Three Funds That Go Anywhere

04/15/2008 12:00 am EST

Focus: FUNDS

Thurman Smith

Editor, Equity Fund Outlook

Thurman Smith, editor of Equity Fund Outlook, finds three funds whose managers have broad discretion to invest in companies and ETFs of any size or style.

“And leave the driving to us” could be the motto at any-cap Autopilot Managed Growth (AUTOX), where the idea is not to worry about down markets because a secondary goal (after capital appreciation of course) is to manage volatility and market risk.

Over its 1.5-year life, this solo offering has returned an annualized 13.1%, while the return of the Dow Jones Wilshire 5000 with dividends (“the market”) was flat. Since the high on December 10, 2007, it declined 5.7%, while the market dropped 14.6%. So far, [the fund] seems to be meeting both goals.

In addition to common stocks, the fund may invest in exchange traded funds (ETFs) and closed end funds. The tools for risk management are selling short, writing covered calls, and hedging with futures and options. Autopilot is nondiversified; its lead manager is Peter Mauthe, who had a commodities background before joining Rhoads Lucca Capital Management of Dallas, the management firm. Assets total only $16 million and it is tax efficient. The only drawback, for some investors, is the $10,000 minimum initial investment and not yet being registered all states.

Over its 4.7 years, multicap, multistyle BB&T Special Opportunities Equity (BOPAX) returned the annual equivalent of 16.0%, almost twice the return of the market. BB&T (Branch Banking and Trust Company) uses Choice Asset Management to run this and other BB&T funds.

George Shipp, currently the chief investment officer, joined the firm in 1982 and served for 17 years as a fundamental research analyst covering a variety of industries; he has managed Special Opportunities Equity since its launch in 2003. Shipp looks for any size firm with above-average revenue and profit growth as well as out-of-favor stocks that may be depressed for reasons that management regards as temporary.

Portfolio holdings are likely to combine younger growth companies and attractively valued well-known names. Historically, portfolio turnover has been less than 50%, [and] its stated goal [is to maximize] pretax capital appreciation. Special Opportunities Equity is not a Buy for now, but it might be useful for tax-advantaged accounts in a recovering market. It is a load fund, but at Schwab it is no-load and no-trading-fee.

Hussman Strategic Growth (HSGFX) is a market-timing, asset-allocation vehicle that has succeeded at avoiding big losses. Over the last 6.7 years, it has returned the annual equivalent of 9.5%, while the market returned only 3.5%. There are surface similarities with Permanent Portfolio (PRPFX), which returned 13.5% over this period, but the latter holds fixed allocations among its selected sectors, while Hussman Strategic varies its stock/cash allocation in line with John Hussman’s market risk assessment model.

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