The Great Normalization

All fund risk and return metrics, ratings, and analytics were uploaded to MFO Premium Sunday, 3 July, reflecting performance through June 2022. [For the record, May performance was uploaded Sunday, 5 June.]


June’s dismal returns ushered in a new bear market, unfortunately, based on the S&P 500 retracting 20% from its previous high of December 2021. This occurrence marks the end of the previous market cycle, nicknamed “CV-19,” which lasted 24 months. We coined the new cycle: “The Great Normalization,” as described in the July MFO commentary. It began January 2022, is on-going, and can be assessed using year-to-date performance.


Indicative so far: Not a single general bond mutual fund [there are 1200] has returned more than the 3-month T-Bill or more than its yield … 1192 of them are underwater.


Instead of highlighting the ugly details, I will try a more positive perspective, as depicted in the table below. US stocks and bonds have delivered positive returns, if not excess returns, across every full cycle since and including The Great Depression. So, while YTD returns are bad, history suggests the retraction is temporary.



Fidelity offers 10-year new issue CDs at 4% with monthly interest drops. It’s been a long time coming! Perhaps 2008 or almost 15 years ago?


Valuations too are becoming more reasonable, especially among growth and so-called meme stocks. The higher rates signal the end of 1) ZIRP [zero interest rate policy], 2) free money, and 3) attendant period of excess. For now, we ended Shiller’s “Irrational Exuberance” period as of December 2021 – it only lasted 20 years!


All of Dodge & Cox funds, while negative YTD, are beating their peers, in some case, by a lot. The venerable San Francisco value-oriented house was founded in 1930 by Van Duyn Dodge and E. Morris Cox, which means it has been around for all the cycles depicted above. In contrast, all funds Baillie Gifford, the growth-oriented house based in Edinburgh, which started offering funds in US about 7 years ago, are trailing their peers, in most cases, significantly.



Speaking of families, Mebane Faber’s firm Cambria, based in El Segundo, received an Upper rating on this month’s MFO Fund Family Scorecard, which means most of the firm’s 12 funds, representing $1.5B in assets, have beaten their peers since inception; most notably SYLD [Cambria Shareholder Yield ETF], which first caught our attention in 2014 [The Existential Pleasures of Engineering Beta].


Last month we introduced Easy Access Analysis, described here. Basically, MFO Premium users can now click on the Analyze link in the navigation bar atop any page, including Home, to run Chart, Compare, Correlate, Rolling Averages, Trend & Momentum, and Ferguson.


Finally, our next webinar will be Tuesday, 12 July. We will touch on mid-year performance and demo new features introduced this year. There will be a morning and afternoon session. You can register here.


Perhaps not possible to enjoy the latest data, but please enjoy the new features!


If you see anything amiss, let us know and we will respond soonest.