(GuruFocus, Novermber 5, 2009) Investment Guru John Hussman runs a long/short mutual fund. He invests in common stocks primarily, but depending the market valuation and market action combination, he will deploy option strategies that either hedge or leverage his position.
For most of the time during the past decade, he has been concerned about the high valuation and often he has hedged his long positions substantially. When he hedges his position completely, he relies on the outperformance of his stocks to deliver the performance for the fund.
The performance of the fund has been very decent: since the inception on July 2000 and through October 31, 2009, $10,000 invested in Hussman Strategic Growth Fund would become $21,297, while the same amount invested in S&P 500 will actually lose value to $8,388.We recommend you read his weekly market commentary here. In his most recent issue that was published at the beginning of this week, he again expressed his concern of unfavorable valuation level but also stated that in short term, the market appeared to be oversold:
As of last week, the Market Climate for stocks remained characterized by unfavorable valuations, with the S&P 500 still priced to deliver probable total returns of only about 6.5% annually over the coming decade. This is a level of valuation typically observed near major pre-1995 peaks, not troughs, and certainly not early bull markets. Market action last week remained mixed. Trends in the major indices, as well as breadth (advance-decline) remained generally intact, though we're observing some early divergences here. Meanwhile, the market remained generally overbought on intermediate-term measures, but short-term measures have cleared and are now somewhat oversold.
As noted above, we took some incremental exposure on market weakness late last week, but the operative word here is incremental – I continue to be primarily concerned about downside risk. At the same time, I do expect – on the basis of simulations – that when we are faced with investment conditions wholly outside of post-war experience (as we observed not only over the past year, but also in the late 1990's), allowing some "model diversification" as described above, will result in a moderate increase in full-cycle performance, a slight increase in short-term volatility, little or no increase in maximum drawdown, and a moderate improvement in our “tracking” of general market advances. In all, a general improvement in the return/risk characteristics of our approach.
The conservative strategy makes stock picking essential. Hussman envisions that his fund invests in between 100-200 stocks and each will take a weighting of around 1%, and stock with 2% weighting will be considered over-weighted.
Yet we found these stocks among his holdings exceed the high limit:
No. 1: AstraZeneca PLC (AZN), Weightings: 3.36% - 4,000,000 Shares
AstraZeneca PLC is one of the top five pharmaceutical companies in the world based on sales and is a therapeutic leader in cardiovascular gastrointestinal oncology anesthesia including pain management central nervous system (CNS) and respiratory products. Astrazeneca Plc has a market cap of $64.87 billion; its shares were traded at around $44.8 with a P/E ratio of 7.7 and P/S ratio of 2. The dividend yield of Astrazeneca Plc stocks is 4.7%. Astrazeneca Plc had an annual average earning growth of 12.2% over the past 10 years. GuruFocus rated Astrazeneca Plc the business predictability rank of 2-star.No. 2: Cisco Systems Inc. (CSCO), Weightings: 3.3% - 7,500,000 Shares
Cisco Systems Inc. is the worldwide leader in networking for the Internet. Cisco's Internet Protocol-based networking solutions are the foundation of the Internet and most corporate education and government networks around the world. Cisco provides the broadest line of solutions for transporting data voice and video within buildings across campuses or around the world. Cisco Systems Inc. has a market cap of $134.91 billion; its shares were traded at around $23.29 with a P/E ratio of 20 and P/S ratio of 3.8. Cisco Systems Inc. had an annual average earning growth of 17.1% over the past 10 years.No. 3: Aeropostale Inc. (ARO), Weightings: 3.25% - 4,000,000 Shares
Aeropostale Inc. is a mall-based specialty retailer of casual apparel and accessories principally targeting fourteen to seventeen year-old young women and men. The Company provides customers with a focused selection of high-quality active-oriented fashion and fashion basic merchandise at compelling values. Aeropostale maintains control over its proprietary brands by designing sourcing marketing and selling all of its own merchandise. Aeropostale products are currently purchased only in its stores on-line through its e-commerce website or at organized sales events at college campuses. Aeropostale Inc. has a market cap of $2.55 billion; its shares were traded at around $38.03 with a P/E ratio of 14 and P/S ratio of 1.4. Aeropostale Inc. had an annual average earning growth of 27.4% over the past 5 years.No. 4: Research in Motion Ltd. (RIMM), Weightings: 3.15% - 2,500,000 Shares
RESEARCH IN MOTION is a world leader in the mobile communications market and has a history of developing breakthrough wireless solutions. RIM's portfolio of award-winning products services and embedded technologies are used by thousands of organizations around the world and include the BlackBerry wireless platform the RIM Wireless Handheld product line software development tools radio-modems and software/hardware licensing agreements. Research In Motion Ltd. has a market cap of $32.7 billion; its shares were traded at around $57.61 with a P/E ratio of 15.4 and P/S ratio of 3. Research In Motion Ltd. had an annual average earning growth of 83.5% over the past 5 years.No. 5: Best Buy Co. Inc. (BBY), Weightings: 2.8% - 4,000,000 Shares
Best Buy operates in a single business segment selling personal computers and other home office products consumer electronics entertainment software major appliances and related accessories principally through its retail stores. They operate retail stores and commercial Websites under the brand names Best Buy Media Play On Cue Sam Goody Suncoast Magnolia Hi-Fi and Future Shop. They also operate in three segments: Best Buy Musicland and International. Best Buy Co. Inc. has a market cap of $16.22 billion; its shares were traded at around $38.96 with a P/E ratio of 14.2 and P/S ratio of 0.4. The dividend yield of Best Buy Co. Inc. stocks is 1.4%. Best Buy Co. Inc. had an annual average earning growth of 24% over the past 10 years. GuruFocus rated Best Buy Co. Inc. the business predictability rank of 4.5-star.No. 6: Kohl's Corp. (KSS), Weightings: 2.66% - 2,500,000 Shares
Kohl's Corporation operates family oriented specialty department stores primarily in the Midwest Mid-Atlantic and Northeast areas of the United States that feature quality national brand merchandise priced to provide exceptional value to customers. The company's stores sell moderately priced apparel shoes accessories and home products targeted to middle-income customers shopping for their families and homes. Kohl's stores feature easily accessible locations well laid out stores central checkout and good in-stock. Kohl's Corp. has a market cap of $17.28 billion; its shares were traded at around $56.54 with a P/E ratio of 20 and P/S ratio of 1.1. Kohl's Corp. had an annual average earning growth of 21% over the past 10 years. GuruFocus rated Kohl's Corp. the business predictability rank of 4-star.Conclusion
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