Thursday, September 04, 2014

John Hussman

In 2009, John Hussman (Trades, Portfolio)’s flagship Strategic Growth Fund was looking good: while the fund had declined 4.3% in the year to June 30, 2009, that had handily outperformed the S&P 500, which had fallen by more than 25% over the same 12-month period; in the nearly nine years since the fund’s inception, Mr. Hussman had racked up compounded annual returns of 8.9% – trouncing the 3.3% annual decline for the S&P 500 over that period. A year later, the fund would report net assets in excess of $6 billion – roughly 4X the amount under management five years earlier.

Fast forward to the present: in the years from 2009 to 2014, Mr. Hussman ceded the entire advantage he built in the first nine years of the fund’s operation back to the S&P 500; at June 30, 2014, he had reported annual returns since inception of 3.7%, against 4.1% for the S&P 500.

When most people are only interested in what you’ve done for them lately, Mr. Hussman finds himself in a painful position: his flagship fund has reported a 6.5% annual loss over the past three years, compared to a 16.5% annualized gain for the S&P 500. That decline alone was enough to deplete the fund’s AUM by nearly 20% from 2011.

Unfortunately, underperformance doesn’t come in a vacuum: investors have run for the doors as well, as Mr. Hussman’s bets have failed to pay off or been wrong (time will tell). From $5.64 billion in June 2011, the fund reported net assets of $1.14 billion at the end of June 2014 – a decline of 80% in just three years. The AUM for his flagship fund was lower in June 2014 than it was a decade earlier– a period where the index has more than doubled (including dividends).

Jean-Marie Eveillard (Trades, Portfolio) famously said, “I’d rather lose half of my clients than lose half of my clients’ money.” That’s a noble statement, and maybe John Hussman (Trades, Portfolio) agrees; with that said, the interim can be difficult – with returns and AUM both suffering. Most money managers are terrified of underperforming by a wide margin (as Hussman has done) or losing half their clients (which Eveillard did in the late 1990’s), even if it might mean being proven right and looking good at some point in the future. There are managers who were willing to make that trade-off in the late 1990’s rather than participate at the height of the tech bubble – only to lose their jobs before the bust finally came; potential job loss is a strong deterrent from leaving the herd.


Morningstar rates HSGFX one star.  Looking at the last ten years, it outperformed the S&P 500 in 2008 (-9.02% to -37.00%) and 2005 (5.71%  to 4.91%), but underperformed in the other eight years.  It has returned -6.89%, -5.50%, -1.26% compared to the S&P 500's 24.58%, 17.24%, 8.27% for 1, 5, 10 years.  A $10,000 investment 10 years ago would have shrunk to $8812 which the S&P 500 would have given you $22,134.  The fund holds 104 stocks with 141% turnover.  So it isn't for lack of trying.  Among the holdings are MSFT, MMM, WFC, INTC, AMGN,  Gurufocus has ABX and NEM as his top holdings, so maybe they were buying in the most recent quarter.

So maybe time to buy when he's looking bad?

Hussman holds a PhD in economics from Stanford University and was a professor of economics and international finance at the University of Michigan.

He was graded a little above average in 2009.  Don't see him rated at the current website.

No comments: