Dear friends,

With this issue, we celebrate (well, I celebrate . . . Roy’s still on the fence*) the end of my second year of writing for FundAlarm. Ahh, it seems like just 63,072,000 seconds ago that I was anxiously awaiting your response to the first installment of FundAlarm’s Annex. In celebration of the anniversary, our highlighted funds this month are all celebrating birthdays of their own: Al Frank Fund (VALUX) just reached 10, Sextant Core (SCORX) is celebrating its first birthday at the start of April, and the socially-responsible folks at Pax World have just delivered a new little bundle of joy into the equity-investing world.

Finally some good news!

The rich people are taking it in the shorts, too! My sufferings always seem more bearable if I can image The Donald writhing in fiscal agony. The March 31st Dow Jones Hedge Fund Strategy benchmarks give a good indication of the limited success that even very rich investors have been achieving:

In general, the hedge-like mutual funds that I follow – both those funds I’ve profiled and those who serve as de facto benchmarks – have held up pretty well:

Conventional risk-management strategies have generally lost less than their equity exposure would suggest, but have had a bit rougher time making it into the black:

Frontier over-crowding, part II

In March I noted Fidelity’s impending launch of its Emerging Europe, Middle East, Africa fund with the prospect that billions of dollars would follow. The likelihood of "hot money" and, likely "dumb money" inflows grew substantially with the March 6, 2008 launch of a "frontier markets" index. Merrill Lynch’s Frontier Index will track 50 of the most liquid stocks in 17 frontier markets including Cyprus, Kuwait, Kazakhstan, Morocco, Nigeria, Pakistan and the UAE. The Wall Street Journal reports that had the index been in existence from January 2007 – March 2008, it would have returned 70%. A Merrill representative says that "frontier markets are as close as you get" to the holy grail of investing: a new, uncorrelated asset class. Merrill reports that "In frontier markets, during the period of February 2000 to December 2007, the monthly correlation of returns for the S&P 500 was 32 percent, compared to 73 percent for emerging markets and 96 percent for developed markets." Several sources report that Merrill has launched index-linked notes which would allow individuals or institutions (depending on the story being quoted) to buy shares of the index. I spoke with Elena Mehas, who does media relations for Merrill, and she begs to disagree. (Sources: "Merrill Starts a New ‘Frontier’ Index," WSJ, 6 March 2008 , and ml.com)

One week later, Harding, Loevner registered their Frontier Emerging Markets Fund. This will be an institutional fund ($1 million minimum) focusing on "frontier and smaller emerging markets." It may be that the fund will be available at a reduced minimum through one or another of the supermarkets. Harding, Loevner Emerging Markets, for example, has a $25,000 minimum but is available NTF through Fidelity or Schwab for $2,500. Likewise, Harding, Loevner Global has a $100,000 minimum, but $2,500 through Schwab.

The other fund managers profiled are:

Along with several other FundAlarm alumni, Zach Liggett and the Utopia funds were also recognized in Aaron Pressman’s "Contrarians to Watch" article in the March 27^th issue of Business Week. Pressman promised "a highly subjective list of managers who go their own way to outdo their rivals." Somewhere in here, Pressman hoped, one might get a lead on "the next Ken Heebner."

Skipping lightly over the existence of the other two managers (Suzanne Stepan and company founder Paul Sutherland), Pressman writes, "After identifying big global themes, like the growing need for clean water, Liggett narrows his focus to a few stocks that best embody the trend." Utopia can short stocks and they’re currently looking for "the frothiest solar play to bet again." Zach’s description of the solar market is "completely irrational."

Pressman’s other three potentially-great, independent thinkers (more properly, teams of thinkers) are:

Fidelity makes big money. For Fidelity.

It’s good to be in charge. ("Fidelity’s income rises 22% in ’07," Boston Globe, 29 February 2008)

The Minimum Return Fund, on the other hand, isn’t making money for anyone.

Back in November 2007, I gently poked at the ineptly-named Minimum Return fund:

As it turns out, "newly-launched" was a tad optimistic on my part. The fund’s advisors have delayed its launch six times over the past six months. Here’s the saga of Post-Effective Amendments Nos. 69, 76, 80, 81, 82 and 83:

Is it possible that the universe is trying to send the Minimum Returnees a message?

Drip, drip, drip

Janus announced two more resignations this month. Andy Iseman, chief operating officer of Janus Capital, and president and CEO of Janus Funds, will leave in early April. Daniel Kozlowski, co-manager of the Janus Adviser Long/Short Fund (JALSX – a billion in assets and a 3.45% expense ratio) has already departed. While neither departure qualified as "news" on Janus’s website, the appointment of three distinguished new board members did. Janus added a former Morningstar managing director (Tim Armour), a former president of the CFA Institute (Jeffrey Diermeier) and Georgetown University’s chief investment office (Lawrence Kochard). The Janus board has 14 members, 12 of whom are independent.

