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FundAlarm – Highlights & Commentary – (Updated 1st of Each Month)

Dear friends,

You can’t imagine the sinking feeling I had at the beginning of January, when I read the headline “Stocks have best first week since 1987.” Great, start with parallels to a year that had one of the market’s greatest-ever traumas. I was somehow less disturbed to read three headlines in quick succession at the end of that same month: “January barometer forecasts a down 2010” and “Three crummy weeks for stocks” on the same day as “Growth hits 6-year high” and “Energy prices dip in January.” There’s such a sense of disconnect between Wall Street’s daily gyrations (and clueless excesses) and the real-world that there’s not much to do, other than settle back and work toward a sensible long-term plan.

Portfolio Peeking Season

As is our tradition, Roy and I take a few minutes each February to share our portfolios and the thinking that shapes them. Our hope is that our discussions might give you the courage to go look at the bigger picture of your own investments and might, too, give you some guidance on how to make sense out of what you see.

My portfolio lives in two chunks: retirement (which used to be 15 years away but now, who knows?) and not. My retirement portfolio is overseen by three entities: TIAA-CREF, T. Rowe Price, and Fidelity. Within each retirement portfolio, I have three allocation targets:

• 80% equity / 20% income (which includes real estate)
• 50% domestic / 50% international in the equity sleeve
• 75% developed / 25% developing in the international sleeve

Inevitably things vary a bit from those weightings (TIAA-CREF is closer to 75% domestic / 25% international, for example), but I get pretty close. Over the past decade, that allocation and good managers have allowed me to pretty consistently outperform the Vanguard Total Stock Market (VTSMX) by 1 to 2% per year. In 2008, I lost about 36% — a percent better than Vanguard’s Total Stock Market but a percent worse than my benchmark composite. In 2009, I gained about 37% — eight percent better than Vanguard’s Total Stock Market, almost five percent better than either Vanguard’s Total World Stock Market ETF (VT) or my benchmark.

The same factors that drove the portfolio down in 2008 (a lot of international exposure and a lot of emerging markets exposure) drove it back up in 2009. Early in 2009 I rebalanced my account, which meant adding equity exposure and, in particular, emerging market equity exposure. None of my funds earned less than 20% and four of them – T. Rowe Price International Discovery (PRIDX), T. Rowe Price Emerging Market Stock (PRMSX), Fidelity Emerging Middle East and Africa (FEMEX) and Wasatch Microcap Value (WAMVX, in a Roth IRA) – returned more than 50%.

My non-retirement portfolio is considerably more conservative: it’s supposed to be about 25% US stocks, 25% foreign stocks, 25% bonds and 25% cash. It lost about 20% in 2008 and made about 30% in 2009.

Right now that’s accomplished with six funds:

• TIAA-CREF Money Market, which generates income of $2.66 for every $1000 in my account. Sigh.
• T. Rowe Price Spectrum Income (RPSIX): a fund of Price’s income-oriented funds. Technically a multi-sector bond fund, its relative performance is often controlled by what happens with the one stock fund that’s included in its portfolio. In general, it serves as a low-volatility way for me to keep ahead of inflation without losing much sleep. It’s pretty consistently churned out 5-6% returns and has lost money only during the 2008 meltdown. I could imagine being talked into a swap for Hussman Strategy Total Return (HSTRX), which didn’t lose money in 2008 and which also offers a low-volatility way to keep ahead of inflation. It has pretty consistently outperformed Price by 2-3% annually, but HSTRX’s fate lies in the performance of one guy – John Hussman, PhD – while Price is spread across eight or nine managers.
• Artisan International Value (ARTKX): a very solid fund run by two Oakmark alumni. Made 33% in 2009, while lagging the vast majority of its peers. I’m fine with that, since leading in a frothy market is often a sign of an undisciplined portfolio. My only question is whether I’d be better in Artisan Global Value (ARTGX), which is smaller, more flexible and run by the same team.
• Leuthold Global (GLBLX) is one manifestation of my uncertainty about the global economy and markets. It’s a go-anywhere (really: think “pallets of palladium in a London warehouse”) fund driven by a strict quantitative discipline. I bought it because of my admiration for the long-term success of Leuthold Core (LCORX), of which this is the “global” version. It made about 32% in 2009, well beyond its peers. I’d be substantially happier if it didn’t cost 1.82% but I’m willing to give Leuthold the chance to prove that they can add enough value to overcome the higher cost.
• Finally, my portfolio by enlivened by the appearance of two new players: FPA Crescent (FPACX) and Matthews Asian Growth & Income (MACSX). I started 2009 with a pile of cash generated by my sale of Utopia Core (which was closed and liquidated, at a painful loss) and Baron Partners (which talked big about having the ability to take short positions – which I hoped would provide a hedge in turbulent markets – but then never got around to actually doing it). After much debate, I split the money between FPA and Matthews. FPA Crescent is a no-load fund from a mostly “loaded” family. Its manager, Steven Romick, has the flexibility to invest either in a company’s stock or its bonds, to short either, or to hold cash. This has long been a fixture of Roy’s portfolio and I finally succumbed to his peer pressure (or good common sense). The Matthews fund is about the coolest Asian fund I know of: strong absolute returns and the lowest risk of any fund in the region. Once it reopened to new investors, I began piling up my pennies. In 2009, it did what it always does in soaring markets: it made a lot of money in absolute terms (about 40%) but trailed almost all of its peers (97% of them). Which is just fine by me.

A more rational person might be drawn to MACSX’s sibling fund, Matthews Asia Dividend (MAPIX). Over its first three years, it has actually outperformed MACSX (by almost 2:1) with no greater risk. “Bob C.,” on the FundAlarm discussion board, mentioned that he’d been moving some of his clients’ assets into the fund. In retrospect, that looks like a great move but I’m reluctant to sell a fund that’s doing what I bought it to do, so I’ll probably watch and learn a bit longer.

What does the next year bring? Not much. Most of my investment success has been driven by two simple impulses: don’t take silly risks (which is different from “don’t take risks”) and save like mad. I continue to gravitate toward conservative managers who have a fair amount of portfolio flexibility and a great record for managing downside risks. And I continue saving as much as I can: about 13.5% of my annual income goes to retirement, my employer – Augustana College – contributes the equivalent of 10%, and about 10% of my take-home pay goes into the funds I’ve just mentioned. While college professors don’t make a huge amount of money, the fact that all of my investments are set on auto-pilot helps me keep with the program. Although I’ve profiled several incredibly intriguing funds over the past year, I’ll probably not add any new funds right now – I don’t have any really obvious holes and I’m not great at keeping control of large numbers of funds.

