Dear friends,
The season of darkness and light is upon us, which is a pretty good signal that the December issue of the Mutual Fund Observer has launched. You can find it at
http://www.mutualfundobserver.com/issue/december-2016/If you prefer the long scrolling read, that's available at
http://www.mutualfundobserver.com/2016/12/ Highlights of our December issue include:
Snowball’s reflections on how to react to the fact that five major U.S. equity indices reached all-time highs at the end of November (short version: the last such occurrence was 12/31/1999, which implies a degree of circumspection is in order) and to the fact that Donald Trump is president-elect (short version: don’t).
Leigh Walzer, president of Trapezoid LLC, starts with the premise that investment risks are now tilted strongly toward inflation but that traditional inflation hedges (e.g. TIPs) are unattractively value. As he models superior alternatives, he offers up the surprising possibility that modest doses of small cap funds might well make a major difference.
Ed Studzinski has far more extensive investment experience than the rest of us and often pursues matters into the thickets. This month he looks at not-quite criminal misstatements of qualifications in a case surrounding a royalty trust to raise the prospect that we need to be a bit less credulous when our managers are introduced to us, then recommends James Cloonan’s new Investing at Level 3 for its cautions on conflicts faced by mutual fund directors. He ends by encouraging folks to learn from Yale’s David Swensen’s advice, don’t hire managers who seem bewildered by their own portfolios.
Many of us have portfolios that have sprouted funds like a garden sprouts weeds; Charles Boccadoro offers another tutorial on how to systematically assess and simplify a portfolio, using a friend’s USAA collection as a guide.
One of the great virtues of scholarly writing is that it’s valued for its care and precision, not for its ability to generate clicks or get the author invited onto some Fox Business show. That sometimes masks the fact that really important insights are available, if only you’ll look for them. This month Snowball highlight’s three of the most interesting bits of research from 2016: (1) the largest sample of funds ever assembled offers evidence that small funds consistently outperform large ones, (2) a study of over 3000 fund management teams finds that intellectual diversity on the team is a major predictor of performance and (3) an examination of the behavior of 7000 German individual investors shows that introducing ETFs into a portfolio drives performance down. We offer summaries of what each scholar did and found, and how it might affect you plus there’s a link directly back to the original.
Mark Wilson, the Cap Gains Valet, offers a short Thanksgiving reflection on the cap gains season: less pain, more time with family.
Snowball profiles the best small cap fund you’ve never heard of. Really. 20 year record. Same manager. Asymmetrical risk-return profile over the last 3 years. And the last 5. And 10. And 20. It’s never made it to the top of the hot, hot, hot list but continues offering what you need: reasonable gain, minimal pain. (And it’s from Nebraska.)
Like Leigh Walzer, T. Rowe Price is worried about instability in the world economy and in the fixed-income market, which led them to launch a new fund at the beginning of November. We offer a first look in our Launch Alert for T. Rowe Price Total Return.
One development that’s not important to you yet, but might soon be, is the decision of former Wasatch manager Laura Geritz to launch her own advisory firm in partnership with her former Wasatch colleagues who launched Grandeur Peak. We spoke with Eric Huefner of Grandeur Peak to give you a clue of where that partnership is going.
But wait, there’s more! We detail 36 fund liquidations that make sense, and three or four that don’t. Chip tracked down 50 manager changes, one of which might be portentous. We found only a few funds (and one really irksome ETF) in registration. And, well, stuff. There’s other stuff, too.
We hope you enjoy it all in the December Mutual Fund Observer at www.mutualfundobserver.com!
Comments
And thanks for making the long scroll format available. Won't bore you with the history of how I developed a predilection for reading "beginning-to-end". But there's a reason.
Happy Holidays.
It struck us as "fair use" of the material. Here's the test of 17 US Code 107, which establishes the fair use standard: It's a protected purpose (paragraph 1), noncommercial, non-profit/educational, it appropriates just a portion and does not impair the estate's economic interests (paragraph 2).
David
Kevin
But isn't the educational aspect related to a teacher-pupil relationship; not a newsletter?
Then there is the is the 'limited' aspect.
http://ogc.harvard.edu/pages/copyright-and-fair-use
How much of the copyrighted work is being copied? How long is the portion copied and what percentage of the work does it represent? (The smaller the portion, the more likely the copying will qualify as fair use. Generally, a strong showing on the other factors will be needed to justify copying more than one chapter of a book, or one article from a periodical or newspaper, or one short story, short essay or short poem, or other similarly small parts of a work.)
Is the amount copied limited to that which is necessary for the educational purpose to which it is being put? (You should copy no more than is necessary for the educational purpose.)
It appears to me you used more then needed for educational purposes and the educational relationship is questionable.
Regards,
Ted
1999: Prince:
Years ago, I'd held Amit Wadhwaney's Int'l Value fund at Third Avenue, but dumped it when results fell down a slope for too long to keep me happy. I guess it took a couple of years of bad performance to chase me out of TAVIX. ... Should I look forward to investing in MOWNX?
Concentrated portfolio, just 30 holdings, plus a short or two, and holding LOTS of cash, which I can understand, because it's so young. Does the fund manager deserve to be trusted---again? : http://portfolios.morningstar.com/portfo/details?t=XNAS:MOWNX&culture=en-US®ion=usa
+6.9% in its first 6 months.
I enjoyed reading Charles Boccadoro's blurb he wrote about "A Low Cost Alternative to One USAA Managed Portfolio."
