Dear friends,
I always hope you folks are doing well. Especially as I speak with chip about conditions in eastern New York (roads impassable because of fallen trees and lines, no utilities, even folks with generators running out of gas, two-hour lines at the few open stations - all of that for the folks fortunate enough to have escaped direct personal loss), I mean it more now than usual.
After a slight storm delay, we posted our update. There is, I think, some cool stuff there.
Scout Unconstrained Bond and Stewart Capital Mid Cap are profiled this month, and both seem to be doing freakishly well - consistently high returns, moderated risk. I might try to find a way to talk directly with the Scout manager. Up until now, he's mostly been replying to questions via email.
Because folks want to launch new funds before January 1 and the SEC imposes a 10-week registration period, October usually sees a lot of new funds. This month, with about 30 no-loads and active ETFs, was no exception. I've highlighted four that seem especially interesting.
Finally, I think I'd like to commit to a monthly conference call of the sort we ran with David Sherman from RPHYX and was hopeful that you might both think about the project and think about becoming involved in the calls. I'm imagining a system in which we do interviews with paired funds in consecutive months: two neat long/short managers in November and December, two focused managers in January and February, two emerging markets guys, two unconventional income guys, that sort of thing.
Mitch Rubin (RiverPark) and Matt Moran (River Road) have both signed on to be our first pair. If you could think about how to make for really productive conversations and how best to attract folks to the calls, I'd appreciate your reflections.
Take care, dear friends.
David
Comments
Great stuff. Your November release to the MFO Commentary section is truly inspired. It is erudite, educational, entertaining, and an enjoyable addition to your earlier contributions.
I find it remarkable that you continue to improve your monthly product, given its extraordinary high base-rate standard. I guess that’s a characteristic of all good wine.
It is clear that you love doing this time consuming and arduous task since you do it so well. It must be so. Author Ray Bradbury was on-target when he observed that “Write only what you love, and love what you write. The key word is love. You have to get up in the morning and write something you love, something to live for.”
I know you love your family, your work and our Country, but you also love mutual funds and MFO, admittedly at a marginally lower level of intensity (I realize I often get into trouble with these misguided attempts at humor, but that’s just me being me).
It’s amazing how the best can get still better.
Congratulations, and more power to you. We all benefit from your research, your insights, and your constant commitment.
Humbly Yours and Best Wishes.
Finally, you take out year 2009, this funds record is nothing to talk home about. Lot of funds had a stellar 2009. I would be more convinced if 2008 record of the fund was substantially better.
With due respect Mr. Snowball, you have been hoodwinked.
Fortunately, I've never really felt compelled to have everyone agree with my conclusions about a fund.
Take care,
David
Thanks for the kind words. We try to do as much good as we can.
As ever,
David
Q: How much cash do you have in the fund?
A: We’re running about 30 percent net cash because of so many things we sold. We’re looking for short-term bonds and securities to purchase with one-year maturities to hold our ground against that zero cash interest rate which can eat up real returns over time. We’re looking at floating-rate securities, asset-backed securities and high-quality short-term assets. The best times are gone. Longer term, fixed income in the traditional sense is almost an uninvestable asset class and should be shunned by almost all investors.
We’re slightly short high-yield bonds, which is unusual for us. The absolute level of yield on high-yield bonds is so low now it highlights an extraordinary risk people are taking. And the reason for the runup in high yield, which is primarily because of central bank activity, makes us cautious. So we’ve exited our derivative exposure going long and now we’re in a small way buying insurance for the portfolio for what we think is likely to be a decline in the prices of high-yield securities and a rise in volatility.
We also think oddly enough the policies the U.S. Federal Reserve is pursuing in an attempt to bring volatility down are inherently destabilizing. The combination of the various quantitative easing programs they’ve undertaken are outright balance sheet expansions for the government. These expansions feel good in the short term like an injection of drugs to an addict but are destabilizing in the long term.
The Fed has absorbed the entire supply of mortgage bonds and long-term Treasuries. Central banks are monetizing everything and causing a shortage of high-quality fixed-income securities. That destroys the price mechanism because nobody knows where a BB-rated credit should be priced today in the absence of all this central bank activity to prop up the markets.
http://www.businessweek.com/news/2012-10-02/the-best-bond-fund-manager-youve-never-heard-of#p1
Confessions of a fund alarm/mfo addict--holding RNSIX, MAINX, RPHYX and probably adding this one. Now where would one get those ideas. Given this infernal fixed income
market brought about by the financial engineering activities of central banks our fixed income allocations have evolved into betting on a Snowball's chance in hell. A significant cash position when warranted along with actual shorting holds capital preservation appeal
among a mix of fixed income funds.
Let's look at it 3 years out.
Good for shareholders, I suppose. If there are few other competitors for these assets, there's not much prospect of a bidding war for them and he ends up buying them at a better price.
David