Roy writes:

Alas, I am quite a bit less systematic than David in designing my portfolio, not that there is anything wrong with David’s approach (in fact, it is quite good). Basically, I try to keep my portfolio roughly divided into broad capitalization “thirds” — one-third each large cap, mid-cap and small-cap funds — and within each third roughly divided into value, blend, and growth orientation. In other words, I try to fill each square of the venerable, nine-square Morningstar style box with a roughly equal percentage of my portfolio, with a further goal to have about 15% of my portfolio in foreign stocks, and an overweight in the health care, technology and fiancial services sectors (I’ll get back to you in about 10 years on that last one). To get an overview of my portfolio for this purpose, I use the Morningstar portfolio X-ray tool (which, by the way, is available free on the T. Rowe Price WSeb site).

Roy’s Mutual Fund Portfolio (as of December 31, 2009, in alphabetical order within each percentage category)

More than 15% by dollar value

• Buffalo Small Cap (BUFSX)
• iShares Russell 3000 Index ETF (IWV)

Less than 15% by dollar value

• Allianz RCM Global Technology D (DGTNX)
• Bridgeway Ultra-Small Company Market (BRSIX)
• Cohen & Steers Realty Shares (CSRSX)
• Fidelity Select Brokerage & Investment (FSLBX)
• FPA Crescent (FPACX)
• Vanguard 500 Index (VFINX)
• Vanguard European Stock Index (VEURX)
• Vanguard Health Care (VGHCX)
• Vanguard Total Stock Market ETF (VTI)
• Wasatch Global Technology (WAGTX)
• Weitz Partners Value (WPVLX)

In early 2010, shortly after the snapshot above, I sold Bridgeway Ultra-Small Company Market, due to poor performance, and invested the proceeds in Wasatch Mid Cap Value (WAMVX). I also have arranged to invest this year’s retirement plan contributions in WAMVX.

To simplify things a bit, I probably should sell my shares of Vanguard 500 Index (VFINX) and invest the proceeds in iShares Russell 3000 Index ETF. But I hold the VFINX in a taxable acccount, and my desire not to pay capital gains tax outweighs my need to tidy up. Likewise, to reduce the number of my holdings, I should sell my shares of Vanguard Total Stock Market ETF (VTI) and invest the proceeds in iShares Russell 3000 Index ETF (IWV), which plays a very similar role in my portfolio (the shares of VTI are held in a retirement account so, in this case, such a sale would have no tax consequences). Here, I just don’t want to pay the transaction fees which, while minor, ultimately strike me as unnecessary.

[Back to David] Forward Long/Short Credit Analysis: a clarification and correction

In January, I profiled

Forward Long/Short Credit Analysis (FLSRX), a unique fund which takes long and short positions in the bond market. The fund’s appeal is due to (a) its prospects for extracting value in an area that most other mutual funds miss and (b) its pedigree as a hedge fund. Forward’s president was particularly proud of this latter point, and took some pains to dismiss the efforts of competitors who could come up with nothing more than hedge fund wannabes:

Unlike the “hedge fund light” mutual funds, this one is designed just like a hedge fund, but with daily pricing, daily liquidity, and mutual fund-like transparency.

Forward’s commitment to the fund’s hedge roots was so strong that it was initially available only to qualified investors: folks with a net worth over $1.5 million or at least $750,000 invested in the fund.

Since Forward says that FSLRX models a Cedar Ridge hedge fund, but doesn’t specify which hedge fund they mean, I guessed that it was Cedar Ridge Master Fund and highlighted Cedar Ridge’s performance as an illustration of FSRLX’s potential.

I was wrong on two counts. First, I had the wrong hedge fund. “Evan,” one of our readers, wrote to inform me that the correct fund was Cedar Ridge Investors Fund I, LP. Second, the Investors’ fund record raises serious questions about FSLRX. The Cedar Ridge Master Fund lost 6% in 2008, a respectable performance. Cedar Ridge Investors, however, lost 31% — which is far less reassuring. Worse, there was a cosmic gap between the 2009 performance of Cedar Ridge Investors (up 98%) and its doppelganger, FSLRX (up 47%). When I asked about the gap in performance, the folks at Forward passed along this explanation:

The Forward Long/Short Credit Analysis Fund is based on the Cedar Ridge Investors I. The performance difference in 2009 between the two is easily explained. Compared to the Cedar Ridge fund, FLSRX fund is more diversified and uses less leverage to be able to provide daily liquidity and operate as a fund for retail investors.

Somehow that 2:1 return difference is making the Forward fund look pretty durned “hedge fund light” about now. (Many thanks to Evan for pointing me, finally, in the right direction.)

Akre Focus: Maybe it is worth all the fuss and bother

In the January issue, I took exception to the uncritical celebration by financial journalists of the new Akre Focus (AKREX) fund. Manager Chuck Akre intends to manage AKREX using the same strategy he employed with the successful FBR Focus (FBRVX) fund, and Akre is the only only manager FBRVX has ever known. AKREX – for all intents and purposes – is FBRVX: same manager, same expenses, same investment requirement, same strategy. I was, however, still suspicious: FBRVX has a very streaky record, Mr. Akre’s entire analyst team resigned in order to stay with the FBR Fund and, in doing so, they were reported as making comments that suggested that Mr. Akre might have been something less than the be-all and end-all of the fund. I e-mailed Akre Capital Management in December, asking for a chance to talk but never heard back.

Victoria Odinotska, president of a public relations firm that represents Akre Focus, read the story and wrote to offer a chance to chat with Mr. Akre about his fund and his decision to start Akre Focus. I accepted her offer and gave our Discussion Board members a chance to suggest questions for Mr. Akre. I got a bunch, and spent an hour in January chatting with him.

Our conversation centered on three questions.

