Showing posts with label Rob Arnott. Show all posts
Showing posts with label Rob Arnott. Show all posts

Saturday, July 20, 2013

Valuations of Emerging Markets vs US Stocks

As the US Stock market continues to sing it's own tone, I thought this look at valuations of US Stocks vs Emerging Market stocks was interesting. This is from a conference call presentation from Rob Arnott at PIMCO (all slides here)

Really hard to be tempted by US stocks at these levels, especially with both emerging & even developed international as alternatives considering valuations. Below is another chart from the slides, showing the shorter & longer term returns from various Shiller PEs. Clearly it's a longer-term gauge historically.


Wednesday, April 25, 2012

My 3 Favorite Mutual Fund Managers for Navigating the Market Going Forward

The mutual fund world has no shortage of managers. But when it comes to finding managers which have a rock solid understanding of market history, a real grasp of the true drivers of long-term investment returns, a strategy for capturing those returns over time, an eye for avoiding market fallacies that lead the herd and most importantly -- know what it means to be stewards of Other People's Money. Well, that list is much shorter.

Most of the investment landscape is filled with products in a race of relative performance. It is rarely about making decisions to maximize long-term returns. Too often it is only about making decisions to outperform some index -- without making any decisions that might lead to temporarily underperforming that index, even when it is the best long-term decision. Therefore, it is a world of closet indexers and many of those who don't closet index still wouldn't dare be anything other than 100% invested.

While there are some very good managers who only manage funds with less flexible investment mandates, my purpose here is to highlight my 3 favorite mutual fund managers with the flexibility for navigating the markets . This isn't about past performance -- these are the managers I would feel most comfortable allowing to manage my money over the next full market cycle for the reasons described at the start of this post. Is it subjective? Of Course! This is MY list (and in no particular order).

Rob Arnott (Pimco All Asset and Pimco All Asset All Authority)

At Pimco essentially everything is managed "in-house". That is except for these 2 funds sub-advised by Rob Arnott of Research affiliates. These are tactical asset allocation strategies and the only limitation for Rob is that he must use Pimco Funds and abide by these very loose guidelines.

Rob Arnott is a great "big picture" guy and truly understands valuation. He is also well known for his fundamental indexes.

John Hussman (Hussman Strategic Growth)


This is not Hussman's only fund but it is his flagship fund and where he has the majority of his own investable assets. Hussman invests the portfolio like a traditional equity fund and then "hedges" using index options and futures based on his outlook for the market in general -- which has resulted in a highly hedged stance most of the time.

Someone might look at his performance year-to-date (-6.8%) while the market is up 11.1% or point to his performance over most of the rally since 2009 and think I'm crazy. Hussman is catching a lot of flak recently and you can see his response in one of his commentaries from February "Notes on Risk Management - Warts and All". But as I said before -- this isn't a backward looking list of my favorite mutual fund managers.  

There aren't many that understand the drivers of long-term returns more than Hussman and I think his ability to stay true to his strategy will prove out in the long run (the next full market cycle). Even if you don't invest in his fund, his weekly commentaries are always worth the read.

Ben Inker (GMO Benchmark-Free Allocation and Wells Fargo Advantage Absolute Return)

This is less a story just about Ben Inker himself and more about all the people at GMO including Jeremy Grantham and a more recent addition of James Montier. It is a good meeting of the minds there at GMO and their Asset Allocation Team.

The GMO Benchmark-Free Allocation Fund is actually not open but they started a distribution agreement with Wells Fargo in March. Therefore the strategy can be accessed in mutual fund format through the Wells Fargo Advantage Absolute Return Fund. I personally like the GMO name for the fund better -- but I am assuming for marketing reasons Wells Fargo chose the "Absolute Return" name. I am personally not a fan of most "Absolute Return funds" I see in the market, as most are nothing more than a giant ball of derivatives (but that's another story). 

Wells Fargo already had a fund (Wells Fargo Advantage Asset Allocation) sub-advised by GMO but the investment mandate did not give GMO very much flexibility in the allocation. You can see the difference this flexibility made below.

Jeremy Grantham talks about the advantages of flexible investment mandates, as well as the "career risk" it introduces in GMO's most recent quarterly letter (definitely worth the read).

There you have it!

It is important to remember this is not my 3 favorite managers for the next month, or the next year. These are my favorite mutual fund managers for the next full market cycle. Some will perform better than others during different parts of the cycle. For instance, if the market were to begin falling tomorrow, based on current positioning, I would expect John Hussman's Strategic Growth to perform best, then Rob Arnott's All Asset Strategy (either one), then Ben Inker's Benchmark-Free strategy. And obviously opposite if it continued up.