Building upon the previous post, here are more indications of how some mutual fund managers attempt substantial market timing, of which investors may not be aware.
A recent article from The Wall Street Journal describes several funds with large cash positions. One of these funds, FPA Capital, was a topic of Alpholio™ analysis published in a prior post. According to the article, the fund held 33% in cash at some date from year-end 2012 to March 31, 2013. Indeed, the fund reported 32.9% in cash and equivalents as of the latter date.
An investor could reasonably expect that a fund with the following investment objective and strategy would be almost solely invested in equities rather than cash:
“The Fund’s primary investment objective is long-term growth of capital. Current income is a secondary consideration. FPA Capital Fund seeks to fulfill this objective through investing primarily in small and medium-sized public companies.”
The Alpholio™ analysis clearly demonstrated that at times the fund’s equivalent cash position was as high as 52%, and that such market timing efforts did not result in generation of any meaningful RealAlpha™ in the analysis period. Caveat emptor!
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