5 mutual fund all-stars

John Hussman

Ticker: HSTRX
Assets: $2.7 billion
Conservative allocation average: 2.2%
Year-to-date return: 5.8%

What he likes now: Mining stocks
Hussman expects the price of gold to stay elevated for years. He's been buying up shares of miners Newmont Mining and Agnico-Eagle Mines.

John Hussman isn't a big risk-taker. His strategy of preserving capital means that his fund will lag behind the stock market when bull markets are raging. But in difficult years like 2011, Hussman shines. The 49-year-old former economics professor -- who has the intellectual wattage to research the genetic causes of autism in his spare time -- has also earned a following for his astute weekly letters to investors. Notably, last January he holed up in his office in suburban Maryland and wrote a letter outlining his grave concerns about the effects of the Federal Reserve's so-called QE2 stimulus program. QE2, he concluded, "is almost impossible to reverse without extreme disruption to the economy."

Hussman has managed his portfolio accordingly. In the total return fund, one of three he manages, he invests mostly in Treasuries. But he can allocate up to 30% of assets to precious-metal stocks, utilities, and foreign currencies. With gold-mining stocks lagging the metal's spot price, Hussman increased holdings of precious-metals miners 13-fold -- and profited. A rise in Treasury prices also led to gains, though Hussman avoided faster-rising long-term Treasuries, which today he considers dangerously speculative. A 1% rise in interest rates, he warns, can wipe out 15% of their value. By spring, Hussman was calling stocks dangerously overpriced. And by August he was predicting another U.S. recession. He came to that conclusion by analyzing dozens of data points he monitors, including stock market levels, credit spreads, GDP growth, and manufacturing reports.

For now, he's keeping a lot of money in shorter-dated government debt and avoiding most stocks. "Investors have this tendency to wait till the train is right in front of them before they move off the track," he says. "We prefer to panic before everyone else does."

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