Trend Following was my eight-year “hazardous journey” for the truth about trend-following trading. was meant to fill a void in a marketplace inundated with books about finance and trading, but that lacked any resource or reference to the best strategy to make money in the markets: trend-following trading. I have come to learn over time that trend following is a confusing term. The best definition I have seen comes from trading psychologist Van Tharp: “Let’s break down...
Bridgeway Beats Market With Numbers
May 16, 2008 on 11:38 am | In Finance |
Bridgeway’s aggressive growth funds aim to beat the market without taking any additional risk.
Since 1998, Bridgeway Aggressive Investors 1 has met its goal every year except 2006.
But fund manager John Montgomery doesn’t fret much about turning in a gain of just 7.1%. “It was a bad year for us on a relative basis,” Montgomery said. “But so what? Our bogey is three years.”
Aggressive Investors 1 going into Wednesday was up 12.01% year to date vs. 10.94% for its mid-cap growth peers tracked by Morningstar and 6.19% for the S&P 500. The fund produced an average annual return of 15.34% for the past three years vs. 12.97% for its peers and 11.43% for the S&P 500.
Bridgeway Aggressive Investors 2 was up 16.48% for the year and cranked out an average annual return of 17.74% the past three years.
Bridgeway Aggressive Investors 1 and 2 are pretty much the same, except Aggressive 2 shuns low-liquidity names, which tend to be small caps. Aggressive 1 is closed to new investors.
Montgomery uses several quantitative models to find stocks, including high-octane growth, deep-value large caps, growth at a reasonable price, momentum, and a combination of growth and technicals.
Taken together, the models are designed to find growth stocks trading at cheap prices.
“We use a proprietary measure of valuation that nobody uses,” said Montgomery. “It’s more sophisticated and is more than just a ratio.”
The six models work independently of each other. The fund buys the best ideas from each model.
Montgomery’s strategies remain the same regardless of market direction. He may not even know whether the market was up or down on a given day, nor does he care.
“If you’re invested in the market, it’s a long-term deal,” said Montgomery. “You should yawn through the downturns.”
Fund Turnover
Portfolio turnover comes out to 100% to 125% a year.
The company aims to keep costs low. All research is quantitative, so there are no expenses from company visits. Montgomery only listens to conference calls if he doubts the quality of the data provided by a company.
The firm donates half its fees to charity. More than $1 million has been donated to the firm’s pet causes: peacemaking and reconciliation, fighting genocide, community development, education, and Third World development such as potable water projects and microfinance.
Aggressive 1 has an expense ratio of 1.58%. Aggressive 2 charges 1.12% of assets a year.
Both funds’ biggest winner this year, Crocs, () is also among the top five largest holdings in both funds. Quarterly filings show both funds bought the stock in the third quarter of 2006. Shares of the specialty shoe maker jumped a whopping 113% year to date and 287% in the past 12 months.
On June 18, Crocs finalized a deal with comic book publisher Marvel Entertainment () to create a line of shoes that feature Spider-Man, X-Men, the Fantastic Four, the Incredible Hulk and Captain America. That day, Wedbush Morgan analysts raised Crocs’ 2007 and 2008 earnings estimates and rated the stock as a strong buy.
Crocs opened its first U.S. store in Santa Monica, Calif., this month.
The stock gapped lower Wednesday on nearly twice its average daily volume, though it finished in the upper half of its daily range.
Big Lots () accounts for nearly 6% of total assets in each fund. Filings show shares of the discount chain were added in Q3 of last year. Big Lots’ shares have climbed 30% this year and 83% in the past 12 months.
First-quarter earnings doubled from the year-ago period and topped analysts’ estimates by 30%. Sales overall rose 3%, while same-store sales sales at stores that have been open for at least a year gained 4.9%.
Big Lots has a $600 million stock buyback program; it bought back $13.7 million in shares in the first quarter. In addition, it repurchased $100 million in stock in a guaranteed share repurchase program.
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