Fund name: Leuthold Global (GLBLX)

Objective: Leuthold Global Fund "seeks capital appreciation and income while maintaining prudence in terms of managing exposure to risk." In particular, "preservation of capital over the long-term is a primary driver" of the fund. In order to achieve that end, the fund has the freedom to invest anywhere in the world in any publicly-traded asset class. In the normal course of things, at least 40% of the portfolio will be invested overseas, equity will range from 30-70%, debt will range from 30-70%, most of the rest will be in cash. The fund’s portfolio, as of late June 2008, was about 40% invested in the US, 48% in developed foreign markets and 12% in emerging markets.

Adviser: Leuthold Weeden Capital Management (LWCM) of Minneapolis, Minnesota. The firm is a subsidiary of The Leuthold Group which was founded in 1981 to provide "independent, quantitative and contrarian institutional research" for institutions including money managers, hedge funds, pension funds and the like. The strength of Leuthold’s research led them to open a money-management arm in 1987. LWCM now operates six other mutual funds with nets assets around $4 billion, at least one hedge fund and private investment portfolios for folks with a million or more to invest.

Manager: Steve Leuthold, Matt Paschke and Doug Ramsey. Mr. Leuthold is the adviser’s founder, chairman, chief investment officer and head quant. Mr. Paschke joined Leuthold in 2000 as a Senior Analyst and co-manages Asset Allocation, Select Equities, and Grizzly Short. Mr. Ramsey, the newest member of the team, has been a Senior Analyst with Leuthold since 2005. Before that, he was CIO of Treis Capital Management in Des Moines and a portfolio manager for Principal Global Investors from 1997 through 2003. Both Paschke (Northern Iowa) and Ramsey (Coe College) had the good sense to attend college in Iowa while Mr. Leuthold is a Golden Gopher. Messrs Leuthold and Ramsey are responsible for asset allocation, Mr. Paschke for global equities and Mr. Ramsey for global fixed income.

Management’s Stake in the Fund: The institutional shares were seeded with $12 million of firm capital and employee money. That commitment is likely to grow, since Leuthold managers typically have substantial stakes in the funds they manage, and at least one of the managers (Ramsey) purchased additional shares on the day the fund opened.

Opening date: July 1 2008 for the investor class shares; the portfolio was launched on May 1, 2008 using house money for the institutional class shares (GLBIX).

Minimum investment: $10,000 for regular accounts, $1000 for Coverdells and IRAs.

Expense ratio: 2.07% after waivers. Of that, the management and 12(b)1 fees account for 1.5%. They estimate about 0.2% expenses for dividends on short positions, but that will vary depending on the extent of the fund’s short exposure. There’s a 2% redemption fee on shares held fewer than five days.

Comments: The folks at Leuthold Weeden think of their new Global Fund as "Core Gone Global." One good way to understand whether you should be interested in Leuthold Global to by understanding Leuthold Core.

When Leuthold Asset Allocation (LAALX) launched in June of 2006, I wrote "The argument for investing in Leuthold Asset Allocation is summed up in two words: Leuthold Core." Core (LCORX) is Leuthold’s tightly-closed flagship fund, it’s the oldest of their three asset allocation funds, and it exemplifies their corporate philosophy: "Our definition of long-term investment success is making money . . . and keeping it."

It does both of those things. Here’s how:

Leuthold’s asset allocation funds construct their portfolios in two steps: (1) asset allocation and (2) security selection. All three of the asset allocation funds – Core, Asset Allocation and Global – start by establishing a risk/return profile for the bond market and establishing the probability that stocks will perform better. That judgment draws on Leuthold’s extensive experience with statistical analysis of the market and the underlying economies. Their "Major Trends Index," for example, tracks over 100 variables. This judgment leads them to set the extent of stock exposure. Security selection is then driven by one of two strategies: by an assessment of attractive industries or of individually attractive stocks.

Security selection is a tiny bit complex. At one point Leuthold had two funds: Core and Select Industries. Investors could buy Select Industries on its own, but Select Industries also served as the stock portfolio in the Core fund. For these two funds, the stock portfolio is driven, first and foremost, by a judgment of which of 155 industries are most attractive. Core and Select Industries only buy shares of companies that are in the most attractive industries. The firm ranks all stocks in its coverage universe from most overvalued to most undervalued. Core and Select Industries buys the most undervalued stocks in the most attractive industries. (Leuthold's Grizzly Short fund, by contrast, actively shorts the most overvalued names on that same list.) The new Global fund will operate in a fashion very similar to Core’s: industry selection first, equity selection second, with (Mr. Ramsey says) just “a glance” in the direction of country weightings.

Why should you care? Leuthold believes that it adds value primarily through the strength of its asset allocation and industry selection decisions. By shifting between asset classes and shorting portions of the market, it has helped investors dodge the worst of the market’s downturns. And by allocating wisely between industries, it has captured most of the upswings. Here’s a quick comparison of Core’s performance against a set of reasonable, low-expense benchmarks: Fidelity Global Balanced does both stocks and bonds, domestic and foreign with a flexible asset allocation; Vanguard STAR does foreign and domestic stocks and mostly domestic bonds within a fairly set asset allocation; Vanguard Balanced Index does domestic stocks and bonds; and the Total Stock Market is the entirety of the US stock market.

Core’s strong returns place it in the top 1% of its Morningstar peer group over the past three-, five- and ten-year periods. Lipper gives it the highest-possible total return grade (five points, making it a Lipper Leader) for those same time periods as well as strong ratings for consistency and capital preservation. In short, the fund has outperformed in down-trending markets, range-bound markets and generally rising markets. As Morningstar puts it, "the fund's record since its 1995 inception is superb."

There are two important differences between Global and Core. First, Leuthold Global extends Leuthold Core’s strategy by allowing it the full range of international investments, both equity and debt, long and short. While Core does offer some international equity exposure, it is limited to international equities traded on American exchanges. Global doesn’t have that restriction and has access to some 5000 stocks. And rather than relying on its 180-factor Major Trends Index, Global uses a similarly-broad Global Major Trends Index. Second, Global focuses on 67 industry groups for its equity selection rather than on Core’s 155 sub-groups. That’s important because the tiny-ness of some of the sub-groups forced Leuthold to shut Core while it was still small. By focusing on larger industry groups and having access to companies worldwide, Leuthold estimates that the global strategy could easily accommodate $6 billion in assets.

The shift from investing in sub-groups to investing in industries doesn’t seem to hurt returns. Here, for example, are the 2007 returns for Leuthold’s Global Equities hedge fund, a "live" portfolio based on the new fund’s stock selection protocols, and a couple of benchmarks:

Bottom Line: In its two months of existence, Leuthold Global has done well. It has declined less than 1% in a turbulent market and, on a Thursday late in June when the market dropped 3%, Global drifted down by 0.7%. The key to assessing your interest in Global is two-fold: (1) do you wish you were invested in Leuthold Core? If "yes," go to question (2) are you willing to pay 2.1% for the privilege? That’s about twice the equity fund average and it’s high even by the standards of other global asset allocation funds (they average about 1.5%) or emerging market funds (1.8%). Sadly, expenses will remain high since neither the management fee nor the 12(b)1 fee – 1.5% between them – will decline as assets grow. Leuthold argues that they offer substantial and irreproducible advantages for their investors and that those advantages will produce "alpha" even allowing for the high expenses. I’m inclined to agree.