Welcome, Fools, to part 15 of our several-thousand-part series, "Better Know a Stock Picker," which is loosely -- but not too loosely -- based on Stephen Colbert's "Better Know a District" from The Colbert Report.
Like Stephen and his thorough investigations into America's congressional districts, each week I take a look at a fund you may want to own. What's on tap this week?
|
Hussman Strategic Growth (HSGFX) | |
|---|---|
|
Expense ratio |
1.10% |
|
Fund size |
$2.9 billion in assets |
|
1-year return |
5.05% |
|
5-year return |
11.55% |
|
10-year return |
N/A |
Top 10 holdings
|
Company |
% of Assets |
|---|---|
|
McDonald's |
2.32% |
|
Johnson & Johnson (NYSE:JNJ) |
2.06% |
|
Computer Sciences Corp. |
2.00% |
|
GlaxoSmithKline (NYSE:GSK) |
1.86% |
|
PepsiCo (NYSE:PEP) |
1.86% |
|
ConocoPhillips (NYSE:COP) |
1.82% |
|
Pfizer |
1.78% |
|
Coca-Cola (NYSE:KO) |
1.78% |
|
Fiserv (NASDAQ:FISV) |
1.72% |
|
Intel |
1.70% |
Meet John Hussman
The fightin' team at Hussman Strategic Growth is led by John Hussman, who has had his name on the door since July 2000, when the fund opened for business. He's pulverized the indexes ever since. From its inception through June 30 of this year, Hussman Strategic Growth was up more than 6% annually compared to the small-cap Russell 2000, and 14% higher per year than the S&P 500. Now that's delivering the 'zazz.
And Hussman's done it with exactly zero help from Wall Street -- he's an academic. In the seven years prior to opening his own fund shop, Hussman was a professor of economics and international finance at the University of Michigan. There, he studied market efficiency and information economics. He's also spent time as an options mathematician and published a newsletter covering the trendspotting practice of econometrics.
Perhaps his deep understanding of the math of the markets led him to be skeptical of the permanently positive "investapo" who parade across the screen daily on CNBC. For example, Hussman says that if you normalize earnings, the S&P 500 appears to be overvalued. Famously bearish hedge fund analyst John Mauldin referred to that research in an interview with The Wall Street Journal last month, arguing that the market could suffer a protracted downturn.
Hussman isn't any more optimistic. As he wrote in his June letter to shareholders, "the Strategic Growth Fund carried a much more defensive investment position during the most recent market cycle, on average, than I would expect during a typical market cycle."
How he invests
What he's mean by defensive? Hussman sticks it to the Street's stockinistas with hedged positions, which makes Strategic Growth what's known as a hybrid fund. In this case, long stock positions are combined with nearly 25,000 options combinations for the Russell 2000 and S&P 500 indexes. As Hussman explains, "because of the way that options are priced, the combination of a put option and a short call option acts as an interest-bearing short position on the underlying index, and delivers implied interest at a rate close to short-term Treasury yields." In English: Strategic Growth isn't likely to lose much when the markets turn south, as they may continue to do.
Still, Hussman is no stranger to risk. For example, Strategic Growth has notable positions in small-cap highfliers such as TiVo and Nautilus (NYSE:NLS). Both could deliver handsome gains, of course. But, as this chart shows, success is anything but guaranteed. Hussman's options hedging should protect against a steep downside.
Is this fund for you?
So, is Hussman the next Peter Lynch? His long-term record is certainly admirable, and Strategic Growth's 1.10% expense ratio is within spitting distance of championship caliber. But Hussman's conservative approach has led to underperformance versus the both the Russell and the S&P over the last one and three years, respectively.
In addition, we won't have a view of his performance over a full decade until July 2010. Foolish fund jockeys may wish for a more experienced hand in the meantime. Many cheap options exist in the Motley Fool Champion Funds portfolio, including one run by a 30-year veteran of the market's madness. His signature fund is just as cheap as Strategic Growth, but it's throttled the benchmark by more than 36% since ascending the podium in April 2004. (It's also one of many long-term winners for advisor Shannon Zimmerman. Try the service free for 30 days to learn more.)
That's this week's profile. See you back here next Thursday, fund nation. Good night.
Think you can't beat the market with funds? Think again! The selections in Shannon Zimmerman's Motley Fool Champion Funds portfolio are up an average of 18% vs. just 10% for their comparable benchmarks. For an unfettered look at all of Shannon's picks, manager interviews, and model portfolios, try Champion Funds free for 30 days.
Coca-Cola, Pfizer, and Intel are Motley Fool Inside Value recommendations. Johnson & Johnson and GlaxoSmithKline are Motley Fool Income Investor picks. TiVo is a Motley Fool Stock Advisor selection.
Fool contributor Tim Beyers is a regular viewer of The Colbert Report. (Stay the course.) Tim didn't own shares in any of the companies mentioned in this story at the time of publication. Get the skinny on all of the stocks in Tim's portfolio by checking his Fool profile. The Motley Fool's disclosure policy is always championship caliber.
