Tag Archives: alternative

Fidelity Low Priced Stock Fund Is A Value

Summary Manager Joel Tillinghast has managed the fund since inception in 1989. He’s racked up an annualized 14% return since inception, versus the less than 10% return of the benchmark. Although it started as a small cap fund, rising assets have forced the fund to increase the average market cap of its holdings. Established in 1989, the Fidelity Low-Priced Stock Fund (MUTF: FLPSX ) was created as a vehicle to invest in out-of-favor small- and mid-cap stocks. The growing assets under management have enabled FLPSX to take on the characteristics of a mid-cap focused value fund while continuing to generate impressive results that still provides investors with high returns. Investing at least 80 percent of net assets primarily in low-priced common stocks, FLPSX seeks to generate returns primarily through capital appreciation. It has done extremely well in the past 15-years, racking up an annualized return of 12.57 percent versus the 4.47 percent return delivered by the S&P 500 Index. That level of market beating performance isn’t as likely due to rising assets, but the fund remains a solid choice for investors. Investment Strategy Joel Tillinghast has managed FLPSX since its inception. Today, he is assisted by a team of six co-managers who are each responsible for approximately 6 percent of the fund. Managers utilize an opportunistic investment approach based on a strict valuation process that predominately targets shares priced below $35 issued by high-quality, small- and mid-sized companies with stable growth prospects. The price per share limitation requires that the managers focus on small-cap stocks with significant growth potential. Generally, the securities should also have a low price-to-earnings (P/E) ratio, generate good cash flow and provide a margin of relative safety. This strategy is based on the belief that many low-priced shares are mispriced by the market and offer the potential for greater returns. They also consider stocks not held in the underlying benchmark index as well as those outside the U.S. to find under-valued, fast-growing companies. On average, one-third of assets are foreign securities. Managers use a long-term, global perspective when selecting individual investments. They identify small- and mid-cap stocks with excellent valuation that are also expected to outperform for many years, allowing the fund to hold securities for the long-term, which is why the fund as a low turnover rate of 12 percent. Tillinghast also hangs on to attractive stocks even if they increase beyond the $35 limit. This causes the funds average market capitalization to drift higher over time. If compelling investment opportunities fail to materialize, the fund will hold a large cash position even if it hampers overall investment returns. Portfolio Composition and Holdings At the end of December 2014, this fund had $44.1 billion in net assets under management. The portfolio held 56.98 percent in domestic equities and 33.4 percent in foreign issues. The foreign sleeve was heavily weighted towards developed markets, mostly Europe and Japan, with a small exposure in emerging markets. The fund also had 0.01 percent bond exposure with the remaining 9.61 percent of assets held in cash. FLPSX’s portfolio has a market cap breakdown of 13 percent giant, 21.27 percent large and 36.56 percent mid, 20.11 percent small and 9 percent micro. This averages out to a median market cap of $5.93 billion, which compares to the category average of $9.7 billion. There were 926 individual holdings within the portfolio at the end of 2014. Managers do not select stocks based on sector exposure, rather sector exposure reflects where they find the best values. At the end of 2014, that left FLPSX overweight (versus the category of mid-cap value) consumer discretionary, information technology and consumer staples, while being underweight financials, healthcare and industrials. The fund’s top 10 individual holdings comprise 25.73 percent of the portfolio. From Fidelity’s website : Several of these holdings highlight the strategy shift and holding stocks even after they cross the $35 threshold. UnitedHealth Group (NYSE: UNH ), for example, currently trades above $100 per share. The fund has a P/E ratio of 13.83 and a price/book ratio of 1.66 along with a dividend yield of 1.91 percent. Historical Performance and Risk The most recent quarterly results were hampered by the fund’s focus on consumer discretionary and information technology as well as its financial holdings and large cash position. Major negative factors included the fund’s exposure to Genworth (NYSE: GNW ), which posted an unexpected third quarter loss, the poor price performance of Microsoft (NASDAQ: MSFT ) and the negative effects of weak holiday sales on British retailer Next. While returns may suffer in the short-term, the investment philosophy of Mr. Tillinghast has produced a 14 percent annualized gain during his 25-year tenure as fund manager. Over this same period, FLPSX has beaten the performance of all its relevant categories and benchmark indices on an impressive risk-adjusted basis. The most recent 1-, 3- and 5-year returns for FLPSX have been 13.58 percent, 15.97 percent and 16.23 percent respectively. This compares to the 15.93 percent, 16.63 percent and 15.96 percent returns of the mid-cap value category over the same periods. The three-year beta and standard deviation for FLPSX are 0.67 and 10.16. FLPSX has Average return and risk ratings from Morningstar. The fund has a trailing 12-month yield of 0.98 percent. Expenses, Fees and Distributions The fund’s net expense ratio is 0.82 percent. The expense ratio changes based on the fund’s relative performance when compared to the benchmark Russell 2000 Index, moving up or down 0.02 percent for every 1 percent of under performance versus the benchmark Russell 2000 Index. FLPSX also has a 90-day, short-term redemption of 1.5 percent. The fund has a minimum initial investment amount of $2,500 for both taxable and non-taxable funds. There is also a minimum balance requirement of $2,000. While the fund does not have check writing, it does support direct deposit and automatic account builder functions. Outlook FLPSX has earned its four-star Morningstar rating for a reason, and that reason is Joel Tillinghast’s strong stewardship of this fund. Performance has been solid in the past few years, but the fund struggled to beat the benchmark and category. Rather than rotate fund holdings in light of the changing nature of the current late-stage recovery in the hope of chasing greater returns, fund manager Tillinghast remains focused on preserving capital and growing FLPSX though solid stock selection. We think FLPSX is poised to rebound as lower oil prices benefit consumer discretionary spending. The fund’s limited exposure to energy stocks should shield it from the negative effects of declining oil prices. The European Central Bank continuing its quantitative easing program should boost the fund’s European stock holdings. While small-cap stocks fell out of favor for much of 2014 and mid-caps trailed large caps, the fund’s focus on quality securities with lower volatility helps propel minimize losses when the overall market retreats. When the category is back in favor, FLPSX will make up lost ground. Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Columbia Management Shutters 3 Alternative Mutual Funds

