Monthly Archives: August 2017

August 1, 2017

By David Snowball

Dear friends,

For those of us who teach, August is a bittersweet month. Each year we approach summer like a gaggle of penitent drunks. This time, we promise, it’ll be different. We’ll do better. Trust us: we will revise all of our courses for fall. We will catch up on that mountain of books heaped beside the chair. We will finish that book manuscript (Miscommunication in the Workplace, 2d ed., in my case.). On top of which, we’ll see our children without the use of small electronic devices, we’ll be out there running at 6:00 each morning, we’ll get our roughage and drop 10 pounds.

Then it’s August, the resumption of school is just a couple weeks off and unfulfilled promises litter the floor.

And, it’s stinkin’ hot out. My best gesture toward weight loss this summer was a recent day in the garden, rooting out rose bushes that had gone feral then tilling up the soil. By the end of that adventure, I’d lost nearly three pounds and I was struggling to recall whether such 90/90 days (that is, 90 degrees and 90% relative humidity) were around when I was young.

The answer, as it turns out, is “no.” Summers are getting more oppressive, with a discouraging speed, as the planet heats. Nadja Popovich and Adam Pearce, reporters for the New York Times, wrote a sober piece entitled It’s Not Your Imagination. Summers Are Getting Hotter (07/27/2017). It contains a fascinating graphic showing the changing distribution of summer temperatures from the years of my childhood to now. While “extremely hot” days were once a rarity and “hot” ones were a minority, “hot” is now our normal state and “extremely hot” is uncomfortably common.

I’ve taken a couple steps in response, small though they are. The first was to join the Environmental Defense Fund, whose mission includes addressing climate change. Why EDF? Two reasons. It was well-rated by Charity Navigator, which assesses larger charities on the degree to which they use their resources efficiently and effectively. The fact that some rich donor was offering a 2:1 match for contributions through the end of August, helped. And EDF is reasonably compatible with my political philosophy. I’m a reasonably conservative guy who’d much rather encourage progress through conversation and cooperation with governments and corporations than engaging in histrionics and lawsuits. EDF works hard to create (but not get financial gain from) corporate partnerships, to tie their initiatives to good science and to engage groups with different political perspectives. So I’ve set up a monthly contribution for them in hopes that my son’s summers will be just a bit better for it.

The second was to make a carbon offset payment to the Carbon Fund, whose motto is “reduce what you can, offset the rest.” They’re small, but seem responsible, sensible and well-respected. My contribution, admittedly a form of wergild, will help support reforestation and methane capture projects, which at least helps offset some of the pollution that my small household produces.

And, as always, the Observer is hosted on energy-efficient servers which are (mostly) powered by renewable sources.

This is part of the same strategy that we’ve advocated all along: do not obsess about the theatrics in Washington and don’t hide in a comfortable bubble of like-minded conservatives or liberals. Take responsibility, actively support what you approve of, actively oppose what you disapprove of and respect other folks who are trying to do the same.

Everything you ever wanted to know about MFO Premium *

(*But were afraid to ask)

You’re curious.

You know you are.

And now you can find out. Live. On camera.

Mutual Fund Observer exists to help independent investors make better, more thoughtful and better informed decisions about their finances. While we believe that many of the finest opportunities lie in the realm of small, independent funds, we have no financial relationship with them and accept neither underwriting nor advertising.

MFO Premium is where all of our data and screeners lie. Originally it was just used internally as we vetted funds and screened for interesting outliers. It’s distinguished from most such operations in two important ways:

It allows users to be highly risk-aware. While many sites use standard deviation, a measure of day-to-day volatility, to tell you all you need to know about risk. MFO Premium instead gives you four different risk-return metrics (Sharpe, Sortino, Martin and Ulcer) for both funds and benchmarks, calculated for up to 20 distinct time periods. It also provides measures of “normal” riskiness (the downside deviation) and measures for periods of extreme stress (maximum drawdowns, recovery periods, bear market month deviations). That’s complemented by custom correlation matrixes, which allow you to find out whether any particular fund is pulling its weight by adding diversification to offset the risks it carries.
It’s highly responsive to individual needs. Charles Boccadoro, our colleague and major domo of MFO Premium, is in almost constant conversation with the site’s users. Those interactions lead us to almost monthly refinements in response to what folks most need.

MFO Premium has two missions. One is to help investors and advisors make much better informed decisions. The other is to provide an additional incentive for readers to provide (tax deductible!) financial support for Mutual Fund Observer. For a contribution of $100 or more, we’re happy to share a year’s access to MFO Premium with folks.

Webinars: August 16 and August 30

We will provide a live, interactive walk through over the MFO Premium screeners and analytics.

Our webinar will address:

Origin and motivation behind MFO’s premium site search tools
Underlying database and top-level implementation methodology
Overview of various tools, including Dashboard of Profiled Funds, Fund Family Scorecard, Three Alarm Funds, Great Owls
On-line demos of Multi Search … the site’s main tool, including pre-set screens, multi-parameter searches, evaluation period selection
Quick review of definitions reference, limitations, and on-going improvements

Throughout our intention will be to highlight unique insights those tools provide individual investors and financial advisers … and the attendant benefits to themselves and their clients.

The webinars are free, though space is limited. At Chip’s recommendation, we’ll be using Zoom software which will allow us to be seen and to share our screen, as well as to see you (or not, at your discretion) and record the interaction. You will be provided instructions for accessing the webinar, which requires installation of a small plug-in.

Webinar #1 is Wednesday, August 16, at 3:00 p.m. Eastern Daylight Time (2:00 CDT, 1:00 MDT, noon PDT). Webinar #2 is Wednesday, August 30, at 11 a.m. Eastern Daylight Time (10:00 CDT, 9:00 MDT, 8:00 PDT).

If you would like to participate, contact us with your preferred date and we’ll arrange access.

Meet in person: September 6-8

Charles will be covering the Morningstar ETF Conference in Chicago for us. He’s hopeful of having coffee and conversation, about MFO and MFO Premium, with readers at a mutually agreeable time. If you can’t make the webinar (or just aren’t that into tech) but will be at Morningstar, please contact us with word of your interest and your plans.

The “Are You Smarter than a 5th Grader?” challenge

I am perfectly sanguine about admitting that our marketing skills are roughly equivalent to a 5^th grader’s. (Okay, not those freakish 5^th graders on YouTube. They’re scary. We mean the normal ones.)

If you’ve got a background in marketing and think you have a strategy or scheme, plan or ploy, trick or tactic, insight or initiative which might help the Observer reach more folks so that we can better fulfill our mission, we’d be delighted to hear from you, work with you and acknowledge you for it. We’re particularly hopeful of reaching the sorts of investors who are generally outsiders: younger folks, those with very limited resources, and others.

If you’re indeed smarter than a 5^th grade marketer, contact David and we’ll talk!

Thanks.

Speaking of thanks …

As always, we’re thankful for your continued support and goodwill. Greg, Brian, Jonathan and Deb, we’re grateful for your ongoing subscriptions. And, many thanks this month to Sunil and Joseph for your generous contributions.

With wishes for a warm and relaxing end of summer,

Morningstar’s universe

By David Snowball

We regularly lament the fact that several hundred consistently four- and five-star funds have lost Morningstar analyst coverage over the years. Our almost-monthly feature “Left Behind by Morningstar” profiles a fund that once received analyst coverage but has now been ignored for five or more years. This month we profile Evermore Global Value (EVGBX / EVGIX), rated four-star for the past three years, past five years and overall. It’s a Euro-centric special situations fund run by David Marcus, whose roots are in the Mutual Series funds from the days of Michael Price’s reign. It’s both good and a good diversifier.

At the same time, we want to celebrate funds that have regained coverage. At the end of June, LSV Value Equity (LAEVX/LSVEX) received its first new analyst report since 2011. The LSV of LSV Value are the initials of three academics whose work on behavioral finance underlies the fund’s strategy: Josef Lakonishok of the University of Illinois, Andrei Schleifer of Harvard University, and Robert Vishny of the University of Chicago. Of those, only Dr. Lakonishok is actively engaged with the fund. At base, they discovered that most investors did predictably stupid things including getting excited about “story stocks” and shunning boring ones. It’s parlayed a combination of quantitative and fundamental screens into a series of consistently top-tier returns and a sizable lead over the S&P 500.

