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Weiss Funds Launches Alternative Balanced Risk Fund

By DailyAlts Staff Weiss Funds launched the Weiss Alternative Balanced Risk Fund (MUTF: WEISX ) on December 1. The fund’s objective is to pursue returns with moderate volatility and reduced correlation to traditional asset classes, such as stocks and bonds. The fund’s “balanced risk” allocation strategy consists of: A long-only portfolio of stocks (“the equity component”); A long-only portfolio of debt securities (“the bond component”); and A diversified, multi-strategy long/short portfolio of stocks, bonds, and/or derivatives (“the long/short component”). The Weiss Alternative Balanced Risk Fund’s equity component will generally invest in U.S. large- and mid-cap stocks and is designed to approximately track the stock market as a whole. The fund’s fixed-income holdings, including those in the bond and long/short components, will target weighted average maturity of 9 years, and will consist of only highly-rated securities. Portfolio managers Jordi Visser, Charles S. Crow IV, and Edward Olanow are responsible for the day-to-day management of the fund. Mr. Visser is President and CEO at Weiss and oversees the investment management process. Mr. Crow is responsible for the fund’s quantitative methodologies, and he and Mr. Olanow are in charge of trading. Together, the managers allocate across the fund’s three components according to the expected contributions to overall portfolio risk for each. In the words of the prospectus, these allocations can “fluctuate widely.” Currently, the Weiss Alternative Balanced Risk Fund is available in I ( WEISX ) and K (MUTF: WEIKX ) classes, with respective net-expense ratios of 3.33% and 3.23%. A and C class shares, with respective net-expense ratios of 3.58% and 4.23%, are listed in the fund’s prospectus but are not yet available for purchase. The minimum initial purchase levels for I and K shares are $250,000 and $2 million, respectively. A and C shares, when available, will have a minimum initial purchase of $5,000. For more information, visit the fund’s web page .

Actionable Insights: What The FANG?

Do you know what FANG stands for? If you don’t, you should – it makes an impact on your investments in ways you might not realize. FANG stocks mask the fact that the overall tech sector is under pressure compared to other indexes. 12/10/2015 You might have started hearing the word “FANG” thrown around in recent months and have questions on what it means. Like many terms before it, such as BRIC (Brazil, Russia, India, China), FANG is a recently-coined term associated with Facebook (NASDAQ: FB ), Amazon (NASDAQ: AMZN ), Netflix (NASDAQ: NFLX ), and Google (NASDAQ: GOOG ). The performance of these stocks has been nothing short of impressive this year (avg. +87% return year-to-date), but what’s more important is the FANG’s impact on other investments, such as the NASDAQ ETF (NASDAQ: QQQ ). Though investors think they might be diversifying by owning ETFs, the FANG stocks make up about 20% of the ETF’s composition. When we include Apple (NASDAQ: AAPL ) and Microsoft (NASDAQ: MSFT ), that number increases to 41%. So when you think about diversification, remember that over 40% of your investment is allocated to just six companies. This has been a pretty great issue to have this year, but it’s important to realize this before choosing your investments. More importantly, this heavy allocation into six companies skews what on face value looks like relatively great performance out of the NASDAQ this year: As you can see, the NASDAQ (less the top six stocks) has significantly underperformed the other major indexes. When you consider this index is weighted more towards growth/technology companies, and that mutual funds are beginning to write down private venture investments , its paints a much bleaker picture on tech’s ability to maintain its high multiples going forward. Additionally, as ETFs become an increasing larger portion of the market, the FANG stock may begin to move based on overall market buying/selling of indexes. Just something to keep an eye on….and now you know FANG. The Actionable Insight Take : With poor performance out of recent IPOs like Square (NYSE: SQ ), the write-downs of private investments in “unicorn” stocks, and general weak performance out of the NASDAQ this year, we are growing increasingly concerned about valuation in the tech sector. If the market were to start rotating into lower-risk stocks, many of the currently unprofitable “unicorns” would probably have a high likelihood of a sell-off. On the FANG front, we tend to prefer Google for its mix of growth and value, its profitability and strong balance sheet, and its opportunities to grow new, valuable businesses in the future (Google fiber, autonomous cars, expansion of YouTube, etc.). We commend Netflix for its transition into media production to offset the risk of rising content costs, but we fear the risk of miss-hits in production (something all producers eventually face). We think NFLX could take pricing here and there is ample room to grow internationally, but at its current price we think some of that is already priced in. Next week, I’ll be skiing in Utah, so stay on the lookout for my special skiing edition of Actionable Insights Last, as a shameless plug, it was announced this morning that my recent write-up on Ross Stores (NASDAQ: ROST ) came in 4th place in Seeking Alpha’s retail ideas contest . You can find the write-up here . Actionable Insights is a daily newsletter written by Shaun Currie, CFA, which aims to provide investors with quick, educational updates on market news with insights on possible investment opportunities. Periodically, Actionable Insights will also contribute longer investment ideas that the author produces for clients and the general public. Follow me to get notified when updates and articles are posted.

