Yearly Archives: 2018

No country for old men

By David Snowball

With a summertime nod to William Butler Yeats, “Sailing to Byzantium,” and not so much to the movie that cribbed a line from him.

I

That is no country for old men. The young
In one another’s arms, birds in the trees,
—Those dying generations—at their song,
The salmon-falls, the mackerel-crowded seas,
Fish, flesh, or fowl, commend all summer long
Whatever is begotten, born, and dies.
Caught in that sensual music all neglect
Monuments of unageing intellect.

II

An aged man is but a paltry thing,
A tattered coat upon a stick, unless
Soul clap its hands and sing, and louder sing
For every tatter in its mortal dress,
Nor is there singing school but studying
Monuments of its own magnificence;
And therefore I have sailed the seas and come
To the holy city of Byzantium.

We noted, with great sadness, the death of Marty Whitman on April 16, 2018, at age 93. Mr. Whitman was one of a small group of utterly iconic figures. Much like Ralph “The Big Squirrel” Wanger, Warren “I’ve been semi-retired for decades” Buffett or Michael “The Meanest S.O.B. on Wall Street” Price, Mr. Whitman was resolutely, fiercely independent, a facile writer and greatly admired.

We are less saddened by the fact that he passed away – it’s an experience we’ll all share, and he led a long and consequential life – than by the shambles around him. The same drive, confidence in his judgment and unabashed independence that made his reputation and his empire also unmade them. Flagship Third Avenue Value Fund (TAVFX) which he managed until he was 88 now receives a “negative” assessment by Morningstar on each of the five characteristics they assess.

His fate is shared by two other legends. Few of us get a gold watch (or a pension) as a going away present from our employers, fewer are given a mutual fund to manage. That, as it turns out, is a good thing.

Bill Miller had a titanic career at Legg Mason, and I mean that in both senses of the world. Morningstar’s Bridget Hughes wrote the capstone in 2011, at the announcement of his imminent departure:

The fund’s performance record is so remarkable that it’s hard to believe the same manager has been in place for the whole of it. Bill Miller, who has been on board since its 1982 inception … led the fund to a record-setting 15-consecutive calendar years of beating the S&P 500 Index. Between 1991 and 2005, the fund was up an annualized 16.44%, compared with the S&P 500 Index’s 11.52% gain.

Since then, the fund’s performance has been awful. Between January 2006 and October 2011, the fund has suffered a huge setback, losing 36.13% (7.4% annualized), which compares with the S&P 500 Index’s 13.45% gain (2.19%).

As a sort of parting gift, Mr. Miller (and his son, also Bill Miller) received the Miller Income Opportunity Fund (LMCJX). Our 2014 profile of the fund was not enthused: “If you believe that Mr. Miller’s range of investment competence knows no limits, this is the fund for you.” At base, the fund permits Mr. Miller to exercise his genius across an unlimited array of asset classes. The results, to date, have been … mixed. Morningstar gives it a one star rating in the odd “70-85% equity” group, noting high risks, high expenses and low returns. Against its Lipper “flexible portfolio” peer group, it’s shown higher volatility, more ulcers and lower returns than its peers.

The Tale of Two Bills

At the very least, I never suspected that Mr. Miller was crazy. Bill Gross, on the other hand, raised that possibility. (His wife, in a 2016 divorce filing, echoes concerns about “irrational and frightening behavior.”) After an exceedingly messy breakup with PIMCO, which he co-founded and for which he’d managed hundreds of billions of dollars, Janus hastily cooked up the Janus Global Unconstrained Bond Fund (JUCAX) for him to manage. That fund charges him with finding “maximum total return” and frees  him to invest in virtually any income-producing security. The fund has attracted billions in assets, quite possibly including more than a billion of Mr. Gross’s own money.

Here’s Morningstar’s picture of the fund’s lifetime performance:

That’s sort of hurt in a relative performance way. The fraction of its peers with better performance than JUCAX (as of 5/31/18):

YTD 100%
Three month 100%
One year 99%
Three years 91%

Our 2014 profile of the fund reflected on Mr. Gross’s turbulent final years at PIMCO and asked “what risk are you assuming in pursuit of those very modest gains over the relatively modest period in which he’s likely to run the fund? Shorn of his vast analyst corps and his place on the world stage, the answer is not clear.” We concluded that it wasn’t a prudent investment.

The New York Times observed, approaching his 70s and worth $2 billion, Mr. Gross might have taken his separation from PIMCO as an opportunity to step away and pursue new passions. “Instead he chose revenge,” with would occur as his new fund trounced his former PIMCO charge. Umm, it hasn’t and the ill-timed bet on Italian bonds, which cost JUCAX 3% in a single day, hasn’t helped (“Bill Gross, Revered Fund Manager, Is Having a Year to Forget,” NYT, 5/30/2018, though this article might be subject to a paywall).

That all makes me a bit anxious of the impending launch of the Seven Canyons Funds, Strategic Income and World Innovators. The force behind Seven Canyons is Samuel S. Stewart, who founded the Wasatch Funds in 1975. Mr. Stewart recently turned 75 and reached an agreement with Wasatch which allowed him to take two of their funds (he manages Strategic Income (WASIX), he and son Josh Stewart co-manage World Innovators (WAGTX)) with him. Seven Canyons was founded in 2017 by Spencer Stewart, another of Mr. Stewart’s sons who was previously a portfolio manager of Grandeur Peak Emerging Markets Opportunities Fund (GPEOX). In announcing Spencer Stewart’s departure, Grandeur Peak’s CEO Blake Walker reported that “Spencer Stewart has decided to follow his heart and pursue a new path.”

Unlike the Miller and Gross departures, Dr. Stewart’s move to Seven Canyons seems – so far as I can determine from the public record – entirely amicable and long-planned. Their funds will be officially Seven Canyons offerings sometime in the third quarter of this year.

Bottom line:

Index Funds S&P 500® Equal Weight NoLoad (formerly Index Funds S&P 500® Equal Weight), (INDEX), June 2018

By David Snowball 

At the time of publication, this fund was named Index Funds S&P 500® Equal Weight.

Objective and strategy

The fund equally weights all of the stocks in the S&P 500 index and rebalances its portfolio quarterly.

Adviser

The Index Group, headquartered in Colorado Springs, Colorado. While they are legally permitted to provide other advisory services, managing their mutual fund is their only current activity.

Manager

Michael Willis. Mr. Willis has been president of Index Funds since 2006. His earlier stints included serving as a senior vice president of UBS Financial Services (2003 to 2004), senior vice president-investment of PaineWebber (1999-2003) and first vice president of Smith Barney (1994-1999).

Strategy capacity and closure

$200-300 billion. Capacity constraints are normally imposed by starting with (1) the desired size of the lowest market cap fund in the portfolio or (2) by the need to be able to unwind positions with limited liquidity quickly and quietly. Neither of those is a meaningful constraint here: their tiniest firm has a $2 billion market cap and it will never get more than 0.22% of the portfolio and positions would change only as the composition of the underlying index does.

Management’s stake in the fund

Nothing or everything, depending on what counts. In the narrow “reporting to the SEC” sense, neither the manager nor the trustees have anything invested in the fund. That would normally be a bad sign. In this case, it’s not. Manager Michael Willis explains that the advisor is underwriting the fund to the tune of several hundred thousand dollars a year; at base, the money they’d normally invest in the fund is getting sunk into operations. The trustees’ commitment seems reflected in their willingness to accept $16/year for their service to the fund.

Opening date

April 30, 2015.

Minimum investment

$1,000

Expense ratio

0.25%, after waivers, on assets of $34 million. The fund has experienced very steady, consistent inflows. The expense before waivers is 1.98%.

Comments

The attractiveness of any index fund comes down to two elements: the appeal of the underlying index and the efficiency with which the manager executes the strategy. INDEX has much to offer on both fronts.

We’ll start with the underlying index.

The S&P 500 is not the 500 largest stocks in the U.S. market, nor is it the stocks of the 500 largest corporations. It is a collection of stocks chosen by a secretive committee at Standard & Poor’s. There are currently 505 stocks in the S&P 500, chosen by the committee from among a universe of qualifying stocks. The qualification screens for inclusion are:

  • They must be U.S. firms
  • With a market capitalization of $6.1 billion or more
  • At least 50% of the outstanding shares of stock must be available for public trading
  • As a measure of financial viability, the firms must have positive earnings over the past quarter and year, which excludes Tesla despite its $80 billion market cap, and
  • They must be “highly tradable common stocks with active and deep markets.” That criterion excluded Berkshire Hathaway, whose “A” shares rarely traded, for years.

About one company gets chucked out of the S&P 500 about every two weeks.

The amount of “space” in the index that a company occupies is determined purely by its market capitalization; Apple, with a near trillion-dollar stock valuation, carries more weight in the index than the index’s 100 smallest firms combined.

The argument for investing in the S&P 500 Equal Weight Index is simple: you’re troubled by the fundamental flaw in the original S&P 500, which is its cap-weighting. It rewards, and becomes dependent on, the market’s largest and most overvalued stocks. And the sheer popularity of S&P 500 indexing (there are $3.4 trillion in S&P 500 index funds) means that more money is automatically poured into those stocks, driving them to even higher valuations.

Here’s what it means for the index to be top heavy. Just 15 firms comprise more than 25% of the total capitalization of the S&P 500; as of mid-May 2018, those firms traded at more than three times the valuation of the index as a whole.

  Percentage of the index YTD returns, through May 17, 2018 P/E ratio
Top 15 firms 26.37 5.74% 52.69
S&P 500 100 -0.42 17

A cap-weighted index, then, is a momentum play driven, up or down, by the fates of a handful of behemoth stocks drawn mostly from the tech and financial sectors. If investors bid those stocks up to unsustainable levels, the index automatically increases your exposure to them.

There is, however, a viable alternative with a long track record. That alternative is the equal-weight version of the S&P 500. In this version, every stock simply receives the exact same weight. Standard & Poor’s designates the cap-weighted index as SPX and the equal-weighted index as EWI. For the purposes of our discussion below, we’ll use those same symbols.

Equal-weighting introduces three important tilts into EWI:

  1. The EWI is contrarian; at its quarterly rebalancing, the managers sell down the stocks that have risen most sharply and buy more of those that have fallen.
  2. The EWI is modestly value-oriented; the price/earnings, price/book, price/sales and price/cash flow ratios are all slightly lower for EWI than for SPX.
  3. The EWI offers a modestly lower market cap; the average market cap is $25 billion for EWI, compared to SPX’s $96 billion.

Both indexes offer exposure to the same vetted, financially viable mid- to large-cap US stocks. The only difference is how much exposure you receive to each.

The combination of contrarian, value and size leads to two outcomes:

  1. EWI has higher returns than SPX. Michael Willis, portfolio manager for Index Funds S&P 500 Equal Weight (INDEX) notes “Since the inception of the S&P 500® Equal Weight Index on 01/08/2003 through 12/31/2017, the S&P 500 Equal Weight Index beat the S&P 500 Index 10 out of 15 years, and produced higher 3-year, 5-year, and 10-year returns.” Over that period, $10,000 in SPX would have grown to $40,000 while the same amount in EWI would have grown to $53,000. With those returns, SPX would have beaten 92% of all large cap funds; EWI would have beaten 100% of them.
  2. EWI has higher volatility than SPX. Over the past 10 years, the standard deviation for SPX is 15% while EWI clocked in at 17.6%. Similarly, the maximum 10-year drawdown for EWI is 54.3% against 50.9% for the SPX.

The notion that higher gains come at the price of higher volatility should neither scare nor surprise.

If you would like to reap those higher rewards, INDEX has proven to be a worthy option. With expenses of just 0.25%, it’s among the cheapest index funds especially when you combine it with a low $1000 minimum investment. Mr. Willis has been managing the fund for three years and he’s signaled his commitment to his investors by pouring substantial amounts of his own money into creating and maintaining an accessible, low-cost vehicle.

Bottom Line

In the long-term, biases toward value, smallness and diversification pay off handsomely. One attempt to calculate the returns of the equal-weight and cap-weight versions of the S&P 500 back to 1926 estimate that the equal-weight version outperforms the cap weighted version by 281 basis points per year. Skeptics of this approach, including our colleague Sam Lee, note that “there’s no such thing as a free lunch.” The higher returns come at the price of higher volatility, higher taxes as a result of more frequent portfolio rebalancing and the prospect of lagging badly during periods where mega-caps soar. All of which is true, though modestly so. For investors looking to de-FAANG their portfolios while maintaining exposure to the S&P 500 companies, INDEX offers a sensible, affordable option.

Fund website

The Index Fund

If you were a manager, you’d be running a managed futures fund

By David Snowball

You may not know it. You may not want to admit it. But you’d certainly be running one.

How do I know? Because managed futures funds operate exactly the way you do. Managed futures funds are momentum investors; they choose some number of asset classes (US stocks, currencies, EM bonds, commodities, whatever) to include in their portfolios. They then invest in the asset classes that show the greatest upward momentum, avoid assets that are drifting, and short those that are falling. You could also imagine a control panel with eight toggle switches, one for each asset class, and three positions for each switch (positive, neutral, negative). Managers look at relative strength data and might flip three switches up and three switches down.

Voila! You bet on the winners and against the losers, and rake in the profits. You also block out the gloomy Guses who ask questions like, “wouldn’t you call that a ‘buy high and pray you can sell even higher’ game? They’re old and spend entirely too much time worrying about state of their bowel movements.

In a 2014 interview with Morningstar, Mike Harris, a hedge fund manager whose firm launched Equinox Campbell Strategy (EBSAX) explains the appeal of the strategy.

A managed futures fund is a liquid alternative investment that really helps to smooth the ride in the portfolio because of the uncorrelated nature of the returns, particularly to traditional assets like stocks and bonds.

Oftentimes we tell people that some of the benefits of managed futures is that it’s actively managed, which means it doesn’t have a bias to be long-only like many products in investors’ portfolios. It can effectively make money in both rising and falling markets from its ability to be both long and short. Oftentimes it’s traded in a systematic fashion. So, we’re using models to trade the markets, and we’re using science and data to back-test those returns.

It’s clear that most investors buy into the logic. As the global political climate becomes ever more unhinged, investors steadily migrate toward the market’s riskier segments. Domestic small cap growth funds, for example, saw over $7 billion in inflows YTD. Meanwhile, the market’s few remaining grown-ups have seen steady, nearly unrelenting outflows. Those affected range from small but excellent absolute value guys like Zeke Ashton at the $25 million Centaur Total Return Fund (TILDX) to huge and still excellent absolute value guys like Steve Romick at the $16-billion-but-formerly-$21-billion FPA Crescent (FPACX).

That movement is reflected in Morningstar’s judgments of market valuation. By their assessment, the highest quality (i.e., wide moat) firms are undervalued and becoming more so, while the lowest quality (i.e., no moat) firms are overvalued, though less so that at the start of the year. Similarly, the most stable firms (i.e., those with low “fair value” volatility) are undervalued and becoming more so, while the opposite is true for firms with high uncertainty.

To conventional investors, people who think high prices and high instability are bad, it hardly seems prudent to have many switches set to “risk on.” It is, however, behavior we’ve see before … mostly notably in 2007. Back then, the institutional investor Grantham, Mayo, van Otterloo graphed the unconventional risk-reward tradeoff:

They point out the obvious: “The slope of the line should be positive – riskier assets should be priced to deliver higher returns. But the Great Moderation changed investor perceptions of risk such that the slope went strongly negative.” (Is Investing Starting to Get Difficult Again?, 2018)

The pre-crisis complacency seems to be reasserting itself. The team at PIMCO, which manages $1.8 trillion in assets, wrote in May 2018:

Ten years after the financial crisis, the global economy and financial markets could be entering a new era of potentially radical change that will make the next decade look very different from the last. Investors who assume that the future will resemble the post-crisis past could be in for a series of rude awakenings. (Joachim Fels, Andrew Balls, Daniel J. Ivascyn, Rude Awakenings)

The core question: how well does a disciplined “buy high, sell low (or short low)” strategy work for investors?

Measured by the performance of the managed futures group, the core answer is “poorly.”

It’s dangerous to generalize about the performance of the managed futures group because so many of its members have liquidated: Wakefield, State Street/Ramius, Forward, AlphaCentric/IMFC, Equinox Crable, Equinox Systematic, Mariner and others have all shuffled off to the Graveyard of Good Ideas At The Time.

There is only one managed futures mutual fund that has survived this entire market cycle, Rydex Managed Futures Strategy (RYMFX) which was recently rechristened Guggenheim Managed Futures Strategy. We wrote a short profile of the fund in November 2008 in which I observed, “I have an intrinsic distrust of complex strategies whose success has occurred largely on paper but folks committed to finding a market neutral component for their portfolio might put this on the same due-diligence list as Nakoma Absolute Return (NARFX) and Hussman Strategic Growth (HSGFX).” I might have been more right than I knew, since those other two funds are extinct and awful, respectively.

RYMFX, meanwhile, has managed to book an annual loss of 1.2% since the start of this market cycle in late 2007. Uhhh … it has booked an annualized loss of 2.7% over the past 10 years and that places it in the top 1% of all managed futures funds. (Oh, right, the liquidation thing. There are only three managed futures funds with a 10 year record and a loss of 2.7% is as good as it gets.)

To broaden the comparison, I pulled the three-year performance record for all managed futures funds from the MFO Premium fund screener. The simplified results, with two possible benchmarks, are below.

