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David Snowball's March Commentary Is Now Available

edited March 2016 in Fund Discussions


  • Why would Mr. Snowball consider ICMAX instead of ARIVX (as a replacemnt for ARTVX)? Eric Cinnamond built ICMAX until he left in 2010 and started ARIVX. Yes, the team he has left behind has followed his approach, but in the last 5 years and last year, ARIVX has had less volatility, a lower beta, and a higher alpha.
  • edited March 2016
    The disgust with FPA is growing. Ed Studzinski has taken some jabs at them; now David pulls the gloves.

    Thanks for putting this out in the open, David. As an FPACX shareholder, I too am disgusted. I thought FPA was one of the last true fiduciaries out there.

    And, David -- you really think Royce is going to get this thing turned around? I think they're just opening up the spigots.

    Slowly, I begin my migration (back) toward Vanguard (my first fund was VFINX).
  • @Shostakovich, I had a good conversation with Steve Lipper, whose family launched Lipper Analytics then sold it to Thomson Reuters. I've never had any great affection for Royce for all the predictable reasons: a swarm of undistinguished and virtually undistinguishable funds, most apparently run by Mr. Royce. I do like the approach in RYFSX. It's not as strong as Hennessy Small Cap Financials (HSFNX) but I like the global focus.

    As I listened to Mr. Lipper, there was a lot that he didn't say but that I think he would have liked to. I poked, for example, on the role of Mr. Flynn as "assistant portfolio manager" still after 10 years. In general, I got the sense that there's a very clear sense of the need to reform (almost literally: re-form) the company. And I had the sense that one reason Mr. Lipper was hired was to manage that process.

    Will it work? I don't. But I am more hopeful after talking with him than I was before. My general advice would be to wait out 2016 and watch, since he suggested stuff was in the pipeline that would emerge this year.

    This is, I know, pretty impressionistic but sometimes how things are said carries as much meaning as what is said, and it's really hard to give you that nuance.

    On FPA, I'm trying to be as fair and detached as I can be. Lots of talented people there, it's just that they seem more and more aligned with an absolute value orientation. That's a fine approach but it does feel like they're narrowing.

    For what that's worth,

  • @NumbersGal, hi!

    Thanks for the question. By happenstance, Eric C dropped me a note shortly after we published (in reality, while I was in the produce section of my local Hy-Vee grocery, foraging). We profiled ARIVX shortly after launch and again a couple years later. My general take has been that Eric has more discipline and more steady resolve than just about anyone. We'll catch up in the next week or so.

    Eric's performance has been remarkable given that he's now at 80% cash. That's been a brilliant positioning in the past year since it's given him great relative performance in the face of a small cap bear. My hesitation is that, even with a bear, the cash level keeps rising which seems counter-intuitive.

    The comparison with ICMAX is close but, over the past five years (Eric's been gone five years and five months), it's not entirely one-sided. Intrepid comes out ahead on a bunch of risk measures (recovery period from maximum drawdown, downside deviation, Martin ratio, Sortino ratio, Ulcer Index) while River Road pulls ahead on others (maximum drawdown, standard deviation, Sharpe). Annual returns are within 0.1% of each other.

    In any case, I wouldn't rule ARIVX out and we are going to find time to talk before my new term gets crazy.

    As ever,

  • edited March 2016
    This post is again (Heavily Edited Edition )
    the March issue live ... it's alive!
  • Welcome back to the original thread. Carry on!
  • Deleted my original draft write to this thread when it entered the closed status and was stuck in the land of 1's and 0's.
    No longer in the mood to comment on the March commentary.

    See some of you on the other side.
  • edited March 2016

    With all due respect to you and David, I continue to see absolutely nothing attractive about ARIVX or ICMAX. With current 82% and 67% cash positions, respectively, an investor in these funds are paying dearly (1.42% and 1.40% ER) for funds primarily investing in cash. And one is therefore deriving the diversifying benefits of owning cash but not small cap value equities.

    For domestic SC exposure, I continue to favor VSTCX and VTMSX, which are both low cost and consistent performers.

  • edited March 2016
    Hi, Kevin.

    I know. The problem is that small caps (well, stocks) are volatile and I'm rotten at timing the market or making other tactical allocation moves. Mostly I've got too much else going on to spend a lot of time with assessing the Russell 2K's p/e or peg or whatever, and partly I've got a spectacular track record for guessing wrong. As a result, I try to focus my non-retirement portfolio on multi-asset managers; that is, folks who have the freedom to dodge and weave on my behalf. Sometimes that's an overtly multi-asset fund like FPACX or BBALX, sometimes it's a fund with a broad mandate (Seafarer can invest in companies domiciled in the developed world with substantial earnings in the developing one and such stocks represent something like half of the portfolio) and sometimes it's absolute-value guys who say "if it's not a compelling value, I'm sitting on cash."

    There are just a couple focused equity funds (Grandeur Peak, Artisan International Value, Wasatch Microcap Value) where I think the managers are doing something useful and distinctive. On whole, my non-retirement portfolio is about 50% growth (half US, half international) and 50% income (Price Spectrum Income, Matthews Asia Strategic Income, RiverPark Short Term High Yield and so on).