Question One: Why did you leave? Answer: Because, according to Mr. Akre, FBR decided to squeeze, if not kill, the goose that laid its golden eggs. As Mr. Akre, explained, FBR is deeply dependent on the revenue that he generated for them. He described his fund as contributing “80% of FBR’s assets and 100% of net income.” While I cannot confirm his exact numbers, there’s strong evidence that Focus is, indeed, the lynchpin of FBR’s economic model. At year’s end, FBR funds held $1.2 billion in assets. A somewhat shrunken Focus fund accounted for $750 million, which works out to about 63% of assets. By Mr. Akre’s calculation, he managed $1 billion for FBR, which represents about 80%. More importantly, most of FBR’s funds are run at a substantial loss, based on official expense ratios:

Source: FBR Annual Report, “Financial Highlights, Year Ending 10/31/09”

Based on these numbers, virtually all of FBR’s net income was generated by two guys (Mr. Akre, whose Focus fund generated $10.8 million, and David Ellison whose two Financial funds chipped in another $3.5 million), as well as one modestly over-priced index fund (which grossed $1.5 million)

FBR underwent a “change of control” in early 2009 and, as Mr. Akre describes it, they decided they needed to squeeze the goose that was laying their golden eggs. After a series of meetings, FBR announced their new terms to Akre, which he says consisted of the following:

• He needed to take a 20% cut in compensation (from about 55 basis points on his fund to 45 basis points), a potential cash savings to management that he did not believe would be passed on to fund shareholders.
• He would need to take on additional marketing responsibilities, presumably to plump the goose.
• And he had eight days to make up his mind.

Mr. Akre said “no” and, after consulting with his team of three analysts who agreed to join him, decided to launch Akre Focus. The fund was approved by the SEC in short order and, while his analysts worked on research back at the home office, Mr. Akre took a road trip. Something like three days into that trip, he got a call. It was his senior analyst who announced that all three analysts had resigned from his new fund. The next day, FBR announced the hiring of the three analysts to run FBR Focus.

FBR has been taking a reasonably assertive tack in introducing their new portfolio managers. They don’t quite claim that they’ve been running the fund all this time, but they come pretty close. FBR Focus’s Annual Report, January 2010, says this: “Finally, we are pleased to be writing this letter to you in our expanded role as the Fund’s co-Portfolio Managers. We assumed this position on August 22, 2009, after working a cumulative 23 years as the analysts responsible for day to day research and management of the Fund’s investments (emphasis added).” Mr. Akre takes exception to these claims. He says that his analysts were just that — analysts — and not shadow managers, or co-managers, or anything similar. Mr. Akre notes, “My analysts haven’t run the fund. They have no day-to-day investment management experience. They were assigned to research companies and write very focused reports on them. As a professional development opportunity, they did have a chance to offer a recommendation on individual names. But the decision was always mine.”

Mr. Akre’s recollection is certainly consistent with the text of FBR’s annual and semi-annual reports, which make no mention of a role for the analysts, and don’t even hint at any sort of team or collegial decision-making.

Question Two: How serious is the loss of your entire staff ? Answer: not very. After a national search, he hired two analysts who he feels are more experienced than the folks they replaced:

• Tom Saberhagen: Since 2002, a Senior Analyst with the Aegis Value Fund (AVALX), which I’ve profiled as a “star in the shadows”.
• John Neff, who has been in the financial services industry for 15 years. He was a sell-side equity analyst for William Blair & Company and previously was in the First Scholar program at what was then First Chicago Corporation (now JP Morgan).

Question Three: What can investors expect from the new fund? Mr. Akre has some issues with how the size of FBR Focus was managed at the corporate level. It’s reasonable to assume that he will devote significant attention to properly managing the size of his own fund.

In general, Mr. Akre is very concerned about the state of the market and determined to invest cautiously, “gingerly” in his terms. He plans to invest using precisely the discipline that he’s always followed, and seems exceptionally motivated to make a success of the fund bearing his name. In recognition of that, I’ve profiled Akre Focus this month as a “star in the shadows.”

Thanks again to Mr. Akre for taking the time to talk with me, and for giving us some rare behind-the-scenes views of fund management. Of course, if there are credible viewpoints that differ from Mr. Akre’s, we’d like to hear them, and we’ll carefully consider printing them as well.

Noted briefly:

RiverNorth Core Opportunity(RNCOX), was recognized by Morningstar as the top-performing moderate allocation/hybrid fund over the past three years. My profile of RNCOX was also the subject of vigorous discussion on the FundAlarm Discussion Board, where some folks were concerned that the closed-end market was not currently ripe for investment. (Source: Marketwire.com, 1/12/10)

Manning & Napier, Matthews Asia and Van Eck were recognized by Strategic Insight (a research firm) as the fastest-growing active fund managers in 2009. I know little about Van Eck, but have profiled several funds from the other two firms and they do deserve a lot more attention than they’ve received. (Source: MutualFundWire.com, 1/14/10)

T. Rowe Pricewas the only pure no-load manager to make Lipper/Barron’s list of “best fund families, 2009.” The top three families overall were Putnam (#1 – who would have guessed?), Price and Aberdeen Asset Management. Top in U.S. equity was Morgan Stanley, Price topped the world equity category, and Franklin Templeton led in mixed stock/bond funds. Fidelity ranked 26/61 while Vanguard finished 40^th. (Source: “The New Champs,” Barron’s, 2/01/10).

Raising the prospect that Forward Long/Short Credit Analysis (FSLRX, discussed above and profiled last month) might be onto something, Michael Singer, head of alternative investments for Third Avenue Management, claims that the best opportunities in 2010 will come distressed debt (a specialty for the new Third Avenue Focused Credit (TFCVX) fund), long-short credit (à la Forward) and emerging markets. Regarding long-short credit, he says, “Last year, making money in long-short credit was like shooting fish in a barrel. This year talented traders can make money on both the long and short side, but you better be in the right credits.” (Source: “Tricky Sailing for Hedge Funds,” Barron’s, 2/01/10).

In closing . . .

I’ve written often about the lively and informative debates that occur on FundAlarm’s discussion board. For folks wondering whether supporting FundAlarm is worth their time, you might consider some of the gems scattered up and down the Board as I write:

• “MJG” linked to the latest revision of well-regarded Callan Periodic Table of Investment Returns, which provides – in a single, quilt-like visual – 20 years’ worth of investment returns for eight different asset classes. “Bob C” had reservations about the chart’s utility since it excludes many au currant asset classes, such as commodities. After just a bit of search, Ron (a distinct from rono) tracked down a link to the Modern Markets Scorecard which provides a decades’ worth of data on classes as standard as the S&P500 and as edgy as managed futures. You can find the Scorecard here: Link to Scorecard (once you get to this page, on the Rydex Web site, click on the appropriate PDF link).
• After a January 28 market drop, “Fundmentals” offered up a nice piece of reporting and interpretation on the performance of variously “hedged” mutual funds.

Posted by Fundmentals
on January 28, 2010 at 20:02:18:

The long/short category in M* includes many different strategies which may not be correlated with each other but days like this expose the different strategies and how they behave.

