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Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

Josh Brown: In 2015 I Learned That…MFO's David Snowball Comments
Agree that 2015 seemed like a senseless market.
Maybe we are headed for a great deflationary collapse - which raw materials prices appear to suggest. Or maybe the year was more a lesson in trend persistency. Not much other than tech and (possibly) health care seems to have prospered. Even my ultra-conservative "safe" funds like RPSIX, DODIX and TRRIX all took hits. Looking at TRP, their Ginny Mae made a little $$, despite rising rates, and their HY fund fell - but hardly the rout one would surmise from the media hype.
If anybody can explain why this was a sensible market I'd love to hear.

hank January 2016 in Fund Discussions
Nice story about GLRBX
I agree that it was a nice gesture, and could have been left at that.
My mention of M* was to point out that one has to be careful with processed data from different sources - if sources process raw data differently, the resulting numbers can't be compared. You mentioned trying to get processed data from M* and from the fund. That opened up this apples and oranges problem.
M* is as clear as anybody on its methodologies - how it processes raw data. It's good that you could get some processed numbers from the fund manager; perhaps you should take him up on his offer and call him back to inquire how the processing (averaging) was done.
Your intent may not have been to comment on M*, though it seems hard for you to resist: "Let's just say that I would never pay their membership fees for their services, or lack thereof."
Let's just say it was a nice gesture by a fund manager and leave it at that.
Yes, indeed, it was a nice gesture. Since you brought up *M's "pretty good coverage" of the credit analysis of conservative allocation funds, I'll just say color me unimpressed. 162 out of 192? How many were done in the past year? It's been four years since they did a credit analysis GLRBX? Three years for BERIX? These are two five-star balanced funds. There's a reason why I get all of my *M material free from the library. Let's just leave it at that.

willmatt72 January 2016 in Fund Discussions
A Painful Year for Contrarian Trades
Is FCNTX, the original nominally contrarian fund, too big to be called that anymore? I wonder when the first article will appear this year about how Danoff cannot keep it going, owing to size. (Just observing today how much better Contrafund did for 2015 than RPG, SCHD, NOBL, SPX, ....)

davidrmoran January 2016 in Fund Discussions
A Painful Year for Contrarian Trades
FYI: There’s been something of a bull market in people who consider themselves a contrarian investor in recent years. People took notice of those who called the tech bubble in the late-1990s, the the real estate bubble in the mid-2000s or the bottom of the stock market in early 2009. Everyone would now like to think that they’re greedy when others are fearful and fearful when others are greedy.
Regards,
Ted
http://awealthofcommonsense.com/contrarian/

Ted January 2016 in Fund Discussions
Josh Brown: In 2015 I Learned That…MFO's David Snowball Comments
FYI: Wait – 2015 is already over? How the hell did that happen?
It’s been quite a year, even though it feels like it flew by in an instant. Let’s hurry up and preserve the lessons learned lest we forget them all as 2016 gets underway.
You’ve already heard enough from me this year, so now, with a little help from my friends…
Regards,
Ted
http://thereformedbroker.com/2015/12/31/in-2015-i-learned-that/

Ted January 2016 in Fund Discussions
Burton Malkiel: Investing For 2016 In An Expensive Market
FYI: (Click On Article Title At Top Of Google Search)
How do you invest when everything is expensive? U.S. stocks are selling at more than 25 times their cyclically adjusted earnings. Bond yields are unusually low (the 10-year U.S. Treasury yields about 2.25%), and interest rates are likely to rise. Money-market funds and savings deposits yield next to nothing. Property markets are also richly valued. There are no “door busters” available in world financial markets.
Regards,
Ted
https://www.google.com/#q=Investing+for+2016+in+an+Expensive+Market

