Monthly Archives: September 2019

September 1, 2019

By David Snowball

Dear friends,

Egad! The fall semester has begun and my campus is swarming with students! Worst of all, they expect me to have something sensible to say at 8:30 Tuesday morning. I’m doomed!

Snowball elsewhere

For those of you thinking, “yes, that’s all well and good, but what does Snowball sound like? Does he have an annoying twang in real-life like he does when I hear him in my head? I’m sure he’s got a guilty-looking nervous tic,” we’ve got the answer. Augustana, innocently and perhaps foolishly, thought it would be good marketing for prospective students, donors and other interested parties to hear directly from some us, speaking in our area of specialty. In August 2019, the college debuted a “Little Lesson on Propaganda.”

In this six minute video, the edited version of an hour-long question-and-answer session, I talk about the nature of propaganda and what it takes to make it effective. Spoiler: make sure it’s not “propaganda” and make sure that we hear it from the people we most trust.

For those more than satisfied with the pure audio version of me, we’re sharing a bit on the August 16 MoneyLife with Chuck Jaffe show. I appeared on the “Market Call” feature, in which Chuck asked roughly three questions: what do you look for in a good fund (filling an unmet need, risk aware, clearly explained strategy, experienced manager, high insider commitment), what would be an example of a fund that meets your criteria (T. Rowe Price Global Allocation RPGAX) and what do you think of the following five funds from our listeners (your results may vary)?

If you want to listen, click the link above and move the slider bar over to the 30 minute mark. That’s me.

Three better uses of your time while you’re on Chuck’s site. (1) Listen to Tadas Viskanta, who’s the star in the segment just before mine. (2) Skip ten days ahead to Andrew Foster, “Emerging markets are cheap, but growth there is slowing,” August 26, 2019. Andrew is on the short list of “smartest, most thoughtful guys I’ve ever met.” (3) Grab the picture of Chuck on his homepage and try our new “Caption Chuck” contest.

My entry: “I found the Popsicle!”

In one of those moments of pure happiness, I found our discussion of the Invenomic Fund (BIVIX) quoted in “Mining the Short Side,” Financial Advisor, Sept. 1 2019 on Invenomic Fund. The author was Marla Brill. For those of you who weren’t members of the online investing community in the 1990s, Marla was the driving force behind Brill’s Mutual Funds Interactive or MFI. It was a site on par with the early iteration of Morningstar, widely admired, widely cited and the home of the discussion board from which ours sprang.

I had my introduction to fund investing on that board and, eventually, had the pleasure of moderating it.

It’s good to see you still making a difference, Marla!

Finally, folks planning on being in Orlando in late October (raises hand) should track me down at the AAII Conference. I expect to be around for the whole conference (never been, just interested in meeting folks and looking around) and will be speaking on its last day, The Indolent Investor, October 27, 2019. The organizers tried to be positive (“the last spot is great! It means they’ll leave the conference thinking about what you’ve said!”) but as someone whose presented at a lot of Sunday morning sessions at professional conferences, I’m thinking “big empty room and lots of opportunities to meditate.” We’ll see. And, I’m hopeful, we’ll see you!

Thanks go to …

This month, we’re extending thanks to those who’ve contributed in July or August. A hearty thank you goes out to John from Chicago, Mitch in California, Jenny Lou, Gary in Stockton, and the Kasper family. Greetings to Wilson: thanks for the kind words, we’ll try to stay fresh and contrary for you as long as we can! Many thanks also to Clay in Bellaire, S & F Investment Advisors, and our good friends Nick and Debbi. We really appreciate your continued help with keeping the lights on and the servers serving!

As always, we’re ever so grateful to our stalwart subscribers, Greg, Bill, William, Sunil, Brian, Sheshadri, and David, we couldn’t do it without your steady support.

If you would like to support the work of the Observer, you can make a tax-deductible contribution by clicking on the PayPal link over there -> -> ->

If you’re old school, feel free to send a check (or a nice cake) directly to MFO, 5456 Marquette St., Davenport IA 52806.

If you would like to make a contribution of $100 or more, which entitles you to a year’s access to all of the tools, screeners and data at MFO Premium, do not click on the link. Instead, go to MFOPremium login to set up an account and make a contribution. We recommend that because it’s quick, seamless and automated if you start at MFOPremium. (Starting here works, it just takes a couple extra days because it’s done by hand in the evenings after we get home from work.)

In the month ahead: an Elevator Talk with the folks at Harbor International Small Cap, a chance to catch up with Ali Motamed of Invenomic Fund about life after Balter, profiles of Crawford Dividend Opportunity, Castle Focus, FPA Crescent and more!

Stay tuned and don’t let the crazies get you!

Beginning of the End or End of the Beginning?

By Edward A. Studzinski

“Men become civilized, not in proportion to their willingness to believe, but in proportion to their readiness to doubt.”

H.L. Mencken, “What I Believe,” The Forum 84 (September 1930), p. 136

Is it different this time? We have made it to the end of August. Many investors have endured roller coaster rides in their portfolios. The year-to-date return for the S&P 500 Index, according to Bloomberg, is 16.74% through the end of August. The total return for the Vanguard Admiral Shares – S&P 500, charging just 4 basis points, is 18.33%. Many active-managed funds have not done nearly as well.

Why would that be the case? Some of it is a function of fund flows, with investors making withdrawals at the moments of the worst market declines. They lock in a permanent capital loss and force the fund manager to liquidate investments at a time he or she did not want to. This would beg the question as to whether the manager sold shares proportionately across the entire portfolio, sold the most liquid shares at the time they needed to raise additional cash, or tried to sell shares of what they thought were their most over-valued investments and the next ones that they were planning to sell anyway.

The necessity for selling portfolio investments should be obviated in most cases by arranging for bank lines of credit that a fund or group of funds could draw on when liquidity issues in the market arise. In other words, the entire market freezes for a time. Many fund managers, having had to deal with that unpleasantness in 2000-2001 and 2008-2009, thought they could alleviate the problem by putting into place rules regarding the size of portfolio positions, across either a fund or a group of funds. These tied portfolio position size to the average number of days trading volume to exit a position. Those rules probably don’t mean much at this juncture, when so many fund managers own the same dozen or so securities, the new “Nifty Fifty.” Even with mega-capitalization equities, if everyone is trying to go through the door at the same time, there will either not be enough bids or, a huge bid-ask spread.

Which brings us to the question of bank lines of credit. There are uncommitted lines of credit and committed lines of credit. So as not to have your eyes blur over, the uncommitted bank line of credit is basically exactly what it sounds like – funds may be available, if you need them, blah, blah, blah. My argument with that was always a concern that a Fidelity or a Vanguard would be higher up the prioritization list of borrowers from the financial institution any of a thousand smaller firms would be. Fidelity wouldn’t need to worry about being denied access, but an admirable firm based in the Midwest with $10 billion in assets might hear a different answer. With a committed line of credit you are paying commitment fees upfront to the financial institution and they are contractually obligated to come up with the funds when you want them. Of course, commitment fees eat into fund profits. A balancing act comes into play, much like catastrophe reinsurers basing pricing on their models that say that there will be only one Category Five Storm that sweeps through Florida and Georgia this year, rather than three or four. As with so many things in the financial services world, the planning assumptions do not run from the worst-case to best-case basis. No, usually it is a good-better-best case basis.

We now have different variables coming into play. Some ten years ago, algorithms and computer trading represented 10% or less of market volume for equities. That has increased considerably, perhaps to as much as 50% of trading volume. Now we have exchange traded funds, which are tied to passive investing. They in theory offer liquidity when the market is open. There must be real-time pricing and an ongoing ability to buy or sell equities that make up the underlying benchmark index. As often seen, a tweet can move a market positively or negatively by hundreds of points almost instantaneously. The added volatility and trading volume may compound the potential liquidity issues. What is important is that the exchange traded funds are fully transparent in that the securities in them are known and tracked, so pricing can be supported by an audit trail.

I close this section by throwing one further thing into the mix. It is our understanding at MFO that some active-management mutual funds are exploring converting those funds into exchange traded funds. They would NOT be transparent although the portfolios would be tracked by a group of non-disclosed market participants who would be the audit trail and support for that exchange traded vehicle’s pricing. Why would a fund company want to make that conversion? To be able to meet the competition. If you are an active-managed fund with a high expense ratio, the thought is that a conversion would allow for 55 – 60 basis points in expenses to be taken out and the taint of the designation “mutual fund” would be set aside. Performance would again be the major determinant of attractiveness to investors.

It will be interesting to see what comes out of this move to fund conversion to exchange-traded vehicle.

In the interim I would expect to see a continued increase in passive assets under management, followed by an increase also in quasi-passive investments such as those run by a group like Dimensional Fund Advisors. Traditional active managers, those charging 100 to 150 basis points in expense ratios for their funds will continue to be under intense pressure to cut fees, especially as they suffer from lagging performance over not just short-term but increasingly longer-term time periods.