The Investor shares have a $1,000 minimum.

Morningstar also made some changes to their Prospects list, their roster of promising but not ready for prime time funds. They’ve added six funds to the list:

Deutsche X-trackers USD High Yield Corporate Bond ETF (HYLB)
Fidelity Growth Strategies (FDEGX), a $2.1 billion fund that’s been around since 1990. For the life of me I don’t see the attraction of the fund, but I presume that the Morningstar analysts see some movement under the surface that I’m missing.
GMO SGM Major Markets (GSMFX), a $1.5 billion fund with a $10 million minimum.
Oppenheimer Large Cap Revenue ETF (RWL), which weights the companies in the S&P 500 based on revenues rather than market caps.
T. Rowe Price QM U.S. Small & Mid-Cap Core Equity (PRDSX), a $4.4 billion quant fund that’s been around since 1997. The fund size, and the total assets that the management team has to manage across all their charges, has grown dramatically which worries us rather more than it worries Morningstar.
Western Asset Corporate Bond (SIGAX), a small, 35-year-old fund with markedly stronger performance over the past five years.

At the same time, the guys downgraded two funds; that is, they’re no longer Prospective: CRA Qualified Investment (CRATX) and Perkins International Value (JIFIX), now called Janus Henderson International Value. I suspect that the hit on International Value is that it’s not gathering enough assets ($52 million) to be worth following; the fund has earned four stars, which is rather more than most of the funds just added to the list can say. The CRA fund is a sort of socially-responsible bond fund, supporting projects qualified under the Community Redevelopment Act. It’s got about $2 billion and a three-star rating.

In an entirely admirable development, on July 24, 2017, Morningstar took a 40% equity stake in Sustainalytics, a firm that provides environmental, social, and governance (ESG) research and ratings. They’re the driver behind Morningstar’s sustainability grades for mutual funds, which you might notice on a fund’s profile page:

I’m not entirely sure what outcomes this will translate into, mostly because Morningstar CEO, Kunal Kapoor, talks like a CEO. After a short invocation of momentum and leverage and synergies, he concludes: “we look forward to continuing to meet the increasingly sophisticated ESG needs and requirements of our clients through integrated solutions and innovative research.”

For Whom Does the Bell Toll?

By Edward A. Studzinski

In the dawn, although I know

It will grow dark again,

How I hate the coming day.

Fujiwara No Michinobu

Buffett’s irreproducible edge

First, some addenda to last month’s comments, as there were a number of readers interested in private equity. One reader, whom I happened to agree with, identified Berkshire Hathaway as a private equity proxy, given that (a) Buffett is dealing with permanent capital with a true long-term time horizon, and (b) he has been clearly disciplined and dedicated to going where opportunities surface that others are inclined or required to ignore. It has actually been quite instructive to watch him complement his major holdings in Berkshire’s insurance businesses as well as the equity investments that he owned pieces of, such as American Express and Coca Cola, with the wholesale acquisition of an entire portfolio of what would have been smaller capitalization businesses, both public and private. His modus operandi was to acquire the entire company at a fair price of what he considered good businesses, leaving the managements in place. He was prepared to supply them with capital when appropriate. This was followed by his acquisition of entire large companies, such as Burlington Northern or Pacificorp when the opportunity was presented at a price that would meet a target hurdle rate on invested capital over time, and were in basically oligopoly situations.

I remember this well as a number of the smaller companies were ideas that had been put forward or owned as appropriate investments for some of the domestic funds we were running that were rejected or sold because they “did not move the needle.” This was the curse, even fifteen years ago, of sustained asset inflows, which made it difficult to purchase and own something like Dairy Queen, which was public at the time. This now plays out as style drift, as “small capitalization” now encompasses ideas up to $2B in market capitalization. “Mid-cap” arguably subsumes ideas all the way up to $12B in market capitalization. We note that few value funds other than Longleaf Partners own Scripps Network International but almost all large cap value funds have positions in Alphabet, Bank America, or Wells Fargo. In many instances there is a commonality of ownership, not just among them, but with some of the larger growth players as well (or GARP – Growth at a Reasonable Price players).

Now the larger fund managers cannot duplicate Buffett, as he has permanent capital to invest and they do not. And the counter-argument to investing in Berkshire at this point is that Buffett is in his eighties, so how much longer can things move as they have. There are however other private equity like businesses that are doing the same thing, albeit not quite yet with the history. They are all insurance holding companies such as Alleghany and Markel, who have the same luxury of permanent capital to invest, the float from their investment portfolios that they hold as a backstop to the claims-paying requirements of their businesses. And while they do not have Warren Buffett doing the investing, they have been managing to generate eight to ten per cent average compounded returns on tangible equity (book value) over time.

I will leave you in this section with these thoughts. Yes, there is only one Warren Buffett. And there are a number of mutual funds out there that have claimed to invest similarly (the Buffett clones) over the years. They use a method of deconstruction and reverse engineering, although it would appear they don’t invest the same way that he does. They are always a step or two behind in the evolution of the thought process. They also do not have a partner like Charlie Munger. Those who doubt his impact or acumen over the years should go dig out the annual reports and returns from The New America Fund, a closed-end fund run by Munger years ago. (Here’s a taste of what you’ll find.) Alternatively, they can read the annual reports from WESCO, before Berkshire bought it all in. A close friend who is a long-time observer of Mr. Buffett pointed out to me that it was a huge statement on his part when he spent the time at this year’s meeting that he did talking about Jeff Bezos and Amazon. That he would admit that he made a major mistake in not investing in Amazon is a major admission. So the evolution continues.

Drawdowns Ahoy?

Two cautionary pieces were published recently. The first was Advisor Perspectives an interview with Bob Rodriguez, in a piece entitled “We are witnessing the development of a perfect storm” (6/27/2017). Mr. Rodriguez retired from First Pacific Advisors at the end of 2016. He makes a compelling case that the actions of the Federal Reserve in keeping interest rates close to zero for so long have disrupted the normal functioning of the capital markets. Those markets have been distorted to the point that the only hope an active manager has of outperforming is by being invested in absolutely the right areas. If you were an absolute value manager, you would hold greater cash levels as the things you could or would invest in became fewer and fewer. Performance would lag and you would either be fired by your clients or retire.

Rodriguez further makes the point that active managers have not really added value to the process over the last twenty years. In the dot-com craze of 2000, active growth managers piled into the same names until they imploded, regardless of how speculative those investments were. Likewise, prior to the 2007-2009 financial crisis, many value-oriented managers held the same financial services investments such as large banks (Washington Mutual and their ilk) which would be destroyed as a result of the excesses in the credit markets. Both styles, putting short-term job security in front of their investors, did not cover themselves in glory. Major amounts of investor capital were destroyed. The unintended consequence was that lower-fee index funds and exchange-traded vehicles started to catch on, since the active managers did not identify the dangers while charging higher fees.

What is new says Rodriguez, is that those index funds and exchange-traded products will be destabilizing influences when the equity markets stop going up. Those products generally hold little in the way of cash reserves, and when the turn comes, they will have to sell to meet redemptions. The only question becomes, “Sell to whom?” I won’t give away the rest of the interview, which you can find on line. However Rodriguez says that he is carrying close to 65% liquidity in his personal investments, mostly in Treasury-like securities, with nothing beyond a three-year maturity.

The other piece in a similar vein but considerably longer, is from Howard Marks of Oaktree Capital, published on 7/26/2017 and entitled “There They Go Again …. Again.” Marks says that the reason not to invest now, the negative catalyst, is for most investors not clear. What could cause the markets to crater? Given low returns on cash, people are more worried about missing out low but highly risky returns than they are worried about the permanent loss of capital. There is a willingness to compromise disciplines and not ask questions – “Everyone is doing it, so it must be okay” that would not pass the sniff test if investors were prodding more.

