beliavsky[at]aol.com wrote:

- quote -

This is the point of capital appreciation funds (such as Fidelity
Magellan). The manager is more-or-less free to choose among the various
classes of investments.

-Will

william dot trice at ngc dot com

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<beliavsky[at]aol.com> wrote in message
news:35fbc229-1c57-4d72-b489-842d73308a12[at]b1g2000hsg.googlegroups.com...

- quote -

One manager who does some of this is Marty Whitman (Third Ave Value), though
his funds are 90+% equity:

"Another hallmark: He likes purchasing bonds in distressed companies with
rebound potential. A big example is Nabors Industries. Whitman bought bonds
in the oil-drilling company, which then filed for bankruptcy protection in
1987. A year later the company emerged and the bondholders' debt was
converted into equity"
http://www.forbes.com/forbes/2006/0703/085.html

Another manager who comes to mind (at least in terms of being well qualified
to look at both stocks and bonds) is Bob Rodriguez. Though he seems to keep
each of his funds "pure" (one invested in stocks, the other in bonds, but
not mixed). He is quite creative in the types of bonds he uses in FPA New
Income; I haven't followed his equity management style much.

"Robert Rodriguez has accomplished the unheard-of-feat: driving staggering
returns in both a stock and a bond fund for more than two decades."
http://money.cnn.com/2008/04/01/pf/f...ager.moneymag/

Finally, a bond manager who has managed an equity fund (Fidelity Leveraged
Company - FLVCX) to great success for the past five years is Thomas
Soviero.
http://content.members.fidelity.com/...omas%20Soviero

Whether they have the skills to allocate assets is a question I've addressed
at best obliquely, since their funds don't make major shifts in allocations.
As to how to find these managers - read enough shareholder reports to
understand the managers. No simple screen comes to mind.

Mark Freeland
nNeEwTs[at]nyc.rr.com

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TACTX is a new fundx fund that tactically eases in and out of money
market as appropriate. I don't think of this as market timing so much
as an extension of their momentum strategy, where sometimes money
market has the relative "momentum". Also, doesn't rydexfunds do some
more comprehensive kind of strategy closer to what you depicted?

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beliavsky[at]aol.com wrote:
- quote -

I agree that the M* "style box" confines, and the resulting realities of
the market for mutual funds, probably present obstacles for active
managers who have good ideas about how to manage a more diversified
portfolio. I am not aware of funds looking specifically for the
situations you describe, but you might find one in the more flexible
categories like asset-allocation funds, balanced funds, or even the
income-focused funds (that M* often categorizes as "moderate
allocation"). These categories include actively managed funds that might
identify a "pricing opportunity" in one of several asset classes and be
able to act on it.

But it seems the manager-selection problem is amplified, and that's the
main issue (identifying a good manager before the fact). Let's assume
the approach is valid...still, you would need a fund manager that is
both a good stock manager and a good bond manager, and who can evaluate
effectively the pricing discrepancies across the different asset
classes, in particular with the relatively unusual situations where
there are multiple securities to choose from.

And ultimately the returns are going to be driven more by the top-level
asset allocation, rather than the ability to identify the "best"
security to buy for a given company. That seems like the chasing-nickels
part of the decision, but the fact that a dollar landed in bonds instead
of stocks would be more of a factor to the expected returns, so more
important to the investor.

I think it's interesting as a strategy for an investor to implement, but
difficult for an investor to find in a manager. The returns are going
to be very hard to evaluate...what would you benchmark against, to
assess whether a given fund has produced above-average returns?

-Tad

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Many financial planners first decide on an asset allocation, for
example 60% stocks 40% bonds and then find mutual funds or ETFs either
passive or active, to implement the allocation. If an active manager
is chosen, his job is to outperform his benchmark but *not* to shift
to another asset class, which would be the "crime" of market timing.
For example, a stock fund manager is not supposed to invest in bonds.
The logic is that the financial planner is supposed to set the asset
allocation and that mutual fund managers cannot time the market.

I think this is plausible at a macro level -- even many skilled stock-
pickers might be unable to add value merely by changing their stock
market exposure using S&P 500 futures. At the individual security
level, this makes less sense to me. Many investment and commercial
banks have recently raised money by selling convertibles, preferred
stock, and straight debt, as well as common stock. Suppose a manager
is bullish on a company that has all of these types of securities
outstanding. Buying common stock might not be the best trade. Maybe he
should buy the convertible or buy straight debt and short Treasuries
of equivalent maturity to reduce duration risk, if the convertibles or
bonds are underpriced relative to the stock.

There exist hedge funds that engage in "capital structure arbitrage".
Even if a fund wanted to stay long-only, it could still substitute
convertibles or corporate debt for common stock and do half the trade
(without shorting the common stock as the hedge fund would).

If you accept the logic of having an actively managed fund doing
individual security selection in all types of securities, not just
common stock, the question is whether there exist managers qualified
to do this. Balanced fund managers own stocks and bonds, so that could
be a place to look. Any suggestions?

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