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Actually OOBY, M* shows over the last 3 years that ARIVX has captured 29% of the upside while taking on 59% of the downside. For 1 year, it looks even worst, 11% upside capture while taking on 69% of downside. Not trying to bash the guy, but the numbers don't lie. Those are some of the worst capture ratio numbers I've ever seen. Hopefully he makes up for those numbers in the next bear.
On the one hand, folks bailed on Buffett in 1999. He stayed the same. The world changed.
On the other, I remember when Charles Akre launched AKREX in 2009. He was such a downer. The fund did badly out of the gate. He was still sporting 2008 collapse.
But, quickly realized he was wrong and turned bullish. It served him well...and, investors.
So, question, is world out of whack...or, is Mr. Cinnamond?
And, what is the appropriate time frame to judge? Is it 1 year? (Taking my trend hat off.) Or, 3? Or, 5? The Three Alarm eval periods were 1, 3, and 5 years.
Honestly, I have more of an issue with the fund's expenses than the strategy, but that is true for just about every fund out there.
I remember this fund being heavily marketed by Aston at the 2011 Morningstar conference. Anytime I walked anywhere near the Aston booth I would be handed an ARIVX fact sheet. Ironically, for one of the lunches Eric ended up being at our table. I couldn't get away from this fund.
I actually invested in ARIVX at inception based on Eric's previous performance at Intrepid Small Cap which I had owned previously. In particular his 07-09 returns at Intrepid were exemplary. It was based on sound stock picking, and moderate cash levels at the end of 08 to take advantage of depressed valuations. I seem to recall the cash level in late 08 was roughly 25%. So much of that performance was due to avoiding toxic sectors.
And at the start, ARIVX behaved well. Portfolio was diverse and at the time a 50% cash position served it well particularly during the small cap implosion of Q3 2011. That's how it achieved the top small cap fund for 2011.
But that success was short lived. Small caps took off in Q4 2011 and quite frankly haven't looked back. ARIVX has since morphed into something unrecognizable. The equity portfolio is no longer broad but narrowly focused with an obsession for materials. And cash is now at an obscene 78%.
I also noticed that assets have been declining, presumably due to redemptions. But what's interesting is that cash percentage has risen as well. So it would seem that some equities are being sold to accomplish that. To me that implies they are not all that confident in the equities they currently hold.
Personally, I couldn't continue to justify paying a 1.41 expense ratio to a 3rd party to manage such a large cash stake. I would just prefer to reduce my own portfolio's small cap allocation if I was that concerned about valuations. I exited ARIVX at the end of 2012.
One other thought - often funds are cited for their performance during bear markets. But we've often seen that not every bear behaves the same. I specifically remember Bridgeway, Dodge & Cox and many others being hyped for their avoidance of the dot com debacle. Only to see them fail miserably in the 08 debacle. Time will tell whether Cinnamond can repeat his bear market performance of 08. I think the opportunity cost of not being invested for 2012-14 will make that difficult.
Eric Cinnamond is not a great ... or even good ... or even average stock picker. He is a stubbornly subpar stock picker.
Currently, ARIVX has a whopping 85% in cash. To be fair and objective, this fund has had as little as 47% cash since inception on 12/31/2010 according to M* data. Let us compare the performance and risk parameters of ARIVX since inception vs. a combination of IWN (iShares Russell 2000 Value ETF) and a very liquid and better-than-cash bond ETF, BND using EzBacktest:
ARIVX: TR 17.1%/Standard Deviation 7.2%/Sharpe Ratio 0.54
IWN 53%/BND 47%: TR 33.5%/SD 8.4/SR 0.90
IWN 40%/BND 60%: TR 29.3%/SD 6.3/SR 1.02
IWN 25%/BND 75%: TR 24.3%/SD 4.0/SR 1.25
IWN 15%/BND 85%: TR 21.0%/SD 3.0/SR 1.40
Even if one could plug in a cash-equivalent into EzBacktest, ARIVX would still compare poorly.
VF, I have tremendous respect for you as a human and investor, but there are better options for your hard earned money than ARIVX.
