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ASTON/River Road Independent Value Fund holdings as of 1-31-12 - Yikes!
I'm getting a little nervous with Eric Cinnamond's cash holdings increasing to 52.2%. Couldn't he direct some of those new dollars into the fund's existing holdings or are all the fund's holdings fully valued? I don't understand his high cash position. When does it become market timing?
One should suspect that the cash is not cash; but perhaps TIPS or some other form of U.S. Treasury holdings. You may consider an email to them in regards to what cash/equivalents really means. Also of note, at least in respect to management; is that he/they do not find much in favor at this time related to the market sectors of the fund.
Not sure as to why this is an issue; I would rather have a flexible manager who has the ability to go further to cash if need be vs staying fully invested at all times and shrugging when the market tanks. Cinnamond has often had high cash levels and has demonstrated skill avoiding significant downturns while participating in a very reasonable (not aggressive - if one is looking for an aggressive fund, this is not it) manner in upswings. This may not always happen, but Cinnamond has otherwise been pretty consistent in this fund (so far) and the prior one. Yacktman is one of the (very few) other fund managers that has demonstrated skill in dialing up/down risk.
Reply to @catch22: tips are usually medium to long term -- there are no TIPs issued that would qualify as cash. cash by definition is something before 12 mo maturity... gov't bills usually that currently yield about nothing.
I also don't understand why this is an issue. If you want to be fully invested, then invest in index fund. An active manager does not make excuses for bad performance after he is fully invested and then claims market went against him. If investing in Active manager, allow maximum leeway and take away his excuse.
Besides, in spite of the cash stake, the fund looks darn good to me. I own PVFIX which also has 50% in cash.
I don't think it is surprising. When I invested in this fund, it was already around 40% cash. The stock market has only gone up since then, meaning stocks are generally more expensive than before. So if he couldn't find enough good values back when cash was at 40%, then it seems logical that he wouldn't find them now.
I am not saying it is a good strategy -- it's a new fund so time will tell -- but it is consistent with what I knew when I invested in the fund.
Hi fundalarm, I was not aware of the requirement for mutual funds as to what may or may not be a required investment type to qualify as cash for the purpose of a prospectus. I will presume this is a S.E.C. regulation.
I would advise you not to worry about the cash position of ARIVX. Eric Cinnamond managed ICMAX from 10/3/2005 to 9/2/2010, and during this period an initial $10K investment appreciated to $17,613 vs. $10,391 for VBR. Since the inception of ARIVX, that same initial investment would have increased to $11,135 vs. $10,589 for VBR. These results indicate to me that he is a skilled investor. His skill was clearly evident when his ICMAX only lost 7% in 2008 and then managed to beat the SC indices in 2009 by gaining 40%.
Eric Cinnamond evidently buys with conviction - he holds approximately 30 positions. And I admire that in a fund manager.
I concur that the small caps increasing 10% ytd has reduced the opportunities for Mr. Cinnamond to fund new positions. But my question is this: why not use new money to add to existing positions? The only rationale for not would be that they have become fairly valued.
This leads to my next question: Are there not more than 30 companies in the small-cap universe that offer a greater risk-reward than cash? Has the market appreciated that much over the past 4 months?
Thanks for the great comments.
Mike_E
P.S. I am not a market timer. I bought ARIVX in early April and plan to keep it for many years to come.
Reply to @catch22: Regardless of whether there are regulations dealing with how an annual statement defines "cash", the reality is that the ARIVX is keeping its cash (or at least the vast majority of it) in BlackRock Liquidity Funds Treasury Trust Fund Portfolio, according to its 10/31/11 annual statement. And that is a MMF.
But there's also nothing that prevents MMFs from holding assets with maturities greater than 12 months. Regulation 2a-7, which is what defines a MMF, permits securities with maturities in excess of 12 months - up to 13 months, or 397 days, to be precise.
I would also say that if you have new money and wanted to add to this fund, perhaps now is not the best time. I think it is clear that the manager is waiting for a significant dip in the market before committing more funds. I do like this fund and will add more eventually, but I'm pretty sure any money I put in now will just go to cash, which I can manage myself.
Thank you for your continued efforts in presenting the facts and details related to the financial and investment areas. All here are much the wiser from your work.
Mr. Cinnamond says that it's simply a matter of valuations. He's not finding attractively priced new names right now, and his current holdings have appreciated enough that they're not compelling buys. It's not, he stresses, a problem with fund inflows.
Here's the note he sent from his phone:
Cash is definitely a reflection of lack of discounts in high quality small cap names...has nothing to do with inflows. Remember, we only take risk when getting adequately paid and will never buy an overvalued stock just for the sake of being invested. This is not a relative focused fund. We could add to weights if existing names, but do not have enough large discounts at this time to get aggressive with weights. We're not timing the mkt...dont know where its going...just waitning for better opportunity set...which always comes...thankfully!
Reply to @mnzdedwards: Andrew is stuck at an airport and offered up "a second rant." At base, he notes that high quality small caps are at their highest valuations ever and that it does feel stupid to be plodding along when your benchmark is racing ahead. That said, his job isn't to play tag with the benchmark; it's to produce positive absolute returns for his investors. A small part of his note:
Also, your readers may be interested in knowing the s&p 600 (supposedly a higher quality small cap benchmark) is currently at record levels. So high/record prices often lead to limited opportunity. I'd much rather be invested in a high quality small cap business than cash yielding nothing! Its painful holding so much cash with small caps on a tear.
