MFO Great Owl Funds for 3Q2013

Charles

Chip has just posted:

http://www.mutualfundobserver.com/fund-index/

Work continues on searchable/sortable tables and profiles for readers to utilize in future.

Currently, 479 Great Owls Funds, just over 6% of all 7573 funds evaluated: 69 - 20 yr, 104 - 10 yr, 149 - 5 yr, and 157 - 3 yr.

Some notable inclusions:

ASTON/River Road Sel Value N (ARSMX)
Artisan Mid Cap Inv (ARTMX)
Artisan Mid Cap Value Inv (ARTQX)
Berwyn Income (BERIX)
Bretton Fund (BRTNX)
Buffalo Discovery (BUFTX)
Chou Income (CHOIX)
DFA Five-Year Gbl Fixed-Inc I (DFGBX)
Fidelity Freedom 2000 (FFFBX)
FMI Common Stock (FMIMX)
Hodges Small Cap (HDPSX)
Hennessy Japan Institutional (HJPIX)
Huber Capital Eqy Inc Inv (HULIX)
Intrepid Income (ICMYX)
JHFunds2 Blue Chip Growth 1 (JIBCX)
Loomis Sayles Inv Grade F/I (LSIGX)
Mutual European Z (MEURX)
Mutual Quest Z (MQIFX)
PIMCO EMs Corp Bd Instl (PEMIX)
T. Rowe Price Div Growth (PRDGX)
T. Rowe Price Dvrs Sm Cap Grw (PRDSX)
T. Rowe Price Global Tech (PRGTX)
RiverPark Short Tm High Yld Ins (RPHIX)
T Rowe P Inst Conc Intl Eq (RPICX)
RiverPark Large Growth Inst (RPXIX)
RiverPark/Wedgewood Inst (RWGIX)
Templeton Frontier Markets A (TFMAX)
TCW EMs Income I (TGEIX)
T Rowe P Personal Strat Grw (TRSGX)
Thornburg Strategic Income A (TSIAX)
Vanguard Materials ETF (VAW)
Virtus International Eqy A (VIEAX)
Vanguard Tgt Retire 2015 Inv (VTXVX)
Wasatch Strategic Income (WASIX)
Weitz Balanced (WBALX)
Westcore Small-Cap Val Div Rtl (WTSVX)

Artisan now has six Great Owl Funds!

Some notable drops:

AQR Managed Futures Strat I (AQMIX)
Commerce Bond (CFBNX)
Frost Low Duration Bond Inst (FILDX)
James Bal: Golden Rainbow R (GLRBX)
GMO Global Asset Alloc III (GMWAX)
LKCM Equity Instl (LKEQX)
T. Rowe Price Small-Cap Stock (OTCFX)
PIMCO All Asset Instl (PAAIX)
Prospector Opportunity (POPFX)
T. Rowe Price New Horizons (PRNHX)
Vanguard Cnsmr Staples ETF (VDC)
Vanguard Equity-Income Inv (VEIPX)

MikeW

Thanks very much for providing this Charles and Chip! What a treasure trove of information. I see that Artisan Global equity didn't make the cut, but its performance seems to be comparable to Global Value. Did it not make it because it's too young a fund or some other reason? thanks again for all of the time you have put into creating this valuable resource.

Michael

Charles

Reply to @MikeW: Hi Michael. You're very welcome. ARTHX is indeed on the Great Owl list. Look down near bottom of World equity funds.

Here are all the Artisan Funds rated within MFO system:



PS. If you double-click on image, it should come up full screen. And, JIC, here's link to Definitions.

MikeW

Charles,
Thanks very much for the heads up.... I missed that. I note that its performance is down a bit for the one year timeframe. I'm assuming this is because of its emerging markets exposure. I'm curious, are you invested in an emerging markets fund? thanks!

Charles

Reply to @MikeW: Currently, I'm heavy SIGIX. Doubled holding after last conference call.

MikeW

Hmm. interesting. I'll have to go and listen to the call. Are you concerned about his underperformance in comparison to other EM funds? Please let me know what has sold you on this fund. I know he had a strong record at Matthews, but worry he doesn't have the team backing him in his new fund company. I'd value your thoughts on this. I've been burned before in going with a star manager who set up his own fund company -- David Winters at Wintergreen. He has underperformed for a number of years.

MikeW

One more question Charles... Did you consider DREGX also as an investment. Hard to argue with their track record although I know they had a big drawdown in 2009. thanks

Charles

Reply to @MikeW: Ha! I know what you mean....see recent post.

But I have been delighted with Seafarer from its inception. It's seriously more shareholder friendly than Wintergreen.

Under-performance? Here's comparison with DREGX, the Great Owl fund you noted below, since SIGIX inception:



For the past 12 months proper, yes SIGIX rates a 4 in the MFO rating system, while DREGX rates a 5, but close enough for me.

