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Robert Abbott
Robert Abbott
Articles (161)  | Author's Website |

Ken Fisher Takes Road Less Traveled, But Is It the Right Road?

Celebrated guru has a global reputation as an investing giant, but results from his publicly traded fund don’t invite imitation

“Fisher Investments fundamentally believes no investing style is permanently superior, but instead we understand that styles and philosophies cycle in and out of favor. As a result, we use a variety of tactics, dynamically managing client assets over time.”  Ken Fisher and Fisher Investments

Ken Fisher (Trades, Portfolio) was not only born into an investing family, he is also a scholarly and popular writer, not to mention an excellent marketer.

But is he a good fund manager? That nagging question emerges after a look at his one publicly traded fund, which has mostly lagged benchmarks for the past 15 years.

Nevertheless, there are many lessons that can be learned from examining his investing philosophy and strategy.

Who is Fisher?

Ken Fisher is the son of another investing legend, Phil Fisher, and is executive chairman and co-chief investment officer of Fisher Investments, which Ken Fisher started in 1979.

Ken Fisher is also widely known for his writing: He wrote the “Portfolio Strategy” column at Forbes magazine for more than three decades (the last column was published Jan. 19). Also, according to his bio on the Fisher Investments’ website, he writes regular columns for Focus Money magazine in Germany and the Financial Times in Britain. In addition, he has written 11 books and pioneered the price-sales (P/S) ratio as an investment management tool.

You may also know Ken Fisher from the marketing for his firm. In my case, I visited his website, clicked on one of his ads or requested a free information package a couple of years ago. Since then, his ads have followed me all over the internet, using a marketing tool called re-targeting.

Ken Fisher has been recognized for both his popular and scholarly work as well as fund performance. That includes being named by ThinkAdvisor (in 2010) to its "Thirty for Thirty" list – the 30 most influential individuals in the investment industry over the previous 30 years.

Fisher not only comes from a prominent investing family, but his scholarly work suggests he has a deep understanding of finance and investing while his popular writing suggests he knows how to communicate complex ideas to a broad audience.

What is Fisher Investments?

On its website, the firm describes itself this way: “Fisher Investments is an independent fee-only investment adviser serving over 35,000 high net worth individuals and over 175 institutional clients across the globe.*” (The * indicates data as of March 31.)

In its Form ADV filed in July, it reported having $71,789,691,574 of regulatory assets under management. In its Form ADV Part 2A it lists Ken Fisher as the principal owner of Fisher Investments Inc. The firm is based in Camas, Washington (just east of Vancouver, Washington).

Ken Fisher’s organization offers dozens of private and institutional funds, according to its Form ADV Part 2A, but only one that is publicly traded: the Purisima Total Return (PURIX).

According to its 13F filing, as reported by Morningstar, the Purisima Fund’s objective is capital appreciation and growing income through diversified investments in various securities. It prefers global equities and fixed interest securities but will also invest in vehicles such as warrants, cash and money market instruments.

On Sept. 7, 2016, the firm applied to de-register and liquidate The Purisima Funds, which comprise The Purisima Total Return Fund and The Purisima All-Purpose Fund, according to its N-8F application.

With de-registration of the Purisima funds, Fisher Investments will return behind closed doors to privately serve its high worth individuals and institutional clients.

What is Fisher’s investing strategy?

While Fisher may be a prolific writer, he makes little information available about his philosophy, strategies or processes in public filings or on his website. In the Form ADV Part 2A for example, he discusses only, and briefly, Methods of Analysis:

“FI uses both qualitative and quantitative tools to analyze markets, sectors and securities. FI makes extensive use of computers, computer peripherals, software and computer databases in screening for securities worthy of investment consideration. FI uses a centralized portfolio management system, which includes block trading, portfolio management and securities price data collection.”

There are other slices of information that help us understand his thinking about the markets and investing. Let’s start with his father, Philip Fisher. According to Investopedia, Phil Fisher was one of the early advocates for the growth stock method. Within that context, he took an early interest in innovation and technology based on R&D practices. He invested for the long term in well-managed growth stocks. High quality meant excellent management and a strong business. He is quoted as saying, "I don't want a lot of good investments; I want a few outstanding ones."

Turning to his son Ken Fisher, one of his executives laid out five core principles of the firm's investment philosophy in a 2015 presentation about the Private Capital Group. Those principles are:

  • A fundamental belief in capitalism and in how free capital markets function.
  • The "simple notion" that the sole determinant of security pricing is the supply and demand for them. 
  • Capital markets do a reasonably good job at discounting all widely known information and immediately price in that information and investors' expectations.
  • Any obvious opportunities that arise from widely available news, rumor and speculation vanish almost immediately as stock prices adjust.
  • For active management to add value, it must identify information that is not well known or to take well-known information and interpret it differently – and correctly – than others in the market.

in a 2015 interview with CNN Money, Ken Fisher emphasized the need to rise above the daily chatter because all broadly known fears are already priced into the market. Instead, he argues investors should think or worry about what’s coming next.

Focus on what might be coming in the next three to 30 months, he says. For example, at the time of the 2015 interview, the Supreme Court was expected to rule again, that year, on the constitutionality of the Affordable Care Act (Obamacare). Fisher told CNN Money, “A constitutional crisis that's now just a few months away nobody has that priced in,” and he adds that “markets hate uncertainty.”

