The Leuthold Group originally was an research provider to institutional and HNW investors. The success of their research enterprise led them to begin managing money for rich people as a side business, and then to managing money for bright individual investors. Since investing is purely a mind game (a stock is worth what people believe it's worth, a market rises when people believe it will rise ... an act accordingly), they have identified and continuously track at huge variety of cue that have more or less greater predictive reliability when it comes to the economy and markets.
The snapshot is their Major Trend Index, which looks at changes in four broad aggregates: sentiment, valuations, technicals (e.g. trendlines or market breadth) and cyclicals (the behavior of assets that rise and fall with the rhythms of the economy and market). They say: "Major Trend Index is a weekly email update on the status of our 130+ factor assessment of stock market risk."
As of yesterday, it went broadly negative.
The Major Trend Index slipped into its Negative zone as of the week ended October 6th, after spending the last nine months oscillating within the Neutral zone. Thanks mostly to a falloff in the Technical category, the reading dropped one notch to -2. (Scores of -2 to -5 are considered Negative for stocks in the intermediate term.)
The MTI’s decline prompted us to further reduce equity weightings in our tactical portfolios. In the Leuthold Core Fund, Core private accounts, and Leuthold Global Fund, equity hedges were adjusted to decrease net equity exposure to 44%. The Leuthold Core ETF exposure was also lowered to 44% via a reduction in long equity positions. Prior to yesterday’s changes, these portfolios had been positioned with net equity exposure around 47-48%. ("MTI: Turned Negative, Trimming Equities Further," 10/10/2023)
Two notes: (1) they're pretty good at what they do. Their core product is
Leuthold Core Investment which is a five-star, Gold rated tactical allocation fund. Neither allocation is 60/40 but they can drop stocks as low as 40%. Since inception in 1995, they've made 7.8% APR; in every trailing period they post higher returns than their peers (0.7-3.5% APR) with noticeably lower volatility. Their portfolio decisions are driven by the output of their quant models, not by their managers' gut. On whole, I would describe them as institutionally cautious.
(2) this is not a "deep red" state yet. The system goes from three red stars to three green ones. Right now, the graphic summary is two red stars. Technicals are deteriorating (that the whole magic talk of 400 day moving averages and crossing or converging trend lines and such); up until now the other factors had been red but technicals were holding up.
Morningstar dislikes tactical allocation funds as a group. The argument is that most of them suck, and some suck badly, through a combination of mistimed guesses and high expenses. (Which, by the way, is true of almost all managers: whether it's a professional trading stocks or an amateur trading ETFs.) I own two such funds (
FPA Crescent and Leuthold) because I know that I don't like losing money and don't have the time and expertise to tweak my portfolio. For those looking for managers who obsess about allocation so you don't have to,
Bruce (despite the passing of the elder Mr. Bruce) and
Columbia Thermostat tend to be in the top tier for Sharpe ratio across most trailing evaluation periods.
Comments
FPACX v CTFAX v FBALX chart. Please correct me if FPA Crescent fund is not the correct ticker. Both the FPA and Thermostat are the loaded versions of these funds. There may be other choices.
Remain curious,
Catch
Thanks for the chart, Derf
Meanwhile, I have classic rock music playing 'loud' behind my seated position and perhaps that is affecting my recall.
I own two because they have broad discretion of where to invest, similar philosophies ("make decent returns but don't lose Snowball's money") but different strategies (absolute value fundamental vs relative value quant).
To be clear, I don't recommend any of them. I'm willing to report that I own two because they made sense given my personal circumstances and attitudes, and that, additionally, there are others which seem pretty consistently successful. Consistency is important to me, since it frees me from the need to look at my portfolio more than once a year. Other folks surely have other perspectives and so might well thrive with a momentum-tracking strategy or an options-hedged one or a mechanical one (Thermostat) or one that specializes in smid-value (Bruce).
Think of it as fodder.
David
One of the only funds that looks everywhere. PRWCX has a big % of its bonds in HY+BL.
In any event, M* has FBALX and PRWCX in the first quartile of performance every year other than 2022 (ten times). FPACX hit that milestone four times; two of those in the last two years when cash was better than most traditional fixed income vehicles. What do you see that you think I don’t?
I don't see why it would be logical since you don't mention it.
Ah, maybe you meant
>> Those who know me know ...
Romick's cash thing has been discussed here for decades, iirc, and I myself care only about returns as a function of UI and vice-versa.
FBALX has waaay higher UI most of the time (in keeping with Fidelity's ever aggressive equity-favoring approaches).
I've no other thoughts on what you don't see. FPACX has nontrivially outperformed PRWCX the last few years, yes, and with lower or the same UI. If you knew all that, bully.
Let’s be clear…. M* has PRWCX ahead by about 6% in 2020 and 3.5% in 2021. Behind by about 1.7% in 2022 and 1.6% this year. I’m not sure that supports your statement, but it certainly supports the notion that the cash helped its return recently.
Again, I have no issue with FPACX being a decent fund, but I can’t see a good reason to prefer it over the other two. Ymmv
To be clearer, and to support my statement, FPACX has done better 3y, 1y, and ytd.
Cumulative. I do not look at, care about, or judge by single years.
That's all. Don't own any of them currently, but wish I had for the last decade.
>> ... can’t see a good reason to prefer it over the other two.
Again, as I said, whether UI matters. (Also the matter of availability.)
VY® T. Rowe Price Capital Apprec S ITCSX
Slightly higher fees 0.89% vs 0.72%, but open?
LCR seems like the sort of product Jan Loey's is not in favor of--as discussed in this thread.
As described at etf.com: Do I really need to pay leuthold .85 cents to invest 20% in money markets, 15% in tech, 15% in short-term treasuries, etc?
It should also be noted that LCR is about 50% equities, while LCORX is about 16% equities.
The 3y and 1 yr figures are heavily influenced by the ytd figures. In a sense, you're counting them over and over this way. As a result, recent returns skew those two values. That's why I prefer to look at rolling or annual results for decision-making, but not "single years". I think it potentially gives one much more insight into performance. That FBALX and PRWCX have dominated during an 11-year period makes me prefer them long-term. That FPACX is performing well in the last couple of years makes it interesting as a current choice. That it is available, whereas PRWCX is not, is certainly a point in its favor.
Now, at the risk of appearing ignorant, and because I've been unable to come up with an answer independently, what is "UI" again?
FBALX 3-yr Rolling Returns, w/start 10/22/12, https://stockcharts.com/h-sc/ui?s=FBALX&p=W&st=2012-10-22&id=p19590251121
Now for PRWCX, https://stockcharts.com/h-sc/ui?s=PRWCX&p=W&st=2012-10-22&id=p85194984576
FBALX may have had better bounces, but PRWCX is more consistent - not surprising.