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ASTON/River Road Independent Value Fund Update

edited March 2013 in Fund Discussions

Eric Cinnamond is off to a poor 2013 with ARIVX, which now has $750M AUM. In his most recent commentary, he like Andrew Redleaf and Steven Romick, is positioning for a downturn:

...we believe the boom in government spending and growth in government debt is benefiting the current profit cycle. We continue to question the current cycle’s sustainability without the assistance of trillion dollar fiscal deficits.

In our opinion, the belief that future adverse developments in the economy or asset prices will be met with further government intervention has increased investors’ willingness to assume risk. Although we acknowledge that future government intervention is possible, we do not view it as an adequate form of risk control. We do not assume that politicians or central bankers have the ability to extend economic growth and the current profit cycle indefinitely. Moreover, we are not comforted or persuaded by the Federal Reserve’s quantitative easing or the perception of a “Bernanke Put.” We believe it is our fiduciary duty, not our government’s, to attempt to protect Fund shareholders from the risk of permanent capital loss.

The environment in the credit market has become exceptionally careless, in our opinion, with limited concern for interest-rate or credit risk. Investors in U.S. Treasuries are accepting considerable interest-rate risk for yields near or below the rate of inflation.

In conclusion, in addition to holding above average cash levels, we are attempting to limit operating and financial risk within the equity portfolio, with particular emphasis on reducing financial risk. Although we are aware that our defensive posture may expose the portfolio to the significant opportunity cost, we believe the pricing of risk will eventually improve and investors will be adequately compensated for remaining patient.

So, he's holding $418M in cash, or almost 57% of the AUM. Unfortunately, ASTON/River Road ARIVX charges 1.42 ER (or 1.17 for institutional ARVIX, but with a prohibitive $5M min). Mr. Cinnamond is kinda boxed-in since he believes, like the folks at Whitebox, that small caps are over-valued.

But the recent under-performance is not just due to being cash heavy, he has a couple high conviction (for ARIVX) holdings getting hammered: PAN AMERICAN SILVER PAAS, his top equity holding at just under 4%, down 13% YTD, along with AURICO GOLD AUQ at just under 2%, down 22%. Finally, CONTANGO OIL_GAS MCF, a lesser holding, down 10%.

Here's M* performance comparison past 3 months:


I own Ted's consternation: "Why in the world would you be interested in ARIVX ?" he wrote on 16 Jan.


  • I bailed on ARIVX back in early September. I became convinced that Mr. Cinnamond's penchant for "confirmation" bias towards his large cash stake would permanently limit ARIVX's future upside. Perhaps he will be vindicated one day. After all, a broken watch tells the correct time once a day:)

  • edited March 2013
    Glad that you brought this up. I am probably going to bail out of ARIVX soon. I will probably leave a token $500 for now.

    I do appreciate cautious management and I certainly did not expect this fund to shoot fireworks but it is like an ice-box there. I can more cheaply put half the money in cash and invest the rest in another relatively conservatively managed fund and it will probably turn out to be more productive use of my money.
  • I have this fund and I will increase my allocation as a contrarian indicator.:-)
    It is just 1.5% of my portfolio now.
  • Do not know what to say... Since inception, ARIVX almost exactly matched general small cap value funds, as well as FPACX, with a much, much smaller volatility... FPACX has 35% in cash. These people are believed to be very good. What if they really know what they are talking about?
  • edited March 2013
    Reply to @andrei: Yes indeed Brother Andrei. Despite the high fees, since inception in Jan 2011 through Feb 2013, ARIVX retains higher risk adjusted returns (Sharpe, Sortino, Martin) than SP500:


    Which is why I wanted own it. But I think Investor brings up key point. Should we really be paying 1.42 ER during risk-off periods?
  • edited March 2013
    I think we are becoming increasingly short-term focussed and impatient as investors.
    If you are a momentum investor like R48 on M* forums, then it is fine to jump from one fund to another, otherwise it is detrimental to your returns jump the funds at the first sign of under performance.

    This is also the reason why investor returns are abysmally low in comparison to total returns for most of the funds, especially volatile ones.
  • edited March 2013
    Reply to @mrc70: I absolutely agree. In this case, I think it is more an issue of the high ER. I hate paying more than 1.0%...ever. But, I make exceptions, particularly if a fund is EM or long-short. I personally know how time consuming it is to sell short. But to hold cash? At same time, I want my managers to decide when to be in or out of the market...that is indeed part of why I pay them to manage. Just struggling a bit at 1.42 ER to hold a preponderance of cash. I suspect if ASTON/River Road were charging 1.0 ER or less for ARIVX, we would not be having this conversation.
  • Reply to @Charles:

    The issue is while it has very good risk adjusted returns most of it was excellent 2011. Than, he turned bearish waiting increasingly like Hussman. He will be right eventually.