And, SIGIX has Professor Snowball's endorsement, which is not an easy thing to get.

Charles

Hogan

Thanks so much for the information Charles. I think Artisan is a great house but I have not invested in any of their funds. I will check them out.

Kaspa

Reply to @MikeW: Actually, morningstar shows ARTHX performing a little better vs. ARTGX over last one year.

http://quote.morningstar.com/fund/chart.aspx?t=ARTGX&region=USA&culture=en-US

Add ARTHX and change scale to one year. Anyway, they are pretty close.

STB65

While I have invested in SIGIX from almost the beginning (account number under 20), I have had much better return from the Grandeur Peak fund(s) perhaps because they are more small and microcap oriented. I added to SIGIX when it became available on TDA, since I had agitated that it be added, and it only became positive in the last few weeks. I respect Mr. Foster's record, but those ex-Wasatch guys seem pretty hot. Everyone probably regresses to the mean, but I would at least consider splitting investment between the two, considering recent performance.

On a relatively unrelated tangent, I received the latest mailing from GRT Value, created by touted managers (from 2011, I believe), into which I put part of my son's IRA. They are down for their year, which is not encouraging. I'm still waiting for the dead money I sent to Eric Cinnamond to spring to life. Basically, this is just a cheap shot at MFO recommendations, and proves that no batting average is 1.000, so one might spread money among recommendations, even at the risk of buying the market.
Basically, managers matter in international and small cap funds, and probably more in international small cap funds, but I would recommend, and have used, more than one. If you are looking internationally, check out Tweedy,Browne unhedged. They have done well by me; better than their much, much older unhedged fund - and they have a lot of skin in their game.

While I'm asking questions, Charles, why is PHO not a natural resource fund? AWTDX is so classified.

Charles

Reply to @STB65: Hi STB65. Grandeur is hot. No question about it. And David is very enthusiastic about the shop. But Seafarer works for me. I already have FAAFX, which provides enough excitement. I've always seen ARIVX as more of a conservative allocation if not fixed income holding. So, it compares poorly in the Small Value category during good times. That said, I've never been happy with the ER ASTON charges for it. GRT Value has always been too volatile for my liking. Tweedy is another great shop with three Great Owls, including TBCUX...good call. Regarding PHO (mis) categorization? We use the same categories that Morningstar assigns, for better or worse.

Here are ratings for all the funds mentioned in last couple posts:



As always, if you double-click on image, it should come up full screen. And, JIC, here's link to Definitions.

Hope this helps.

davidrmoran

Sorry to be dense, but where can one go to fully understand absence (seemingly new but not listed in drops) of funds (ICMBX, JABAX, PRBLX, GLRBX as noted, FPACX, SCHD, AOx group, etc.)? I do not expect you to do work for readers beyond this great analytic labor you already perform, but I need to understand more deeply the criteria and rate of change per quarter, I guess.

Charles

Reply to @davidrmoran: Ha! Trust me, I'm the dense one. There is no place yet, but we're working on it. Basically, ability to search all 7500+ MFO rated funds. In meantime, I will try to be as responsive as possible to any specific requests, like yours.

OK, so below is table of latest ratings for funds you note. If they got "dropped" from the GO list, it just means that in one of the evaluation periods (3 years or greater) they dropped below a 5 in their respective return group. Regardless, I would recommend FPACX, GLRBX, and the like in a NY minute. BTW, SCHD does not yet have 3 years, so not considered.

davidrmoran

Reply to @Charles: tyvm

golub1

What is a great owl fund, and what are the criteria for achieving this obvious desirable rating?

Charles

Reply to @golub1: Basically, GOs are funds that are in the top quintet of their category in risk adjusted return over all evaluation periods 3 years and more, as applicable. The risk adjusted measure is Martin Ratio, which is superior excess return while mitigating drawdown. Here is link to: Rating System Definitions.

BobC

Charles, you do a great job. Thanks so much for the time you put in, not only to create and monitor the GO system, but also to respond to MFO Discussion Board members.

You may have addressed this already, so excuse me if I ask a redundant question. How do you, or the GO system, handle funds that M* forces into boxes. This may be a simple case of a fund changing from MC Value to LC Value according to M* data, when in fact the manager has done nothing different and would tell you that for a fact. Or it could be a situation where M* invents an asset class to dump a whole lot of funds that, on a cursory glance, might have some similarities, but that are quite different in reality. The asset class that most quickly comes to mind is "world allocation", which, if you look at the funds stuffed into this class, contains very dissimilar strategies. The same goes for "Long-Short Equity" and "Non-Traditional Bonds". And even "Emerging Market Bonds" is problematic, since you have a huge difference between those funds that are dollar-hedged vs. those that use local-currency bonds. They can have drastically different numbers, but M* lumps them together. To top this off, there are funds that M* has forced into one category, even when they are quite obviously something else.