  Symbol Annual return Maximum drawdown
361 Global Managed Futures Strategy I AGFZX 5.5% -8.2
Arrow Managed Futures Strategy A MFTFX 2.1 -19.8
LoCorr Macro Strategies I LFMIX 2.0 -8.0
Altegris Futures Evolution Strategy I EVOIX 1.5 -9.7
Goldman Sachs Managed Futures Strategy Inst GMSSX 1.3 -7.5
Equinox MutualHedge Futures Strategy A MHFAX 0.4 -9.6
3-month T-bills   0.3 0.0
Longboard Managed Futures Strategy I WAVIX 0.1 -14.0
Change kept in a mayonnaise jar   0.0 0.0
Altegris Managed Futures Strategy A MFTAX -0.2 -10.3
361 Managed Futures Strategy I AMFZX -0.6 -12.7
American Beacon AHL Managed Futures Strategy Inst AHLIX -0.8 -9.9
Steben Managed Futures Strategy I SKLIX -0.9 -9.8
Equinox Chesapeake Strategy I EQCHX -1.6 -15.9
First Trust Morningstar Managed Futures Strategy FMF -1.6 -11.8
PIMCO TRENDS Managed Futures Strategy Inst PQTIX -2.0 -9.0
SFG Futures Strategy I EFSIX -2.5 -10.5
Abbey Capital Futures Strategy I ABYIX -2.8 -12.7
WisdomTree Managed Futures Strategy WTMF -2.9 -11.8
Credit Suisse Managed Futures Strategy I CSAIX -3.0 -13.1
Campbell Dynamic Trend Inst CDRTX -4.0 -14.5
ASG Managed Futures Strategy Y ASFYX -4.4 -15.6
Rydex Managed Futures Strategy P RYMFX -4.4 -21.5
LoCorr Market Trend I LOTIX -4.8 -18.1
Aspen Managed Futures Strategy I MFBTX -5.2 -15.4
AQR Managed Futures Strategy I AQMIX -5.4 -17.2
Catalyst Hedged Futures Strategy I HFXIX -5.7 -28.1
Transamerica Managed Futures Strategy I2 GLFZ -5.8 -17.8
Equinox Campbell Strategy I EBSIX -6.2 -20.4
Salient Trend I SPTIX -6.9 -26.9
AQR Managed Futures Strategy HV I QMHIX -8.6 -25.0

To the clear: we are not criticizing these managers, or suggesting that they’re anything less than disciplined, well-trained and diligent. We’re arguing that the record of these attempts show that, even with years of experience, advanced credentials, swamps of data and so much computing power that Google calls them for the answers to questions, trusting your ability to move between asset categories in pursuit of exceptional returns is essentially futile.

Don’t try this at home.

Try this instead:

Our recommendations for fund investors remains the same: make your plans before panic strikes, work backward from an understanding of the risks you face and the extent of losses you can bear, build an asset allocation that creates a margin of safety for you and your family, and execute the plan with experienced managers who are shielding you from unjustified risk now in pursuit of exceptional returns in the future.

Over the summer months, we’ll try to introduce you (or re-introduce you) to managers and strategies that might contribute to that outcome. This month we provide an updated profile of Centaur Total Return (TILDX) with profiles of Zeo Strategic Income (ZEOIX), LS Opportunity (LSOFX), 361 Global Long/Short (AGAZX), Holbrook Income (HOBEX), Camelot Event Driven and others on the way.

Morningstar Minute

By David Snowball

The Mutual Fund Observer is the product of a virtual team and, when our colleagues from England and Trinidad were working with us, a virtual global team. Chip and I reside in Iowa, Ed and Sam in Illinois, Charles in California, Bob C in Ohio and Dennis in Montana. One of the great attractions of the Morningstar conference is that it gives us a chance to work side-by-side on interviews and stories, and to share quick and personal reactions to the ideas and personalities we encounter.

As ever, we’ll try to offer some quick responses in the form of end-of-day posts to the MFO Discussion Board and to the MFO Premium commentary.

Our agendas vary. Sam Lee is slated to contribute to Tuesday’s panel, “Crypto, Blockchain, and Lamborghinis, Oh My!” Charles and I will be in attendance, intent on photobombing Sam. The only real question is whether our “Blockchain Blockheads” and “Sam I Am” t-shirts arrive in time for the occasion.

Ed won’t be officially in attendance, but will be available to confabulate at local taverns and in our retreat after the conference. Chip might well be splitting time between tech-centered panels and giving her niece a tour of Chicago.

Charles and I split time between listening in on panels, meeting managers, chatting with MFO readers and looking for interesting leads among the 100 fund firms showing in the Exhibit Hall. So far I have time set for conversations with a series of managers:

  • Venk Reddy, Zeo
  • Jon Angrist, Cognios
  • Tom Stringfellow, Frost Investment
  • Tom Florence, 361 Capital
  • Arun David and (possibly “and/or”) Vince Rivers of JOHCM
  • Beini Zhou, Matthews Asia and particular Matthews Asia Value Fund

I’ll also report on the comments of two really smart guys: Jeremy Grantham of GMO and behavioral economist (also Nobel Prize winner) Daniel Kahneman.

Charles’s list overlaps mine just a bit:

  • Darin Leone, Portfolio Strategist, Manning & Napier,
  • Anne-Laurence Roucher, Portfolio Manager, Natixis ESG Funds
  • Venkatesh Reddy, Portfolio Manager, ZEOIX
  • David Lafferty, Chief Marketing Strategist, Natixis
  • Tom Stringfellow, CIO Frost
  • Kip Meadows, CEO Nottingham
  • Phil Bak, CEO Exponential ETFs

We will, with luck, have a chance to add to that list over the next 10 days. If you’d like to say “hi” to either of us, just drop us a note!

 

To the shareholders of Quaker Event Arbitrage Fund: open your danged mail!

By David Snowball

Quaker Funds, based in Berwyn PA, are a small family at tactical allocation funds. As they imagine a transition which will include an ESG focus, it became clear that Thomas Kirchner’s event-driven fund would be something of an anomaly. Event arbitrage funds aim to profit from predictable but short-lived market anomalies when, for example, a firm announces a change of control or reorganization. Limiting himself to relatively rare events in a relatively limited slice of the equity universe makes very little sense, so QEAAX/QEAIX is trying to join the Camelot fund family.

But that’s been delayed because the fund’s shareholders won’t open – or answer – their mail. The move to Camelot requires shareholder approval with at least 50.1% of shareholders voting yea or nay. After months of effort, only 41% of shareholders had weighed in. Why? One obstacle is investor privacy safeguards; when you click the “don’t allow third parties to contact me” option on your account set-up, you make it impossible for proxy solicitors to find you. Another obstacle is the fear of scams: during one recent contact attempt, a young voice shouted out from the background, “it’s a scam, mom! Don’t tell them anything, hang up!” And, as ever, people are lazy: we delete emails and trash paper mail, rather than going to the trouble to respond.

Here’s a plea from the fund’s managers: vote! (Please.) The solicitation process is expensive and is delaying what they believe to be an essential step for the fund.

Apparently Morningstar endorses the move. Their website has already renamed the fund, despite the fact that the vote hasn’t yet closed.

QEAAX is rated by Morningstar as a four-star fund. It began life in November 2003 as Pennsylvania Avenue Event-Driven (PAEDX) then, in June 2010, became Quaker Event Arbitrage (QEAAX) as part of Mr. Kirchner’s attempt to broaden the fund’s investor base. The fund (blue line) has handily outperformed its Morningstar peer group over its lifetime.

Bottom line: if you’re associated with the fund and haven’t voted, please do so. The same goes for shareholders of T. Rowe Price funds who, likewise, have been receiving proxy notices in the mail this month.

The most famous struggle for proxy votes may have been with the Steadman funds. Charles Steadman was in the running for the worst investor in history. Steadman took over the family’s investment business in the 1960s and began focusing on growth areas like ocean bed mining and undersea communities. (He’d have been so into bitcoin.) He lost money with breathtaking consistency, then died. His daughter ran the four funds, renamed them “Ameritor” then passed them over to Steadman’s long-time treasurer.

Chuck Jaffe picked up the narrative: “When Charles Steadman died in the late 1990s, his daughter took over. The funds had no prospect for growth, but she had no reason to shut them; the double-digit management fee was like a personal annuity, up to the point where it bled the fund to death. When the Securities and Exchange Commission finally filed paperwork stating that the fund ‘had ceased to be an investment,’ the loss over the last 10 years was 98.98 percent, turning a $10,000 investment into $102. It took about four decades for the losses to drive shares down to less than a penny, but Ameritor got the job done, and then kicked the bucket.”

98.98% losses. NAV under $0.01. Why weren’t they liquidated decades before? In part because the shareholders were either dead or in denial about ever having invested with Steadman.  The Baltimore Sun estimated that 40% of the firm’s accounts were legally “abandoned” and their final manager lamented that so many of the shareholders were dead that he couldn’t generate the quorum necessary to liquidate them.

If you want a real rush of schadenfreude, you should read Jack El Hai’s “The Dead Man Fund,” a 2017 history of the decline and decline and decline and fall of the House of Steadman. It’s a quick read, ironically hosted by the site Longreads.com.

Update on MFO Premium

By David Snowball

Charles sends his regrets for being unable to join us this issue, but he’s retreated deep underground to the MFO Premium command center.

At Charles’s request, the good folks at Thomson Reuters have substantially (vastly, enormously) expanded the amount of data they provide each month. The new datafeed will not only allow MFO Premium users to access a new level of detail about the composition and performance of mutual funds and ETFs, but it will also allow us to expand our coverage to closed-end funds and insurance products. At the end of the conversion, you’ll be able to screen for and analyze something like 36,000 investment products.

Charles describes the new monthly data drop this way:

35575 total entries

27042 mutual funds (all share classes)

4023 insurance funds

2188 ETFs

1515 indices

614 CEFs

168 categories (averages)

Delivered in …

14,383 data XML files for the performance data 

comprising

6,769,238,777 bytes (6.8 gigabytes)

plus

14,117 data XML files for the holdings data 

comprising 

99,313,147,272 bytes (99.3 gigabytes).

All that takes hours upon hours of time just to download, distill, crunch even with multiple 8th gen Intel core i7 processors.

That is not, as it turns out, a plug-and-play operation and Charles has sunk hundreds of hours in May to making the conversion. We’re really, really close; Charles can generate ratings using the new data but he’s not yet satisfied about its complete integrity. He grabbed a handful of MREs and headed underground, intent on discovering whether he can break the system, so that it won’t happen to you!

Charles will resurface next month, bright-eyed and happy to share tales from the conference, word on the new database and analyses of the two funds he’s been profiling.

Until then, you might consider joining MFO Premium. It’s a phenomenal resource for tax-deductible $100. We’re perpetually amazed that the number of subscribers is low in the hundreds rather than high in the thousands. You can change that, and should!

Elevator Talk: Alan Norton, Crow Point Growth Fund (GAMIX)

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.

There’s something almost Biblical about this fund’s lineage. Caritas All-Cap Growth Fund (CTSAX, 2009-13) begat Goodwood SMID Cap Discovery (2013-16), which begat Goodwood SMID Long/Short (2016-18), which begat Crow Point Growth (May 2018) which, in the fullness of time, will beget Crow Point Small Cap Growth (summer 2018).

Shhh … don’t tell Morningstar. They’re currently two years and two name changes behind the times on the fund’s name.

The newest iteration of the fund will be managed by Alan Norton, CFA and Thomas Norton, CFA. The Messrs. Norton co-founded the sub-advisor, Cold Creek Capital, in 2014; while they are not related, they are former colleagues at John Hancock Advisors. They have been managing small- and mid-cap money since 1999. Their Cold Creek Small Cap Growth Strategy, which will be manifested in the rechristened fund, just reached its three-year anniversary and received a three-star rating from Morningstar. They currently manage about $33 million in assets.

The guys’ investment strategy strikes me as entirely reasonable.

We believe in constructing well diversified portfolios of high quality companies with solid financials, strong management teams and sustainable competitive advantages. We believe in a bottom up, fundamental research effort aimed at identifying companies with attractive and durable growth prospects. We construct portfolios with a blended earnings growth rate that is above the benchmark and general market averages. We believe that superior long term earnings growth will drive better relative performance and be captured in stock appreciation.

The new fund will benefit from a three-part partnership. Cold Creek Partners will be free to manage the fund’s investment portfolio; Goodwood will maintain and deepen client relations and outreach, while Crow Point handles the administrative responsibilities.

That said, the team is walking a well-trodden trail. Morningstar lists 206 domestic small cap growth funds already, 18 of which are five-star funds. Lipper puts 174 funds in the category, nine of which MFO designates “Great Owls” for their consistently top tier risk-adjusted returns. Yet, despite inflows of $7.2 billion YTD into domestic small caps, even the best of these funds have had only modest success in attracting asset inflows.

Here are the guys’ 300 (or so) words on why they thought launching fund #207 was a good idea and why you should add GAMIX to your due-diligence list.

Launching our own small cap fund has been in the works for some time. We’ve been managing Small and Mid-Cap Growth portfolios within large asset management firms for 20 years. We began incubating our Small Cap Growth Composite in July 2014, while searching for the right partners to accelerate our own growth. We partnered with Crow Point last year in order to realize economies of scale by accessing their institutional caliber back-office, trading and compliance, allowing us to focus on what we do best – picking stocks.

We are simply two guys from Boston with the same last name and an insatiable appetite for discovering new ideas. At Cold Creek Capital, we build relatively concentrated portfolios holding 40-60 stocks and target active share greater than 90%. 

Tom and I scour our investable universe to identify long term secular growth companies and focus our portfolios around our best ideas. We quite literally meet with close to 500 companies a year. Since we spend so much time with boots on the ground, we aren’t as distracted by the daily volatility of the markets. Our portfolio companies tend to have sustainable competitive advantages, large addressable markets and market shares that allow for significant future growth, which also allows us to take a longer-term view.

Tom and I have been around long enough to see two full market cycles within both Small Caps vs Large Caps and Growth vs Value, and one thing has remained constant – concentrated, high conviction stock pickers are the only consistent source of alpha.

Our core philosophy is that an experienced team focused on their best ideas can outperform in a market where many peers tend to over diversify and essentially hug the broader benchmarks. This view will be reflected in the GAMIX portfolio (#207!).

Crow Point Growth (GAMIX) has a $100,000 minimum initial investment. The new management fee will be decreased to 0.84% with an expense cap of 1.35%, from 1.25% and 1.70% currently. For reasons unclear, the Crow Point Partners website doesn’t yet mention the fund. Ryan Thibodeaux, one of the Goodwood team, says they’re targeting a substantial website revamp for Labor Day. In the meanwhile there’s a press release which gives a pretty clean explanation of the change and the blog on the advisor’s website offers some interesting provocations (they don’t like ETFs) though limited information on their own performance.

Funds in Registration

By David Snowball

Lately, new fund and active ETF launches have been rare – only seven new retail funds launched in the first five months of 2018 – and occasionally silly. Last month saw a registration filing for an active “pet parents” fund; this month saw a filing for a passive “pet care” ETF. You need neither (and should avoid both), so we’ll say no more about them. While this is a slow month for new fund registrations, at least it’s not a silly one. In the main, these funds will be available for purchase by August 1.

Adler Value Fund

Adler Value Fund, will seek long-term growth of capital. The plan is to buy “fundamentally sound companies that are out-of-favor with the market” and construct a portfolio which is “industry, sector and market capitalization agnostic and typically involves the securities of fewer than thirty issuers.” The fund will be managed by David Adler of Adler Asset Management, who has spent most of his career in investment banking. Its opening expense ratio is 1.50%, and the minimum initial investment will be $2,500.

Aptus Defined Risk ETF

Aptus Defined Risk ETF, an actively-managed ETF, seeks current income and capital appreciation. The plan is to place 90-95% of the portfolio in a laddered bond portfolio with an intermediate duration. That will be executed by buying ETFs, not individual bonds. The remainder of the portfolio will be in “at-the-money, exchange-listed call options on approximately ten to twenty individual stocks selected based primarily on their momentum (i.e., how close a stock is to its 52-week high) and potential for growth.” (I nod.) The fund will be managed by John D. (“JD”) Gardner and Beckham D. Wyrick (cool names) of Aptus Capital Advisors. Its opening expense ratio has not been released.

Dreyfus Japan Equity Womenomics Fund

Dreyfus Japan Equity Womenomics Fund will seek long-term capital growth. The plan is to build an all-cap Japanese equity portfolio around firms likely to benefit from “womenomics.” At base, women are becoming a more powerful force in the Japanese business community, a move embraced by some firms and ignored by others. The advisors, understandably, believe that the former are more likely to thrive than are the latter. (And still the word “womenomics” – a nod to “Abenomics” which, frankly, is floundering – grates on me.) The fund will be managed by Makiko Togari, Miyuki Kashima, Masafumi Oshiden, Kazuya Kurosawa and Takashi Shimoyanagita. Ms. Togari is the lead portfolio manager of the fund and the Japan Equity Womenomics Strategy at BNYM Japan. Its opening expense ratio has not been disclosed, and the minimum initial investment for no-load “I” shares will be $1,000.

Eventide Limited-Term Bond Fund

Eventide Limited-Term Bond Fund will seek income. The plan is to invest in income producing securities with a focus on U.S. corporate bonds, government bonds, agency bonds, adjustable and fixed rate mortgage bonds, muni bonds, convertible securities, and debt instruments issued by foreign governments, including those in emerging markets. The fund may invest up to 20% of its assets in preferred stocks and dividend-paying common stocks and may invest in high-yield bonds. The fund’s average effective maturity will not exceed five years. The portfolio will be screened to select issuers with a record of “good corporate behavior.” The fund will be managed by Martin A. Wildy, CFA, and Samuel J. Saladino. This fund began life as Epiphany FFV Strategic Income Fund and is in the course of being adopted by Eventide, which will result in a somewhat different set of ethical screens. Its opening expense ratio for “N” class shares is 0.79%, and the minimum initial investment will be $1,000.

Oppenheimer Ultra-Short Duration ETF

Oppenheimer Ultra-Short Duration ETF, an actively-managed ETF, seeks to maximize current income consistent with preservation of capital. The plan is to invest, primarily, U.S. dollar-denominated investment-grade fixed-income securities with a portfolio duration under three years. The fund will be managed by Christopher Proctor, CFA, head of Oppenheimer’s Cash Strategies Team and Adam Wilde, CFA. Its opening expense ratio has not been released.

