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February MFO is Live

MFO, February 2024

In reading through, I had some random observations.

Re @lynnbolin2021, 60-40 was never dead. It was just dormant or in hibernation for a while. The entire fund universe has an allocation (the ICI data posted on MFO monthly),

OEFs & ETFs: Stocks 59.11%, Hybrids 4.72%, Bonds 18.57%, M-Mkt 17.60%,

So, for many, 60-40, or some variation (including alternatives), is fine. But others use DIY and that is fine too. Surprisingly, I have seen some pieces with stock-bond-Bitcoin mix - had to happen after the reluctant approval by the SEC (under a court threat) of several Bitcoin ETFs.

Re @TheShadow, Hartford International HAOYX was dropped from Schwab DAF and replaced by MFS MIEKX. so, HAOYX is reopening, no surprise - it needs money.

Re @David_Snowball #8, "Black Americans are becoming stock investors in record numbers."

TIAA recently partnered with Wyclef Jean to try the "Rap Approach" to investing. Will it catch on? Those on Facebook can check Facebook LINK.


  • edited February 5
    Re photo - ”Landing lights” (extending from wing / visible in photo) + ”wing inspection lights” (fuselage mounted / not visible) illuminate a wing’s leading edge & engine on a United A-319 during final approach / landing at Chicago’s O’Hare around 2 AM under fog & icing conditions in early January. View from seat 3-A. Thanks for the mention!
  • @davidsnowball and his team: Thank you again for another outstanding commentary.
  • edited February 5
    @lynnbolin2021 et al The 60/40 portfolio.

    IMHO, several portfolios are too busy. I don't feel one needs the 10 holdings as listed; especially when some of the weightings are only 1% of the portfolio. Are these a typical 'spread' of investments that would be provided by most investment advisers???

    Thank you for anyone with knowledge in this areal, related to advisers.

    And thank you to all for the February publication and the writers involved.

  • T Rowe Price Spectrum Income : @David_Snowball The return for this fund seems a bit high for 2023 from what I can find.
  • @Derf. Good catch. Copy error, which does not affect the bottom line numbers on the portfolio as a whole. RPSIX returned 7.9%, 0.1% better than its peer group. I'll have Chip fix it.

  • One thing I didn't mention in the portfolio story, by the way, was the correlation matrix that I ran through MFO Premium. It did a 56 month matrix since that's the age of the youngest fund.

    Only two funds have a correlation of 0.9, and no one is above that. I never would have guessed the two closest: FPA Crescent and Seafarer Overseas. I checked three time frames and the two were close to 0.9 in each.

    The consistent second correlation is FPA Crescent and Leuthold Core, typically in the upper 80s. I've asked Chip to play with the data in Excel a bit.

    For what interest that holds.
  • edited February 7
    @David_Snowball, this shows that any single statistics doesn't tell much.

    Correlation only tells how well 2 data series move in some "direction"; but the extent of the moves may be quite different. So, the high correlation between US Moderate-Allocation FPACX and EM G&I SIGIX may be due to global factors such as interest rates, dominance of large-caps, etc. Also note the higher correlation values for more recent periods.

    BEFORE I dug deeper, I compared the correlation data from MFO Premium and PV, and those MATCH perfectly (as expected). In the table below, the values are for cross correlation r of SIGIX with FPACX (r = 1).

    Period, MFO, PV
    Life, 0.80, 0.79
    10 Yr, 0.80, 0.80
    5 Yr, 0.90, 0.90
    3 Yr, 0.87, 0.87
    1 Yr, 0.95, 0.95

    Various MPT statistics are related, so,

    SD/SDbenchmark = beta/R,

    where, SD = standard deviation, R = correlation with benchmark. Only SD is independent of the benchmark used.

    Over Life, 01/2013-12/2023, from PV

    Fund, SD, beta, R^2, R
    FPACX, 11.83, 0.73, 82.46, 0.91
    SIGIX, 15.38, 0.80, 58.19, 0.76
    VFINX, 14.75, 1.00, 1.00, 1.00

    Even if we didn't know what these funds were, it would be hard to miss that they are quite different.
  • @David_Snowball, I appreciate you sharing your portfolio. One question I had is that it seems apparent you are not too concerned about investing in funds that have expense ratios north of 1 percent. For example, FPACX is very intriguing, but I have never been able to pull the trigger due to its high ER.

    Could you please share your thoughts on the subject of expense ratios? I would love to hear other people’s thoughts as well.

