The Susie

Longtime acquaintance Mick Weinstein has an interesting post up at Covestor about what appears to be a new venture for Suze Orman. Per the article her investment advice has focused on dollar cost averaging into diversified mutual funds without market timing or stock picking. But that has changed as apparently she is now in the newsletter business partnering up with someone named Mark Grimaldi who manages the Sector Rotation mutual fund (NAVFX).

This post will be about NAVFX, not so much about Orman. The fund looks like it started December 30, 2009, it currently has $25 million AUM, has a lot of turnover and has an expense ratio of 1.99%.

The newsletter that Orman and Grimaldi have a model portfolio as follows;

Dreyfus Small Cap (DISSX)
Janus High Income (JAHYX)
Sector Rotation Fund (NAVFX)--this is Grimaldi's fund
American Century Heritage (TWHIX)
American Century Value (TWVLX)

You can click through for percentages as we think putting them here is a potential compliance issue.

The make up of NAVFX is interesting, or at least it was on March 31 which is the last time holdings were reported and given that the turnover is 457% per Morningstar it would not be surprising if the fund looked completely different now.

Despite the name the fund only owned one sector ETF comprising 2.05% back on March 31 in the top 25 and the top 25 accounts for about 95% of the fund (eyeballing the percentages). I forgot to mention the fund uses ETFs almost exclusively. There were commodity ETFs, broad based equity and fixed income ETFs, several country funds and most interesting was the 22% in ProShares Ultra S&P 500 (SSO) and 15% in SPY. Despite all the warnings about levered ETFs SSO has been "working," YTD it is up 14% while the S&P 500 is up 7%. The broader levered funds might not be so crazy to hold when the market is functioning normally but I don't have a firm conclusion on that.

The Sector Rotation Fund which obviously owns more than sector funds was trailing the SPX by a couple of basis points YTD through Monday. Morningstar has the since-inception return at 11.95% which is slightly better than the categories Morningstar assigned to the fund but that trails the S&P 500 which was up 19.5% in the same period. I wondered whether comparing to the S&P 500 might was the proper comparison but based on the March 31 snapshot it effectively had 59% in that index, the description says the fund seeks capital appreciation and the prospectus says "in seeking to build a portfolio designed to outperform the S&P 500 Index..."

The 11.95% would be easier to defend if there was something in there about absolute return or hedging along the lines of Hussman although the fund can use inverse funds so maybe that is hedging and while there was a TIPS ETF in top 25 there were no inverse equity funds. There was an inverse bond ETF but that strikes me as strategy not counter-strategy. The fund is too new to have a bear market track record and maybe it would target something that would seek to avoid the full brunt of down a lot but I don't get that indication from the prospectus.

Much like Mick's post I don't really understand why Orman has aligned herself with such an expensive fund given what she apparently preaches for investment advice (I've never seen her show, just commercials for it which shows snippets) and for some reason I found this interesting in a what not to do sort of way.

There is nothing wrong with mutual funds using ETFs, what matters is how they are used. You might be able to see the strategy in the fund but I don't.