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Funds Failing to Play Defense

I’ve been kicking some funds to the curb this year because they have proved to be more volatile—on the downside—than I bargained for. The most recent fund to get the boot is Vulcan Value Partners.

This fund looked great on the way up. It was outperforming the S&P by a comfortable margin. But it dropped five percent this week, and has declined 20% from its high (as of November 11). That’s a bear market decline from a fund that’s supposed to mitigate risk by investing in value situations.

I know funds will have bad spells, and you have to allow for it. But I first want my funds to mitigate against risk, before they play offense.

The Wintergreen fund is another one I bought when it first opened, that had a great start, and then, starting in 2014, began a steady decline. So much for what was supposed to be a whiz manager, schooled under Michael Price, who managed the Mutual Series funds. [I know this fund hasn't been favored on this site. I'm still holding this one--waiting for a better time to sell out.]

What funds are you giving up on? What funds are looking like long-term winners, with low risk and solid returns? [I’ve owned T Rowe Price’s Cap Appreciation fund and the Mutual Series funds for decades, and that has been a blessing. But trying to find new funds that are solid performers, not so easy. Maybe Vanguard's index approach makes more sense.

Comments

  • edited December 2015
    "The Wintergreen fund is another one I bought when it first opened, that had a great start, and then, starting in 2014, began a steady decline. So much for what was supposed to be a whiz manager, schooled under Michael Price, who managed the Mutual Series funds. [I know this fund hasn't been favored on this site. I'm still holding this one--waiting for a better time to sell out"

    Wintergreen had a number of bets on various themes (including the emerging market consumer), which basically all got obliterated. As bad as that was, I think what really made Wintergreen something I'd never invest in was his futile and foolish attempt at going activist on Coke (KO).
  • Agree with you on Vulcan. Real bummer for me. Kicking myself for following advice to buy the fund before it closed.
  • That would make two of us!! OUCH !!
    Derf
  • edited December 2015
    Hi @Lawlar and others,

    I own a small position in CTFAX and I am thinking of plowing most all of my capital gains distributions received this year into this fund thus making it my special investment (spiff) fund. This fund will automatically do what I have been doing manualy except I move, back and forth, between cash and equities and it will move, back & forth, from bonds to equities. Currently, my cash position pays little interest while this fund pays about a two percent yield plus capital gains disbursed twice annually from profits (spiffs) made through it's trading activity.

    I like this fund because it seems to be good at playing defense as well as running a conserative based offense.

    Since, I am traveling, I am making this post through my tablet and not my desk top thus I am unable to link the funds fact sheet as easily as I would through my desk top. But, you might wish to Google "CTFAX Fact Sheet" to get the scoop on this fund. I believe, it has averaged about a six percent annual return over the past ten year period. Since now being retired, I plan to take about a three to four percent distribution from my portfolio each year; and, this fund seems to be a good fit for me in doing this along with growing it's principal over time.
  • Fund had a 30% drop in 2008 !
    Have a good time on your trip.
    Derf
  • I started a position in First Eagle Global Income Builder (FEBAX) shortly after it opened 3 1/2 years ago, as a defensive compliment to my largest holding, PRWCX. It's done better than the category average, but not too well risk adjusted or versus the S&P 500. I just think I need to give it more time (like a full market cycle) since it's a global value oriented fund which focuses on capital preservation first - and those haven't performed very well the past few years.
  • edited December 2015
    I've owned Wintergreen off and on. Wait to buy. International AND Value not working right now.

    Regarding Vulcan, someone especially recommended to me answering to a question. I took a look. Decided to hold on.

    Come on guys, I keep saying this twice a week. Funds like THESE, you HAVE to Time your Buys. We should know that by now. Can't simply go buy. Patience. Keep a shopping list. Go to Cash.

    AND Remember to SELL. Pay Taxes. That's fine. One reason I do not reinvest distributions. And let's not cry again about large distributions.
  • Funds like THESE, you HAVE to Time your Buys.
    What you are suggesting is market timing. Works for some, not for me.
  • MikeM said:

    Funds like THESE, you HAVE to Time your Buys.
    What you are suggesting is market timing. Works for some, not for me.
    When you follow the advice of the fund manager who says to reduce your exposure to the fund and to stay away from small caps in the short term, I'm not really sure I'd call that market timing.

  • edited December 2015
    =
  • MikeM said:

    Funds like THESE, you HAVE to Time your Buys.
    What you are suggesting is market timing. Works for some, not for me.
    Sure. Just because my name is not Warren Buffet, we cannot call what I say "buy when others are fearful and sell when others are greedy".

