Unfortunately, management rarely enlightens investors as to the details of their maverick approach. The commentaries provided in their annual reports are exercises in laconic restraint.

Nevertheless, a careful review of the fund’s prospectus provides some clues as to the types of securities management favors. First, it’s important to note that the fund’s portfolio is riskier than its bond allocation would suggest. Management regularly purchases long-dated, deeply discounted positions in distressed securities, including bonds that are in default. For example, the fund’s most recent annual report lists several defaulted bond holdings with a fair value of roughly $258,500 that originally had a principal value of nearly $20.4 million. Such risky fare provides greater opportunities for capital appreciation and income than investment-grade bonds. And the high coupons of speculative-grade debt are undoubtedly a key component of the fund’s 4.1 percent yield. 

The portfolio also has a more than 13 percent allocation to restricted securities (mostly shares of convertible preferred stock and convertible bonds). These securities are typically issued in a private placement sale, as opposed to a public offering, and are often not rated by debt-rating agencies nor registered with the Securities and Exchange Commission (SEC). As such, the SEC has rules that limit their resale, so the portfolio does face some liquidity risk. Fortunately, that risk is mitigated by management’s sizable allocation to cash, which currently stands at 14.9 percent of assets.

As for the fund’s equity sleeve, management mines the full spectrum of market capitalizations, though it pays special attention to smaller-cap stocks, particularly health care names and utilities. A substantial 34.2 percent of the fund’s equity sleeve is allocated to micro-cap stocks, but that risk is moderated by a similarly sized allocation to large-cap names. 

Management’s quiet reserve extends to their lack of marketing. Instead, they defer to their performance data. The fund has ranked in the top decile in its category in seven of the past 10 calendar years. Despite its substantial allocations to bonds and cash, the fund has also managed to beat the broad market by wide margins; the fund posted a trailing 10-year return of 15.8 percent annualized versus 2.7 percent annualized for the S&P 500.

The fund does incur above-average risk for its category; its volatility is closer to the S&P 500 than to its category peers. Its largest rolling 12-month loss during the Great Recession was 35.6 percent versus 43.3 percent for the S&P 500. 

Management’s strategy can be opaque, but each manager holds in excess of $1 million of the fund’s shares, so their interests are firmly aligned with shareholders. And given their history of market-beating returns, management does an outstanding job of compensating shareholders for their quirks.