And thanks to you all, Ted most especially, for your patience and exemplary good spirits. We posted at 23:23:30, server time, on June 1st. It only
looked like June 2nd to insomniacs in the Central and Eastern time zones. We might yet add a story or two. Ed had been working on a piece but, even in retirement, his life is vastly more complex than mine.
And, with luck, I'll never have another month like the last one.
Some highlights:
we lead with a
story on investor skittishness and the incoherence of financial journalism: by "incoherence," I'm thinking of it in the physics sense of coherent and incoherent waves. "Waves having no stable definite or stable phase relation," rather than mere babbling. Journalists face the tyranny of having a clear explanation
now of phenomena for which there is, I suspect, no clear explanation. Every transitory twitch and wriggle becomes
Something Significant. I tried to illustrate that by looking at the flood of competing risk-on/risk-off stories in the past month, some of them occurring in the same publication, on the same day and in the same section. Ted's recent link to the Business Week, "
Small Investors Show No Fear," story is another link in that chain.
The story ends with a discussion of a recent call, by the Reformed Broker and Abnormal Returns folks, for investors to exercise more care and discipline in their use of the media. I'd planned on adding my two cents' worth but was tired and ended up contributing just over the penny.
My general sense of things is that folks are, rather thoughtlessly, moving toward riskier assets at a time when the market is its least stable. Leuthold made a worrisome observation in the May
Perception for the Professional report, that there are two enduring, stable and overlapping calendar patterns in the investing world: the four-year presidential election cycle and the seasonal summer/winter one. They note that, in general and based on data since 1926, the summer in the second year of a presidential cycle are frequently disastrous for the market. "May 1st," they write "marked the beginning of the statistically weakest six-month stock market period for the entire four-year pattern." The market as a whole books an average gain of 1.1% during those six months. The effect is amplified for small-cap stocks: they, on average across time, would typically decline 10.4% in value over these next six months. Happily, the succeeding six months are (with those same caveats) the strongest period in the market's four-year cycle. I didn't include much of that in the cover essay because the last thing I want to do is encourage market timing on the part of folks who are apt to get it really wrong. Still, I'm not sure that "risk on" is a brilliant move.
My general sense of things, too, is that we'd be a lot better off with far more extensive media filters. The problem with our media scanning is what I think of as "the bright, shiny object problem." (Hmmm. BOS Problem? BOSP?) You walk down the beach, not noticing the million bits of stone beneath your feet but then you see and latch onto the one bright, shiny object in the sand. Likely behavioral finance folks would refer to it as "confirmatory bias." The more we scan, the more likely we are to find that one BOS ("frontier markets -- they're immune!") that overrides all else.
Oh, right, back to the highlights.
Charles did an immense amount of digging to address the question
how good is your fund family? He's got more intriguing ways of approaching the same question than you'd think possible.
We profiled
two high income funds (Dodge & Cox Global Bond and RiverNorth/Oaktree High Income) with two more in the works. I'd intended a profile of
Artisan High Income (ARTFX), but the Artisan folks proposed meeting with the manager at Morningstar for a face-to-face rather than trying to squeeze in a phone call. That seemed like a generous, productive offer so I took them up on it. At Koshy's request, I've been looking into
West Shore Real Return Income (AWSFX) but my conversations with one of the managers left me a bit unsettled and then they requested that I delay the profile until I had the chance to talk with another of the managers but they haven't quite followed up on that offer yet. Hmmm. Similarly, Charles suggested looking at the new
Whitebox Tactical Income (WBIVX) fund but the Whitebox folks also asked for a delay in the conversation until mid-June. Those delays are slightly goofing with my tidy plan to focus on income in June and innovators (GaveKal Knowledge Leaders, G A Global Innovators, Firsthand Tech Value) in July.
There's an
Elevator Talk with the folks at Barrow Street. Their
Barrow Street All-Cap Core (BALAX) has a flashy record as a private partnership with two caveats: they need to stock the portfolio with 200 deeply-discounted high-quality names at a time when a lot of managers can't find two names that meet those criteria and their record was compiled in an internally-funded account. Still, they've got a long record as private equity investors (rather like the Oakseed Opportunity guys) and it might well be that private equity eyes see values that others miss. If we move coverage from an Elevator Talk (which is designed to be informational rather than judgmental) to full coverage, we're going to have to ask about those two issues.
Finally, the site has been relatively stable this month. Heck, we've been a paragon of stability and performance in comparison to whatever's going down at Morningstar.com. We'll go offline briefly twice in June, once to move to a higher-security server and the other time to clean at database. Neither should be extensive and we'll certainly give you a heads up a day or so before we do it. If those changes don't get us where we need to go, we might face the ugly prospect of needing to rebuild the site from the ground up because there might well be some conflict buried deep, deep in the coding (you'd be amazed at the number of processes, many of them customized, that are running simultaneously and that all need to play well together) that we can't track down. On whole, that's just a little below "get a colonoscopy" on my list of preferred ways to spend summer.
As ever,
David
Comments
I commend you and your team/colleagues for another great commentary. Greatly appreciate this site, and all the work you (plural) do.
Charles, you're a class act.
Cheers.
D.S.
As always thank you for all you do. I'm not sure if you take requests, and I'm not sure if the 350 divestment campaign has stretched to your campus and student body, but it has to my alma mater and any wisdom or insight you might be able to share regarding ESG or SRI issues in investing and related funds would be very appreciated. Hopefully, even relevant close to home as well.
Cheers,
JLev
PARWX is probably the best broad-based MF that excludes FFs by policy. Of course there are lots of other ways to reduce them in anyone's, or in any institution's, portfolio.
A separate challenge has been finding funds that cover the markets effectively with this restriction. PARWX is in my sister's portfolio, but it is not necessarily suitable for all investors or institutions. The best repository for finding these funds to my knowledge has been at charts.ussif.org/mfpc/ of which 6 satisfy the outlined constraints of the campaign.
To pick one angle, the conclusions of Aperio's latest multiple-backtest exercise were that replacing FFs with a combination of utilities and materials mimics index returns, Sharpes, and standard deviations very closely. Any analysis of fiduciary duty should also take into account the possibility that divesting FFs may be a positive for endowment returns longer term.
I didn't mean to imply that PARWX or any other specific fund is suitable for every investor, and of course institutions and high net-worth individuals have many more options for specialized portfolios.
Your review of DODLX is fine. I am hopeful it will prove to be a good choice for a core global bond fund; unless one is enraptured by the "Hasenstaub method" (which is o.k. if caught at the right price for entry), other global bond funds, post-analysis, just leaving me asking, "why?" (and no answer comes back). Regarding DODLX's aggressiveness, there is one thing I thought you would note but didn't:
footnote (c)
"Data as presented excludes the effect of the Fund’s short position in Treasury futures contracts (notional value = 15.4% of the Fund’s net assets). If exposure to Treasury futures contracts had been included, the effective maturity would be 1.3 years lower."
https://www.dodgeandcox.com/GBF_character.asp
This seems a rather aggressive position for a global bond fund to take, right out of the chute. Perhaps we need a new subcategory--- unconstrained global bond (loosely-constrained global bond)(flexible global bond)?