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CIO Blog By Paul Hrabal, Chief Investment Officer of One Fund
July 27, 2010 Q2 2010 Letter To Shareholders Dear Fellow Shareholders, I'm writing to you in this inaugural letter reporting on your investment in One Fund. As a fund that invests exclusively in stocks and seeks to track the overall performance of the global market, One Fund had a difficult second quarter of 2010. Both the U.S. and international stock markets declined substantially last quarter for reasons ranging from fears of a stalled U.S. economic recovery to worries over a possible European debt crisis. Below is One Fund’s performance for the partial quarter from the fund’s inception on May 11, 2010 through June 30, 2010:
You will notice that One Fund declined more than the S&P 500, the benchmark we strive to beat. This is due to the fact that One Fund owns a much broader range of stocks, including U.S. small company stocks, which performed worse than the U.S. large company stocks that make up the S&P 500. Despite this short term underperformance vs. the S&P 500, we stand by One Fund’s allocation strategy. Historical data shows that a broader diversity of stocks, including U.S. large and small company stocks as well as international large and small company stocks, has outperformed the S&P 500 over the long haul.1 The Case For Stocks Many investors have grown weary of investing in stocks. They see the constant ups and downs of the market and the poor returns stock investors have received in recent years. Many have cut back on the stock portion of their portfolios. I think this is a mistake. The argument for owning stocks remains as strong as ever. Stocks may go up and down in bigger swings over the short to medium term. But, historically, if you hold stocks for long periods of time, returns can be significantly more than other types of investments and have the best record of outpacing inflation.2 But I believe there is a right way and wrong way to invest in stocks. First, a stock portfolio should be properly diversified across industries, geographies and company sizes. This is why One Fund doesn’t just invest in U.S. companies, but invests approximately 30% overseas, including developed markets like Europe and Japan as well as emerging markets like China and Brazil, where a significant amount of future economic growth will occur. Second, a stock investor should not try to pick winners and losers amongst individual stocks, but rather buy the entire stock market worldwide. A recent study showed that only 0.6% of stock picking mutual funds beat the market over the long haul.3 Instead of stock picking, One Fund follows an approach called "index investing" which invests in the entire stock market (nearly 5,000 companies) at the lowest possible cost as it strives for a return that closely tracks the overall market. (Review our investment approach.) Following this approach, stock investors should realize solid returns over the long term. Guidance To Shareholders My guidance to One Fund shareholders remains the same: Appreciate that stocks are volatile, avoid watching the day to day gyrations up and down (I know it’s hard) and invest for the long run. In addition, depending on your age, financial goals and other factors, consider how much of your investment dollars you should allocate to stocks. One Fund is intended to be a long term investment and should not be used for money that will be needed in the short term. (See our free investment guide for more on this topic.) If you have questions about One Fund or our investment approach, please feel free to call me personally anytime at 866-ONE-FUND (866-663-3863) ext. 472. If you haven’t already, please let us know you are a shareholder by registering here so we can keep in touch with you going forward about your investment in One Fund. Thank you for your trust and confidence. Best Regards,
1 Ibbotson, historical data 1926-2009. 2 Ibbotson, historical data 1926-2009. 3 “False Discoveries in Mutual Fund Performance: Measuring Luck in Estimated Alphas" by Laurent Barras, Olivier Scaillet, and Russ Wermer, April 2009, compared 2,076 U.S. open-end stock mutual funds over 32 years from January 1975 to December 2006. The Fund’s total returns include the reinvestment of dividend and capital gain distributions, but have not been adjusted for any income taxes payable by shareholders on these distributions. The Standard & Poor’s 500 Index (S&P 500) is a widely recognized, unmanaged index of U.S. common stock prices. Index returns include dividends and/or interest income and, unlike Fund returns, do not reflect fees or expenses. Standard & Poor’s and S&P 500® are trademarks of The McGraw-Hill Companies, Inc. Shares of One Fund are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Market Price returns are based upon the midpoint of the bid/ask spread at 4:00 PM Eastern time (when NAV is normally determined), and do not represent the returns you would receive if you traded shares at other times.
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Before investing you should carefully consider the Fund’s investment objectives, risks, charges and expenses. This and other information is in the prospectus. Please read the prospectus carefully before you invest. |
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An investment in the Fund is subject to risk, including the possible loss of principal amount invested. Other Fund risks include asset allocation risk, foreign securities and currency risk, emerging markets risk, small-cap, mid-cap and large-cap risk, trading risk, and turnover risk that can increase Fund expenses and may decrease Fund performance. The Fund is, also, subject to the risks, which can result in higher volatility, associated with the underlying ETFs that comprise this “fund of funds”. Newly organized, actively managed Funds have no trading history and there can be no assurance that active trading markets will be developed or maintained. Brokerage costs will reduce returns. When the Fund invests in Underlying ETFs, in addition to directly bearing the expenses associated with its own operations, it will bear a pro rata portion of the Underlying ETFs’ expenses (including operating costs and management fees). Consequently, an investment in the Fund entails more direct and indirect expenses than a direct investment in the Underlying ETF. Distributed by Foreside Fund Services, LLC. |
