Several common questions asked about the Hussman Funds:
Why are the Hussman Funds termed “Strategic”?
The essential approach of the Hussman Funds is to accept those investment risks that we expect to be rewarded, on average, and to avoid, hedge or diversify away those risks not associated with a satisfactory expected return.
The approach is strategic in the sense that we do not believe that any specific type of investment risk (such as market risk) is always worthwhile. Depending on the specific market environment, the Funds may employ hedging techniques to minimize the impact of fluctuations in the overall stock or bond markets, and may also take positions in individual securities that differ substantially from their weights in the major stock or bond market indices.
How can investors use the Hussman Funds as part of a diversified portfolio?
Using the Funds as “core” holdings
The Hussman Funds are designed to be well-diversified “core” holdings for investors pursuing a disciplined, long-term saving and investment plan and who recognize that the Funds may not closely track general market fluctuations for meaningful segments of the complete market cycle.
The value-conscious, historically-informed, risk-managed, full-cycle discipline of the Funds is intended to achieve long-term investment returns, while reducing sensitivity to general market fluctuations in conditions that have historically been associated with weak or negative market return/risk profiles.
Using the Funds as “satellite” holdings in passive portfolios
The four risk-managed Hussman Funds can also be used with the objective of contributing long-term returns and diversification, to expand the opportunity set available to conventional, passive investment portfolios.
For investors following passive approaches that accept significant exposure to the financial markets at all times, the Funds may be used as part of the “satellite holdings” or “alternative sleeve” of the overall portfolio. The objective of these allocations is to contribute to portfolio returns over the complete market cycle and over the long-term, while reducing the correlation between individual portfolio components, in a way that may help to manage the overall volatility of the portfolio across the complete market cycle.
In both ways, the Hussman Funds can contribute to a well-constructed, diversified portfolio that includes U.S. equities, international equities, U.S. Treasury securities, and as appropriate, precious metals shares, U.S. agency securities, investment grade corporate bonds, and Treasury inflation-protected securities.
Past performance does not ensure future results, and there is no assurance that the Hussman Funds will achieve their investment objectives. An investor’s shares, when redeemed, may be worth more or less than their original cost. Investors should consider the investment objectives, risks, and charges and expenses of the Funds carefully before investing. For this and other information, please obtain a Prospectus and read it carefully.
Does Dr. Hussman have any personal investments in the Hussman Funds?
Yes. The majority of Dr. Hussman’s financial investments are diversified across the Hussman Funds. This investment allocation is based on his analysis and judgment regarding the estimated long-term return/risk profile of the value-conscious, historically-informed, risk-managed, full-cycle discipline pursued by the Hussman Funds, relative to the long-term return/risk profile observed from passive exposure to general market fluctuations.
It is important to note, however, that this allocation may experience substantial departures from conventional investment strategies, and intentionally foregoes the potential diversification benefit of including passive exposure to general market fluctuations. There is no assurance that the financial markets will behave in accordance with expected return/risk profiles classified on the basis of historical relationships, nor that the Hussman Funds will achieve their investment objectives. Depending on individual circumstances, a similar allocation may not be suitable for all investors.
Please provide a brief history of the Firm.
In 1989, Hussman Strategic Advisors was founded as a Registered Investment Advisory. We published a monthly financial research publication from 1988 to 2000. Since 1993, we have offered fee-based investment management services to the general public. The Hussman Funds were established in 2000, and the Advisor now exclusively manages four mutual funds: Hussman Strategic Growth Fund (inception 2000), Hussman Strategic Total Return Fund (inception 2002), Hussman Strategic International Fund (inception 2010), and Hussman Strategic Allocation Fund (inception 2019).
What are the Firm’s competitive advantages?
We believe the Firm’s competitive advantages include the following elements:
- Research – A substantial amount of resources are spent rigorously testing and validating investment ideas, strategies and valuation methods. All of the models used by the Fund’s investment strategy have been tested and validated across a broad range of market environments, including multiple recessions, periods of extreme inflation, bubbles in various asset classes, and Depression-era conditions where data is available. (Often when data is not available we impute estimates based on relationships observed in existing data.) While we continually work to enhance our investment methods, we generally require changes in our methods to be validated across multiple market cycles across history.
- Discipline – The firm’s commitment to exhaustive investment research provides the confidence to execute the Fund’s value-conscious, historically-informed, risk-managed, full-cycle investment strategy with a high degree of discipline. At major market extremes, the Funds may have a tendency to be positioned “out of step” with investors’ prevailing beliefs, which may be driven by emotion or speculation rather than evidence-based research. Our long-term shareholders appreciate and expect a disciplined execution of each Fund’s investment strategy, particularly during periods of investor behavior that has historically been associated with market extremes.
- Independence – With the exception of data providers, the firm does not rely on third parties for investment research or investment ideas. A vast majority of the firm’s internal investment methodology has been developed “in house”. This allows our research infrastructure to be highly customized and reduces our reliance on outside parties. Our research-focused and data-intensive approach significantly increases the efficiency of our investment team.
- Shareholder communications – Dr. Hussman and William Hester regularly publish investment research reports, and detail the factors that influence the investment outlook. The breadth and depth of these research publications highlights our analytical approach. Shareholder communications have been instrumental in developing a large core of regular readers and loyal, disciplined shareholders.
Who owns the firm currently?
Dr. Hussman has been the sole owner of the Firm since its inception. There are no plans to change this ownership structure.
Discuss the role of third party service providers.
In general, we employ professionals that enhance our core competencies – conducting research in security selection and market analysis, managing portfolio investments, and communicating with shareholders. Functions outside of our core competencies are typically handled by firms that specialize in these areas.
In particular, we have found Ultimus Fund Solutions to be extremely proficient in all aspects of Fund administration, and has been an excellent partner since the inception of the Funds. Ultimus serves as the administrator, accountant, and transfer agent to the Hussman Funds. The Fund’s Chief Compliance Officer at Ultimus also works in coordination with the internal compliance staff of the Advisor. In addition, the Hussman Funds benefit from highly competitive fee structures and outstanding service by its custodians and brokers.