All Sociopaths, All the Time

Andrew Ross Sorkin wrote an interesting piece in the Business Section of The New York Times for Monday, July 29, 2019. It was about a retired corporate attorney, Jamie Gamble, who concluded in retirement that corporate executives, including the ones who used to hire him and his firm, “are legally obligated to act like sociopaths.” Mr. Gamble’s argument centers around a corporation’s obligation to focus on itself (preservation) and defining increased profitability as the prime directive; that is, the maximization of shareholder value. I encourage you to read the article, Ex-Corporate Lawyer’s Idea: Rein In ‘Sociopaths’ in the Boardroom. It raises a debate that many of us in the investing world used to have to contend with, especially in terms of what was the maximization of shareholder value, over what time period, and what actions of management would be subsumed or acceptable in the “business judgment” rule to pass muster. Where many of us saw abuses was in what would be done to meet profitability targets (and coincidentally trigger stock option grants to management, transferring an increasing percentage of ownership of the corporation at bargain prices).

The article does raise governance issues that should be discussed and perhaps addressed. This issue has already caught the attention of 200 A-tier CEOs (from Amazon to Raytheon) who are members of The Business Roundtable. At about the time of Mr. Gamble’s observation, the Roundtable issued a joint statement declaring that it “modernizing its principles on the role of a corporation” to recognize that the long-term interests of stakeholders (customers, employees, supplies their communities and so on) and shareholders “are inseparable.” The debate about whether this is more than window-dressing has begun.

Reviews

I confess to being something of a film buff. Sadly, much of what we see in theaters or on television today is, frankly, crap. When I find things worthy of mention, I think I should bring them to your attention. First, the short, five-episode series on HBO, Chernobyl. Most of us who were around then didn’t understand what happened there. At best, we thought it was a variation on the Three-Mile Island incident in this country. No, Chernobyl is a very real picture of a society of secrecy, whose citizens knew that the state was all powerful (and all seeing in many regards). And yet, when the time came for ordinary citizens to step forward and face certain death or illness for the good of the country, because “it has to be done,” they did it. One is left wondering what today’s self-absorbed young would do when faced with a similar set of challenges. And Chernobyl still is an exclusion zone in Ukraine.

The second movie I commend to you is at theaters now. It is called “The Farewell.” A young woman, born in China and brought to the U.S. with her parents when she was young, learns her grandmother is dying of cancer. Her parents, and then she, return to China to spend time with the grandmother, ostensibly under the guise of a family wedding. The grandmother is not being told that she has cancer and only a short time (so say the doctors) to live. The granddaughter learns things about her grandmother she did not know, such as that she was in the army and shot. These things she learns from two retired People’s Liberation Army generals who come to the wedding to see her grandmother. The movie is in Chinese with subtitles, but the contrast between our culture and that of China is quite stunning and compelling. If you want a short lesson in what the real differences are between the U.S. and China, this is a great way to get it in two hours.

Reviewing Your Portfolio Hedges

By David Snowball

There are a number of critical activities that most of us swear we’ll do tomorrow: schedule a colonoscopy, get to the gym, talk to your siblings, check your portfolio’s downside.

It’s time!

T.S. Eliot declared April to be “the cruelest month” (in “The Waste Land,” 1922). T.S. Eliot did not know much about the stock market. There, September is the cruelest month. While it has not been the site of most market crashes, since 1937 it’s been the single weakest month of the year. October has been the most volatile; site of the 1907, 1929 and 1987 crashes and the onset of the 2007-09 bear.

The reminder that you don’t need is that things remain parlous.

1. The stock market is … uhh, fragile. The stock market’s valuation, measured by its 10-year Schiller CAPE ratio is the third highest in its history, right about where we were at this point in 1929 though far below 1999. That’s against two problematic backdrops: government policy being set by tweet and deteriorating global economy buffeted by a trade war and the politics of nationalism. The folks at First Quadrant summarize it with this graphic:
  
  They note that the “transition” from resilient to fragile lasts about six months, but markets that become fragile remain that way for several years. (FQ State of the Markets, September 2019). “Fragile” markets are typified, they claim, by susceptibility to shock, high volatility and a disconnect between risk and return.
2. The bond market is getting scary. Yes, I know: “nothing bad ever happens in the bond market.” That’s because bonds have been in a longer bull market, dating from the early 1980s when double-digit interest rates began to drop, than stocks.
  
  Source: http://www.econ.yale.edu/~shiller/data.htm
  
  The interest rate on 30-year Treasury bonds is at its lowest-level ever, though an asterisk would remind us that “ever” is “since 1977.” Still, the Treasury yield is lower than the S&P 500’s. This concern is separate from the widely discussed “yield curve inversions.” The effective duration of a 30-year Treasury at the end of August 2019, is about 22 years. That means that if interest rates rise by 1%, the price of a portfolio of 30-year Treasuries would fall by 22%. Institutional research firms Research Affiliates and GMO both estimate the US long bonds will post negative real returns over the next 7-10 years. At yet, investors are flocking to Treasuries in droves, which is what drives the yield down.
  
  What are we to make of a desperate desire to lock-in small losses? At base, it’s the suspicion that everywhere else they look, they see larger losses looming. Bloomberg’s Brian Chappatta wrote a particularly sharp piece on the phenomenon this month.
  
  In fact, for bond traders, 30-year Treasuries might just be the riskiest part of the debt market because they can usually be whipsawed by a [macro event] changes … However, this relentless rally at the long end shows that bond traders have completely let go of all fear of rising interest rates, stronger-than-expected economic growth or a sustained rebound in inflation. That should be as nerve-wracking to investors as the prospect of a global economic recession. After all, there’s a playbook for dealing with a downturn and an inverted curve. There’s no historical guide to sovereign debt yields across the world trading at, near or below zero.
  
  Another reason that the move in 30-year yields is so striking is because it’s the exact part of the curve over which the Fed has the least control. (Brian Chappatta, “Forget the Yield Curve. The 30-Year Treasury Is Scary,” Bloomberg.com, 8/14/2019)

Why hedge your portfolio? There are two reasons:

Psychological: if you look at your portfolio, see that every single investment is losing money and that you’re down by some scary amount lately, it’s stressful and discouraging. It’s bad for your heart and may, if you react in haste, be bad for your long-term financial health too. If you’ve got some stuff that’s lost little or nothing, it’s easier to take a deep breathe, walk away from the “sell” button, and get back to prepping a nice Tuscan Risotto with Walnuts & Mushrooms (though I’d seriously consider using farro rather than rice) with your family.

Compounding: if your portfolio falls by a third, you haven’t gotten back to your break-even point until the market rises 50%. To illustrate what that means, let’s look at the performance of several fund categories over this entire market cycle, beginning in October 2007.

Lipper Category	Stock exposure	Maximum loss	Recovery period	Annualized returns
Conservative allocation	30%	24	29	4.1
Moderate allocation	60%	35	38	4.6
Aggressive allocation	75-90%	51	64	4.5

Here’s one way to read that: a stock-heavy portfolio crashed by 51% and took over five years to get you back to where you started. Your willingness to ride that roller coaster rewarded you with 4.5% returns. A stock-light portfolio lost less than half as much, recovered in less than half the time, and still returned 4.1%.

Those are just the averages. The top stock-light funds (Vanguard Wellesley, Westwood Income Opportunities, MFS Diversified Income, Berwyn Income) all had returns that crushed the average stock-light fund in both returns (above 6% annually) and recovery (20 months, on average).

As we’ve noted several times over the years, there are three strategies for hedging your portfolio and we’ve nominated funds for your consideration in each strategy. Here’s our quick review and update.

Strategy One: Keep it simple

The simplest strategy is to have cash or cash-like investments in your portfolio. The upsides to holding cash: it doesn’t go down and the strategy is inexpensive to execute. The downsides of holding cash: it doesn’t go up and you’ve got to have the nerve to invest it at the precise moment that everyone else is peeing their pants.

The best plan is, as the common proverb has it, to profit by the folly of others. Pliny the Elder, Naturalis Historia, Book XVIII, sec. 31., circa 79 CE

Cash which you’re holding in anticipation of investing it in risk assets when the time is right is called “strategic cash.” Ideally, you’d like a positive real return when times are good and a very small drawdown when times are bad, since it won’t do you much good during a crisis if it’s evaporated. MFO has profiled a half dozen funds that might serve as strategic cash investments for you. Here’s their updated three-year record.

	Maximum loss	Annualized return	Notes
RiverPark Short-Term High Yield RPHYX	-0.1%	2.9%	Closed to new investors, unless you invest directly through RiverPark. This fund is in my portfolio and frequently has the highest Sharpe ratio of any fund in existence.
Zeo Short Duration Income ZEOIX	-0.4%	3.1	New name and lower e.r. in 2018
PIMCO Short Asset Investment PAIAX	0.0%	2.2	When PIMCO funds hold “cash,” this is the strategy they’re referring to.
Payden Global Low Duration PYGSX	-0.3%	2.0	Minimum of 40% non-US.
Intrepid Income ICMUX	-0.6%	3.1	A new management team in the past year; more opportunistic than the others, it posted a 25% gain in 2009

The starting point for learning more about any of those funds should be MFO’s profile of them. Those are located under the “Funds” tab atop this page.

