) Fees won't go up, at least for two years (oh, goody)
(5) You won't have to pay for this reorg
(6) No tax impact
That's the complete, numbered list under the heading REASONS FOR THE REORGANIZATIONS
They could have said something like: we feel the acquiring organization can provide better service, or the current management company would rather focus strictly on investment management and not how to run the business, or ....
As nothing more was said, one has to think the reason is money, pure and simple. Which makes the threat of shutting down the funds if this isn't approved ring hollow.
I must be getting more cynical as the years go by.

I think managed payout funds like this make more sense for income, not growth. They are effectively the mutual fund industry's answer to annuities, trying to give you a smooth cash flow (though not as smooth as an annuity's) while still leaving you the possibility of something left over.
(That latter objective depends on the payout strategy. For example, Fidelity's Income Replacement Funds are designed to spend down to zero, much like a fixed term annuity.)
The emphasis is on low volatility and cash generation, not exactly what one wants if one is trying to grow assets for a later income stream. One doesn't invest in bonds (and reinvest interest) for capital growth.
Managed payout funds are fairly common in the closed end fund universe, so you might look around there to see how they work. Return of principal is tax free - you don't have to worry about paying taxes on your own money. The more interesting question is what happens when the investment generates more income and gains than the fund is scheduled to pay out?
A fund is taxed directly if it doesn't pay out substantially all its capital gains. According to the fund's SAI, Vanguard gets around this by some legerdemain that makes it appear to the IRS that you did get paid the gains, and then Vanguard gets you an offsetting tax credit. You don't have to worry about the details; the short story is you don't have to worry too much about weird tax impacts.
Here's an interesting and fairly current discussion/analysis of managed payout funds from Natixis and Vanguard. For a variety of reasons, including the way Vanguard gently adjusts the payout percentage based on performance, I like Vanguard's approach. But it doesn't seem to fit your objective.

If the reorg is approved, and if you invest directly with Chartwell instead of thru a financial intermediary, there are a few notable nuts-and-bolts that will change [these are items that popped out as I did the quick read-thru; probably not comprehensive]:
1. investing in a Berwyn fund will shift to the current Chartwell funds arrangement ($1000 initial min/ $100 subsequent min)
2. if you set up the option, you will now be able to invest by giving telephone instruction, in addition to the snail mail route; however, min. phone investment is $1000, not $100 (I have no explanation for this difference)
3. the new administrator and transfer agent will be UMB Fund Services.

FYI: (This is a follow-up article)
Rob Arnott from Research Affiliates caused a bit of a stir in the fund world a few weeks ago when he called for a potential crash in smart beta funds. Here were the main takeaways from his recent research paper
Regards,
Ted
http://awealthofcommonsense.com/2016/03/smart-beta-crash-coming/?curator=thereformedbroker&utm_source=thereformedbroker

VASFX is also available as an underlying fund in Vanguard Managed Payout Fund VPGDX. (VASFX currently represents 10% of the parent fund.)
While there are some similarities between VASFX and VMNFX (e.g. they are the only two funds in VPGDX that are allowed to short), a look at the VPGDX prospectus suggests that they are rather different.
VMNFX is a pretty straightforward market neutral fund, with long and short equity positions, including foreign equity. (See pp. 35-37, pdf pp. 41-43). In comparison, VASFX will hold or short almost anything - stocks, bonds, currency contracts, futures (including commodities), and swaps. (See pp. 38-41, pdf pp. 44-47).