I hold MFMIX. I assume that the fund will have to adjust holdings to reflect the MSCI Frontier markets index. If it must sell winning positions, shareholders may see increased capital gains distributions.

Reply to @Kenster1_GlobalValue: Nope. I'm struggling to keep my portfolio manageable. I have 11 funds now and, in general, I try to maintain a one-in-one-out discipline. Ideally, in the year ahead I'll actually reduce the number of funds and increase the size of my stake in the remainder. Adding ARTWX would likely have to come at the expense of ARTVX or ARTKX. I've got substantial capital gains embedded in each and am quite satisfied with them, so I'll fight (thanks, Crash!) the temptation to collect funds.
David

Reply to @lord_nelson: This is probably not what you wanted to hear but with what appears to be your portfolio philosophy, forget about owning any of these for 15+ years. You will likely get a 7 year itch to replace even the ones that has served you well like PRBLX and/or some of these shiny new funds at the moment may no longer seem so, after a couple of years if they haven't actually crashed and burnt before then. :-)
The new ones being considered here are from good fund families with good managers but they just don't have the history to say how they will do as they gather assets and market conditions change. Even so, it may be fine if you have an active portfolio management strategy that has a plan to buy and sell based on some meaningful criterion, not what is shining recently. I am not sure you want shiny new funds as the core part of your portfolio.
I do not think it is smart to allocate more than 20% of your portfolio to funds as core holdings without a history unless you have a really small portfolio where it wouldn't make much difference. You may land up being disappointed on their performance over time or worse find that they have damaged your portfolio with underperformance in certain market conditions.
My recommendations are based on my rough guidelines here as a portfolio strategy that uses both index funds and active or specialty funds as appropriate for the stage you are in.
You have a 80% equity strategy with 20% in cash. This is fine if you are in accumulation phase with a small portfolio with a 25-30+ year timeframe or in the growth phase with a 15-25 year time frame. If the former, then I would forget active funds and get a diversified allocation with index funds. You dont need any hedging against market risk over that time frame, and it is difficult to find active funds that will overperform over a long period. At best they will underperform without any significant benefits. If you are in the latter growth stage, it might be useful to move 20% of your indexed core to specialty and allocation funds and over time increase the latter by adding more and more risk managed active funds as you get closer to your distribution years.
If you are in such a growth stage, keep the PRBLX as part of your core 60% or switch to a large cap blend index, supplement with a small blend index, an international index covering both DM and EM or separate DM and EM indices. Possibly in equal proportions in this 60%. Allocate 20% of the rest to sectors that have good beta performance and small amounts in it to shiny new funds just to satisfy your itch without harming your portfolio. You can even use the cash portion to include balanced/allocation funds for the full 40% and let them decide on cash. Initially start with high beta funds that are likely to over perform relative to the broad indices in the core (not their category indices) and slowly move them into more conservative funds with capital protection strategy as a glideslope to your retirement.
So, the questions you are asking about the funds other than PRBLX should really be in the 20% pot outside the core 60% and not trying to replace any fund in the core.
Be careful about use of volatility in evaluating new funds such as FMIJX. They can change very quickly as the fund enters some turbulence for its investment strategy. I don't think there is any justification to think FMIJX will necrssarily be a low volatility fund. It may turn out to be a great fund but hasn't proved itself as yet so shouldn't be part of core portfolio.