Strategy Two: Delegate simplicity

This strategy suggests that you choose a fund where the manager is willing to hold cash when markets are irrationally expensive and to invest cash when markets are irrationally cheap. Upside: you don’t have to sit around wondering “is it time yet?” Downside: you will also surely hold a fund that makes you feel like an idiot for long periods. The frothy fun phase of the market can last for years, with returns utterly disconnected from reality. Holding a fund that’s earning 1% while everyone else is making 236% (really – one of my fund holdings in the 1990 had a 236% return one year for, let’s admit, no really good reason) will be annoying. That’s why so very few such funds survive. We nominated some worthies in our 2018 15 / 15 Funds essay, highlighting funds that made at least 15% in 2017 while holding at least 15% cash. We followed that up a year later with 15 / 15 Funds One Year On.

Managers who are unwilling to buy stocks when stocks are unreasonably expensive are known as “absolute value” investors (or dinosaurs).

Here’s the three-year snapshot for several distinguished absolute value funds.

	Maximum loss	Annualized return	Notes
FPA Crescent FPACX	-10.5%	7.9%	Crescent holds 28% cash currently. This fund is in my portfolio and manager Steve Romick is seen as one of the best in the business.
Castle Focus MOATX	-7.2	5.8	Currently holds 30% cash. Nine-year-old fund that’s earned a Great Owl designation for consistently excellent risk-adjusted returns.
Leuthold Core LCORX	-10.2	5.8	Leuthold is a tactical allocation fund, driven by rigorous quantitative analysis, that can invest in virtually anything (pallets of palladium, anyone?). Morningstar lists it at 28% cash. An active ETF version is pending.
Queens Road Small Cap Value QRSVX	-9.7	5.4	Another small cap value fund with a distinguished management team and substantial cash, about 16%.
Intrepid Endurance ICMAX	-6.1	0.0	Endurance, a small cap fund, holds 45% cash. Its brilliant long-term record has been threatened by the departure of managers Eric Cinnamond (2010) and Jayme Wiggins (2018).
Pinnacle Value PVFIX	-13.9	-0.5	Like Endurance, this is a small cap fund; more properly, a microcap value fund. It’s at about 38% cash.
Palm Valley Capital PVCMX	n/a	n/a	Former Intrepid managers Cinnamond and Wiggins have struck out on their own to create a new absolute value small cap portfolio. As of June, their new fund was still 90% cash and they were caustically skeptical about the state of the small cap market, and willing to wait for it to pop.

In the cases where we don’t have a profile of the fund, we’ve written about them in other articles and have profiles now in-process.

Of these funds, FPA and Leuthold have the broadest go-anywhere mandates, while Castle has the broadest discretion within the realm of equity investing.

Strategy Three: Embrace complexity

This strategy suggests that you choose a fund where the manager is willing to vary their exposure to the equity market either by choosing to bet against individual stocks or stock sectors, a process called “shorting,” or by buying a sort of short-term insurance policy that pays off if a stock falls or volatility spikes, a process called “buying or selling options.” Upside: long/short managers can play offense as well as defense; that is, they can use their short positions to try to drive up returns during good markets while simultaneously hedging risk. Downside: these are complex strategies, and complex things (1) have a tendency to break, (2) are hard to operate and (3) cost a lot. The best advice we have in approaching long/short funds is to make sure you understand exactly what the manager is doing and you choose managers who are not still using training wheels. Whenever markets begin to fall, long/short “specialists” come out of the woodwork and, on whole, we’d rather they get their on-the-job training with someone else’s money. The folks below have been running these strategies, and running them well, for a long time.

Here’s the three-year snapshot for the long-short equity funds that MFO has commended to your attention.

	Maximum loss	Annualized return	Notes
RiverPark Long/Short Opportunity RLSIX	-12.4	12.9	The best performing long-short fund in existence over the past three years, it plays offense rather more than defense, targeting bad companies in dying industries.
LS Opportunity LSOFX	-8.0	8.5	LSOFX has an absolutely first-rate management team from Prospector Capital which also offers a long-only fund using the same strategy. The only fund on this list, and one of the few anywhere, whose worst three-year rolling period is still positive.
AMG River Road Long-Short ARLSX	-9.4	7.1	Managers Moran and Johnson embrace Benjamin Graham’s argument that “The essence of investment management is the management of risks, not the management of returns.”
Cognios Market Neutral Large Cap COGMX	-8.7	0.1	Not technically a long-short fund, but close enough for our purposes. It’s a top tier market neutral fund in about three years out of four.
Otter Creek Long/Short Opportunity OTTRX	-7.9	-0.9	Otter Creek is a solid fund that missed out on its peer group’s substantial gains in 2017. The negative three-year return is driven by 2017; despite a “value” investing style, which is out-of-favor, the fund is much more frequently atop its peer group than behind it.
Invenomic BIVIX	n/a	n/a	Intriguing newcomer that roared out of the box, hard-core value investing had a really bad summer 2019. The manager has solid credentials as a former Boston Partners guy and a clear strategy for using his short portfolio to add alpha, not just buffer risk.

Bottom Line

What should you do in the face of scary markets and howling headlines? That depends, in part, upon your age. If you’re 25 or 35 and looking at decades against in the market, check the chart below, roll your eyes, stick with your long-term plan and go enjoy that risotto.

100 years in the US stock market. Source: https://www.macrotrends.net/1319/dow-jones-100-year-historical-chart

If you’re 40, 50 or 60, majors declines are a bit more consequential and a lot more stressful. You might find a noticeable hedge in your portfolio useful and reassuring. If successful long-term investors like Mr. Romick or the folks at Leuthold are sitting near 30% cash, that might be a signal to consider a tactical move in that direction.

If, like me, you’re over 60, it might be more a matter of reflecting on your strategic, long-term allocation than fretting with a short-term tactical allocation switch. Many of us drift along, not adjusting our portfolios to our changed life circumstances. If that’s you, you might look at the glidepath for T. Rowe Price’s excellent Retirement target-date funds to see whether you’re still in a rational, defensible spot.

T. Rowe offers two sets of target-date retirement funds, each of which becomes more conservative as the fund’s target-date approaches. If you planned on retiring in 15 years, you might reasonably choose Retirement 2035 if you’re aggressive or Target 2035 if you’re a bit conservative. One way to test the positioning of your portfolio is to guess how many years it will be until you retire or, alternately, note how many years it’s been since you retired. You can use the chart above to get a prudent range for the typical investor’s stock exposure.

Thirteen years to retirement? Cool! You might choose either a 2030 fund (11 years out) or a 2035 fund (16 years out) and, with either of those, you might choose the more aggressive Retirement or the more conservative Target fund. The chart above implies that the most aggressive you would be is 79% equity (Retirement 2035) and the least aggressive would be 58% (Target 2030). While that’s still a fair range of values, it does imply a bounded set of choices: most aggressive (79%), moderately aggressive (65-72%) or less aggressive (57.5%). Find the spot that you (your family and your advisor) are comfortable with, then stick to it.

MFO Premium membership is available as a thank-you from us for a tax-deductible contribution of $100 or more. MFO Premium members should surely investigate Charles’s new portfolio-level risk assessment tool.

Adjusting Portfolios for the Business Cycle

By Charles Lynn Bolin

I appreciate the opportunity to write for Mutual Fund Observer. I am a great fan of MFO, and it is my primary investment tool. I am a small investor, an engineer with a MBA nearing retirement. I spent the majority of the past dozen years working overseas and used my spare time reading about history, economics, forecasting, and investing.

The data used in this article is current as of July 2019. As of August 24th, the S&P 500 has lost 5% bringing the 12 month return down to 1.5%. Meanwhile the Vanguard Total Bond Market (BND) is up 10% over the same period. In this article, I look at risks to the financial markets and economy, how funds with varying allocations to stocks have done over the past 20 years, identify 36 top low risk funds with high risk adjusted returns, and create three hypothetical million dollar portfolios based on the current environment.

Understanding Risk

Risk is often described as not achieving financial goals, not keeping up with inflation, or losing money, and each has validity. Chart #1 shows the total return of six funds with varying allocations to equity from 0% to 100% over the past twenty years covering the past two bull and bear markets. At first glance, it seems that one should have invested as much as possible in the S&P 500.

Chart #1: Twenty Year Returns by Bull and Bear Market

Table #1 tells a different story. Over the past 20 years, the Vanguard Wellesley Income Fund (VWINX) and Vanguard Wellington (VWELX) have both out-performed the S&P 500 including dividends, with less volatility and lower drawdowns. The reason for this is that if a fund loses 50% during a bear market, it must double to recuperate the losses. It took the S&P 500 five years to recover from the 2007 bear market.

