David Snowball's three funds over the long haul

mohan

David,

In your commentary on RiverNorth DoubleLine Strategic Income (RNDLX) published on April 22, 2011, you wrote, " I’ve been pondering a question, posed on the board, about a three fund portfolio; that is, if you could own three and only three funds over the long haul, which would they be? Given its reasonable expenses, the managers’ sustained successes, innovative design and risk-consciousness, this (RNDLX) might well be one of the three on my list anyway."
I am curious to know which are the other two? Thanks.

Mohan

MaxBialystock

Me, too, David. Maybe all of us?

davfor

It will be interesting to compare the performance of RNOTX to RNDLX as time passes -- even though they are not intended to be clones for the non-RiverNorth portions of their portfolios. YTD performance is almost identical for the two funds.

David_Snowball

It's been vexing me for a long while now, which is why I haven't said much.

In general, I think a long-term holding needs to minimize manager risk and to accord a fair degree of flexibility to the manager. That is, I'd be reluctant to box someone tightly in. Beyond that, it needs to be as inexpensive as possible.

Beyond that, I think that the fund would have a fair and opportunistic exposure to growth drivers; that is, the ability to expertly harness things that demographic changes favoring the emerging markets or the prospect of tens of trillions in infrastructure spending. It's tough to have broad enough expertise, though, to do more than dabble dangerously in some of those niches.

So probably a tactical allocation sort of fund (mostly stocks with the opportunity to invest elsewhere), a strategic income fund (mostly fixed-income with the opportunity to invest elsewhere) and an emerging markets balanced fund (mostly e.m. equities with the opportunity to invest elsewhere, increasingly called "multi-asset" funds).

For what interest it holds, here's what I actually own:

Northern Global Tactical Asset Allocation (BBALX) - a very low-cost fund of index funds with a tactical overlay.

FPA Crescent (FPACX) - a reasonably low-cost fund whose manager famously roams over the world's capital markets, investing (successfully) here and there, in equity, debt and alternatives.

Matthews Asia Strategic Income (MAINX) - a reasonably low-cost package of Asian fixed-income with a dash of equities, managed by one of the bright younger stars in the best Asian manager.

T. Rowe Price Spectrum Income (RPSIX) - a low-cost fund of actively managed, income-oriented funds which offers a broad basket of global fixed-income funds with a dash (up to 20%) in dividend-paying equities.

Seafarer Overseas Growth & Income (SFGIX) - an Asia-centric, equity-centric emerging markets fund that diversifies outside of Asia, outside of equities and even outside of the emerging markets.

Matthews Asian Growth & Income (MACSX) - the Asia-only version of Seafarer.

I also have owned two Artisan funds from about the day they opened (Artisan Small Cap Value, Artisan International Value) and one cash-management fund (RiverPark Short-Term High Yield).

The collection is currently about 60% stocks, 15% cash, 15% bonds, 10% other. That's my non-retirement portfolio. The allocation is a bit risky for something with an indeterminate time horizon, but the managers are - on whole - really quite risk conscious so I've been happy.

For what interest it holds,

David

PatShuff

Hedge fund manager indeed, cute quip. There's a few hundred feet of hedge here, in places as high as 18ft, exciting up there and crucial to strike a balance. Oh for the good old days of
5% money markets.

mrc70

Hi David,

FPACX is FPA Crescent fund. Do you have it or you have FPA Capital fund ?
Also, Trow price strategic income fund ticker is PRSNX, not RPSIX, which is Spectrum Income fund. You have an interesting asset allocation.

Thanks,
Mrc

lrwilliams

Hi David,
At one point, you did suggest a three fund portfolio of First Trust/Aberdeen Emerging (FEO), T. Rowe Price Capital Appreciation (PRWCX) and T. Rowe Price Spectrum Income (RPSIX) which I tracked as a portfolio on Morningstar. Starting with 1/3 in each on 1/1/2008 would have gotten you an annualized return of 8.6 % since inception, compared to 2.9% for the S&P 500. The current balance is 40% FEO and 30% in each of the other two. Maximum down year was 2008 with -26%, compared to -37% for the S&P 500.

Pretty nice!

Cheers,
lrwilliams

bee

Maybe this particular thread you are referring to illudes me, but a very smart investor (Ted, MSF, Catch22, Old Joe, HiYield, Scott, MJG, MikeM, Charles, Skeeter, David_Snowball, Max B, Hank, Irwilliams, mrc70, PatShuff, davfor, mohan, etc.) mentioned a three fund portfolio consistng of VTI (Total US Stock), BND (Total Bond), and VXUS (Total International) in equal proportions. Balance yearly...call it good. Move on with your life.

David_Snowball

Reply to @mrc70: Had I mentioned that it's been an incredibly long day?

FPA Crescent and T. Rowe Price Spectrum Income are both correct. I managed the symbols (I think "I wonder how RPSIX did?") but botched the names.

Thanks for the catch. Back to grading!

David

David_Snowball

Reply to @bee: I tend toward skepticism of total bond funds, for the reason Teresa Kong shared - they are weighted based on how much debt you've already issued rather than on how creditworthy you are. That said, there are two funds that implement a strategy much like that. Fidelity has a Four-in-One Index fund and TIAA-CREF has, in their retirement line-up, a set of Lifecycle index funds.

For what it's worth,

David

David_Snowball

Reply to @lrwilliams: I agree.

