Monday, September 3, 2012

Annual Report for Hussman Funds

Just reading the latest Hussman annual report for his funds (as opposed to his weekly market comments, which I frequently post quotes from).

"From the inception of Strategic Growth Fund on July 24, 2000 through June 30, 2012, the Fund achieved an average annual total return of 5.55%, compared with an average annual total return of 1.29% for the S&P 500 Index.

2012, Strategic Growth Fund had net assets of $4,936,808,483, and held 116 stocks in a wide variety of industries. The largest sector holdings as a percentage of net assets were health care (33.1%), consumer discretionary (24.1%), consumer staples (17.5%), and information technology (17.3%). The smallest sector weights were in energy (3.4%), telecommunications (1.4%), financials (1.0%), and materials (0.8%).

Holdings with losses in excess of $20 million during this same period were BMC Software, Research in Motion, Dell, Best Buy, Endo Health Solutions, Illumina, SunPower, and First Solar."
I've mentioned before that Hussman has great macro commentary, but I really do not like his stock selection.

His equity losses were in hopeless, failing businesses. What is he still doing in Best Buy and photovoltaic solar companies? Why doesn't he write a weekly letter about what he sees in Dell?

I'd also like to see weekly letters about why he is massively overweight health care (especially pharma) and massively underweight energy. He has more allocated to Coke and Pepsi in the strategic growth fund than to the entire energy sector!

He writes a lot about macro issues like market valuation, profit margins, etc - and I think he is write about those issues and invests appropriately (through decisions to hedge or not hedge). He never writes about business models, company valuation, or the attractiveness of different sectors - and I see that lack of thought showing up in the makeup of the equity portfolio.


Allan Folz said...

Just a wild-@ss-guess, but may be he isn't doing the stock selection for "his" fund. He might have portfolio managers that run the fund and he's the rain-maker drumming up business and writing customer-facing letters.

When it comes to employment contracts, stranger things have happened. Heck, may be he and the managers get in heated arguments over stock selection. May be he's got none of his own money in the funds. Wouldn't that be ironic.

CP said...

Sure, "anything is possible."

When you think about it, it really is odd that he doesn't discuss stock selection in the letters OR the annual report.

Health care is only about 10% of the S&P 500. He has that much just in pharma!

Why those particular pharma companies? Why include the ones facing patent cliffs?

So, they are all going to replace their off-patent drugs simultaneously over the next few years? Without bidding against each other and therefore driving down profit margins?

I could go on and on about the portfolio composition. Why doesn't he?

Craig said...

What I see when I look over that letter is a fund manager who had two really good years, and has trailed the market for a decade. Hate to be harsh, but I got to call them like I see them. A comparison to, say, Vanguard's S&P 500 index fund--so that dividends aren't magically stripped out--tells an even worse story. Hussman trails the index--badly--on one, three, five and ten-year timeframes. You had to get in with him during his good years, 2001 and 2002, to be happy today.

The man writes a _great_ letter. But he is obliged--very visibly--to put his money where his mouth is, and I'm inclined on that basis more to do the opposite of what he says than to take his advice. I also remember that he called a US recession starting in June...

CP said...

I've been reading his letter for a long time - I think it's excellent - and I only recently started to watch his fund portfolio.

It's so strange - he is making a massive pro-pharma and anti-energy bet.

I'd think that would be worth discussing in a letter? How did he arrive at the view that there is going to be an energy glut (supply or demand driven?) and that the pharmas will get past their patent cliff without driving down each other's profit margins (is that even possible?)?

Craig said...

Interesting and potent observations. I wouldn't mind lots of cheap energy or a new crop of miracle drugs...but I'm not sure that's the way I'd want to bet, either...

CP said...


I'm mindboggled by it, actually. Has he ever written an article about competitive advantage, sector selection, etc?