Table #1: Performance during the Past 20 Years

Symbol	Name	APR%/yr	STDEV%/yr	MAXDD%	%Equity
VSGBX	Vanguard Short-Term Federal	3.4	1.8	-1.5	0.0
VASIX	Vanguard LifeStrategy Income	4.9	4.2	-15.5	19.7
VWINX	Vanguard Wellesley Income	7.1	5.7	-18.8	37.3
VWELX	Vanguard/Wellington	7.6	9.2	-32.5	65.7
VASGX	Vanguard LifeStrategy Growth	5.5	12.5	-47.6	78.2
VFINX	Vanguard 500 Index	6.0	14.6	-51.0	99.4

Markets behave differently over long periods of time. The Vanguard 500 Index Fund returned 16.2% annually from 1985 through 2000. This was a time period starting with low valuations and ending with high valuations and few major downturns. In contrast, the same fund has returned 6.4% annually since 2001 starting with high valuations and with two major corrections along the way. In my opinion, we are in an aging, cyclical bull market within a secular bear market. Because of demographics, valuations, deficits, and debt levels, among other reasons, I expect the next decade will continue the trend of high volatility and low returns.

Taking the six funds for the past twenty years and using risk adjusted return presents a similar perspective. Bonds have the highest returns in a recession while the risk adjusted return of a balanced fund with 15% to 60% equities has higher compensation for the amount of risk taken than the S&P 500 during a bull market.

Chart #2: Risk Adjusted Return (Martin Ratio) by Bull and Bear Markets

Table #2 shows how the funds have done during the past 18 months since February 2018 when investors noticeably started rotating to late business cycle stage investments. The Martin Ratio measures the risk free return for the amount of risk (Ulcer Index) taken. The Martin Ratio is a good metric to determine if a fund is achieving superior returns through higher risk. While the S&P 500 (VFINX) has had the highest return, there is little extra compensation as a reward for the extra risk.

Table #2: Performance for Past 18 Months

Symbol	APR	MAXDD	STDEV	Ulcer	Martin	Yield
VSGBX	3.1	(0.2)	1.2	0.1	11.7	2.3
VASIX	4.7	(2.2)	3.8	1.0	2.7	2.7
VWINX	5.0	(3.5)	5.9	1.9	1.6	3.0
VWELX	4.7	(6.8)	9.6	3.0	0.9	2.6
VASGX	1.6	(10.6)	12.0	4.2	(0.1)	2.3
VFINX	5.6	(13.6)	16.0	5.1	0.7	1.8

Trading Tactics for Long-Term Planning

Borrowing from Charles Schwab, “Trading Tactics for Long-Term Planning”, authors Lee Bohl and Randy Frederick offer five ways to incorporate trading into a broader financial plan.

Set Specific Targets: My risk-off goal is to out-perform the Vanguard Wellesley Income Fund on a risk adjusted basis.
Limit your Positions: With Mutual Fund Observer, an investor has incredible access to data, and investors can track a large number of funds. I tend to purchase more funds and have smaller positions to limit the risk of being wrong. MFO provides the tools for me to be wrong less often.
(Don’t) let your Winners Run: While I believe that it is important to let winners run, I think it is more important to buy low and sell high. For me, this means evaluating what I own each month and if there is a reason to own a different fund. Three and ten month trends, price to earnings ratio, and the economy are some of the tools that I use for evaluating when to sell winners.
Act in Increments: With legions of smart people following the market closely, I have no belief that I can consistently time the market in the short term. In the medium term, I have done my personal best when evaluating where the market is and where I think it is going.
Stay in your Lane: In my opinion, it is best to have a plan that you can stick to during the turbulent times. The previous section shows that well managed conservative funds have beaten the S&P 500 over the past 20 years. It is not complicated. Manage risk first. My risk tolerance varies with the business cycle.

The Bucket Approach

Two of the main approaches to investing are total return and income. Total return investors tend to care more about drawdowns while income investors tend to care more about a steady stream of income. Pensions, among other sources of income will influence the importance of income to an investor. Total return investors tend to match investments to the timeframe for withdrawals. Income investors try to have income meet their withdrawal needs. As I near retirement, I remain a total return investor, but have been shifting focus to safely investing for income.

Suppose that you follow a bucket approach to investing and allocate to match financial needs to time horizons as shown in Table 4.

Table #3: Bucket Portfolio Approach

Ticker	Name	Allocation
VSGBX	Vanguard Short-Term Federal	5%
VASIX	Vanguard LifeStrategy Income	5%
VWINX	Vanguard Wellesley Income	15%
VWELX	Vanguard Wellington	20%
VASGX	Vanguard LifeStrategy Growth	25%
VFINX	Vanguard 500 Index Investor	30%

Chart #3 shows the Bucket Approach described in Table 3, the Maximum Sharpe Ratio low volatility portfolio (85% Vanguard Short-Term Federal, 15% Wellington), 100% Wellington and 100% S&P 500 portfolio. The assumptions are that $4,000 is withdrawn monthly starting in 1998 and adjusting for inflation. I own VASIX, VWIAX, and VWELX and will through the next recession, although allocations will change over time.

Chart #3: Investment Portfolio Strategies

Source: Portfolio Visualizer

The Bucket Approach and Wellington Fund would have experienced maximum drawdowns of about 35%. Investing 100% in the Wellington Fund would have been the best choice for 20 year total return given these assumptions. If only we had perfect hindsight! However, median retirement savings for people between the ages of 55 and 64 is currently around $107,000 according to the Government Accountability Office. Priorities will vary based on savings level, other income, knowledge of investing, and risk aversion, among others.

Adjusting Allocations According to the Business Cycle

Another common approach is to tilt portfolios according to what does well during the business cycle. Representations of the business cycle and its impact on investing can be found at Fidelity and Schwab. Recessions are frequent events that are well studied and taken into account in many investment strategies that manage risk. I built an Investment Model based on over 30 indicators including Financial Risk, Recession Risk, Margin Debt Trends, leading indicators, coincident indicators, yield curve, housing, orders, spending, valuations, monetary policy, stock market technical, among others. The concept is to set cyclical indicators (usually year over year) to +1 for the highest point in the past 20+ years and -1 for the worst. One portfolio is used for each of the business cycle stages and allocations to stocks are allowed to fluctuate in order to maximize return.

Chart #4 is my detailed view of the Investment Environment. Some indicators raise warning flags and others signal strength. The weakest indicators are to the left and the strongest are to the right. Recession and Financial Risk are currently low, while Monetary Policy, an economy near capacity, “flight to safety”, and yield curve are signaling caution is warranted.

Chart #4: Main Indicators

Chart #5 shows the summary view of the investment environment. The dark blue line is my target allocation to stocks following Benjamin Graham’s guidelines of never having less than 25% allocated to stocks, nor more than 75%. It currently suggests an allocation of 30% to equities. Why? Monetary policy has been three years of raising the federal funds rate and quantitative tightening, the economy is near capacity, institutional and retail investors are building up cash reserves, bonds are out-performing stocks, the yield curve has inverted, construction spending is in the doldrums, valuations are moderately high, orders are declining, and so on. The red line is the percent of indicators that are negative. The weakness is broad and expanding.

Chart #5: Investment Model

Creating a Fund Universe with Mutual Fund Observer

The Investment Model is good for providing a high level view of the financial markets and economy. It is limited in that it does not provide specifics on which funds to invest in. This is where Mutual Fund Observer excels. Each month, I extract over a thousand funds. I built a ranking system for the funds to match the risk-off, but not bearish level in the investment model. I am fortunate to have had a good mentor for Excel and use AVERAGEIFS(), PERCENTRANK(), VLOOKUP(), and INDEX(MATCH()) to rank funds from 0 to 1 for the metrics that are most important to me such as bond quality, 3 and 10 month trends, volatility, risk (Ulcer Index and drawdown), risk adjusted return (Sortino and Martin Ratios), total return, yield, leverage, performance during recessions, Premium/Discounts for closed end funds, P/E ratio for stocks, and Capture. I also use the MFO Risk and Rank metrics in my ranking system as well as the Great Owl classification. Some of the metrics are intended to predict how a fund is doing now or in the event of a recession.

What I like about a rating system is that it removes the emotions and subjectivity for evaluating funds. It also removes biases about managed vs passive, mutual funds vs ETFs vs CEFs, Vanguard vs Fidelity, Stocks vs Bonds, expenses, and so on. The funds in Table #4 are the top ranked funds with the highest ranked at the top. The table is a starting point for researching funds in more detail, and not a final list of buy recommendations. Each month, I create a new list using the same ranking system and see if there are funds moving into and out of the list. I may not own these funds, but I own similar ones. I own VTABX, FPNIX, VEMBX, VFITX, VWIAX, TSI, and real estate.

