Tuesday, January 24, 2006

Hussman Strategic Growth - The Latest ER Investment

I have decided to get my portfolio much closer to the allocation models mentioned by Swensen and IFA by putting 10% of my portfolio into HSGFX. Hussman's Strategic Growth Fund (here is a chart comparing HSGFX to the S&P 500) is a large-cap blend fund that , based on market valuation and market action, is sometimes hedged or leveraged. Their hedging protects the fund against downward market moves when valuations are deemed too high and it's leveraged (up to 150%) when the market is deemed undervalued.

Here's what I like about this fund:
  • Performance: their 5 year performance is top notch for large cap funds (this is a key period to look at because it includes both bear and bull markets.
  • Loss Aversion: the worst quarter for this fund has been -2.39% and their worst 12 month period has been 1.9%.
  • Co-Investment by Manager: John Hussman (the fund manager) has 100% of his net worth in his two funds.
  • Ethical Attitude toward the Market: I'm sure Swensen would approve of the fact that Hussman charges no loads, 12-1b fees, inflated commissions. Additionally, to discourage short-term trading, the fund charges a 1.5% surcharge if you sell within 6 months of purchasing. Here's the neat part - the 1.5% is added to the fund's assets and not the manager's pocket. Additionally, they have a record of reducing their fees as they attain economies of scale through asset growth.
  • The Manager: Hussman is a well educated economist (PhD from Stanford) who understands and believes in the efficient market hypothesis. He believes, however, that the market can be, at times, overvalued or undervalued. His weekly commentaries are thoughtful and the show a consistency of thought that I really appreciate.

The bottom line for me is that I can sleep at night with this investment. Their hedging strategy fits well with my loss aversion and I still get a good exposure to market upside.


At 9:13 AM, Blogger franky said...

Do you know what form of leverage they employ?

At 9:29 AM, Blogger Early Riser said...

Looking at their last two annual reports, I see call and put options against the S&P 100 and Russell 2000. In their FAQ, they also mention that they may buy call options for specific securities.

They do not, however, borrow money to purchase common stock (i.e. margin investing).

At 3:41 PM, Anonymous Rich Gates said...

Have you looked at the TFS Market Neutral Fund? Its ticker is TFSMX.

It has maintained a large hedge and has fared nicely in Morningstar's 'long-short' category.

Rich Gates

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