Our Alternative Portfolio, also known as our “hedge fund” portfolio, remains on its track of strong, steady returns. The quarter ending June 30 was slower than prior recent quarters, ending with a small loss, but it still did better than the major stock indexes. New investors to the portfolio, however, will have to make some adjustments from our recommended portfolio.
Longtime subscribers know that our Alternative Portfolio is a long-term, diversified portfolio. Its goal is to deliver high long-term returns without the volatility and sharp periodic losses of traditional portfolios laden with stock funds. This portfolio benefits from strategies similar to those used by the wealthy individuals and institutions that invest in traditional hedge funds.
As expected, some of our funds had positive returns recently; some had negative returns. Most importantly, the funds generally are not correlated with the stock market. This portfolio will lag stocks in a strong bull market, but has the potential for gains in flat and bear markets.
Some of the funds are doing so well that they are closed to new investors.
Price High Yield closed after an extremely strong 2003 triggered a flow of money. There are several fine high yield funds which closely track Price’s returns. These are Payden High Income, Vanguard High Yield (recently re-opened to investors), and Buffalo High Yield. My top-recommended substitute Neuberger & Berman High Income has had superior returns since mid-2000, and it participates in most NTF programs.
The other closed fund is Oakmark Equity & Income. But it is closed only to investors opening new accounts through brokers and other third parties. You can purchase it directly from Oakmark or through a retirement plan. You might be able to open a new account with Oakmark then, after a period of time, transfer the shares in the account to a fund broker.
The balanced fund whose returns most closely resemble OAKBX’s is my old favorite, Dodge & Cox Balanced. It is still open to new investors, though the very popular Dodge & Cox Stock fund is closed. DODBX does not participate in NTF programs, but there is no balanced fund participating in those programs that I can recommend as a substitute.
The Alternative Portfolio can serve as a substitute for a Core Portfolio, or it can be a separate part of your total portfolio. The holdings are fixed for the long-term. There are no buy and sell signals. I update the portfolio every quarter.
|RW “Hedge Fund” Portfolio|
|Annualized Returns as of 6/30/04|
|Laudus Ros Gl L/S Eq||10%||-2.05||-2.14||7.6||N/A|
|Hussman Str. Gr.||10%||-0.31||15.2||16.1||N/A|
|Oakmark Eq & Inc.||10%||1.87||18.2||10.3||12.2|
|Third Ave. Value||10%||2.21||35||8.59||11.5|
|Am Cent. Intl. Bond||5%||-2.9||6.93||15.7||7.19|