Ted January 2016 in Fund Discussions
Q&A With Patrick Kelly, Co-Manager Alger Spectra Fund
FYI: Patrick Kelly has the Alger Spectra Fund in a coveted spot. As portfolio manager since 2004, he has led the fund to the No. 1 ranking of 900 large-cap growth mutual funds tracked by Morningstar over the last decade
Regards,
Ted
http://license.icopyright.net/user/viewFreeUse.act?fuid=MjEyMjg5Nzk=
M* Snapshot SPECX: http://www.morningstar.com/funds/XNAS/SPECX/quote.html
Lipper Snapshot SPECX: http://www.marketwatch.com/investing/Fund/SPECX?countrycode=US
SPECX Is Ranked #115 In The (LCG) Fund Category By U.S. News & World Report:
http://money.usnews.com/funds/mutual-funds/large-growth/alger-spectra-fund/specx

Ted January 2016 in Fund Discussions
This Guy Had A Great Year Betting Against A Favorite Tool Of Mom-And-Pop Investors
FYI: (This is a follow-up article)
The Michigan-native is betting against one of the most popular investment vehicles for mom-and-pop investors: exchange-traded funds. The bets have paid off, turning Miller’s little known Catalyst Mutual Funds into one of Wall Street’s most successful players in 2015.
Regards,
Ted
https://www.washingtonpost.com/news/get-there/wp/2015/12/31/this-guy-had-a-great-year-betting-against-a-favorite-tool-of-mom-and-pop-investors/
M* Snapshot MCXAX: http://www.morningstar.com/funds/XNAS/MCXAX/quote.html

Ted January 2016 in Fund Discussions
Guru Picks: Best Funds And ETFs For 2016
FYI: Many investors prefer the idea of buying a basket of stocks through a mutual fund or exchange-traded fund rather than picking and choosing individual stocks but the task of selecting the right fund can be a bit overwhelming. According to the Investment Company Institute, there are more than 8,100 mutual funds in the U.S. with combined assets of $15.94 trillion and more than 1,500 ETFs with total assets of $2.1 trillion. For some help in narrowing the field for investors, we asked some of our top fund and ETF gurus for their best investing ideas for the next 12 months. Their picks are included below.
Regards,
Ted
http://www.forbes.com/sites/investor/2015/12/31/guru-picks-best-funds-and-etfs-for-2016/print/

Ted January 2016 in Fund Discussions
Nice story about GLRBX
What information would M* get with a phone call that it doesn't already have? We're not talking investment approach à la Gundlach, but objective data on file with the SEC (portfolio holdings), and bond ratings (provided by the NRSROs, not by the fund companies).
Is Oakmark is on M*'s "black list"? OAKBX is a silver-rated fund. Yet M* hasn't done an analysis of OAKBX's bond holdings for even longer than for GLRBX. Then there's BERIX, another silver rated fund, without a credit analysis since 2012.
M* has current credit analyses of 162 out of 192 conservative allocation funds, including funds like HINAX, a one star fund with $1.1M in AUM. I see pretty good coverage, and no particular pattern among the 30 omitted, though perhaps they tend to have somewhat fewer stars on average (no 4* funds) than the 162 that are analyzed.