  • edited December 2015
    David Winters has said he is longer-term in his views on multiple occasions (I guess aside from occasions where he stupidly faces off against Buffett and then sells his BRK shares in a huff after he didn't get his way - as if Buffett cares.) Where Wintergreen ran into trouble was that pretty much a couple of years ago a number of his major themes stopped working with some (Macau) doing horribly.

    Before that, it was decent fund that I think was less than Winters made it out to be (Winters has talked in interviews about how the fund has all these tools - tools that he's rarely ever used.) I guess I don't really see how you can time actively managed funds with much/consistent success. I mean, anyone who tried to time a return to form for Heebner/CGM Focus is still waiting. The Kinetics funds (including flagship WWNPX) are another example.
  • edited December 2015
    As mostly a long term investor I have found it is as important as when I buy as much as when I sell for good gains. In today's market climate I am building cash over buying or adding to existing positions in what I consider to be a peaking and overvalued stock market. I'd much rather be buying in a market that has a TTM P/E Ratio of 14, 15 or 16 rather than the current 22 reading. I have found that the returns are greater when bought at reasonable valuations rather in an expensive and/or towards the top of a market.

    With the above in mind, I am keeping both my bonds (due to anticipated rising rates) and equities (due to high valuations) towards their mid to low range while keeping my cash towards its high end within my portfolio's asset allocation.

    As I noted above, a fund that trades on equity market volatility is CTFAX. And, since my cash is currently towards the top of its allocation limit, I thinking of buying more of CTFAX with all of this years mutual fund capital gain distributions.
  • edited December 2015
    It is not timing. Everyone wants to buy focused funds like these after they have gone up and got everyone's attention and th n complain later. I have done that as well. I grew up.

    Also do not reinvest dividends. Take profits.

    Also I would prefer my manager had some principles when he invests. It is a matter of opinion whether one is being anal about it or not. Let's not kid ourselves. Other fund managers have sold BRK using mumbo jumbo finance jingo, but we wouldn't notice unless fund was widely held or popular. Just as we wouldn't care if WGRNX performance hadn't stunk. I would very much like to know the person who sold the fund because Winters sold BRK. Also the person who sold SEQUX when they bought Valeang while we are it.

    I bought WGRNX and MXXVX when they were in the dumps. Then with decent return I sold and patiently waiting to buy back. Been waiting to buy a long time, but I am sorry to say my complaint is better then what I am hearing from others.

    When CGMFX returned 80%, what did people think? He will keep returning 80%? So now they buy and then waiting for CGMFX to recover? THIS is market timing no? Waiting for fund to return 80% THEN buying? But waiting for fund to stink up the place and then buying is definitely timing. Hah!
  • Here is the definition of market timing from investopedia.com . I'm not saying there is anything wrong with it. Some, like Old_skeet with his 'spiffs' and others with their systems do well with it. But on average, it doesn't work well for me. So sorry, by definition, ...you HAVE to Time your Buys., is market timing.
    DEFINITION of 'Market Timing'
    1. The act of attempting to predict the future direction of the market, typically through the use of technical indicators or economic data.

    2. The practice of switching among mutual fund asset classes in an attempt to profit from the changes in their market outlook.

    BREAKING DOWN 'Market Timing'
    Some investors, especially academics, believe it is impossible to time the market. Other investors, notably active traders, believe strongly in market timing. Thus, whether market timing is possible is really a matter of opinion.

    What we can say with certainty is that it's very difficult to be successful at market timing continuously over the long-run. For the average investor who doesn't have the time (or desire) to watch the market on a daily basis, there are good reasons to avoid market timing and focus on investing for the long-run.

  • edited December 2015
    Howard Marks: I've never seen the world so uncertain
    By Howard Marks 14 Dec, 2015 at 12:02
    Investors and strategists have to worry about two main risks. The first is the risk of losing money. The second is the risk of missing opportunities.

    You cannot avoid both risks at the same time, so the real question is how you balance the two: 100:0, 0:100, 50:50 or something else? Today, I would be 65% towards the defensive....
    ....The ultimate solution to illiquidity is to buy things you can hold for the long run.

    I think the secret to success in investing is to be a long-term holder. Reduced liquidity can make life more difficult, but it should not change what you ultimately do. If you buy good assets at good prices with good prospects, you could close your trading desk and just hold them. I do not believe we make money from what we buy or sell, but from what we hold.