Parametric Systematic Alternative Risk Premia Fund

Parametric Systematic Alternative Risk Premia Fund, will seek total return. The plan is to provide exposure to risk premia by taking long and short positions using derivative instruments to gain market exposure across equities, fixed income, commodities and currencies. The fund will be managed by Christopher Haskamp and Thomas Lee of Parametric Portfolio Associates. The duo has managed a separate account using this strategy since April 2017. In its first 12 months of operation, the $135 million account returned 18.95%.  Its opening expense ratio for Investor shares is 1.35%, and the minimum initial investment will be $1,000.

 

Manager Changes

By Chip

At first glance, it appears that about 61 funds saw partial or substantial manager changes this year but more than 40 other funds are masked by our designation “various” in the ticker column. It’s the total Chip uses when she encounters one manager departure that resonates across, say, 20 target date funds or a half dozen funds all calibrated to slightly different levels of risk (Isolde Very Very Conservative Fund, Isolde Very Conservative Fund, Isolde Conservative …).

The most consequential of the changes comes to Ivy Cundill Global Value (ICDAX) where the change of sub-adviser will change the fund’s team, name and strategy; the least consequential change is apt to be at MainStay Absolute Return Multi-Strategy Fund (MSAKX) which sees the departure of one of its 25 managers.

Ticker Fund Out with the old In with the new Dt
AGFZX 361 Global Managed Futures Strategy Fund No one, but . . . John Riddle joins Blaine Rollins, Jeremy Frank, Clifford Stanton, Aditya Bhave, and Jason Leupold on the management team. 5/18
AMFQX 361 Managed Futures Strategy Fund No one, but . . . John Riddle joins Blaine Rollins, Jeremy Frank, Clifford Stanton, Aditya Bhave, and Jason Leupold on the management team. 5/18
RAGHX AllianzGI Health Sciences Fund John Schroer will no longer serve as a portfolio manager for the fund. Bret Jones joins Peter Pirsch, who himself only joined in March 2018, on the management team. 5/18
PNEAX AllianzGI NFJ Dividend Value Fund Morley Campbell is no longer listed as a portfolio manager for the fund. John Mowrey, Jeff Reed, L. Baxter Hines, R. Burns McKinney, Thomas Oliver, and Benno Fischer will continue to manage the fund. 5/18
AFJAX AllianzGI NFJ International Value Fund Morley Campbell is no longer listed as a portfolio manager for the fund. Garth Reilly joins John Mowrey, Paul Magnuson, L. Baxter Hines, R. Burns McKinney, Thomas Oliver, and Benno Fischer on the management team. 5/18
PQNAX AllianzGI NFJ Mid-Cap Value Fund Morley Campbell is no longer listed as a portfolio manager for the fund. John Mowrey, Jeff Reed, and Paul Magnuson will continue to manage the fund. 5/18
PCVAX AllianzGI NFJ Small-Cap Value Fund Morley Campbell is no longer listed as a portfolio manager for the fund. Jeff Reed joins John Mowrey and Paul Magnuson on the management team. 5/18
AZBAX AllianzGI Small-Cap Fund Effective June 15, 2018, Yu Wang will no longer manage the fund. Stephen Lyford, Robert Marren, and Kunal Ghosh will continue to manage the fund. 5/18
BRDAX B. Riley Diversified Equity Fund No one, but . . . William Charters joins Charles Hastings in managing the fund. 5/18
BXEAX Barings Emerging Markets Debt Blended Total Return Fund Brigitte Posch is no longer listed as a portfolio manager for the fund. Ricardo Adrogué and Cem Karacadag will continue to manage the fund. 5/18
IIXAX Catalyst Insider Income Fund, which will become the Catalyst Enhanced Income Strategy Fund on or about July 3, 2018. David Miller and Charles Ashley will no longer serve as a portfolio manager for the fund. Leland Abrams and Brandon Jundt will manage the fund. 5/18
OCIO ClearShares OCIO ETF Kevin O’Connor will no longer serve as a portfolio manager for the fund. Mark Hong, Jonathan Chesshire, and Eric Blasberg will continue to manage the fund. 5/18
Various Columbia Capital Allocation Funds Jeffrey Knight and Joshua Kutin have left the management team. Anwiti Bahuguna and Dan Boncarosky will continue to manage the fund. 5/18
INUTX Columbia Dividend Opportunity Fund Dean Ramos, Paul Stocking, and Steven Schroll will no longer serve as portfolio managers for the fund. David King, Harrison Chan, and Yan Jin will now manage the fund. 5/18
CPASX Columbia Multi-Manager Alternative Strategies Fund No one, but . . . Robert Sinnott, Robert Rickard, John Perry, Philippe Lüdi, Kathryn Kaminski, and Alexander Healy join the rest of the management team. 5/18
CTFAX Columbia Thermostat Fund Jeffrey Knight will no longer serve as a portfolio manager for the fund. With the exception of Charles McQuaid (2002-16), none of the fund’s six previous managers served more than three years. Anwiti Bahuguna and Joshua Kutin will now manage the fund. 5/18
GAMIX Crow Point Growth Fund, formerly Goodwood SMID Long/Short Fund Joshua Pesses and Ryan Thibodeaux will no longer serve as portfolio managers for the fund. Alan Norton and Thomas Norton of Crow Point Partners will now manage the fund. 5/18
SZEAX Deutsche Emerging Markets Fixed Income Fund Rhamila Nadi is no longer listed as a portfolio manager for the fund. Roland Gabert and Joergen Hartmann join Nicolas Schlotthauer on the management team. 5/18
DIAMX Diamond Hill Long-Short Fund Ric Dillon will retire from Diamond Capital effective June 30, 2018. Nathan Palmer will join Jason Downey, Chris Bingaman, and Charles Bath on the management team. 5/18
EADDX Eaton Multi-Strategy Absolute Return Fund Thomas Shively is no longer listed as a portfolio manager for the fund. Dan Strelow and Justin Bourgette will now manage the fund. 5/18
EAAMX Eaton Vance Multi-Strategy All Market Fund Thomas Shively is no longer listed as a portfolio manager for the fund. Dan Strelow and Justin Bourgette will now manage the fund. 5/18
FMFIX Free Market Fixed Income Fund Steven Miller no longer serves as a portfolio manager for the fund. Founding manager Mark Matson and Sean Babin, who replaced Kenneth Gatliff on the team in late April 2018, remain. 5/18
FMNEX Free Market International Equity Fund Steven Miller no longer serves as a portfolio manager for the fund. Founding manager Mark Matson and Sean Babin, who replaced Kenneth Gatliff on the team in late April 2018, remain. 5/18
FMUEX Free Market U.S. Equity Fund Steven Miller no longer serves as a portfolio manager for the fund. Founding manager Mark Matson and Sean Babin, who replaced Kenneth Gatliff on the team in late April 2018, remain. 5/18
GMAMX Goldman Sachs Multi-Manager Alternatives Fund Graham Capital Management will no longer subadvise the fund. Robert Mullane will transfer to another group at Goldman Sachs and will no longer serve as a portfolio manager for the fund. GQG Partners, LLC will now serve as an additional subadvisor. Kent Clark and Betsy Gorton will join the management team. 5/18
GPMFX GuidePath Managed Futures Strategy Fund No one, but . . . Kathryn Kaminski joined the portfolio management team of Robert Rickard, Robert Sinnott, Alexander Healy, John Perry, and Phillippe Ludi. 5/18
HIIDX Harbor Diversified International All Cap Fund No one, but . . . Simon Todd, Michael Nickson, and William MacLeod join Simon Somerville, Neil Ostrer, Nick Longhurst, Michael Godfrey, David Cull, Charles Carter, William Arah, and Robert Anstey on the management team. 5/18
ITTAX Hartford Balanced Fund Karen Grimes announced her plan to retire as of December 31, 2018. Michael Stack, Adam Illfelder, and Loren Moran will continue to manage the fund. 5/18
HBLAX Hartford Balanced Income Fund Karen Grimes announced her plan to retire as of December 31, 2018. W. Michael Reckmeyer, Ian Link, and Scott St. John will continue to manage the fund. 5/18
HQIAX Hartford Equity Income Fund Karen Grimes announced her plan to retire as of December 31, 2018. W. Michael Reckmeyer and Ian Link will continue to manage the fund. 5/18
RMRGX Highland Resolute Fund Effective July 13, 2018, Logan Circle Partners will no longer serve as an investment sub-adviser to the fund. Incline Global Management, LLC and Chatham Asset Management, LLC will remain as investment sub-advisers to the fund. 5/18
ICDAX Ivy Cundill Global Value Fund, which is changing its name to Ivy Pzena International Value Fund Mackenzie Financial Corporation will no longer subadvise the fund. Pzena Investment Management will become the subadvisor to the fund. 5/18
IECAX Ivy Pictet Emerging Markets Local Currency Debt Fund Simon Lue-Fong will no longer serve as a portfolio manager for the fund. Mary-Therese Barton, Wee-Ming Ting, Philippe Petit, Guido Chamorro, and Carrie Liaw are joined by Alper Gocer on the management team. 5/18
IMAAX Ivy Pictet Targeted Return Bond Fund Sarah Hargreaves will no longer serve as a portfolio manager for the fund. Christopher Parker joins Andres Balcazar, Thomas Hansen, and David Bopp in managing the fund. 5/18
IVSAX Ivy Small Cap Core Fund Scott Sullivan will no longer serve as a portfolio manager for the fund. Kenneth Gau will continue to manage the fund. 5/18
LONAX Longboard Alternative Growth Fund No one, but . . . Sarah Baldwin joins Cole Wilcox, Eric Crittenden, and Michael Striano on the management team. 5/18
WAVEX Longboard Managed Futures Strategy Fund No one, but . . . Sarah Baldwin joins Eric Crittenden, Cole Wilcox, and Michael Striano on the management team. 5/18
LSCAX Loomis Sayles Dividend Income Fund No one, but . . . David Waldman joins Arthur Barry in managing the fund. 5/18
LSVRX Loomis Sayles Value Fund No one, but . . . David Waldman joins Arthur Barry in managing the fund. 5/18
MSAKX MainStay Absolute Return Multi-Strategy Fund Effective immediately, Myriam Guervin will no longer serve as a portfolio manager of the fund. Don’t worry. The other two dozen managers remain. 5/18
MBNAX MainStay Balanced Fund Donald Serek will no longer serve as a portfolio manager for the fund. AJ Rzad joins Kenneth Sommer, Johnathan Swaney, Migene Kim, Andrew Ver Planck, Jae Yoon, and Thomas Girard on the management team. 5/18
ICELX MainStay Epoch International Choice J. Christian Kirtly is no longer listed as a portfolio manager for the fund, effective immediately. Glen Petraglia joins William Booth and Michael Welhoelter on the management team. 5/18
MBPIX Morgan Stanley Global Insight Fund Burak Alici is no longer listed as a portfolio manager for the fund. Jason Yeung, Alexander Norton, Armistead Nash, Dennis Lynch, David Cohen, and Sandeep Chainani will now manage the fund. 5/18
MFPIX Morgan Stanley Institutional Insight Fund Burak Alici is no longer listed as a portfolio manager for the fund. Jason Yeung, Alexander Norton, Armistead Nash, Dennis Lynch, David Cohen, and Sandeep Chainani will now manage the fund. 5/18
Various Natixis Sustainable Future Target Date Funds Elizabeth Yakes is no longer listed as a portfolio manager for the fund. Anthony Wicklund has joined the team. 5/18
FAIIX Nuveen Core Bond Fund Chris Neuharth will retire on June 1, 2018. Jeffrey Ebert, Wan-Chong Kung, and Jason O’Brien will continue to serve as portfolio managers for the fund. 5/18
FAFIX Nuveen Core Plus Bond Fund Chris Neuharth will retire on June 1, 2018. Douglas Baker, Jeffrey Ebert, Wan-Chong Kung, and Timothy Palmer will continue to serve as portfolio managers for the fund. 5/18
NGVAX Nuveen Gresham Diversified Commodity Strategy Fund Chris Neuharth has announced his retirement from the fund. John Clarke, Chad Kemper, Wan-Chong Kung, Randy Migdal and Susan Wager will continue to serve as portfolio managers for the fund. 5/18
FALTX Nuveen Short-Term Bond Fund Chris Neuharth will retire on June 1, 2018. Peter Agrimson, Mackenzie Meyer, and Jason O’Brien will continue to serve as portfolio managers for the fund. 5/18
OARDX Oppenheimer Rising Dividends Fund Josh Peters will no longer serve as a portfolio manager for the fund. Raman Vardharaj jons Manind Govil in managing the fund. 5/18
OSTVX Osterweis Strategic Investment Fund Scott Ulaszek will no longer serve as a portfolio manager for the fund. John Sheehan and Daniel Oh will join Eddy Vataru, Craig Manchuck, Nael Fakhry, Bradley Kane, Gregory Hermanski, John Osterweis, and Carl Kaufman on the management team. 5/18
OSTRX Osterweis Total Return Fund Scott Ulaszek will no longer serve as a portfolio manager for the fund. John Sheehan and Daniel Oh will join Eddy Vataru on the management team. 5/18
RENIX Shelton Real Estate Income Fund Christopher Pike and Stephen Rogers are no longer listed as portfolio managers for the fund. John Harnisch and William Mock will now run the fund. 5/18
PRGMX T. Rowe Price GNMA Fund Andrew McCormick will leave the fund, effective January 1, 2019. Keir Joyce will take over running the fund. 5/18
PTTFX T. Rowe Price Total Return Fund Andrew McCormick will leave the fund, effective January 1, 2019. Christopher Brown, Jr. will become the fund’s sole portfolio manager. 5/18
TFMAX Templeton Frontier Markets Fund No one, but . . . Bassel Khatoun joins Tom Wu in managing the fund. 5/18
BPEKX The Positive Change Equity Fund Tom Coutts will no longer serve as a portfolio manager for the fund as of June 30th. The rest of the team remains. 5/18
IMUAX Transamerica Multi-Manager Alternative Strategies Portfolio Lucy Xin is no longer listed as a portfolio manager for the fund. Raymond Chan and Christopher Lvoff will continue to manage the fund. 5/18
Various Voya Index Solution Income Portfolio, Voya Index Solution Target Date Funds, Voya Solution Aggressive Portfolio, Voya Solution Balanced Portfolio, Voya Solution Conservative Portfolio, Voya Solution Income Portfolio, Voya Solution Moderately Aggressive Portfolio, Voya Solution Moderately Conservative Portfolio, Voya Solution Target Date Funds, and Voya Target Retirement Funds. Jody Hrazanek will no longer serve as a portfolio manager for the fund. Paul Zemsky and Harlvard Kvaale continue to run the funds. 5/18
Various Voya Multi-Manager Emerging Markets Fund, Voya Multi-Manager International Equity Fund, Voya Multi-Manager International Factors Fund, Voya Multi-Manager International Small Cap Fund, Voya Multi-Manager Mid Cap Value Fund, and Voya Multi-Manager Large Cap Core Portfolio Jody Hrazanek will no longer serve as a portfolio manager for the fund. Paul Zemsky joins Halvard Kvaale in managing the funds. 5/18
SCVIX Wells Fargo Small Company Value Fund Jason Ballsrud, Tasso Coin, and Douglas Pugh are no longer listed as portfolio managers for the fund. Jeff Goverman, Garth Nisbet, and Craig Pieringer will now run the fund. 5/18

 

Briefly Noted

By David Snowball

Updates

In October 2016, Dennis Baran profiled City National Rochdale Emerging Markets (RIMIX/CNRYX). His bottom line on the fund,

CNRYX offers an investor exposure to emerging markets by its concentrated strategy in Asia. Since inception, the fund has adhered to its six-country Asian allocation and not included other EM Asian countries or EM countries outside of that region in any meaningful way. The manager believes that the long-term positives of the region discussed here can become a virtuous cycle that could last for decades and lead to fund outperformance. The results thus far support that thesis: the fund has earned a five-star designation from Morningstar, is ranked highest by Lipper in total return, consistent return, tax efficiency, expense, and is a MFO Great Owl.

Since that publication, CNRYX has continued to outperform its Morningstar peer group, has maintained its five-star and Great Owl designations (though Morningstar’s “machine learning” analyst program is officially “neutral” on the fund) and now has $1.7 billion in assets under management.

Reader Dan Quisenberry wrote in April with a question about one statement in the profile.

In the October 2016 issue of MFO you wrote about CNRYX, City National Rochdale EM Fund.  I have owned RIMIX for a few years and I remember this sentence specifically…

Currently, all assets are being moved into CNRYX, which now has $853M, and RIMIX $143M. The remaining assets of RIMIX will be moved in the next six months. All shareholders will then have a class without a 12b-1 fee and a lower expense ratio.

Was this cancelled?  I still own RIMIX and it hasn’t been converted into CNRYX.  RIMIX is available at third party brokerage houses.  

Dennis reached out repeatedly to the adviser for confirmation over an 11 day period. Just when he was about to abandon the effort, he received a 10 word reply from CNR’s chief compliance officer, “I can confirm that the assets were indeed moved over.” Dennis eventually concluded, “It was not a conversion of RIMIX shares into CNRYX, and that is why both funds remain available.”

We do try to follow up when you have questions about funds or about things we’ve written, and you should do likewise. Most advisors, admittedly not all, are surprisingly forthcoming and informative. If you act respectfully but are not treated with respect in turn, take your money, go elsewhere then share a short explanation of your decision with your former fund company (see “contact us” on any website). You’re helping neither yourself nor the advisor by empowering poor behavior.

Briefly Noted . . .