By DailyAlts Staff Just last week, Columbia Management announced the launch of a new alternative mutual fund, the Columbia Adaptive Alternatives Fund (MUTF: CLAAX ), in partnership with Blackstone Alternative Investment Advisors. The same day that partnership was announced, Columbia also filed paperwork with the SEC to shutter four of its own mutual funds, three of which are alternative funds: The Columbia Absolute Return Emerging Markets Macro Fund; The Columbia Absolute Return Enhanced Multi-Strategy Fund; and The Columbia Absolute Return Multi-Strategy Fund. The Emerging Markets Macro Fund The Columbia Absolute Return Emerging Markets Macro Fund (MUTF: CMMAX ) had $72.6 million in assets under management (AUM) as of February 1. The long/short emerging market debt fund had a 3-year return as of 12/31/14 of 0.15%, ranking it in the 88th percentile in Morningstar’s non-traditional bond fund category and trailing the category average by 3.13%. The Enhanced Multi-Strategy Fund The Columbia Absolute Return Enhanced Multi-Strategy Fund (MUTF: CEMAX ), an alternative multi-asset fund, had $99 million in AUM as of February 1, and generated a 1.21% return for the 3-year period ending 12/31/14 versus a return of 4.16% for Morningstar’s multi-alternative category for the same period. The Multi-Strategy Fund The Columbia Absolute Return Multi-Strategy Fund (MUTF: CMSAX ) is also an alternative multi-asset fund, and had just $15.9 million in AUM as of February 1. Through 12/31/14, the fund generated a 3-year return of 0.60%, ranking it in the 86 percentile of Morningstar’s multi-alternative category. Conclusion The non-alternative Columbia Masters International Equity Portfolio (MUTF: CMTAX ) is also being liquidated. The fund’s 3-year return of 9.25% trailed the foreign large-blend category by 0.97% and outperformed the MSCI All Country World (ex-US) Index by 0.25%. Effective February 2, the four funds stopped accepting new investors. The SEC filing announcing the fund closures said the liquidations are expected to be complete by March 6. Are you Bullish or Bearish on ? Bullish Bearish Neutral Results for ( ) Thanks for sharing your thoughts. Submit & View Results Skip to results » Share this article with a colleague

