March 1, 2020

By David Snowball

Dear friends,

Welcome to spring. Meteorological spring, anyway, that brief interval when the Quad Cities are wedged between end of snow and the beginning of flood, between the end of hockey and the start of minor league baseball, between the days when you can’t imagine the end of winter and the ones where you can nearly taste the arrival of spring.

Celebrate it all, since it’s Continue reading →

Snowball’s Indolent Portfolio

By David Snowball

A tradition dating back to the days of FundAlarm was to annually share our portfolios, and reflections on them, with you.

Four rules have governed my portfolio for the past 15 years or so.

  1. I maintain a stock-light asset allocation.

For any goal that’s closer than 10-15 years away, stock investing is speculation. Stocks rise and fall far more dramatically than other investments and, once they’ve fallen, it sometimes feels like they can’t get up. Equity income funds are typically very conservative vehicles, and yet they took four years to regain their October 2007 peaks. International large cap core funds took seven years to reach break-even while domestic large-cap core funds were underwater for five-and-a-half years. The worst-hit categories languished for nine years.

Research conducted by T. Rowe Price and shared here, on several occasions, led me to conclude that I wouldn’t gain much from a portfolio that exceeds 50% stocks. My target allocation is 50% income (half in cash-like investments, half in somewhat riskier ones) and 50% growth (half in firms domiciled in the US and half elsewhere). Based on a review of 70 years of returns (1949-2018), this allocation would typically Continue reading →

great horned owl

YCG Enhanced Fund (YCGEX), March 2020

By David Snowball

Objective and strategy

The YCG Enhanced Fund seeks to maximize long-term capital appreciation consistent with reasonable investment risk. The portfolio consists of an equity component and an options component. The equity component attempts to identify and invest in the world’s best companies, which they designated “global champions.” The central characteristic of such firms is that they’re among the very few with long-term pricing power; that is, the nature of their industry and business is that they can consistently dictate prices to their users in exchange for irreplaceable services. The equity component ranges from 15-50 names, mostly large cap, mostly domiciled in the US. The median market cap of $80 billion because “global champions” aren’t small. The managers may also write put options and covered call options on a substantial portion of the equity portfolio to generate additional income and heighten tax efficiency. They do not use options to generate leverage. Continue reading →

Black Swans and Locusts

By Edward A. Studzinski

The typical American of today has lost all the love of liberty that his forefathers had, and all their disgust of emotion, and pride in self-reliance. He is led no longer by Davy Crocketts; he is led by cheer  leaders, press agents, word-mongers, uplifters.

H.L. Mencken, “On Being an American” (1922)

On balance, it is somewhat hard to believe that in a few short weeks, we have gone from the domestic markets hitting new record highs, albeit with a continuing narrowing of breadth, to what is a full blown correction, with the markets now off by more than ten percent. And as we look to Monday, the first trading day in March, the question is have we reached a floor, or is this going to continue on for some time, wiping out performance gains for all of this year and go on to erase all or a substantial part of 2019’s profits.

What triggered the sell off this past Monday, which was a global event? More than likely, it was Continue reading →

Launch Alert: Artisan Select Equity

By David Snowball

On February 28, 2020, Artisan Partners launched Artisan Select Equity Fund (ARTNX / APDNX / APHNX). The fund is managed by Artisan’s Global Value team.

The Global Value team managers are Daniel O’Keefe, Justin Bandy and Michael McKinnon. The senior member of the team is Mr. O’Keefe who joined Artisan from Harris Associates (advisers to the Oakmark funds) in May, 2002. Up until October 2018, Mr. O’Keefe was paired with David Samra on running the International Value and Global Value strategies. They, to put it gently, were awesome. Artisan notes that O’Keefe and Samra “were nominated six times (in 2008, consecutively from 2011-2014 and again in 2016) for Morningstar’s International-Stock Fund Manager of the Year award in the US. Mr. O’Keefe and Mr. Samra won the award for their joint management efforts in 2008 and in 2013 for the management of international-stock funds.” In October 2018, the team was split, with Mr. Samra maintaining custody of Artisan International Value (ARTKX) and Mr. O’Keefe overseeing Artisan Global Value. The funds have outperformed their peers by 4.7% and 4.3%, respectively, since launch. The translation, in both cases, is that the funds have very nearly doubled the returns of their peers over the long-term.

Artisan’s précis of the team’s approach:

The investment team seeks to Continue reading →

old license plates on a wall

Funds in Reg

By David Snowball

The Securities and Exchange Commission, by law, gets between 60 and 75 days to review proposed new funds before they can be offered for sale to the public. Each month, Funds in Registration gives you a peek into the new product pipeline. Most funds currently in registration will not become available until late April.

We found 14 funds in the pipeline. Two stand-out opportunities: an active, non-transparent ETF version of Continue reading →

Rules Based Investing – Rule #3 Manage Risk First

By Charles Lynn Bolin

In this third of a six part series on the Six Rules of Investing, I look at risks and the ability of the investment environment to withstand shocks. This article is divided into four sections: 1) The Investment Environment, 2) Looking for the “Known Unknown” Risks, 3) Investment Strategy For Uncertain Times, and 4) Funds for Uncertain Times.

In February 2002, Donald Rumsfeld, the then US Secretary of State for Defense, stated at a Defense Department briefing: “There are known knowns. There are things we know that we know. There are known unknowns. That is to say, there are things that we now know we don’t know. But there are also unknown unknowns. There are things we do not know we don’t know.”

Donald Rumsfeld, US Secretary of State for Defense Continue reading →

old alarm clock

Manager Changes, February 2020

By David Snowball

Every month we track changes to the management teams of equity, alternative and balanced funds, along with a handful of fixed-income ones. Why “a handful”? Because most fixed-income funds are such sedate creatures, with little performance difference between the top quartile funds and the bottom quartile, that the changes are not consequential. Even in the realms we normally cover, the rise of management committees dilutes the significance of any individual’s departure or arrival.

We tracked down 40 funds with manager changes this month. Special thanks to the folks at Morningstar for sharing their monthly spreadsheet of all major changes in the fund industry with it; it’s an invaluable double-check on the work that Chip, The Shadow and others do in tracking movements in the industry.

Most of the changes are low-key, though it is interesting that Continue reading →

fountain pen writing a note

Briefly Noted

By David Snowball

BlackRock gets bitten: Jason Zweig of The Wall Street Journal published a TMZ-worthy piece on a scandal involving BlackRock Income Trust (BIT). BIT is a closed-end fund with $750 million in assets and which, in Jason’s judgment, charges “an arm and a leg” for its services. The fund invested $75 million in “a small, privately held movie company, Aviron Capital LLC.” BlackRock underwrote six of Aviron’s seven films that latest of which, After (2019) cast one of the daughter of one of BlackRock fund’s managers in a lead role.

That does not appear to have been a decision triggered solely by the actor’s on-screen abilities. Mr. Zweig reports: Continue reading →