I have a set of "high conviction funds" I own. This doesn't mean I have high conviction in the manager. It means managers have high conviction. It is that sleeve of my money which I would use to buy stocks but don't. FAIRX, COBYX, ARIVX fall in this category. If something does not meet manager expectation, fund is in cash.
Let Cinnamond pick some stocks first, THEN let's see how he performs. He is not doing any picking at this time with mostly in cash. End of year I will always sell some of my losers and take tax break. I'm not married to any fund, but I know for experience, making wholesale moves is not a good idea. Sell entire stake, the fund might just bounce back.
Comments
This is a tough one.
On the one hand, folks bailed on Buffett in 1999. He stayed the same. The world changed.
On the other, I remember when Charles Akre launched AKREX in 2009. He was such a downer. The fund did badly out of the gate. He was still sporting 2008 collapse.
But, quickly realized he was wrong and turned bullish. It served him well...and, investors.
So, question, is world out of whack...or, is Mr. Cinnamond?
And, what is the appropriate time frame to judge? Is it 1 year? (Taking my trend hat off.) Or, 3? Or, 5? The Three Alarm eval periods were 1, 3, and 5 years.
Honestly, I have more of an issue with the fund's expenses than the strategy, but that is true for just about every fund out there.
Here are the Three Alarm stats through November:
I actually invested in ARIVX at inception based on Eric's previous performance at Intrepid Small Cap which I had owned previously. In particular his 07-09 returns at Intrepid were exemplary. It was based on sound stock picking, and moderate cash levels at the end of 08 to take advantage of depressed valuations. I seem to recall the cash level in late 08 was roughly 25%. So much of that performance was due to avoiding toxic sectors.
And at the start, ARIVX behaved well. Portfolio was diverse and at the time a 50% cash position served it well particularly during the small cap implosion of Q3 2011. That's how it achieved the top small cap fund for 2011.
But that success was short lived. Small caps took off in Q4 2011 and quite frankly haven't looked back. ARIVX has since morphed into something unrecognizable. The equity portfolio is no longer broad but narrowly focused with an obsession for materials. And cash is now at an obscene 78%.
I also noticed that assets have been declining, presumably due to redemptions. But what's interesting is that cash percentage has risen as well. So it would seem that some equities are being sold to accomplish that. To me that implies they are not all that confident in the equities they currently hold.
Personally, I couldn't continue to justify paying a 1.41 expense ratio to a 3rd party to manage such a large cash stake. I would just prefer to reduce my own portfolio's small cap allocation if I was that concerned about valuations. I exited ARIVX at the end of 2012.
One other thought - often funds are cited for their performance during bear markets. But we've often seen that not every bear behaves the same. I specifically remember Bridgeway, Dodge & Cox and many others being hyped for their avoidance of the dot com debacle. Only to see them fail miserably in the 08 debacle. Time will tell whether Cinnamond can repeat his bear market performance of 08. I think the opportunity cost of not being invested for 2012-14 will make that difficult.
Currently, ARIVX has a whopping 85% in cash. To be fair and objective, this fund has had as little as 47% cash since inception on 12/31/2010 according to M* data. Let us compare the performance and risk parameters of ARIVX since inception vs. a combination of IWN (iShares Russell 2000 Value ETF) and a very liquid and better-than-cash bond ETF, BND using EzBacktest:
ARIVX: TR 17.1%/Standard Deviation 7.2%/Sharpe Ratio 0.54
IWN 53%/BND 47%: TR 33.5%/SD 8.4/SR 0.90
IWN 40%/BND 60%: TR 29.3%/SD 6.3/SR 1.02
IWN 25%/BND 75%: TR 24.3%/SD 4.0/SR 1.25
IWN 15%/BND 85%: TR 21.0%/SD 3.0/SR 1.40
Even if one could plug in a cash-equivalent into EzBacktest, ARIVX would still compare poorly.
VF, I have tremendous respect for you as a human and investor, but there are better options for your hard earned money than ARIVX.
Kevin
Let Cinnamond pick some stocks first, THEN let's see how he performs
Hurry up slowly, I say.