Ken Fisher can be provocative. In a 2010 ValueWalk article, Jacob Wolinsky cited Ken Fisher as dissing those who advocate for one particular investing strategy, such as value, small cap, emerging markets – and even growth investing. Ken Fisher said all major categories of equity must, in the long term, have nearly identical real risk adjusted return profiles. Otherwise, he said, you must believe one category of equity is more powerful than capitalism itself.

The road less traveled for Ken Fisher involves his belief that supply and demand determine the prices of stocks. He is as dismissive of growth strategies as of all other strategies in arguing that no asset class can outshine the others in a functioning capitalist environment.

Fisher Investments Holdings

Ken Fisher and his firm have essentially a go-anywhere mandate for picking stocks. His portfolio focuses on Financials and Technology, as this GuruFocus chart shows:

Fisher Investments sectors

GuruFocus reports the firm’s top 10 holdings, as of June 30, were:

  • iShares iBoxx Bond fund (LQD) 4.03%.
  • Amazon.com Inc. (NASDAQ:AMZN) 2.62%.
  • Johnson & Johnson (NYSE:JNJ) 2.42%.
  • Apple Inc. (NASDAQ:AAPL) 2.42%.
  • Barclays ETN FI (FIGY) 2.39%.
  • Visa Inc. (NYSE:V) 2.33%.
  • Alibaba Group Holding Ltd. ADR (NYSE:BABA) 2.31%.
  • Taiwan Semiconductor Manufacturing Co. (NYSE:TSM) 1.92%.
  • Credit Suisse FI Large Cap ETN (FLGE) 1.82%.
  • Pfizer Inc. (NYSE:PFE) 1.82%.

An unusual collection of securities, one that Ken Fisher obviously believes suits his clients. Note the corporate bond fund (iShares iBoxx Bond) and the two ETNs (Barclays ETN FI) and (Credit Suisse FI Large Cap ETN). Such funds are rarely seen among the top 10 lists of other gurus, particularly among those of value investors.

Fisher’s performance

This GuruFocus table shows how the Purisima Total Return Fund compares with the Standard & Poor's 500. Overall, it’s not flattering:

Purisima Total Return performance

On a 15-year cumulative basis, PURIX logs an average of 4.4% per year vs. 5% for the S&P 500.

That underperformance is reflected in the negative Alpha (negative Alpha means an active manager has underperformed a benchmark), as shown in this Google Finance table:

Purisima Total Return alpha

Despite the results, Fisher has managed to grow his firm's equity holdings from $5 billion in 2000 to $66 billion at the end of the first quarter of this year:

Fisher Investments total equity holdings

That growth may reflect his skillful marketing. As Meb Faber has noted, “There’s no denying he’s a master of the direct mail and online lead generation process.”

We have taken the Purisima fund as proxy for Ken Fisher’s overall performance. The fund represents only $219.33 million of a firm that manages almost $78 billion. There may be surprises behind the curtain.

Conclusion

Ken Fisher has a reputation as one of the leading financial gurus, in the footsteps of his father, who was equally esteemed.

The performance of the Purisima fund does not support that reputation. As noted, there may be some results that accrue to only his private and institutional clients.

Whatever the case, Ken Fisher (and his father) have contributed much to our understanding of investing. In particular, I would point to Ken Fisher’s emphasis on the supply and demand argument, the need to ignore the noise of the market and look ahead, from the top down, three to 30 months ahead.

Disclosure: I do not own shares in any of the companies listed in this article and do not expect to buy any in the next 72 hours.

About the author:

Robert Abbott
Robert F. Abbott has been investing his family’s accounts since 1995, and in 2010 added options, mainly covered calls and collars with long stocks.

He is a freelance writer, and his projects include a website that provides information for new and intermediate level mutual fund investors (whatisamutualfund.biz).

As a writer and publisher, Abbott also explores how the middle class has come to own big business through pension funds and mutual funds, what management guru Peter Drucker called the Unseen Revolution. In Big Macs & Our Pensions: Who Gets McDonald's Profits?, he looks at the ownership of McDonald’s and what that means for middle class retirement income.

In an eclectic career, Robert Abbott was a radio news writer and announcer, a newsletter writer and publisher, a farmer, a telephone operator, and a construction worker. When not working, he has been a busy volunteer, which includes more than a decade of leadership roles at the Airdrie Festival of Lights, one of North America’s leading holiday light displays. He lives in Airdrie, Alberta, Canada.

Visit Robert Abbott's Website


Rating: 5.0/5 (5 votes)

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Comments

Thomas Macpherson
Thomas Macpherson premium member - 3 weeks ago

I wrote about Mr. Fisher in "How Long is Too Long?". His career is a monument to the triumph of marketing over performance. Very disheartening. Great article as usual Bob. Best - Tom

Robert Abbott
Robert Abbott premium member - 3 weeks ago

Thanks, Tom! I'm still a step behind you. I read the Fisher section of your book just after publishing my article. For everyone else, Tom has written an excellent book (and I'm still only half way through). Bob

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