I had a nice talk today with Ed Studzinski, who used to co-manage Oakmark Equity & Income (OAKBX). He argues that closed-end funds such as First Trust/Aberdeen Emerging Opportunities offer a lot more return than most of us realize. He named three or four of what he considered classics. Paired with the Morningstar research that I mentioned in this month's cover essay -- that in more than 60% of Morningstar categories, CEFs outperform mutual funds and ETFs -- I'm wondering if we need a way to pay a bit more attention to that slice of the market?

David

mohan

Thanks, David, for your response. Thanks also to the MFO, I hold MAINX, SFGIX, and RPHYX from your portfolio.

Mohan

davfor

Reply to @David_Snowball: The M* comment about CEFs caught my eye too. I vote for paying a little more attention to them. Somewhat relatedly, it might be interesting to take a quick look at VHFAX if you have not already done so. Its a new Virtus open end fund with Thomas J. Herzfeld Advisors, Inc. as subadvisor ( http://www.herzfeld.com/ ). The fund plans to follow Herzfeld's investment style and focus on investing in CEFs judged to have excessive/unusual discounts to NAV. Its categorized as World Allocation by M* but so far it seems to have more closely tracked Large Blend.

David_Snowball

Reply to @davfor: Thanks for the tip. I'll certainly check. David

prinx

Another thanks for you David. I have been interested in CEF for the past 2 years. It is intriguing how you can look for the discounted CEF and add value by putting in limit low bids and waiting to get your buy on pullbacks.

On another note I noticed that these income containing funds are in your taxable accounts. Do you keep them their because most of the income is qualified for the lower tax rate?
If so how would you handle these funds in the event these low rates expire and dividends are back up to ordinary income?
prinx

David_Snowball

Reply to @prinx: I eat the taxes. I don't have either a savings account (other than a holding tank for my property tax) or a money market. RPSIX and RPHYX serve in their stead. While both have downside (heck, money markets are buying record amounts of French bank paper, with exposure to Europe's weakest countries), it's perfectly acceptable in scale and the combination of upside+taxes is more attractive than most of the alternatives.

David

BenWP

I endorse David's suggestion that members might be interested in CEFs; I think they are well worth the extra effort required to understand them. It strikes me that folks on the board are looking for income streams and "go anywhere" managers. (See discussion on MFCFX replacement, for instance.) While ETFs have taken over part of my portfolio (MOAT, IEV, HAO), the CEFs I hold are significant holdings for me (FAX, HQL, GEO). I had FFD, but it open-ended and I now have a few bucks in Morgan Stanley's Institutional Frontier Markets to which I cannot add because the minimum investment went up to a million dollars!

BenWP

I have FEO, not GEO. Sorry.

Pat_F

davfor mentioned VHFAX. It appears to be almost perfectly replicate RNCOX, except the latter had a larger end-of-year distribution.

prinx

David to clear some confusion in my mind with regard to your using RPSIX and RPHYX as money market substitutes.When you see an opportunity in a new fund you sell from either of the above funds. What happens if you do this several times in a 2 month period when the custodian of your fund hits you with a frequent trader fine. From a money fund you can make as many purchases as you want. I use Fidelity, loaded with rules on what they consider as frequent trading. Have you or anyone else found a more liberal custodian? to make trades as frequent as they want. David which custodian do you use now?
prinx

andrei

I believe that Fidelity allows you to sell shares as many times as you want, provided that you invested in RPHYX more than 2 months ago. So if you just keep 5% or 10% of your money in RPHYX at all times, as some people may do, you can use these money at any moment.

I suspect that at Scottrade you do not have the 2 months holding period for NTF funds, but you better check contacting them directly; http://research.scottrade.com/qnr/Public/MutualFunds/Expenses?symbol=RPHYX, see also their general rules http://www.scottrade.com/online-brokerage/trading-fees-commissions.html#tab3

David_Snowball

Reply to @prinx: Howdy!

I work with Scottrade, I don't really trade much and I add new funds rarely. Over the long term, that means one fund swap a year or so (selling Artisan Small Cap to buy Artisan Small Cap Value, for instance). That's how Northern Global Tactical came into the portfolio; I liquidated my Leuthold Global holding to buy it. I'd held Leuthold pretty much since launch. In the last 18 months or so, there have been a number of particularly interesting new possibilities, so I've been a bit more acquisitive than usual. I sold much of MASCX to add MAINX and SFGIX, for instance, for didn't entirely liquidate MACSX. Closed out a money market to add RPHYX. Generally, that's a slow enough process that I don't annoy the custodians.

My normal expenses go through my bank, of course. My cash management accounts primarily hold vacation and emergency money: I make a single largish transfer from the account into a linked bank account once in a great while, then handle the day-to-day stuff out of the bank. RPSIX comes with a checkbook, which helps. Most short-term alarms are triggered when you hold shares for fewer than 90 days but the great bulk of my investment is in place for more than that, so it also seems amenable to the custodians.

That feels incredibly rambly. If so, sorry: grading Propaganda exams all morning.

And now, off to help Will with his National History Day project on the Beatles.

David

Kaspa

Reply to @prinx: If you are open to ETFs, for your cash positions take a look at BOND, which is relatively new, but it is from
PIMCO. With ETFs there is no question of frequent trading/short-term redemption fees. Of course, you pay commission every time you buy and sell, which may be smaller depending as a percentage depending on the amount being traded. Of course, this is not a money market or even an ultra-short-term bond fund, but it is fairly stable.