This weekend, both Barron’s and The Wall Street Journal ran articles on good mutual funds for a bear market: “Mutual Funds That Wear Shock Absorbers” (subscription required), The Wall Street Journal, Saturday April 5 and “Our All Star Defensive Team – Ten Funds That Can Keep an Investor’s Money Safe” (subscription required), Barron’s, Saturday April 5.
Both articles were good (anybody who wants to read them, e-mail me and I’ll send a link) and I thought I’d list three of my favorite funds for the coming bear market:
(1) The Permanent Portfolio Fund (PRPFX) (https://permanentportfoliofunds.com/index.htm) – This fund, run out of San Francisco, CA by Michael Cuggino, is my personal favorite for the coming bear market.
Cuggino sets targets for 6 asset classes – Gold (20%), Silver (5%), Swiss Franc (10%), US and Foreign Real Estate and Natural Resource Stocks (15%), Aggressive Growth Stocks (15%) and US T Bills, Bonds and Cash (35%) – but gives himself some flexibility to weight towards asset classes he expects will outperform and away from those he expects will underperform.
This mix of asset classes is, in my opinion, well suited for the next few years and likely to preserve capital and outperform the major stock indexes.
Cuggino is also an excellent investor and I believe his discretionary decisions at the margin and in stock selection add value.
The fund had a turnover around 7% in 2007, so he doesn’t do a lot of trading, and the expense ratio was 1.11% with no loads.
For more on the Permanent Portfolio Fund, check out the fund data sheet for the period ended Dec 31, 2007 and e-mail me for a link to a Barron’s interview with Cuggino last year, “Playing at the Margins of a Great Formula” (subscription required), Barron’s, Tuesday July 11, 2006.
(2) The Hussman Strategic Growth Fund (HSFGX) (https://hussmanfunds.com/index.html) – This fund is run by former Michigan Universtiy Finance Professor John Hussman and has been solid and steady since its inception on July 24, 2000.
Hussman’s objective is as follows:
The intent of our investment strategy is to outperform the major indices over the complete market cycle (bull and bear markets combined), with added emphasis on defending capital in unfavorable market conditions [bold and italics added].
Hussman does this by combining a value orientation towards stock picking with the buying and selling of puts and calls on the major indexes to hedge his long positions. As a result, the deepest peak-to-trough pullback witnessed by the Hussman Strategic Growth Fund since inception has been 7% compared with 47% for the S&P 500.
The fund is no load and had a 1.11% expense ratio for the year ending 6/30/07.
For more information on the Hussman Funds, visit their website: https://hussmanfunds.com/index.html.
(3) T. Rowe Price Equity Income Fund (PRFDX) – Fund manager Brian Rogers is the Chief Investment Officer at T. Rowe Price and has been running the equity income fund since 1985. The fund focuses on dividend paying stocks and looks to buy into controversy and value.
With its conservative orientation, the fund outperformed the S&P 500 during the bear market of 2000-2002 and I expect it to do so this time around as well.
The only concern here is the heavy weighting in financials – 19.4% as of 12/31/07. That said, the orientation in this sector is conservative, Rogers is selective and conservative, and this will result in significant upside when financials finally bottom.
The fund paid out 58 cents in dividends last year giving it a trailing yield of 2.23% based on yesterday’s closing price of $26. It is no load and had a .69% expense ratio for 2007.
For more, check out this overview of the Equity and Income Fund.