CNBC Caught In Lie About Mutual Funds

[ByLoSellHi]

Whatever goes up, must come down.

That rule has never, and will never change, and Hussman will look like a master of the universe - the only question is when.

I believe his time is approaching.

 

[DeepFried]

Quote from Sparohok:

And any underperformance since was from writing calls during a bull market.

And that has clearly been a total loser for going on five years, at least, the way he's going about it.

Quote from Sparohok:

Judge him by his stated investment objectives. By that metric he's doing fine.

I guarantee you "I will underperform the S&P 500" is not one of his investment objectives. The standard metric for all domestic fund managers is the S&P 500. When you have to rationalize performance by saying, "we outperformed most other option writers" or "we were slightly better than the average Morningstar ranked growth fund" you're making excuses. I don't know what sort of business you're in but investment managers who drastically underperform standard market benchmarks for years on end eventually start losing assets to other firms.

Quote from Sparohok:

If you don't believe in his objectives, if you want to beat the S&P on a 3 to 5 year time horizon, don't invest in his fund.

Everyone wants to beat the S&P 500 - yearly, in 3 to 5 years, in 10 years - and anyone who fails to do that year after year is an "also ran."

As an investment adviser, I know from personal experience that clients won't stand for sitting tight in a fund that's been sucking wind for going on 5 years and I don't see why they should. A portfolio needs to be diversified but staying in a fund that isn't working out just because it has a nifty strategy story is a losing proposition both from a pure return standpoint and from a client management standpoint.

And, no, I will not being investing in his fund.

Quote from Sparohok:

Not if you know how to read a chart. Your chart doesn't include distributions. On a total returns basis, HSGFX has been trailing the S&P 500 by about 2% annualized over 5 years - not the 11% annualized that your chart suggests.

Martin

Do you know how to read a chart, Sparky? The chart doesn't "suggest" a return; it shows cumulative return since the market bottom in Fall of '02.

Here's a returns table from Morningstar, including distributions, which shows him trailing the S&P and the Russell 3000 by 1.2% and 1.97% for five years annualized:

 

[loufah]

Quote from ByLoSellHi:

Excerpt from fund manager John Hussman's weekly essay on the U.S. market:
Take for example a remark last week that "mutual funds are sitting on piles of cash that these managers are going to have to get invested."
...
Cash as a proportion of mutual fund assets has never been lower. Never...

Those two statements aren't mutually exclusive.

 

[Sparohok]

Quote from DeepFried:

The standard metric for all domestic fund managers is the S&P 500.

Bond funds? Small cap funds? Absolute return funds? Money market funds? They're all using the S&P 500 as a benchmark?

That must be why nobody puts money in bonds. Oh, wait.

Everyone wants to beat the S&P 500 - yearly, in 3 to 5 years, in 10 years - and anyone who fails to do that year after year is an "also ran."

So every year you put your money in the mutual fund which delivered the best returns the previous year? You think that's a good investment strategy? Is that what you tell your clients to do?

Your concept of investment performance is laughably simplistic.

Do you know how to read a chart, Sparky? The chart doesn't "suggest" a return; it shows cumulative return since the market bottom in Fall of '02.

Wrong. It shows price, not cumulative return. See those little blips in November every year? Those are the capital gains distributions.

Your own data contradicts that chart. According to Morningstar, HSGFX has delivered 7.47% annualized over 5 years, or a total of 43.3% returns. Yet the chart you posted shows a 15% return over roughly 5 years. Why the discrepancy? Oh, maybe those distributions.

Or look at it another way. Your chart shows the S&P 500 beating HSGFX by about 70% (85% - 15%) over about 5 years. So your chart suggests (yes, suggests) that HSGFX underperformed the S&P 500 by 11.2% a year over the last 5 years (the 5th root of 1.7 is 1.11196). Where in fact according to the Morningstar table the actual underperformance is 1.2% per year. Off by a factor of 10.

I feel sorry for your clients.

Martin

 

[late apex]

Quote from loufah:

Those two statements aren't mutually exclusive.

Correct.

Relying on that John Hussman's chart and his argument, at the top of this thread, to assess uninvested mutual funds' "cash on the sidelines" is completely misleading. What we really need to do to either prove or disprove the "caught in lie" conclusion would be to compare the ratio of absolute cash levels to perhaps the total US or, better yet, worldwide US-investable market cap value (equity, fixed income and money market). Not the ratio of cash to total mutual fund assets... that's a red herring.

First, it'd be nice to see a specific data source for that chart. In the meantime, let's assume that the chart is accurate. Combining the chart's data with the Investment Company Institute's most recent data, the cash levels were:

1991......$1,393B x ~13% = $181B

May 1, 2007......$10,634B x ~3.5% = $372B

$372B / $181B > 2

Therefore, US mutual funds' free cash has, in fact, more than doubled from its apparent (based on the chart) peak ratio point in time, 1991.

I'll let someone else, um, breeze through the easy total market cap part (1991 vs. 2007)... you're very welcome. I have no idea who this John Hussman fella is... nor have I ever watched The Consumer News and Barnes & Bailey Circus channel (bummer). However, so far, the "caught in lie" conclusion doesn't seem to be doing too well, based on the available facts, rather than opinions.

 

[Sparohok]

Quote from late apex:

Therefore, US mutual funds' free cash has, in fact, more than doubled from its apparent (based on the chart) peak ratio point in time, 1991.

The S&P 500 total market cap has gone up by about a factor of 4.5 in the same time. So relative to market cap, uninvested mutual fund cash is less than half what it was in 1991, not more than double.

Martin

 

[AnnaFX]

With the "Buy high, sell higher" attitude perhaps CNBC should be required to foot the bill when this bubble bursts!

