The fund:

Manager:

The call:

On Monday, December 9th, Morty Schaja, RiverPark president, and David Sherman, fund manager, joined me and about 50 Observer readers for an hour-long conversation about the fund and their approach to it.

Highlights of the call include:

• The fund focuses on “money good” securities.  Those are securities where, if held to maturity, he’s confident that he’ll get his entire principal and all of the interest due to him. They’re the sorts of securities where, if the issuer files for bankruptcy, he still anticipates eventually receiving his principal and interest plus interest on his interest. Because he expects to be able to hold securities to maturity, he doesn’t care about “the taper” and its effects – he’ll simply hold on through any kerfuffle and benefit from regular payments that flow in much like an annuity stream.  These are, he says, bonds that he’d have his mother hold.
• While the fund might hold a variety of securities, they hold little international exposure and no emerging markets debt. They’re primarily invested in North American (77%) and European(14%) corporate debt, in firms where the accounting is clear and nations where the laws are. 
• The portfolio focuses on non-investment grade securities, mostly in the B – BB range, but that’s consistent with his intention not to lose his investors’ money.  He values liquidity in his investments; that is to say, he doesn’t get into investments that he can’t quickly get out of.  The fund has been letting cash build, and it’s now about 30% of the portfolio.  David’s general preference is to get out too early and lose some potential returns, rather than linger too long and suffer the risk of permanent impairment.

There were rather more questions from callers than we had time to field.  Some of the points we did get to talk about:

David is not impressed with the values available in one- to three-year bonds, they’ve been subject to too much buying by the anxious herd.  He’s currently finding better values in three- to five-year bonds, especially those which are not included in the major bond indexes.  There is, he says, “a lot of high yield value outside of indexed issues.”

About 50% of the corporate bond market qualifies as “high yield,” which gives him lots of opportunities.

This could function as one’s core bond portfolio.  While there will be more NAV volatility because of mark-to-market rules (that is, you have to ask “what would I get if I stupidly decided to sell my entire portfolio in the midst of a particular day’s market panic”), the risk of permanent impairment of capital occurs only if he’s made a mistake.

Munis are a possibility, but they’re not currently cheap enough to be attractive.

If there’s a limited supply of a security that would be appropriate for both Short-Term and here, Short-Term gets dibs.

Cohanzick is really good at pricing their portfolio securities.  At one level, they use an independent pricing service.  At another, getting the price right has been a central discipline since the firm’s founding and he’s comfortable with his ability to do so even with relatively illiquid names.

At base, David believes the fund can generate returns in the 7-8% range with minimal risk of capital loss.  Given his record with Cohanzick and RPHYX, we are confident that he’s capable of delivering on that promise.  By way of full disclosure: In aligning our mouths and our money, both Chip and I added RSIVX to our personal portfolios this fall.  Once we work out all of the Observer’s year-end finances, we also intend to transfer a portion of the money now in MFO’s credit union savings account into an investment in this fund.

The conference call (When you click on the link, the file will load in your browser and will begin playing after it’s partially loaded.)

The profile:

The Mutual Fund Observer profile of RSIVX, December 2013.

Web:

RiverPark Funds website

Fund Focus: Resources from other trusted sources