On February 12th we spoke for an hour with Alan Salzbank and Josh Parker, both of the Gargoyle Group, and Morty Schaja, CEO of RiverPark Funds. Here's a brief recap of the highlights:
Alan handles the long portfolio. Josh, a securities lawyer by training, handles the options portfolio. He's also an internationally competitive bridge player (Gates, Buffett, Parker...) and there's some reason to believe that the habits of mind that make for successful bridge play also makes for successful options trading. They have 35 and 25 years of experience, respectively, and all of the investment folks who support them at Gargoyle have at least 20 years of experience in the industry. Morty has been investigating buy-write strategies since the mid1980s and he described the Gargoyle guys as "the team I've been looking for for 25 years."
The fund combines an unleveraged long portfolio and a 50% short portfolio, for a steady market exposure of 50%. The portfolio rebalances between those strategies monthly, but monitors and trades its options portfolio "in real time" throughout the month.
The long portfolio is 80-120 stocks, and stock selection is algorithmic. They screen the 1000 largest US stocks on four valuation criteria (P/B, P/E, P/CF, P/S) and then assign a "J score" to each stock based on how its current valuation compares with (1) its historic valuation and (2) its industry peers' valuation. They then buy the 100 more undervalued stocks, but maintain sector weightings that are close to the S&P 500's.
The options portfolio are index call options. At base, they're selling insurance policies to nervous investors. Those policies pay an average premium of 2% per month and rise in value as the market falls. That 2% is a long-term average, during the market panic in the fall of 2008, their options were generating 8% per month in premiums.
Why index calls? Two reasons: (1) they are systematically mispriced, and so they always generate more profit than they theoretically should. In particular, they are overpriced by about 35 basis points/month 88% of the time. For sellers, that means something like a 35 bps free lunch. And (2) selling calls on their individual stocks - that is, betting that the stocks in their long portfolio will fall - would reduce returns. They believe that their long portfolio is a collection of stocks superior to any index and so they don't want to hedge away any of their upside.
And it works. Their long portfolio has outperformed the S&P 500 by an average of 5% per year for 15 years. The entire strategy has outperformed the S&P in the long-term and has matched its returns, with less volatility, in the shorter term. Throughout, it has sort of clubbed its actively-managed long-short peers. It also anticipates clubbing the emerging bevy of buy-write ETFs. The guys identify two structural advantages they have over an ETF: (1) they buy stocks superior to those in broad indexes and (2) they manage their options portfolio moment by moment, while the ETF just sits and takes hits for 29 out of 30 days each month.

There's evidence that they're right. The ETFs are largely based on the CBOE S&P Buy-Write Index (BXM). Between 2000-12, the S&P 500 returned 24% and the BXM returned 52%; the options portion of the Gargoyle portfolio returned 110% while the long portfolio crushed the S&P.

Except not so much in 2008. The fund's maximum drawdown was 48%, between 10/07 and 03/08. The guys attributed that loss to the nature of the fund's long portfolio: it buys stocks in badly dented companies when the price of the stock is even lower than the company's dents would warrant. Unfortunately in the meltdown, those were the stocks people least wanted to own so they got killed. The fund's discipline kept them from wavering: they stayed 100% invested and rebalanced monthly to buy more of the stocks that were cratering. The payback come in 2009 when they posted a 42% return against the S&P's 26% and again in 2010 when they made 18% to the index's 15%.
The managers believe that '08 was exceptional, and note that the strategy actually made money from 2000-02 when the market suffered from the bursting of the dot-com bubble.
In general, the strategy fares poorest when the market has wild swings. It fares best in gently rising markets, since both the long and options portfolios can make money if the market rises but less than the strike price of the options - they can earn 2% a month on an option that's triggered if the market rises by more than 1%. If the market rises but by less than 1%, they pay out nothing, pocket the 2% and pocket the capital appreciation from their long portfolio.
What's the role of the fund in a portfolio? They view is as a substitute for a large-cap value investment; so if your asset allocation plan is 20% LCV, then you could profitably invest up to 20% of your portfolio in Gargoyle. For the guys, it's 100% of their US equity exposure.
I'll apologize in advance for what might be muddied sound when I'm speaking; I dropped the landline at home since its sole function has been to give doctor's offices and telemarketers a way to find us. I bought a high-end Bluetooth headset which I'm still learning to use. In any case, you can hear the call here.
With respect,
David

