MikeM said "But all this talk about this "could" happen to the fund or the fund "could" be susceptible to that... I don't see where that should scare people away."
I agree. The goal wasn't to scare anyone away but rather to learn something about a fund I didn't understand very well previously and, because it's performance has been so good since inception, to figure out whether that's durable and/or what could derail it.
I don't think there's anything crazy about what either MikeM or davidrmoran are doing. As an approximation you can put the four sector etfs and a bond proxy into M*'s instant X-ray. You can use another Doubleline bond fund if you think one is reasonable or you can just use a Total Bond Market fund, which won't do a great job but I don't think its the most important part. Each of the etfs should get 12.5% and the bond fund should get 50% because that's effectively what he's doing, he's using the assets twice. Obviously the equity side is focused on the 4 sectors but everything else, from a statistical point of view, doesn't seem bad to me. The stock stats are a little high compared to the total S&P but I'd think that's what you'd expect. CAPE compares earnings to what you'd expect over the business cycle while M* just looks at the present.

Sorry, guys. Really? How about we look at this chart?
http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=0&mn=9&dy=0&id=p73061033693
Can we say these could point to trouble for market?
1) S&P price about to break below its moving average (that I pulled out of my a**)
2) Price Momentum crossover forebodes impending doom.
3) MACD crossover already spelling doom.
4) MACD also showing negative divergence in its highs vs S&P price at its highs.
We talk about simplifying our life by investing in index funds. I think we should also simplify our life by not doing too much analysis. Or ANALysis. Or both.

@rfono fyi - Bridgeway spent a sizable amount of money in 2016 for their fee waiver for BRLIX. I think it is a good fund as well.

Pimco has always been a fan of derivatives also. For example PSPDX has been at it since 1993:
"PIMCO helped pioneer the innovative StocksPLUS strategy in 1986 – the same award-winning approach used across our “PLUS” portfolios, which capitalizes on the depth and breadth of PIMCO’s global resources. Today, we manage “PLUS” portfolios across a range of objectives and market exposures."
"The investment seeks total return which exceeds that of the S&P 500 Index. The fund seeks to exceed the total return of the S&P 500 Index by investing under normal circumstances in S&P 500 Index derivatives, backed by a portfolio of Fixed Income Instruments. "Fixed Income Instruments" include bonds, debt securities and other similar instruments issued by various U.S. and non-U.S. public- or private-sector entities. It may invest up to 30% of its total assets in securities denominated in foreign currencies and may invest beyond this limit in U.S. dollar-denominated securities of foreign issuers. "

https://s3.amazonaws.com/bridgeway_web/SemiAnnual+Report/Bridgeway.pdf
BRAGX BRUSX BRSIX BRSMX BRSGX BRSVX BRLIX BRBPX
I think bridgeway puts together one of the more interesting reports. They have a nice style box of market returns showing the quarterly results and annual results. It was a good year for small value, up 31%. 6 out of 8 funds beat their benchmark for the quarter, but only 3 beat for the year. The annual report discusses the funds performances during 2016 as well as a few interesting articles:
"Understanding factors: What makes momentum work?" by Andrew Berkin
"Think like an Arbitrageur" by Dick Cancelmo
"How I invest my money" by John Montgomery (This was very transparent and interesting, although there are a few zeroes difference b/w his net worth and mine.)

@VintageFreak CAPE is also up today 0.26%. I believe it is because 1/4 portfolio is in technology.

FWIW, here's what Schwab is showing:

Huh. Thanks (again) for running down.
1% outperformance by SP500 the last ten days of last October, a bit less than 1% SP500 outperformance for the last three weeks of that preelection month --- if that makes such a dramatic difference in the u/d calcs, I guess I will stop paying so much attention to them.
It's a short period to have an approx 1% delta in, I guess, but still.
Dunno about 'some bad numbers', exactly.

I'm enjoying all the interesting facts and discussion on this fund, especially all the facts you have supplied @LLJB. You found information I couldn't find on my own. But all this talk about this "could" happen to the fund or the fund "could" be susceptible to that... I don't see where that should scare people away. That is a warning for any fund method. Bottom line is I bought into the fund at a fairly heavy percentage about 1 year ago, mostly my interest was intrigued by posts from @davidrmoran, and now my investment is up 23%. CAPE is a winning method if you believe in value investing IMHO. There is obviously some special management sauce that has made results even better than CAPE.
This fund is 15% of my self managed portfolio. I don't think that is any more risky then having 15% in the S&P 500 index or having 15% in "many" different large cap funds someone else might hold. I don't believe there is any value in 'manager diversification', especially in the domestic large cap field. Just my 2 cents.

