Funds That Win In Falling Markets

Funds That Win In Falling Markets
News
Like Us On Facebook
Like Us On Facebook

Unnerved by erratic markets, investors have been dumping stock mutual funds and shifting to bonds. That approach could provide protection in a downturn. But big fixed-income holdings could drag down results if stocks rally.

An alternative strategy for wary investors is to try one of the handful of flexible funds that can shift allocations. The flexible managers emphasize stocks in good times and take shelter in fixed income when conditions look risky. Funds that shift allocations include Osterweis Strategic Investment (OSTVX), Stadion Managed Portfolio (ETFFX) and Virtus Premium AlphaSector (VAPAX). The flexible portfolio managers don’t always make the right calls. But because they tend to excel in downturns, the funds can help to diversify portfolios.

Osterweis Strategic Investment holds from 25% to 75% of its assets in stocks. When portfolio manager John Osterweis has no strong views on the market, he keeps 50% to 60% in equities. These days the fund has less than 50% in stocks. “We are cautious because the economic recovery is likely to be less robust than people thought,” he says.

While Osterweis Strategic Investment only started in 2010, there is good reason to believe that it can succeed over the long term. The portfolio is a combination of two older funds – Osterweis (OSTFX) , a stock fund, and Osterweis Strategic Income (OSTIX), a multisector bond fund. Both the veteran funds have strong long-term track records.

During the past 15 years, the Osterweis stock fund returned 9.5% annually, outdoing 97% of competitors in the mid blend category, according to Morningstar. The record is particularly notable since the fund has maintained low risk scores and excelled in downturns. During the turmoil of 2008, the stock fund outdid competitors by a wide margin.

The Osterweis bond fund is a go-anywhere portfolio that can hold bonds of all kinds. In recent years, the portfolio manager has emphasized short-term high-yield bonds. Those yield more than Treasuries — without taking big risks. During the past five years, the fund has returned 6.8% annually, outdoing 66% of peers.

Stadion Managed Portfolio follows market momentum. When a rally begins, the portfolio managers start buying stocks. In a strong uptrend, the fund can hold up to 100% of assets in stocks. When markets begin dipping, the portfolio managers start shifting to fixed income. During much of 2008, Stadion had all its assets in cash. For the year, the fund lost 5.8%, outdoing the Standard & Poor’s 500 by about 31 percentage points. During the past five years, the fund has outdone the S&P 500 by a half a percentage point annually while taking much less risk than the benchmark.

Because the Stadion managers move into stocks gradually, they can trail most competitors in strong rallies. “We don’t expect to outperform all the time,” says portfolio manager Brad Thompson. “Our goal is to provide downside protection and deliver a return stream that is not correlated with most equity funds.”

By considering momentum and other factors, Virtus Premium AlphaSector determines its allocation. The portfolio managers estimate the outlook for each of the S&P 500′s nine industry sectors, including financials and technology. If the forecast is positive for an industry, then the fund takes a position in the sector. When the outlook is poor, the fund avoids the sector. If only three sectors are positive, the fund would have 25% of assets in each sector and 25% in cash. When no sectors seem attractive, the fund can have 100% in cash.

While the approach of Virtus is very unusual, it is beginning to attract a wide following. Introduced in 2010, the fund now has $3.2 billion in assets and ranked as one of the top-selling funds in 2011. “Investors are looking for funds that have the capacity to outperform the S&P 500 when the market is down,” says portfolio manager Howard Present.

The Street

Share Tweet
React
Like Us On Facebook
Like Us On Facebook

Preston Waters

Preston Waters is a thinker. He's not your traditional philosophical persona, however, as he leaves no topic untouched. Covering all the bases, from business to women, Preston Waters is the ultimate man's man for Gen-Y.

More In News

World Gigi Engle

Breaking: A Doctor Has Tested Positive For Ebola In NYC

A Doctors Without Borders physician who returned 10 days ago from a humanitarian trip to Guinea has been diagnosed with the deadly Ebola virus. This makes him the first confirmed case in New York City. The doctor, Craig Spencer, 33, is employed at New York Presbyterian Hospital/Columbia University Medical Center, but has been in isolation at […]

World Sean Levinson

Grandma Caught Selling Up To 100 Pounds Of Weed To Support Grandkids

A 65-year-old Sarver, PA, grandmother pleaded guilty to selling around 100 pounds of marijuana over the past five years. Authorities first charged Candace Kelly of Butler County in October of 2013 when they discovered 64 pounds of hydroponically grown marijuana and approximately $393,000 in cash. Those charges were dropped, however, because the family said that police […]

World Sean Levinson

Artist Creates A Sculpture Of The Madonna That Smells Like Vagina (Video)

Peter De Cupere is known as an olfactory artist because his projects produce certain smells from symbolic images. His newest creation is a statue of the Madonna that emits the scent of female genitalia. Called The Deflowering, the biblical figure is made out of “frozen holy water,” according to the Huffington Post. Inside the statue is […]

Also On Elite

World

The New CEO Of PayPal Once Spent 24 Hours Living Homeless

The soon-to-be CEO of PayPal once spent 24 hours living on the streets of New York to better understand the lives of the homeless. Dan Schulman wrote in The New York Times in 2009 that his company, Virgin Mobile, supported a nonprofit organization called StandUp for Kids. Run by Rick Koca, the nonprofit distributes survival […]

Life

Well, Duh: Why Sarcastic People Are Actually Proven To Be Smarter

If I had a nickel for every time I’ve been called a “smart ass” over my 22 years of existence, I’d probably be sipping montrachet off the coast of Saint-Tropez right now, instead of writing this piece. That title never really offended me, though; I’m a sarcastic piece of sh*t, I say it proudly [cue […]

World

Police Officer Battling Breast Cancer Gets Honored With Pink Patrol Car

Orlando police officer Karen Long has stage IV breast cancer, but she’s not slowing down anytime soon, even though this is her second fight with the disease. Long was first diagnosed in 2007. She had a double mastectomy and underwent radiation. About five years later, however, the cancer came back. In honor of those fighting […]

Women

Portrait Series Highlights The Beauty And Courage Of Women With Disabilities

One woman has set out on a mission to redefine what it means to be disabled. Last month, Wendy Crawford, a quadriplegic, debuted The Raw Beauty Project NYC, a fundraiser to launch the official collaboration of her organization, mobileWOMEN, with the Christopher & Dana Reeve Foundation. The Raw Beauty Project was held in Manhattan’s ACA Galleries […]

LOL Lists

14 Notifications Your Phone Would Send You If Apps Told The Truth

The world is slowly transforming into a place where everything is somehow an app, which is great for people who want to streamline their lives and an absolute nightmare for anyone who makes a living doing something that apps do better. The main reason we’ve fallen in love with these squares on our phone is […]