The Securities and Exchange Commission, by law, gets between 60 and 75 days to review proposed new funds before they can be offered for sale to the public. Each month, Funds in Registration gives you a peek into the new product pipeline. Most funds currently in registration will become available by mid-October.
Eighteen new funds, available just in time for Halloween! Spoooky!
Most of the buzz surrounds the new line of Avantis active ETFs. Avantis is the product of a collaboration between American Century Investments and long-time Dimensional Fund Advisor (DFA) managers. DFA probably invented the notion of factor-tilted or enhanced indexes. The DFA funds are designed to exploit the minor inefficiencies in mostly efficient markets, and they’re not easy to get into. They’re only sold through advisors and, in particular, through advisors vetted and trained by DFA to use “the system” properly. Investment News describes them this way:
The theme across all the funds, which Mr. Repetto [Eduardo, Avantis CIO] described as “passive-active,” is that they apply quantitative analysis to identify specific value opportunities inside broad market indexes. From there, the strategy weighs the benefit of any potential trade against the cost of making that trade.
“We’re not tracking an index; every day we make investment decisions,” Mr. Repetto said. “Keeping turnover low by comparing the benefits of the trade to the cost of the trade is absolute common sense.”
Positives, beyond that, are that there’s an active-ETF version of Leuthold’s very solid Leuthold Core Investment Fund (LCORX), a new Vanguard core international fund with two accomplished Wellington Capital Management managers, an international SMid-cap fund from the managers of a five-star international small cap fund and an interesting conversion of a hedge fund that outperformed its benchmark by 5:1 over a decade.
On the downside, there’s one fund with a curious cluelessness about it, several with prospectuses that sort of babble and a couple where there’s just too little information to have any sense of their quality.
Avantis Emerging Markets Equity ETF
Avantis Emerging Markets Equity ETF (AVEM), an active ETF, will seek long term capital appreciation. The plan is to assemble an all-cap portfolio of emerging markets stocks with “higher returns relative to other securities” buy pursuing incorporating small cap and valuation tilts into the portfolio. “When buying or selling a security, the portfolio managers may consider the trade-off between expected returns of the security and implementation or tax costs of the trade in an attempt to gain trading efficiencies, avoid unnecessary risk, and enhance fund performance.” Neither the managers nor the expense ratio is given in the current version of the prospectus. The other Avantis ETFs, with parallel disciplines and similar holes in the prospectus are:
- S. Equity ETF
- S. Small Cap Value ETF
- International Equity ETF
- International Small Cap Value ETF
They will also be available at institutional mutual funds with $3-5 million minimums.
Calvert Emerging Markets Advancement Fund
Calvert Emerging Markets Advancement Fund will seek total return. The plan is poorly articulated, frankly. Step One is to find countries whose policies are increasingly pro-corporate. Step Two is to select securities. “Security selection within each country will be based on the constituents of the [Calvert EM] Index. The Fund generally intends to hold Index constituents, located in countries selected for investment, in scale to match the proportional security weight of such constituent within the Index.” Not clear how that’s not just an index-lite, but okay. The index excludes certain bad attributes (e.g., being in Burma) and will “exclude companies that exhibit high ESG risk due to severe ESG controversies.” Finally, they promise to engage with corporations and government officials to encourage goodness. The fund will be managed by Marshall Stocker, Ph.D., Jade Huang, and Christopher Madden. Its opening expense ratio is 1.20% of “A” shares, and the minimum initial investment will be $1000.
Clifford Capital Focused Small Cap Value Fund
Clifford Capital Focused Small Cap Value Fund will seek long-term capital appreciation. The plan is to build a portfolio of 25-35 stocks, split between “core value” and “deep value” sleeves. The fund will be managed by Ryan P. Batchelor. Mr. Batchelor founded the advisor, served as an equity analyst at Wells Capital Management, and as an equity strategist and analyst with Morningstar. Its opening expense ratio is [XXX], really, and the minimum initial investment will be $2,500.
Cornerstone Capital Access Impact Fund
Cornerstone Capital Access Impact Fund will seek long-term capital appreciation. The plan is to hire a bunch of outside managers, each with their own successful take on ESG investing. They are, as yet, unnamed. The fund will be managed by Jennifer Leonard and Erika Karp who, presumably, will select and oversee the subadvisors. Its opening expense ratio is 1.35%, and the minimum initial investment will be $1,000.
Fidelity International Bond Index Fund
Fidelity International Bond Index Fund will seek high level of current income. The plan is to sample and/or leverage and/or hedge components of the Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Diversified Index (USD Hedged). It seems curiously active for an index fund. The fund will be managed by a Fidelity team. Its opening expense ratio is 0.13%, and there is no minimum initial investment. It’s a Fidelity marketing thing.