    People ask me if we are in a high yield bond bubble. My answer is: ‘No, we are in a bond bubble.’ The pricing or yield spread of high yield bonds relative to other bonds is attractive.

    We face record low interest rates. Thus we all have an interest rate problem - whether you are a bondholder or not. Prices of most assets are elevated because the Federal Reserve and other central banks set rates at zero, creating a bull market that has rewarded asset owners and borrowers, and penalised non-asset owners, savers and lenders.

    This is the main reason the central banks should get out of the interest rate pegging business – because the free market is the best allocator of resources. And we do not have a free market in money. We have an administered market in money with distortions. This makes it easier for bad deals to get done and for uncreditworthy borrowers to borrow.
    http://citywireglobal.com/news/howard-marks-ive-never-seen-the-world-so-uncertain/a865855?ref=citywire-global-latest-news-list
    Also
    Not only are investors losing confidence in lower-quality paper, they're also unloading the companies that most actively deal in the paper.

    Waddell & Reed (NYSE:WDR) - whose $6.2B Ivy High Income Fund (MUTF:WHIAX) has suffered the largest outflows this year of any junk-bond fund - fell 7.5% today, and nearly 15% over the past week.

    The manager of the $5.8B AB High Income Advisor Fund, AllianceBernstein (NYSE:AB) tumbled 7.1% on the session, and major Third Avenue Management investor Affiliated Managers Group (NYSE:AMG) brought its two-day decline to more than 13% with a 5.8% fall today. http://seekingalpha.com/news/2983296-asset-managers-punished-in-high-yield-selloff
    WDR
    https://www.google.com/finance?q=NYSE:WDR&ei=IJRvVoHfCoay2AbG3riYBg
    AB
    https://www.google.com/finance?q=NYSE:AB&ei=LJRvVpHQKYvnjAHgxYLoCA
    AMG
    https://www.google.com/finance?q=NYSE:AMG&ei=dpRvVpGeEJeS2AbGxYOIBA
    Artisan APAM
    https://www.google.com/finance?q=NYSE:APAM&ei=uJRvVqm5LsS02AbzpYuQCQ
    referred to as Franklin Templeton Investments,BEN
    https://www.google.com/finance?q=NYSE:BEN&ei=65RvVsjSMNS5jAGt64mACQ
    iShares Dow Jones US Brok-Dea. Ind.E T F
    Exposure Breakdowns
    Investment Banking & Brokerage
    70.65%
    Specialized Finance
    27.31%
    Asset Management & Custody Banks
    1.74%
    https://www.google.com/finance?q=NYSEARCA:IAI&ei=95ZvVrmQLMOkjAGCiZP4CA


  • Also I would prefer my manager had some principles when he invests. It is a matter of opinion whether one is being anal about it or not. Let's not kid ourselves. Other fund managers have sold BRK using mumbo jumbo finance jingo, but we wouldn't notice unless fund was widely held or popular. Just as we wouldn't care if WGRNX performance hadn't stunk. I would very much like to know the person who sold the fund because Winters sold BRK.

    Wouldn't sell because Wintergreen sold BRK. Would sell (If I owned it) because Winters mounted a futile and ridiculous campaign against Coke and then proceeded to have Buffett go on air on CNBC and say in no uncertain terms that people would be better off with a Vanguard index fund. (which I posted about earlier this year: http://www.mutualfundobserver.com/discuss/discussion/19369/buffett-on-david-winters-wintergreen)

    The Coke campaign by Winters was a futile waste of shareholder time that wound up not only not working, but getting him terrible press when one of the world's most renowned investors basically said on CNBC that people would be better off in an index fund. Also, I think the Winters reasoning for selling Berkshire was poor at best - he was basically having a hissy fit after his campaign against Coke went less well than he somehow expected.

    That's all. That's why I wouldn't invest in a fund I've considered in the past.
  • @Scott: You still in OAK?
  • Here are some notes I jotted down from Winters's last interview on Wealth Track with Consuelo Mack:

    (these are pretty close to verbatim quotes)

    1. "Except for Wintergreen and 'a few others', everybody's capitulated." (to the siren song of indexing.)

    2. "Sometimes underperforming is a good thing." (Now that's chutzpah!)

    3." We're one of the only ones in the world who's doing any fundamental research anymore." (Sounds absolutely delusional to me.)

    4. We're one of the only ones left who --

    -- reads annual reports

    -- visits companies

    -- studies assets. (What is he talking about???)

    When Winters was pressed by Consuelo about the 1.89% management fee, he gave no explanation that made any sense to me.

    Why would one even consider investing in WGRNX ?

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