{"id":22455,"date":"2023-06-14T07:53:16","date_gmt":"2023-06-14T11:53:16","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/only-a-few-funds-are-up-last-year-and-this-year-how-they-did-it\/"},"modified":"2023-06-14T07:53:18","modified_gmt":"2023-06-14T11:53:18","slug":"only-a-few-funds-are-up-last-year-and-this-year-how-they-did-it","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=22455","title":{"rendered":"Only a Few Funds Are Up Last Year and This Year. How They Did It."},"content":{"rendered":"
\n
<\/p>\n
<\/p>\n<\/figure><\/div>\n

Last year was a terrible one for most investors. It was also a great test to see which funds in your portfolio can play defense. <\/p>\n

But what about offense? You could view this year as part two of a test to find all-weather funds. So far in 2023, the Nasdaq 100 Index, a tech-stock-laden benchmark tracked by the popular
\n Invesco QQQ Trust
\n exchange-traded fund (ticker: QQQ), is up 36%\u2014after falling 33% in 2022. The
\n S&P 500
\n has a similar trajectory, down 18% in 2022 and up 14% in 2023. And the popular
\n iShares Core U.S. Aggregate Bond
\n ETF (AGG), down 13% in 2022, is up 2% this year.<\/p>\n

\n

Not many funds can produce positive results in both environments. Only 155 mutual funds, out of 7,069 available in the U.S., pass the positive 2022-23 test, or 2.2%. Of ETFs, only 117 out of 3,259 pass, or 3.6%. Many of the funds are too niche to assume they\u2019ll be all-weather in the future. This is especially so with ETFs, where several positive performers in both years, such as
\n iShares MSCI Mexico
\n (EWW), up 27% already in 2023, invest in volatile Latin America. Others are commodity plays such as
\n Teucrium Sugar
\n (CANE), up 45% this year. <\/p>\n

Drilling into the data, you can find more-diversified funds with less idiosyncratic risks. One is
\n Madison Covered Call & Equity Income
\n (MENYX). It was up 5% in 2022 and is up 5% in 2023. Manager Ray Di Bernardo keeps a lid on risk by selling, or \u201cwriting,\u201d call options on the stocks in his portfolio to generate income. (A call option gives buyers the right to purchase a stock at a predetermined \u201cstrike\u201d price and allows sellers to earn an income premium.) <\/p>\n

The income generated from options premiums acts as a buffer in down markets. But the predetermined call-option strike prices Di Bernardo sets for the stocks in his portfolio also enforce a valuation discipline. If a stock\u2019s price exceeds the option\u2019s strike price, it gets called away by the option buyer. If the fund can\u2019t find another attractively valued stock to replace it, he holds cash instead. This valuation discipline served the fund well last year. <\/p>\n

\u201cIn late 2021, the market surged dramatically,\u201d Di Bernardo explains. \u201cMany of our stocks smashed right through that strike price on the options. In cases where we felt stocks were overvalued, we just let those companies get called away, which increased cash.\u201d He says he entered 2022 with about 20% cash, and it stayed at a high level, protecting the fund. Today, after the market\u2019s recent run, cash is at 25%. <\/p>\n

Although value funds are lagging behind growth ones now, many with positive performance in both years favor cheap stocks, which are less sensitive to rising interest rates.
\n Third Avenue Value
\n (TAVFX) was up a whopping 17.5% last year, thanks to heavy investments in energy stocks in an inflationary environment. Manager Matthew Fine is still bullish on offshore drillers
\n Tidewater
\n (TDW) and
\n Valaris
\n (VAL), citing historically low offshore production levels that should increase. <\/p>\n

Small-cap value funds
\n Aegis Value
\n (AVALX) and
\n Palm Valley Capital
\n (PVCMX) have also profited both years. The difference is Palm Valley has a large 85% cash weighting while Aegis\u2019 is only 6%. \u201cWe believe small-cap stocks today are extremely overvalued,\u201d says Eric Cinnamond, Palm Valley Capital\u2019s manager. \u201cThere\u2019s going to be tremendous opportunity when we finally have a real recession, so our strategy is to be patient.\u201d<\/p>\n

There are successful funds that combine both growth and value strategies.
\n Hennessy Cornerstone Mid Cap 30
\n (HFMDX) employs a rules-based valuation discipline that equal-weights 30 midsize companies with price\/sales ratios below 1.5, positive earnings growth, and strong price momentum. While cheap energy stocks have benefited the fund, in September it also purchased cloud-computing company
\n Super Micro Computer
\n (SMCI), which is up 215% in 2023. <\/p>\n

The most interesting all-weather funds are flexible ones, able to shift their portfolios quickly.
\n First Foundation Total Return
\n (FBBYX) employs a go-anywhere approach. \u201cWe invest in five different asset classes\u2014real estate, income securities, arbitrage, hard assets, and equities,\u201d says co-manager Eric Speron. \u201cWe\u2019re willing to go where the opportunity is.\u201d He will buy growth or value stocks of any size. <\/p>\n

Speron has co-managed the fund since 2015, but 2020 was the first time he bought energy stocks, as oil prices plummeted. Now the fund has 13% in the sector. In his arbitrage and special-situations bucket, now 7% of his portfolio, Speron holds
\n Burford Capital
\n (BUR), a litigation finance company that recently won a multibillion-dollar suit against the government of Argentina. Such investments aren\u2019t affected by broad market moves, helping protect the fund in downturns.<\/p>\n

Other winning 2022-23 funds employ tactical strategies that trade different asset classes\u2014stocks, bonds, commodities\u2014based on market conditions. Managed-futures funds such as
\n Campbell Systematic Macro
\n (EBSAX) and
\n Guggenheim Managed Futures Strategy
\n (RYMFX) make broad shifts among asset classes with derivatives. <\/p>\n

\n Modern Capital Tactical Opportunities
\n (MCTOX) is a unique tactical fund; it shifts into closed-end funds when they\u2019re trading at deep discounts to their underlying portfolio and shifts out of them to cash when they\u2019re not. The fund did that successfully last year, going to 60% cash in April, manager Michael Lowenberg says. <\/p>\n

Such tactical shifts are like a high-wire act requiring great precision and timing. Whether these funds can continue to be effectively defensive in future selloffs while still profiting in bull markets is uncertain. But if anything proves they can be, it\u2019s the roller-coaster 2022-23 market. <\/p>\n

Email: <\/strong>editors@barrons.com<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Last year was a terrible one for most investors. It was also a great test to see which funds in your portfolio can play defense. But what about offense? You could view this year as part two of a test to find all-weather funds. So far in 2023, the Nasdaq 100 Index, a tech-stock-laden benchmark […]<\/p>\n","protected":false},"author":1,"featured_media":22456,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-22455","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nOnly a Few Funds Are Up Last Year and This Year. How They Did It. | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Last year was a terrible one for most investors. It was also a great test to see which funds in your portfolio can play defense. 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