http://www.sec.gov/Archives/edgar/data/1283381/000111183014000115/tfs_497e-0213.htm
497 1 tfs_497e-0213.htm TFS CAPITAL INVESTMENT TRUST - 497E
TFS CAPITAL INVESTMENT TRUST
Supplement dated February 12, 2014
To the Summary Prospectus, Prospectus and Statement of Additional Information of
TFS Market Neutral Fund all dated March 1, 2013,
as supplemented
This Supplement updates certain information contained in the Summary Prospectus, Prospectus and Statement of Additional Information (“SAI”) of TFS Market Neutral Fund, a series of TFS Capital Investment Trust (the “Trust”), dated March 1, 2013, as supplemented September 19, 2013. You should retain this Supplement for future reference. Copies of the Summary Prospectus, Prospectus, and SAI, as supplemented, may be obtained free of charge by calling us at 1.888.534.2001 or by visiting www.TFSCapital.com.
--------------------------------------------------------
Termination of Subscription Policy for TFS Market Neutral Fund (the “Fund”)
Effective March 1, 2014
The Board of Trustees of the Trust has approved the termination of the Fund’s Subscription Policy, described on pages 29-30 of the Prospectus, and the reopening of the Fund to all investors, subject to the various conditions set forth in the March 1, 2013 Summary Prospectus and Prospectus, effective March 1, 2014. Upon the effective date of the reopening, all references to the Subscription Policy and language limiting the availability of the Fund’s shares pursuant to the Subscription Policy, in the Summary Prospectus, Prospectus and SAI are hereby deleted in their entirety.

Per M*, the up/down capture ratio for RGHIX says it captures 82% of the gains of the S&P500 and only takes 56% of the losses. RGHIX has returned almost exactly the same, 19.9% for RGHIX, 19.4% for the S&P500 over 5 years. I'd say the fund is performing as advertized...
Sounds like better adjusted returns :)

A $2B fund cannot go to cash that quickly nor can they purchase hedges for that kind of asset base unless they paid a lot which is not entirely impossible given its drop this year as a high beta fund.
Daily wigglies don't say anything much. Tech has been moving less correlated with rest of the sector and some fortuitous positions in tech could have balanced the drop in the other holdings. Haven't you had times when your portfolio had close to zero gains or losses. Happens sometimes.