I have divided the funds into several behavioral categories

Long huggers: These are the category equivalent of closet indexers in active long-only funds. Their short/hedging positions don’t prevent them from being close to the market movements (say upto -1% on a day like this). These should be avoided if they do this consistently. Examples include:

Astor Long/Short ETF I ASTIX -0.71% (try shorting for a change bud)
Old Mutual Analytic Z ANDEX -1.01% (need more analytics it seems)
Schwab Hedged Equity Select SWHEX -0.85% (hedged? try again)
Sound Mind Investing Managed Volatility SMIVX -0.90% (no one with sound mind will think this is managing volatility)
The Collar COLLX -0.67% (cute name but is the manager a dog?)
Threadneedle Global Extended Alpha R4 REYRX -0.94% (What alpha? Missing the needle)
Virtus AlphaSector Allocation I VAAIX -0.71% (Pick whether you want to be an alpha fund or a sector fund)
Wasatch-1st Source Long/Short FMLSX -0.95% (Perhaps time to try the 2nd Source for ideas?)
Wegener Adaptive Growth WAGFX -1.12% (Sorry bud, you ain’t adapting nor growing)

Long-biased: These hedge/short sufficiently to reduce downside but still manage to lose with some correlation to the market (say around -0.5% on a day like this. Examples include

AQR Managed Strategy Futures N AQMNX -0.51% (future ain’t looking bright with this)
Beta Hedged Strategies BETAX -0.41% (need more cowbells.. er.. hedging)
Glenmede Long/Short GTAPX -0.37% (a bit more short perhaps?)
Highland Long/Short Equity Z HEOZX -0.56% (High on long?)
ICON Long/Short Z IOLZX -0.58% (Not too long if you please?)
Janus Long/Short T JLSTX -0.51% (More like long T-shirt, try a short size)
Nakoma Absolute Return NARFX -0.55% (absolute loss?)

Market neutral: These funds are hedged/short sufficiently to provide a return largely unrelated to the market movement (say between -0.3% to 0.3% on a day like this). Most of them fall here and are what you need in this category

Alpha Hedged Strategies ALPHX -0.30%
Alternative Strategies I AASFX -0.16%
American Century Lg-Shrt Mkt Netrl Inv ALHIX +0.20
Arbitrage R ARBFX -0.08%
DWS Disciplined Market Neutral S DDMSX +0.22
First American Tactical Market Oppt Y FGTYX -0.1%
GMO Alpha Only III GGHEX 0.00%
Goldman Sachs Absolute Return Tracker IR GSRTX -0.11%
ING Alternative Beta W IABWX -0.18%
Merger MERFX +0.06%
MFS Diversified Target Return I DVRIX -0.22%
Robeco Long/Short Eq Inv BPLEX +0.12%
TFS Market Neutral TFSMX -0.33%
Turner Spectrum Inv TSPCX +0.18%
Vantagepoint Diversifying Strategies VPDAX -0.20%

Short biased: These are hedged/short sufficiently that they are mostly inverse correlated with the market but do have some upside in up markets (say around +0.5% on a day like this)

None I can find

Short huggers: This is the opposite of the long huggers who are so hedged/short that they are more correlated with inverse funds than being short biased and are likely to do poorly in up markets. Avoid if they do this consistently. Examples

Hussman Strategic Growth HSGFX +0.95% (The strategy is to grow only when everyone is shrinking?)
In addition to well-earned words of thanks, many of the 20 replies offered up other hedged and risk-diversifying funds worthy of consideration and suggestions for ways to interpret the inconsistent ability of managers to live up to the “market neutral” moniker.

Of the 20 funds with “absolute” in their names, precisely half have managed to break even so far in 2010. Only two “absolute return” funds actually managed to achieve their goal by staying above zero in both 2008 and 2009 — Eaton Vance Global Macro Absolute Return (EAGMX) and RiverSource Absolute Return Currency & Income (RARAX). Both also made money in January.

• In common with many nervous investors, “Gandalf” was curious about how much investable cash other folks were holding in the face of the market’s (so far) minor correction. You might be interested to read why several respondents were at 75% cash – and what they intended to do next.

The joys of the board are varied, but fleeting – after a week to 10 days, each post passes into The Great Internet Beyond so that we can make room for the next generation. As we pass the 280,000 post mark, the members of the discussion community have offered up a lot of good sense and sharp observations. Roy and I invite you to join in the discussion, and to help provide the support that makes it all possible.

Please do let us know, via the board or e-mail, what you like, what makes you crazy and how we can make it better. We love reading this stuff!

With respect,

David

. . . from the archives at FundAlarm

David Snowball’s
New-Fund Page for July, 2010

Dear friends,

In celebration of the hazy, lazy, crazy days of summer, we’ve decided to slow down, take a deep breath, and enjoy the long days. At least to the extent that you can enjoy days when a twitchy computer program can appreciably change your fortunes in a fraction of a second. So we’re taking time to catch up with the funds we’re already presented, starting with . . .

The Billionaire’s Club

Attracting a billion dollars’ in assets is hard. There are about 5200 funds below that threshold and only 1200 over it. 260 of those smaller funds have earned five stars from Morningstar and some of those smaller five-star funds (CGM Mutual, Mair & Powers Balanced, Valley Forge, FMI Common, Greenspring . . . ) have been in operation for decades. As a result, it’s noteworthy when a new fund is able to draw more than a billion in just a few years. This month’s New Fund page focuses on the nine funds that we’ve previously profiled which have crossed that threshold. Here’s the snapshot and link to each.

Dodge & Cox Global (DODWX), launched 05/01/2008 and now at $1.1 billion. Dodge & Cox is one of the most respected names in investing. They do just about everything right, and have been doing it right for 80 years. Global, which had a wretched 2008, combines the strengths of Dodge & Cox Stock (DODGX) and Dodge & Cox International (DODFX).

Leuthold Asset Allocation (LAALX), launched 05/25/2006 and now at $1.3 billion. Before the Leuthold funds, there was The Leuthold Group which did quantitative historical research to develop sophisticated models for institutional investors. Steve Leuthold was prevailed upon to launch a fund, Leuthold Core (LCORX), to give folks with less than a million to invest access to his models. LCORX’s closing led to the launch of look-alike LAALX. Steven Goldberg, writing for Kiplinger’s, was unambiguous about the virtues of these eclectic offerings: “In uncertain times, I think Leuthold Asset Allocation will prove its worth. Put 20% of your money here.” Yes, sir! (See “The 7 Best Mutual Funds for This Market,” 06/22/2010)

Northern Multi-Manager International Equity (NMIEX), launched 06/22/2006 and now at $2.6 billion. Northern’s multi-manager funds proceed from a simple premise: different people do different things well. Pick out what needs done well, then go find the best managers for the job. Northern concluded, for example, that “absolute value” stocks should be represented as should “aggressive growth” ones, so they hired high value institutional managers who specialize in each of those niches. With the large size of the resulting management teams, some worry that too many cooks might spoil the broth. Northern, though, hires only one broth chef (to complement the pastry chef and the soup guy). The results have been consistently solid.