Causeway Global Absolute Return Fund (CGAVX) is relying a bit more on machines now. Traditionally, the fund’s long portfolio has been generated through fundamental analysis and the short portfolio has been quantitatively driven:

The Investment Adviser uses its fundamental global value equity strategy to manage the Fund’s long exposures (the “long portfolio” of the Fund). The Investment Adviser uses its quantitative investment strategy designed to identify short exposures that it expects to underperform the World Index to manage the Fund’s short exposures (the “short portfolio” of the Fund).

New language signals a change to just the long portfolio strategy: “The Investment Adviser integrates fundamental and quantitative investment research to manage the Fund’s long exposures.” The new prospectus substantially rewrites and expands their discussion on the nature and creation of the fund’s long portfolio.

Morningstar’s “machine learning” process, designed to assign medalist ratings to funds not actively covered by human analysts, is positive about everything except the fund’s expenses (1.77%) and assigns it a Silver medal. That might well be justified, but investors interested in a market neutral fund might find Causeway (the blue line) a bit more than they’d bargained for.

Leuthold’s Grizzly Short Fund (GRZZX) underwent a 4:1 reverse split on May 18, 2018 because … well, being short is grizzly just now. The net effect is that investors received one “new” share for every four “old” shares, with the new shares worth precisely four times as much as the old ones.

If you’re invested in one of the Oppenheimer muni bond funds, you’re going to see much leaner management teams. Effective June 29, 2018, each fund will transition from having a management team to have a single specialized portfolio manager.

SMALL WINS FOR INVESTORS

As of May 21, 2018, American Century Equity Income (TWEIX) was reopened to all investors.

Delaware Value Fund (DDVAX) reopened to new investors on May 14, 2018. The fund had been closed since October 10, 2016.

Driehaus International Small Cap Growth Fund (DRIOX) will experience a substantial drop in its management fee, from 1.50% down to 1.00% as of July 1, 2018.

Marsico Focus Fund (MFOCX), Marsico Growth Fund (MGRIX), and Marsico 21st Century Fund (MXXIX) reduced their 12(b)1 fees “to a rate of 0% per annum,” effective on June 1, 2018.

CLOSINGS (and related inconveniences)

Effective July 1, 2018, through at least January 31, 2019, shares of Conestoga Small Cap Fund (CCASX) will no longer be available to new accounts through financial intermediaries without existing client relationships with the Fund or the Adviser. In addition, shareholders of the Conestoga SMid Cap Fund (CCSMX) will no longer be able to exchange their SMid Cap Fund shares for shares of the fund.

Effective as of the close of business on May 31, 2018, CrossingBridge Long/Short Credit Fund (CLCAX/CLCIX) closed the Class A shares of the Fund to all new purchases. David Sherman described the retail accounts as few in number and expensive to maintain, in part because of the cost of having a “share class” active.

With a few exceptions, Meridian Small Cap Growth Fund (MISGX) will close to new retail investors – those investing under $100,000 – on June 30, 2018.

On May 29, 2015, MFS International Value (MGIAX) was closed to new investors subject to certain exceptions. A not particularly clear SEC filing suggests that the fund remains closed but that, as of mid-June, the closure adds some wiggle room.

Vanguard Dividend Growth Fund is closed to all new investors (with the exception of (1) investors who are added and invest in the Fund only through technology-driven model portfolios and (2) participants who invest in the Fund only through defined contribution plans that offer the Fund as an existing option).

OLD WINE, NEW BOTTLES

Alger International Growth Fund (ALGAX) is undergoing two changes, one unremarkable and one entirely admirable. The unremarkable change is that, on August 30, 2018, it is changing its name to Alger International Focus Fund. The entirely admirable change is that it’s eliminating babble from the explanation of its investment strategy. The current text begins:

Fred Alger Management, Inc. believes companies undergoing Positive Dynamic Change offer the best investment opportunities. Positive Dynamic Change refers to companies realizing High Unit Volume Growth or companies undergoing Positive Lifecycle Change. High Unit Volume Growth companies are

Two problems stand out. (1) Fred Alger Management, Inc., is not a living thing and, hence, has no beliefs. (2) Capitalized Big Concepts are usually substitutes for clear thought since Capitalized Big Concepts aren’t questioned, they’re marketed. The Alger text has three CBCs in a single sentence.

I’m hopeful that the management team which took over the fund in March 2018 is responsible for the reassertion of clear English in the prospectus:

The Fund invests in Companies which it believes are attractively valued, high quality growth companies with definable strategic advantages/moat and competitive positioning that offer strong earnings visibility and sustainability. The team focuses on analyzing growth trajectories and identifying catalysts for future growth for companies that are in a positive earnings revision cycle. The Fund is an all-cap, all-country, opportunistic focus fund which generally holds less than 50 holdings.

Not flawless (it doesn’t exclude the U.S., the “/moat” is ugly and adds nothing; in general, use “less than” for things that cannot be counted but “fewer than” for things that can), but it’s a lot cleaner.

Similarly, Alger Global Growth Fund (CHUSX) becomes Alger Global Focus Fund, with an identical principal strategy.

American Customer Satisfaction Core Alpha ETF (ACSI) is now American Customer Satisfaction ETF. Not clear whether it was the “core” or the “alpha” part that spooked them.

On or about July 3, 2018, Catalyst Insider Income Fund (IIXAX) will become Catalyst Enhanced Income Strategy Fund. The fund will then seek “current income,” though a proposed fee increase by the advisor suggests that they’ll be the first to see increased income from the change. Former insiders David Miller and Charles Ashley will be replaced as the portfolio managers by Leland Abrams and Brandon Jundt of Wynkoop, LLC.

Sometime in the third quarter of 2018, Epiphany FFV Strategic Income Fund (EPIAX), will be reorganized into the Eventide Limited-Term Bond Fund. The Epiphany fund relies on “Trinity’s FFV Scorecard® screening based on the principles of Biblically Responsible Investing,” the new fund will use Eventide’s ethical values screens. The management team will remain intact.

Effective May 31, 2018, Fidelity Series Emerging Markets Fund (FEMSX) has been renamed Fidelity Series Emerging Markets Opportunities Fund. At the same time, Fidelity Series 1000 Value Index Fund (FIOOX) was renamed Fidelity Series Large Cap Value Index Fund.

Geneva Advisors All Cap Growth Fund has become AT All Cap Growth Fund (AWGIX) while Geneva Advisors Equity Income Fund was reorganized into AT Equity Income Fund (AWYIX). The change took place on February 12, 2018 but the SEC filing noting the change was May 29.

Goodwood no more. On May 18, 2018, Goodwood SMID Long/Short Fund was adopted by Crow Point Partners. That adoption occasioned four changes: the investment strategy shifted from small- and mid-cap long/short to long-only small growth, the management team changed, the fund name changed to Crow Point Growth Fund, and the expense ratio was reduced to 1.35%. Our June 2018 Elevator Talk with the new managers offers more detail. Check it out!

The Guggenheim BulletShares have been rechristened as the PowerShares BulletShares. (Perhaps an eventual line of leveraged funds will earn the PowerShares BulletShares PowerBullets designation?)

Former Fund Current Fund
Guggenheim BulletShares 2025 High Yield Corporate Bond ETF PowerShares BulletShares 2025 High Yield Corporate Bond Portfolio
Guggenheim BRIC ETF PowerShares BRIC Portfolio
Guggenheim Raymond James SB-1 Equity ETF PowerShares Raymond James SB-1 Equity Portfolio
Wilshire US REIT ETF PowerShares Wilshire US REIT Portfolio
Guggenheim Canadian Energy Income ETF PowerShares Canadian Energy Income Portfolio
Guggenheim China Small Cap ETF PowerShares China Small Cap  Portfolio
Guggenheim China Technology ETF PowerShares China Technology Portfolio
Guggenheim S&P High Income Infrastructure ETF PowerShares S&P High Income Infrastructure Portfolio
Guggenheim Solar ETF PowerShares Solar Portfolio

With the departure of Mackenzie Financial (a/k/a “Cundill”) as sub-adviser and the arrival of Pzena, Ivy Cundill Global Value Fund (ICDAX) has been rechristened Ivy Pzena International Value Fund. Principal investment strategies were appropriately revised.

Effective July 31, 2018 JPMorgan Intrepid European Fund (VEUAX) becomes JPMorgan Europe Dynamic Fund and JPMorgan Intrepid International Fund (VFTAX) gets renamed JPMorgan International Advantage Fund.

PIMCO appears to be broadening the investment mandates for many of their funds. Those changes are reflected in a series of name changes that go into effect on July 30, 2018

Current name Impending name
PIMCO GNMA Fund PIMCO GNMA and Government Securities Fund
PIMCO Investment Grade Corporate Bond Fund PIMCO Investment Grade Credit Bond Fund
PIMCO Mortgage Opportunities Fund PIMCO Mortgage Opportunities and Bond Fund
PIMCO Unconstrained Bond Fund PIMCO Dynamic Bond Fund
PIMCO Long-Term Credit Fund PIMCO Long-Term Credit Bond Fund
PIMCO Credit Absolute Return Fund PIMCO Credit Opportunities Bond Fund
PIMCO RAE Fundamental PLUS EMG Fund PIMCO RAE PLUS EMG Fund
PIMCO RAE Fundamental PLUS Fund PIMCO RAE PLUS Fund
PIMCO RAE Fundamental PLUS International Fund PIMCO RAE PLUS International Fund
PIMCO RAE Fundamental PLUS Small Fund PIMCO RAE PLUS Small Fund
PIMCO Foreign Bond Fund (U.S. Dollar-Hedged) PIMCO International Bond Fund (U.S. Dollar-Hedged)
PIMCO Foreign Bond Fund (Unhedged) PIMCO International Bond Fund (Unhedged)
PIMCO Emerging Markets Currency Fund PIMCO Emerging Markets Currency and Short-Term Investments Fund
PIMCO Global Bond Fund (U.S. Dollar-Hedged) PIMCO Global Bond Opportunities Fund (U.S. Dollar-Hedged)
PIMCO Global Bond Fund (Unhedged) PIMCO Global Bond Opportunities Fund (Unhedged)
PIMCO Real Return Asset Fund PIMCO Long-Term Real Return Fund
PIMCO Unconstrained Tax Managed Bond Fund PIMCO Strategic Bond Fund

On June 28, 2018, Snow Capital Opportunity Fund (SNOAX) becomes Snow Capital Long/Short Opportunity Fund. About 11% of the current portfolio is in short positions, and the adviser will change the fund’s investment strategy “to increase the percentage of short sales within the Fund to enhance the hedging strategy.” At the same time,   Snow Capital Dividend Plus Fund (SDPAX) will be rechristened Snow Capital Equity Income Fund. The $3.6 million fund invests in dividend-paying value stocks which, they’re convinced, is better reflected by the phrase “equity income” than by “dividend plus.” By Morningstar’s calculation, the funds have one- and two-star ratings.

Effective July 31, 2018 SPDR Bloomberg Barclays Issuer Scored Corporate Bond ETF (CBND) will change its name (to Bloomberg Barclays Corporate Bond ETF), management fee, benchmark index and principal investment strategy. Thankfully, they respected the fund’s ticker symbol and left it alone.

Effective on or about July 20, 2018, Touchstone Total Return Bond Fund (TCPAX) will be renamed the Touchstone Impact Bond Fund. The fund’s investment strategies will be revised to reflect an ESG focus:

EARNEST also believes that entities that are cognizant of ESG issues tend to be more successful over time. As a result, EARNEST prefers to invest in government programs and companies that have sustainable operating models and seek to achieve positive aggregate societal impact. This inclusive approach views positive impact characteristics as additive to an investment’s risk/return profile. When assessing an issue’s impact profile, EARNEST considers a wide range of factors, including but not limited to support for economic development, home ownership, and job creation.

Vanguard Telecommunication Services Index Fund (VOX) has changed its name to Vanguard Communication Services Index Fund.

OFF TO THE DUSTBIN OF HISTORY

The Board of Directors has approved a plan of liquidation for the AC Alternatives Long Short Fund (ALEVX). Under the plan, the liquidation date of the fund will be July 30, 2018. The fund closes to new investments on July 25, 2018, which leads you to wonder who’d be dumb enough to put money into a by-then overpriced money market fund for a period of five days.

Active Alts Contrarian ETF (SQZZ) liquidated on May 30, 2018.

Around July 13, 2018, Carillon Eagle Smaller Company Fund (EGEAX) will be absorbed by Carillon Scout Small Cap Fund (UMBHX) while Carillon Eagle Mid Cap Stock Fund (HMCAX) gets taken in by the four-star Carillon Eagle Mid Cap Growth Fund HAGAX).

Campbell Multi-Asset Carry Fund (CCRYX) will be closed and liquidated effective on or about the close of business on June 22, 2018.

Catalyst Time Value Trading Fund (TVTAX) will liquidate on June 25, 2018.

Pending shareholder approval, Centre Active U.S. Tax Exempt Fund (DHBRX) is merging with Centre Global Infrastructure Fund (DHINX), sometime in the third quarter of 2018. Usually the announcement of such mergers makes some vague attempt to explain what the merged funds have in common: same investment objectives, similar investment strategies, same managers and so on. The decision to merge a $20 million muni bond fund into a $2 million global equity fund is apt to be the occasion for a burst of rhetorical gymnastics.

Clearbridge Global Health Care Innovations Fund will liquidate around July, 2018.

Crawford Dividend Yield Fund (CDYLX) will, “in the best interests of the shareholders,” liquidate on June 27, 2018.

Credit Suisse Commodity ACCESS Strategy Fund (CRCAX) was scheduled to liquidate on May 31, 2018. The execution has been pushed back by a week, to June 6, 2018, in order to give the managers time to finishing liquidating the portfolio.

Day Hagan Hedged Strategy Fund (DHJAX) plans to cease operations on June 25, 2018.

Effective May 21, 2018, Eaton Vance Global Small-Cap Fund was reorganized into the $25 million Eaton Vance Global Small-Cap Equity Fund (ESVAX).

Equinox BH-DG Strategy Fund (EBHIX) will liquidate on June 29, 2018.

Keeley All Cap Value Fund (KACVX) will be reorganized into Keeley Small-Mid Cap Value Fund (KSMVX) on or about July 27, 2018. Both funds currently sport two stars in Morningstar’s ratings system.

First Investors Real Estate Fund (FIRDX) will be FIRED on June 22, 2018.

The liquidations of Nuveen Symphony International Equity Fund, Nuveen Symphony Mid-Cap Core Fund and Nuveen Symphony Small Cap Core Fund are complete. 

Marsico Flexible Capital Fund (MFCFX) will merge into Marsico Global Fund (MGLBX) on or about August 3, 2018. This seems just a part of the larger unwinding of Mr. Marsico’s empire whose AUM has fallen from $5.4 billion ten years ago to $1.4 billion now. The fund had a splendid five-year run (through mid-2012) under Doug Rao, then six not-embarrassing years under his two successors, ending up with a four-star rating from Morningstar. Mr. Marsico took over the fund personally in March 2018 and is merging it into a tiny, five-star fund that Mr. Marsico has managed (or co-managed) since its inception of 2007.

PIMCO Real Return Limited Duration Fund (PPIRX) will be liquidated on or about July 30, 2018. In the meantime, it’s closed to all investors. The fund has a $1 million minimum and $10 million in assets after 2+ years of operation.

T. Rowe Price Institutional Credit Opportunities Fund (TRXPX) originally slated to liquidate in the first quarter of 2018 is now scheduled to merge into T. Rowe Price Credit Opportunities Fund (TCRRX) on June 25, 2018, with TRXPX shareholders received institutional-class shares in exchange.

The $15 million Touchstone International Growth Fund (TIAPX) is closed and will be liquidated on or about July 30, 2018 after about two years of mediocre performance.

Touchstone Small Cap Growth Fund (MCSAX) is disappearing into the Touchstone Small Company Fund (SAGWX) on September 21, 2018. In an interesting side note, Touchstone reports removing the current Fiera management team and bringing into specialists from Russell Implementation Services to begin morphing the Small Cap Growth portfolio. At the same time Touchstone Small Cap Value Opportunities Fund (TSOAX) will merge into Touchstone Small Cap Value Fund (TVOAX). Ahead of the merger, the TVOAX management team will take over TSOAX. The 10 year record of the two funds gives you a sense of the significance of the change. The surviving fund is the blue line.

On May 30, 2018, USAA shareholders approved the merger of the First Start Growth Fund (USFGX) into the Cornerstone Moderately Aggressive Fund (USCRX). Effective June 2, 2018, the First Start Growth Fund is closed to new investors.

FYI, on April 28, 2018, Virtus Duff & Phelps International Equity Fund, Virtus Horizon International Wealth Masters Fund, Virtus Rampart Global Equity Trend Fund and Virtus Rampart Low Volatility Equity Fund were liquidated.

The Really X-Trackers: On May 16, 2018, the Board of Trustees of DBX ETF Trust  unanimously voted to close and liquidate Xtrackers MSCI EAFE Small Cap Hedged Equity ETF, Xtrackers MSCI Brazil Hedged Equity ETF and Xtrackers MSCI Mexico Hedged Equity ETF. The dirty deed will be done in early June.

Wasatch-1st Source Income Fund (FMEQX) is slated to be liquidated “as soon as practicable,” which they translate to July 13, 2018. This might be read as part of a move by Wasatch to reclaim their core business; they’ve merged the long/short fund into a global equity one, liquidated the short term income fund, and they’ve allowed founder Samuel Stewart to leave with their Strategic Income and World Innovators funds. That leaves only the Wasatch-Hoisington Treasury Fund as an anomaly, but with the senior Mr. Hoisington finishing his 44th year as an investor, it might simply be a matter of time before that marriage dissolves as well.

May 1, 2018

By David Snowball

Dear friends,

If you’re ever had cause to poke around MFO, perhaps “About Us” or “Support Us,” you’ll have spotted the younger me and the younger version of my son, Will. We were poking around England seven years ago, around the time we launched MFO, and we wanted to give folks a peek at the people behind the text.