Among the signals that Marks points to are an S&P 500 selling at 25 times trailing-twelve month earnings versus the long-term median of 15; the Shiller Cyclically Adjusted PE Ratio at 30 against a historic median of 16; earnings inflated by cost-cutting and share repurchase, among other things, making the already high valuations understated relative to norms; and the “Buffett Yardstick” of total stock market capitalization as a percentage of GDP at an all-time high in June of 145.

Marks then spends a lot of time anecdotally fleshing out his concerns, pointing out (as did Rodriguez) the importance of investors having a knowledge and awareness of history. He offers a checklist for knowing where we are in a market cycle. His premise here is that investors make the greatest and safest returns on their investment when they are prepared to do what others do not want to do. He posits a situation, analogous to what we see today, where too much money with too little fear is chasing risky investments since the alternative is unappealing (and will not sound good at the cocktail party).

Do As I Say, Not …..

One of my summer projects has been looking at the Statements of Additional Information filed by fund companies, which most have posted on their websites. Among other things, you get to see how much money fund managers have invested in the funds they are managing. Or as is more often the case than not, how much money they have not invested in the funds they are running. Given the profitability of the mutual fund business it should not be that difficult for a fund manager to have a seven figure investment in his or her fund. Unfortunately, that is the highest cutoff the SEC has allowed for, so you don’t get to see how much more than a million they have invested. Now I recognize that for most investors in funds, a million dollars starts to be real money. Unfortunately, over the last ten years that has proven in many instances to not be the case in the fund business.

Posit an international fund manager who is running some $40B of assets. Annual compensation has been in excess of $30M a year for more than ten years and that $30M number is typical of the shell game that is often played. Fund trustees will be told that the manager’s annual compensation is actually only $2M a year, and that the other moneys reflect payment for the manager’s ownership interest in the organization. But if the organization was sold to a publicly-traded asset gatherer, either domestic or international, how does that work? Are there really any checks and balances in place, or is it like the basketball team where one player is the franchise?

I noted that in the case of Vanguard, many of its international managers, from firms based in London, often had no moneys invested in the product they were managing. When I raised that question with a friend in Edinburgh, he said that in the UK, many of the managers would invest their own funds in the similar strategy product in the UK, recognizing that different tax regimes often made cross-border investing difficult in commingled products. So if you are wondering why the Baillie Gifford managers of Vanguard International Growth Fund (VWIGX, the fund has 30.8% total return year to date and charges 46 basis point expense ratio) no moneys invested in that product, take a look at the similar strategy product run by them in the UK, the Scottish Mortgage Investment Trust (a UK closed-end fund), where they have millions of pounds sterling invested. As an aside, a Morningstar review of Scottish Mortgage will allow you to pull up the annual and semi-annual reports for that investment trust. I commend them to you for a discussion of the strategy, its implementation, and the results obtained. Although I disagree with the investment style, I commend the efforts at communication with shareholders.

Which brings me to a final thought here – we need to modify the rules for reflecting manager ownership. Another band of investment ranges needs to be added to the SAI, either $1M-$5M or $1M- $10M. I say that because I am aware of a number of individuals who could easily meet that higher level of disclosure but instead choose to diversify away from their own organization. Alternatively, the Longleaf Partners rule of allowing no other investments outside of the group’s own funds would go quite far in aligning interests.

I recently asked a senior individual at an investment firm how much time he ascribed, being in his forties, to the longevity of the golden goose, namely his firm’s mutual fund business before fees collapsed and expenses were reined in wholesale. My guess was three years. His was on the order of perhaps ten. The truth is most likely in between. He then made two telling comments which I think fit in with both the Marks and Rodriguez cautionary tales. With his personal moneys beyond the required investments in firm products, he was deploying funds into uncorrelated, non-equity or fixed-income assets that would produce income and tax advantages. Namely, he was following what would have been the old immigrant strategy of buying a brownstone two or three flat in a changing neighborhood, fixing it up, renting out the units, and getting both capital appreciation and sheltered income. His other comment was more telling – he felt sorry for the young men and women in their thirties and early forties who had come into the business. They had been lured into the investment business out of business school expecting the path to fame and fortune, or at least fortune, to be a relatively certain one. Sadly, they are perhaps like that last group of fifty-odd thousand troops at Dunkirk, hoping the shrinking defense perimeter will hold and that another boat will come for them.

Elevator Talk: Matthias Knerr and Andrew Manton, Shelton International Select Equity (SISLX/SISEX)

By David Snowball

Since the number of funds we can cover in-depth is smaller than the number of funds worthy of in-depth coverage, we’ve decided to offer one or two managers each month the opportunity to make a 200 word pitch to you. That’s about the number of words a slightly-manic elevator companion could share in a minute and a half. In each case, I’ve promised to offer a quick capsule of the fund and a link back to the fund’s site. Other than that, they’ve got 200 words and precisely as much of your time and attention as you’re willing to share. These aren’t endorsements; they’re opportunities to learn more.

The first to do it was Harry Houdini, on January 7th, 1918. Criss Angel upped the ante with a herd in 2013. Penn & Teller gave it a comic twist in 2015 with their “Vanishing African Spotted Pygmy Elephant Act” (spoiler alert: “Elsie” was a cow with a taped-on trunk).

Matthias Knerr and Andrew Manton

The old trick is making an elephant (mostly gray, occasionally spotted) disappear, but no one has managed the disappearance of a white elephant as quickly and as simply as Messrs. Knerr and Manton.

Knerr and Manton manage Shelton International Select Equity, a fund that began life as WHV International Equity WHVAX. From inception in 2008 – February 2016, the fund was managed by Richard K. Hirayama on behalf of WHV Investments. Founded in San Francisco in 1937, shortly after the launch of Dodge & Cox in the same city, WHV was one of the best known investment managers on the West Coast. In the present century, Mr. Hirayama was their best-known manager and his international equity strategy, which once held over $10 billion, 90% of all the firm’s assets. Mr. Hirayama made a substantial and ill-timed (some would say “principled”) bet on the proposition that buoyant global growth would cause the fund’s stake in energy, materials and industrials to soar.

It didn’t.

Investors, in particular large institutional ones, lost patience and fled in droves. Assets fell to $6 billion in mid-2015, $230 million by its October 2015 annual report and $52 million by April 2016.

At that point, things began to change. In February 2016, Mr. Hirayama retired and withdrew from investment management, to be succeeded by Knerr, Manton and a now-departed associate, operating as Rivington Investments. On July 18, 2016, Shelton Capital succeeded WHV as the investment adviser to the Fund and the Rivington team became a Shelton team. On August 12, 2016, the fund was renamed Shelton International Select Equity Fund but retained its original ticker symbols. On August 1, 2017, the fund acquired two new ticker symbols: SISLX and SISEX.

That change is surprisingly important, because those ticker symbols tied the fund to an abysmal 10-year record and to the one-star rating that stumbles in 2014-early 2016 earned. That represented an enormous drag on the fund’s future prospects since even if they could get past an advisor’s statistical screens to have a conversation, those conversations would always begin with a long talk about the fund’s past rather than about its future.

That would be regrettable, since the fund’s future appears distinctly bright. With a new set of tickers, the managers need only account for their own performance, which has been solid both with the fund and with their separate account strategy. The managers met a decade ago at Deutsche Asset Management, rose, grew a bit frustrated by a staid culture and, after a brief stint at Victory Capital, left to start their own firm. The team from Rivington Investments has been managing assets for nearly a decade, directly and as a sub-advisor, using the same strategy that’s now being employed at Shelton. One of the guys’ fundamental conclusions was that most strategies started by looking at the wrong factors (sector and industry, for examples) when assessing securities and constructing a portfolio. Their conclusion is that understanding where a firm is located in its corporate lifecycle – which runs in five phases from the young, volatile innovators to creaking distressed securities – is more important than knowing its sector, industry or the location of its headquarters.

That strategy has performed well – they’ve beaten their benchmark by 225 bps/year since inception, and have comfortable leads over it for the past one, three, five and seven-year periods (as of 6/30/2017).

We asked the team to share a couple hundred words in answer to the question, why you?