    Let's look at the fund right now. His performance has been worse than most bond funds. Downside is low but upside has been low too. Downside/upside ratio is barely above 1. Risk adjusted return is good but at the end of the day, you spend actual total return. The only way to take advantage of high sharpe is to lever up (i.e. borrow more money to buy more of this fund). Even so, margin interest would eat up the returns that are very low.

    Basically, I sell this fund, with the proceeds, keep the 50% in cash or a fund like RPHYX and distribute the other portion in funds like GLRBX and wait until Mr. Cinnemon starts to find value again. So, far it looks like he is not going to find value until market corrects. That can be tomorrow which could be very unfortunate but I can deploy the other 50% and if it goes on like this for a while, maybe I can make some modest returns.
  • edited March 2013
    Reply to @mrc70: The problem with this fund, it is not volatile so it is not the issue of being scared from volatility. The returns are pretty bad save for 2011. I do not see anything that will be changing his outlook any time soon. So, expect more of the same. If that is the case, what is opportunity cost? Can I basically take money from this fund and invest 50% of the money conservatively and provide a moderate return? A momentum investor would never look at this fund. Nor they would replace it a strategy like I proposed.
  • edited March 2013
    I understand your point but what if small caps become like tech stocks of late 2000-02.
    You never know. One thing, we can take solace from small caps being expensive or in bubble is that our allocation is relatively low to small caps unlike large caps, which were mostly impacted during tech bubble. Especially LG & LB categories.
  • edited March 2013
    Reply to @mrc70: I've got other small cap funds (CIPSX, JATTX, BCSIX, FLPSX, GPGOX, GPIOX, WAEMX). In fact, I am overweight in small caps (over 50% of the portfolio) and I believe I will carry my small cap bias for a good while even without this fund.
  • We have so many funds in common.:-)


    Perhaps some more, as I don't know what else you have.

  • Dear Charles: ARIVX opened for business on 12/31/2010, and in 2011 ranked in the 1% of SCV funds. However, in 2012 to the present the funds has ranked, in various time periods, in the 97%-100% rank of SCV. With a 1.42% expense ratio and 56% of the portfolio in cash, i'd look at other SCV Funds.
  • edited March 2013
    On whole, I think the fund is doing what it's supposed to be doing.
    970 x 342 - 38K
  • ARVIX is similiar in performance/ large amounts of cash to Intrepid (ICMAX). Long term (5 year)results for ICMAX are tops but lately not so good.

  • Reply to @Art: Yuh ... Eric Cinnamond was ICMAX's manager until 9/2/10. They've been a sort of watered-down version of ARIVX since his departure.
  • TedTed
    edited March 2013
    Reply to @David_Snowball: "This is what it's not doing" making shareholders money.
    Performance Fund return Category Index

    ARVIX YTD 0.55% (SCV Category Funds) 7.70%
    ARVIX 1yr 5.23% (SCVCategory Funds) 15.25%
  • That is a huge under performance, however, in mgr's defence, it is too short a period to decide whether he lost it. Under performance is expected for absolute funds from time to time, especially in irrational bull markets. Remember Yacktman managed funds during 1998-2002 period.
  • Reply to @Charles: Yes a massive 1.06% of the portfolio!
  • I realize I am in the minority here, but trends (of outperformance and underperformance) in funds tend to persist. But once the music stops, run for the hills. The music stopped long ago for this fund. I never found patience to be a virtue in dealing with underperfoming funds.
  • Reply to @Hiyield007: Hmmm ... I guess I'd argue that the key is having a sensible discipline and then having the nerve to execute it. I'd think of your approach as a sort of "fund upgrader" strategy and that can work. At the same time, a strategy that builds a sort of all-weather portfolio - one that anticipates that some funds will lag in certain market conditions while others lead and vice versa - can also work. If I had to guess, I'd guess that the worst case is inconsistency - sometimes holding out of affection, sometimes selling out of frustration.

  • From inception, and looking back over various periods, ARIVX returns at an annual rate of 7% or more with low volatility, assuming dividends are reinvested. What's not to like as a long term core holding?
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