I note, with pride and trepidation, that seven years have now passed. The 12,000 folks who joined us that first month have grown to 28,000 this past month, and 1,298,128 readers, interlocutors and passersby since launch.

You sort of look like this:

And Will? Will sort of looks like this:

I’m pleased and terrified to note that Will has accepted an offer of admission from the University of St. Thomas, in St. Paul. Apparently my son’s going to be a “Tommie” soon, and a data analyst. It’s an expensive proposition, no question, and something of a stretch for the family. And yet we believe, in Will, in the power of great teachers and small schools, in the future that we can yet shape together. The Lebanese-American poet Kahlil Gibran once wrote:

You are the bows from which your children
as living arrows are sent forth.
The archer sees the mark upon the path of the infinite, 
and He bends you with His might 
that His arrows may go swift and far.
Let your bending in the archer’s hand be for gladness;
For even as He loves the arrow that flies, 
so He loves also the bow that is stable.

(On Children, 1923)

Come summer, I will launch my arrow northward and report, with delight, from time to time, upon its arc.

On the limits of happiness

As happy as I am to write about funds for you, I’m not a tenth so happy as this woman is with her Fidelity investments.

Yuhh … it’s only coincidental that I’ve begun the process of moving the Fidelity portion of my 403(b) retirement account to T. Rowe Price.  I noted in my portfolio review that Augustana has frozen our access to Price and Fidelity, and substituted a small array of carefully chosen active and passive funds. It seems silly to maintain two locked sets of funds, so I resolved to transfer one to the other. Price seems to have a stronger, healthier culture, I respect their brains and their thoughtful communication with investors, and I agree with their firm-wide approach to investing. The move is a bit complicated, but it will be good to have it done.

I shudder to imagine that young woman’s expression should she choose to come along, so I think she’s safest staying with the Johnsons.

Thanks

To you all, for sharing these first seven years of MFO with us. When we launched, the average lifespan of a boutique website was barely seven weeks.

To Ed, Chip and Charles, who’ve contributed more than you could ever know. They’re amazing and I’m amazed by their support and friendship.

To the folks on MFO’s Discussion Board, which would be award-winning if only there were awards for such things. Their daily banter, always interesting and frequently good-spirited, is daily reading for me. Thanks, pointedly, to Ted the Linkster and the shadowy The Shadow, who always gets there before me.

And to Kirk, as well as our stalwart subscribers Greg, Brian, and Deb. We thank you!

The summer brings interesting stuff. Ed is off in Paris and Sam Lee is patrolling the streets of Seoul, but both will be soon back. Charles has been revamping the MFO Premium site, for the better, and has profiles coming on two funds. And Morningstar is coming in June. We’ll be there, and we’d be delighted to spend a bit of time with you while we’re at it. Just let us know.

As ever,

Rolling Down the Appian Way

By Edward A. Studzinski

“To succeed in the world, it is not enough to be stupid, you must also be well-mannered.”

Voltaire

There is a show on Showtime cable that purports to give a pretty good reading of the world of hedge funds and their masters, called “Billions.” It is now into its third season. A scene in the third episode of this season resonated with me regarding some of the issues and problems that active managers face today. The main character, Bobby Axelrod of Axe Capital, has surrendered his rights to trade as a hedge fund manager/chief investment officer in return for having his personal capital unfrozen and thus accessible. His successor as Chief Investment Officer at the firm, Taylor Mason, has begun a search to find some quantitative managers that can be brought into the firm, hoping they will be additive to the investment process and performance. The interviewing process for “quants” sends the traditional qualitative analysts into a panic, as they all think there will be mass firings as they are replaced by computer algorithms. One of them goes in to confront Taylor about the reason for bringing in quants. His question to Taylor is – why can’t things stay as they are, as it is what brought us this far? Taylor responds by asking the analyst if he is familiar with the high school football team whose coach never let them punt on fourth down. The analyst says yes, the coach figured out that statistically the team had a better chance of winning if they used all four downs for offense. Taylor says yes, but the coach also wanted to win more championships. The analyst then gets it, that it is all about the firm’s “edge.” Taylor then explains that they had their edge when there was “dumb” capital in the marketplace. But, and this is critical, they have lost that edge. Taylor then says that all the dumb capital has been sucked out of the marketplace by the trillions of dollars that have gone into ETF’s (exchange-traded funds). What is left in the marketplace – aggressive firms with killer instincts and research, just like themselves. The reason to hire quants is to regain the edge. And even with lots of quants already out competing against them, Axe Capital has the resources to find better ones to get the edge back.

I think the above explains why the active managers are now finding it so hard to compete against each other, and why on balance the index funds (and ETFs) are outperforming. Quite simply, much if not quite all the naïve or dumb capital has left the market and gone to passive vehicles. The competitive world has become much harder. One of the first things that I do when evaluating investment firms is to look at the composition of their portfolios, rather than their marketing brochures. In portfolio construction, mutual funds suffer an important structural limitation when compared to the hedge fund counterparts. Hedge funds are permitted to commingle uncorrelated assets; for example, a fund might own both equity shares and an office park. (Those interested in an illustration might look at the current asset allocation of RIT Capital Partners. The RIT is Rothschild Investment Trust, founded by the 4th Baron Rothschild.) And one of the things I have noticed over the years is that the investment strategies of many firms have shape-shifted. Value portfolios look like growth portfolios and vice versa. How many value funds now own Amazon, Google (in its current iteration), or Baidu? And how many growth firms own MasterCard and JP Morgan Chase?

To a large extent it all comes down to asset growth and how you manage it. Do you shut a fund and cap a firm’s business at a certain level of assets? If you are privately-owned as a partnership, you can and often do. If you are part of a large financial conglomerate, then the mantra becomes asset growth, given the huge cash flow that investment firms can and do generate. That is, money for the parent and money for the senior investment personnel, which buys a lot of Italian sports cars and yacht-like power boats with which to cruise Lake Michigan. And you spend a lot of time worrying about whether the state you are living in will try to impose an exit tax before you relocate to a low-tax jurisdiction like Florida. Which brings us back to the question of how you sustain the “edge” in performance when you and your competitors are all looking at the largest 200 securities in market capitalization, because a $20B or $40B fund needs investments that “move the needle” to generate outperformance relative to a benchmark. And that is where the quantitative research comes in as either the foundation for or overlay to other research.

In that regard, I tip my hat to Joel Greenblatt, who saw that the world was changing and has evolved his thinking (and continued to own and control his own firm rather than selling out) with his Gotham Funds.  Vanguard of course, in typical Vanguard fashion, set up its own quantitative group to complement their edge in selecting managers and applying low fees to boot. Other names that come to mind that you would put into the same category of thinking ahead and thinking outside the box – Clifford Asness, Rich Pzena at Pzena Asset Management, and Steve Galbraith when he was at Maverick Capital. And you have the polymaths like Joel Tillinghast and Warren Buffett, who are in effect their own quants. And then you have the outside the box thinkers like Bill Miller who I used to run into regularly at the annual symposia sponsored by CS First Boston at the Santa Fe Institute in New Mexico.  SFI looked at applying things at a level beyond quantitative analysis, much like three-dimensional chess from Star Trek (for those interested in a book on that process, I commend a book called The Predictors: How a Band of Maverick Physicists Used Chaos Theory to Trade Their Way to a Fortune on Wall Street by Thomas A. Bass).

And finally, I must compliment and express my appreciation to an extraordinarily intellectually curious individual and one of the great investment thinkers of our time. This gentleman was always looking for the better mousetrap to enhance investment thinking, the investment process and methodologies, Michael Mauboussin, formerly of CS First Boston and now at BlueMoutain Capital Management, and the current chairman of the Board of Trustees at the Santa Fe Institute.

So yes, it is all about finding the edge and holding on to it. And if you are a value investor, the edge can be the portfolio of ten stocks or less that you watch carefully, like a hawk (or Philip Fisher) and know more about than anything else, in an obsessive-compulsive way. That is not well-suited to running however mega-billion portfolios, which is why I submit, we see so many funds running into brick walls these days, with their managers’ attentions often focused elsewhere. You can evolve, as Joel Greenblatt has. Or, you are a firm that hopes nobody notices that you are underinvesting in your infrastructure while you are maximizing profit margins. You do this by capping the investment in the quality of personnel or tools as you are no longer able to use soft-dollars to pay for things you should be paying for. But remember, the dumb capital has for the most part left the house. And the survivors will keep reinvesting and reinventing themselves to get and keep the edge.

New York AG forces fund companies out of the indexing closet

By David Snowball

(with special thanks to rforno of MFO’s Discussion Board for the title)

The New York State Attorney General’s office has weighed-in on behalf of investors, and active share. Active share is a measure of the extent of the difference between what’s in fund’s portfolio and what’s in the fund’s benchmark index. If your fund holds all the same stocks in all the same percentage as its benchmark, then its active share is zero. A zero active share is good if you’ve bought – and are being charged for – an index fund. A zero active share is bad is you were sold – and are being charged for – something masquerading as an active fund.

The difference in risks and return between a fund and its benchmark are created by the active part of the fund’s portfolio. A fund that differs in composition only a tiny bit from its benchmark will likely differ in risk or return by only a tiny bit. If you’re paying substantially more for an active fund than you’d be charged for a passive one, they you have reason to expect a substantial difference from the benchmark with the prospect for substantially lower risks or higher returns.

Sadly, many funds – called “closet index funds” – charge for active management then produce index-like portfolios. In March 2018, nearly a year after alerting funds that they were under investigation for misbranding themselves, Britain’s Financial Conduct Authority forced a number of British investment firms to pay their investor £34 million for marketing 64 large funds as “active” when they were closet indexers.

What’s the chance that your fund is a closet index? Large funds are, on whole, less active than small funds and the industry is increasingly dominated by large funds; in consequence, the percentage of industry assets held by closet indexers has grown steadily and is now a third or more of industry assets (Jeffrey Moeller, Closet Indexing and the Concept of Active Share, 2013). Research by Matos, Cremers,  Ferreira Starks, published in 2016, sorts through 24,000 funds worldwide, and estimates that about 20% are closet indexes (Indexing and Active Fund Management: International Evidence; a readable report about the research, Active Vs. Passive Funds: The Mutual Fund Shell Game, was published in 2017). That research uses an active share cut-off of 60% to distinguish active funds from closet indexers.

Saving “the active share story without a title”

Sometimes I need … hmm, a little help from my friends. (Mm, I get by with a little help from my friends.) This was one of those times. Interesting story, exhausted author, no clue about what to use for a title. In draft, it remained “the active share story without a title.”

Enter the folks on the MFO Discussion Board. I posted a précis of the story and asked for help finding a title. Ultimately, I asked Chip to review the offerings and she picked rforno’s “New York AG forces fund companies out of the indexing closet,” which struck her as eye-catching and just a little edgy.

We’d like to recognize the runner-up, VintageFreak’s “Get Active, I Say!” Honorable mention is given to Lewis Braham’s “Time to Share that Active Share Data” (though she thought just “Time to Share that Active Share” might have been sharper), David Moran’s “Using the Active Voice” (the editor in him keeps escaping) and Maurice’s “Are Individual Investors Like Mushrooms In The Dark?” (just a touch too allusive). Ted made her chuckle, but might have been a little too edgy. Bee, like me, was feeling sensible and descriptive while Chip was looking for a bit of play.

Thanks to you all, and not just for this one helpful outburst. You make a difference!

The problem is that it’s damnably difficult to find out if you’re one of the people paying for one thing and getting another. Very few large fund companies have been willing to easily disclose that data.

The New York Attorney General’s action might be changing that. In April the office published Mutual Fund Fees and Active Share. The study surveys the expenses and active shares of 2700 mutual funds.

The Attorney General has three major findings.

  1. Active share is relevant.
    Rather than reviewing the debate on the relevance of active share to a fund’s performance, the AG simply noted that fund firms use this data themselves in determining who to hire and fire and in assessing the performance of their funds.

  2. Active share and fund expenses are weakly correlated.
    It would be nice if paying more guaranteed that you got more active management. It doesn’t. Advisers charge whatever they can get you to pay (it’s the nature of capitalism), so you see bunches of closet index funds (the dots below the 60% line, as a rough illustration) charging high fees.

  3. Fund firms don’t disclosure active share to peons.
    Of 14 major firms surveyed, only one – Fidelity – makes active share information routinely available to retail investors while all 14 use it with their institutional investors. Even with Fidelity, the number is isolated and buried. Here’s their profile of Fidelity Growth Company, you’ll find active share in the right hand column just below “asset allocation.”

    Independent fund firms, such as Artisan, Touchstone and about 80% of the funds we cover, do routinely and prominently share that information.

Responding to the Attorney General’s pressure, the fund advisors have agreed to publish active share information quarterly.

Following NYOAG’s investigation, 13 of the 14 mutual fund firms surveyed agreed to publish the Active Share metric for their actively managed equity funds available to U.S. investors. The 14th firm surveyed by NYOAG – Fidelity Management & Research Company – was already publishing Active Share for its relevant funds. As a result of these actions by some of the largest mutual fund firms in the United States, all investors will now have access to additional important information about more than 400 actively managed funds.

The firms that have agreed to post Active Share information for their relevant funds on their websites on a quarterly basis are:

  • AllianceBernstein
  • BlackRock
  • Dreyfus
  • Capital Group Companies, Inc. (American Funds)
  • Columbia
  • Eaton Vance
  • Goldman Sachs
  • JP Morgan Chase
  • OppenheimerFunds
  • Nuveen
  • Rowe Price
  • USAA and
  • Vanguard.

The industry’s trade group, the Investment Company Institute, promptly did what you’d expect: they denounced both state interference and the importance of relevant information for investors.

“We strongly believe state authorities should not arrogate to themselves the authority to impose inconsistent disclosure requirements,” Paul Schott Stevens, ICI’s president and chief executive, said in an e-mailed statement. “‘Active share’ is not relevant for many funds or investors.” (Rachel Evans, Picking a Mutual Fund Just Got Easier, Thanks to N.Y. Regulator, Bloomberg, 4/6/2018)

Neither the Attorney General nor Ms. Evans points investors to ActiveShare.Info, but they should. The active share site provides slightly out-of-date active share information for most domestic equity funds. The “slightly out of date” shouldn’t particularly bother you because active share tends to be stable; closet indexers tend to remain closet indexes while highly independent managers tend to remain highly independent. Here, as an illustration, is five years’ worth of data for FPA Capital.

Likewise for Fidelity Growth Company (FCGSX), which Fido reports as having an active share of 54%.

The problem with active share is that calculations are pretty much limited to pure equity funds; the data doesn’t seem to exist for multi-asset and income funds.

Bottom Line: Being active is not the same thing as being good. A manager who wanders off and buys Venezuelan cryptocurrencies and pink-sheet stocks is being active, and actively stupid. That said, managers who are simultaneously active, patient and focused tend to outperform others (Cremers, Active Share and the Three Pillars of Active Management: Skill, Conviction and Opportunity, 2017). Managers who are inactive and expensive represent about the worst possible deal for investors. You owe it to yourself, if nothing else, to find out whether your fate is tethered to such a creature.

 

 

Premium Site Update – Much Expanded Data Feed

By Charles Boccadoro

“I’ve come loaded with statistics, for I’ve noticed that a man can’t prove anything without statistics.”

                                                                                              Mark Twain

We launched our premium site in November 2015. Its origin stems from our desire to identify funds that minimized downside performance across full market cycles, using metrics and evaluation periods not readily available on other sites at that time. Parameters of interest included maximum drawdown (MAXDD), Ulcer Index, Martin Ratio, and Recovery Time.

The internal search tool site we developed supported custom requests from David and Ed, and it quickly grew to include other metrics and unique ratings, like the legacy Three Alarm Funds and Fund Family Scorecard. We thought such tools might be of interest to individual investors and financial advisers, as well as provide thanks to contributors of the MFO non-profit. So, MFO Premium was launched.

The site has continued to evolve with the help of several betas testers (thank you teapot and openice) and from the positive feedback and customized format requests from our subscribers.

New Data Feed

The big news this month is we have reached an agreement with the good folks at Thomson Reuters (thank you Joy and John) to get access to the Thomson Reuters Lipper Global Data Feed (LGDF).

In addition to the 8100 US mutual funds and 2200 ETFs for which we currently maintain ratings, the new feed will include more than 600 Closed End Funds (CEFs) and 2200 Insurance Products. It will also include several new parameters that will enable enhanced screening and calculation of unique metrics. The new parameters include holdings data, specifically top ten portfolio positions in equities, fixed income, country, and industry.

Other new parameters include fund benchmarks that, along with our access to full holdings data, will enable the calculation of alpha, tracking error, information ratio, and active share … the latter is something only the folks at AlphaArchitect gave us access to for ETFs.

We will continue to have monthly data back to January 1960, as applicable, all share classes, numerous key indexes, and expanded portfolio metrics, like pay-out ratio, debt/equity, price to sales, price to cash, and a managed volatility attribute. Oh, and a nifty link to the fund advisor’s website.

Updated Site Organization and Features

In anticipation of the new feed, we reorganized and updated features on the premium site:

  • Our main tool MultiSearch now groups input and output parameters by Basic Info, Period Metrics & Ratings, Rolling Averages, Composite Period Ratings, MFO Designations, Portfolio Info, and Purchase Info, plus a “Summary Info” group of more popular metrics.
  • Added “Group” and “Column” options on MultiSearch results page, which enables showing or hiding various metrics by group (eg., “Period Metrics”) or individually.
  • Redesigned Commentary page using WordPress to better match format and features of our main This update also enables posting of subscriber comments, guest article submission, and site feedback. (I’m hopeful here is where David will start drafting his “Little Book of Mutual Fund Investing.”)
  • Added new Portfolios page, enabling users to save up to 10 WatchLists of 25 Symbols from MultiSearch.
  • Added sliding displays to make appearance more compact, especially move text to background, added header definition pop-ups on hover in MultiSearch screener, and enabled a column reorder feature.