Oberweis, founder and chairman of the Oberweis funds (though no longer a manager) and former editor of the Oberweis Report, ran yet again for elected office. He was running to complete the unexpired term of former House Speaker Dennis Hastert. In what the Chicago Tribune describes as "a stunning upset," Oberweis last month lost the seat in a long-time Republican district to a political novice (a retired Fermilab physicist). It’s not clear why folks would be stunned by the outcome since this is Oberweis’s fourth high-profile loss in the last six years. He’d previously been defeated in his attempts to gain the Republican nomination for a U.S. Senate seat from Illinois in 2002 and 2004, and for the Republican nomination for Governor of Illinois in 2006.

Oberweis has a track record for making peculiar public choices. In 2002 he compared pro-life politicians to the Taliban. In 2004 he was fined $21,000 by the Federal Election Commission for a commercial for his dairy that ran which the FEC found violated federal election laws. In 2006 his campaign used made-up newspaper headlines in commercials attacking his Republican rival. And, in 2008, he used made-up families in mailers attacking his Republican rival and was caught on-tape mocking his Democratic opponent’s slow and halting speech. The election ended with Oberweis suing the Democratic Congressional Campaign Committee and the Democrats filing Federal election law violation charges with the FEC.

And he promises to do it all over again in November!

Warren Isabelle and his co-manager have arranged to buy back control of its Ironwood Isabelle Small Co Stock (IZZYX – formerly ICM/Isabelle Small Cap Value) from its corporate parent, MB Investment Partners & Associates, LLC. IZZYX has $25 million in assets between two share classes, a drop of two-thirds in the past four years. Its launch was eagerly anticipated because Mr. Isabelle had a great track record at Pioneer, offered low expenses and a low minimum investment, and promised to close the fund when it reached $500 million in assets. The fund never reached $100 million.

FBR Small Cap Technology (FBRCX) is being repackaged as FBR Small Cap Growth while FBR Large Cap Technology (FBRTX) becomes FBR Technology. Small Cap Tech had a pretty undistinguished record and drew only $4 million in assets. FBR Large Cap Technology has a pretty solid record (four-star, somewhat above-average returns) and $28 million. The managers all remain.

The behemoth CREF Stock Account, a $134 billion variable annuity, has announced its decision to increase its allocation to foreign equities and to add exposure to foreign small caps. The new allocation targets will be 70 to 75% US, 25 to 30% foreign, with about 5% emerging markets and 3% international small caps. CREF Social Choice, a balanced account, is gradually moving 13% of its portfolio into international stocks.

William Blair Global Growth moved up its launch date to March 26, 2008.

RIP: Brill’s Mutual Funds Interactive (1/13/1995 – 3/9/2008)

Rob and Marla Brill "came to the Web looking for personal finance information and didn't see much content [beyond] flashy technology looking for substance, or the product of corporate communications or marketing departments interested more in generating business than giving Web visitors much helpful information." Their new website featured a remarkably active and lively discussion board (regular participants included Bridgeway founder John Montgomery, Efficient Frontier Advisors founder Bill Bernstein, E*Trade’s vice president for mutual funds Brian Murray, and an eclectic band of retail investors) and a fair amount of original content. It was quickly recognized as one of the web’s premier finance sites.

The Brill site was shuttered last month, victim of falling revenues and vanishing readership. The readership decline was linked, in part, to the changing nature of the web: it has become increasingly difficult for "mom and pop" sites to attract attention amidst the plethora of blogs and huge corporate sites. The Brills' decline was precipitated several years ago by a vitriolic, poorly-handled fight on the discussion board. A portion of the Brill readership left to found a competing discussion board for folks interested in actively trading their funds (a movement that was ridiculed at the time, but seems now to be just a precursor to ETF trading) and many migrated to FundAlarm and the FundAlarm Discussion Board. Somewhere in there, the Brill board seems to have lost its critical mass, and traffic slowly drained away.

The Brills' plight reminds me of how very grateful I am for FundAlarm – for the active, insightful, always-civil and oft-genial discussion board, for Ted’s indefatigable efforts, for the daily renewal of their commitment to intelligent discourse by the dozen or so folks who are always there when the rest of the community is seeking guidance, but most especially for Roy’s leadership and on-going underwriting of the site. He is, and you are, one and all, gems.

As ever,

David