I've gathered a few more thoughts about the FundX funds I wrote about yesterday. I also spoke to someone at the fund company and got a little more info.
The fund managers screen no load funds, load funds that they can buy with out the load (this is common for institutional buyers of mutual funds) and ETFs. They have a proprietary screening process that finds the funds most likely to do well. It is fair to say the process works pretty well.
The composition can change at any time and so owning these can be difficult from the what do I own and how do I work it in to a diversified portfolio perspective.
The fund company says their approach is closer to bottom up (as opposed to top down) picking of funds. So the fund is not likely to be properly diversified very often. That may not be an obstacle for some people but its important to consider.
One role this type of fund could have is for people that use core and explore with mutual funds.
The expenses seem to be astronomical, that makes for a huge bogey to overcome but they have done it very well. The flagship FUNDX has averaged 650 basis points of outperformance per year vs. the S+P 500 since its inception. That's net of fees. That is very substantial.
The process seems fairly black box so who knows if they can continue at that pace.
I have no plans to use this fund personally or for clients but it is far from the worst thing out there.
Proud Member Of
Random Roger
© 2009 | Gadget Theme Blogger Template
Original WPtheme By Blogger Template | Converted By Gadget Lover
| Distributed by eFree Blogger Help
Original WPtheme By Blogger Template | Converted By Gadget Lover
| Distributed by eFree Blogger Help
3 comments:
NoLoad Fund X's investment process really isn't very black box at all. It is a rather simple momentum strategy based on the idea that you want to own the best funds at any time without regard to diversification strategies. The best funds are the ones offering the best returns either because of the asset class or the manager's hot hand. Best funds tend to stay hot for a period of time, according to NLFX, and that is when you want to own them. To identify the best funds, they add up the returns for four periods - 12, 6, 3 and 1 month, divide by a constant, and rank the results.
The process overperforms in trending markets, and tends to lag because of it is a past results weighted formula. When the investment climate changes rather suddenly there is no provision to change the formula, and they are buy and hold with no market timing other than switching to different funds over time.
The cost of the funds is high, and all things being equal that is a problem. However, all things are rarely equal and the market has shown it's willingness to pay more for outperfomance, ie hedgefunds.
I agree with you, Roger, that FundX is an excellent core fund in a core and explore strategy. And as always, I enjoy reading your thoughts on the market.
Excellent synopsis of NoLoad Fund X's! I just want to add one more thing. This fund does not address the issue of risk control, which requires more active management. One fund, ANDEX(Analytical defense equity) does take risk control actively. A 2-year chart of FUNDX vs ANDEX clearly demonstrates the difference. For my own portfolio I would pick ABDEX over FUNDX. Both are better than S&P 500.
Since January, ANDEX is up less than 5% and FUNDX is up 20%. ANDEX is better than FUNDX?
Post a Comment