PIMCO Global Advantage Strategy Bond, “D” shares (PGSDX) launched 02/05/2009 and now at $1.8 billion. PIMCO’s chief, the legendary Bill Gross, is unambiguous: “Bonds have seen their best days.” The question is, what’s a bond specialist like PIMCO to do about it? They’ve offered two answers, in Global Advantage and Global Multi-Asset, below. Global Advantage addresses the risk of a bond market bubble and long, slow decline by changing the rules for bond investing. Instead of focusing on the biggest borrowers (the “market cap” approach used by virtually all bond indexes and benchmarks), shift to the credit-worthy borrowers (those whose Gross Domestic Products are large enough, and growing vigorously enough, to support their bond obligations). Global Multi-Asset goes a step further.

PIMCO Global Multi-Asset, “D” shares (PGMDX), launched 10/29/2008 and now at $2.2 billion. PIMCO tried diversifying away from bonds before, in the 1980s, but Mr. Gross’s heart simply wasn’t in the move. When their handful of stock investors tried to get PIMCO invested at the start of the greatest bull market in the 20th century, they got shut down. Mr. Gross admits, “Those sessions basically said, ‘Hey, we’re a bond shop. This is what we’re going to do. It’s the party line.’” With the help of CEO Mohamed El-Erian, a distinguished emerging markets investor and former head of Harvard Management Company, PIMCO is beginning to market opportunistic strategies that encompass a far wider array of asset classes and economic possibilities than ever before.

Rydex/SGI Managed Futures Strategy (RYMFX), launched 03/02/2007 and now at $2.3 billion. Sometimes it seems that intriguing new asset classes remain excellent options only until you invest in them. That must be the way that RYMFX investors feel. The fund, which holds long and short positions solely in financial instruments (e.g., currency futures and bonds) and commodities, amazed everyone by completing ignoring the 2008 market crisis and turning a handsome profit. But as the investors rushed in, the underlying market conditions changed and the fund has spent 18 months drifting lower. Fans argue that the long-term record of its underlying index (the Diversified Trends Index) gives reason for cheer: once financial markets start being “normal” again, this fund will take off again.

T. Rowe Price Overseas (TROSX), launched 12/29/2006 and now at $2.2 billion. Back in 2006, T. Rowe Price had a problem: their flagship international fund Price International (PRITX) utterly mediocre and had been so for years. In apparent response, they delegated the very successful manager of one of their smaller international funds (International Growth and Income TRIGX) to manage both this fund and his old charge. That turns out poorly, as TRIGX sagged to mediocrity while TROSX never rose above it. But the other response, fix the original problem by getting a more-focused manager for PRITX, has done a world of good for that fund.

Vanguard Dividend Appreciation Index (VDAIX), launched 04/21/2006 and now at $3.9 billion. In 2006, a lot of new investments were aimed at exploiting the virtues of dividends: high dividends, high dividend growth, high relative dividends or whatever. Most of them have fallen flat, but VDAIX (and its ETF clone, VIG), have gotten it right: high alpha, low beta large cap domestic investing. With low expenses and a focus on companies, that advantage seems likely to prove durable.

Wintergreen (WGRNX), launched 10/17/2005 and now at $1 billion. This is what mutual funds were supposed to be. Not “wimpy, cover my butt, don’t get too far out of line and do keep CNBC blaring in the background” investing, but “I’m smarter and I’m getting their first” investing. If DC Comics ever wanted to create a new super-hero, The Superman-ager, they’d surely model him off Mr. Winters who presents the perfect alter ego (funny, thoughtful, self-effacing, the unremarkable guy in the next cubicle over). But when night falls, off comes the green (wintergreen?) tie and out The Superman-ager flies.

The oddest thing about the Billionaire’s Club? No Fidelity funds. The titan of asset accumulation is still rolling out new funds – something like 65 in three years – but the vast majority are either retirement products (their target-date funds of funds), funds open only to other Fidelity funds or cloned share classes of long-standing funds (for example, the all-important “F” and “K” classes of Diversified International). Their most-successful new retail funds – at least as measured by their ability to attract assets – areDynamic Strategies (FDYSX, at $250 million) and Emerging Middle East and Africa (FEMEX, at $120 million). There are profiles of both in the archives, below. Beyond that, their most successful launches are index funds and “enhanced” index funds.

Fidelity. Small. Index funds. Eeeek.

Quick Updates from SteelPath

SteelPath offers the only open-end mutual funds which invest exclusively in master limited partnerships. In my June 2010 profile of SteelPath Alpha (MLPAX), I argued that “This seems to be an asset class with sustained, compelling advantages. SteelPath is, currently, the only game in town for mutual fund investors. Fortunately they seem to be a pretty good game: experienced players, rational arguments about their portfolio, and reasonable expenses especially for folks who can access the no-load shares.” Some of the posters on FundAlarm’s discussion board had follow-up questions, in particular about the peculiar tax status of MLPs. I put those questions to SteelPath and Gabriel Hammond, SteelPath’s founder and the fund’s manager, was kind enough to respond. Here are the highlights:

Q. Since your fund is structured as a corporation, are payments to shareholders taxed as income?

A. “No, the Funds’ distributions are taxed as qualified dividends. The Funds’ distributions may also be classified as return of capital in some cases, and not subject to taxation.”

Q. Since MLPs represent a relatively small portion of the investment universe, will you be constrained to close your funds while they’re still relatively small?

A. “We believe that a manager would have difficulty delivering the type of outperformance we envision if he held more than 1%-1.5% of the float of the securities in the space. As such we would consider a soft close at $1.25bb.” Given their different mandates, SteelPath’s Alpha 40 fund doesn’t face a meaningful upper limit and the Income fund might see “a soft close at $1.75bb.”

Q. While MLPs have been great portfolio diversifiers so far – their long-term correlation to the S&P500 is 0.24, rather lower than emerging market equities’ – do you anticipate an increasing correlation to the stock market as MLPs become increasingly securitized, or mainstream?

A. Over time, as the MLP asset class becomes more institutionalized, there may be a marginal increase in correlation with other market sectors, but fundamentally, because the underlying cash flows are uncorrelated (that’s the key difference: REITS are correlated not because they’re institutionalized, but because their distributions go up and down with the vicissitudes of the broader economy, as do the cash flows of the average widget maker in the S&P 500) so we expect MLPs to remain largely uncorrelated.

