Continuing from Part 1, http://www.avaresearch.com/article_details-348.html ...
Contrary to the claim that Federated’s Prudent Bear Fund holds more short than long stock positions, if you check the current top holdings, you won't see a single short position.
Upon closer examination, you will note that nine of the top ten holdings consist of precious metals mining stocks; so much for diversification. BUT, the total percent of these nine positions comes to less than 3% of the portfolio.
What this means is that the fund holds potentially hundreds of different securities (do the math). Folks, this is what is known as over-diversification; a method used by fund managers who simply have no idea where to turn. I discuss this in the appendices of The Wall Street Investment Bible because I feel it’s such an elementary concept that I did not want to waste space in the main body of the book.
What about the fund's performance? Well, first, consider that the fund began in 1996, during the Nasdaq bubble. Therefore, because it is a bear fund you would expect it to have performed very well since that time since the U.S. stock market has experienced the two largest blow-ups in history.
However, if you check the 3-, 5-, and 10-year/max performance, you will see that after fees, the fund didn't even beat the S&P 500.
Furthermore, when you consider that the fund has been structured to take advantage of market timing and can hold a huge percentage of cash (thus avoiding market collapses), the fund's performance is much more miserable.
Below I have shown the price chart of the fund over different periods so you can get an idea just how pathetic the performance has been.
Would you want to own this fund? Remember, each year you are getting over 3% (perhaps over 4%) sucked out of your assets in total fees. These fees compound over the years, meaning that the performance is much worse.
Now I’ve shown the same price charts versus the S&P 500 Index. Once again, the performance of this fund is BEFORE fees.
Notice how the fund has an inverse performance of the S&P 500 Index. Why would anyone want to pay 3-4% annually for crummy performance?? Heck, you’re better off with a buy-and-hold Vanguard fund which has better performance and lower fees! And if you want a short position, just short one of the S&P 500 ETFs like the SPY.
As a few of you might know, Federated bought this “sheep fund” from David Tice, another loud-mouthed extremist who has been preaching doom and gloom since the 1990s. Incidentally, he and Peter Schiff are buddies. You see, both are gold bugs. In fact, you might note that of Schiff's data charts in his book (some 3 charts in total I believe) they were cut and paste from Tice's prudent bear website.
Furthermore, one of the reviews for his book was from his fellow doomer extremist, no other than Tice.
So how was Tice able to get Federated to buy this dog for a couple hundred million dollars? The answer is that Federated was buying assets, not performance. As long as you have investors in a fund, the fund generates a somewhat predictable stream of revenues.
So how was Tice able to draw so many sheep into his fund?
Well, you see Tice was a media ham for CNBC a few years ago. It was from his appearances that he was able to attract the dumb money from the sheep that watch this trash network.
It is for this reason that every scumbag tries to get on CNBC so they can attract the dumb money. And they do whatever it takes to be the next media ham.
The next fund the Smart Money author mentions is the S&P 500 Proshares, which mimics the inverse price performance of the S&P 500 Index.
The author fails to mention that this fund uses a variety of speculative derivatives to mimic the performance rather than actually shorting the S&P 500 index.
Furthermore, the author fails to mention that even with this un-leveraged fund, you will lose money if you hold it long-term.
Many people have become aware of the fact that you can actually lose money by holding inverse leveraged funds even when the market goes down. But you probably haven't heard the same for un-leveraged funds. Well, I am here to show you that, yes you can. The chart below illustrates this.
Still can’t figure it out? Let me help you. Have a look at the same chart below.
I just realized something. I spent far more time and effort in tearing apart this useless Smart Money article than the reporter did to create this trash. I find that highly pathetic on the part of the reporter. And these guys wonder why their industry is collapsing.
I urge you to email this article to everyone you know, especially if they have mutual funds because it is a perfect example of how so many investors have no idea what they are getting themselves into. They only thing they are doing is making these guys wealthy on their dollar.
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