msf January 2016 in Fund Discussions
Nice story about GLRBX
Best case - those are similar, but not identical, averages to what M* would have computed. Worst case, they still understates risk.
The best case is that these ratings represent the rating firms' averages of the bonds in the portfolio (based on the ratings each firm gives to the bonds). Here's Moodys' methodology for computing the risk weighted average credit rating for CDOs; I would assume they would apply same weightings to fund portfolios:
https://prnedelivery.morningstar.com/Average_credit_Quality_Methodology_Change_2010.pdf
Moodys', like M*, risk-weights the bonds. One can see that Moodys' and M*'s weightings are similar. So the weighted average computed by the rating firms and by M* should be comparable.
The worst case is that what you were told was the result of James Advantage averaging the Moodys' bond ratings for the portfolio and averaging S&P's ratings as well. Since each firm rates bonds differently, even simple (dollar-weighted) averages could be different for the Moodys' bond ratings and the S&P bond ratings.
Did you get any idea of who was doing the averaging of the Moody's bond ratings for Moodys' portfolio credit rating - Moodys' or James?
Regardless of what calculations were used for the stated Moodys' and S&P averages, they were different from how M* would calculate the average credit quality. (That's obvious from the fact that you've got two different averages - at least one of them wouldn't match M*'s average.) So M* would still have to do its own calculations, bond by bond. Still not a matter of M* just picking up the phone.
FWIW, here's a paper from 2009 (just before M* went to a risk-weighted methodology) explaining why risk weighting is important:
http://www.slcg.com/pdf/workingpapers/Average Credit Quality in Bond Portfolios.pdf
Yes, *M would have to do its own calculations but that's what they get paid to do. So, they should do it. And yes, a simple phone call would start the ball rolling so they could receive the necessary information to do the calculations. As we all know, *M plays favorites with certain funds and publishes updated evals on funds as they see fit. If a portfolio manager will return my phone call, I'm sure there's no reason why that person wouldn't respond to *M if they pushed the issue. If not, they can publish an asterisk much like they did with Gundlach.

willmatt72 December 2015 in Fund Discussions
Berkowitz's Fairholme Increases Sears Stake, Signals Active Role
There must be underlying value that most investors are missing...
We've heard that about Sears since it was well over $100. The fact that Berkowitz is now taking an active role is curious, although I'm not sure I see it as Fairholme-positive. Ultimately, I think Sears as we know it probably does not last beyond 2016.

scott December 2015 in Fund Discussions
Will Bad ‘Breadth’ Make For A Rotten 2016? Watch Equal-Weight S&P 500 ETF
FYI: Whether the S&P 500 finishes higher or lower for the year today, investors should be watching for bad “breadth” in 2016.
Regards,
Ted
http://blogs.barrons.com/focusonfunds/2015/12/31/will-bad-breadth-make-for-a-rotten-2016-watch-equal-weight-sp-500-etf/tab/print/

Ted December 2015 in Fund Discussions
The Year Nothing Worked: Stocks, Bonds, Cash Go Nowhere
@ BobC, don't forget about OSMAX (I have the Inst. version), it's been my winner this year.
Foreign mid-cap growth funds had a great 2015 (OSMAX, AOPAX, PRIDX, etc.) ... so great, that those with the highest P/E's might be ripe for a stallout. (Same with the FI cef rally I mentioned above ... it's been a terrific 6m run, but more than a few are getting up there on relative premium/discount.)

AndyJ December 2015 in Fund Discussions
Nice story about GLRBX
Best case - those are similar, but not identical, averages to what M* would have computed. Worst case, they still understates risk.
The best case is that these ratings represent the rating firms' averages of the bonds in the portfolio (based on the ratings each firm gives to the bonds). Here's Moodys' methodology for computing the risk weighted average credit rating for CDOs; I would assume they would apply same weightings to fund portfolios:
https://prnedelivery.morningstar.com/Average_credit_Quality_Methodology_Change_2010.pdf
Moodys', like M*, risk-weights the bonds. One can see that Moodys' and M*'s weightings are similar. So the weighted average computed by the rating firms and by M* should be comparable.
The worst case is that what you were told was the result of James Advantage averaging the Moodys' bond ratings for the portfolio and averaging S&P's ratings as well. Since each firm rates bonds differently, even simple (dollar-weighted) averages could be different for the Moodys' bond ratings and the S&P bond ratings.
Did you get any idea of who was doing the averaging of the Moody's bond ratings for Moodys' portfolio credit rating - Moodys' or James?
Regardless of what calculations were used for the stated Moodys' and S&P averages, they were different from how M* would calculate the average credit quality. (That's obvious from the fact that you've got two different averages - at least one of them wouldn't match M*'s average.) So M* would still have to do its own calculations, bond by bond. Still not a matter of M* just picking up the phone.
FWIW, here's a paper from 2009 (just before M* went to a risk-weighted methodology) explaining why risk weighting is important:
http://www.slcg.com/pdf/workingpapers/Average Credit Quality in Bond Portfolios.pdf