    Does risk/reward ratio trump expenses?

    Reason I ask is that PRWCX is my largest holding and while I am very pleased with its performance, I sometimes worry about the fees I am paying as compared to lower priced Vanguard alternatives such as VWENX or VBIAX.

    But historically, PRWCX provides a much higher return, so maybe I am overthinking it?
  • It depends on what one is paying for? If I am ok with PRWCX is because I must believe the fund manager has "some edge" which is greater than participating in Passive Vanguard fund. Does every one of the 6700 Mutual funds and ETFs have edge. Most certainly not. Maybe 50 do. If its not one of those 50, most likely the adage, "Financial products are sold, not bought" applies.
  • @dily Hi! Devesh makes the essential point: are you getting what you're paying for? Does the manager offer sufficient value to justify their fees?

    For about 80% of all funds, the answer is "no." Our corporate position has always been that 80% of funds could close with no loss to anybody but the adviser's bottom line. Some funds, however, earn their keep. Devesh's explorations in international investing, for example, have led him to conclude, at least provisionally, that passive does not work in certain international arenas and that at least some managers fully earn their keep.

    I have the same impression with absolute value or absolute return managers. There's an impossibly small pool of managers who are good at security selection but even better at being able to say "sometimes stocks are not worth the price, we're not owning them." That leads them to back out of the market's frothiest phases, which sorely affronts investors who expect ARKK-like upside paired with substantial downside protection. FPA, for example, lost half its AUM over a period of about four years even though it was posting double-digit returns with limited equity exposure. Leuthold likewise.

    My own investment needs - reasonable upside, strong downside protection, the prospect of sleeping well - align with the willingness of Leuthold, FPA and Palm Valley to buy when conditions are good and turn away when they're not. I think that's valuable and worth the ask. I'd love to pay less but with investors relocating to passive competitors, it's not clear that will happen.

    Does that make any sense?
  • @David_Snowball, yes, that makes perfect sense. Thank you!
  • edited February 9
    @David, I agree 100%. Though if fund managers were content to not be beholden to (or required to track?) a benchmark, this probably wouldn't as big a concern for them. But if they can't brag about their performance vs. an index or fund category, they'd struggle to market themselves to attract AUM and/or differentiate from the crowd. Thus, many funds often act alike and become a costly jumble of 'me-too' vehicles in their manager's quest to dodge peer pressure.

    I like absolute return metrics myself, at least in terms of overall analysis of performance - in my portfolio, I don't care if I 'beat/trail the S&P or my M* category or other funds. If I can SWAN and make a decent return for myself and my needs, whether that performance is +/- 5%, 11%, or 25% in a given year vs everyone else, I don't care. But the average investor tends to act only on recency bias, so immediate past/current performance is all the fund managers focus on to attract new money.

    (I don't like most of the popular tracking/benchmarking indexes anyway, which are used by most passive indexing funds that are so widely held, because they're market-cap weighted, as I've said for years. But they're 'cheap' which is used as a carrot to attract investors, we are.)

  • edited February 11
    ISTM as we age and seek out more esoteric investment styles with growth potential + downside protection fees are likely to increase. My two Long-short funds (10% each), NLSAX & CPLSX, both have “adjusted” fees in excess of 1.5%. With interest on short positions included, costs are even higher. But they are managed by highly experienced folks I think I can trust not to let the cattle roam too far off the ranch. Good sleep-well funds that should best cash over intermediate periods without a lot of risk.

    Thanks David for posting your portfolio. Enlightening. (And thank you for not flaunting your “massive” holdings in The Magnificent Seven.) :)
  • edited February 14
    Hi, Hank!

    Just checked the "stock overlap" in my Morningstar portfolio. My version of the Magnificent Seven appears to be:
    1. Alphabet
    2. Analog
    3. Hyundai
    4. Amazon
    5. Comcast
    6. Holcim
    7. Meta
    Except for Alphabet (1.0% weight between four funds), they all weigh in about 0.7% of the stock portfolio.
  • #6. Holcim/HCMLY is a giant Swiss producer of construction aggregates (concrete, gravel, etc) that is spinning off its Holcim-US (Chicago-based) operations. It has been in the list recommended by Meryl Witmer. It's probably as far as one could get from the current Magnificent 7.

    "Meryl WITMER/Eagle Capital: BXSL (BDC), EEFT, DFIN, DLTR, Holcim/HCMLY, SLVM (Barron's Roundtable Part 3)"
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