Retail casts away doubts on equities • 8:51 AM From Seeking Alpha
"I don't want to miss out." a Los Angeles real estate appraiser said in a note to his financial adviser last week after seeing one pundit up his DJIA forecast to 20K.
"Frankly, from 2009 until recently, I wanted to stay very conservative," says a technology sales manager. "I want to get more aggressive."
A Houston attorney and stock market skeptic was turned by her Schwab statement showing YTD gains of nearly 20%. She's planning on set aside more of her paycheck for stocks. "Sometimes you feel like it's too late. But it's probably never too late."
Inflows of $8.9B into long-only equity funds last week were the largest amount since March 2000. This follows October inflows into stock funds that were the 3rd largest on record.

Hey, I resemble that remark :-)
You can fine tune this strategy. Especially with large (and only vaguely estimated) dividends and cap gains distributions expected this year, it's difficult to get up to the 15% tax bracket top without going over. What one can do (assuming one has a traditional IRA) is make some Roth conversions as well. The amount doesn't matter, so long as it's enough to ensure you go over the 15% top. Then, when you have your final figures in hand, recharacterize (unconvert) enough to just bring you back to the 15% bracket. You have most of next year (until your return is due, including extensions).
Usually, it is better to use the 15% bracket to take gains (and qualified dividends) rather than do Roth conversions. That's because you save 15% with the gains (cap gains for income in the 15% bracket are taxed at 0%). But using that spare space in your 15% bracket for Roth conversions saves you only 10% (as opposed to doing those conversions in the next bracket - 25%). On the other hand, some states exempt some or all of your IRA distributions (including conversions), and so the total (fed plus state) might make it better to do the Roth conversions than recognize cap gains.
Here's another tactic. If you have a fund where the size of the distribution is expected to be higher per share than your gain per share (look at your highest cost long term shares), then it can be tax efficient to sell those shares right before the record date (so that you don't get taxed on the distributions), and buy the shares back on the ex date. Since the gain you recognize (on the sale) is less than the distribution, you pay less in taxes now (though more later).
If you think the tax code is weird, consider that converting one dollar too much costs you 30c (30%) in extra fed taxes, not 25%. For example, if you're filing as a couple, the 15% bracket tops out at $72,500. Say you've got $2500 in cap gains, $70K in ordinary income (after deductions, exemptions, etc.). Add $1 of income. Your ordinary income is still under $72K, so that dollar gets taxed at 15% (15c). But you've now got $72,501 of total income, so $1 of cap gains is over the 15% bracket limit, and thus it gets taxed at 15% also. So you're paying 30c or 30% on that last dollar.
------
Finally note that a side benefit of #6 (selling to recognize gains now in a lower bracket) affords you a tax-effective way to rebalance and/or select better funds in your taxable accounts.

Hey Ted, thanks for the read.
Seems, I am keeping some good company with some of the top notch value fund managers’ thoughts with the large cash position that I now hold in my portfolio. When your own thoughts are close to some of those that are the brightest value fund manages in the business perhaps investors that are not on this path might consider taking heed with their positioning.
Now, I am not talking about savers who usually accumulate positions in cash and cd's, nor traders that take up positions in momentum based strategies or speculators who seem to be with the wild side. I am talking about those investors much like myself who have accumulated their investment positions over time. For me it is buy low when equities are out of favor and then sell some off after they have appreciated and have become somewhat fully valued. Some may recall I started a systematic sell down process beginning at the first of the year where I sold down my equities at about one percent for each 25 point of advancement on the S&P 500 Index through early summer where I stopped this as my equity allocation reached a low approaching the low 40% range. Its high range since 2008 has been in the low 60% range. In doing this I have now built a sizeable cash position while at the same time my equity allocation has grown within my portfolio due to some asset purchases, as value was found, along with some good capital appreciation. In addition, it seems some of my flexible and hybrid type funds have reduced their allocation to fixed income securities, since summer, and raised their allocation to equities. All of this has now resulted in taking me to a mid point weighting in my equity allocation at about 50%. Since, we have now entered the traditional fall stock market rally season I have decided to ride the equity train as long as the upward momentum might last or the traditional season ends towards the end of April. Seems a plan has now come full circle as I am now positioned as to what I’d call an all weather allocation. In addition, I am currently in a cash accumulation mode as I am taking all mutual fund distributions in cash since I feel stocks, in general, are now too overbought for new investment.
Hopefully, in the near term, you'll be reading that I have entered another systematic profit taking mode. Especially, if equities reach a projection, stated by some, that the S&P 500 Index has a good chance to reach the 1850’s or 1860’s (maybe better) before year end. If so, I’ll be a most happy camper and harvest some of my equity allocation booking some profit.
I invest in keeping with my belief that one should take profit from time-to-time (harvest), within my risk tolerance, achievement of goals, time horizon and most important within my abilities and capacity.
I hope I did not ramble … as one comment that I made above seemed to lead to making another.
Have a good weekend … and, I wish all, “Good Investing.”
Skeeter