Upcoming Improvements

A few key additions are inbound shortly…

The first is adding Upside Capture, Downside Capture, and Capture Ratio to the correlation metrics, which we discussed previously in “Against The Herd.” They will be available across all 21 evaluation periods on the site, including lifetime and market cycles, and versus S&P 500, US Aggregate Bond, US 60/40 Balanced, and World minus US indexes.

Did you know…?  Since the start of the current market cycle in November 2007 through March 2018 that both the S&P 500 and US Aggregate Bond indexes have been positive 82 months and negative 43 months.

The second feature is ability to assign holding allocations to the saved portfolios (watchlists), enabling all risk and performance metrics to be quantified at the portfolio level.

The third is expanding the ability to screen on Rolling Averages, first introduced in “Rolling Averages, Finally!” for any evaluation period, not just lifetime.

Finally, greatly expanded evaluation periods to include 1, 2, 3, 6, 9, 10-month (and YTD) periods; 1, 2, 3, 5, 7, 10, 12, 15, 20, 25, 30, 40, 50-year periods; lifetime (back to January 1960); and the current five up, down, and full-market cycles, again since January 1960.

Our last webinar (charts, recording) was January and we will plan the next one at mid-year mark to demonstrate all the new features. If you can’t wait that long, please drop us a note ([email protected]) and we will promptly set up a time to call or web conference.

The Morningstar Minute

By David Snowball

Morningstar’s plan to roll out their own family of mutual funds, for use with their managed portfolio service, is becoming more concrete. In an April 23, 2018 filing with the SEC, Morningstar notes that they’re in “the quiet period” required by the SEC; nonetheless their filing says a lot.

Morningstar will offer nine funds to their Morningstar Managed Portfolio clients. That’s a booming niche for them:

… for the full year ended Dec. 31, 2017 … Assets under management and advisement in Managed Portfolios increased 31.8% to $39.8 billion. (Morningstar, Inc. Reports Fourth-Quarter, Full-Year 2017 Financial Results, 2/20/2018)

In each case, Morningstar will select the manager or managers responsible for selecting the fund’s securities: “the portfolios will invest in Morningstar Funds which, in turn, will invest their assets in individual stocks, bonds, and other securities that have been selected by third-party managers.”

The managers for the new funds are listed separately in the new prospectus. We originally reported that the manager names were not public. We were wrong and we regret it. Thanks to Sarah Wirth, who handles media relations with Morningstar, for helping straighten that out. Here’s the short roster with just the names of the advisory firms.

US Equity ClearBridge Diamond Hill Levin Capital Strategies MFS Wasatch Advisors Westwood
International Equity Harding Loevner Harris Associates Lazard T. Rowe Price
Global Income Schafer Cullen Capital Management
Total Return Bond BlackRock Western Asset Management
Municipal Bond T. Rowe Price Wells Capital Management
Defensive Bond FPA
Multisector Bond Franklin  Advisers Loomis Sayles TCW
Unconstrained Allocation Brandywine Lazard
Alternatives SSI Water Island

We also know that some of the current managers will not be investing on Morningstar’s behalf in the future.

Some of the managers whose mutual funds are currently used in your managed portfolios were not named as subadvisers to Morningstar Funds. Why?

Although the trust will provide a discussion of the factors the trustees considered in approving the subadvisers in a future shareholder report, we won’t otherwise comment on why we selected or rejected individual managers. 

One possibility is that Morningstar saw virtue in streamlining the management structure, another is that some of the managers declined the opportunity to take a pay cut (Morningstar estimates they’ll be able to lower fund expenses by 20% using the new funds, presumably some of that attributable to lower management fees) to continuing working on Morningstar’s behalf, but that’s not documented.

The most curious question and answer in their FAQ involves their decision not to make their funds available to the public.

Why aren’t you making Morningstar Funds available directly to the investing public?

Our focus is on delivering cost savings to clients in our Morningstar Managed Portfolios. The impetus for launching the Morningstar Funds is to lower the overall fees that these clients pay. Thus, the funds are intended to be used exclusively in the portfolios we offer these clients, not as standalone offerings. We don’t currently have plans to make the funds available to the general investing public.

The answer feels, at the very least, incomplete. If the goal is “delivering cost savings” to their current investors, they could achieve the goal more easily by including more (outside) investors. Other possible, though unconfirmed, explanations might be (1) they don’t want to directly challenge Vanguard, T. Rowe Price and others who themselves support Morningstar and (2) they might anticipate problems attracting top-tier “third party managers” if the Morningstar products threaten to cannibalize those managers’ business.

The comparable question about offering Morningstar Funds to non-U.S. investors adds in interesting gloss.

Does Morningstar Investment Management plan to offer Morningstar Funds to investors outside the U.S.?

We don’t currently have plans to do so but are continuously evaluating ways we can bring low-cost options to our managed portfolios globally. Morningstar Investment Management Australia already offers multimanager funds.

Most of the Morningstar Australia retail funds seem to be objective-focused (Morningstar High Growth) and high-performing (High Growth is five stars in each measurement period), though it’s impossible to make a confident assessment of the fund without understanding its competition.

Bottom Line: I hope the Morningstar funds do brilliantly well. They represent an interesting experiment and the financial security of a lot of people rest on them. They seem thoughtfully designed and their emphasis on cost minimization likely serves their investors’ interests. Nonetheless, the “sleeves for star managers” strategy is hard, as illustrated by the manager turnover at, and occasional liquidations of, the Litman Gregory Masters funds.  The “masters” at their Smaller Companies fund, for instance, tend to fall from favor pretty quickly; the fund has had 20 masters since launch in 2003, with some teams out within three years.

Living a Rewarding Retirement : Settling into Retirement, May, 2018

By Robert Cochran

There have been many changes for me since August 31, 2017.  On that day, I officially retired as partner and Chief Compliance Officer of PDS Planning, Inc. in Columbus.  Having worked for a total of almost 50 years (five of those while I was in college), there was more than a bit of trepidation as I neared retirement.  Would I really fill my time?  Would I find myself longing to be at work again, missing the daily interactions with colleagues and meetings with clients? Would I be able to sit back and not be on top of the financial markets?  These were just a few of the thoughts running through my 67 year-old brain as I cleaned out my desk and office.

Notice that I did include the future of the company I helped build in my concerns.  Its success was a foregone conclusion, with second and third-generation owners already continuing the commitment to exceptional service established at the beginning. Multi-generations of clients shared our values of hard work, responsibility, kindness, and joy. It was not a drudge to come to work early in the morning with that kind of atmosphere. I knew PDS would thrive without me, as much as that caused my ego a bit of chagrin.

The first three months of retirement were taken up by a lot of travel, which allowed me to think about something besides being retired from my long career.  A river cruise in Portugal, visiting friends in Tucson, a visit with my brother in Florida, and a surprise trip for my wife to New York City in early December kept me occupied.  (An aside…if you haven’t been to NYC during the holiday season, it really is wonderful.) Then there was the cleaning out and redecorating of my home office – my goodness, I had accumulated stuff.  Add my continuing and growing work time as a musician, time with friends, and other projects, and I was indeed filling my time.

I had expected to work one or two days a week, perhaps at a local wine shop.  Fortunately I do not have to work (and I realize many retirees do not have this option).  I am still waiting for a part-time, day-time option.  In the meantime, I have been able to increase my volunteer work with a local food pantry, collecting meat donations from Kroger and delivering 200-400 pounds of meat to the pantry each week. And I remain on the board of trustees for the Columbus Symphony Orchestra.

My wife and I recently joined a health club no more than one minute from our home.  Run by one of the area’s largest healthcare corporations, it has marvelous facilities and more options than we can possibly explore.  Some former clients are also members. The annual cost is an investment in our health, somewhat neglected over the last few years.  I still have some weight to lose, but I am determined to live as long a life as I am able.

With spring finally coming after a very long, cold, and dreary winter here in Ohio, I am eager to be outside, preparing our gardens and yard for summer.  As some readers already know, my wife and I have a national display garden for the American Daylily Society, with thousands of blooms during peak visitor season in late June through early August.  That means lots of intense, almost-daily exercise – hauling heavy bags of mulch and compost, moving huge ceramic container pots, digging and dividing plants, mowing, trimming, stooping, kneeling, sweating – it is hard but very fulfilling work.

One confession is that I have spent very little time thus far on the MFO Discussion Board, and I have rarely looked at the value of my portfolio. I hope to contribute more to the Discussion Board, but I doubt I will increase the time spent watching my investments. My allocation has remained the same despite the ups and downs of the last seven months. I open my Schwab statements each month and find the value is almost unchanged since the end of 2017. I will rely on the investment team at PDS to notify me of any real concerns. In the meantime, I have found being disconnected from the daily thrashings of the financial world reduces my stress levels considerably. I still wonder why so many retirees who have investment portfolios spend so many anxious hours worrying, especially those individuals who do not need to take distributions. As I suggested for years, find an allocation that lets you sleep at night, and back away. So far, at least, I have been able to do that.

Perhaps the biggest change personally has been my sleep pattern. I used to get up around 5 AM and was in the office shortly after 6 each morning. I cannot tell you how much sleep I got the first few months of retirement. Retired friends told me I would find out how physically and mentally tired I really was, and they were right.

These musings are not meant to be a prescribed retirement life for others. Everyone brings different lifestyle decisions, financial security, personal health status, and time constraints into their retirement reality. This is simply how my life has evolved in recent months. No doubt there will be changes, probably some significant changes. When I decided on a retirement date last spring, it seemed a long ways off. But as most retirees have found, time does indeed seem to move faster the older we get. Fortunately, planning for my retirement (including writing about my thoughts, expectations, and plans) was a wise decision. It forced me to consider many aspects of retirement life. Financially, the biggest relief is not having a mortgage payment. This single-biggest expense for most people is not a factor for us, and I am really glad we made the decision to convert to a 15-year mortgage years ago. As I wrote in my blogs last year, the timing seemed right. It was.

There have been some surprising aspects of retirement, too, and I will comment on those in future articles. 

It’s going to get worse before it gets better

By David Snowball

Not the stock market. I have no earthly clue about what it’s going to do, when, or why. I mean the headlines.

On April 24, the Dow dropped by 425 points. That’s 1.7%, which isn’t large and isn’t saying “the market” dropped by 1.7%. The Dow is a narrow and quirky construct. The broader market is reflected in the performance of the Vanguard Total Stock Market Index Fund (VTSMX), which declined by 1.2%.

On whole, I would prefer that my portfolio not decline. It did decline that day, by 0.41%. In reaction to the drop, Chip and I had a nice dinner (she provided the wine, I roasted a chicken with some root vegetables) and read for a while.

People whose job it is to scare the bejeebers out of you, though, couldn’t take the evening off. Here’s a quick synopsis of stories that crossed my desk in the past 24 hours:

Here’s where the markets stand after Tuesday’s beating (TheStreet) – 1.2%. Not a “beating.” I would allow you “a kerfuffle.”

Can’t blame 3% yield for this stock rout (Bloomberg) – I wasn’t blamed anyone. And it wasn’t a “rout,” either.

Stocks try to rebound following Tuesday’s plunge (Fox News) – 1.2%. No, not a “plunge.” Keep your rhetorical powder dry, dude. I sat through a day in which the Dow dropped twenty-times that much; what are you going to use for descriptors in a real decline if you use up all your terror-words on market stumbles?

America’s confidence in the stock market is crumbling (CNN Money) – my confidence remains unshaken; I’m very confident that, over short periods, the stock market moves with the predictability and speed of an armed lunatic

Yet another ‘outside day’ in stocks is an ominous sign (MarketWatch)

and

Financial markets are at an inflection point (Seeking Alpha) – my general view is that this sort of thing is just marketing talk; “trust me, I see that shadow of the iron cordon is soon to pass over the shire.”

S&P 500’s last line of defense holds firm (Bloomberg) – “last line of defense”? It’s not a war, it’s attention-deficient traders passing slips of paper back and forth as fast as they can.

 ‘Just around the bend.’ This is when the stock market will crash according to 5 famous investors (Money) – David Stockman, who isn’t typically described as a ‘famous investor,’ thinks there’s “a doozy just around the corner.”

The Dow rose modestly on April 25 and 26 and, suddenly, all of these headlines disappeared, replaced by knowing talk about earnings that are (or aren’t) “baked in” to equity prices, a trillion dollars in buybacks and dividends, and the unbearable attractiveness of gold. (Ed Studzinksi reported, back in March, that wine has been a vastly better investment than gold. Charles raised a glass of an approachable and unprepossessing Central Coast vintage in affirmation.)

I don’t blame writers for writing, nor headline writers for writing headlines. It’s how they feed their families. That does not change the fact that it’s hysterical, misleading and driven by the simple need to make you look. (The absence of links to any of those articles is intentional.) Even in the best of times, financial journalists were derided as purveyors of financial pornography, writing salacious tales of the acts of prostitutes.

That world where the beautiful and wondrous act of romance and procreation is to reduced to one pitiful act. A sham ritual in which the customer’s appetite for lies is equaled by the prostitute’s willingness to tell those lies in whatever detail he is ready to pay for. The tones of lies are vulgar facts. But they are not noble sounds.

Stanley Crouch, “Premature Autopsies” from The Majesty of the Blues (1989)

This, sadly, is not the best of times.

What’s a body to do? Our suggestion is, protect yourself.

Protect yourself from the noise. If you use social media, remember to use it for socializing. It’s a great way to keep up with friends from high school; a wretched way to make sense of the worlds of politics and finance. If you don’t use social media, good but don’t get all self-righteous or people will mistake you for a Prius owner. Support good journalism. It’s out there. In print and online, The Wall Street Journal and the Financial Times are consistently first-rate and consistently sober. In audio, there are few better sources than Marketplace which works hard to make things sensible and not scary. Planet Money, from NPR, is solid and informative (Chip and I were just discussing their piece on “brushing,” a scam by which online sellers generate the illusion of good reviews) though less extensive. Both are available, free, as podcasts.

Unless you’re in the financial services industry, you don’t need a daily dose of noise. Keep informed, keep calm and keep centered on what actually brings you joy.

Protect yourself from the market.  More correctly, “protect yourself from your own reactions to the market.” At some point, perhaps sooner than later, the market is going to do something really horrifying. At some other point, perhaps sooner than later, the market is going to do something really horrifying and extended. It happens.

You’re got four options. Pick the one that works for you.

  1. Completely ignore it all. Period. Chuck Jaffe once shared the finding that the best-performing brokerage accounts are those that have been forgotten or belong to the dead. MFO noted that one of the best performing funds in history, Voya Corporate Leaders (LEXCX), is a ghost ship that has sailed without a manager or a change of portfolio since 1933. If you’re in your 30s or 40s, do ye likewise: set up a sensible investment portfolio, fund it automatically each month, and give it nary a thought.
  2. Do something simple. Simply put, hold a part of your portfolio in cash instead of in risk assets. While you can actively manage your portfolio (that is, fund a strategic cash alternative such as RPHYX or ZEOIX until the equity prices are amazingly cheap), most of us shouldn’t because (a) we’re amateurs and (b) it requires paying a lot of attention to the market. A better move is to entrust part of your portfolio to absolute value managers who will hold cash when stocks are expensive and move in when to stock when stocks are bloodied and everyone else is running away. Trust the folks at FPA, Intrepid, River Road or a fund like Centaur Total Return (TILDX) or Pinnacle Value (PVFIX). The upside of “simple” is that it’s a cheap and reliable strategy. The downside is that it is a pure beta strategy; it reduces volatility but does not add to short-term returns.
  3. Do something complicated. Find a good long-short, market-neutral or event-arbitrage manager to handle part of your portfolio. Most of the funds in these categories are overpriced, complicated messes. Still, there are some gems. We’re written about RiverPark Long-Short Opportunity (RLSFX), LS Opportunity (LSOFX), and AMG River Road Long-Short (ARLSX). We’ll soon write about Camelot Event-Arbitrage née Pennsylvania Avenue Event-Arbitrage and might soon profile 361 Global Long/Short Equity (AGAQX). The upside of “complicated” is that it adds alpha; that is, these guys are trying to drive returns up. The downside is that it tends to be expensive and, like equity, works in fits and starts.
  4. Wait until the moment comes, then panic and ruin both your finances and your health. It’s a surprisingly common strategy, though one that continues to mystify me.

Bottom line: the mere fact that it’s not the best of times does not mean you’re powerless. It means that circumstances seem to be conspiring against you. It happens. Fortunately, you’re strong. Stronger than you’ll admit. And we’re here. We’ll help.

Some people might ask, “What is this man doing talking about nobility? Doesn’t he know that this is a dragon-spawned and blood-encrusted century? Doesn’t he know that the dragon breath of our time is breathing down the neck of the year 2000? Doesn’t he know that this is the era of flash and cash?” … But I will answer them also by saying that nobility is always born somewhere out there in the world, and when you live in a democratic nation you have to face the mysterious fact that nobility has no permanent address, you have to face the fact that nobody has nobility’s private phone number. Nobility is not listed in the phone book. Nobility is not listed in the society column, nobility shows up where it feels like showing up, and where it feels like showing up might be just about anywhere. If it could rise like a mighty light from among the human livestock of the plantation, you know it can come from anywhere it wants to. You see, nobility is listed though. Yes, it is listed. Nobility lists itself in the human spirit, and its purpose is to enlist the ears of the listeners in the bittersweet song of spiritual concerns.

Stanley Crouch, “Premature Autopsies” from The Majesty of the Blues (1989)

Prospector Opportunity (POPFX), May 2018

By David Snowball

Objective and strategy

The Opportunity Fund seeks capital appreciation. They apply a value-oriented discipline to micro-, small- and mid-cap stocks in the US and other developed markets. In general, the managers look for companies with long, consistent, predictable track records of free cash flow yield generation and healthy organic growth. They identify undervalued securities by starting with balance sheet strength but they also consider qualitative factors (e.g., quality of the management) and the presence of a catalyst (e.g., sale of underperforming assets).

