October 5, 2003
John P. Hussman, Ph.D.
All rights reserved and actively enforced.
Our annually updated prospectuses for the Strategic Growth Fund and the Strategic Total Return Fund have now been posted to the website. I've also posted a new report Mutual Fund Brokerage Commissions and Trading Costs, which I hope our shareholders will find useful.
Last week generated a good deal of heat, but little light. The Purchasing Managers data was mixed, as were the unemployment reports. The most likely way for market action in stocks to turn unfavorable on our measures, would be further strength in the large cap indices that is not matched by strength in the broad market. We're also carefully watching for evidence of distribution, particularly given that selling by corporate insiders continues to hit fresh highs. In general, distribution is indicated by relatively dull trading volume on advances, and expanding volume on declines. In short, market action is really where our attention is focused here. Since last week generated so little in the way of decisive data, I've kept this update relatively brief.
As of last week, the Market Climate for stocks remained characterized by unusually unfavorable valuations and modestly favorable market action. The Strategic Growth Fund remains fully invested in a widely diversified portfolio of individual stocks, with just over 50% of their value hedged against the impact of market fluctuations. Overall, that's still a constructive position, and one that we would expect to benefit primarily from further market advances. Still, there are clear blemishes in the current market picture, sufficient to keep us in a partially hedged position.
In bonds, the Market Climate was characterized by tenuously favorable valuations (particularly earlier in the week), and modestly favorable market action. We took mid-week strength in the bond market as an opportunity to reduce our holdings of long-term Treasury bonds. Again, however, our overall position remains constructive, and we would expect to benefit primarily from further bond market advances. As of last week, the overall portfolio duration of the Strategic Total Return Fund was about 4.5 years (meaning that a 100 basis point change in interest rates would be expected to impact the value of the Fund by about 4.5%).
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