The larger country weightings (excluding the ETFs) include 10.5% (of the entire fund) in the UK, 6.5% in Brazil and Switzerland 5.6%. 38.4% of the fund was allocated to Europe out of 60.4% total equity allocation (meaning only 60% in stocks, 2/3rds of which are in Europe). The huge weighting to Europe comes as a surprise to me. There are eleven countries in the fund where the percentage has a one or zero handle.
Also of interest is that out of 53 stocks owned (so excluding the ETFs) 37 of them appear to be ADRs as opposed to ordinary shares. The fund also hedges with put options and index futures. For the period reported the fund was up 0.80% versus a drop of 14.72% (that number comes from the PDF) for the MSCI EAFE Index which is presumably the targeted benchmark.In looking at the sector make up the fund obviously has taken defensive posture. This is also evident in the result a small increase for the NAV versus a very noticeable drop for the market implies that hedging drove returns over the long exposures. Based on the sector allocation the fund is clearly a long way from index hugging; financials are the largest sector of the EAFE index at 22% and again Hussman appears to be at zero.
While the fund is not really index hugging at the country level either it is much closer than I might have thought given the large exposure to Europe. So much in Europe really surprises me. From the outside looking in Hussman is clearly willing to avoid things that are probably on shaky ground by virtue of no exposure to financial sector stocks. My take on what I have been reading from him is that he would not be favorably disposed to Europe, specifically big Western Europe and the UK. The Scandinavian countries did much better than big Western Europe and the UK and while there is an element of hindsight to that comment I think it is a fair one to make given my position on these countries all along (I don't like them) and more importantly what might have been his take (that is just my read on his comments).
A very workable explanation for this is that the decision to hedge or not to hedge or how much to hedge is more important to Hussman than long composition. Another top down idea that also could be more important long composition is the avoidance of one really unhealthy part of the market. A big part of our return for the last few years can be attributed to an extreme underweight of US financials so if that is the case I am with him on that.
7 comments:
Hi Roger:
am wondering what your take is on this
http://ftalphaville.ft.com/blog/2010/09/18/346406/can-an-etf-collapse/
Best, Andrew
I read the link you posted.
Wow does it seem misguided. An ETF provider like SSGA can pretty easily keep $5-$10 million in seed money in a fund and keep it open. If there are 80 million shares short, like in the case of XRT SSGA still gets fees for those shares make the fund very viable for them. Of course I could be wrong but I am surprised that Alphaville would even post this.
I have been an investor in the Hussman Growth Fund for many years. When he thinks conditions are unfavorable going forward, he hedges his long exposure 100%. The international fund is set up the same way. When the portfolio is 100% hedged, you can only make money when the portfolio outperforms the hedges. Any investor here would have to believe in Hussman's methodology and commit for longer time periods. He writes a column on his web site every week and is very transparent. IMO a valuable resource for unconflicted commentary.
Thanks for the analysis Roger. Could the heavy weighing of western Europe be a reflection of the Euro/ dollar relative value and a well expressed poor view of the domestic situation and dependency of the non European countries on our business? As stated above, and pointed out by you and Dr. Hussman himself, he does hedge his bets.
Sam
Sam, so Europe winning an ugly contest? Well it is an international fund. I did not read the prospectus but I assume that it cannot buy American companies. If that is true then I'm not sure the ugly contest idea stands up (if that is what you mean).
If his universe is anything but US, then a sick US economy would mean any developing economy dependent on the US for exports would be in trouble as well. I believe the last Barron's made the case for Europe not being dependent on US buying to maintain their economy. Therefore the European countries that were healthy would look good relative to the lesser developed countries due to US economic performance. I'm not eloquent enough to state my thoughts more clearly. Ugly contest has merit, however! The Barron's article was benign on the UK. I don't get that. Their unemployment is systemically high, there spending is as bad as ours, and they have no real economic driving force that I can see. I must be missing something.
The real question for me is whether there is a reason to own the fund, assuming the process he follows transfers to the international market. I know you don't favor OEF's, but doesn't his process look alot like your own? His hedging is more sophisticated( I think) than your use of SDS, and you will lighten up when the storm clouds gather. You have pointed out that his process is full cycle. if different countries move through the cycle at different times, can that be captured in a relatively simple market model? I think I'll wait and see how it does, at least for six months. i've done well with his income fund the past year.
Sam
certainly there is some overlap in ideology and obviously his hedging is more active and sophisticated than what I do. Equally obvious though is that his funds don't really look like the stock market even during the bull market years.
In that light is this really a proxy for international markets or is it an absolute vehicle that happens to use foreign stocks.
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