A Frank Look at Hussman

10/01/2002 12:00 am EST

Focus:

Walter Frank

CIO, MONEYLETTER

Walter Frank’s MONEYLETTER covers more than 2,000 mutual funds, isolating the cream of the crop. The service then focuses on strategic asset allocation in designing ten different model portfolios to meet various investor needs.  Here’s the service’s latest fund profile.

“Fund manager John Hussman stresses that his Hussman Strategic Growth Fund is not a bear fund, a hedge fund, a market neutral fund, a value fund, or even a small-cap fund. Rather, it is a diversified US equity fund seeking long-term capital appreciation, which places an added emphasis on capital preservation in unfavorable market conditions. Looking at its one-year returns through June 30, a period that certainly contained unfavorable market conditions, the fund did remarkably well. In fact, the fund’s total return of 22.2% for that one-year period trounced the Russell 2000 index, which declined 8.5% and the S&P 500, which lost 17.9% in the same time frame.

Moreover, the fund’s success in achieving capital preservation in unfavorable market conditions is evident when looking at peak to trough losses during that 12-month period. The worst such loss for Hussman Strategic Growth was 2.7%. That contrasts markedly with worst peak to trough declines for the two indexes above of more than 20%.

How did Hussman achieve these results? In the fund’s portfolio he held a fully invested position in more than 100 favored stocks, while owning an offsetting short sale of equal size, using the Russell 2000 and S&P 100 indexes. That hedged position was the primary source of returns during the period. However, Hussman points out that had the stock holdings not been hedged, the fund’s stocks alone would have still earned a positive return of just under 5%.

In addition to hedging market risk by selling short major market indexes in an amount up to the value of its stock holdings, the manager also may leverage the amount of stock it controls to as much as one-and-a-half times assets–typically by purchasing call options on individual stocks. The latter strategy is used when market conditions are believed to be favorable.

Currently, Hussman characterizes the market climate as showing unfavorable valuation and the fund has the majority of its portfolio hedged against market fluctuations. The fund manager currently favors reasonably priced, steadily growing stocks, especially consumer discretionary and staples, and healthcare, to which he has added recently. With the biggest pullback in price since the fund’s July 2000 inception at only 6%, it seems that Hussman’s strategies are working. The fund can be reached at 800-487-7626.”

Related Articles on