Hussman Strategic Allocation Fund
Hussman Strategic Allocation Fund (HSAFX) will seek total return through a combination of income and capital appreciation. The plan is to invest in just the right mix of stocks, bonds and cash. The fund will be managed by John P. Hussman. Dr. Hussman is a wonderfully sensible sounding guy who probably doesn’t need to be opening another fund; his firm has lost three-quarters of its assets this decade, his funds have one- and two-star ratings, and his flagship Strategic Growth Fund has lost an average of 7.4% annually for the decade. On whole, we’d be far more enthused about getting the existing funds right than adding new ones. Its opening expense ratio is 1.27%, and the minimum initial investment will be $1,000.
Innovator PTAM Core Bond ETF
Innovator PTAM Core Bond ETF, an actively managed ETF, seeks to maximize total return through income and capital appreciation. The plan is to buy asset-backed and mortgage-backed securities, including sub-prime and Alt-A, or “near sub-prime” loans. The fund will be managed by G. Michael Plaiss and Anthony J. Harris of PT Asset Management. Its opening expense ratio is 0. __%. (I shrug.)
Innovator PTAM MBS ETF
Innovator PTAM MBS ETF, an actively managed ETF, seeks maximize total return through income and capital appreciation. The plan is to invest in mortgage-backed securities, including sub-prime and Alt-A, or “near sub-prime” loans. The fund will be managed by G. Michael Plaiss and Anthony J. Harris of PT Asset Management. Its opening expense ratio is 0. __%.
Leuthold Core ETF
Leuthold Core ETF, an actively managed ETF, seeks capital appreciation and income (or “total return”). It will be an ETF-of-ETFs, active and passive, which collectively serve to implement Leuthold’s asset allocation. Equity exposure will range between 30-70% and might include domestic, developed international, emerging and frontier exposure. The fund will be managed by Douglas R. Ramsey, Scott D. Opsal, and Chun Wang. Ramsey and Wang also serve on the management team for their flagship Leuthold Core Investment Fund. Its opening expense ratio is 0.98% which is noticeably less than its sibling.
Rational Special Situations Income Fund
Rational Special Situations Income Fund will seek total return consisting of capital appreciation and income. This is a converted hedge fund, ESM Fund I, L.P., which made about 16% a year for the past decade. The plan is to build a portfolio around agency and non-agency residential and commercial mortgage-backed securities, with a focus on non-agency residential mortgage-backed securities. The fund will be managed by Eric S. Meyer and William R. Van de Water who ran the hedge fund. Its opening expense ratio is 2.00% , and the minimum initial investment will be $1,000.
Smart Transportation ETF
Smart Transportation ETF (MOTO), an actively managed ETF, seeks long-term capital appreciation. The plan is to create an equity portfolio focused on domestic or foreign companies that are involved in the development and production of products or services for smart transportation products and systems, including autonomous and/or electric vehicles and smart transportation networks. The fund will be managed by Will Riley and Jonathan Waghorn of Penserra Capital Management. Its opening expense ratio is 0.68%.
Vanguard International Core Stock Fund
Vanguard International Core Stock Fund will seek long-term capital appreciation. The plan is to buy “stocks of companies located outside the United States that its advisor believes offer a good balance between reasonable valuations and attractive growth prospects relative to their peers,” including those in emerging markets. The fund will be managed by Kenneth Abrams, a member of Augustana’s Board of Trustees and former manager of Vanguard Explorer, and Halsey Morris. Both are employees of Wellington Management. Its opening expense ratio is 0.45%, and the minimum initial investment will be $3,000.
Virtus KAR International Small-Mid Cap Fund
Virtus KAR International Small-Mid Cap Fund will seek capital appreciation. The plan is to buy international small- to mid-cap stocks. Really, that’s about all they’ll commit to. There is rather a lot of text about determining what “domicile” means. The fund will be managed by Hyung Kim and Craig Thrasher. The team also runs the five-star, Bronze-rated Virtus KAR International Small Cap Fund which is lauded for “a sensible, high-conviction approach that has led to strong returns.” Its opening expense ratio has not been disclosed, and the minimum initial investment will be $2,500.
Zacks Long/Short Equity ETF
Zacks Long/Short Equity ETF, an actively managed ETF, seeks long-term total return. The plan is to use the Zacks ratings system to create a portfolio that ranges from 50-100% long, with the long book focusing on “buy” and “strong buy” stocks. The fund will be managed by Mitch Zacks and Atanu Ghosh. The long-only Zacks equity funds have been quite solid, though the only hedged offering – Zacks Market Neutral – has returned -0.03% annually over a decade. Its opening expense ratio has not been disclosed.