Feds on Employment Report in Dec Meeting
"hotly debated when Fed policymakers next meet, in December."
"would likely be "noisy.""
Dennis Lockhart, president of the Atlanta Fed, and John Williams, president of the San Francisco Fed, said they were encouraged by the October job gains, but they warned against reading too much into one month of data.
Still, Lockhart said he would not rule out paring back the Fed's massive stimulus program before the end of the year, suggesting that whether the Fed can safely cut its $85 billion-a-month in bond purchases will be hotly debated when Fed policymakers next meet, in December.
Lockhart told reporters that data leading up to the Fed's meeting on December 17-18 would likely be "noisy."
"This is a period in which there are a lot of unusual things going on," he said. "So for that reason, I would be a little reticent to draw up very profound conclusions from one month's positive jobs number."
Williams likewise said he does not want to be swayed by a single data point, however positive.
http://www.reuters.com/article/2013/11/09/us-usa-fed-bernanke-idUSBRE9A70ZT20131109?feedType=RSS&feedName=businessNews

This fund has really got my interest. I really like focused value funds...especially an all cap "go anywhere" fund. I currently have one of each in Roth IRA's (OAKWX & GOODX). I've been a big fan of AUXFX and Jeff Auxier but I've always wished the fund was more concentrated. BMPEX is similar in my opinon, just more concentrated.
In Mr. Snowball's profile of the fund he writes-
Strategy capacity and closure
The strategy can accommodate about $1.5 billion in assets. The plan is to return capital once assets grow beyond the optimal size and limit investment to existing investors prior to that time. Mr. Wydra feels strongly that this is a compounding strategy, not an asset aggregation strategy and that ballooning AUM will reduce the probability of generating exceptional investment results. Between the fund and separate accounts using the strategy, assets were approaching $500 million in August 2013.
What exactly does that mean "return capital". If I were to invest 10K today and the fund assets grew to 1.6 billion. Then what? I understand closing a fund to new investors. I'm assuming closing a fund for good at 1.5 billion means I can no longer add new money, but returning capital?
Can someone please explain.
Thanks,
Clem

>>>If you think it's also reasonable that they should have produced about 60% of the market's 25% gains this year, that list contracts:<<<<
Not exactly a great way to accumulate wealth for a comfortable retirement if that is one's goal each year. I have to say, the mindset of the investors of today differs markedly from those of the 80s and 90s. I suppose because of 2000-02 and especially 2008. As for the hedged funds or "more modest still", we don't even want to go there.
Edit: My reference above are for those under 60 and still in the accumulation phase.

