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Though Arnott has nearly the full suite of the firm's offerings to work with, he often makes liberal use of its inflation-protected, emerging-market-debt and commodity-oriented strategies -- which have all performed well during the past year -- and shies away from traditional stocks and bonds. His moves are often quick and bold: As of midyear, for example, the fund had 39% of its assets in inflation-protected strategies, which was roughly double what it held six months ago.
With that strategy, this fund of funds has gained 4.7% over the past 12 months. More importantly, Arnott has proved adept at implementing this flexible strategy over longer stretches. The fund has a stated objective of beating the consumer price index (a common measure of inflation) by 5% a year. The fund's trailing three- and five-year returns through June 2008 (CPI data for the month of July is not yet available) all meet its goal, outshining the fund's moderate-allocation peers.
Its fees are high, though. The fund's low-minimum A and D shares have a lofty 1.46% expense ratio. This fund is attractive for investors who can gain access to the cheaper institutional version.
Hussman Strategic Growth
The Hussman Strategic Growth (HSGFX) fund relies on hedging techniques more than the aforementioned offerings.Its exposure to the stock market depends on manager John Hussman's assessment of the overall market climate and valuation levels. He thinks domestic stocks have gotten too pricey in recent years, so he hedges a portion of the fund's equity exposure using S&P 500 Index ($INX) and Russell 2000 puts.
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The fund's top picks include Johnson & Johnson (JNJ, news, msgs), Research in Motion (RIMM, news, msgs) and Colgate-Palmolive (CL, news, msgs), which have all held up well in recent months. As a result, this fund has avoided most of the market's woes. It has gained 3.0% in the past year, beating both its long-short category peers and broad market indexes, like the S&P 500, by a wide margin.
We think this fund is built for tough markets such as the current one.
It often misses some of the upside when riskier fare falls into favor, as was the case in 2006 and 2007, when energy and commodity-oriented companies with unpredictable long-term cash flows rallied. However, it holds up well in down markets.
In fact, the fund generated double-digit gains in the bear years of 2001 and 2002. Hussman's experience and his investments in the fund (he has more than $1 million invested here) give us confidence in its strategy.
This article was written and researched by Wenli Tan.
Published Aug. 11, 2008
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