Table #4: Top Ranked Funds Over 18 Months

Symbol	Name	Premium	CAGR	Ulcer	Martin	Yield	2007 Bear
DMO	Western Asset Mort Defined Opp	6.2	11.6	0.0	–	13.8	–
BIAEX	Brown Advisory Tax Ex Bond		5.7	0.2	21.2	3.2	–
VTABX	Vanguard Total Intern Bond		7.4	0.1	69.4	2.9	–
FPNIX	FPA New Inc		3.3	0.0	–	3.1	4.6
NXR	Nuveen Select Tax-Free Inc Port	-5.7	7.4	0.4	13.3	3.2	0.0
VCSH	Vanguard Shrt-Trm Corp Bond		4.1	0.2	11.6	2.8	–
CFBNX	Commerce Bond		4.8	0.6	4.5	3.1	3.0
VEMBX	Vanguard Em Mrkts Bond		8.8	1.3	5.3	4.8	–
VWAHX	Vanguard HY Tax-Ex		6.4	0.4	9.9	3.5	-3.9
MCR	MFS Charter Inc Trust	-9.3	7.0	1.0	5.2	7.7	-6.8
IGIB	BlackRock Interm-Term Corp Bond		7.2	0.6	8.0	3.6	-0.8
NID	Nuveen Interm Muni Term	-5.3	7.6	0.2	23.9	3.6	–
FYBTX	Fidelity Shrt-Trm Credit		3.5	0.1	19.5	2.7	–
GSY	Invesco Ultra Short		2.8	0.0	–	2.9	–
AGBVX	American Century Global Bond		5.2	0.5	6.9	5.6	–
CSHTX	AB Taxable Multi-Sector Inc		3.6	0.1	21.8	2.8	–
PGZ	Principal Real Estate Inc	-12.2	13.8	1.3	9.0	6.1	–
AMHIX	American Funds Hi-Inc Muni Bond		6.1	0.4	9.8	3.5	-12.0
USIBX	USAA Interm-Term Bond		5.1	0.7	4.6	3.6	-11.8
VFITX	Vanguard Interm-Term Treas		5.1	0.4	7.7	2.5	10.4
VGIT	Vanguard Interm-Term Treas		5.1	0.4	8.5	2.2	–
VFIIX	Vanguard GNMA		4.2	0.4	5.6	2.9	7.4
USAIX	USAA Income		5.1	0.7	4.0	3.4	-3.2
VGLT	Vanguard Long-Term Treas		8.3	2.0	3.1	2.5	–
TGHYX	TCW HY Bond I		6.2	0.6	7.2	4.7	-19.0
TIPX	State Street SPDR 1-10 Year TIPS		3.8	0.5	3.1	2.9	–
VWOB	Vanguard Em Mrkts Gov Bond		5.6	2.3	1.5	4.4	–
TSI	TCW Strategic Inc	-2.2	5.1	0.1	20.2	6.3	-7.8
ORSYX	Invesco Oppen. Short Term Muni		2.7	0.1	8.0	2.2	–
VWINX	Vanguard Wellesley Inc		5.0	1.9	1.6	3.0	-14.5
PGHY	Invesco Global Shrt-Trm HY Bond		3.2	0.3	3.8	5.3	–
VMMXX	Vanguard Prime Money Market		2.2	0.0	–	2.3	2.9
FUMBX	Fidelity Shrt-Trm Treas Bond		3.4	0.1	9.1	1.9	–
VGSH	Vanguard Shrt-Trm Treas		2.8	0.1	12.4	2.2	–
HTD	John Hancock Tax-Adv Div Inc	-2.8	12.8	1.9	5.6	6.3	-46.8
FFXSX	Fidelity Limited Term Gov		3.0	0.1	6.3	1.7	7.4

What about the Vanguard Long Term Treasury Fund (VUSTX)? It has returned 22% over the past 12 months! Table #5 was created from 280 funds with 20 year histories and contains the performance of long term bond Objectives. The Bear Market column is an average for the 2000 and 2007 Bear Markets. The top section is lowest risk (Ulcer Index) with highest risk adjusted returns (Martin Ratio). The second section is low risk, moderate risk adjusted performance. The third section is still low risk when compared to the S&P 500 over the past 20 years with an Ulcer Index of 17.6. Even the final section has Ulcer Index values about half of the S&P 500, but high drawdowns. The Vanguard Long-Term Treasury Fund (VUSTX) had a maximum drawdown of 19% over the past 20 years. The return over the past 3 months has been 15%. While I have shifted to conservative investments, I am not convinced that a recession is imminent. My base case is that interest rates continue to fall. My preference is for less volatile intermediate bonds. It does make sense to own long term bonds if one believes that interest rates are going down for an extended time or want a hedge against stock market volatility. My preference is to own funds in the top two sections.

Table #5: Long Term Bond Performance Over Past 20 Years

Creating Model Portfolios with Portfolio Visualizer

Use of Portfolio Visualizer is currently free. It optimizes allocations to funds. I used three options: 1) Maximize Sortino Ratio (risk adjusted return) for 7% return, 2) Maximize Sharpe Ratio at 5% Volatility, and 3) Maximize Sharpe Ratio (least volatility), and compare them to the Vanguard Wellesley Income Fund (VWIAX) for the past 18 months. These are not recommended portfolios but are representative of how funds might do in a portfolio. None of the Model Portfolios have 25% equity which is my minimum target allocation.

Table #6 shows the results, reducing the 36 funds down to 18. The Max Sortino and Return portfolios both returned over 8 percent compared to VWIAX with 5% return, with less volatility and drawdown and higher risk adjusted return.

Table #6: Allocations in Hypothetical Million Dollar Model Portfolios

Chart #6: Performance of Hypothetical Portfolios

How well has the S&P 500 investor done during the past 18 months? It has made 5.6% with a max drawdown of 14% through July. However, as pointed out earlier, it has lost 5% during the past month for a 12 month return of 1.7%.

Closing

Following the process described in this article, I have been reducing risk in my portfolio for over a year. I am pleased with its performance. I believe that the two large drops in stocks during August are a sign of more to come. September is typically a low month for stock market performance and next year is an election year which is typically a good year for stocks. If current trends continue, I expect recession odds for late 2020 or 2021 to rise.

I focused on top ranked funds which are mostly bonds where 70% of my funds are allocated. The 30% allocated to equities are in the Vanguard Wellesley Income Fund, Wellington Fund, and “Overachieving Defenders” such as AMG Core Equity Focused (YAFFX) and Janus Henderson Balanced (JABAX), and several other Great Owls.

I appreciate the invaluable service that Mutual Fund Observer has contributed to developing a low risk, high risk adjusted portfolio. Each month, I like to review the Investment Model and Mutual Fund Observer data to see if there is some small change that I would like to make.

Introducing MFO’s Portfolio Analysis Tool

By Charles Boccadoro

“Everybody has a game plan, but the plan changes after the first punch.” – Cris Cyborg

Our June 2017 piece “How Bad Can It Get?” responded to David’s estimate of the pain he might experience given a severe market down-turn with his non-retirement portfolio. Fortunately, we’ve not yet experienced that downturn, but as he often does, he advised strongly that investors assess their portfolios based on the potential for drawdown. Better yet is for investors to do this when skies are blue, not when its raining and the roof starts leaking. The idea here is to help set expectations and avoid panic during the downturn, which until you’ve lived through one (and perhaps even then) is very hard to do.

We’ve just gone live on the MFO Premium site with a new tool that can help.

It’s called Portfolios. It enables users to assign allocation weightings to each fund in their portfolio(s), so that risk and return metrics can be evaluated at the rolled-up portfolio level. Like the site’s Watchlists feature, users can define up to 10 portfolios with each portfolio holding up to 25 funds. The portfolios can be saved to the user’s profile.

Below is the analysis for the older funds in David’s portfolio: FPA Crescent (FPACX), T Rowe Price Spectrum Income (RPSIX), Artisan International Value Inv (ARTKX), Matthews Asian Growth & Income Inv (MACSX), and Intrepid Endurance Inv (ICMAX). For this portion of his portfolio, he allocated 31, 18, 18, 11 and 22%, respectively. All these funds have been around since at least November 2007, the beginning of the current market cycle, which means they survived the heavy drawdowns of the Great Recession through February of 2009.

First off, over this full market cycle, or just under 12 years through July, this portfolio has delivered 5.7% per year absolute, which is 1.9% per year better than its peers based on category averages of the same portfolio allocations. That’s a pretty impressive long-term record, placing it in the top quintile of absolute return (the latter based strictly on weighted averages).

The five-fund portfolio drew down 26.7%, which is modest compared to the overall market, if still painful. The MFO Risk score reflects various volatility measures, including Ulcer Index and Downside Deviation. The portfolio has an MFO Risk of 3 or “Moderate,” which is exactly where David wants his risk level to be.

A unique feature of Portfolios is that it computes in real-time the actual drawdown of weighted returns based on the allocations assigned. This approach is required since, as was pointed out by long-time contributor bee and others on the MFO Discussion Board, drawdown cannot be calculated from a weighted average of the individual drawdowns unless the funds are perfectly correlated. The example bee used was SPY and TLT, a sort of “ying and yang” of the US broad market, traditionally at least.

To illustrate, here are the Portfolio results of a 50/50 SPY and TLT split over the current full cycle, same period as above.