In the context of investment performance and choice, one day is meaningless except, perhaps, as a tool to pique curiosity and encourage a bit more investigation. So, what might one be curious about after the "oops" on Thursday? I'm curious about the funds that I track on your behalf and, in particular, the funds which should hedge your portfolio (to some degree) from the stock market's antics.
Here are three benchmarks that I looked at:
Vanguard Total Stock Market (VTSMX): unhedged domestic equity performance
Vanguard Balanced Index (VBINX): 60% equity exposure
IQ Alpha Hedge Strategy (IQHOX): a well-regarded attempt to market the performance of a broad index of hedge funds
VTSMX: down 1.39%
VBINX: down 0.78%
IQHOX: down 0.74%
So here's a thought: if your hedged fund lost less than 0.75% on Thursday, it's acting respectably. In that camp we have:
• Robeco Boston Partners L/S Equity 0.69
• Hussman Strategic Growth 0.20
• Hussman Strategic International 0.20
• Forward Credit Analysis Long/Short 0.13
• Hussman Strategic Total Return 0.09
• T. Rowe Price Strategic Income 0.09
• Fidelity Strategic Income 0.00
• Arbitrage R -0.08
• Pacific Financial Tactical -0.10
• Merger -0.18
• Whitebox Long Short Equity -0.38
• ASTON/River Road Long-Short -0.42
• TFS Market Neutral -0.43
• Diamond Hill Long-Short -0.51
• Gateway -0.52
• GRT Absolute Return -0.54
• Quaker Event Arbitrage -0.60
• Bridgeway Managed Volatility -0.61
• New Century Alternative Strategies -0.61
• RiverNorth Dynamic Buy-Write -0.66
• MainStay Marketfield -0.72
If you think it's also reasonable that they should have produced about 60% of the market's 25% gains this year, that list contracts:
• Diamond Hill Long-Short 19.17
• ASTON/River Road Long-Short 15.14
• MainStay Marketfield 13.45
If you have the more-modest goal of matching the YTD performance of the industry's best hedged fund, Boston Robeco Partners L/S (up 8.3% YTD), you'd add:
• Quaker Event Arbitrage 9.08 (the former Pennsylvania Avenue Event Driven)
More modest still? Perhaps just have bragging rights over the folks who are surrendering 2-and-20? Roughly that would mean north of 4.3%, the YTD return of IQ Alpha Hedge Strategy. You start adding covered call funds to the mix:
• Bridgeway Managed Volatility 7.08
• Whitebox Long Short Equity 6.63
• Gateway 6.19
• New Century Alternative Strategies 5.03
• RiverNorth Dynamic Buy-Write 4.88
Finally, is an "absolute value" strategy, marked by concentrated portfolios, concern about valuations and still on cash the answer? Here I looked at funds with 15% or more in cash that either I've profiled or ridiculed (Oceanstone) or that you've gotten all tingly about (Yacktman).
The columns represent Thursday's loss (under 0.75% would be nice) and YTD gains (over 14% is tingle-worthy):
• Oceanstone -0.23 29.7
• FPA International Value -0.42 15.9
• Pinnacle Value -0.45 10.9
• FPA Crescent -0.51 17.8
• Cook & Bynum -0.52 10.1
• Beck, Mack & Oliver -0.66 18.1
• Aston River Road Indep Value -0.70 5.3
• Oakseed Opportunity -0.91 20.2
• Bretton -0.96 21.0
• Yacktman -1.08 24.3
Oceanstone, F P A Crescent, and Beck, Mack & Oliver Partners make the cut. Since Aston and Pinnacle are small cap value funds, you might ask how they did against 60% of the Vanguard Small Cap Value (VISVX) index. That target would be down 1% on the down (both did much better than that) and up 16% on the year (neither's closer, though Pinnacle is a lot closer).
For what discussion it spurs,
David

I read #6 with particular interest, because---for once--- it specifically applies to me and wifey. (Except that it doesn't apply to Trad. IRA accounts. I can't find any reference to cost-basis of shares held in my Trad. IRA accounts---> the lion's share of what we own.)
In short, my head is exploding. SELL (at a profit), in order to turn right around and repurchase those shares from the same mutual fund. Because doing so raises the cost-basis and therefore reduces the cap. gains tax bite when selling again, in the future. I can't argue. It's true and logical. But what sort of SPECIAL KIND OF WEIRD do you have to be, to have such a thought creep into your brain? ....This is a testament to the craziness of the Tax Code.

Reply to @MJG: I agree! =)
Funny that RPHYX only gets a single star at M*, because by any risk adjusted measure, it screams. Granted, the biggest distinction is Martin, which measures drawdown...something this fund never seems to have. Even misplaced in the HY category, it still scores a 5 in the MFO rating system. It is in fact one of the new Great Owls. Here are all the GOs in this category:

So why, then, deploy your analysts to write endless prose about domestic large cap funds? Because that’s where the money is.