FYI: Online brokerage firm Scottrade said Wednesday starting in 2005 it will begin charging a flat $7 commission on all online market and limit orders. Scottrade customers currently pay a $12 commission for all limit orders. Conversely, Scottrade said it will institute a $17 transaction fee for trades of certain no-load mutual funds after not charging such fees on any no-load funds for the past four years.
Regards,
Ted
http://www.marketwatch.com/story/scottrade-cuts-limit-order-commissions-ups-fund-fees/print

These numbers prove 2 things. One is that the fund is capable of putting up some bad numbers. As wxman123 reminded us there's no such thing as a free lunch. The other is that timing is everything. It looks like that 173% downside capture is almost entirely explained by one month (Oct 2016) and if you had looked 2 months ago the 1 year downside capture might have been something more like 80% because the fund did a lot better than the S&P in Jan and Feb 2016 when the index was down both months.
You'd think if the CAPE approach to the equity portion of the strategy proves consistently better than the S&P, which it has so far, then people will attempt to arbitrage that advantage away. I'm not sure it's a completely easy thing to do but people would no doubt try and computers are more than powerful enough these days to manage the difficulty.

A recent divergence between high-yield bonds and the stock market could point to trouble for risky investments, according to one strategist.
http://www.cnbc.com/2017/03/08/the-chart-that-could-be-flashing-a-risk-off-signal.html

>> fund wins a higher percentage of the time when the S&P is positive but it would be useful to see how the fund performs during an extended negative period for the S&P
Note unusual M* U/D ratio, hmm
---1y--------3y
u129.15 u124.48
d173.14 d102.02
and very different from LV
(http://performance.morningstar.com/fund/ratings-risk.action?t=DSENX&region=usa&culture=en_US)

FYI: Investing isn’t all about the nuances of stocks and bonds and the twists and turns of the market — sometimes, it involves matters of the heart.
Regards,
Ted
http://www.marketwatch.com/story/you-can-invest-based-on-your-religious-environmental-and-even-farm-animal-values-2017-03-08/print
Investment News Article:
http://www.investmentnews.com/article/20170307/FREE/170309943?template=printart
Motif Website:
https://www.motifinvesting.com/products/impact-portfolio

@expatsp, it's because they're not actually rotating on a monthly basis. They own swaps which are based on the actual group of four sectors that the index is investing in. Of course those swaps do have a time period associated with them and that means at some point they have to recognize gains and/or losses, but it's nothing like if they were actually rotating each month. At this point M* says their cap gains exposure is a little over 12% and that makes rough sense in terms of the unrealized gains they had in their December SEC filing. Of course they also have to distribute all the income from the bond portfolio so you'd think there will be an ongoing tax bill but hopefully they structure their swaps so they end up with long-term gains on most of the gains. I guess the interesting question might be how those swaps are treated. If you trade futures contracts then you mark to market and paying taxes on the gains and/or losses regardless of whether they're technically realized or not. I can't remember the specific percentage but the IRS just defines that any gains are 60/40 long term/short term, or something along those lines. If swaps are treated the same then the impact would be different for sure and I think it would most likely be worse.

I have found Jim Stack to be quite useless for investing in the real world. I actually subscribed to his newsletter previously. I found his recommendations confusing and not actionable. More so because I don't buy individual stocks and I can't really understand how he translates his "macro" calls into individual stock recommendations. He does recommend a mutual fund portfolio and I would like 1 person to stand up and say he/she uses it and it has worked.
Each of these guys have these 1 or 2 metrics they keep using again and again to show how things worked in the past. Then when it comes to the present the actions they recommend are not as definitive as they imply they should have been when taken in the past. In the past their actions are "quantitive" and absolute. "If you had done this, this would have happened". In the present they never do that.
And now, Jim Stack is worried about trend? Then I will just use trends, I don't need Jim Stack. Since bull market tops occur over time, the trend will be apparent to all, right? Why do I need anything else?

