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The Hussman Funds Semi-Annual Letter to Shareholders

February 25, 2013 | About:
Holly LaFon

Holly LaFon

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Dear Shareholder,

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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Rating: 2.5/5 (13 votes)

Comments

traderatwork
Traderatwork - 1 year ago
Wow -12.6% in 2012 Nice Job. Will you still charge us the [Performance] Fee?

I think Dr. Hussman need to spend more time study [Value] Investing from Graham, Buffett, Munger... Rather than writing so many BS articles.

Don't worry, I think Gurufocus.com will still rate you as "Guru".
vgm
Vgm - 1 year ago
"I think Dr. Hussman need to spend more time study [Value] Investing from Graham, Buffett, Munger... Rather than writing so many BS articles."

Absolutely agree. And I've said exactly this in recent discussions on GuruFocus, when many others were worshipping him and his much-too-frequent letters. He's amateur.
Matt Blecker
Matt Blecker premium member - 1 year ago
I could not agree more with you guys. Dr. Hussman is a very bright guy. His company follows several ideal criteria which one should apply to any mutual fund before investing, such as a manager eating his own cooking and a shareholder friendly firm that communicates with investors well. However, his strategy is incredibly flawed, IMHO.

He attempts to guess the macro-environment and falls prey to "data mining" to prove his case. In other words, he does not follow a process like a bottom-up value investor would. Instead, he looks for data to prove his case. The bottom-up value investor such as Steve Romick, Seth Klarman, the team at Tweedy Browne, etc...will perform diligent research such as studying SEC filings, company presentations, and other relevant data like court cases and market share trends. Then they form an opinion as to whether the company is selling at a deep enough discount to intrinsic value and relative to other opportunities to be worthy of purchasing as a long-term investment.

Hussman has ALREADY formed an opinion based on a few key macro data points and resorts to writing what has essentially become gibberish each month to prove his point. This dangerous short-term macro strategy involving incredibly expensive hedging has pushed his ten year record to an annualized return of only 1.5%. For a manager who prides himself on watching the downside to achieve one of the most miserable ten year records in a period involving the worst financial crisis since the Great Depression is absolutely inexcusable.

Dr. Hussman is smart enough to perform diligent bottom-up research. I suggest he start as soon as possible instead of attempting to make macro calls. If he wants to be cautious fine. Keep a large amount of cash like Steve Romick so you are able to buy at better values.

The main difference: The long-term bottom up value investor researches to form an opinion, while Hussman has ALREADY formed an opinion.

AlbertaSunwapta
AlbertaSunwapta - 1 year ago
I still think seeking measurable means to protecting one's downside risk is a worthy pursuit. Trying to match or beat an index vs. earning a safe and reasonable investment return seems foolish to me when one sees risks that could threaten one's savings over the long term.
tkervin
Tkervin - 1 year ago
While Hussman is clearly too cautious for youngbloods looking to retire "rich" through their investment "skills".......his 2012 loss is hard to take. I still read him with interest each week. My guess is his 2013 results will end up helping his long term record. Time always tells.

As to the charge that Hussman "already" has an opinion as to market direction.....how anyone who has carefully read his work could say that.....well I will just stop there and go back to the beach...:-)
vgm
Vgm - 1 year ago
"well I will just stop there and go back to the beach"

Tkervin - take Hussman with you. He'd do well to learn the technical procedure that Charlie Munger calls "sitting on your a$$ investing".

:-)
sww
Sww - 1 year ago
Strategic Growth Fund

1 Year-12.31%
3 Year-5.78%
5 Year-4.18%
10 Year1.52%


Mr. Buffett once said we should judge one manager on a 3, 5 or 10 years basis.

Looking at this "performance", if Mr. Munger see this he will probably say: "I've nothing to add"

AlbertaSunwapta
AlbertaSunwapta - 1 year ago
People are incredibly fickle, short term orientated and judgemental. Several times Buffett has been a "has been". A year or so ago everyone was dumping on Berkowitz as his picks declined. Greenblatt too has mentioned how his style comes and goes into and out of vogue. It's interesting how powerful a few numbers can be at overpowering reasoned thought.

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