(Matthias:) Andy and I started together just about 10 years ago at Deutsche Asset Management (DeAM). Our experience at DeAM, a huge firm with seemingly endless resources, was that managers continued to underperform, and yet no one seemed willing to question the basic building blocks of their investment process. (Andy:) We were frustrated with the common mentality of grouping or segmenting the investment universe based on a bunch of factors – industry, country, sector or region – which provided little meaningful information to an investor. We set out to create a process that put us at a better starting point and made us more efficient. (Matthias:) We considered a number of approaches and became particularly interested in the concept of the corporate lifecycle. Firms at similar stages in their lifecycle show important similarities with regard to factors such as growth rates, capital requirements, cash flow returns and so on. Those commonalities provide fundamental signals or indicators about a firm’s prospects. (Andy:) So we started to develop a set of tools to make us a lot more efficient; they help us strip down the basic equation of return on capital versus growth regardless of the accounting regime in place. (Matthias:) The one thing we wanted to make sure was to have our alpha driven by stock selection; hence, we want to maximize the time we spend picking stocks and improve our effectiveness at it and not waste time on other areas.

(Matthias:) Life-cycle explicitly recognizes adaptation and change over time. We’re incredibly vigilant about changes that might impact the portfolio. We have a weekly risk management meeting to assess the biggest contributors to risk and how we might adjust the portfolio based on risk outliers.

Shelton International Select Equity Investor shares have has a $1,000 minimum initial investment and $500 for funds established with an automatic investing plan. The minimum for institutional shares is $500,000. Expenses are capped at 1.24% on the Investor shares and 0.99% for institutional shares. The fund has about $45 million in assets.

Here’s the fund’s homepage. It’s currently a bit thin on content, but that is because of the ticker change. The guys promise that updated Commentaries and Factsheets, along with a complete overhaul of the website, are coming very soon.

Evermore Global Value (EVGBX/EVGIX), August 2017

By David Snowball

Objective and Strategy

Evermore Global Value Fund seeks capital appreciation by investing in a global portfolio of 30-40 securities. The Fund’s special situations strategy is to identify companies trading at substantial discounts to their estimates of intrinsic value, and where catalysts exist to close these gaps. Although they are opportunistic investors and can buy securities of any market capitalization, their sweet spot has been in micro to mid-cap opportunities. They also have the ability to invest beyond the equity market in “less liquid” investments, such as distressed debt, can hold short positions in merger/arbitrage situations or to hedge market risk, and are willing to hold a up to 15% in cash.

Adviser

Evermore Global Advisors, LLC. Evermore was founded by Mutual Series alumni David Marcus and Eric LeGoff in June 2009. David manages the portfolios, Eric runs the business. They advise five substantial separately managed accounts as well as the Evermore Global Value Fund. All follow the same “special situations” strategy. As of June 30, 2017, they had $950 million of assets under management.

Manager

David Marcus. Mr. Marcus co-founded the adviser. He was hired in the late 1980s by Michael Price at the Mutual Series Funds, started there as an intern and describes himself as “a believer” in the discipline pursued by Max Heine and Michael Price. He managed Mutual European (MEURX) and co-managed Mutual Discovery (MDISX) and Mutual Shares (MUTHX), but left in 2000 to establish a Europe-domiciled hedge fund with a Swedish billionaire partner. Marcus liquidated this fund after his partner’s passing and spent several years helping manage his partner’s family fortune and restructure a number of the public and private companies they controlled. He then went back to investing and started another European-focused hedge fund. In that role he was an activist investor, ending up on corporate boards and gaining additional operational experience. That operational experience “added tools to my tool belt,” but did not change the underlying discipline.

Strategy capacity and closure

$2 – 3 billion, which is large for a fund with a strong focus on small firms. Mr. Marcus explains that he’s previously managed far larger sums in this style and that he’s willing to take “controlling” positions in small firms which raises the size of his potential position in his smallest holdings and raises the manageable cap. He currently manages about $400 million, including some separate accounts which rely on the same discipline. He’ll close if he’s ever forced into style drift.

Active share

99.4. “Active share” measures the degree to which a fund’s portfolio differs from the holdings of its benchmark portfolio. High active share indicates management which is providing a portfolio that is substantially different from, and independent of, the index. An active share of zero indicates perfect overlap with the index, 100 indicates perfect independence. The active share for Evermore is generally near 100, which reflects extreme independence plus the effect of several hedged positions.

Management’s stake in the fund

Mr. Marcus has invested between $500,000-1,000,000 in the fund. The fund provides all of Mr. Marcus’s equity exposure except for long-held legacy positions that predate the launch of Evermore. In addition, he co-owns the firm to which he and his partner have committed millions of their personal wealth.

Opening date

December 31, 2009.

Minimum investment

$5000, reduced to $2000 for tax-advantaged accounts. The institutional share class (EVGIX) has a $1 million minimum and no load(as of July 2023).

Expense ratio

For investor class shares it is 1.61% and for institutional shares it is 1.36% on assets under management of $106.9 million, as of July 2023. The fund eliminated the sales load on its retail shares in April 2015, an entirely admirable decision.

Comments

Morningstar’s last assessment of Evermore occurred in 2010, just eight months after the fund’s launch. As Evermore was taking short-term losses from the distressed firms in their portfolio, analyst Michael Breen opined:

There’s reason to believe. The managers are contrarians who focus on struggling firms where they see catalysts to unlock value, such as management changes or restructurings. Such transformations take time, so the managers are patient … They have strong track records elsewhere using the same approach … The fund’s recent buys look compelling. Patient investors will be well served here.

We concur. In 2011, we noted that managers in Mr. Marcus’s lineage “embody the best of active management: bold choices, high conviction portfolios, and a willingness to understand and exploit parts of the market that few others approach.” Three years later, with Evermore sporting a one-star rating from Morningstar, we argued that the discipline “David Marcus is teaching to his analysts, is highly-specialized, rarely practiced and – over long cycles – very profitable. Mr. Marcus, who has been described as the best and brightest of Price’s protégés, has attracted serious money from professional investors. That suggests that looking beyond the stars might well be in order here.” After a dozen interviews at this year’s Morningstar conference, we noted that Marcus is “consistently among the most engaging and thoughtful people we’ve met.”

And still much has changed since then:

In March 2017, Litman Gregory recognized Evermore’s strength and distinctiveness when they entrusted part of the Litman Gregory Master’s International Fund (MSILX) to Mr. Marcus and team.
In March 2017, Morningstar created a new fund category (World Small-Mid) into which they moved Evermore and 41 other funds. Those smaller cap funds have been a far more interesting and successful group than their former large cap brethren; the small-mid cap funds are 16% of the entire world stock group but have 35% of the top five-year performers.
The fund posted 13.9% annual returns for past five years (through 6/30/2017), placing it in the top 25% of its new Morningstar peer group.
In July 2017, the firm crossed the $1 billion in AUM threshold. The fund has seen inflows in 29 of the past 31 months.

Much more has not changed: Mr. Marcus’s favorite investments remain few in number, hard to find, difficult to value and prone to violent price movements. Those, oddly, are the things that Mr. Marcus finds most attractive about them.

In broad terms, the Evermore portfolio is divided between The Strange and The Steady. He prefers the former. The Strange are “special situations” or “distressed” securities, often issued by smaller companies. Those are generally firms that have historically stunk through some combination of bad management, bad strategies, bad execution and bad luck. Many firms in this category deserve their impending oblivion, but some will stage dramatic turnarounds. Mr. Marcus’s challenge is to identify such firms early when their stock prices are dramatically discounted, but the pieces are falling in place. He refers to them as stocks that are “cheap with a catalyst.”

