December 2022 Portfolio Notes

Fund News: On December 2, 2022, Hussman Strategic Allocation Fund paid a capital gains distribution of $1.7395 per share, representing a short-term capital gain of $0.8324 per share and a long-term capital gain of $0.9071 per share. For shareholders who have elected to reinvest distributions, the result is to own a larger number of shares, at a lower distribution-adjusted price. From a tax standpoint, the distribution results in a current taxable gain (for taxable accounts), but also reduces the future tax liability because the Fund price is reduced by the amount of the distribution. We would prefer to avoid such distributions entirely, but doing so this year would have required us to offset the gains on our hedges by selling individual stocks that we view as core investments.

Strategic Allocation Fund and Strategic Growth Fund presently hold highly overlapping equity portfolios, reflecting our value-conscious stock selection discipline. From the inception of Strategic Growth Fund on July 24, 2000 through November 30, 2022, the unhedged equity investments and cash equivalents of Strategic Growth Fund have gained 10.36% annually, versus an average annual total return of 6.72% for the S&P 500. Our long-term stock selection record is why we generally prefer to maintain our core portfolio and hedge it in unfavorable markets, rather than simply holding cash.

Notably, from the inception of Strategic Growth Fund through November 30, 2010 – when the Federal Reserve aggressively expanded its zero-interest rate policies – the hedging approach of Strategic Growth augmented the Fund’s stock selection returns while also reducing portfolio volatility. The Fund remained ahead of the S&P 500 through May 20, 2014. However, as I’ve detailed extensively in other comments, our bearish response to historically-reliable “limits” to speculation became progressively detrimental, as zero-interest rates encouraged persistent yield-seeking speculation among investors well-beyond prior extremes. By the beginning of 2022, our most reliable valuation measures had exceeded the levels observed at both the 1929 and 2000 bubble peaks.