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.
Both balanced/hybrid with stocks AND bonds. Both domestic. But BERIX is "conservative" while MAPOX is "moderate" allocation. BERIX is holding about a quarter of assets as CASH. That's too much. LINKS: http://quote.morningstar.com/fund/f.aspx?pgid=hetopquote&t=berix
"So do we hedge at all? Certainly. One of our hedges is our cash position. Many investors don’t think of their cash as a hedge, but that’s exactly what it is. An investor who is 30% in cash but reaps 100% of the market upside because of better portfolio construction has snared all the profit of the 100% invested passive index investor while never matching his exposure. And sometimes we use more conventional “pure” hedges such as buying far-out-of-themoney put options on the equities market. But note that such put options are ordinarily a pure expense with little upside potential. Because they are so far out of the money their only purpose is to protect against disaster. Like life insurance, you hope they are a waste of money. We certainly do not use such hedges to smooth the ordinary up and down of returns. Pay to hedge away every routine blip of volatility and you may end up with no return at all. We hedge against disaster, against tornadoes, not blustery days. Far better than the “pure” hedge is the hedge that is also an investment. Consider our current shorts on the Russell and individual small caps. The primary reason for those positions is that we are betting against small caps vs large caps. We expect large and small caps to move in opposite directions and to make money as a result. So it might seem odd to call this position a hedge on a portfolio that is heavily exposed to large cap stocks. The reason it is a hedge is that although the S&P and the Russell may move opposite to each other in normal, reasonably calm markets, in a real market collapse they almost always move together. Thus if catastrophe strikes and the market drops 20% in a month we expect our small cap shorts to give us some downside protection against our large cap losses. Between the shorts and our cash, a disaster for the market could be a blessing for us because we would be in an excellent position to buy. "
Comments
"So do we hedge at all? Certainly. One of our hedges is our cash position. Many
investors don’t think of their cash as a hedge, but that’s exactly what it is. An
investor who is 30% in cash but reaps 100% of the market upside because
of better portfolio construction has snared all the profit of the 100% invested
passive index investor while never matching his exposure. And sometimes
we use more conventional “pure” hedges such as buying far-out-of-themoney put options on the equities market. But note that such put options
are ordinarily a pure expense with little upside potential. Because they are so
far out of the money their only purpose is to protect against disaster. Like life
insurance, you hope they are a waste of money. We certainly do not use such
hedges to smooth the ordinary up and down of returns. Pay to hedge away
every routine blip of volatility and you may end up with no return at all. We
hedge against disaster, against tornadoes, not blustery days. Far better than the “pure” hedge is the hedge that is also an investment.
Consider our current shorts on the Russell and individual small caps. The
primary reason for those positions is that we are betting against small caps
vs large caps. We expect large and small caps to move in opposite directions
and to make money as a result. So it might seem odd to call this position a
hedge on a portfolio that is heavily exposed to large cap stocks. The reason
it is a hedge is that although the S&P and the Russell may move opposite to
each other in normal, reasonably calm markets, in a real market collapse they
almost always move together. Thus if catastrophe strikes and the market drops
20% in a month we expect our small cap shorts to give us some downside
protection against our large cap losses. Between the shorts and our cash, a
disaster for the market could be a blessing for us because we would be in an
excellent position to buy. "