@hank, as of the end of January he had 12.7% in below investment grade bonds and 6.3% in unrated bonds. While that clearly doesn't have to mean high yield in every case I guess its a decent estimate and it seems like he's not pushing the envelope in reaching for yield. Unfortunately the SEC doesn't require credit quality to be broken out in the quarterly schedule of holdings so you can't find out the history or what he's done in different environments without finding someone who's saved all the historical fact sheets or making your own judgments and trying to add things up manually based on the SEC filings (no fun!).
I think @davidrmoran has a good question about the impact of rotating. Even if the fund gets caught with it's pants down one month it gets another chance the following month. If the cheap sector with the least momentum takes off one month then the fund would own it the following month, unless the other cheap sectors took off as well (good for the fund) or this one sector all of a sudden wasn't one of the 5 cheapest anymore. That's all possible and it might even be fair to assume it will happen at some point, but it also seems reasonable to assume it won't happen all the time.
The fund could also run the risk of chasing its tail or being whipsawed and that's a common risk associated with mechanical strategies based on momentum. I think its worth paying attention to even though its not clear to me that you'd be able to identify the type of market that would cause those problems in order to get out or reduce for a while, nor do I think it's easy to figure out when things have changed and it's time to get back in before you give away enough gains to make the whole effort questionable.
I did look at monthly returns for DSENX (and the results could be slightly different than DSEEX but this will be more conservative) and the fund trailed the S&P 500 in 13 of its 40 months in existence so far, or roughly 1/3rd of the time. It managed to trail the S&P for 3 months in a row once and 7 of the times it trailed were negative months for the S&P out of 13 negative months for the S&P. Aside from the fact that 40 months isn't enough for any real judgments even the data itself doesn't seem to lead to any big conclusions about when you might expect the fund to do worse. Maybe you could say the fund wins a higher percentage of the time when the S&P is positive but it would be useful to see how the fund performs during an extended negative period for the S&P before considering whether its reasonable to have some expectations. If nothing else, though, reevaluating the sectors to invest in each month doesn't seem to have hurt and may have helped to keep the periods of losing to the S&P short.

I love DSENX and own it but I don't fully understand it. What I do know is there is no free lunch, and so when you have out-performance like we have seen you need to expect a reciprocal downside. That's why the fund is a relatively small player in my portfolio. I know this is not exactly analogous, but I've been a fan of HFXCX. Take a look at the 10 year history on MF (though much of that time the product was offered as a hedge fund). Steady and safe it seemed. I was going to make a much bigger bet at the start of the year...but uncertain of exactly what I was buying did not. Out of the blue, DOWN 18% ytd. May be irrelevant to this thread or a cautionary tale.

Hi Old Joe,
Well time hasn't changed much for us. You're the same Old Joe of FundAlarm days. That's not only good for you, it's good for me.
It's amazing how your earlier submittal mirrored my initial entry. I said: " When I first became interested in the retirement riddle, Monte Carlo calculators were not readily available. So I built my own copy." You later said:"When I first started work on our retirement plan, Monte Carlo calculators were not readily available. So I built my own projection engine....". That's an unexpected similarity in words, but not in methodology.
The question has always been how the year-to year-projected returns were selected in your spreadsheet. I used a random generator command to select my annual returns. That's the heart of all current Monte Carlo codes. Random return selections is not so easy a task. Avoiding bias in the selection process is a real challenge.
But let me end this exchange with a famous humorous story. I'm sure you're familiar with the scientist who was awarded a Nobel prize when he discovered an error in the Random Number tables. Anyway, that's my attempt at humor!
I'm pleased that you recovered from the 2008 market debacle. I retired in the early 1990s and our portfolio has fortunately never been in any dangerous survival zone. I'm sure much of that success is pure luck.
I wish you and your family well and much pure luck too.
Best Regards

Frankly I found it to be a bit mumbo jumbo. I did not come away with any conclusion as to whether I should buy low volatility funds NOW or not. If volatility is low today it can only go up and I think the author is saying this needs to happen for these funds to do well.
Other than that he is making argument people chase performance and then bail when fund does not perform. Err, that's true of any fund class. And if these funds have done slightly worse than the index, I don't see how they have "not delivered on the promise". It is also implying to me most investors are dumb since they are selling these funds because it is not as if they are bailing because of bad performance, and then why exactly is not clear to me (or I guess I'm just not smart enough).
I own VMVFX and is one of the few funds I call "holds". Instead of buying BMO low volatility funds I discovered through my ANALysis they were simply buying low volatility stocks so I bought Consumer Staples and Utility Funds as trades (sector funds will never we long term holds for me). Seems to me I should get out of these funds since I'm sitting on gains.
Moral 1: There 3 kinds of lies. Lies, Damn Lies and Statistics.
Moral 2: Statistics is like a bikini. What it reveals is interesting, but what it conceals is vital.