The Investment Manager believes that risk can be managed through a careful selection process that focuses on the relationship between the actual market price of a security and the intrinsic value of which the security represents an interest.

Adviser

Prospector Partners, which is headquartered in Guilford, CT, was founded in 1997 by John D. Gillespie. Prospector defines itself as a value investor with a distinctive emphasis on investing from a credit perspective. They manage institutional private funds and separate accounts, along with the Prospector funds. Prospector manages about $730 million of which $145 million is in the Prospector funds.

Managers

John D. Gillespie, Kevin O’Brien, and Jason Kish. Mr. Gillespie is one of Prospector Funds founders and its president. He has managed the fund since its inception. From 1986-1997, Mr. Gillespie was with T. Rowe Price where, among other things, he managed the Growth Stock Fund and New Age Media Fund (originally a closed-end fund that morphed into Media & Telecommunications, now called Communications & Technology Fund). He’s also serves on the Board of Trustees for Bates College, an alma mater. Mr. O’Brien has been a portfolio manager at Prospector since 2003 and has helped manage this fund since inception. Before joining Prospector he spent seven years with Neuberger Berman, rising from analyst to managing director, and several years with White Mountains Advisors. He earned the Chartered Financial Analyst designation in 1995. Mr. Kish joined the fund in 2013, but has been with the firm for 20 years. He’s a graduate of Providence College, received his Certified Public Accountant designation in 2000 and his Chartered Financial Analyst designation in 2004. The CFA designation is a significant predictor of manager performance. The team also manages Prospector Capital Appreciation (PCAFX) and is supported by four analysts.

Strategy capacity and closure

There’s no hard and fast number. The fund holds substantial positions in micro-, small- and mid-cap stocks; assets need to remain small enough that the fund can both benefit from a micro-cap stock and exit from the stock without disrupting markets. Under current (May 2018) conditions, Prospector estimates they could manage “a billion plus.” Since they’re “more interested in our reputation than in asset gathering,” they’ll close the strategy when conditions warrant.

Management’s stake in the fund

Messrs. Gillespie and O’Brien each have invested over $1 million in the fund, Mr. Kish has more than $300,000. In total Mr. Gillespie, owns 12.11% of the Capital Appreciation Fund.

Every member of the Board of Directors has invested in both Prospector funds. Despite receiving modest compensation, three of the four independent members report investments in the highest SEC reporting band: $100,000+. The four independent director has between $10,000 – 50,000 in each fund; given his age (78) and the funds’ equity exposure, that strikes us as a very substantial vote of confidence. While many people understand the importance of “skin in the game” by managers, fewer know that research gives Board ownership substantial weight; funds with high Board ownership tend to take fewer outsized risks and tend to produce steadier returns than other funds. Prospector’s level of ownership is in the industry’s top tier.

Opening date

September 28, 2007

Minimum investment

$10,000

Expense ratio

1.26%, after waivers, on assets of $219 million.

Comments

All funds lose sometime. I love funds that lose at the right time.

The table below shows the absolute and relative returns of Prospector Opportunity in each of the past 10 years. Here’s one reading: Opportunity has trailed its peers half of the time, which suggests that it’s merely average. But looking carefully at when it trailed them is much more important than simply noting that it trailed them.

  08 09 10 11 12 13 14 15 16 17
Absolute -19% 26 17 -0.2 15 27 7 1 21 10
Relative rank 2%ile 86 88 17 65 93 72 5 26 81

Look at the “bad” years first. So Prospector trailed more than 80% of its peers in four of the last ten years, and it returned an average of 20% in each of those years. Prospector beat more than 80% of its peers three times (2008, 2011 and 2015) and it returned an average of -6% in each of those years.

So the bad years were good, and the good years were bad? What’s up with that?

What’s up is that Prospector specializes in not losing its investors’ money. That means surrendering part of the gains that might make when the market is “frothy” in exchange for protecting the gain they did make when the market turns ugly. That occurs because, they note, “Prospector approaches value investing from a credit perspective.” That is, they look at many of the same factors that a bond investor might, starting with the balance sheet because it’s “harder [for management] to manipulate” than measures like “earnings” are. Rather than starting by asking “how much could we make if everything goes right,” they start with “how much could we lose if everything goes wrong?” That accounts for their more muted returns in frothy markets where, almost by definition, lots could go wrong.

Peter Perugini, Prospector’s CFO, argues that the key measure we need to look at is upside/downside capture. “It’s the old saying, rule #1 is ‘don’t lose money’ and rule #2 is ‘don’t forget rule #1.’ At Prospector, the plan is to string together a series of positive returns, sometimes modest, and at the same time doing our best to avoid large losses.”

Despite that caution, they are dedicated stock investors because stocks – carefully chosen – still outperform bonds in the long-run. Their 2017 Annual Report admits

In our estimation equity valuations remain at historically extended levels, in the tenth decile on trailing operating earnings. We feel we are in the later stages of a bull market, although nothing is certain. Equities look most reasonable when comparing earnings yield to Treasury and even corporate bond yields. In any case, the values inherent in your portfolio should attract acquirers and other investors over time. Meanwhile, we believe equities are a superior asset allocation alternative to bonds over the longer term.

That philosophy reflects an approach similar to T. Rowe Price’s, and the results for Prospector have been outstanding. MFO does not measure success in terms of returns, but only in terms of risk-adjusted returns. Because Prospector invests in stocks of all market caps, and stocks that are characterized as both “growth” and “value,” it gets classified as a mid-cap blend fund (Morningstar) or a mid-cap core fund (Lipper). While not all mid-cap core/blend funds have a go-anywhere portfolio, many such as Prospector do, which makes them particular apt core holdings.

Using the MFO Premium screener, we searched for the mid-cap core funds which have sustained the most attractive risk-return profile over the course of the entire market cycle (roughly October 2007 – now). Here are the top ten funds among the 86 mid-cap cores operating since October 2007. Here we’ve sorted it by Sharpe ratio, the most widely followed measure of risk-adjusted performance. Prospector is ranked #1 of 86 mid-cap core funds based on Sharpe ratio.

How do you read this table? The funds are dark blue are designated by MFO as “Great Owl” funds; they have delivered top quintile risk-adjusted returns, based on Martin Ratio, in its category for evaluation periods of 3, 5, 10, and 20 years, as applicable. The requirement to excel in every trailing period is our attempt to measure consistency as well as excellence.

Prospector has returned 8.9% annually, 1.8% greater than its average peer.

Prospector is ranked #1 out of 86 funds based on its minimum three-year rolling return; this metric asks, if you held a fund for 36 months, what’s the worst case for returns? In Prospector’s case, the worst 36 month period saw annualized returns of 2.9%. Some of its larger, more famous peers posted losses of 26.6% using the same measure. Only one other fund was in the black for a rolling three-year average; 84 of 86 funds in the group would have been underwater.

Prospector is ranked #1 funds based on its maximum drawdown; which measures the magnitude of a fund’s worst decline in the period.

Prospector is ranked #1 based on standard deviation.

Prospector is ranked #1 based on downside deviation, which looks at the volatility of a fund’s downward movements – which investors find important – whereas standard deviation penalizes a fund for both upward spikes and downward ones.

Prospector is ranked #1 based on bear market deviation, which looks at how a fund does in months with substantial stock market declines.

Prospector is ranked #1 based on Sortino ratio, a more-conservative variation of the Sharpe ratio.

Prospector is ranked #1 based on Martin ratio, our most-conservative risk-return metric.

Prospector is ranked #1 based on Ulcer Index, our most whimsically named metric, which factors together how far a fund drops and how long it stays down.

Even if we triple the number of funds in the comparison group by adding Lipper’s multi-cap core group, Prospector is ranked #1, 2 or 3 in virtually every measure of risk-adjusted performance: three-year rolling average, maximum drawdown, downside deviation, bear market deviation, Sharpe, Sortino and Martin ratios, and Ulcer Index.

Bottom Line

Prospector is #1. Will it ever be so? No, of course not. They trailed their peers in 2009-10 and again in 2012-14, and they’ll doubtless do so again. But they rewarded their investors handsomely in both of the “laggard” periods, while ferociously protecting them when (in 2008, for example) markets were at their worst. Prospector is not designed for eye-popping returns, and doesn’t deliver them. It’s designed to capture as much of the market’s upside as it reasonably can, without compromising its ability to preserve capital when things turn.  If you are concerned that such a turn lies in our future, you would be well-served to learn about Prospector now.

Fund website

Prospector Opportunity

Funds in Registration

By David Snowball

Proposed new funds and ETFs have to be submitted for review by the Securities and Exchange Commission, which has 75 days to raise any concerns. During those 75 days, the so-called “quiet period,” advisors are forbidden from discussing the fund in registration. Advisors hoping for a fund launch by New Years have their funds in registration by October; those seeking a mid-year launch get the papers filed in April. A lot of the filings were rushed and incomplete. That said, the BBH and Metropolitan West income funds are apt to be entirely reasonable additions; for income-seeking investors, they bear investigation.

AINN Fund 

AINN Fund will seek capital gains. In favorable markets, they’ll invest long in equity ETFs. In unfavorable markets, they’ll switch to cash and inverse ETFs. The fund will be managed by Kevin M. Carrasco and Mustan Sakarwala. The initial expense ratio will be 2.05%, and the minimum initial investment is $5,000 for retirement accounts and $25,000 for regular accounts.

ALPS/Smith Total Return Bond Fund

ALPS/Smith Total Return Bond Fund will seek maximum total return, consistent with preservation of capital. The plan is to invest in bonds, and potentially quite a wide array (corporate, convertible, asset-backed, government, zero-coupon) of them. Up to 35% of the portfolio might be in high-yield bonds. The fund will be managed by Gibson Smith. The initial expense ratio has not been disclosed, and the minimum initial investment is $2,500, reduced to $500 for tax-advantaged accounts.

Barings Global Emerging Markets Equity Fund

Barings Global Emerging Markets Equity Fund will seek long-term capital growth. The plan is to invest in emerging markets-like stocks; that is, stocks (or stock-linked derivatives) of companies domiciled in, carrying out business from or having “significant assets or interests in” one or more emerging markets. About the oddest proviso is the promise that the fund “invests at least 40% of its net assets in securities of non-U.S. issuers.” Ummm … emerging Cleveland, anyone? The fund will be managed by William Palmer and Michael Levy of Barings LLC. The team has managed a comparable product in Europe, the BIIL UCITS Fund, that has significantly trailed its benchmark over the past 10 years and since inception in 1992, has modestly trailed its benchmark over the past five years and has outperformed its benchmark for the past one year. The initial expense ratio for “A” shares will be 1.45%, and the minimum initial investment is $1,000.

BBH Income Fund 

BBH Income Fund will seek maximum total return, with an emphasis on current income, consistent with preservation of capital and prudent investment management. The plan is to invest in a well-diversified portfolio of fixed income instruments, including floating or variable rate debt instruments. The Fund intends to invest only in debt instruments which are performing, durable, and available at an attractive valuation. The fund will be managed by Andrew P. Hofer and Neil Hohmann. The separate account composite for the strategy has a 10-year return of 4.8% annually, against 4.0% for its benchmark index. The initial expense ratio has not been disclosed, and the minimum initial investment for “N” shares is $5,000.

Cargile Fund

Cargile Fund will seek long-term capital appreciation. The plan is to invest in equity and bond ETFs, including leveraged ETFs, using a mathematical trend-analyzing model that adjusts the portfolio daily. The fund will be managed by Mickey Cargile. The initial expense ratio will be 1.78%, and the minimum initial investment is $5,000.

ClearShares Ultra-Short Maturity ETF

ClearShares Ultra-Short Maturity ETF, an actively-managed ETF, will seek current income. The plan is to buy “epurchase agreements collateralized by U.S. government securities and, to a lesser extent, directly in individual fixed income instruments.” The fund will be managed by ark N. Hong, CFA (Managing Director), Jonathan M. Chesshire (Managing Director), Eric J. Blasberg and Kevin M. O’Connor of ClearShares LLC. Being an ETF, there is no minimum initial purchase requirement. The initial expense ratio will be 0.30%.

Eagle Rock Floating Rate Fund

Eagle Rock Floating Rate Fund will seek high a level of current income as is consistent with capital preservation. The plan is to invest in U.S. dollar denominated floating rate secured loans and other floating rate debt instruments. The prospectus helpfully notes that these are considered “speculative investments.” The fund will be managed by Tom Wojczak. The initial expense ratio will be 1.44%, and the minimum initial investment is $1,000.

Frontier MFG Low Carbon Global Fund 

Frontier MFG Low Carbon Global Fund will seek attractive risk-adjusted returns over the medium- to long-term within a low carbon framework, while reducing the risk of permanent capital loss. They’ll target 20-50 stocks with the prospect of a currency hedge. My greatest annoyance here is that this same fund existed as part of a different series trust, and was liquidated on April 28, 2018, only to be reborn on two months later. It looks like the predecessor fund (ticker MGYGX) never even launched. The fund will be managed by Domenico Giuliano. The initial expense ratio will be 0.95% for service class shares, and the minimum initial investment is $10,000.

Gabelli Pet Parent Fund

Gabelli Pet Parent Fund, an actively-managed ETF, will seek capital appreciation. And yes, literally, pets and their “parents.” The plan is to invest in “the pet industry.” Sorry, I refuse to say anything more about the strategy. The fund will be managed by Daniel M. Miller, Executive Vice President of Marketing for Gabelli and manager of the one-star Gabelli Focus Five Fund. The initial expense ratio will be 0.90%.

James Alpha Structured Credit Value Portfolio

James Alpha Structured Credit Value Portfolio will seek a high level of risk-adjusted current income and capital appreciation. The plan is to invest in structured credit securities such as CMBS, ABS, CMOs, CLOs, CBOs, CDOs, stripped RMBS and inverse floaters. Which is to say, I have no clue.The fund will be managed by Jay Menozzi and Boris Peresechensky. The initial expense has not been announced, and the minimum initial investment is $2,500.

Metropolitan West Corporate Bond Fund

Metropolitan West Corporate Bond Fund will seek to maximize long-term total return. The plan is to invest in a diversified portfolio of corporate debt instruments of varying maturities issued by U.S. and foreign corporations domiciled in developed market and emerging market countries, with the potential for some government debt, CDOs, asset-backed debt and other spices tossed in. The fund will be managed by Tad Rivelle, Bryan T. Whalen, and Jerry Cudzil . The initial expense ratio has not been disclosed, and the minimum initial investment for “M” shares is $5,000, reduced to $1,000 for tax-advantaged accounts.

Metropolitan West Investment Grade Credit Fund

Metropolitan West Investment Grade Credit Fund will seek to maximize long-term total return. The plan is to allocate investments across a range of fixed income sectors with a focus on investment-grade securities. “Satisfying the Fund’s objective,” they note, “would require it to achieve positive total returns over a full market cycle.” A note in passing: that’s a ridiculously low bar to be set for a really strong team. There are 139 investment grade debt funds that have been around for the current market cycle which began in October 2007. Every one of them has achieved “positive total returns” for that period. The fund will be managed by Tad Rivelle (famous guy), Laird Landmann, Stephen M. Kane and Bryan T. Whalen. The initial expense ratio has not been disclosed, and the minimum initial investment for “M” shares is $5,000, reduced to $1,000 for tax-advantaged accounts.

Metropolitan West Flexible Income Fund

Metropolitan West Flexible Income Fund will seek a high level of current income with a secondary objective of long-term capital appreciation. The plan is to a range of global investment opportunities related to credit, currencies and interest rates. The fund will be managed by Tad Rivelle (famous guy), Laird Landmann, Stephen M. Kane and Bryan T. Whalen. The initial expense ratio has not been disclosed, and the minimum initial investment for “M” shares is $5,000, reduced to $1,000 for tax-advantaged accounts.

Opus Small Cap Value Plus ETF

Opus Small Cap Value Plus, an actively-managed ETF, will seek capital appreciation. The plan is to construct a portfolio of 80-120 small- to mid-cap stocks with three characteristics: higher quality, higher growth firms whose stocks sell at lower valuations (measured by p/e and dividend yield). The expected turnover rate is 50%/year. The fund will be managed by Len Haussler and Adam Eagleston of Opus Capital Management. The duo run the same strategy in separate accounts, those have an annual return of 13.7% (compared to the Russell 2000 Value’s 9.8%) from 7/31/2013 – 12/31/2017. Being an ETF, there is no minimum initial purchase requirement. The initial expense ratio has not been disclosed.

Opus International Small/Mid Cap ETF

Opus International Small/Mid Cap, an actively-managed ETF, will seek capital appreciation. The plan is to construct a portfolio of 30-50 small- to mid-cap stocks with three characteristics: higher quality, higher growth firms whose stocks sell at lower valuations (measured by p/e and dividend yield). The expected turnover rate is 50%/year. The fund will be managed by Len Haussler and Adam Eagleston of Opus Capital Management. The duo run the same strategy in separate accounts, those have an annual return of 32.7% (compared to the MSCI ACWI ex-USA Small Cap Index’s 31.7%) from 12/31/2016 – 12/31/2017. Being an ETF, there is no minimum initial purchase requirement. The initial expense ratio has not been disclosed.

Pax Global Opportunities Fund

Pax Global Opportunities Fund will seek long term growth of capital by investing in companies benefiting from the transition to a more sustainable global economy. Nominally, it will be an all-cap portfolio. The fund will be managed by Kirsteen Morrison and David Winborne of Impax Asset Management. The initial expense ratio will be 1.23%, and the minimum initial investment is $1,000.