Hi Guys,
Professor Snowball is spot on-target with respect to the sensitivity of Active Share percentages to a selected benchmark. It makes a difference, sometimes a huge enough difference to compromise its predictive power for excess returns (Alpha).
The selection of a proper benchmark is an open issue without any industry standard to provide guidance. Overall, the investment industry has accepted Active Shares as an addition to an investor’s toolkit, yet the benchmark determination remains an unresolved matter that is problematic.
Researchers Cremers and Petajisto introduced the Active Shares concept to the investment community in the mid-2000s. It was welcomed as another way to identify and choose winning active mutual fund managers. That’s excellent; we need all the tools we can get since the odds of selecting a winning manager are not high. Antti Petajisto followed that original work with an examination of mutual fund performance as a function of the Active Share parameter. He concluded that higher Active Share percentages produced superior Alpha, excess returns.
That outcome is logical since an active fund manager can only generate excess returns if he deviates from the benchmark portfolio. But therein lies a risk. If the manager does not choose his favored stocks or preferred sector weightings wisely, he is exposed to underperformance outcomes. Choosing an inappropriate benchmark can easily distort any evaluation.
In an earlier posting, I referenced a Vanguard study that used a different set of benchmarks. For convenience, I repeat the Link as follows:
https://pressroom.vanguard.com/nonindexed/active_management.pdf
Using its own set of benchmarks, the Vanguard study conclusions dramatically depart from those of Petajisto. On average, Vanguard finds few excess returns from the higher level of Active Share managers. Why? Perhaps it was the study timeframe used by Vanguard ( 2001-2011). I suspect that the selected benchmarks are a major contributor to the disparate findings. Details matter.
I recognize that all you guys are under time constraints, so asking that you read a technical report is burdensome. So allow me to focus your attention on several of the pertinent Vanguard tables and graphs that illustrate the difficulties with Active Shares, at least from the Vanguard perspective.
In Figure 4, Vanguard shows the correlation coefficient between Active Shares and Excess Returns during the Performance Period test. The correlation coefficient was 0.08, almost nonexistent at the zero level. That’s almost a random relationship, something like a fair coin toss. This finding directly contradicts the Petajisto conclusion.
In Figure 6, Vanguard presents Excess Returns for various groupings of active funds as a function of time including both the evaluation and performance periods of the study. Excess Returns for the most successful grouping (the concentrated style) degrades with time while the others are nearly constant. The overarching takeaway from this plot is that the strong pull of the reversion-to-the-mean investing axiom is fully operational here. Performance persistence is a myth in most instances.
In Figure 7, Vanguard illustrates Excess Returns as a function of Active Share. The plot pictures a widening wedge that demonstrates that outcome risk is increasing with an increasing Active Share component. Note that there are as many data points in negative Excess Returns quadrant as there are in the positive Alpha section. These data do not inspire a high confidence level.
In Figure 11, Vanguard ranks the funds by quartile on both an Active Share and cost basis. As a general observation, the Vanguard study only finds that high Active Shares produce positive Alpha when they are combined with low costs. Also, these positive Alpha zones, in terms of absolute gains, are greatly outweighed by the many negative zones with substantially higher absolute negative Alphas. Buyer beware.
I have only summarized some of the Vanguard study highlights in the hope of lessening your burden. The Vanguard report offers other investor insights.
I believe both Petajisto and Vanguard conducted honest studies. The disparate results are likely timeframe and/or benchmark related. This is not a simple problem. Newspaper legion H.L. Mencken fully captured the dangers inherent in modeling nonlinear systems with his pity observation that “For every complex problem there is an answer that is clear, simple, and wrong.” I sure don’t know who is right in this instance. Perhaps both are.
I do believe that Active Share is yet another tool to assess active management performance. But it is not a magic elixir; it should not be used in isolation. It should be merged with other discriminating signals. The ultimate utility of the Active Share measure is an unsettled issue. Whenever using it, please be sure to understand the appropriateness of its benchmark, and please use it as a part of other decision making inputs.
So, I’m coupled to Professor David’s hip on the determination of Active Share benchmark selection.
I’ll close with a Will Rogers quote that always appealed to me: “It isn’t what you don’t know that gives us trouble, it’s what we know that ain’t so.”
Best Wishes.

His Coffeehouse Portfolio sucked last year relative to S&P, so he has to find a target to feel good about himself. A bit of class bashing to appeal to the masses will surely help. Those dumb rich deserve to lose.
Never mind that these lazy portfolio peddlers used a bad benchmark of beating S&P to promote them even though they added riskier assets than S&P that over performed over S&P to give them bragging rights. That fallacy came home to roost last year.
Never mind that they confused the volatility reduction benefits of diversification to imply higher risk-adjusted performance. This fallacy was shown up last year.
Never mind that the world of hedge funds is a very wide one from capital preservation strategies to absolute returns to focused multi year bets to ... to make an average over all of them meaningless. Why not compare the average returns over ALL mutual funds to average returns over all hedge funds.
Opium for the masses.

Does anyone has an opinion about this unusual fund, investing in leveraged companies? It has load 5.75%, but it is waived at Fidelity, see https://fundresearch.fidelity.com/mutual-funds/summary/74676P169
Red line-midcap value, green line- S&P500
The fund was launched on 05/18/2009, and then it was growing fast and steady. In part, it was because of 22% in health care, but this alone probably cannot account for its success and stability. The manager, David Glancy, was managing Fidelity Leveraged Company fund FLVCX 12/19/2000 — 07/01/2003, outperforming midcap stocks by 60% during that short time. These 60% played the main role in the historical outperformance of FLVCX since inception to the present time.
In 2003, David Glancy started a hedge fund, "with mixed results", and then he returned to the mutual fund business in 2009. Now he is outperforming his previous charge FLVCX with smaller volatility. His other fund, Putnam Capital Spectrum A PVSAX (larger companies), also does well. For a discussion, see also http://files.parsintl.com/eprints/80013.pdf

Reply to @Ted:
How so?
I had net gains for the week ... and, actually made money! And, you must have like wise.
And, even for today all my "risk on" and "risk off" proxies were all green. Go figure.
And, Ted, I could neve replace the "Linkmaster" which is you.
Skeet

