While John Hussman is without question a remarkable writer (and in my view a remarkable analyst - just too smart for his own good when it comes to allocating capital), the Hussman Strategic Growth Fund has produced some pretty horrific performance.
Highlights:
- Performance percentile ranks of 97th, 100th, 100th, and 100th over 1, 3, 5, and 10 years
- Negative absolute performance over 3 months, 1 year, 3 years, 5 years, and 10 years
- A current drawdown of 36% since the 9/15/08 Lehman Brothers collapse
Worse... the first page of the prospectus outlines:
The Fund seeks to achieve long-term capital appreciation, with added emphasis on the protection of capital during unfavorable market conditions.
While I won't remotely defend that performance, especially given its objective, I will point to its history of outperforming during the two market downturns since the fund's inception. This provides a potential opportunity for an investor willing to look past recent performance.
Potential ways to utilize the fund...
Absolute Momentum
Applying a very simple momentum model as introduced in Meb Faber's A Quantitative Approach to Tactical Asset Allocation (follow Meb on his blog mebfaber.com) would have provided an investor with the majority of excess performance, without the subsequent 6 1/2 year downturn. In this case we are simply allocating to the Hussman Strategic Growth Fund when the fund is > 9-month moving average, otherwise allocating to cash.
Dual Momentum
Rather than sit in cash if there are better opportunities, another way to utilize the Hussman Strategic Growth Fund is through a dual momentum approach as introduced in Gary Antonacci's white paper Risk Premia Harvesting Through Dual Momentum (follow Gary at optimalmomentum.com). In this instance, I tweaked his formula slightly and allocated to Hussman Strategic Growth, the S&P 500, or cash based on whichever is the most above it's 9-month moving average.
The results...
So, if/when markets eventually roll over and you think Hussman is capable of outperforming in a bear market environment (he certainly has spent much of the last 15 years contemplating how to structure a bearish portfolio), the strategy might actually make for an interesting allocation.
Great example of the power of dual momentum!
ReplyDeleteJL
Hey - I'm happy to see econompic revived but rather than go all fawning on that, I have to be a smart-ass :-). Years of reading dshort creates instant reactions when I see graphs like these, specifically, shouldn't it be in real total returns, and shouldn't it also be on a log scale? Then just to be a complete smart-ass, population adjust it and finish off by mockingly comparing a version where shadowstats is subbed in for CPI for inflation adjustment. Okay, maybe not the last two. Cheers!
ReplyDeleteHaha... thought about putting it in log scale, but Hussman stand alone / momentum returns (the first two charts) looked off as the returns were never strong enough to require it. As for nominal / real, that's fine but requires another step of pulling in inflation for something I don't view as necessary (especially in this regime). I'll leave the incorporation of ShadowStats data for Zerohedge. Thanks for the feedback.
ReplyDeleteI track Hussman's equity exposure weekly, and use that series to estimate timing gain/loss. Originally the HSGFX was one of my best "Prime Timers," but over past ten years the fund has given up an average 1.2% a year in timing changes(exposure variation).
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