Fund name: Pearl Total Return Fund (PFTRX)
Objective: Total Return Fund seeks (ta-da!) long-term total returns. It pursues that objective by investing primarily in other growth-oriented mutual funds, including those which invest in developed and developing international markets. "Because Total Return Fund seeks to limit risk and preserve capital, it often takes a partial defensive position. Under those circumstances, Management will invest part of the Fund’s net assets (often up to 20% of net assets) in money market, bond, and other fixed-income portfolio funds." It’s in such a position today.
Adviser: Pearl Management Company of Muscatine, Iowa (The Pearl City). Pearl advises the two Pearl funds (Total Return and Aggressive Growth) "plus the Manager’s own investment assets." It was founded in 1972 and, after a hard 2008, manages about $100 million. The adviser is small enough and Midwestern enough to provide a group photo of all of its employees, along with their e-mail addresses.
Managers: David Stanley, Robert Solt and Richard Phillips. Mr. Stanley founded the Adviser in 1972 and has managed the fund since its inception. He was a practicing attorney for most of his adult life. Mr. Solt is President, CEO, COO and CFO of the company. He joined the firm in 2001. Mr. Phillips joined the team in 2006. Before joining the adviser, he practiced law (both from his own law office and as County Attorney).
Management’s Stake in the Fund: Collectively, Pearl and its employees had about $6 million in their funds. Mr. Stanley has over a million in each fund (as of the most recent SAI), Mr. Solt had between $100,000 and $500,000 and Mr. Phillips had between $50,000 and $100,000. Every board member has over $100,000 – generally way over $100,000 – invested in Pearl funds.
Opening date: June 30, 1972 though it didn’t become available to the public until 2001.
Minimum investment: $5,000 for regular accounts, $2,000 for IRAs and $1,000 for accounts with AIPs.
Expense ratio: 1.86% on assets of $63 million. About half of those expenses represent the expense ratios of the underlying funds.
Comments: Morningstar has never much liked the Pearl funds. They’ve done two analyst reports in 36 years on this fund. The first (2005) was headlined "we’d steer clear of this mutual fund." The second (2006) groused that the managers wouldn’t reveal their asset-allocation strategy to Morningstar, and noted that "it isn’t an obvious choice." You’d balance those concerns against Morningstar’s assessment of a pretty consistent record: "below average" risks for the past 3-, 5-, 10-year and overall periods. "Above average" or "high" returns for each of those same periods. While the Morningstar analyst warned that the fund might get caught "flat-footed" when the investment climate shifted, it simply hasn’t happened. The fund has outperformed its "world stock" peer group in six of the past seven years and again through the first two months of 2009. In its only sub-sub year, 2005, the fund trailed its average competitor by 0.1% and finished in the 51st percentile for its peer group.
The managers pursue a pretty straightforward strategy: buy good stock funds – often institutional classes or load-waived funds – and hold on to them. 2008 was unusual in that the fund sold a half dozen of long-time holdings, added two (Fairholme and Keeley Mid Cap) and shifted more of the portfolio to cash. Instead of their normal complement of 15 or so funds, they now hold ten:
| Funds owned | % total assets |
|---|---|
|
John Hancock Balanced (SVBIX) |
14.97% |
|
Matthews Asian Growth & Income (MACSX) |
13.17% |
|
Fairholme Fund (FAIRX) |
10.69% |
|
First Eagle Overseas (SGOIX) |
10.65% |
|
John Hancock Large Cap Equity (JLVIX) |
9.67% |
|
Thornburg International Value (TGVIX) |
4.09% |
|
Dodge & Cox International Stock (DODFX) |
3.90% |
|
Allianz NFJ International Value (ANJIX) |
2.58% |
|
Keeley Mid Cap Value (KMCIX) |
1.34% |
|
Equity Funds Subtotal |
71.06% |
|
|
|
|
Income Funds: |
|
|
PIMCo Total Return (PTTRX) |
9.56% |
|
|
|
|
Cash and Money Markets: |
19.38% |
|
Portfolio Total |
100.00% |
They benchmark themselves against three indexes: Wilshire 5000, MSCI World and the S&P 500. Total Return outperformed all three benchmarks for the trailing 3-, 5- and 10-year periods. As of year-end 2008, the fund had returned 5.5% annually over the preceding decade while all of its benchmarks were all under water. The managers note that they tended to outperform in both rising and falling markets, though their loss in 2008 was roughly in-line with its benchmarks’.
Their current judgment is that market risks remain high, so they’re negative on the market through 2009 and are likely to remain defensive.
Bottom Line: These folks have been pretty solid for decades. The two biggest concerns a prospective investor might have are the founder’s age (79) and the fund’s relatively high expenses. It appears that Mr. Stanley has been preparing for a transition by bringing in additional assistance. It helps, too, that the adviser picks funds rather than individual securities since the expertise required for security selection is relatively more specialized and the burden somewhat greater. The remaining questions for folks who have been ripping their hair out as they attempt to manage their fund portfolios is whether it’s time to out-source that particular task and whether a 0.9% advisory fee is a fair charge for the service. If the answer to both those two questions is "yes," this little pearl on the Mississippi is worth some attention.
Fund website: Pearl Funds.
March 1, 2009