10
It’s time once more for our annual Buy the Unloved
strategy. It’s a contrarian strategy driven by fund
flows. The idea is to buy stock categories with heavy
redemptions and sell those with the greatest inflows.
Over the past
20
years, it has worked pretty well
because it is directing you to cheap assets and out of
pricey ones as flows usually follow hot performers
and flee areas with poor returns.
I’m a long-term investor, so I see this more as sug-
gested tweaks. Add some to the unloved pile and trim
from the loved. We use annual flows for categories
and then suggest holding a minimum of three years.
Typically, the strategy works best in big pivot years
and less well when you have extended rallies for one
part of the market.
For
2013
, the strategy suggested buying large growth,
large value, and large blend. The three categories
returned
33
.
9%
,
31
.
2%
, and
31
.
5%
, respectively, in
2013
. That’s pretty good, as U.S. stocks proved to
be a winner, though small- and mid-cap stocks did
even better. On the loved side, it suggested dumping
emerging markets, foreign large value, and real
estate. Those categories returned negative
0
.
1%
,
20
.
8%
, and
1
.
6%
. So far, the unloved are thumping
the loved.
And what about for
2014
? As we go to press, we have
flows through November. I will post flows through
December in mid-January on
along with details on how the strategy has performed
over time. At this point, the unloved categories are
large growth, precious metals, and natural resources.
It’s easy to see why precious metals and natural
resources saw outflows as they had a brutal
2013
, but
as you saw above, large growth was a winner.
On the loved side, foreign large blend, diversified
emerging markets, and large blend attracted the most
new money. The first two are similar to what we saw
in the prior year, but large blend has made a rare
flip from the unloved to the loved in just one year.
Large-Growth Ideas
Primecap Odyssey Growth
POGRX
is one of the
best growth funds you’ll find. It charges only
0
.
67%
for a fund that does excellent fundamental research
of growth stocks. It’s a solid pick for the long haul.
Manning & Napier Equity
EXEYX
is a team-run fund
with a strong record. The same team of managers
runs all of Manning
&
Napier’s funds, blending top-
down and bottom-up analysis to drive its portfolios.
T. Rowe Price Blue Chip Growth
TRBCX
is a gem
run by Larry Puglia who is in his
20
th year on the fund.
Puglia has produced top-quintile returns across the
one-, three-, five-, and
10
-year periods without taking
any extreme risks.
Jensen Quality Growth
JENSX
hits both the unloved
button and the quality emphasis that
GMO
suggests.
It’s a patient large-cap high-quality fund run by an
experienced team out of Portland, Ore. The fund gen-
erally holds up better than its peers in downturns,
so it’s got defensive appeal.
Precious-Metals Idea
With a
47
.
8%
loss in
2013
,
Oppenheimer Gold &
Special Minerals
OPGSX
is the epitome of unloved.
The fund is fairly aggressive and therefore tends
to have big rallies and big drops. A good fund, but
please use in moderation.
Natural-Resources Ideas
RS Natural Resources
RSNRX
is a little like the
above Oppenheimer fund in that it, too, has ex-
tremes. It lost
47%
in
2008
and gained
49%
in
2009
.
Mackenzie Davis and Ken Settles look for low-
cost producers, but that obviously doesn’t make for
a smooth ride.
IShares Global Materials
MXI
is a low-cost but
high-risk way to play various mining, chemicals,
paper, and construction materials companies. If the
global economy grows quickly, it likely will do well.
Obviously, this is not a core holding.
œ
Buy the Unloved
The Contrarian
|
Russel Kinnel
Our Contrarian Approach
I go against the grain to find
overlooked funds that may be
ready to rally.