Right. That is where reprint royalties will be greatest for M*.

You should pay particular attention to a number called the “Maximum Drawdown.”

Hear, hear!

Like the old Hertz commercial, the real rather than apparent answer is “not exactly.”

Love it!

The situation becomes even more blurred where compliance policy allows investment in ETF’s or open-ended mutual funds, which in today’s world will often allow a fund manager to construct his own personal market neutral or hedged portfolio, to offset his investment in the fund he is managing.

Unbelievable!
Really beautiful piece by Mr. Studzinski. Thank you!
Pretty sad to see Aegis Value AVALX adding load. It's 10 year performance is poor. And, 5 year performance mediocre. "It is the doom of man that they forget."
Who uses words like "triumvirate"? =)
Nice heads-up on Mr. Woodford.
American Beacon Flexible Bond Fund ranks near the bottom of nontraditional bond category in MFO ratings. Class A shares carry a 4.75% load and 1.39 er. Here is M* performance comparison:

John Park laid out its mission succinctly: “we pursue the maximum returns in the safest way possible.”

Nice. I just registered for the Oakseed call.
And, registered for the RiverPark call.
"The Gundlash" Ha!

Here’s a decent rule: if they can’t write a grocery list without babbling, you should avoid them. Contrarily, clear, graceful writing often reflects clear thinking.

Many managers update their commentaries and fund materials quarterly...

If they do not, avoid them.
This new Update summary is very helpful! Thanks to Mr. Welsch.
Tilsen Dividend TILDX, now Centaur Total Return, has a great 5 year record, mediocre 3 year, and poor 1 year record.
Very glad Professor Snowball is beginning to see the light with regard to BBALX.
Glad to see that Mr. Waggoner is an MFO fan.
Mitchell Capital All-Cap Growth Fund is one sad story...ditto for Nomura Partners...and so many others, seems like.
Great commentary David, Chip and team.
Many thanks for doing what you do.

Sequoia Fund
http://www.sequoiafund.com/si-dividends-capital-gain.htm
or
http://www.sequoiafund.com/
Wells Fargo Advantage Funds
http://www.wellsfargoadvantagefunds.com/pdf/releases/20131104_ProductAlert.pdf
Loomis Sayles Funds
http://www.loomissayles.com/internet/internet.nsf/content?readform&ctype=capitalgains&channel=dcio
Ariel Funds
http://www.arielinvestments.com/content/view/2642/1850/
Alger Funds
http://www.alger.com/pt/ShowProperty?nodePath=/AlgerAppRepository/Alger/AlgerBinaryContent/Pdfs/MarketingMaterial/InstitutionalMaterials/EstDiv2013.pdf&amp;_netui:returnActionViewRenderer=org.apache.beehive.netui.tags.internal.ReturnActionViewRenderer&amp;_netui:returnActionCallback=Netui_OnPopupDone

Reply to @linter: I've purchased what I call a "mental hedge" - I bought some "SH" (Proshares short S&P 500). Its a trade, not an investment.
It allows me to continue to buy more long positions, but with the knowledge that I can clip some gains if we get a heavy pullback (i.e. sell SH after we've had a correction).
I've been leaning on MFLDX, GRSPX, VWELX. BPRRX (at Fido) and WAFMX. But my largest position is RPHYX (closed to new investments).
My portfolio is extremely boring, but I like to limit downside at the expense of large gains.

Sorry, but this is a lame article. He found just 7 funds in M* database with 5* and that automatically qualifies them and prepares owners for the worst?
Does he understand anything about how any of the funds invest? The Putnam fund owns stocks with heavy debt.
Finally article ends with this incomplete gem of a sentence.
One caveat: The high cash positions of the seven funds could limit their gains if the stock market doesn’t suffer a correction or something worse. But that danger seems remote because there’s not a single problem for hundreds of mi —.

Why O Why do I know people out of work and these guys earn a living. Why ?!?!?!?!

