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MFO Premium’s Best Funds of the Decade

edited January 2020 in MFO Premium
Yesterday, all fund risk and return metrics, ratings, and analytics were uploaded to MFO Premium, reflecting performance through December 2019 … end of the decade.

To mark the decade's end, we're bringing attention to a short list of funds that delivered exceptional returns while protecting downside, which has been at the heart of MFO's Rating System since it began in 2013.

We'll call them MFO Premium's Best Funds of the Decade. There are just seven. You can find them here on the blog page. (Hint: If Morningstar still selects Manager of the Decade, I suspect Dan Ivascyn and Charles Akre will be among the top contenders.)


  • Charles, just exactly how would you or how should anyone use this list?
  • Akre’s fund works because he sticks to his strategy and no other manager invests like this with major positions in American Tower, Moodys, MasterCard, Visa, etc. The shame of it is that this used to be a mid cap fund, but it’s ballooned to over 12 billion in assets now and mainly holds large cap names.

    There’s some interesting funds to investigate there that have flown under the radar for quite a while.

    Thanks, Charles
  • Is there a way to invest in the Municipal Bond fund WFCMX without signing up with an adviser?
  • @Jim0445 - there doesn't appear to be. See page 5 in the link below.

    Wells Fargo CoreBuilder Shares
  • edited January 2020
    @Mark. I'd say every one of them should be seriously considered ... to the extent any fit your risk tolerance and investment horizon ... and, ultimately, your portfolio composition.
  • @Jim0445. HICOX was a close 2nd. Actually has better risk numbers.
  • boy, that is a remarkable steady Eddie
  • Charles said:

    @Jim0445. HICOX was a close 2nd. Actually has better risk numbers.

    2 questions.

    Is this only for Colorado residents?
    M* says most of the holdings are "Not Rated". Isn't that a problem?

  • edited January 2020
    @VintageFreak - while not specific to HICOX you might find this Schwab article of interest.

    When to Choose Munis From Outside Your Home State
  • At the 4 brokerages I reviewed HICOX was either not available, redemptions only or carried a sales charge(4.5% or 4.75%).
  • HICOX has an interesting portfolio. Most of the bonds are not rated. And it appears that a very large portion of their portfolio consists of charter schools. Only a small portion of their bond holdings are investment grade. (I wonder who estimates the current market value of unrated charter school bonds and how accurate they are.) I'm not saying anything critical of investing in charter schools but just asking questions. (Yes, I noticed that M* rates the "return" as high and the "risk" as low. But their definition of low is centered around volatility, not the risk of the underlying credit worthiness of the bond issuers. I'm just a country boy but to me, risk means not getting your money back instead of volatility when evaluating a bond portfolio. I'd love to hear your comments. Please convince me to buy HICOX. Thanks.
  • There was a thread not that long ago linking a paper that claimed M* understated credit risks of bond fund holdings. M* and the authors had some back and forth.

    That MFO thread wound up in the bullpen. Here's a M* discussion community thread on the paper.

    One fact I got out of the paper was that M* treats nonrated bonds as junk. In contrast, funds themselves use their internal ratings for those bonds when calculating average credit quality. So while M* doesn't even give a style box value for this fund, if it did the credit rating would be low quality (junk), regardless of whether that made sense for the unrated portfolio.

    You are correct that M* equates risk with volatility (giving more weight to downside volatility) and disregards the underlying portfolio. Its rationale, according to its methodology, is that such attributes are implicitly accounted for when it classifies the fund:
    A style profile may be considered a summary of a fund’s risk-factor exposures. Fund categories define groups of funds whose members are similar enough in their risk-factor exposures that return comparisons between them are useful.
    That's certainly suspect with junk munis. My "classic" example is BCHYX, a California junk bond fund that M* lumps together with California longs.

    This is more than a random example. M* classifies HICOX as a single state intermediate muni. The manager describes its peers as being "in the High Yield Municipal Debt Fund category." (Annual statement).

    Most people seem to take "risk" (really volatility) adjusted returns at face value. You're going further - questioning not only whether volatility is a good metric for risk, but why aren't obvious risk attributes like credit quality explicitly incorporated? Good question!

    Just looking superficially at the fund, I can offer a good news/bad news reason for buying/not buying it. It's been managed by the same manager for three decades. One's got to figure that if it hasn't had a major blowup in that period of time (I haven't checked), then he knows what he's doing with all these bonds. (Though as you point out, they're very narrowly focused and the landscape may be changing.)

    But any fund, not just this one, with a single manager for that period of time has significant management risk, especially when virtually its whole portfolio consists of unrated securities. In the Annual Statement, he describes himself as "new to Medicare", i.e. mid-to-late 60s.

    Since you asked about pricing, see Note 2 in the Annual Statement. It's pretty much boilerplate but goes to describe how bonds are priced. The fund has no level 1 bonds, meaning bonds that trade frequently (so that you can quote the market price directly). Most of the bonds are level 2, meaning that while these particular bonds may not be trading frequently, there are enough "comps" to get a good estimate. Level 3 is divining prices from unobservable data.

    "Securities for which there is no last sales price are valued by an independent pricing service based on evaluated prices which considers such factors as transactions in bonds, quotations from bond dealers, market transactions in comparable securities and various relationships between securities, or are fair valued by management. "
  • Great list, and many thanks for putting it together. But we've gone this decade without a bear market or recession, so I wonder if these funds will be as successful next decade.
  • edited January 2020
    Yeah. Akre is just remarkable and one hopes he does not turn into Bill Miller. His fund has outperformed such other superior small-number-of-holdings vehicles YAFFX, FAMEX, and FTQGX, and also even CAPE.
  • One thing that stays in my mind is an interview I saw fairly recently with Chuck and his co-manager saying "don't expect the fund to have the same returns it's had in the past". He was being honest about forward returns and projections. I wish I could remember the interview, probably something Ted posted a few months ago.

    I started my investment in AKREX in 2019 when it became NTF at Schwab. My 2 large cap funds are AKREX and DSENX. I still think that's a great pairing going forward.
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