The Hussman Funds Semi-Annual Letter to Shareholders
For the year ended December 31, 2012, Strategic Growth Fund lost -12.62%, Strategic Total Return Fund achieved a total return of 1.14%, and Strategic International Fund lost -1.44%. From its inception on February 6, 2012 through December 31, 2012, Strategic Dividend Value achieved a total return of 1.01%. Notably, the decline in Strategic Growth Fund was primarily driven by a 7% shortfall between the performance of the Fund's stock holdings and the performance of the S&P 500 Index – the primary index used in the Fund to hedge market risk. While the Fund's stock selection approach has significantly outperformed the S&P 500 Index over time, a brief but similar performance lag in the Fund's stock holdings was also observed during the advance toward the 2007 stock market peak.
The period since 2009 has been challenging, particularly for Strategic Growth Fund. By the market low of March 9, 2009, a $10,000 investment in the Fund at its inception on July 24, 2000 would have grown to $20,557, compared with a decline in value to $5,401 for a similar investment in the S&P 500 Index. The period since then has comprised a trough-to-peak bull market advance in the S&P 500, without the corresponding bear market decline that typically completes a full market cycle.
As detailed in the June 30, 2012 Hussman Funds Annual Report, we missed a substantial rebound in the stock market in 2009-early 2010 period. That "miss" did not result from applying our present methods, but resulted from the need to address a "two data sets" problem in a world where Depression-era outcomes had become possible. As economic conditions worsened beyond anything observed in the postwar period, I insisted in 2009 that our investment approach should perform well even in the most extreme conditions, including Depression-era data – despite the strong performance of our existing methods until that time. The two resulting enhancements to our approach are described in the 2012 Annual Report. It is not entirely clear whether future market cycles will invite Depression-like outcomes, rapid inflation, or unforeseen fiscal strains. What I do believe is that our approach to estimating prospective market return/risk will be able to engage those uncertainties – if they emerge – without further changes.
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