Investing in such stocks has four important characteristics:

It is devilishly difficult. First, you have to be right in your judgment that the 120-year-old firm that’s been staggering around like a drunk for decades, always promising to reform, actually means it this time. Second, you have to have the fortitude to watch one of your holdings fall by 40% because other investors don’t yet get it, and to buy more along the way.
It is not replicable with a passive strategy. That is, you can’t construct an index that tracks “firms for whom potential saviors (or life-saving clues) have just arrived.”
It is not scalable. That is, there are relatively few firms poised for a turnaround at any particular time, and these are often small or very small companies. As a result, major investors like Vanguard and Fidelity cannot justify devoting resources for a strategy that might be capped at $2 billion. As a result, there are fewer analysts, less competition for the stock and greater initial mispricing.
It is independent of the general movement of the market. That is, these firms don’t need to grow revenue in order to see sharp share-price gains. If you have a firm that’s struggling because its CEO is a dolt and its board is in revolt, you’re likely to see the firm’s stock rebound once the dolt is removed. If you have a firm that used to be a solidly profitable division of a conglomerate but has been spun-off, you should expect an abnormally low stock price relative to its value until it has a documented operating history. Investors like Mr. Marcus buy them cheap and early, then wait for what are essentially arbitrage gains.

As a result, Evermore does things for you that other funds simply can’t: it produces high returns that are independent of its benchmarks and its peers. By way of illustration, the five year correlation between Evermore and the Vanguard Total World Stock Index Fund (VTWSX) is not only low (0.76), it’s also lower than the correlation between VTWSX and Vanguard Emerging Markets Stock Index (VEIEX), 0.78. Evermore is simultaneously a strong diversifier for a broad world stock index and a better diversifier than adding emerging markets stocks would be.

Why? An active share of 100 means that it has essentially no overlap with its benchmark. The same applies to its peer group: Evermore has seven-times the exposure to micro-cap stocks as does its global small/mid-cap peer group. It has one-third of the US exposure and four times the developed European exposure of the average global fund. And it sports a market cap only half as high as its peers.

Mr. Marcus believes that there are ample special situations opportunities outside the U.S. He writes, “We would agree that in the U.S. many stocks have lofty valuations. However, we are still finding special situations, mostly in Europe, that are trading at attractive valuations.”

When even he can’t find enough Strange stocks, he turns to the Steady. He refers to these as “Compounders,” which often translates to family owned or controlled firms that have activist internal management. Some of these folks are “ruthless value creators.” The key is to get to know personally the patriarch or matriarch who’s behind it all; establish whether they’re “on the same side” as their investors, have a record of value creation and are good people.

Bottom Line

There are two real downsides to being independent: you’re sometimes disastrously out-of-step with the herd and it’s devilishly hard to find an appropriate benchmark for the fund’s risk-return profile. That means that both ratings and relative returns are often somewhere between irrelevant and disastrously misleading. Successful investors in the fund need to understand what the team is up to, and to ignore one-star and five-star ratings with equal aplomb. If you’re willing to learn why an experienced investor would commit eight times more assets than any other fund to a micro-cap bulk shipping company, then purchase another 400,000 shares when an investor panic drives the share price down by 25%, then you should meet David Marcus. He does remarkable work.

Fund website

Evermore Global Value Fund. In general, when a fund is presented as one manifestation of a strategy, it’s informative to wander around the site to learn what you can. I rather liked Mr. Marcus’s white paper describing developed Europe as “lonely and lumpy.” (I so know the feeling.)

July 2023: Evermore Global Value Fund

Moerus Worldwide Value (MOWNX/MOWIX), August 2017

By David Snowball

Objective and strategy

Moerus Worldwide Value pursues long term capital appreciation, primarily by investing in foreign and domestic common stocks that it believes are deeply undervalued. The portfolio is constructed from the bottom-up through fundamental analysis; which is to say the manager cares about finding 15-50 great stocks with no particular interest in paralleling some indexes sector, size or country weightings. As of May 31, 2017, the fund is invested in 37 stocks.

Adviser

Moerus Capital Management, LLC. Moerus is a New York-based investment management company founded in 2015. The firm was founded by Amit Wadhwaney, John Mauro and Michael Campagna, all of whom worked together for nearly a decade at Third Avenue Management. They were joined by a fourth Third Avenue alumnus, Ian Lapey, in 2016.

Manager

Amit Wadhwaney. Mr. Wadhwaney is co-founder and Chief Investment Officer, as well as portfolio manager. Prior to Moerus, he was best known as a portfolio manager and partner at Third Avenue Management LLC where he managed Third Avenue International Value (TAVIX) from December 2001 to June 2014. Near the end of his tenure there, Morningstar described him as having “proved his mettle as a skilled and thoughtful investor, and his continued presence on the fund remains its main draw.” In addition to an M.B.A. in Finance from The University of Chicago, he holds degrees on economics, chemical engineering and mathematics.

Strategy capacity and closure

Moerus estimates that the strategy’s capacity is somewhere around $5 billion. Mr. Campagna notes that “This estimate is based on many factors, including liquidity requirements, the areas where we have traditionally found opportunity, our fee structure, as well as the economics of running the business and attracting the quality of employees that we seek.” The wild cards would be the rate of inflow (too much money too quickly might not be manageable) and the state of the market, which might dramatically expand or contract their opportunity set. Because the Moerus folks are committed to growing their personal wealth through their investments in the fund, rather than by attracting excess assets which might dilute performance, they judge that their $5 billion estimate is “conservative.”

Management’s stake in the fund

Mr. Wadhwaney has over $1 million invested in the fund. According to the most recent SAI, his personal investment represents 27.49% of the assets in the fund’s institutional share class, as of March 6, 2017. As of the end of July 28, 2017, Moerus employees as a group accounted for 11.1% of the total assets of the Moerus Worldwide Value Fund.

Opening date

May 31, 2016

Minimum investment

$2,500 for “N” class shares, $100,000 for “I” shares

Expense ratio

Effective on March 31, 2023, the adviser imposed expense caps at 1.25% for institutional and 1.50% for investor shares. Both represent significant reductions from their original 2017 levels. The assets under management is $55.5 million, as of July 2023.

Comments

Harry Copland, who piloted his first plane in 1911 at the age of 15, is credited with the adage, “There are old pilots and there are bold pilots, but there are no old, bold pilots.” (He lived to be 80.) For pilots, deviating from proper procedures by even a little bit is not just a career risk, it’s a life risk.

For fund managers, the price of independence is not quite so high: independent managers tend to be unemployed, rather than expired. Running outside the herd frightens investors and absolutely terrifies fund company executives, who worship “sticky assets” above all else. And so most managers, no matter how promising, are eventually tamed into compliant mediocrity. That’s evidenced in two distinct ways. First, a July 2017 Morningstar study of the effects of manager changes on a fund’s performance finds, well, on average, none. That is, the average manager is an interchangeable cog who contributes no individual value. Second, the “active share” research done by Martijn Cremers and Antti Petajisto finds that only 30% of U.S. fund assets are in funds that are reasonably independent of their benchmarks (80 or above) and only a tenth of assets go to highly active managers (90 or above). Sadly, investors migrate toward, rather than away from, closet indexers when markets turn south.

Independence is hard on managers and investors alike.

Yet there are a few old, bold – that is, persistently independent managers — out there. Third Avenue founder Marty Whitman, who launched the Third Avenue Value Fund (TAVFX) at age 66 and managed it until he was 88, is one. His former protégé Amit Wadhwaney, a youngster at age 63, is another.

Twenty five years into his career as a professional investor, Mr. Wadhwaney, then 62, launched Moerus Worldwide Value as a new expression of Mr. Whitman’s “safe and cheap” investing mantra.

Moerus is a concentrated, deep value fund. The fund brings two distinctions to the table.

First, the investment strategy is distinctive and disciplined. All active investors need to determine what a potential investment is likely worth; it’s called “price discovery.” Almost all investors make their determinations by forecasting what the future holds for a firm: “TechnoZon’s Bluetooth division had $50 million in EBITDA, minus a goodwill write-off, last year; based on 2014-16 trends, we’re projecting EBITDA growth of 4% in 2017 and 5.2% in 2018 before it levels off to a sustainable 2.4% in the out years, which gives us a fair value of …”

Mr. Wadhwaney considers such projections as fantasies swathed in fictions: earnings numbers are often works of creative writing and the prospect of consistently foreseeing the future is nil.

Instead, his discipline starts with the question, “if we had to sell this entire firm today, based on what it’s already accomplished and built, and allowing for any highly-predictable income streams it has, what could we get for it?” He then asks, “and what could we get for it if things starting going bad in a big way?” That gives him a conservative estimate of what the firm’s worth; he’ll only buy the stock if (a) the firm’s attractive and (b) it’s selling as a substantial discount to his caustic assessment of the firm’s actual value.

