Sunday, January 22, 2012

Investments 2012

As you might have noticed, I left a mutual fund ticker as a teaser at the end of my one of my earlier posts: DFSAX. This ticker is a mutual fund that is managed in part by Andrew Lo, a renowned MIT professor which is designed as a multi-strategy mutual fund.

Multi-strategy funds exist as a mechanism to reduce the overall risk in the market by hedging. Hedging/Multi-Strategy funds allow more freedom within the fund to choose different investments. According to Google, these are the top 10 holdings of the fund as of 1/22/2012:

Top 10 holdings
Security Net Assets
German Euro Schatz Futures Dec11 Xeur 8.25%
10yr Japan Govt Bond Ftrs Tse Dec11 Xtks 7.50%
3yr Australian Tbond Futures Dec11 Xsfe 4.22%
10yr Us Treasury Note Futures Mar12 Xcbt 3.41%
German Euro Bund Futures Dec11 Xeur 2.81%
Uk Long Gilt Bond Futures Mar12 Xlif 2.76%
German Euro Bobl Futures Dec11 Xeur 2.28%
Msci Taiwan Index Futures Dec11 Xses 1.10%
10yr Govt Of Canada Bond Ftrs Mar12 Xmon 1.04%
Asg Diversifying Strategies Ca Capstock Shares 0.97%

Without knowing very much about any of these, you can see that these are largely futures and that there is very little direct ownership in equities. This makes a lot of sense because this fund was offered as an alternative investment on the WealthTrack show on 1/22/2012. The idea here is that while you'd continue to strongly weight your portfolio within stocks and bonds, you'd provide a small weight to one or more alternative investments which are negatively correlated with the market.

If the market goes down, this investment goes up. While I've been investigating these investments for a long time, I certainly had not heard of this one before. Prior to this show, I had been looking at some small allocation into Gold or Energy focused funds.

I am pleased with my research so far on this name, because the initial investment is low at 3000 dollars USD, which is within my price-range. However, the A-shares, which is what I would purchase, come at a hefty 5.75% front-end load. While most shares have a load, many firms like vanguard offer no-load mutual funds. This means that I would lose 172.50 right off the top with my 3000 investment, bringing me to 2827.50. Then the remaining money would have to climb about 6.1% before I began making anything. This seems a bit excessive for me, so I probably will wait on this.

Blogging Wealthtrack 1/22/2012

This morning I tuned in to Consuelo Mack Wealthtrack. It is one of my favorite shows to listen to with respect to personal finance, but more tuned in on the investing side. I think that the subject matter is quite fascinating, although not as titillating as say the Suze Orman show (which I also happen to like).

On this week's show, Consuelo interviewed Phil DeMuth, author of the little book on alternative investments. I found that this was a very interesting author and he seemed like a down-to-earth kind of guy, which is a nice, refreshing change compared to many guests that appear on the show who sometimes seem like they are a little bit divorced from the plight of everyman.

Her other guest was John Hathaway, founder of the Tocqueville Gold Fund. During an interesting interchange, there was a comparison of a large sum of gold versus an equal amount of the assets of Warren Buffet's Berkshire Hathaway, and the preference seemed to be Berkshire for Phil. However, John Hathaway was quick to point out that gold had done much better in the trailing period.

Two common points about gold were countervailing points, however:
1. Gold has now earnings stream to buoy the price
2. In order for gold to see a similar run up that it has had percentage-wise, the world would have to be dramatically different than it is today.

Of course, alternative investments are good because they are alternatives to existing asset classes, something that many people are stuck with in traditional mutual funds that hold stocks and bonds. Phil recommended that your holdings in these alternative investments should be largely based on your experience and knowledge, indicating that perhaps you would start small around 5-6% and increase over time to 10-25% if you became really comfortable.

Personally, even if I really knew what I was doing, I think 10% would be my limit. For the same reason Gold can't run up, I don't want to bet against the market at that level. I have to believe that over the long term, things will continue to get better for everyone.

Go to WealthTrack.com to see the show/learn more. You'll be glad you did.


DFSAX