A Fund for All Seasons

08/06/2004 12:00 am EST


Richard Band

Editor, Profitable Investing

"In my quest to discover exceptional individuals who can consistently build wealth for us at above-average rates but with below-average risk, I’ve found an exceptional fund manger," says contrarian, value expert Richard Band . Here’s his review.

"The fountain of youth. The Holy Grail. A mutual fund that makes money in good markets and bad. Sounds like the impossible dream. But every once in a while, this investment business does produce an exception—the Warren Buffett or the John Templeton who beats the odds time after time. I believe I’ve found another—a fund manager by the name of John Hussman. Never heard of him? Great! That’s qualification #1 if you’re looking for someone who stands a chance of outperforming the stock market over the long haul. As money runners climb to stardom, they attract a huge asset base—which in turn makes it more and more difficult to beat the market. Success eventually defeats itself.

"An economist by training, John Hussman earned his Ph.D. at Stanford in 1992. But don’t hold that against him. Hussman is a real-world money manager, not an ivory-tower theoretician. After publishing an investment newsletter, Hussman Econometrics, for several years, he launched Hussman Strategic Growth Fund (HSGFX) in July 2000. His record since has been stellar. HSGFX posted double-digit gains in both 2001 and 2002, two calamitous years for the stock market. In 2004, the fund trailed the market, but still racked up a fine absolute return of 21.1%. So far this year, HSGFX is leading the S&P 500 by about two percentage points.

"What sets this fund apart from the pack is its remarkably low risk profile. In the three years ended May 31, HSGFX netted a total return (including reinvested dividends) of 54.6%. That was enough to earn the fund ninth place out of 275 ‘mid-cap blend’ funds—funds that gravitate toward mid-sized stocks, using a combination of value and growth criteria to choose individual issues. Yet, while hitting the top of the performance charts, the fund also took far less risk than its peers. Its standard deviation (a measure of volatility) was only 8.31, versus 18.31 for the peer group. Over the past three years, this fund's share price was more stable than a long-term Treasury bond.

"How does Hussman do it? Strong stock-picking skills play a part, but he also doesn’t mind hedging the fund with futures and options when he spots danger on the horizon. Done properly, hedging can preserve capital in down markets. Because of his cautious approach, I expect Hussman to trail the market when the indexes are sprinting higher. However, I also think he’ll more than close the gap when the market stumbles. If you believe, as I do, that another bear market (maybetwo) will descend before this decade is out, Hussman’s fund for all seasons' may be just what you need to keep your nest egg intact—and growing.

"There’s another reason to trust John Hussman with your money. His organization puts the customer first. Some of the markers include:

  • Low $1,000 minimum. Most big fund groups, in an effort to fatten their profit margins, have abandoned this low threshold. HSGFX is still accessible to small investors (perfect for gifts to minors).
  • No sales charge. Hussman does lay a 1.5% redemption fee on folks who cash their chips before six months are up, but that’s to discourage market timers and nervous nellies. If you’re a true long-term investor, 100% of your money goes to work from day #1. Note that you may have to cough up a small transaction fee if you buy the fund through a broker rather than from the fund itself.
  • John Hussman eats his own cooking. Other than a tiny percentage kept back in cash equivalents, Hussman invests all his liquid assets in the Hussman family of funds. Very few fund managers are willing to align their interests so directly with yours.

"My only gripe—and it’s minor—is that the fund’s expense ratio runs somewhat higher than I normally prefer (1.29% annually). Nowadays, though, that’s about average for a stock fund. Moreover, you could make a case that Hussman ought to earn a little more for his specialized trading techniques. All in all, I think he delivers great value for the money. Buy HSGFX at $16.20 or less."

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