He is, at base, looking for reasons not to buy each firm, rather than for reasons to buy them. If he can find a reason to say “no,” he immediately and resolutely does. He’s joking both about the moniker “Dr. No” and about a playful video made by his associates which shows one of them pretending to be Amit; they accomplished this by wearing a blonde wig (oddly) and tossing corporate reports aside while crying out “no, no … No!” (It was a fund manager’s version of Queen’s “Another One Bites the Dust.”)

There are three significant consequences of his price discipline. First, he’s willing to hold substantial amounts of cash when he can’t find safe and cheap stocks. Currently his cash reserve is 18%. Second, he may follow some firms for five to eight years before moving on them, which suggests that he knows them really well by the time an opportunity presents itself. Third, his discipline intrinsically favors some sorts of businesses – those with real assets and annuity-like cash streams – over others. As of 2/28/2017, he had zero combined exposure to three sectors (tech, healthcare and utilities) that represent 35% of his average peer’s portfolio.

Second, Mr. Wadhwaney does good work. He posted competitive returns with high degrees of independence and strong downside protection with his previous fund. Morningstar, which has followed him for years, quickly designated Moerus as a Morningstar Prospect and invited him to speak at their 2017 investment conference in Chicago. Moerus Worldwide returned 24.2% in the 12 months ending July 31, 2017, that outpaced its both benchmark and peer group by over 500 basis points, which placed it in the top 15% of its peer group. That’s despite the effects of relatively high start-up expenses and a substantial cash reserve. His median market cap, geographic distribution, asset allocation, and sector allocation are all substantially different from his peers.

Bottom Line

Independence is not easy, for manager or for fundholder. It’s hard to be out of step, especially when those around you are smugly basking in the illusory safety of passive investments. In the long term, though, success requires discipline and difference. For folks willing to take their obligations as investors seriously – that is, to invest alongside their managers, through thick and thin, based on a fundamental understanding of and agreement with their strategy – Moerus offers a rare and intriguing opportunity to invest alongside (in another of Mr. Whitman’s phrases) a distinguished “aggressive conservative investor.”

Fund website

The Moerus Funds site is perfectly respectable, but folks interested in a bit more detailed understanding of Mr. Wadhwaney’s style and strategy might benefit from browsing the “news” page on the Moerus Capital website, too. There are a couple nice interviews and his Investor Memos which might have been judged a bit too much for the casual passerby.

Funds in Registration

By David Snowball

It’s rare that I encounter the term “quantamental” twice in the same set of filings. Okay, it’s unheard of. I think they just made it up to irk me.

It’s also rare that Vanguard launches two new funds, much less the global version of two of their most legendary funds: Wellesley and Wellington. It’s hard to imagine why these won’t be $10 billion funds in, oh, about a year.

Calvert Ultra-Short Income NextShares

Calvert Ultra-Short Income NextShares will seek to maximize income, to the extent consistent with preservation of capital, through investment in short-term bonds and income-producing securities. The plan is to invest in a combination of floating rate securities and ultra-short bonds that pass Calvert’s financial, social and environmental screens. The fund is structured as an actively managed ETF. The fund will be managed by Vishal Khanduja and Brian S. Ellis. The initial expense ratio is 0.38% and you may buy as much or as little as you like.

Chiron SMid Opportunities Fund

Chiron SMid Opportunities Fund will seek long-term capital appreciation. The plan is to use a quantamental approach to construct a global small- to mid-cap equity portfolio. The managers use the strategy both to identify attractive regions or sectors, and to identify individual equities. The fund will be managed by Grant Sarris and Brian Cho of Chiron Investment Management. The initial expense ratio is 1.20%, while the minimum initial investment is $100,000.

Eventide Global Dividend Opportunities Fund

Eventide Global Dividend Opportunities Fund will seek dividend income and long-term capital appreciation. The plan is to build an all-cap global portfolio of dividend-paying companies, though the prospectus leaves open the door to calls and puts. The portfolio imposes a number of social and environmental screens. The fund will be managed by Martin A. Wildy. The initial expense ratio for the “N” shares will be 1.17%, while the minimum initial investment will be $1,000.

Fiera Capital International Equity Fund

Fiera Capital International Equity Fund will seek capital appreciation. The plan is to build a portfolio of stocks from 25 to 45 fundamentally attractive companies. . The fund will be managed by Nadim Rizk and Andrew Chan. The initial expense ratio has not been disclosed, while the minimum initial investment is $1,000.

Lazard Equity Franchise Portfolio

Lazard Equity Franchise Portfolio will seek total return consisting of appreciation and income. The plan is to a global equity fund around companies that have an “economic franchise” or, in Morningstar’s terms, “a moat.” They’ve got the ability to hedge their currency exposure, but might not. The fund will be managed by Matthew Landy, John Mulquiney, and Warryn Robertson . The initial expense ratio for Open shares will be 1.20%, while the minimum initial investment will be $2,500.

USA Mutuals/WaveFront Quantamental Long/Short Opportunities Fund

USA Mutuals/WaveFront Quantamental Long/Short Opportunities Fund will seek to produce positive absolute returns while reducing exposure to general equity market risk. The managers will employ (i) a “core long/short equity” strategy; (ii) a “macro overlay” strategy; and (iii) a risk management strategy. The fund represents the conversion of a limited partnership that’s been in operation since 2002. That fund returned 6.57% from inception (compared to 2.8% for the average long/short fund), with a loss of only 3.45% in 2008. The fund will be managed by Roland Austrup, Ryan Butz and Mark Adam of WaveFront Global Asset Management. In addition, Mr. Butz managed the predecessor fund. The initial expense ratio is 1.30%, while the minimum initial investment $2,000.

Vanguard Global WellesleyIncome Fund

Vanguard Global Wellesley Income Fund will seek long-term growth of income and a high and sustainable level of current income, along with moderate long-term capital appreciation. The plan is to invest 60% to 70% in U.S. and foreign investment-grade bonds and 30% to 40% in a global portfolio of dividend-paying, mid- to large-cap stocks. The fund will be managed by John C. Keogh, Loren L. Moran, Michael E. Stack, and Ian R. Link of Wellington Management Company. The initial expense ratio will be 0.42%, while the minimum initial investment is $3,000.

Vanguard Global Wellington Fund

Vanguard Global Wellington Fund will seek long-term capital appreciation and moderate current income. The plan is to invest 60% to 70% in a global portfolio of dividend-paying, mid- to large-cap stocks and 30% to 40% in U.S. and foreign investment-grade bonds. The fund will be managed by John C. Keogh, Loren L. Moran, Michael E. Stack, and Nataliya Kofman of Wellington Management Company. The initial expense ratio will be 0.45%, while the minimum initial investment is $3,000.

Manager changes, July 2017

By Chip

On July 27, 2017, Morningstar researchers confirmed what we’ve known for years: most manager changes are utterly inconsequential. Messrs. Hawkins and Cates have a combined 54 years at Longleaf Partners (LLPFX); the arrival of a young co-manager is unlikely to make a marked difference. Two interesting consequences that they did observe are that manager changes trigger fund outflows and that the outflows are greatest at large funds, perhaps because media coverage of those funds makes the changes more visible and portentous.

And yet there are times when we ought to note manager changes for entirely different reasons. This month Dowe Bynum, following the discovery of a brain tumor, stepped aside from management of The Cook & Bynum Fund (COBYX). Dowe is a good guy to talk with, funny and smart, a caring spouse and a dad with young children. We’re sanguine about the fund’s operation: there’s always been a contingency plan in place, they’ve recently added analytic support and they pursue a low turnover (9%) discipline. We know Dowe is receiving very good care and want to add our voice to the chorus of support and good wishes.

