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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.

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December Commentary is Posted ...


  • edited December 2019
    “It’s been easy to be a bad investor for the past 10 years: the market’s relentless rise, fueled by enormous amounts of fiscal (hello, trillion-dollar deficits!) and monetary (hello, negative real interest rates!) stimulus, had made it likely that even a badly constructed portfolio booked acceptable – perhaps even double-digit – returns.“
    - David Snowball
  • David Snowball's Portfolio Pruning Primer ("PPP?) contains a gem of a comedic sentence:
    "You have no more prospect of keeping track of 15 funds running around your portfolio than you have of keeping track of 15 toddlers running around your house." Five minutes later, after I was done laughing, I thought to myself, "but wait, a minute, last time he posted his own portfolio it contained more than 10 investments, and that's more than the fingers on the hand recommendation? "

    David, have I got that wrong? What am I missing?

  • Hi, Ben.

    I've got three portfolios, which I can't much change.

    My college's retirement account is through TIAA-CREF. That money can't be easily moved anywhere. Currently it's four funds, with most of the money in a lifecycle fund and a real estate income fund.

    My supplemental retirement is through T. Rowe Price and my college cut their relationship with Price, so I can't add to it. Currently it's five funds, with most of the money in a lifecycle fund and EM value equity.

    That's all easy because only two retirement funds are receiving monthly additions and I've simplified the others to stress the lifecycle core.

    Finally, my non-retirement portfolio is 10 funds with I recently reduced by closing two positions (combined the two RiverPark income funds into one and eliminated Intrepid Endeavor in favor of adding to FPA Crescent and Brown Advisory Sustainable). The next question is whether to consolidate the two Grandeur Peak positions (Global Reach and Global Micro-cap, with a correlation of .94, Reach has a higher four-year sharp, Micro is more intriguing) and the two Matthews positions (Strategic Income and Growth & Income, with identical Sharpe ratios and .92 correlations between G&I and Seafarer, and a vastly higher Sharpe ratio for Strategic Income).

    So, that might go to eight funds with four currently receiving monthly additions.

    What do you think?

  • David, just want to say the "Pruning" piece in this months commentary was excellent. I often think about and hope that younger people coming to the discussion board are not swayed to think that posts about 'what did you buy and sell this month' are appropriate investing strategy or that 'fund collecting' is an investment strategy to follow. Your points are well taken.

    I would love to see in a follow-up commentary the 10 best of the risk adjusted return funds. Those of course are likely the great owl funds, but it would be nice to see them highlighted in their categories.
  • Hi, Ben.

    What do you think?


    Well, I also have positions in two Grandeur Peak funds. I think of these as one investment, divided in two portions. Whenever I happen to check how one is doing I also look at the other, at the fund website, so keeping track is one event. For me, anyway, that's practical. In the case of my wife's IRA portfolio, she is invested in 3 dissimilar Vanguard funds that serve entirely different purposes. So that is 3 separate investments. The Grandeur Peak Funds by contrast are within the same slice of Investment Pie.

    I also agree with MikeM, the pruning piece was excellent. Useful, as well as humorous.
  • Hi, MikeM!

    From your lips to my keyboard! Coming in January, an article on the least deviant winners. Also, because schadenfreude, an article on the biggest baddest funds: funds with over a billion that have managed their way onto the three alarm list and have also trailed for a decade and an entire market cycle. Some surprising names there.

    Both pieces are drafted, but we need to wait for the new data to drop to get them as current as we can.

    Cheers, David
  • edited December 2019
    Kudos, David, for discussing liquidity risk. It seems like the one risk I don't see discussed enough in the press. It also isn't analyzed particularly well or often enough in funds. It's funny to me no one else has complimented you on that part of your commentary yet. Understanding that risk I believe will become critical at some point.
  • Thank you, sir. It took two months to write because the system - the stuff under the hood - is so fiendishly complex that I kept having these "oh, I got it! No, I don't" moments. That might contribute to reader-avoidance.

    Quartz did a special report on ETFs, which appears to argue that they pose a systemic risk. You need to pony up for the $100 annual subscription to read it, which I suppose I should do. They're generally pretty solid journalists and Iiquidity, along with the risk of a selling cascade, would have to be one of the two likeliest areas of systemic risk.

  • edited December 2019

    Kudos, David, for discussing liquidity risk. It seems like the one risk I don't see discussed enough in the press. It also isn't analyzed particularly well or often enough in funds. It's funny to me no one else has complimented you on that part of your commentary yet. Understanding that risk I believe will become critical at some point.

    I enjoyed / appreciated that portion as well. Possibly the most thorough look at market risk @DavidSnowball has ever put together (focused on fixed-income, but I’d expect spill-over to equity funds as well). Hadn’t yet read that part when I initially bumped the commentary over.

    If you’re 10 or younger you’ve never lived through a real bear market. I hope there’s no one under 25 managing any fund. He / she would have been in high school when the last bear ended. Not clever enough to understand all the intricacies of the repo market. But it struck me as odd the need for massive infusions of cash in September. Article attempts to explain the implications.
  • Hi @hank
    The repo market circumstance is still in play.
    The link below will have 3 articles from yesterday, Dec. 2. They are just down the page a wee bit from the top.


    Stay warm and wish that snow away, please !
  • I too am glad to see the emphasis on Liquidity. It was probably not responsible for the "flash crashes" of ETF prices some of us can remember but that is a good example of what it might look like if everyone in some of these junk heavy bond funds headed for the door at the same time.

    Many of the positions are priced by proxy "fair value" but that number will be meaningless.

    However many of the non traditional income funds profiled here ( I suspect widely used by MFO members) like ZEOIX, RPHYX, RCTIX, IOFIX PFUIX are loaded with these securities.

    Does anyone have an idea how to predict in even a vague what might happen to even very short duration junk bonds or RMBS in such a situation?

    ZEOIX dropped almost 1% in couple of days last December, a fact the fund said would soon be recovered because the bonds were soon to come due at par. When redeemed at par the NAV was restored.

    Is duration then some protection for liquidity issues like this? IF you trust your fund manger to avoid defaults, and hope that she/he doesn't have to sell at reduced prices before bond redemption. I have no idea how a mortgage backed security would trade in that situation.

  • The liquidity discussion should be required reading for every newbie stock and fund investor -- and refresher reading for us all as we review our periodically portfolios. Liquidity is like water ... when it dries up, one cannot easily move their vessel.

    The business cycle section was particularly timely and well-written, too.

    IoW, another win from MFO!

  • Yes, I agree. Two very well written sections which should be compulsory reading.
  • Excellent commentary. Thanks very much @David. I als greatly appreciated the analysis on TGUSX. Can anyone telll me how to analyze correlation between.funds?
  • Hi, Mike.

    At the very least, it's a function of the MFO Screener. Get a list of up to 12 funds, click "analyze" then "correlation." It will default to the longest period that includes all of the funds on your list; for example, if your youngest fund is 40 months old, it will construct a 36 month correlation. If you're willing to ignore that fund for the moment, you could run a longer-term correlation.

    I have a vague recollection that some correlation data is available elsewhere. Portfolio Visualizer is the name that pops to mind, but I'm not sure of it though I'm certain other folks could share.

  • As David wrote, Portfolio Visualizer also does correlation. Here's a matrix for TGUSX vs. a couple of multi-cap growth index funds, CGJAX and FNCMX:,CGJAX,FNCMX&timePeriod=2&tradingDays=60&months=36
  • @David and @msf. Thanks very much for the information. Greatly appreciated. Will play with this once I get home
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