msf December 2015 in Fund Discussions
Nice story about GLRBX
>> Aside from the treasuries held in the fund, the average credit quality is about AA for the rest of the bond sleeve held in the fund
>Makes you wonder why *M cannot make a simple phone call like I did.
It is quite possible that despite the fund being a mix of Treasuries (for all intents and purposes AAA) and other bonds "averaging" AA, M* would compute an average lower than that. This is because M* weights bonds by their likelihood of a default (and by size of position), and that probability weighting results in a lower average than a simple dollar-weighting of the bonds' credit ratings.
So M* could easily have made a phone call, but they wouldn't have gotten more information than they already had - they would still need to go through the portfolio bond by bond and compute their risk-weighted credit quality average.
Morningstar Methodology for Average Credit Quality
You should be careful not to compare the average you were told with averages you see for other funds on M* pages. In a sense the basic dollar-weighted average you received is graded on a curve, as it understates the default risk. (That's assuming that what you were told was indeed just a dollar weighted average.)

msf December 2015 in Fund Discussions
How Bad Has 2015 Been For Diversified Investors?
FYI: So just how tough has it been for diversified investors in 2015? Think about it, stocks and bonds are flat, cash makes you nothing and commodities tanked once again. Most years being diversified is the way to go, this year has been historically tough.
I took a look at various asset class returns over the past 30 years and made some hypothetical portfolios for each year. I put 50% into the S&P 500 (stocks), 25% into 10-yr bonds (bonds), 10% into commodities, and 15% into cash.
Happy New Year,
Ted
http://ryandetrick.tumblr.com/post/136226077810/how-bad-has-2015-been-for-diversified-investors

Ted December 2015 in Fund Discussions
Berkowitz's Fairholme Increases Sears Stake, Signals Active Role
FYI: Bruce Berkowitz, the largest outside shareholder at Sears Holdings Corp., plans to make himself heard.
As chief investment officer of Miami-based Fairholme Capital Management, Berkowitz has been a staunch supporter of Edward Lampert, the hedge fund manager who runs Sears and controls about half of the retailer’s shares. But Fairholme signaled a shift in its role at Sears in a Dec. 18 filing with the U.S. Securities and Exchange Commission.
Regards,
Ted
http://www.bloomberg.com/news/articles/2015-12-30/berkowitz-s-fairholme-increases-sears-stake-signals-active-role

Ted December 2015 in Fund Discussions
Nice story about GLRBX
The breakout by Credit Quality has '-' for GLRBX; the columns that are filled in are the benchmark and category average figures. I suspect the reason why the figures given are dated 12/31/11 is that this appears to be the last time that M* did a credit analysis on GLRBX - the "style history" table immediately above shows a style box for 2011 and nothing more recent.
I would suggest being wary of the benchmark/category average in the all the credit tables. Various numbers don't come close to the figures shown on the page for FBALX. (The figures are supposedly separated by a month, Sept vs. Oct 2015, so they shouldn't match exactly, but they should be closer than they are.)
It seems that if the last time that M* did a credit analysis was five or more years ago, M* does show the current benchmark and category figures. See the tables for OAKBX, where the claimed date for the tables is 12/31/10. The benchmark/category figures seem to match the (current) figures found with FBALX.

msf December 2015 in Fund Discussions
An exception to the EM Carnage/Bloodbath/Whatever
I've got very little in it anymore, but why is PRASX ALWAYS a laggard? Going back 10 years, it looks better than not bad. But if you invested in this fund 5 or 3 years ago, it sucks.

Crash December 2015 in Fund Discussions