FYI: Excellent long-term returns.
Regards,
Ted
http://blogs.barrons.com/focusonfunds/2013/11/05/source-capital-gets-morningstars-gold/tab/print/
M* Snapshot Of SOR: http://cef.morningstar.com/quote?t=SOR&region=USA&culture=en-US
Source Capital Website: http://www.sourcecapitalinc.com/source

Calamos Funds (some large payouts especially for Growth and Global Growth & Income funds)
http://www.calamos.com/~/media/documents/tax-center/calamos-2013-capital-gains-estimates
Hennessy Funds
http://hennessyfunds.com/capital_gains_and_distributions/content/2013_distributions.fs

And not just by a little: Vanguard Total Stock Market Index Fund (VTSMX) has $40 billion more than Total Return ($287 billion to $247 billion). If I read the article correctly, that reflects about $10 billion of market gains and more than $30 billion of October inflows.
One wonders if Fidelity should launch a new fund: Fidelity High-Priced Stock (HYPEX)?
David

I see by the hands on the clock (or the page on the calendar) - it's that time of year again - capital gains season.
Try as I might, I couldn't find a video, but what sticks in my mind is Jim Lebenthal's admonition: "It's not how much you earn that counts, it's how much you keep." I would add, it's not how much you pay in taxes, but how much you keep.
Words to keep in mind when talking about tax efficiency. Take two share classes of the same fund - the one that has the lower expenses (e.g. Vanguard Admiral as opposed to Vanguard Investor), will be less tax efficient. USA Today just had an article (linked to in another thread) lamenting that $10K invested in Fidelity Contra lost $1,159 to taxes over the past ten years. It suggested using a fund like Vanguard Tax-Managed Cap Ap (VTCLX). It also said that the after-tax returns (over ten years) were 9.8% (annualized) for FCNTX, and just 7.89% for VTCLX, without seeing any irony. The most tax efficient fund is one that earns you no money.
As to getting lists of funds with tax data, here's a M* Fund Spy article explaining its tax cost ratio figure (including formulas) and how to coax that information from its premium fund screener. You can also use M*'s free fund compare tool to build your own list - add whatever funds you want, and when you show the comparison of funds, go to the Risk & Tax Data view. This gives you the 3, 5, and 10 year tax cost ratios for all the funds you included.
Some things to keep in mind about tax calculations - they're usually based on the highest tax rates; it's rarely obvious whether calculations for previous years were done based on tax rates in effect those years or by applying today's rates retroactively.
Finally, outside of data found in prospectuses, one rarely sees the effect of all the tax liabilities - including the cap gains tax due when the shares are sold. Funds that don't recognize gains will cost you a pretty penny (in long term cap gains tax) when you cash out, because the shares will have appreciated so much. If you sell in less than a few years, there's little value in not recognizing the cap gains as you go along (i.e. tax efficiency achieved this way doesn't make a big impact on net gains after sale and taxes).
All of this is a long winded way of saying be careful what you ask for. You may get numbers to compare, but those numbers may not accurately reflect how tax-efficient these funds are for you.

Nice distribution this month @ about a 4.35 % annual rate.Thanks to David and other posters to alert many of us to this fund and it's purpose in our investment and everyday financial planning.
Dividend and Capital Gains Distributions RPHYX
Distribution
Date Distribution 10/31/2013
NAV 9.98 Long-Term
Capital Gain 0 Short-Term
Capital Gain 0 Return of
Capital 0 Dividend
Income Distribution 0.0364
Total 0.0364
10/31/2013

ARIVX an absolute dog of a fund with terrible returns the past year compared to its peers. I know, I know, the academics say give a fund a few years before throwing it to the curb. That's hogwash! One year returns DO count and most especially in years like 2013. I am more or less (less than more) retired from the investment/trading game and I can tell you one year returns do count. My retirement nest egg would have been adversely impacted had I missed any of the bigger percentage gains years of the past ala 91,95, 98, 99, 03, 09 and so on. 2013 has been one of those can't miss years for the younger crowd here and even if you are an old timer the 5% returns of ARIVX just don't cut it.

