Nobel Prize winner Thaler’s fund has nearly doubled S&P bull market

This year’s winner of the Nobel Prize for economics is also an advisor to investment funds with stellar track records.

Behavioral economist Richard Thaler is principal at Fuller & Thaler Asset Management, which helps advise a $5.8 billion Undiscovered Managers Behavioral Value Fund. It has almost doubled the S&P 500’s gains since the beginning of the bull market.

Class A shares of the fund (UBVAX) are up 512 percent from the beginning of the market’s climb on March 9, 2009, through Friday’s close. The S&P 500 has risen 277 percent to records over that time.

Thaler told CNBC PRO in a June 2016 interview
how his work in behavioral economics helps him identify beaten-down companies that show signals of turnaround.

“One of the signals we use is insider buying, especially if the CFO all of a sudden doubles his holdings, we give that firm a hard look,” he said.

Undiscovered Managers Behavioral Value A indexed to S&P 500 at March 9, 2009

Source: FactSet

The fund focuses on small-cap stocks, with financials having the largest weighting at 25 percent at the end of August.

New Jersey-based bank Investors Bancorp and Tennessee-based financial services company First Horizon National are the two largest holdings in the fund, followed by real estate investment trust Colony NorthStar, aircraft parts distributor KLX and chemicals company Celanese, according to the website of the fund distributor, JPMorgan Chase.

The fund’s six-fold climb since the beginning of the bull market also outstrips the 340 percent gain of the small-cap Russell 2000 index.

That said, UBVAX is fairly pricey to own with net fees of 1.44 percent. The fund has also climbed only about 8 percent this year, falling short of the Russell’s 11.5 percent gain and the S&P’s nearly 14 percent rise.

But another Thaler fund, the Fuller & Thaler Behavioral Small-Cap Equity Fund (FTHSX), has outperformed those two benchmark indexes with gains of 14.7 percent this year.

The asset management firm’s other talent include 2002 Nobel Prize winner, Daniel Kahneman. The author of “Thinking, Fast and Slow” is director emeritus at Fuller & Thaler.

Thaler told CNBC last year he didn’t own individual stocks because he preferred to trust a good portfolio manager.

“I think the biggest mistake people make is overconfidence. They think they’re better investors than they are. My number one advice would be, keep track. If you think you’re a hot shot investor, really try to compute what your rate of return is. … We know that a majority of active managers fail to meet their benchmarks after they’ve paid their fees,” he said. “The one stock you absolutely should not own is the company you work for.”