 

[ByLoSellHi]

Quote from late apex:

Correct.

Relying on that John Hussman's chart and his argument, at the top of this thread, to assess uninvested mutual funds' "cash on the sidelines" is completely misleading. What we really need to do to either prove or disprove the "caught in lie" conclusion would be to compare the ratio of absolute cash levels to perhaps the total US or, better yet, worldwide US-investable market cap value (equity, fixed income and money market). Not the ratio of cash to total mutual fund assets... that's a red herring.

First, it'd be nice to see a specific data source for that chart. In the meantime, let's assume that the chart is accurate. Combining the chart's data with the Investment Company Institute's most recent data, the cash levels were:

1991......$1,393B x ~13% = $181B

May 1, 2007......$10,634B x ~3.5% = $372B

$372B / $181B > 2

Therefore, US mutual funds' free cash has, in fact, more than doubled from its apparent (based on the chart) peak ratio point in time, 1991.

I'll let someone else, um, breeze through the easy total market cap part (1991 vs. 2007)... you're very welcome. I have no idea who this John Hussman fella is... nor have I ever watched The Consumer News and Barnes & Bailey Circus channel (bummer). However, so far, the "caught in lie" conclusion doesn't seem to be doing too well, based on the available facts, rather than opinions.

That's some complicated treatment of a simple number.

The chart shows the % of cash, as a value of total assets, that mutual funds have on hand.

It doesn't speak to absolute cash levels.

That's the beauty of looking at the % rather than the absolute number. It keeps things relative.

You can say that the chart is "lying" somehow, but the amount of cash is shown as a percentage, so I really don't see your point.

 

[DeepFried]

Quote from Sparohok:

Bond funds? Small cap funds? Absolute return funds? Money market funds? They're all using the S&P 500 as a benchmark?

That must be why nobody puts money in bonds. Oh, wait.

I'll try to keep it simple so you don't get confused. The Hussman fund in question is a growth fund. In other words, the goal is to grow capital within the fund by investing primarily in stocks. Get it, Martin? The most common benchmark used for gauging growth fund performance is the S&P 500. Are you still with me, Martin?

Or maybe you think it's a money market fund and that's why you think the performance is so terrific, LOL.

Quote from Sparohok:


So every year you put your money in the mutual fund which delivered the best returns the previous year? You think that's a good investment strategy? Is that what you tell your clients to do?

Your concept of investment performance is laughably simplistic.

And you are laughably disingenuous and not very good at arguing your point. I did not recommend chasing performance. What I did say is that staying in a fund that has grossly underperformed the S&P 500 for FIVE YEARS is unwise. You're welcome to stay in it.

By the way, do you work for Hussman Funds? Is that why you're so enamored with a fund that is a total dog? Do you work in marketing?

Quote from Sparohok:

Wrong. It shows price, not cumulative return. See those little blips in November every year? Those are the capital gains distributions.

Your own data contradicts that chart. According to Morningstar, HSGFX has delivered 7.47% annualized over 5 years, or a total of 43.3% returns. Yet the chart you posted shows a 15% return over roughly 5 years. Why the discrepancy? Oh, maybe those distributions.

Those capital gains distributions ARE ALL TAXABLE and mostly AT CURRENT INCOME RATES, Einstein! So although the price in the chart is reduced by distributions, you can't plug the distributions in and claim that as pure return. Any standard issue S&P 500 index fund has had minute distributions over the same period and is far more tax efficient thereby outperforming your precious fund on both a pre-tax and more importantly on an after-tax basis. Are you still with me, Martin?

Quote from Sparohok:

Or look at it another way. Your chart shows the S&P 500 beating HSGFX by about 70% (85% - 15%) over about 5 years. So your chart suggests (yes, suggests) that HSGFX underperformed the S&P 500 by 11.2% a year over the last 5 years (the 5th root of 1.7 is 1.11196). Where in fact according to the Morningstar table the actual underperformance is 1.2% per year. Off by a factor of 10.

I feel sorry for your clients.

Martin

I feel sorry for your wife. She's got to be the one earning all the money in the household. It's amusing how allergic you are to the conclusive data that shows Hussman Fund sucking eggs. Morningstar came up with that data, not me, and as I pointed out above those are pre-tax returns not accounting for the hit on performance caused by those pesky distributions.

Tax inefficient and a crap growth record. Wow, give me a million shares. Hussman must be paying you well to make you such a true believer.

 

[Sparohok]

Quote from DeepFried:

In other words, the goal is to grow capital within the fund by investing primarily in stocks.

That's funny, according to the prospectus, the fund's goal is to achieve market beating returns over the full business cycle with lower volatility than the S&P 500, by investing in stocks and hedging with options. So far that's precisely what he's accomplished.

Whereas you seem to be selecting a benchmark based on one word in the fund's name! That's the kind of attention to detail your clients must love.

What I did say is that staying in a fund that has grossly underperformed the S&P 500 for FIVE YEARS is unwise.

HSGFX underperformed the S&P by 1.2% per year for the last 5 years. However it outperformed by 10.15% per year over the 7 years since inception. By what possible logic can you criticize a fund for <i>slightly subpar</i> 5 year returns while ignoring <i>spectacular</i> 7 year returns?

Perhaps if the investment objectives were to track a benchmark, you could criticize the fund for failing to do so; but in fact the prospectus specifically warns that the fund will not track the S&P 500.

Those capital gains distributions ARE ALL TAXABLE and mostly AT CURRENT INCOME RATES, Einstein!

Sounds like a good candidate for a tax sheltered account.

Dude, you completely misread your own chart and now you're trying to cover it up by blathering about tax efficiency. And accusing me of bias for good measure. I don't have to be paid by anyone to figure out that you're full of crap.

Martin