The Case for Hussman Strategic Growth

Well... maybe not the "case for". Rather, a "kinda / sorta case". If you're contemplating making a long-term allocation to the fund (you're not)... don't.

While John Hussman is without question a remarkable writer (and in my view a remarkable analyst - just too smart for his own good when it comes to allocating capital), the Hussman Strategic Growth Fund has produced some pretty horrific performance.

Highlights:

• Performance percentile ranks of 97th, 100th, 100th, and 100th over 1, 3, 5, and 10 years
• Negative absolute performance over 3 months, 1 year, 3 years, 5 years, and 10 years
• A current drawdown of 36% since the 9/15/08 Lehman Brothers collapse 

Worse... the first page of the prospectus outlines:

The Fund seeks to achieve long-term capital appreciation, with added emphasis on the protection of capital during unfavorable market conditions.

While I won't remotely defend that performance, especially given its objective, I will point to its history of outperforming during the two market downturns since the fund's inception. This provides a potential opportunity for an investor willing to look past recent performance.

Potential ways to utilize the fund...

Absolute Momentum
Applying a very simple momentum model as introduced in Meb Faber's A Quantitative Approach to Tactical Asset Allocation (follow Meb on his blog mebfaber.com) would have provided an investor with the majority of excess performance, without the subsequent 6 1/2 year downturn. In this case we are simply allocating to the Hussman Strategic Growth Fund when the fund is > 9-month moving average, otherwise allocating to cash.

Dual Momentum
Rather than sit in cash if there are better opportunities, another way to utilize the Hussman Strategic Growth Fund is through a dual momentum approach as introduced in Gary Antonacci's white paper Risk Premia Harvesting Through Dual Momentum (follow Gary at optimalmomentum.com). In this instance, I tweaked his formula slightly and allocated to Hussman Strategic Growth, the S&P 500, or cash based on whichever is the most above it's 9-month moving average.

The results...

So, if/when markets eventually roll over and you think Hussman is capable of outperforming in a bear market environment (he certainly has spent much of the last 15 years contemplating how to structure a bearish portfolio), the strategy might actually make for an interesting allocation.

Posted by Entrepreneur Generations

Tweet