I decided I'd carry the analysis work a little fauther on the 50/25/25 portfolio consisting of FFNOX, FTBFX & BBALX and inputed the funds along with the necessary data into Morningstar's Portfolio Manager. The things that stood out in this analysis was that the portfolio as a whole had a yield of 2.54%, with an average bond duration of 5.26 years along with an average maturity of 7.4 years. The funds within the portfolio combined were trading back of their 52 week high by 2.1%. The portfolo's year-to-date return was reflected at 6.2%, 1 year return at 4.4%, 3 year return at 4.1%, 5 year return at 7.5% and the 10 year return was shown at 4.8%. Year-to-date the porfolio's performance was pretty much in line with my bogey, the Lipper Balanced Index.
All in all, this is not a bad three fund portfolio ... and, if I were a new investor starting out today it is one that I'd most likely find favor in. But, to reconfigure my own portfolio would necesitiate tax payments for the large amounts of capital gains I'd face if I began to liquidate funds within my own portfolio and move towards something similar. Plus, I'd be taking a pay cut. My trading activity alone within the growth area of my portfolio has generated capital gains amounting to about 10% of my gross income this year. And, if I am not careful I'll be getting dinged for higher medicare premiums. So for me, I plan to continue my sleeve investment system which has also offered good returns. From review of your suggested portfolio's performance compared to my more complex one justifies running my more complex portfolio.
Thanks Charles for writting about your low cost three fund portfolio. I enjoyed reading about it very much as it provided something, crafted by an expert, for me to compare my own against.
Old_Skeet
fwiw (not the identical mix, but a good mix), AOR is
5% ytd, 4.3% 1y, 4.15% 3y, 7.4% 5y, and 9% 8y (life, I think).
You noted: " And, if I am not careful I'll be getting dinged for higher medicare premiums"
So, you have a "good" problem, eh?
Yes, a good problem ... but, one I stay on top of and that I manage.
Taxation and medicare premiums are something that I can somewhat manage due to holding a sizeable cash position. With this, should unexpected expenses arise (and they do) from time-to-time then I draw on cash reserves rather than selling invested securities which often times trigger associated capital gains along with taking outsized withdrawals from my IRA which are also taxable. These things can sneak up on one quickly and pretty soon you wind up with a sizeable tax bill.
So, there is something good to be said about holding a reasonable amount of cash in retirement and also doing some strategy based selling along with taking planned IRA withdrawals.
Skeet
We maintain "supplemental health care insurance" to offset any possible charges not fully or only partially covered by Medicare. One would hope to not have to make use of supplemental insurance; but stuff happens, eh? Was slightly wounded doing the home maintenance thing and physical therapy was the fix for a shoulder area. Medicare coverage was minimal and supplemental insurance paid the rest. So, we have recovered some of the premium insurance cost. Tis the nature of insurance of any type, eh?
We do not maintain investment side cash. Cash in an emergency fund is local with a credit union.
Okay. End of my jabber here at this thread, as I have drifted way off topic.
Catch
David
I posted this link in another post which indicates what she purposes to invest in:
http://www.prweb.com/releases/2016/11/prweb13834644.htm
Excerpt from the article:
"...Ms. Geritz believes the best investments are found within a global context, so Rondure Global will scour the world in search of the most interesting investments. The firm’s investment philosophy is centered around very high quality companies that it believes can provide sustainable returns. It will seek to invest in great companies at good prices and good companies at great prices. "
Based on the excerpt, I suspected she was going to invest in larger companies.
Plus, I didn't think she would invest in small companies as she would be in competition with GP.
I asked if holding smaller companies in her Rondure all cap portfolios will be competitive with GP and if her concentration in companies above 1.5B would be sacrificing the talent that she had shown at Wasatch -- two issues that have been raised here.
She said that the issue of competition was discussed at the very beginning with GP and that the partnership is seen as a collaborative effort that would far outweigh any competitive issue.
Regarding the second question, earlier in the call she mentioned that her previous background includes considerable experience in investing in what she called "the 800 pound gorilla type of companies," adding that she included companies of this size in both the small cap emerging markets fund and the frontier fund at Wasatch. She is very comfortable investing in companies of this size.
Also, in reference to this question, one GP team member said that GP's investing in companies below 1.5B poses liquidity issues and that buying companies above that amount would offer plenty of liquidity. Another team member said that they like to tease Laura about their liking to invest in companies growing faster than hers.
Two last comments about these questions from GP was that they work better together than apart (mentioned above), that she has already pitched them ideas, and that if one looks at the GP Stalwart funds (which do invest in companies above 1.5B), that what Laura has proposed to own has only a 10% overlap with what the Stalwarts own now.
Anyone having further questions can email GP, they said.
I hope this helps.
portfolios.morningstar.com/fund/summary?t=WAIOX®ion=usa&culture=en_US
If my memory is correct, it has historically had one of the lower average market caps of foreign small funds, certainly lower than $1.5 billion, currently about half that level. By contrast the Wasatch emerging markets fund has a significantly higher market cap:
portfolios.morningstar.com/fund/summary?t=WAEMX
The same is true for the frontier emerging markets fund:
portfolios.morningstar.com/fund/summary?t=WAFMX
All of which is to say in emerging markets her new funds will be interesting and maybe better than her previous charges. But in a broader international fund or global fund, it is much less certain. But this may be more than just about a partnership and competitive overlap. It may also involve a significant lifestyle change. Researching tiny stocks can be extremely time consuming and require tremendous air travel. As a manager ages, I can't imagine that continues to be fun for long. Also, starting one's own money management firm by itself is a significant lifestyle change. You have to now be a CEO and a money manager. So I think the jury will be out on a global or international fund for me. They could be great, but they are certainly not the same as WAIOX.
IIRC, GP is going to take care of the back office for her and I believe she's also going to use their trading desk. I wonder, for that 10% overlap or when they're both interested in a stock and there isn't enough liquidity for both to do all their buying or selling at once, who trades first?