The fund also offered great news for interesting individual investors. While the fund has a 5.75% front load, “the fund is available with no load if purchased through Schwab, TD, among others and directly from the Fund, through its website, telephone, or mail.”

Quick Updates from Wasatch

Several months ago, Kenster, a contributor to FundAlarm’s Discussion Board, recommended Wasatch Global Opportunities(WAGOX) to me as a fund worthy of much more attention. I did the research and concluded, not surprisingly, that Kenster was right again. In my May 2010 profile of WAGOX, I concluded: “This is a choice, not an echo. Most global funds invest in huge, global corporations. While that dampens risk, it also tends to dampen rewards and produces rather less diversification value for a portfolio. This bold newer fund goes where virtually no one else does: tiny companies across the globe. Only Templeton Global Smaller Companies (TEMGX) with a value bent and a hefty sales load comes close. Folks looking for a way to add considerable diversity to the typical . . . portfolio really owe it to themselves to spend some time here.” I reported that the fund held 330 stocks, more than triple the average global fund’s average. Some of the folks on the Discussion Board were concerned that this might represent a watering-down of performance. Eric Huefner, a Wasatch Vice President and Director of Mutual Funds & Brand Management, wrote in early June:

Robert Gardiner [the manager] always ran a longer list than most others at Wasatch in his domestic funds. He feels like he is able to get to know the most promising companies better if they are actually in the portfolio, and as his confidence grows in a company so does his position size. As Robert & [co-manager] Blake [Walker] traverse the globe they are finding a handful or more of promising companies in each country they visit. In Robert’s classic style, they have initially purchased small positions in each of these companies of greatest interest. Over time you are likely to see the concentrations and number of holdings fluctuate. Even with a list of 350 holdings, Robert describes the list as we he thinks are the best 2-3% of the companies in his consideration universe.

I’ll also note that the estimable Fidelity Low-Priced Stock Fund (FLPSX) has long favored holding many hundreds of small companies – nearly 900 at the moment – without a noticeable detriment in performance.

More great small funds are disappearing!

Oak Value (OAKVX), which has recently become small enough – about $80 million, but once four times that large – to interest me and appall the managers, has agreed to become the RS Capital Appreciation fund by September. OAKVX has a very tight, large cap portfolio (27 stocks), and a long record of producing above-average returns at the cost of above-average volatility. In moving to RS, which used to be the fine no-load firm Robertson Stephens, OAKVX will gain a 4.75% sales load though the expense ratio will initially drop about 25 bps. Those who buy before the formal acquisition get “grandfathered-in” to the no-load share class.

FBR Pegasus Small Cap Growth (FBRCX) is merging into FBR Pegasus Small Cap (FBRYX) at the end of summer. In my January 2010 profile of FBRCX, I argued that the fund was “fundamentally sensible: they offer most of the upside without much of the gut-wrenching volatility. It’s hard to find managers who can consistently pull it off. Mr. Barringer seems to be one of those people, and he deserves a serious look by folks looking for core small cap exposure.” In the short term, it’s “no harm, no foul.” Mr. Barringer runs the acquiring fund and the expenses are identical. Neither fund is economically viable – the $24 million growth fund is being rolled into the $9 million core fund and FBR had to waive $90,000 in fees on each fund in 2009 – which seems to be a problem for a number of FBR funds.

Why isn’t there an Emerging Markets Hybrid fund?

There are a couple dozen funds, mostly of the “global allocation” variety, which have at least 25% of their portfolios in bonds and at least 25% in non-U.S. stocks. None of them has even 10% of their money in the emerging markets. Why would anyone want such a crazy creature? Let’s see:

Over the past ten years, the EM bond group has returned about 11% per year while the EM stock group turned in 10% annually.

GMO predicts that the highest-returning equity class over the next 5-7 years will be emerging markets equities and the highest-returning debt class will be emerging markets bonds (GMO 7-Year Asset Class Return Forecasts, 5/31/2010).

EM bonds are weakly correlated to EM stocks in the long run (around 30), though all correlations spike during crises. EM bonds also have a weak-to-negative correlation with all domestic bonds, except for high yield bonds (all of that derived from the site www.assetcorrelation.com).

The EM market is investable and broadly diversified. According to the Emerging Markets Traders Association, by 2007, secondary market trading volumes for emerging market debt (Brady bonds, sovereign and corporate Eurobonds, local markets instruments, debt options and sovereign loans) was about U.S.$6.5 trillion, with local bonds (as opposed to Brady bonds) comprising nearly 66%. Trading in such bonds was down by a third in 2008 and 2009 figures don’t seem yet available.

There are eight emerging markets bond funds and 32 emerging markets equity funds with over $1 billion in assets. A half dozen of the bond funds and 26 of the stock funds have records longer than 15 years.

But there are no funds, with a total of no assets, which systematically invest in both.

Admittedly EM bonds cratered in September and October 2008, with Fidelity New Markets (FNMIX) losing a third of their value in six weeks. That said, it has also rebounded to a new high by the following June.

Curious.

Briefly noted:

Fidelity had picked up on the alternative energy bandwagon. The former Fidelity Select Environmental Portfolio (FSLEX) has become the Select Environment and Alternative Energy Portfolio and adopted the FTSE Environmental Opportunities & Alternative Energy Index as its benchmark. The fund’s target will be “companies engaged in business activities related to alternative and renewable energy, energy efficiency, pollution control, water infrastructure, waste and recycling technologies, or other environmental support services.” Alternative and renewable energy and water infrastructures are all new, energy efficiency is more prominent now than in the old portfolio. FSLEX has been around for 20 years but has accumulated only about $50 million in assets. Morningstar classifies itself as a midcap growth fund, a group which it has solidly trounced over the past decade.

The $1.4 billion Arbitrage Fund (ARBFX) is slated to close to new investors on July 19th. The advisor announced the closing about a month ahead of time, which is almost never in the best interest of existing shareholders since it constitutes an open invitation for “hot money” investors to get in while they still can. The managers had previously planned on closing at $1 billion, so this might be a bit late. Their closest peer, Merger Fund (MERFX), is even-larger at $3.2 billion.

The Forward Frontier Markets fund (FRONX) has been recommissioned as the Forward Frontier MarketStrat fund. The difference in focus is not entirely clear from the revised prospectus. Given that Forward trails virtually all frontier market, regional frontier market and emerging markets funds since inception, the desire to make some sort of change is understandable. I just wish I understood what they were doing.

