Don't Fall Prey to Misinformation; Always Question Your Sources

The following headline certainly was clickbait for a lot of people. It's not often that a veteran fund manager calls the current market environment the early innings of the worst bear market ever. The article then noted that there was already plenty of pain out there for shareholders. As of May 4, the S&P 500 was down about 12% year-to-date. At this year's nadir, the Nasdaq had plunged down more than 20% from last November's peak. Normally, defensive bond benchmarks were down over 10%. David Wright's $869 million Sierra Tactical All Asset Fund, a fund of funds that invests in mutual funds and ETFs, held less than 3% of its assets in US stocks as April 30. More than half of the fund was in cash. Fixed-rated bonds accounted for only 1% of its holdings. Commodities made up more than 9%. The rest of the portfolio was spread across floating-rate bonds, foreign stocks and Master Limited Partnerships (MLPs). As of May 4, the fund has lost just 2.3% in 2022, beating 91% of its peers tracked by BBG. Portfolio manager Wright said, The problem is that US investors have bet so much of their net worth on stocks. There's no other country on earth that has staked so much of their net wealth in stocks, he asserted, although without any documentation for that. David Wright then claimed that investors were at a very big peak of complacency. That was not even remotely the case based on all classic psychological indicators. Here are just three images which show how bearish the investing public was feeling in April. Zero Hedge's anonymous columnist closed his comments with this: David Wright credits his conservative approach with helping to limit losses during market downturns. Not losing much during market sell-offs is admirable. Anyone can accomplish that goal on an absolute basis, though, simply by staying 100% in cash all the time. The real test of a successful strategy is making good total returns over the long haul. If you can't do that, then limiting losses during downturns is useless. Did Mr. Wright's fund of funds pass that test? You make the call. Here is Morningstar's data on his fund since the start of 2012. Their view on it was decidedly negative. SIRAX's expense ratio burdens investors with a huge 2.47% expense ratio. His shareholders pay his fee directly while also shouldering hidden fees and expenses from the other funds, ETFs and other securities Sierra Tactical chooses to hold. Portfolio turnover, at 159%, indicates excessive churning of assets. That rapid trading could raise red flags with the SEC if a broker did that in client accounts. Did the fund's overall returns justify paying large fees? Nope. Over the last decade SIRAX produced very tiny gains. $10,000 invested in SIRAX 9.34 years ago only grew by $2,882 cumulatively. Its benchmark index for similar objective funds was 90.98% better. Simply owning the S&P 500 ETF (SPY) would have produced a gain that was $22,499 larger. Why didn't the interviewer for the Zero Hedge article do even the most basic homework before potentially scaring his readers into selling out their stock holdings at what is likely to have been a very low point in the market cycle? Knowing how poorly David Wright's mutual fund has performed leads to two obvious questions. Why should anyone care what he is saying? Who are the people crazy enough to leave almost $874 million with him? There is plenty of similarly horrible investment information published every day on the web, on TV and elsewhere. Insist on documentation for any claims made before acting on advice that might prove counterproductive. My own well-supported view on the market is that we're at, or very close to, a major upturn. See my previous articles for my take on how to play going forward. There has been nowhere to hide thus far in 2022 but this year could play out much like 2016. In mid-February of 2016 the S&P 500 was off to its worst start to a calendar year in history. By December 31, 2016, that horrid start was long forgotten. Keep the faith. Buy now while many stocks are available at bargain valuations. Once the party starts, investors still sitting on cash will be crying over the missed opportunity.

Don't Fall Prey to Misinformation; Always Question Your Sources

Buy now while many stocks are available at bargain valuations. Once the party starts, investors still sitting on cash will be crying over the missed opportunity.

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