Ticker	Fund	Out with the old	In with the new	Dt
ATWAX	AB Tax-Managed Wealth Appreciation Strategy	Daniel Loewy and Vadim Zlotnikov are no longer listed as portfolio managers for the fund.	Ding Liu and Nelson Yu will now manage the fund.	7/17
AWAAX	AB Wealth Appreciation Strategy	Daniel Loewy and Vadim Zlotnikov are no longer listed as portfolio managers for the fund.	Ding Liu and Nelson Yu will now manage the fund.	7/17
ADVWX	Advisory Research Global Value Fund	Bruce Zessar, Drew Edwards, James Langer, Marco Priani, and Matthew Swaim are no longer listed as portfolio managers for the fund.	Adam Steffanus and Michael Valentinas will now manage the fund.	7/17
ADVIX	Advisory Research International Small Cap Value Fund	Drew Edwards and Marco Priani are no longer listed as portfolio managers for the fund.	Stephen Evans and Kevin Ross are now managing the fund.	7/17
ADIAX	Alpine Small Cap Fund	No one, but . . .	Samuel Lieber and Stephen Lieber are joining Sarah Hunt on the management team, replacing Michael Smith who left in May.	7/17
AAIPX	American Beacon International Equity Fund	Cindy Sweeting has announced her intention to retire as of December 31, 2017.	On January 1, 2018 Matthew Nagle will join the other 18, or so, managers.	7/17
MDRFX	BlackRock Mid Cap Dividend Fund	Murali Balaraman and John Coyle are no longer listed as portfolio managers for the fund.	Tony DeSprito, Franco Tapia, and David Zhao will manage the fund.	7/17
BERCX	Chartwell Mid Cap Value Fund	Robert Killen will no longer serve as a portfolio manager for the fund.	David Dalrymple will now manage the fund.	7/17
CAALX	Cornerstone Advisors Public Alternatives Fund	Arup Datta, Haijie Chen and Nicholas Tham no longer serve as portfolio managers of the fund.	Theodore Aronson, Stefani Cranston, Gina Marie Moore, Gregory Rogers and Christopher Whitehead now serve as portfolio managers of the fund, joining the rest of the team.	7/17
CAREX	Cornerstone Advisors Real Assets Fund	No one, but . . .	Christopher Allen joins the management team.	7/17
SFXAX	Deutsche Core Fixed Income Fund	No one, but . . .	Kelly Beam joins Gregory Staples and Thomas Farina in managing the fund.	7/17
SEKAX	Deutsche Emerging Markets Equity Fund	No one, but . . .	Sean Taylor and Andrew Beal are joined by Luiz Ribeiro and Marc Currat in managing the fund.	7/17
DEFAX	Deutsche Emerging Markets Frontier Fund	Andrew Beal in on temporary leave.	Sean Taylor will continue to manage the fund.	7/17
SZEAX	Deutsche Enhanced Emerging Markets Fixed Income Fund	Darwei Kund, John Ryan and Steven Zhou are no longer listed as portfolio managers for the fund.	Rahmila Nadi is joined by Nicolas Schlotthauer in managing the fund.	7/17
SZGAX	Deutsche Enhanced Global Bond	Darwei Kund, John Ryan and Gary Russell are no longer listed as portfolio managers for the fund.	Rahmila Nadi is joined by Dirk Aufderheide in managing the fund.	7/17
SDUAX	Deutsche Fixed Income Opportunities Fund	Rahmila Nadi is no longer listed as a portfolio manager for the fund.	John Ryan and Roger Douglas are joined by Kevin Bliss and Thomas Sweeney in managing the fund.	7/17
TIPIX	Deutsche Global Inflation Fund	No one, but . . .	Rick Smith has been added as portfolio manager of the fund and, together with Darwei Kung, is responsible for the day-to-day management of the fund.	7/17
DDBAX	Dreyfus Emerging Markets Debt Local Currency Fund	Javier Murcio has left the building.	Federico Garcia Zamora is the fund’s primary portfolio manager.	7/17
DIBAX	Dreyfus International Bond Fund	Raman Srivastava is on the road again.	David Leduc and Brendan Murphy will continue to manage the fund.	7/17
DSTAX	Dreyfus Opportunistic Fixed Income Fund	Raman Srivastava and David M. Horsfall are … uhh, pursuing other opportunities.	David Leduc and Brendan Murphy will continue to manage the fund.	7/17
DBNAX	Dreyfus Select Managers Long/Short Fund	Pine River Capital Management will no longer be a subadvisor to the fund and Joseph Bishop will no longer serve as a portfolio manager for the fund.	John Brennan, Jeffrey Brozek, Christopher Crerend, Eugene Salamon, Jay Abramson, Ethan Johnson, Kristopher Kristynik, and James Rosenwalk will continue to manage the fund.	7/17
DHGAX	Dreyfus/Standish Global Fixed Income Fund	Raman Srivastava is no longer listed as a portfolio manager for the fund.	David Leduc and Brendan Murphy will continue to manage the fund.	7/17
FSTBX	Federated Global Allocation Fund	Philip Orlando is no longer listed as a portfolio manager for the fund.	John Sherman joins Timothy Goodger, Ihab Salib, Chengjun Wu, Steven Chiavarone, and Randy O’Toole will continue to manage the fund.	7/17
FFMVX	Fidelity Flex Mid Cap Value Fund	Court Dignan has left the fund after only three months.	Justin Bennett, Katherine Buck, Matthew Friedman, John Mirshekari, Laurie Mundt, and Shadman Riaz now manage the fund.	7/17
FFIDX	Fidelity Fund	John Avery will no longer serve as a portfolio manager for the fund.	Jean Park is now managing the fund.	7/17
FMCSX	Fidelity Mid-Cap Stock Fund	No one, but . . .	John Roth is joined by Nicola Stafford in running the fund.	7/17
FMVAX	Franklin Mid Cap Value Fund	Donald Taylor, Samuel Kerner, and Jakov Stipanov are no longer listed as portfolio managers for the fund.	Christopher Meeker and Steven Raineri will now manage the fund.	7/17
GMOFX	GMO Foreign Fund Class III	Drew Spangler is no longer listed as a portfolio manager for the fund.	Neil Constable will now run the fund.	7/17
GMFSX	GMO Foreign Small Companies Fund Class III	Drew Spangler is no longer listed as a portfolio manager for the fund.	Neil Constable will now run the fund.	7/17
GMISX	GMO International Small Companies Fund Class III	Drew Spangler is no longer listed as a portfolio manager for the fund.	Neil Constable will now run the fund.	7/17
GSMYX	Goldman Sachs Small/Mid Cap Growth Fund	No one, but . . .	Steven Barry and Daniel Zimmerman are joined by Micheal DeSantis in running the fund.	7/17
IBNAX	Ivy Balanced	No one, but . . .	Rick Perry joins Matthew Hekman in managing the fund.	7/17
HGRAX	Janus Henderson U.S. Growth Opportunities Fund	No one, but . . .	Kristi Guay joins Derek Pawlak and William Scott Priebe in managing the fund.	7/17
URTAX	JPMorgan Realty Income Fund	No one, but . . .	Jason Ko is joined by Scott Blasdell on the management team.	7/17
JILSX	JPMorgan U.S. Dynamic Plus Fund	Shudong Huang is no longer listed as a portfolio manager for the fund.	Dennis Ruhl is joined by Jason Alonzo and Pavel Vaynshtok in managing the fund.	7/17
LLPFX	Longleaf Partners Fund	No one, but . . .	Ross Glotzbach joins O. Mason Hawkins and G. Staley Cates in managing the fund. Mssrs. Hawkins and Cates have a combined 54 years’ experience managing this fund.	7/17
LLINX	Longleaf Partners International	T. Scott Cobb will step down from his role as co-portfolio manager to focus on leading Southeastern’s European research efforts.	Josh Shores will join Ken Siazon, G. Staley Cates, and O. Mason Hawkins on the management team.	7/17
LICAX	Lord Abbett Global Core Equity Fund	Didier Rosenfeld and Frederick Ruvkun will no longer manage the fund.	Yarek Aranowicz will now manage the fund.	7/17
LMGAX	Lord Abbett Growth Opportunities Fund	Paul Volovich and Anthony Hipple are out.	David Linsen will manage the fund until Jeffrey Rabinowitz takes on the job on August 7, 2017.	7/17
MIOFX	Marsico International Opportunities Fund	Munish Malhotra will no longer serve as a portfolio manager for the fund.	Thomas Marsico and Robert Susman are now managing the fund.	7/17
SIEYX	Saratoga Advantage International Equity Portfolio	Regina Chi will no longer serve as a portfolio manager for the fund.	Marc Miller is now managing the fund.	7/17
FLAUX	Strategic Advisers Core Multi-Manager Fund	Phillip Marriott will no longer serve as a portfolio manager for the fund.	John Stone, Colin Morris, Kurt Feuerman, Matthew Fruhan, Anthony Nappo, George Ross, David Small, and Niall Devitt will continue to manage the fund.	7/17
COBYX	The Cook & Bynum Fund	J. Dowe Bynum is on medical leave and plans to return to his portfolio management role as soon as he is fully able.	Richard Cook assumed sole responsibility for the day-to-day portfolio management of the fund.	7/17
IMUAX	Transamerica Multi-Manager Alternative Strategies Portfolio	Rishi Goel, James Schaeffer, and Timothy Galbraith are no longer listed as portfolio managers for the fund.	Raymond Chan, Christopher Lvoff, and Lucy Xin will now manage the fund.	7/17
SCCTX	Virtus Conservative Allocation Strategy Fund	Alan Gayle is no longer listed as a portfolio manager for the fund.	Peter Batchelar and Thomas Wagner are now running the fund.	7/17
SGIAX	Virtus Growth Allocation Strategy Fund	Alan Gayle is no longer listed as a portfolio manager for the fund.	Peter Batchelar and Thomas Wagner are now running the fund.	7/17
WALTX	Wells Fargo Alternative Strategies Fund	Raj Iyer and George Jikovski are no longer listed as portfolio managers for the fund.	Torrey Zaches, James Stavena, Joseph Bishop, Robert Kinderman, Ronald van der Wouden, Gregg Thomas, Kent Stahl, Kenneth LaPlace, Sudhir Krishnamurthi, Vassilis Dagioglu, Richard Chilton, John Burbank, and John Brennan will continue to manage the fund.	7/17
Various	Wells Fargo Target Date Series	Rodney Alldredge, James Lauder, and Paul Torregrosa are out.	Kandarp Acharya, Petros Bocray, and Christian Chan are in.	7/17