Let’s not be hasty about this whole execution thing! On May 6, 2010, the Board of Directors voted to close, liquidate and terminate (not just “liquidate,” mind you – “liquidate and terminate”) the SAM Sustainable Climate Fund, Sustainable Water Fund andSustainable Global Active Fund. On June 14, 2010, the Board issued an unexplained “hold on there!” and voted to reopen (hence, “and neither liquidate nor terminate”) the SAM Sustainable Global Active Fund (SGAQX). The funds were launched between late 2007 and late 2009, presumably to capture the then-trendy green investing passion.

The Intrepid All Cap and Income funds have added institutional share classes. Both of the funds are small, newish and have performed very solidly. These shares will be 25 basis points cheaper than the retail shares but will have a $250,000 investment minimum. Tickers not yet assigned.

For reasons unexplained, Global X has announced that the following ETFS are “not operational and unavailable for purchase:Global X Brazil Consumer ETF, Global X Brazil Financials ETF, Global X Brazil Industrials ETF, Global X Brazil Materials ETF, Global X Brazil Utilities ETF [and] Global X China Mid Cap ETF.” Geez, this really derails my plan to make a play on the booming Brazilian snack foods market.

In closing . . .

Well, that’s it for now. The time spent with your families is far more precious than money. Enjoy it while you can. Our new fund and stars profiles will return as soon as the weather cools.

As ever,

David

. . . from the archives at FundAlarm

David Snowball’s
New-Fund Page for August, 2010

Dear friends,

In celebration of the Dog Days of Summer (which have turned out to be less “lazy, hazy” and more “crazy” than I’d liked), we continue with one last potpourri of fund news before returning to the serious business of autumn.

If you didn’t know that “potpourri” originally meant “meat stew” and, in particular “slightly-rotten meat stew,” you might want to check my “Closing” note for a lead to a book purchase which will leave you enlightened and amused (and, as always, will support FundAlarm’s continued financial health).

The fund industry’s awareness of how quickly the sands are shifting is illustrated by a series of recent repackagings, renamings, and rechristenings. Since this stuff sometimes drives me to drink (in the summer heat: iced lambrusco festooned with raspberries, maybe sangria), I tend to think of them in terms of wines and bottles.

Old Wine in New Bottles

The Bridgeway Balanced Fund (BRBPX) is now the Bridgeway Managed Volatility Fund (still BRBPX). Most Bridgeway funds have names descriptive of their composition (Ultra-Small Company, Large Cap Value), rather than their outcomes. The new name is meant to reflect, rather than change, the fund’s long-time goals. Dick Cancelmo, the fund’s manager since inception, writes:

We seek to provide a high current return with short-term risk less than or equal to 40% of the stock market – new name has more alignment with the objective. Balanced Funds are typically a fairly generic mix of equity and fixed income. Our fund also uses options and futures to dampen risk and we wanted to highlight that distinction.

Mr. Cancelmo felt compelled to highlight that distinction, since “I can’t tell you how many times I have told an advisor that I manage a balanced fund and I am told they won’t look at it.” They hope that the new name “will at least get us a better look.”

The fund certainly warrants a long, hard look. Since inception in June 2001, it has managed to earn 2.46% per year against the S&P’s 0.01% with a beta of just 44 (pretty close to his target of 40). The fund’s recent record has been damaged by the 15% or so of the portfolio dedicated to investments mirroring those in Bridgeway Aggressive Growth I (BRAGX). BRAGX’s computer programs performed brilliantly for more than a decade, but cratered in the past three years. That collapse has reportedly led to a substantial rewriting of the programs.

In another set of changes, the IQ funds have shaken the fund world by renaming IQ CPI Inflation Hedged ETF (and the similarly-named underlying index) to IQ Real Return ETF (and similarly-named index). They compounded the tremor by dropped “ARB” from the names of IQ ARB Merger Arbitrage and IQ ARB Global Resources.

New Wine in Old Bottles

Effective at the end of June, PowerShares Value Line Industry Rotation Portfolio became the PowerShares Morningstar StockInvestor Core Portfolio (PYH) and Value Line TimelinessTM Select Portfolio became the PowerShares S&P 500 High Quality Portfolio (PIV).

Since inception, both of the Value Line versions of the fund had laughably bad performance (losing more in 2008, earning less in 2009, trailing enormously since their respective inceptions) compared to any of their benchmarks. The decision was announced on April 29. But since these are not new funds, they don’t require vetting by that sleepy ol’ SEC. The mere fact that nothing about the new funds’ strategy or portfolio will have any resemblance to the old funds’ apparently doesn’t rise to the level of material change. PowerShares is a relatively new player on the fund scene, but it’s already learning the lessons of cynicism and customer-be-damned quite well. We’re guessing that there’s more like this in the PowerShares future.

The other changes: PowerShares Autonomic Growth NFA Global Asset Portfolio became PowerShares Ibbotson Alternative Completion Portfolio, and PowerShares Autonomic Balanced Growth NFA Global Asset Portfolio became PowerShares RiverFront Tactical Balanced Growth Portfolio.

A Nice Table Wine: Tweaked Blend, New Label

T. Rowe Price has changed its internal Short-Term Income fund into its internal Inflation-Focused Fund. Inflation-Focused is only available to the managers of Price’s funds-of-funds, but I was curious about what the rest of us might learn from the rationale for the change. Wyatt Lee, a member of Price’s asset allocation team, explained the fund’s evolution this way: originally, Price’s funds-of-funds invested separately in a short-term bond fund and cash, as part of the most conservative sleeve of their portfolios. That struck Price as clunky, so they shaped the portfolio of the Short-Term Income fund to balance cash and short-term bonds. The new version of the fund will invest in a “diversified portfolio of short- and intermediate-term investment-grade inflation-linked securities . . . as well as corporate, government, mortgage-backed and asset-backed securities. The fund may also invest in money market securities, bank obligations, collateralized mortgage obligations, foreign securities, and hybrids.”

Why now? Mr. Lee stressed the fact that Price is not acting in anticipation of higher short-term inflation. They’re projected 1% or so this year and around 2% in 2011. Instead, their research suggested that they can decrease the fund’s volatility without decreasing returns, and still be positioned for the inevitable uptick in inflation when the global economy recovers. Mr. Lee says that Price isn’t discussing a comparable change to its retail Short-Term Bond fund, but he left open the possibility.