    To be clear: I'm not preaching that that's The One Right Way. It's just what allows me to make a little money, sleep well and focus elsewhere.

    Over the course of the full market cycle, the small cap fund -inclusive of growth, core, and value - with the highest Sharpe ratio, a measure of whether you're getting compensated for the risks you're taking - is Intrepid. It's #1 of 410. VSTCX is about 120th, just behind NAESX and VISVX. Its correlation with those two funds is .99 and .98, respectively. In addition to a higher Sharpe ratio, Intrepid has higher absolute returns over the market cycle (through 1/30/16) than does VTSCX and a substantially lower correlation to the small cap indexes.

    Pinnacle isn't far behind Intrepid at 15th by Sharpe with a much lower correlation to any of the above, though also with lower absolute returns than Intrepid or Vanguard. The Aston fund hasn't been around long enough to have full market cycle data, though its five-year profile is strikingly similar to ICMAX.

    Up-cycles present a different picture and these guys get left in the dust. But since I don't get to invest just during up-cycles, I don't tend to focus there.

    In short, what I find attractive is the combination of higher returns and lower volatility over meaningful market periods.


  • @David & MFO Members: "Over the course of the full market cycle, the small cap fund -inclusive of growth, core, and value - with the highest Sharpe ratio, a measure of whether you're getting compensated for the risks you're taking - is Intrepid. It's #1 of 410. VTSCX" I believe David made a symbol error, it's VSTCX if I'm not mistaken.

    M* Ratings % Risk VSTCX:
  • You're exactly right, Ted. Thanks for the heads-up. I'll go back and edit the symbol.

  • The small cap value universe has been proven academically and empirically to produce alpha premium above the other stock universes over a 90 year period.

    Investing in the equity markets doesn't have to be complicated and an investor doesn't necessarily need more than a handful of funds representing the equity universe. An investor in the "young" demographic of the investment "lifecycle" ( age 20 - 50 ) can exploit the maximum asset accumulation into retirement phase and beyond, by first building a core position in small cap value, and then over the course of the career, they can diversify into other stock universes ( mid cap growth producing the next best alpha premium and also being somewhat non correlated to value; performance of value and growth trading off performance "leads" over the course of market cycles ( see P. O'Shaughnessy and T. Carlisle).

    Further risk mitigated, maximal asset accumulation has been achieved through the use of small cap value ( and also mid cap growth ) and tactical asset allocation modelling
    This is a new frontier of asset management science.

    (Fortunately or unfortunately) this type of minimal, systematic alpha producing process can be automated and eliminates the need for human, objectively derived allocation decision processes ( "The Robot's Are Coming " )

  • To return briefly to David's comments on FPACX, which I endorse. Thanks for showing me how to painlessly reduce my too-numerous fund holdings. However, (please note I did not say, "That being said…") I can't see LCORX as an alternative but I would put in a plug for the local (Indiana) talent at the Bruce Fund (BRUFX). It's a relatively large non-retirement position for me and one that's been a keeper for 8-9 years.
  • Is BRUFX available anywhere other then direct through Bruce funds? I know it's not available through Schwab. Good fund but limited availability for most.
  • TedTed
    edited March 2016
    @BenWP & MikeM: Ben said, " I would put in a plug for the local (Indiana) talent at the Bruce Fund." The Bruce Funds office is located in Chicago at Bruce Fund Inc. 20 N Wacker Dr, Suite 2414 Chicago IL 60606. Phone: 800-872-7823
    . Bruce Fund's transfer agent is Huntington Asset Services, Inc.
    P.O. Box 6110 Indianapolis, Indiana 46206-6110. If I'm not mistaken MikeM the fund is only available through Bruce directly, suggest give them a call at the above number. So let's hear it for.....................

  • Thanks for the info Ted, but I prefer my 1 stop shopping at Charles Schwab. Well, 2 stops I guess. I still have a 401k with TRP. Even though BRUFX looks great, the fund is not worth buying out side my 2 existing accounts to me. Starts to become to much clutter.

    I've never visited Chicago other than a pass through at O'Hare, but I'd like to some day.
  • It is beautiful, so clean, and the Lake looks like Aruba in the sun.
  • We've spent some time in Chicago, and found it to be very much worth the trip, but I must say that somehow Aruba did not suggest itself to us.:)

    Great zoo and museums. Also very nice to see the nicely revived Union Station the last time we were through there. (We're train people.)
  • It is beautiful, so clean, and the Lake looks like Aruba in the sun.
    Sounds like a "Great" Lake David:) I actually live a mile away from one of those myself. I wouldn't mistake Greater Rochester area as Aruba though.
  • edited March 2016
    Well, this was on a beautiful summer day a few years ago; it just was striking how much nicer it all was than decades earlier. Used to go to Chicago as a kid 60y ago, and then 30y ago for tradeshows.

    As someone who attended the UofR, I know what you're talking about there, too.
    And as a buckeye I well remember when right at Lake Erie the Cuyahoga River caught fire and burned a bridge and actual water had to be poured on it to put it out.
  • Jim Nabors. "Back Home In Indiana." Made me smile. Jim Nabors can manage to make me like Indiana. Sweet. I was there in a previous lifetime for school. That's where everything blew up. Thanks, Jim.
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