Critiquing Klarman

Seth Klarman wrote a very good piece for the FT yesterday on the 12 things he’s learned from Warren Buffett. Only an idiot would disagree with Klarman so, like any good idiot, I wanted to write my own version/critique of Klarman’s thoughts: 1. Value investing works. Buy bargains. CR here – Yes, value investing works. I embrace value investing where appropriate . But it’s also tremendously difficult. As Buffett has stated on several occasions, you’re probably better off not trying to do what he does. You’re better off buying low fee index funds. More importantly, you should think of “investing” as your primary source of income. The thing most people call investing is actually a reallocation of savings. Treat it like savings and avoid the gambler mentality that leads so many astray. 2. Quality matters, in businesses and in people. Better quality businesses are more likely to grow and compound cash flow; low quality businesses often erode and even superior managers, who are difficult to identify, attract, and retain, may not be enough to save them. Always partner with highly capable managers whose interests are aligned with yours. CR here – Couldn’t agree more. As Buffett has stated, surround yourself with people who are smarter than yourself. If you’re me, just surround yourself with other people. 3. There is no need to overly diversify. Invest like you have a single, lifetime “punch card” with only 20 punches, so make each one count. Look broadly for opportunity, which can be found globally and in unexpected industries and structures. CR here – I think this is great advice in your personal life. I always talk about how real “investments” are made in our primary source of income. Don’t diversify there. Do one thing and do it well. Your savings, however, should be treated like savings. Diversify it broadly across many asset classes so it protects you from purchasing power loss and permanent loss, but don’t take so much risk here that it creates instability in your ability to plan for your financial future. 4. Consistency and patience are crucial. Most investors are their own worst enemies. Endurance enables compounding. CR here – Brilliant. You are own worst enemy. Educate yourself, create a process/plan and get out of the way. 5. Risk is not the same as volatility; risk results from overpaying or overestimating a company’s prospects. Prices fluctuate more than value; price volatility can drive opportunity. Sacrifice some upside as necessary to protect on the downside. CR here – Risk is the potential that we won’t meet our financial goals. Most of us don’t need to waste time looking at individual firms that have already been scoured by the smartest investment bankers and investment managers on Earth. If we beat inflation and do so without creating excessive permanent loss risk then we are beating most of the people engaged in the investment world. 6. Unprecedented events occur with some regularity, so be prepared. CR here – In other words, diversify so that you protect yourself not only from the unknown, but from your own stupidity. 7. You can make some investment mistakes and still thrive. CR here – you won’t just make some mistakes. You will make consistent mistakes. The goal is to engage in a strategy that exposes you to high probability of positive outcomes. Losses are part of the process. Learn from them and improve the odds of your future processes. 8. Holding cash in the absence of opportunity makes sense. CR here – as Buffett says, think of cash like a call option. A little bit of cash provides you with flexibility, permanent loss protection and the ability to contribute consistently to a broader plan. Your savings portfolio needs to be fed. Feed it consistently so it gets nice and fat. 9. Favour substance over form. It doesn’t matter if an investment is public or private, fractional or full ownership, or in debt, preferred shares, or common equity. CR here – think macro, not micro. Different asset classes are a function of differing legal structures and behaviors. When pieced together correctly they should complement one another even if they don’t always agree with one another. 10. Candour is essential. It’s important to acknowledge mistakes, act decisively, and learn from them. Good writing clarifies your own thinking and that of your fellow shareholders. CR here – in other words, write a financial site where you critique people who are much smarter than you are. 11. To the extent possible, find and retain like-minded shareholders (and for investment managers, investors) to liberate yourself from short-term performance pressures. CR here – if your investment manager doesn’t eat his own cooking then maybe they shouldn’t be cooking for you. 12. Do what you love, and you’ll never work a day in your life. CR here – don’t do what you love. Do something other people will love you for doing. Good capitalists serve themselves best by serving others.