This appears to be an extraordinary illustration of the benefit of diversification and the importance of looking at risk at the rolled-up portfolio level.

Over the current full cycle, both the S&P 500 and long-term US Treasury bonds have provided 6-8% growth per year and, when combined in this way, they’ve done so in a way as to reduce the overall portfolio volatility and improve risk adjusted returns. Basically, when one is up the other has been down … but both have been increasing. I’d call it the near perfect hedge, where a slight reduction in return of one holding (TLT) yields a much-reduced portfolio volatility, as evidenced by much lower standard deviation (STDEV) and Ulcer Index (a measure of drawdown intensity and extent).

While our Portfolios tools was launched in this basic form, we intend to add more of the metrics enjoyed on our main MultiSearch tool, in addition to the analytics provided by our Analyze tools, like returns by Calendar Year and Rolling Averages … at the portfolio level!

Launch Alert: Harbor Focused International

By David Snowball

On May 31, 2019, Harbor Funds launched Harbor Focused International (HNFIX/HNFSX). Harbor has eight international and global funds, of which three were either launched or relaunched this year. HNFIX is the most recent of those innovations.

Harbor Focused International will pursue capital appreciation. The fund will invest in 25-40 stocks from developed and emerging international markets. It will be an all-cap portfolio (minimum cap is just $1.5 billion) that is benchmark-agnostic. As a result, it might substantially overweigh some regions, sectors or styles if that’s what they think is going to work.

The managers are looking for high-quality growth companies with strong management and sustainability records. “High quality growth” translates to:

Strong competitive position
Strong and sustainable free cash flow generation
Above average profit margins and returns on equity
A sound balance sheet
Capable management with a record of sensible capital allocation

Comgest has incorporated ESG screens into all of their investment decisions and they have done so for a decade.

All of Harbor funds use outside managers and Harbor has a very strong record in selecting and monitoring their times. This fund is sub-advised by Comgest, a French multinational investment firm with operations worldwide. Comgest is employee-owned, has own something like 100 international awards, and has never had a manager leave in order to work for a competitor. They manage about $30 billion in asset.

Let me be clear: The fund warrants close attention, not least because Comgest seems to be freakishly successful in managing the strategy. Comgest Growth World, whose strategy is embodied here, has three-year returns that place it 61^st among 2800 funds tracked by CityWire, with exceptionally low risk and maximum drawdown scores. Morningstar has it beating its peers by 400-500 bps over the past 3-5 years, with “above average return” and “low risk” scores for the past 1-, 3-, 5- and 10-year periods.

Harbor uses the Comgest Global-ex-US composite, which is the audited performance of all fee-paying accounts managed by Comgest that have investment objectives, policies and strategies substantially similar to those of the Fund, as the basic for its performance comparison.

Two highlights there. First, the total returns of the composite since inception, about 11% depending on expenses, approximately double the returns of its benchmark index. Second, in all years in which the index loses money, Comgest excels. In two of three such years, the index lost money and Comgest made money.

The fund is managed by a four-person team. The senior member of that team, Vincent Houghton, has announced his plans to retire at the end of this year. The remaining members have substantial experience, both in the industry and in working together.

The fund has $26 million in AUM. The expense ratio for the Investor class shares is 1.22% and the minimum initial investment is $2,500. The corresponding numbers for the Institutional share class are 0.85% and $50,000. The fund’s homepage is only modestly useful. A recent article in Investment Europe (“Comgest’s sustainable long term investing focuses on quality research,” 11/27/18) offers good insight into the firm’s investment process. The strategy in Harbor Focus will parallel the one that the managers use in Comgest Growth World, whose performance profile is available from CityWire and Morningstar UK.

Elevator Talk: Clayton Triick, Angel Oak UltraShort Income (AOUAX/AOUIX)

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.

Clayton Triick manages Angel Oak UltraShort Income which launched in April 2018. He joined Angel Oak Capital Advisors in 2011 as an expert inthe residential mortgage-backed securities markets, which is a subset of the larger asset-backed securities market. Prior to joining Angel Oak, he was a portfolio manager for YieldQuest, a now defunct advisor whose internal dynamics were, he allows, “a bit challenging.” Since joining Angel Oak, he has been co-manager on Angel Oak Financials Income (ANFLX, $225 million AUM, five stars from Morningstar) and lead manager on Angel Oak UltraShort Income.

Ultra-short funds are generally tools for cash management. They generally provide returns higher than those available from insured vehicles such as deposit accounts or CDs with minimal volatility. Over the course of the current market cycle, running from October 2007 to now, the average ultra-short fund in the Lipper database returned 1.4% a year, suffered of maximum drawdown of just 1.7% during the market crisis and recovered from that fall within four months. Only a couple funds have returns above 2.0% a year over the end cycle. That’s better than the average savings account, which pays 0.10% annually (the advertised high rates on online accounts are typically short-term marketing gimmicks), but nothing to brag to friends about. With no prospects for expecting “normal” interest rates in the foreseeable future, this remains a low drama corner of the market.

The problem with 1.4% returns is 2.0% inflation. As of August 2019, that’s the Federal Reserve Open Market Committee’s projection for household inflation, designated CPE, for the next five years or so. If those two numbers hold, ultra-short investors will encounter negative real growth in their investments; that is, the $10,000 you might invest in an ultra-short account in 2019 will buy less in five years than it would buy today.

The solution is to find income that’s not interest-rate dependent, which means investing at least some part of the portfolio in something other than bonds. The willingness to look beyond the traditional bond market is often signaled by a fund’s name: “Ultra Short Bond” in the name means a far more restricted investment universe than “Ultra Short Income.” In both cases, the portfolio’s average duration – a measure of interest rate sensitivity – is under one year but, in the latter case, the portfolio might hold a variety of income-producing securities that aren’t exactly bonds.

The folks at Angel Oak believe they’ve found their solution to low interest rates: asset-backed securities. The “assets” behind ABS, as they’re called, might be a home mortgage, a car loan or income from leasing a commercial building. The simplified version: banks and credit unions issue mortgages, but don’t actually want to keep them on the books for the next 30 years, so they sell the mortgage to something called a special purpose vehicle (SPV). The special purpose vehicle bundled together lots of mortgages, which is called “securitizing” them, and sells those securities to general investors. The SPV will issue some securities backed by the lowest-risk borrowers, perhaps well-established affluent homeowners borrowing a relatively small amount for a relatively short period, and others that represent iffier borrowers who are paying higher rates for their loans.

Why might this be a good idea for investors? As DoubleLine, a prominent investor in asset-backed securities, points out, such securities have experienced:

Lower duration (remember: interest-rate risk) than other investment grade bond sectors
Lower volatility than other investment grade bond sectors
Higher yields than US Treasuries
Better relative performance during periods of rising rates than other investment grade bond sectors
Lower correlations to equities than corporate credit. (“The Advantages of Mortgage-Backed Securities in Today’s Environment,” 2018).

Angel Oak UltraShort has only been around since April 2018 but has been an exemplary performer. The fund has recorded positive returns in 100% of its months, hence its maximum drawdown is … well, zero. It has produced substantial total returns from both income and a smidge of capital appreciation:

The fund ended its first full year of operation in the top 1% of its Morningstar peer group, substantially outpacing competitor funds from folks such as PIMCO and DoubleLine.

Other firms have noticed, and reacted to, the advantages of this asset class. Those range from Vanguard’s $10 billion Vanguard Mortgage Backed Income Securities Index Fund (VMBSX) to a bunch of DoubleLine’s 18 funds. Nonetheless, the combination of ultrashort duration and a securitized portfolio remains rare. Here are Clayton’s 300 words on why you should add AOUAX to your due-diligence list:

Ultrashort duration funds may offer various benefits to a broader fixed-income portfolio. In the current environment, the U.S. yield curve is inverted. Investors can find attractive income at the front end of the yield curve over and above intermediate-duration assets. Furthermore, the introduction of high-quality structured credit tends to dampen price volatility during times of stress. This unique attribute with respect to market risk can be beneficial to an investor’s entire portfolio.

We believe investors should be looking for opportunities within assets that improve in quality over time. This fund targets short-term investments that have powerful “de-levering” characteristics; i.e., as they approach maturity, their credit risk is at their lowest point as credit protection is at their maximum point. This is in direct contrast to traditional corporate credit, which tends to carry more of a binary credit risk.

This relative performance diversion was most evident between the Angel Oak UltraShort Income Fund and its peer group in Q4 2018, as NAV volatility was minimal compared with corporate credit-focused ultrashort duration funds.

Before launching the strategy in 2018, we realized there were very few specific mutual fund offerings that focused primarily on structured credit for investors. The addition of our ultrashort strategy has filled this void in the fund marketplace.

The Angel Oak UltraShort Income Fund seeks to provide current income while aiming to minimize price volatility and maintain liquidity. For portfolio construction, we take a top-down approach, which helps provide the fund with superior income within the ultrashort landscape while minimizing volatility.

