2011 Annual Shareholder Letter
By Mark Oelschlager, CFA
Portfolio Manager
November 30, 2011
Dear Fellow Shareholder:
In many ways the past year was a repeat of the prior one for stocks, as they started strongly in the calendar year, then swooned when the Eurozone crisis worsened and economic fears rose, only to rebound when these fears receded. It is easy to get swept up in the day-to-day news on the economy and the developments in Europe and feel like one needs to react in order to “protect” oneself. The problem with this is that when one reacts, whether it is an individual investor adjusting his or her asset allocation or a portfolio manager adjusting a fund’s risk profile, the action is frequently counterproductive, as it often occurs after the market has already adjusted and re-priced securities to incorporate the news.
Retail investors are notorious for being reliable reverse barometers - not that professional managers as a whole have a distinguished record either – meaning that they tend to invest their money into an asset class, and eschew the alternatives, at the wrong time. The peak in popularity of an asset class or sector typically coincides with the peak in its relative performance. Investors crowded into real estate in 2007, energy in 2008, and now bonds in 2011. We suspect that this will play out just as the other episodes did: disappointing returns for those that were lured in.
Bonds appeal to many people these days because of their relative stability in a time when the world feels unstable. Even in the realm of equities, the popular products are the ones that are defensively oriented. Some of the investment vehicles du jour are “alpha,” “market neutral,” or “absolute return.” Hedge funds are flooding the market with these products because they are sellable, and the reason they are sellable is that they offer some sort of stability, in the aftermath of an unstable period. The key word there is “aftermath”; the volatility of recent years is still fresh in people’s minds, but in attempting to protect themselves from future volatility that might or might not come, they may be sacrificing return. Of course nobody knows whether the next 12 months will be volatile or not, but it’s interesting to note that there were not a lot of people looking to play defense in 1999 or 2007 – when the market was peaking. But there were a lot of people looking to invest defensively in late 2008/early 2009, as well as the summers of 2010 and 2011; these were the times when it paid to play offense instead (i.e. own more equities and cyclical sectors). The aforementioned strategies of the day are the latest attempt to achieve the unachievable: the perfect investment product. These, like their predecessors, are likely to disappoint their investors. There is no fail-safe system, but Wall Street keeps trying.
With all the volatility and negative headlines of recent years, it might surprise some to know that our fund returns have actually been pretty good on both an absolute and relative basis. The following returns are as of the October 31, 2011 fiscal year end: For the past year, six of our seven funds posted a positive return, and for the past two years six of the seven posted double-digit annualized returns. The returns of all seven funds are well into positive territory for the trailing five years, which of course includes the horrific correction of 2008, and, we are happy to report that for that same five-year period, every one of our funds outperformed its Morningstar peer group average.
We believe one of the reasons for this success is our willingness to think independently – to seize opportunities when they present themselves and to not get swept up in the emotion of the market. In addition, we would point out that the prevailing conventional wisdom of the day is that in order to succeed in the current environment, a manager must be a rapid trader with a shorter time horizon, because, the thinking goes, buy-and-hold no longer works. We do not agree. While our investment process is always evolving, our long-term focus is core to our philosophy and paradoxically a contributor, rather than a detractor, to our favorable past performance during this period of short-termism. We are happy to maintain our distance from the crowd, both literally and figuratively, here in Akron, as others battle each other in a far-too-crowded game.
All that said, we remain humble, focused on continuously improving our craft, and thankful for the opportunity to manage your money.
Best regards,
Mark Oelschlager
| |
Average Annual Total Return (as of October 31, 2011) |
| |
1 Year
Return |
3 Year
Return |
5 Year
Return |
10 Year
Return |
| White Oak Select Growth Fund |
4.07 |
17.84 |
4.14 |
1.25 |
| Pin Oak Equity Fund |
6.92 |
22.48 |
6.21 |
2.85 |
| Rock Oak Core Growth Fund |
4.30 |
16.93 |
2.64 |
N/A |
| Morningstar Large Growth Category |
6.27 |
13.05 |
1.26 |
2.72 |
| |
|
|
|
|
| River Oak Discovery Fund |
0.74 |
18.06 |
2.88 |
N/A |
| Morningstar Small Growth Category |
8.71 |
15.82 |
1.42 |
5.13 |
| |
|
|
|
|
| Red Oak Technology Select Fund |
10.73 |
24.96 |
6.83 |
1.28 |
| Black Oak Emerging Technology Fund |
-5.44 |
19.48 |
4.70 |
-0.69 |
| Morningstar Technology Sector Category |
3.83 |
20.19 |
4.47 |
3.92 |
| |
|
|
|
|
| Live Oak Health Sciences Fund |
14.46 |
17.02 |
6.32 |
4.02 |
| Morningstar Health Sector Category |
8.94 |
11.26 |
3.24 |
3.78 |
The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an Investor’s shares, when redeemed, may not be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. Click here for performance information through the last complete quarter.
The value of a fund's investments will vary from day to day in response to the activities of individual companies and general market and economic conditions. Funds that emphasize investments in technology or smaller companies generally will experience greater price volatility. There are additional risks associated with investing in a single-sector und, including greater sensitivity to economic, political or regulatory developments impacting the sector.
This manager commentary represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice.
CFA is a registered trademark of the CFA Institute.
Alpha - Measure of risk-adjusted performance.