Hopeful that his flight finally got safely off the ground,
Reply to @mnzdedwards: I don't think you need to apologize. This is a good question and it's something everybody needs to consider before investing in this fund.
Assume you have an asset allocation where you reserve a certain % in cash and a certain % to small caps. The purpose of this asset allocation is that you can periodically rebalance, with the goal that that you will buy more small caps when they are cheap and you cash in some gains when small caps are pricey.
If you are already holding cash and rebalancing then a fund like ARIVX may not be very suitable. In fact, the reason many funds stay fully invested in stocks is not because Eric Cinnamond is a smarter manager. It's because most funds believe it is their duty to stay fully invested -- i.e. investors pay them to manage stocks, not to hold cash.
This is just something to think about. Personally I like this fund, but I also hold PREOX which is more of a typical fully-invested fund with all the ups and downs (mostly downs). But as I mentioned above, I am hesitant about adding new money into this fund until the manager himself is convinced that there are new buying opportunities.
Reply to @mnzdedwards: Jeez, Mike, you made a sharp observation and asked a perfectly reasonable question. The mere fact that I felt the need to check with Eric, and that he wanted to talk through his logic, reflects the thoughtfulness of the original question. If more folks paid this level of attention, fewer would end up baffled and unhappy.
Of course it dnedpes on the terms of the specific account you're interested in but in general, yes, you can purchase stocks using a cc.I don't recommend it but it can be done.
Comments
One should suspect that the cash is not cash; but perhaps TIPS or some other form of U.S. Treasury holdings.
You may consider an email to them in regards to what cash/equivalents really means.
Also of note, at least in respect to management; is that he/they do not find much in favor at this time related to the market sectors of the fund.
Regards,
Catch
Besides, in spite of the cash stake, the fund looks darn good to me. I own PVFIX which also has 50% in cash.
I am not saying it is a good strategy -- it's a new fund so time will tell -- but it is consistent with what I knew when I invested in the fund.
I was not aware of the requirement for mutual funds as to what may or may not be a required investment type to qualify as cash for the purpose of a prospectus.
I will presume this is a S.E.C. regulation.
Thank you and take care,
Catch
I would advise you not to worry about the cash position of ARIVX. Eric Cinnamond managed ICMAX from 10/3/2005 to 9/2/2010, and during this period an initial $10K investment appreciated to $17,613 vs. $10,391 for VBR. Since the inception of ARIVX, that same initial investment would have increased to $11,135 vs. $10,589 for VBR. These results indicate to me that he is a skilled investor. His skill was clearly evident when his ICMAX only lost 7% in 2008 and then managed to beat the SC indices in 2009 by gaining 40%.
I spoke with him over the phone when he worked at Intrepid Capital, and he was very friendly and patiently answered all of my questions as detailed here:
http://socialize.morningstar.com/NewSocialize/forums/p/243840/2697828.aspx#2697828
As you can see, Eric Cinnamond has had his doubters for a long time, and he continues to prove them wrong.
Kevin
Eric Cinnamond evidently buys with conviction - he holds approximately 30 positions. And I admire that in a fund manager.
I concur that the small caps increasing 10% ytd has reduced the opportunities for Mr. Cinnamond to fund new positions. But my question is this: why not use new money to add to existing positions? The only rationale for not would be that they have become fairly valued.
This leads to my next question: Are there not more than 30 companies in the small-cap universe that offer a greater risk-reward than cash? Has the market appreciated that much over the past 4 months?
Thanks for the great comments.
Mike_E
P.S. I am not a market timer. I bought ARIVX in early April and plan to keep it for many years to come.
Regardless of whether there are regulations dealing with how an annual statement defines "cash", the reality is that the ARIVX is keeping its cash (or at least the vast majority of it) in BlackRock Liquidity Funds Treasury Trust Fund Portfolio, according to its 10/31/11 annual statement. And that is a MMF.
But there's also nothing that prevents MMFs from holding assets with maturities greater than 12 months. Regulation 2a-7, which is what defines a MMF, permits securities with maturities in excess of 12 months - up to 13 months, or 397 days, to be precise.
Thank you for your continued efforts in presenting the facts and details related to the financial and investment areas. All here are much the wiser from your work.
Take care,
Catch
David
Mr. Cinnamond says that it's simply a matter of valuations. He's not finding attractively priced new names right now, and his current holdings have appreciated enough that they're not compelling buys. It's not, he stresses, a problem with fund inflows.
Here's the note he sent from his phone: For what it's worth,
David
I'm satisfied.
Mike_E
David
I ask for your forgiveness for my coming across as a complete ass who thinks he knows better than a seasoned mutual fund manager. My bad.
Sincerely,
Mike_E
Assume you have an asset allocation where you reserve a certain % in cash and a certain % to small caps. The purpose of this asset allocation is that you can periodically rebalance, with the goal that that you will buy more small caps when they are cheap and you cash in some gains when small caps are pricey.
If you are already holding cash and rebalancing then a fund like ARIVX may not be very suitable. In fact, the reason many funds stay fully invested in stocks is not because Eric Cinnamond is a smarter manager. It's because most funds believe it is their duty to stay fully invested -- i.e. investors pay them to manage stocks, not to hold cash.
This is just something to think about. Personally I like this fund, but I also hold PREOX which is more of a typical fully-invested fund with all the ups and downs (mostly downs). But as I mentioned above, I am hesitant about adding new money into this fund until the manager himself is convinced that there are new buying opportunities.
You did good.
David