2 Screens To Avoid Bad Investments

Summary There’s no way to avoid all investments that end up performing poorly, but there are two screens that can avoid some of them: past price performance and hedging cost. We applied those two screens to a list of top investor picks three months ago, and the ones that passed both screens significantly outperformed the others. We elaborate on the two screens, and discuss why they work. We conclude with a suggestion to consider applying these screens to guru picks, and to consider diversifying or hedging to limit risk. A Bad Fall For Top Investor Picks In a late August article (“Best Q2 Picks From Top Investors”), Seeking Alpha premium contributor and hedge fund manager Chris DeMuth, Jr. highlighted what he felt were the best stocks top investing gurus such as Warren Buffett, Carl Icahn, and Seth Klarman (Klarman pictured below; image from DeMuth’s article) added or increased their weightings of in the second quarter. On the whole, these picks have performed poorly over the last three months. In hindsight, this is consistent with the narrowness of the current bull market, one dominated by the “FANGs”, Facebook (NASDAQ: FB ), Amazon (NASDAQ: AMZN ), Netflix (NASDAQ: NFLX ), and Google (NASDAQ: GOOG ), as John Authers noted in a recent Financial Times column. But what’s interesting is the divergence in performance between two groups of these stocks. The first group includes the guru picks that passed two screens to be included in a Portfolio Armor hedged portfolio, and the second group includes the guru picks that didn’t. One of those screens is simple enough you can run it without any specialized tools. We’ll detail both of the screens below, but first, here’s a look at how the two groups of guru picks have performed over the last three months. Guru Picks Portfolio Armor Included, 3-Month Returns: Advance Auto Parts (NYSE: AAP ), -14.43% Precision Castparts (NYSE: PCP ), +1.19% Cigna Corporation (NYSE: CI ), – 1.75% Danaher Corp (NYSE: DHR ), +10.83% Humana (NYSE: HUM ), -8.16% Perigo (NYSE: PRGO ), -16.2% Shire (NASDAQ: SHPG ), -8.5% Time Warner (NYSE: TWC ), -2% Average 3-month return: -4.88% Guru Picks Portfolio Armor Rejected, 3-Month Returns: SunEdison (NASDAQ: SEMI ), -32.06% SunEdison (NYSE: SUNE ), -71.15% Williams (NYSE: WMB ), -40.8% Baker Hughes (NYSE: BHI ), -6.83% Office Depot (NASDAQ: ODP ), -24.33% Altera (NASDAQ: ALTR ), +5.94% Icahn Enterprises (NASDAQ: IEP ), +0.54% Brookdale (NYSE: BKD ), -29.6% T-Mobile (NASDAQ: TMUS ), -6.47% Average 3-month return: -22.75% Screening Out The Worst-Performing Picks In an article published in early September (“Investing Alongside Buffett, Klarman, And Other Top Investors While Limiting Your Risk”), we entered each of the guru stock picks above into Portfolio Armor’s hedged portfolio construction tool. That tool works differently depending on whether you enter your own securities or not. If you don’t enter your own securities, the tool populates your portfolio with the securities with the highest potential returns, net of hedging costs, in its universe (its universe consists of every stock and exchange traded product with options traded on it in the U.S.). If you do enter securities, as we did with those guru picks, the tool performs two screens on the securities you enter before attempting to calculate potential returns for them. Screen #1: Most Recent 6-month Performance V. Long Term The first screen is one you can easily do yourself. The tool looks at how the ticker performed over the most recent six months and compares that to the average six month performance of the security over the long term (ten years, if a stock has been around that long; if not, it uses the long term returns of an industry competitor as a proxy; for exchange-traded products it uses since-inception returns if it hasn’t been around for ten years). The tool will reject any security with a negative return over the last six months, unless the average six month return of the security over the long term is greater than the absolute value of the most recent six months return. To illustrate this, let’s look at one of the guru picks that failed this screen, SunEdison . Below is a chart, via Yahoo, showing the performance of SUNE over the 6 months prior to when Portfolio Armor rejected it for inclusion in that September hedged portfolio: (click to enlarge) SUNE was down 48% over the six months prior to early September. The only way it would have made it past this screen is if its average 6-month performance over the last 10 years was greater than 48%, and, as you might guess, that wasn’t the case, so SUNE failed the first screen. Screen #2: Hedging Cost Since SUNE failed the first screen, it was eliminated. An example of a stock that passed the first screen, but failed the second, was Williams . WMB was down 3.25% over the most recent six month period as of early September, but its average 6 month performance over the previous 10 years was 4.81%, so it passed the first screen. But it was too expensive to hedge against a greater-than-9% decline over the next six months using an optimal static hedge, so it was rejected. We explained how to find optimal hedges in a previous article , if you’re willing to do the work manually, or you could use an automated tool such as our hedging app . Why These Two Screens Work Although these two screens don’t eliminate all poor-performers, they work to eliminate some of the worst performers. They both employ what New Yorker columnist James Surowiecki termed the wisdom of crowds : Large groups of people are “smarter” than an elite few, no matter how brilliant — better at solving problems, fostering innovation, coming to wise decisions, even predicting the future. The large group of people in screen #1 is the stock market, and the large group of people in screen #2 is the option market; the elite few are the top investors who picked the stocks. Conclusion If you’re going to buy gurus’ stock picks, consider buying ones that pass these two screens. And since these screens don’t eliminate all poor-performers, consider limiting your stock-specific risk by diversifying or hedging.