Price has a second, more aggressive internal fund in registration, the Real Asset Fund. Real Asset will invest both in “real assets” and in the securities of companies that derive their revenue from real assets. Such assets include energy and natural resources, real estate, basic materials, equipment, utilities and infrastructure, and commodities. It’s typical of Price’s approach to pursue such a fund when everyone else is turning away from the sector and it might be prudent for the rest of us to ask whether investing in, say, T. Rowe Price New Era (PRNEX) when it’s down (by about 6% YTD through July 27) is better than waiting to rush in after it’s gone up.

Broken Bottles, Spilt Wine

AARP is liquidating all four of their funds. Damn, damn, damn. Four funds, all rated five-star by Morningstar, and all rated somewhere between “solid” and “outstanding” by Lipper. The three stock-oriented funds (Aggressive, Moderate, Conservative) are all way above average for 2010 after posting unspectacular results in the 2009 surge. Low expenses (0.5%). Ultra-low minimum ($100). Straightforward, low turnover strategy (invest in varying combinations of four indexes). All of which generated quite modest investor interest: between $20 and $50 million in assets after almost five years of operation.

These would be great funds to test Chuck Jaffe’s suggestion that retail giants might be logical marketers for lines of mutual funds (“Aisle 1: Frozen Foods, Aisle 2: Mutual Funds,” Wall Street Journal, July 13 2010). Here’s the oversimplified version of Mr. Jaffe’s argument: funds have been increasingly like commodities over the past two decades, and they’d be a good complement to firms (Wal-Mart, Microsoft) which have brand recognition and a knack for selling mass consumption items. While I like the branding possibilities of the very fine GRT Value (GRTVX) fund – it’s already Wal-Mart’s brand – the simplicity, ease of expansion, and sensibility of AARP’s approach makes it a natural fit.

AARP’s Board is not alone in the painful decision they had to make. Investors remain deeply skittish about stock investing and fund flows generally are negative, especially to “vanilla” products that don’t tout downside protection. That’s annoying to Fidelity but catastrophic to boutique firms or mom-and-pop funds

Of the 401 funds which hold Morningstar’s five-star designation (as of late July, 2010), 46 live at the edge of financial extinction, with assets under $50 million. While I would not propose a No-Load Death Watch list, investors might have reasonable concern about and, in several cases, interest in:

The Brazos drama continues. Brazos was a line of fine, small no-load funds launched in the late 1990s. It became a loaded family in 1999 when the advisor was bought by AIG (booo! Hissss!). Its original no-load shares were redesignated as institutional shares and a new share class was launched. Their flagship Micro-cap fund closed in 2001 with $300 million in assets. In 2002, they dropped the funds’ sales loads (hooray!). In 2003, they settled an SEC case involving improper, but not fraudulent, actions. Fast forward to 2008, when the funds suffered losses of 48 to 54% which, shall we say, dented investor enthusiasm for them. In January 2010, PineBridge bought and renamed the four Brazos funds. Shareholders quickly rubber-stamped the Board’s proposal that the funds’ investment objectives were “not fundamental,” though for the life of me I can’t imagine anything more fundamental to a fund than its reason for existence. And, after all that, they’ve concluded that their US Mid Cap Growth Fund (PBDRX) is unsalvageable, so it’s being liquidated.

Aston Funds closed Aston/Optimum Large Cap Opportunity Fund [AOLCX] in mid-July. The fund will be liquidated by mid-August.

Speaking of Deathwatches, the ETF Deathwatch List has grown to 133 funds, up 54% in the past year. The Deathwatch List targets funds which trade under $100,000 daily. The most moribund of the lot is FaithShares Lutheran Values (FKL), which trades an average of 41 shares a day and which doesn’t trade at all on most days. (That’s a trading volume usually associated with stocks on the smallest African frontier market exchanges.) It’s especially annoying to be trailing the durn Baptists, whose Baptist Values ETF (FZB) is equally tiny, but modestly more successful YTD.

The most interesting note is Ron Rowland’s speculation that many of these funds serve as mere “placeholders,” that is, once launched they become tools for the advisors who can – as with the PowerShares funds mentioned above – keep flipping the fund’s mission and composition until they find something that draws money. And when it stops drawing, they cut it loose again. (“ETF Deathwatch List Is Longest In A Year,” Investors.com, July 19 2010)

What am I, chopped livah?

Another in a long line of “best investments you’ve never heard of . . . unless you read FundAlarm” articles, Kiplinger’s senior editor Jeffrey Kosnett offers up master limited partnerships for your consideration.

We lionize a mutual fund that returns 20% during a bear market. Or we assume that anything earning such fabulous returns must be a fraud or caught in a bubble. Now consider a whole class of investments, many of which have returned double digits annualized during the stock-market quagmire of the past decade. More remarkable: Few of us are aware of this phenomenon called pipeline master limited partnerships. (“The Best Investment You’ve Never Heard Of,” July 15 2010)

Kosnett’s short article reviews the asset class and options for owning MLPs, including direct ownership, ETFs and the SteelPath funds. We part company on his endorsement of direct ownership; I suspect that might be best for folks looking for a meaningful, long-term relationship with their tax accountants. Folks interested in more depth on MLPs, links to the research and a profile of the (no-load) SteelPath funds might check either FundAlarm’s June 2010 profile of SteelPath Alpha or the July 2010 update on the fund’s no-load availability, investment capacity and tax status.

SteelPath’s Investor Commentary for June 30, 2010, made two interesting points:

MLPs as a group registered gains on 63% of the trading days in June. The Alpha fund was in the black for the month as well.

The sector might be experiencing a new type of fund inflows. Traditionally MLPs have been dominated by leveraged hedge fund trading but much of the new money seems to originate with institutional investors, who are less likely to fall prey to “hot money” impulses. As a result, demand for MLP shares might see a steady, sustainable rise.

In Closing . . .

As we move into fall, we’ll also move back to the normal rhythm of things: new fund profiles and stars in the shadows, snarky comments and interviews. But before getting all serious again, you should indulge in a last few moments of diversion. Of late, I’ve been reading Martha Barnette’s amusing Ladyfingers & Nun’s Tummies (2005). Barnette tracks the origins of our food names and food related words, including a remarkable array of foods named for the body parts or … uh, bodily functions of revered religious figures. The number of foods dedicated to nuns’ … uh, toots (occasionally cleaned up for children by calling them “nun’s kisses”) is striking. If you enjoy food and diversion, and would like to painlessly help support FundAlarm, please use our link to Amazon.com to pick up a copy. While you’re there, you might pick up a can or two of delicious Spotted Dick, which you’ll probably enjoy more before you read Barnette’s history of the name.

Take care and we’ll talk again as the weather cools!

David