Reply to @Shostakovich: I think Berkowitz has a tremendous track record. I've disagreed on Sears for a while. The AIG/BAC combo are more the annoyance of labeling a company "too big to fail", which effectively gives them the ability to play the armageddon card whenever anyone attempts to dismantle/regulate/do anything the company may not agree with.
I respect his record and think he's an excellent investor. However, just because I think he's a tremendous investor doesn't mean I can't strongly disagree on a few things, Sears being the primary one. I actually think Sears is undervalued, but again, I think there's a road between here-and-value that is not without potential problems. I also think $150 is wildly optimistic. Additionally, hedge fund Bronte Capital's article on the whole thing summarizes some of my broader views on the Sears situation, and I agree with a fair amount of the detailed comments under the article.
But that's just me.

Reply to @catch22: Hi Catch. Re: Brandes' (3 year) comment and your request for possible interpretations.
---
First, What's wrong with "speculation" within the larger context of some overall plan? To me, the term implies taking a calculated near-term risk in pursuit of an out-sized near-term gain (which can than be rolled into one's more diversified holdings). Suspect this happens all the time in most markets, with the highly volatile ones like venture capital, emerging markets and commodities among the most commonly used.
The mutual fund industry is well aware of speculative investing by fund holders and has gone to great measures in recent years to prevent "skimming" of funds' gains by savvy investors willing to buy low and than dump a fund after short term gains (a reason behind early redemption fees, prohibitions against selling and repurchasing within 30 days, fair value pricing, etc.). Actually, these same fund sponsors deserve much of the blame for investor short-sightedness when they design and promote such narrow geographic and sector offerings as "Africa and the Middle East" or "3-D Printing". (I assume the second will be available in both color and B&W:-)
The actual preferred holding period for longer term investments (which I'd agree should comprise the bulk of most people's holdings) is subject to debate. No one has a crystal ball in that regard. Buffett has commented that "forever" is the best time-frame. Looking at some of our board discussions, I'd say anything longer than 18 months may qualify. In many cases, brokerage fees and tax considerations affect that decision. (One of the nice things about no-load funds held at a fund house within a tax-shelter is these constraints do not normally apply.) The IRS currently considers cap gains on investments held longer than one year to be "long term" gains - at variance from Brande's three-year assessment of a long term investment.
Like many here, I adhere to a long-standing (and probably overly complex) plan with different branches, sleeves, legs, components (or whatever else one prefers to call them) allotted set percentages within the overall portfolio and rebalanced occasionally. So, the task for me is to find good low cost funds that fit these various components. If I find such a fund - say perhaps a natural resource fund that fits that area - than I'm very loath to sell it unless the fund changes significantly or management proves inept at execution. Some of my funds now date back to around 20 years ago when I abandoned my plan-appointed advisor and started doing my own research and planning.
Hope this provides one answer to the question that Mr. Brandes (and you) proffer.
Regards

From the article some interesting comments quoted here:
Peter Schiff: "I am a 50-year-old guy with a family, but I would go with all equities, precious metals and little bonds. I’d buy more gold stocks and bullion because of how cheap they are. Also, buy dividend-paying foreign equities and get into emerging markets."
Charles Brandes: "I don’t know if your readers would believe this, but if you have a period of time for your investments shorter than three to five years, you’re not an investor. You’re a speculator."
Satish Rai: "People haven’t figured out that they need to take on a different risk profile. They believe that, as you get closer to retirement, you should shift money from equities to fixed income. That’s all based on the 30-year bull market in bonds we’ve been through, not looking forward. In this environment—in which interest rates are low—fixed income is going to give you 0% capital appreciation."
James O'Shaughnessy: "Extrapolating the bond market’s fantastic performance since 1981 into the future. We think long-term bonds will be going into a multidecade bear market, and we’re urging investors to invest only in short-term bonds. My entire adult life has been lived in a bull market for bonds. But bonds can be very risky, especially over long periods. If you’d started investing in 20-year bonds in 1940, by 1981, you would have had about a 63% real total loss on the portfolio. I’m not saying don’t buy bonds; I’m saying be careful which bonds you buy."