Briefly noted

By David Snowball

The industry appears to be in full summer-beach mode, or its doing so splendidly that there’s no need to even think about changing anything. In any case, July saw the smallest number of announced changes in about five years.

Updates

Our July 2017 profile of Matthews Asia Credit Opportunities (MCRDX/MICPX) described it as investing in high-yield bonds. That’s correct but incomplete. Manager Satya Patel reminded us that the fund’s core investments can include “convertibles, hybrids and derivatives with fixed income characteristics.” Indeed, since inception convertible bonds have represented 20-25% of the portfolio. We’ve corrected the profile to reflect that. The fund has built a substantial performance advantage over its peers since inception, similar to the consistent success of its older sibling, Mathews Asia Strategic Income (MAINX).

Briefly Noted . . .

SMALL WINS FOR INVESTORS

Effective October 9, 2017, a bunch of American Century funds (including International Discovery, Adaptive Equity, Global Gold Fund, International Core Equity Fund, International Value Fund, International Opportunities Fund, Small Cap Growth Fund, Emerging Markets Fund, Global Growth Fund and International Growth Fund) are eliminating their redemption fees.

Effective August 1, 2017, Fidelity will reduce total expenses across 14 of its 20 stock and bond index mutual funds. The average e.r. will be reduced from 11 bps to 9.9 bps.

Effective September 1, 2017, the minimum initial investment amount for individual investors in Class I shares of the Marketfield Fund (MFLDX) is being lowered from $1,000,000 to $25,000. This has long felt like the Icarus Fund, which was too proud, soared too high, got too close to the sun and plummeted. Assets are down about 97% from their peak, but the firm is independent again and their 2017 performance has been quite solid.

PIMCO is liquidating the “C” class shares for many of their funds. That strikes me as an entirely positive move.

Touchstone Small Cap Fund (TSFAX) has reopened to new and existing investors.

Effective August 1, 2017, the Teton Westwood Mighty Mites Fund (WEMMX) initial minimum investment for Class AAA, Class A, Class C, and Class T shares is $1,000. It had been $10,000.

CLOSINGS (and related inconveniences)

Anchor Tactical Credit Strategies Fund (ATCSX) has permanently closed its Investor share class. Current Investor investors have been moved to Institutional shares.

Effective the close of business on August 4, 2017, Fidelity Global Balanced (FGBLX) will close to new investors. I’m not sure why. The fund is economically viable (roughly $500 million) but nowhere near reaching a capacity constraint. Its performance has been mostly mediocre, but never embarrassing. It’s a curious decision.

One week later, the four-star Fidelity Global Strategies Fund (FDYSX) closes as well.

Effective September 29, 2017, the T. Rowe Price Global Technology Fund (PRGTX) will be closed to new investors

Vanguard Wellington (VWELX) has closed to new investors, except for folks with a Vanguard brokerage account. That’s attendant to their impending launch of global versions of Wellesley Income and Wellington. (See this month’s “Funds in Registration” for details.)

OLD WINE, NEW BOTTLES

I’m tempted to title this entry “Baillie Gifford gives up Big Sex,” but I won’t. Baillie Gifford Emerging Markets Fund, Institutional Class, has changed its ticker symbol from BGSEX to BGEGX.

Effective October 2, 2017, Deutsche Enhanced Global Bond Fund (SZGAX) will be renamed Deutsche High Conviction Global Bond Fund, Deutsche Enhanced Emerging Markets Fixed Income Fund becomes Deutsche Emerging Markets Fixed Income Fund and Deutsche Enhanced Emerging Markets Fixed Income Fund (SZEAX) will be renamed Deutsche Emerging Markets Fixed Income Fund.

Finally, Deutsche Enhanced Emerging Markets Fixed Income Fund (SCEMX) will be renamed Deutsche Emerging Markets Fixed Income Fund.

On August 29, 2017, GMO Emerging Countries Series Fund is going to redeem its investment in GMO Emerging Countries Fund (“ECF”), after which it will be renamed GMO Emerging Markets Series Fund

OFF TO THE DUSTBIN OF HISTORY

AMG TimesSquare All Cap Growth Fund, AMG Trilogy International Small Cap Fund and AMG Trilogy Global Equity Fund will liquidate on August 31, 2017.

Deutsche Core Fixed Income Fund (SFXAX) will merge into Deutsche Core Plus Income Fund (SZIAX), on or about October 30, 2017. It’s scary when even the surviving fund, in this case one that’s trailed 98% of its peers over the past decade, looks like a candidate for closure.

Dreyfus Mid-Cap Growth Fund (FRSDX) will, pending shareholder approval, merge into Dreyfus/The Boston Company Small/Mid Cap Growth Fund (DBMAX) on January 19, 2018.

Dreyfus Strategic Beta Global Equity Fund (DBGAX) will liquidate on September 8, 2017.

Geneva Advisors Small Cap Opportunities Fund (GNORX) and Geneva Advisors International Growth Fund (GNFRX) will each wrap up their affairs on August 28, 2017.

Gingko Multi-Strategy Fund (GNKIX) goes extinct on August 21, 2017. The gingko tree, for which it’s named, has survived 270,000,000 years. The fund, whose “dynamic” static engendered a turnover ratio of 1800%, lasted six.

Guidestone Global Natural Resources Equity Fund (GNRZX) has closed and will liquidate on September 22, 2017.

Pioneer Emerging Markets Fund (PEMFX) will merge into Pioneer Global Equity Fund (GLOSX) “in the fourth quarter of 2017.” Approximately 3% of Global Equity’s portfolio is invested in the emerging markets, making it a pretty poor fit for investors who had been seeking direct EM exposure. Indeed, GLOSX has more money invested in Apple than in all the EMs combined. On the other hand, PEMFX is really bad at what it does while GLOSX is mostly mediocre.

Transamerica Global Long/Short Equity (TAEAX) vanished on July 24, 2017, after just over one week’s notice.