Victory Funds
http://www.vcm.com/media/71352/vf-estimated-capital-gains.pdf

I'm trying to understand your thinking on taxes. Primecap Odyssey Growth has a very low turnover (14%), very low tax cost ratios (0.34% or less 1/3/5 year), and less in unrealized cap gains (32.64%) than New Horizons (45.34%). New Horizons has a higher (albeit still quite low) turnover rate of 35% and higher tax cost ratios (0.79% or more 1/3/5 year).
It's somewhat difficult to make sense out of the embedded cap gains, since many (most?) funds will have large distributions this year that may reduce those figures significantly. In any case, I wouldn't start investing until they have their annual cap gains distributions.
That said, I did a quick search for funds with moderate to low (under 75%) turnover, five year tax cost ratios under 1% and three year under 0.75%, and cap gains exposure under 50% (which is still huge). I threw in expenses under category average, and excluded bond funds. (That latter one, when one excludes muni bonds, kicks out a lot of funds.)
Keep in mind that this screen automatically excludes funds under five years old.
Next, you wanted something with high volatility - I added a three year standard deviation over 15 (based on the funds you suggested).
To prune further, I added the following screens:
- drop the bottom 10% (1* funds - past bad performance has persistence, even if past good performance does not)
- drop sector funds, single nation funds (China, Japan)
- dropped leveraged funds (Direxion, ProFunds Ultra/Inverse, Direxion 2X, Rydex 2X - these showed up as Trading-Leveraged Equities - might meet your paramters, but you're on your own here.
This left about 375 funds. Flipping through them quickly by category (and using my own knowledge of what's open and available NL, either inherently or via brokerage platforms, and also applying my own arbitrary judgment as well as past performance), here are some possibilities by category. Note that the only ones I'm really comfortable with are Pacific/Asian, Foreign Large Blend, MidCap Growth (POAGX), Small Blend (maybe), World
Emerging Markets (27 funds passed screen): Schroder EM Equity Adv (SEMVX)
Pacific/Asian (3 funds): Matthews Asia Growth Inv (MPACX)
Europe (3): TRPrice European (PRESX)
Foreign Large Bl (44): Artisan Int'l Inv (ARTIX), Harbor Int'l Inv (HIINX)
Foreign Large Gr (16): Scout Int'l (UMBWX)
Foreign Large Value (10): RidgeWorth Int'l Equity I (STITX - NTF/low min via brokers)
Foreign Small/Mid Bl (4): Vanguard Int'l Expl (VINEX - the only one of the four avail NL to retail investors)
Foreign Small/Mid Gr (7): Wasatch Int'l Gr (WAIGX; ARTJX is closed)
Large Blend (3): Janus Contrarian (JSVAX - the only NL one avail to retail investors; note: not advised, as it recently lost its excellent managers)
Large Growth (20): Principal Large Cap Growth I, Class A (PLGAX - NTF/load-waived at Fidelity)
Large Value (12): Sound Shore (SSHFX)
Latin America (2): JPMorgan Latin America A (JLTAX - NTF/load-waived via brokers)
Mid Blend (22): Fidelity Leveraged Co (FLVCX), or any extended market index fund
Mid Growth (35): POAGX
Mid Value (17): Hotchkiw & Wiley Mid Cap Value A (HWMAX - NTF/load-waived at Fidelity)
Pacific/Asia ex-Japan (1): none avail NL
Small Blend (58): Homestead (HSCSX) for concentrated fund, Glenmede Small Cap Equity (GTCSX) for more diversified
Small Growth (42): TRP Diversified Small Cap (TRSSX; ARTSX is closed)
Small Value (30): Skyline Special Equities (SKSEX - a bit pricey at 1.32%)
World (27): Artisan Global Opp (ARTRX - finally, an open Artisan fund, and less expensive than ARTGX), Oakmark Global/Global Select (OAKGX, OAKWX)
To summarize, I'd focus on MPACX, ARTIX, ARTRX, OAKGX, OAKWX, HIINX, POAGX, and maybe HSCSX, GTCSX. (If you have over $100K in combined Artisan funds, their closed funds are available to you as well.)