Our portfolios hold several mutual funds that can respond to changing market conditions by investing in a wide range of assets and selling short stocks or indexes. Those features are important in today’s environment, observes Bob Carlson, editor of Retirement Watch.
A two-pronged approach is in place at Hussman Strategic Growth (HSGFX). First, the fund owns a diversified portfolio of more than 270 stocks that have above-average growth but sell at reasonable valuations. No stock makes up as much as 2% of the fund, and the stock holdings often change completely within a year.
Second, manager John Hussman can use options and futures to either hedge the portfolio against a market decline or leverage the stocks to enhance positive returns. Hussman uses a combination of valuations and what he calls market internals to make those decisions.
Recently, the fund has been hedged against a market decline because both the valuations and market internals are bearish. The hedges will be suspended, even if only for brief periods, any time market internals indicate investors are becoming more speculative.
A broader mandate is available to Cromwell Marketfield Long-Short (MFADX). The fund can own or sell many investment assets around the world. The managers use market data and the economic outlook to develop several investment theses that aren’t reflected in market prices.
They also want to be well diversified. Before 2022, the managers anticipated rising inflation and energy prices. They also reduced stock positions throughout 2022 and sold short some technology stocks.
At Leuthold Core Investment (LCORX), the managers can shift the fund’s allocation among stocks, bonds, cash and other investments, and they can sell short stocks. Both U.S. and non-U.S. stocks can be owned or sold short.
The managers can overweight or underweight stock sectors and individual stocks. The fund’s positions are changed using models and indicators that have been developed and in use at the Leuthold Group for more than 40 years.
The fund was positioned very bearishly early in the year but gradually reduced its cash position to around 23%. It also added some bonds. (Early in the year, it owned almost no bonds.) The fund also took profits on some of its short sales of stocks. LCORX has done much better than most tactical allocation funds and gives us the ability to respond to changes in the markets and the fund’s indicators.