Pzena International Small Cap Value Fund 

Pzena International Small Cap Value Fund will seek long-term capital appreciation. The plan is to pursue “a classic value strategy” in pursuit of 40-90 international small cap (up to $8.3 billion) stocks. The fund will be managed by Matthew J. Ring and Allison Fisch. There’s a separate accounts composite with a record too short to be meaningful. The initial expense ratio will be 1.53%, and the minimum initial investment is $5,000, reduced to $1,000 for tax-advantaged accounts.

WisdomTree Global Multifactor Fund 

WisdomTree Global Multifactor Fund, an actively-managed ETF, will seek capital appreciation. The plan is to use a computer model to find global “securities that exhibit certain characteristics … indicative of positive future returns.” The fund will be managed by someone, but they’re not saying who. Being an ETF, there is no minimum initial purchase requirement. The initial expense ratio has not been disclosed.

WisdomTree International Multifactor Fund

WisdomTree Global Multifactor Fund, an actively-managed ETF, will seek capital appreciation. The plan is to use a computer model to find international “securities that exhibit certain characteristics … indicative of positive future returns.” The fund will be managed by someone, but they’re not saying who. Being an ETF, there is no minimum initial purchase requirement. The initial expense ratio has not been disclosed.

WisdomTree Emerging Markets Multifactor Fund

WisdomTree Emerging Markets Multifactor Fund, an actively-managed ETF, will seek capital appreciation. The plan is to use a computer model to find EM “securities that exhibit certain characteristics … indicative of positive future returns.” The fund will be managed by someone, but they’re not saying who. Being an ETF, there is no minimum initial purchase requirement. The initial expense ratio has not been disclosed.

Manager changes

By Chip

There are an exceptional number of manager changes this month, our partial recounting here finds 72 funds with changed teams. The tally is partial because we tend to exclude vanilla bond funds and index funds from the tally, since the managers in such funds make relatively modest differences in the funds’ performance.

Two departures seem worth note. Anthony Cragg is stepping down from Wells Fargo Asia Fund Fund (WFAAX) after a quarter century at the helm. He began with the fund in 1993 when it was still Strong Asia Pacific. Over the course of his career with the fund, he would have turned an initial $10,000 investment to $35,000 while an investment in his average peer would have grown to $27,500. It’s a difference worth noting. Ron Kaliebe will step aside from management of Mairs & Power Balanced (MAPOX) in a year. Mr. Kaliebe will have had a 13 year run which pales in comparison to his predecessor, William Frels, who kept his hand on the tiller for 22 years. It’s the nature of Mairs & Power that they make these transitions quietly and successfully. Morningstar rightly celebrates “the stability and veteran leadership of this fund’s management team.”

Ticker Fund Out with the old In with the new Dt
APGAX AB Large Cap Growth Fund Karen Sesin is no longer listed as a portfolio manager for the fund. Vinay Thapar joins Frank Caruso and John Fogarty in managing the fund. 5/18
CABDX AB Relative Value Fund No one, but . . . Vinay Thapar and John Fogarty join Fran Caruso on the management team. 5/18
CHUSX Alger Global Growth Fund Pedro Marcal and Deborah Velez Medencia are no longer listed as portfolio managers for the fund. Gregory Jones and Pragna Shere will now manage the fund. 5/18
AFGPX Alger International Growth Fund Class B Pedro Marcal is no longer listed as a portfolio manager for the fund. Gregory Jones and Pragna Shere will now manage the fund. 5/18
ALMMX AllianzGI Emerging Markets Small-Cap Fund Jie Wei will no longer serve as a portfolio manager for the fund. Kunal Ghosh and Lu Yu will continue to manage the fund. 5/18
ACTIX American Century Capital Value Brendan Healy will no longer serve as a portfolio manager for the fund. Philip Sundell joins Brian Woglom on the management team. 5/18
ALVIX American Century Large Company Value Brendan Healy will no longer serve as a portfolio manager for the fund. Phillip Davidson joins Brian Woglom on the management team. 5/18
MMCFX AMG Managers Emerging Opportunities Fund Effective immediately, Arthur Weise no longer serves as a portfolio manager for the portion of the fund managed by Lord, Abbett & Co. LLC F. Thomas O’Halloran and Matthew DeCicco are designated as portfolio managers for the portion of the fund managed by Lord Abbett. The rest of the management team remains. 5/18
MGSEX AMG Managers Special Equity Fund Effective immediately, Arthur Weise no longer serves as a portfolio manager for the portion of the fund managed by Lord, Abbett & Co. LLC Matthew DeCicco is designated as a portfolio manager for the portion of the fund managed by Lord Abbett. The rest of the management team remains. 5/18
ARDEX AMG River Road Dividend All Cap Value Fund No one, but . . . Andrew McIntosh joins Henry Sanders, James Shircliff, and Thomas Forsha on the management team. 5/18
ADVTX AMG River Road Dividend All Cap Value Fund II No one, but . . . Andrew McIntosh joins Henry Sanders, James Shircliff, and Thomas Forsha on the management team. 5/18
SYAMX AMG Systematic Mid Cap Value Fund No one, but . . . Aman Patel joins Ronald Mushock and D. Kevin McCreesh on the management team. 5/18
AZEIX AQR Emerging Defensive Style Fund Mr. Hoon Kim will no longer serve as a portfolio manager. Michele Aghassi, Andrea Frazzini, and Jacques Friedman will continue to manage the fund. 5/18
QERIX AQR Emerging Relaxed Constraint Equity Fund Mr. Hoon Kim will no longer serve as a portfolio manager. Michele Aghassi, Andrea Frazzini, and Jacques Friedman will continue to manage the fund. 5/18
ANDNX AQR International Defensive Style Fund Mr. Hoon Kim will no longer serve as a portfolio manager. Michele Aghassi, Andrea Frazzini, and Jacques Friedman will continue to manage the fund. 5/18
QIRNX AQR International Relaxed Constraint Equity Fund Mr. Hoon Kim will no longer serve as a portfolio manager. Michele Aghassi, Andrea Frazzini, and Jacques Friedman will continue to manage the fund. 5/18
AUEIX AQR Large Cap Defensive Style Fund Mr. Hoon Kim will no longer serve as a portfolio manager. Michele Aghassi, Andrea Frazzini, and Jacques Friedman will continue to manage the fund. 5/18
QLRIX AQR Large Cap Relaxed Constraint Equity Fund Mr. Hoon Kim will no longer serve as a portfolio manager. Michele Aghassi, Andrea Frazzini, and Jacques Friedman will continue to manage the fund. 5/18
QLENX AQR Long-Short Equity Fund Mr. Hoon Kim will no longer serve as a portfolio manager. Michele Aghassi, Andrea Frazzini, and Jacques Friedman will continue to manage the fund. 5/18
QSRIX AQR Small Cap Relaxed Constraint Equity Fund Mr. Hoon Kim will no longer serve as a portfolio manager. Michele Aghassi, Andrea Frazzini, and Jacques Friedman will continue to manage the fund. 5/18
BXEAX Barings Emerging Markets Debt Blended Total Return Fund Novruz Bashirov will no longer serve as a portfolio manager for the fund. Ricardo Adrogué, Cem Karacadag, and Brigitte Posch will continue to manage the fund. 5/18
BICHX BlackRock Emerging Markets Dividend Fund Alethea Leung is no longer listed as a portfolio manager for the fund. Stephen Andrews and Emily Fletcher will continue to manage the fund. 5/18
MFOMX BNY Mellon Focused Equity Opportunities Fund Irene O’Neill is no longer listed as a portfolio manager for the fund. Thomas Lee and Donald Sauber will now manage the fund. 5/18
ETDFX Carillon Cougar Tactical Allocation Fund No one, but . . . Abdullah Sheikh joins James Breech in managing the fund. 5/18
CRCBX Carillon Reams Core Bond Fund No one, but . . . Jason Hoyer joins Clark Holland, Stephen Vincent, Todd Thompson, Thomas Fink, and Mark Egan on the management team. 5/18
SCPDX Carillon Reams Core Plus Bond Fund No one, but . . . Jason Hoyer joins Clark Holland, Stephen Vincent, Todd Thompson, Thomas Fink, and Mark Egan on the management team. 5/18
SUBDX Carillon Reams Unconstrained Bond Fund No one, but . . . Jason Hoyer joins Clark Holland, Stephen Vincent, Todd Thompson, Thomas Fink, and Mark Egan on the management team. 5/18
CADYX Cavalier Dynamic Growth Fund Justin Lent will no longer serve as a portfolio manager for the fund and StratFi, LLC will no longer sub-advise the fund. Scott Wetherington will continue to manage the fund. 5/18
CAHIX Cavalier Hedged High Income Fund Gavan Duemke and Sean Wright will no longer serve as portfolio managers for the fund. Carden Capital, LLC will no longer subadvise the fund. Sott Wetherinton will continue to manage the fund. 5/18
CMSYX Cavalier Multi Strategy Fund, formerly Cavalier Multi Strategist Fund Gavan Duemke, Sean Wright, and Henry Ma will no longer serve as portfolio managers for the fund. Carden Capital, LLC and Julex Capital Management, LLC will no longer subadvise the fund. Scott Wetherington, Lee Albert Calfo, and Brian Shevland will continue to manage the fund. 5/18
RIMOX City National Rochdale Fixed Income Opportunities Fund No one, but . . . Matthew Peron joins the management team. 5/18
CRMEX CRM All Cap Value Fund Jeffrey Reich will no longer serve as a portfolio manager for the fund. Robert Maina and Jay Abramson will continue to manage the fund. 5/18
CRMSX CRM Small Cap Value Fund No one, but . . . Bernard Frojmovich joins Brian Harvey in managing the fund. 5/18
SGSCX Deutsche Global Small Cap Fund Joseph Axtell will no longer serve as a portfolio manager for the fund. Peter Barsa now manages the fund. 5/18
DNLDX Dreyfus Active MidCap Fund Ronald Gala will no longer serve as a portfolio manager for the fund. C. Wesley Boggs, William Cazalet, Peter Goslin, and Syen Zamil will continue to manage the fund. 5/18
DBEAX Dreyfus Diversified Emerging Markets Fund Ronald Gala will no longer serve as a portfolio manager for the fund. Michelle Chan, C. Wesley Boggs, William Cazalet, Julianne McHugh, Peter Goslin, Elizabeth Slover, and Syen Zamil will continue to manage the fund. 5/18
DQIAX Dreyfus Equity Income Fund Ronald Gala will no longer serve as a portfolio manager for the fund. C. Wesley Boggs, William Cazalet, Peter Goslin, and Syen Zamil will continue to manage the fund. 5/18
DOFAX Dreyfus Strategic Beta Emerging Markets Equity Fund Ronald Gala will no longer serve as a portfolio manager for the fund. C. Wesley Boggs, William Cazalet, Peter Goslin, and Syen Zamil will continue to manage the fund. 5/18
DPSAX Dreyfus Structured Midcap Fund Ronald Gala will no longer serve as a portfolio manager for the fund. C. Wesley Boggs, William Cazalet, Peter Goslin, and Syen Zamil will continue to manage the fund. 5/18
Various Fidelity Advisor Asset Manager Funds and Fidelity Asset Manager Funds No one, but . . . Avishek Hazrachoudhury has joined Geoff Stein in managing the funds. 5/18
FMFIX Free Market Fixed Income Fund Kenneth Gatliff is no longer listed as a portfolio manager for the fund. Sean Babin joins Mark Matson and Steven Miller in managing the funds. 5/18
FMNEX Free Market International Equity Fund Kenneth Gatliff is no longer listed as a portfolio manager for the fund. Sean Babin joins Mark Matson and Steven Miller in managing the funds. 5/18
FMUEX Free Market U.S. Equity Fund Kenneth Gatliff is no longer listed as a portfolio manager for the fund. Sean Babin joins Mark Matson and Steven Miller in managing the funds. 5/18
SFAFX Goldman Sachs Strategic Factor Allocation Fund Amna Qaiser will no longer serve as a portfolio manager for the fund. Christian Morgenstern and Nishank Modi will continue to manage the fund. 5/18
MXIGX Great-West MFS International Growth Fund Filipe Benzinho and Daniel Ling are no longer listed as portfolio managers for the fund. Shane Duffy, Donald Huber, Thomas Murray, and John Remmert will now manage the fund. 5/18
SGBVX Hartford Schroders Global Strategic Bond Fund Thomas Sartain will no longer serve as a portfolio manager for the fund. Robert Jolly and Paul Grainger will continue to manage the fund. 5/18
IQHOX IQ Hedge Multi-Strategy Plus Fund Effective April 30, 2018, Paul Fusaro will no longer serve as a portfolio manager for the fund. James Harrison will join Greg Barrato on the management team. 5/18
IBNAX Ivy Balanced Fund Rick Perry is no longer listed as a portfolio manager for the fund. Susan Regan and Mark Beischel join Matthew Hekman on the management team. 5/18
IBJAX Ivy Bond Fund Rick Perry is no longer listed as a portfolio manager for the fund. Susan Regan joins Mark Beischel in managing the fund. 5/18
ICKAX Ivy Crossover Credit Fund Rick Perry is no longer listed as a portfolio manager for the fund. Susan Regan joins Mark Beischel in managing the fund. 5/18
IVFGC Ivy Focused Growth NextShares Daniel Becker is no longer listed as a portfolio manager for the fund. Bradely Kapmeyer will continue to manage the fund. 5/18
IGJAX Ivy Government Securities Fund Rick Perry is no longer listed as a portfolio manager for the fund. Susan Regan is joined by Mark Beischel in managing the fund. 5/18
WLGAX Ivy Large Cap Growth Fund Daniel Becker is no longer listed as a portfolio manager for the fund. Bradely Kapmeyer will continue to manage the fund. 5/18
JTCAX John Hancock Technical Opportunities Fund Effective June 29, 2018, Frank Teixeira will no longer serve as a portfolio manager for the fund. David Lundgren will continue to manage the fund. 5/18
MAWNX MainStay Epoch U.S. All Cap Fund No one, but . . . Justin Howell joins David Pearl, William Priest and Michael Welhoelter on the management team. 5/18
MAPOX Mairs & Power Balanced Fund Ronald Kaliebe will retire at the end of June, 2019. As part of a succession plan, Kevin Early has been named lead portfolio manager and Robert Thompson has joined the team, in advance of Mssr. Kaliebe’s departure. 5/18
MGFAX MassMutual Premier Global Fund Rajeev Bhaman has announced his intention to retire as of March 31, 2019. There’s nearly a year to plan. John Delano will continue to manage the fund. 5/18
MEFAX MassMutual Select Mid Cap Growth Fund Stephen Knightly is expected to retire as of December 31, 2019. Brian Berguis and Christopher Scarpa will continue to manage the fund. 5/18
OHYDX Oaktree High Yield Bond Fund James Turner will no longer serve as a portfolio manager for the fund. Madelaine Jones joins Sheldon Stone and David Rosenberg in managing the fund. 5/18
OPPAX Oppenheimer Global Fund Rajeev Bhaman has announced his intention to retire as of March 31, 2019. John Delano will continue to manage the fund. 5/18
PMDEX PMC Diversified Equity Fund Effective May 25, 2018, Mark Donovan, David Pyle, Francis Morris, Michael Morris, Christopher Adams, Donald Padilla, David Reidinger, Ronald Gala, William Cazalet, Michael Kaminski, William Booth, Glen Petraglia, Lilian Quah, and William Priest will no longer serve as a portfolio managers for the fund. The fund will eliminate its “manager of managers” investment strategy and terminate agreements with it’s subadvisors. Janis Zvingelis and Brandon Thomas will continue to manage the fund. 5/18
PQCMX Prudential Commodity Strategies Fund Adam De Chiara is no longer listed as a portfolio manager for the fund. Marco Aiolfi and Yesim Tokat-Acikel will now manage the fund. 5/18
HGSAX Rational Risk Managed Emerging Markets Fund Edward Baker, Mathias Wikberg and Walid Khalfallah will no longer serve as a portfolio managers for the fund. The Cambridge Strategy Limited will no longer subadvise the fund. Barrow, Hanley, Mewhinney & Strauss, LLC will now subadvise the funds, with Rondolph Wrighton, Jr., Josh Ayers and Sherry Zang on the management team. 5/18
FSIEX Touchstone International Value Fund David Hodges is no longer listed as a portfolio manager for the fund. T.J. Carter and Charles Radtke join Randolph Wrighton in managing the fund. 5/18
BNAAX UBS Dynamic Alpha Fund Nathan Shetty will no longer serve as a portfolio manager for the fund. Alan Zlater joins José Ignacio Andrés on the management team. 5/18
UTBAX UBS Total Return Bond Fund No one, but . . . Jeffrey Haleen and Branimir Petranovic will join Scott Dolan and Craig Ellinger on the management team. 5/18
PWTAX UBS U.S. Allocation Fund Nathan Shetty will no longer serve as a portfolio manager for the fund. Alan Zlater joins Paul Lang on the management team. 5/18
UNAVX USA Mutuals Navigator Fund No one, but . . . Jordan Waldrep joins Steven Goldman in managing the fund. 5/18
IEOSX Voya Large-Cap Growth Fund Christopher Corapi will no longer serve as a portfolio manager for the fund. Jeffrey Bianchi and Michael Pytosh will continue to manage the fund. 5/18
WFAAX Wells Fargo Asia Pacific Fund Anthony Cragg will retire on September 1, 2018, but will step down from the fund after June 15th. Elaine Tse joins Alison Shimada in managing the fund. 5/18
EMGAX Wells Fargo Emerging Markets Equity Income Fund Anthony Cragg will retire on September 1, 2018, but will step down from the fund after June 15th. Elaine Tse joins Alison Shimada in managing the fund. 5/18
WFSAX Wells Fargo Small Company Growth Fund James Ross will take a leave of absence. William Grierson, Daniel Hagen, and Paul von Kuster will continue to manage the fund. 5/18