Currently, the ultrashort income fund features a distribution yield of approximately 3%. The potential opportunities in the short duration space provide potential for additional price return, thus enhancing total return above the yield.

Angel Oak Ultra-Short has a $1000 minimum initial investment on its no-load “A” shares, and a $1 million for the institutional share class. Expenses are capped at 0.50% on the “A” shares and 0.25% for institutional shares after substantial expense waivers which are in effect through May, 2020. The fund has about gathered about $265 million in assets since its April 2018 launch. Here’s the fund’s homepage. Folks who would like to hear directly from Mr. Triick might enjoy a three-minute video, released in August 2019, discussing the fund.

Funds in Registration, September 2019

By David Snowball

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 late October.

Our list contains 37 new funds and active ETFs, with another 15 (unlisted) high minimum institutional funds and passive ETFs. Funds worth putting on your radar include FPA Balanced, a 60/40 fund with A-tier managers; three new funds from Fidelity, their largest single-month rollout in years; an emerging Chinese blue chips fund from T. Rowe Price; and PIMCO’s Climate Bond Fund and Enhanced Short Maturity Active ESG ETF, which are among a half dozen new sustainable-fund options.

AdvisorShares Pure US Cannabis ETF

AdvisorShares Pure US Cannabis ETF (MJUS), an actively-managed ETF, seeks long-term capital appreciation. The plan is to use “a variety of methods” to select a stock portfolio representing companies that “derive at least 50% of their net revenue from the marijuana and hemp business in the United States.” The fund will be managed by Dan Ahrens and Robert Parker of AdvisorShares. Its opening expense ratio will be under 1% but otherwise has not been disclosed.

Aegon Global Sustainable Equity Fund

Aegon Global Sustainable Equity Fund will seek to maximize total return, consisting of income and capital appreciation. The process starts by excluding firms engaged in a wide variety of activities (from adult entertainment to fossil fuel extraction), then to identify “industry leaders” among the remaining firms and finally to conduct a stock-by-stock financial and competitive analysis. The fund will be managed by a team from Kames Capital, plc, the Scottish sub-adviser. Its opening expense ratio is 1.05%, and the minimum initial investment will be $2,000 for Investor shares. There’s an unusually long discussion of legal proceedings against the adviser that it would be prudent to review. Similarly, the disclosure of Kames’ performance with related investments, which seems limited and unimpressive, should be a reasonable part of your due diligence.

Cambria Private Equity Strategy ETF

Cambria Private Equity Strategy ETF (LBO), an actively-managed ETF, seeks long-term capital appreciation. The plan is to buy publicly traded equities using “a proprietary algorithm designed to generate returns that mimic the returns of U.S. private equity funds.” To be clear, no actual private equity positions are included in the fund. The fund will be managed by Mebane T. Faber. Its opening expense ratio has not been disclosed .

Cambria Venture Capital Strategy ETF

Cambria Venture Capital Strategy ETF, an actively-managed ETF, seeks long-term capital appreciation. The plan is to invest in publicly-traded securities, chosen by “a proprietary algorithm designed to generate returns that mimic the returns of U.S. venture capital funds.” As with its sibling Private Equity fund, this ETF does not invest in its namesakes: it does not hold stakes in VC funds or in VC-funded companies. The fund will be managed by Meb Faber. Its opening expense ratio has not been disclosed.

Catenary V-Alternative Fund

Catenary V-Alternative Fund will seek total return. The plan is to buy and sell put options on the S&P 500 index, and to invest the remainder of the portfolio in muni bonds. The fund will be managed by Jim Besaw and Eli Cohen, who managed the hedge fund which is being converted to this mutual fund. The hedge fund launched in April 2017, has averaged 1.1% annualized returns and lost 5.6% in 2018, about in-line with the average options-based mutual fund. Its opening expense ratio has not yet been disclosed, nor has the minimum initial investment.

Coho Relative Value ESG Fund

Coho Relative Value ESG Fund will seek total return. Their investable universe is about 200 mid- to large-cap stocks that meet both their ESG and quality screens. The plan is to invest in the 25-35 which are most attractively valued. Their separate account composite, which is to say private accounts managed with this same strategy, has outperformed the S&P 500 Vale index since inception (2011), as well as for the past one- and five-year periods. Over the longer periods, they have about a 150 bps advantage over the index. The fund will be managed by a team from Coho Partners. Its opening expense ratio has not been disclosed, nor has the minimum initial investment.

Core Alternative ETF

Core Alternative ETF (CCOR), an actively-managed ETF, seeks capital appreciation and capital preservation with a low correlation to the broader U.S. equity market. The plan is to invest in high-quality domestic, dividend-paying companies but also to buy and sell options in an attempt to generate additional income and hedge downside exposure. The fund started life as Cambria Core Equity ETF. This new version loses one of the original managers (Meb Faber) and gains a new guy (Danny Mack) while David Pursell remains from the original. In raw performance terms, CCOR has substantially trailed both of its self-declared benchmarks (the S&P 500 and a 60/40 blend) since inception. Curiously, for a volatility-managed product, CCOR’s fact sheet says nothing about the fund’s volatility or risk-return metrics. Its opening expense ratio has not been disclosed.

Cushing Small Cap Growth Fund

Cushing Small Cap Growth Fund will seek capital appreciation. It will be a small cap portfolio driven by fundamental, bottom-up research which will also utilize stop loss orders to manage downside risk. Given its growth orientation, they anticipate substantial exposure to consumer, healthcare and tech stocks. That’s significant because Cushing is a specialist investor in the energy sector, and this will be their first broad fund. The fund will be managed Jerry Swank, Alan Norton and Thomas Norton. Its opening expense ratio has not been disclosed; the minimum initial investment on “A” shares is $2,000.

Day Hagan/Ned Davis Research Smart Sector ETF

Day Hagan/Ned Davis Research Smart Sector ETF, an actively-managed ETF, will seek long-term capital appreciation and preservation of capital. This will be an ETF-of-ETFs whose plan is to make money by selecting overweighting or underweighting sectors based on investment models co-created by Day Hagan and Ned Davis Research. They also may move to 50% cash in hostile markets. The fund will be managed by Donald Hagan. Its opening expense ratio is 0.78%.

DFA Global Social Core Equity Portfolio

DFA Global Social Core Equity Portfolio will seek long-term capital appreciation. The plan is to built a fund-of-DFA-funds. The underlying funds are the firm’s existing US Social Core (30-60% of the portfolio), International Social Core (20-55%) and Emerging Markets Social Core (5-25%). The base allocation is at least 40% U.S. The fund will be managed by a DFA team. Its opening expense ratio is 0.36%, and the minimum initial investment will be set by your adviser. DFA funds are only available through DFA-trained advisers; they’re sort of the original “smart beta” funds, well-respected and hard to access.

Fidelity [Horizon] Fund

Fidelity [Horizon] Fund will seek capital appreciation. And no, I have no idea of why the word [Horizon] appears in brackets, but it does so throughout the prospectus. The plan is to build an unconstrained global equity fund. The prospectus offers no clue about what distinction it might hold in comparison to Fidelity’s four other global equity funds. The fund will be managed by an eight person team. Its opening expense ratio is has not been disclosed. There is no minimum initial investment requirement but will be available only through Fidelity. Available on October 23^rd.

Fidelity Stocks for Inflation ETF

Fidelity Stocks for Inflation ETF will track the Fidelity Stocks for Inflation Index. We don’t report on registration filings for passive ETFs, which generally strike us as an over-hyped asset class and dangerous to investors not prepared for what happens to them in a market downturn. That said, it’s so rare for Fido to even contemplate a passive ETF that we thought we’d better note the inception of this one. The underlying index includes “large and mid-capitalization U.S. companies with attractive valuations, high quality profiles and positive momentum signals, emphasizing industries that tend to outperform in inflationary environments.” Its opening expense ratio has not been disclosed.

Fidelity U.S. Low Volatility Equity Fund

Fidelity U.S. Low Volatility Equity Fund will seek long-term growth of capital. The plan is to “combine fundamental stock selection and quantitative risk management techniques focused on reducing absolute portfolio risk in an effort to produce returns in excess of the Russell 3000 Index over a full market cycle but with lower absolute volatility.” The fund will be managed by Zack Dewhirst, a quant who has been with Fidelity since 2007. Its opening expense ratio has not been disclosed, and the minimum initial investment will be zero. Available on October 23^rd.

First Trust Active Factor Large Cap ETF

First Trust Active Factor Large Cap ETF, an actively-managed ETF, seeks capital appreciation. The plan is to build a portfolio of large cap stocks, but to selectively overweight stocks based on which investment factors – (i) value; (ii) momentum; (iii) quality; and (iv) low volatility – are most attractive. The fund will be managed by a six person team from First Trust. Its opening expense ratio has not been disclosed. Sibling ETFs for mid cap and small cap stocks will launch at the same time using an identical framework.

