James Potkul wants his fundholders to get back to the "bread and butter" of investing. And judging from the string of conservative new mutual funds being rolled out, he's not alone.
Bread and Butter
fund is an example of a new fund that isn't looking for a hot trend. The open-end mutual fund currently holds less than $1 million dollars after opening for business last October, but after 10 years of planning, Potkul has high hopes.
His goal? To have the longevity of investment managers like Warren Buffett or FPA's Robert Rodriguez, as opposed to that of a fly-by-night fund manager chasing the latest craze.
"Warren Buffett has been successfully managing investments for decades even as hot hedge fund managers come and go," says Potkul, who also manages $10 million in separate accounts. "And sometimes they leave after losing a lot of people's money."
Potkul says the out-of-the-ordinary name for his fund actually is a reflection of his belief that investors need to get back to simplified investing. His investment philosophy is to use investor overreactions to capture inefficiencies in the market.
"People understand the concept of 'bread and butter.' It's a timeless message," says Potkul, who needs $10 million in assets, or two full years of operation, before the Bread & Butter fund can qualify for a supplemental quotation listing.
In a tip of the cap to the so-called Oracle of Omaha, 3.1% of Potkul's fund is in shares of Buffett's
. The Berkshire position is part of the fund's overall equity allocation of 51%. The rest is in short-term investments until Potkul can find more value names that will compensate investors for the risks he sees building in the economy.
The balance of the equity portion of his portfolio, which he selects using a mix of quantitative and qualitative screens, is in currently unloved names such as
The Bread and Butter Diet
By looking at the funds coming off the assembly line so far this year, it seems like fund buyers are eager to jump onto the metaphorical bread and butter investing diet.
According to fund-tracker Lipper, life-cycle funds comprise the largest percentage of new funds introduced so far this year, making up 20% of the 55 newly introduced funds (not counting multiple share classes). Life-cycle funds have grown to be a popular alternative for retirement-minded investors since they offer instant diversification as well as timely rebalancing, two basic investing elements often forgotten during the Internet bubble.
Next up on the list of newly introduced funds according to Lipper is large-cap core funds, another conservative area woefully ignored -- or even chastised -- during the boom times.
"The new funds being introduced suggest that people are afraid of blowups," says Lipper analyst Tom Roseen. "The rash of life-cycle funds is a clear indication that investors want to learn from past mistakes and would rather not do it themselves anymore."
Morningstar's director of fund research, Russell Kinnell, agrees that the major fund families have been trending on the side of conservatism.
"Fund families are being restrained with their new offerings because some of them burned investors with trendy launches not too long ago," says Kinnell.
The fund families are not altogether abandoning the idea of catering to hot money, as new energy and international stock funds are still hitting the shelves. However, the overwhelming trend in new funds is toward caution, says Kinnell, who adds that "any slack in meeting that need is being picked up by exchange-traded fund providers who are eager to fill popular niches with silver, gold, oil and other such funds."
"It's easy for the big fund companies to pound out 'hot' funds in just a couple of months because they have the legal resources," says Potkul. "But those follow-on funds inevitably go down and people get hurt."
That, of course, depends on which side of your bread is buttered.