Does your system allow you to re-class a fund, or do you simply use the asset class from M* or another service? Here are some examples:

World Allocation Funds include TIBIX, IVAEX, and PAUIX. I'm not saying folks should not compare these three funds, but the investment strategies of these three is about as different as night and day. And then RPBAX, which OUGHT to be in this class, is stuck in Moderate Allocation, as is FPACX, DODBX. At any time, any one of these funds might be more or less 'world allocated' than the others. Some of the managers have totally free mandates, while others have some restrictions. The average retail investor has no way to evaluate these funds other than statistics, which do nothing to inform about HOW the fund is run. Yeah, I know, "read the prospectus". This is where MFO play such an important role for investors who want to learn and understand the funds they might be considering.

OSTFX is a mid-cap blend fund, according to M*. But don't say that to John Osterweis. Even looking at the style map, you can see the fund covers all of the style boxes, and it has about 20% in foreign stocks, with 8% in emerging countries. John would tell you that he has never managed the fund to a style box. In truth he is style box agnostic. He is looking for great companies to buy at a discount. Yet M* compares the fund with other that are VERY different.

FVALX is dumped into the Equity Long-Short class, along with MFLDX and FMLS. Go figure that one out. It really makes no sense at all. And then there is LASYX, which we use as a long-short bond fund, not unlike EIGMX. But both are stuck in Non-Tradition Bond, along with funds that have NEVER shorted.

So, long story short, are you able to account for these kinds of problematic mis-classifications?

davidrmoran

Reply to @Charles: I might suggest dropping the 20y column unless the team/manager has been in place for the period, which is v rare. (I mean, leave it but do not have an entry unless it's for Tillinghast or Heebner or Gabelli and the like.) I also would suggest deleting the 1y col as well, in keeping with the rigorous (meaning sophisticated advocacy) spirit of MFO, although it's clear from comments that many people here actually trade mutual funds pretty quickly, like all impatient investors. Maybe replace with a 2y col?

Charles

Reply to @BobC: Hi Bob. Thanks for kind words and for your many contributions to the board.

"Do you simply use the asset class from M*?" Yes. You will also find in the definitions that there is no accounting for any style drift over the period(s) of evaluation. So, all your concerns are spot-on and with them the attendant qualifications to the MFO ratings system.

Early on, we looked at a rating system that ignored M* style categories. Funds were performance-ranked within risk categories only. But at the end of the day, David politely suggested it was a bit esoteric (ie., maybe good for nerds, but not very practical for mainstream investors). So, we committed to the M* categories, for better or worse.

As we roll-out the searchable return/risk profiles, I do think it would be pretty cool to be able to alter the reference category and see how return rankings change. So, I will put your suggestion on list for future enhancement.

In meantime, if there are some specific "problematic mis-classifications," I'd be happy and interested to work-up some custom rankings for you. Please let me know. Perhaps we could work through it together? Should we start with the funds you list above? And then share any interesting findings with folks on the board.

Not what you probably wanted to hear, but hope it helps clarify.

Charles

Charles

Reply to @davidrmoran: Ha! Now you are starting to get as bad as me.

Every quarter, I have to resist the urge to add 2, 7, 12, 15 year and life-time evaluation periods to the rankings. If I did not, Chip and her team would probably vote me off the island.

I know what you mean about the 20 year interval, since 15 years is about max for PMs. And, yet, isn't it extraordinary that a fund house can deliver superior risk adjusted returns across 3, 5, 10, and 20 year periods?! I find it amazing.

Right, the 1 year numbers don't play into GO rankings, but I think they provide an early indicator on whether a fund is in-sync or not with current market.

PS. I have not forgotten about the predictive value study. Will make it happen.

BobC

Thanks, Charles. Your answer is what I thought you might say, but your offer to consider the more erroneous mis-classifications is very generous. I would be glad to work with you in any way I am able on this. It is one of the more frustrating aspects of working with clients who look at M* ratings and rankings without regard for how the fund is actually being run. I have suggested many options to M*, but of course, what could an almost 30-year veteran RIA possibly know? Seriously, thanks for your work here at MFO. Feel free to email me directly if you would like. Anything we can do to enhance the research/education for MFO is worth considering.

AndyJ

Reply to @Charles: Just an FYI, not necessarily a recommendation that would add to the workload, but I've always liked the Lipper categories better than M*'s. They're a little more fine-tuned, e.g., there's a 'multi-cap' category that gets around one of the problems Bob id'd.

So, for example, OSTFX, which Bob mentioned, is 'multi-cap core.'

I have no idea how or how often they update the classifications. Old Smartmoney, now migrated to Marketwatch, used/uses the Lipper scheme. (I also like the 'Lipper leader' breakdowns as a snapshot of a fund. They're updated every month, apparently.)