Reply to @Vert: I see ! thanks Vert.
Regards,
Ted
Gains Distributions RSIVX
Distribution
Total
01/31/2014 10.21 0.0000 0.0000 0.0000 0.0423 0.0423
12/30/2013 10.18 0.0000 0.0000 0.0000 0.0321 0.0321
12/12/2013 10.18 0.0000 0.0004 0.0000 0.0000 0.0004
11/29/2013 10.15 0.0000 0.0000 0.0000 0.0122 0.0122
10/31/2013 10.08 0.0000 0.0000 0.0000 0.0230 0.0230

A little humble pie,tax efficiency,and value perspective.
"Although most fund
managers, ourselves included, prefer to be evaluated using a time frame longer than one year,
and ideally over a full market cycle,
we know our ultimate
goal is to both minimize capital loss
as well as provide competitive returns, i.e. outperform peer funds and benchmarks, a goal we did
not achieve in 2013"
SEEDX annual shareholder letter.
https://dl.dropboxusercontent.com/u/13183794/Shareholder Letters/Oakseed Opportunity Fund Shareholder Letter.pdf

The yield is strongly affected by asset growth. A few months ago the fund was small. It invested cash into securities. Those securities may be generating a large income stream, but that stream is now being divided among many more shareholders. Morty argues that means that you see more low-tax capital gains than high tax income gains, so long as the investor base continues to grow.
If you haven't done so, you might listen to his explanation of yield in the conference call.
For what that's worth,
David

These one tonic for all investors is too simplistic because it doesn't customize for individual goals and risk profiles. One can do a better job than this.
For example, if you are passive type of investor (not to be confused with passive funds) that just want to rebalance once in a while:
In the accumulation phase with 25+ years of horizon and small portfolio, up to 80% in equities, high beta bonds most in indexed funds with a. Allocation customized to your risk profile (via wealthfront. betterment, competent advisor who is not a fund pusher etc).
In the growth phase with 15-20 years horizon and a non-trivial portfolio ($200k+), up to 60% in indexed equities, 20% in low beta indexed bonds, 20% in specialty funds such as allocation funds and sector funds with funds chosen for high beta exposure NOT minimum volatility but with a proven record of consistent performance.
In the preservation/drawdown phase with little or no new money coming in relative to the portfio size, up to 20% in indexed equities, 20% in indexed bonds, 40% in specialty funds with funds chosen amongst actively managed for low volatity/drawdowns/preservation, 20% for income producing instruments actively managed capital preservation.
The above are just milestones with some transition plan between them.
If you have the aptitude for active investing (not to be confused with actively managed funds and fundaholics who just depend on internet suggestions) and the time to actively monitor the portfolio
If you only have time for changes 3 or 4 times a year since each change requires some research, split the indexed equities above with a mix of high beta (more concentrated) actively managed funds and non-cyclical sector index funds - health sector, tech, utilities, industrials, etc. Have a buy and sell plan for these if any of them were to head down from normal.
If you have time and aptitude for learning quantitative stuff and can monitor and buy/sell at any time (not to be confused with frequent trading), read up all you can on some basis TA such as momentum and trends and use the concentrated funds allocation above to buy/sell with sector rotation.
Obviously, everyone is different and falls in between so interpolate between them. If you are an outlier that marches to your own drumbeat, devise your own portfolio strategy.

OK, Charles, I think I give up. I tried to review my monthly reports from TDA on-line and found my original investment in 2012 of $7.5K. My "gain/loss" report on TDA is negative a few cents a share, which I thought represented my historical investment. As far as I can tell, my cost basis has been increased with each yearly dividend/cap gains distribution. While I thought I had added a $500 contribution sometime along the line, I can't find it; and my total holdings are a bit over $8K, so I made some small amount of money, even if TDA says I am currently negative. Guess I'd better learn to construct my own spreadsheets, but I really don't have the time to go back up to 10 years and enter data..