FPA Balanced Fund

FPA Balanced Fund will seek to generate both income and capital appreciation over the long term while avoiding permanent impairments of capital. The plan is to combine a global equity portfolio (typically 55-65%) with a relatively unconstrained bond portfolio. In general, FPA is willing to be bold when the market is priced to reward boldness, and determined to preserve capital otherwise. The fund will be managed by pretty much everybody at FPA. Its opening expense ratio has not been disclosed (okay, it’s been “disclosed” as X.XX%), and the minimum initial investment will be $1,500 for Investor shares.

Franklin Liberty Systematic Style Premia ETF

Franklin Liberty Systematic Style Premia ETF, an actively-managed ETF, seeks absolute return. The plan is to combine a top-down risk premium sleeve of the portfolio with a bottom-up long/short sleeve. If you’re wondering what on earth that means, you’re not alone and might be best served to stepping carefully away. The fund will be managed by Chandra Seethamraju, Sundaram Chettiappan, and Vaneet Chadha, all from Franklin Advisers. Upside: the lead manager has a PhD, presumably is brilliant and is the head quant at Franklin. Downside: he’s never actually managed other people’s money before. Its opening expense ratio has not been disclosed.

Frost Global Bond Fund

Frost Global Bond Fund will seek to maximize total return, consisting of income and capital appreciation. The plan is to build a … well, global bond portfolio using five factors (e.g., projected shape of the yield curve) but using those factors “to varying degrees depending on its views” of three other factors. The fund will be managed by Jeffery Elswick, Tim Tucker, and Markie Atkission. The folks help manage Frost’s other fixed-income funds which range from “solid” to “outstanding.” Its opening expense ratio is 1.0%, and the minimum initial investment will be $1 million for the fund’s Institutional shares which are the only ones immediately on offer.

Harbor Target Retirement 2060 Fund

Harbor Target Retirement 2060 Fund will seek capital appreciation and current income consistent. It’s a fund-of-Harbor-funds whose initial allocation is 93% equities. The fund will be managed by a Harbor team. In general, the Harbor funds are fairly lackluster but not awful. Its opening expense ratio is 0.79%, and the minimum initial investment will be $1,000.

Integrity Short Term Government Fund

Integrity Short Term Government Fund will seek a high and stable rate of total return. This is a rechristened version of the four-star M.D. Sass Short Term US Government Agency Income Fund. The plan is to use a quant strategy to buy mortgage-backed securities, with an average duration of 1-3 years. The fund will be managed by M.D. Sass Investor Services. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $1,000.

Levin Easterly Value Opportunities Fund

Levin Easterly Value Opportunities Fund will seek long-term capital appreciation. The plan is to invest in 35-40 large cap stocks. In general, you might think of it as a “blue chip value” portfolio. The fund will be managed by Jack Murphy and Christopher Susanin of Levin Easterly Partners. The firm’s Large Cap Value Long Only Taxable Strategy Composite pretty much tracks the returns of the Russell 2000 Value Total Return Index and substantially trails the S&P 500 Total Return Index, its two benchmarks. Its opening expense ratio is 1.70%, and the minimum initial investment will be $250 for Investor shares.

Pacific Global Focused High Yield ETF

Pacific Global Focused High Yield ETF, an actively-managed ETF, seeks income and long-term growth of capital. The plan is to invest in 60 to 90 liquid high yield debt securities. Their benchmark is Bloomberg Barclays US High Yield Very Liquid Index; despite that “US” there, the fund can invest globally in dollar-denominated corporate bonds. The fund will be managed by Bob Boyd and Brian Robertson of Pacific Asset Management. Its opening expense ratio is sketched-in as [0.39]%, for what that’s worth.

Pacific Global International Equity Income ETF

Pacific Global International Equity Income ETF, an actively-managed ETF, seeks income and long-term growth of capital. The plan is to hold 200-450 mid- to large-cap stocks of dividend-paying firms located in developed markets outside the US. The fund will be managed by Paul Dokas and Robert Ginsberg of Cadence Capital Management. Its opening expense ratio is 0.39%.

Pacific Global Senior Loan ETF

Pacific Global Senior Loan ETF, an actively-managed ETF, seeks a high level of current income. The plan is to buy income-producing senior floating rate loans but they also expect to invest primarily in non-investment grade securities. The notion, I suppose, is that loans pay rather a lot and the “senior” status offers some buffer against credit or default risk since these are first in line to get paid if things do go south. The fund will be managed by Bob Boyd and Michael Marzouk of Pacific Asset Management. There’s odd text in the incomplete prospectus that identifies this as the reorganized version of an unnamed predecessor fund. I presume that’s the three-star Pacific Funds High Income (PLHIX). Its opening expense ratio is 0.68%.

PIMCO Climate Bond Fund

PIMCO Climate Bond Fund will seek, you’ll like this, “optimal risk adjusted returns, consistent with prudent investment management, while giving consideration to long term climate related risks and opportunities.” The plan is to buy “a broad spectrum of climate focused instruments and debt from issuers demonstrating leadership with respect to addressing climate related factors.” Because climate threats are long-term, PIMCO imagines that its investment strategies will emphasize long-term rather than tactical moves. The fund will be managed by a party yet-unnamed. Its opening expense ratio has not been disclosed, and the minimum initial investment will vary from $1,000 – $1 million, depending on share class.

PIMCO Enhanced Short Maturity Active ESG ETF

PIMCO Enhanced Short Maturity Active ESG ETF, an actively-managed ETF whose name is correctly rendered all in capital letters, seeks maximum current income, consistent with preservation of capital and daily liquidity, while incorporating PIMCO’s ESG investment strategy. The plan is to build an ESG-screened portfolio of investment grade, global bonds with an average portfolio duration under one year. The fund will be managed by a team from PIMCO. Its opening expense ratio has not been disclosed but the hints are that they’re shooting for ultra-low. We’ll see.

Red Cedar Short Term Bond Fund

Red Cedar Short Term Bond Fund will seek preservation of capital and to maximize current income. The plan is to buy dollar-denominated bonds, potentially both US and foreign issues, that are investment grade and that create a portfolio with a 1-3 year maturity. The fund will be managed by Jason M. Schwartz of Red Cedar Investment Management. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $5,000.

RPAR Risk Parity ETF

RPAR Risk Parity ETF (RPAR), an actively-managed ETF, seeks to generate positive returns during periods of economic growth, preserve capital during periods of economic contraction, and preserve real rates of return during periods of heightened inflation. The plan is to invest in a mix of TIPs, equities, commodities and Treasury bonds. The mix is calibrated to achieve “risk parity,” the state where each sleeve of the portfolio generates no more volatility than any other sleeve does. That’s an awfully admirable objective, though the other risk parity funds already on the market tend to post losses in about 50% of their calendar years. The fund will be managed by Michael Venuto of Toroso Investments and Charles Ragauss of CSat Investment Advisory. Its opening expense ratio has not been disclosed.

Standpoint Multi-Asset Fund

Standpoint Multi-Asset Fund will seek positive absolute returns. The plan is to combine a global equities strategy with a global futures strategy that encompasses seven asset classes. “Managed futures” is such an appealing strategy with excellent historical credentials, it’s just been the death of a lot of funds that tried actually making money with it. Perhaps these guys, with their equities sleeve, will pull it off. The fund will be managed by Eric Crittenden and Shawn Serikov. Its opening expense ratio is 1.51%, and the minimum initial investment will be $2,500.

T. Rowe Price China Evolution Equity Fund

T. Rowe Price China Evolution Equity Fund will seek long-term growth of capital. The plan is to invest in emerging blue chips in and around China. The fund will be managed by Wenli Zheng. It appears that Zheng is also an analysis for T. Rowe Price International Discovery. Its opening expense ratio is 1.40%, and the minimum initial investment will be $2,500.

Thrivent Core Emerging Markets Equity Fund

Thrivent Core Emerging Markets Equity Fund will seek long-term growth of capital. The plan is to invest in emerging markets stocks, conceivably through ETFs for part of the portfolio, using “a disciplined approach that involves computer-aided, quantitative analysis.” The fund will be managed by Noah J. Monsen and Brian W. Bomgren. They’re also members of the management teams of several other decent-to-excellent Thrivent funds. Its opening expense ratio is 0.20%, and there is no minimum initial investment requirement.

Uncommon Conservative Fund

Uncommon Conservative Fund will seek current income with some capital appreciation. The plan is to put 80% of the portfolio in fixed-income ETFs and 20% in equity ETFs. The equity sleeve focuses on quality firms and offers both value and growth exposure. That said, nothing really cries out “uncommon” about the strategy. The fund will be managed by Wes Strode and Paul Knipping of Portfolio Design Advisors. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $2,000. The same prospectus covers its siblings, Uncommon Moderate (60/40) and Uncommon Capital Appreciation (80/20).

WCM Focused Small Cap Fund

WCM Focused Small Cap Fund will seek long-term capital appreciation. The plan is to buy undervalued dynamic, industry-leading US small caps that have above-average growth prospects. Nothing in the prospectus explicitly addresses the question of why it’s “focused.” The fund will be managed by John Rackers and Chad Hoffman. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $1,000.

WCM Small Cap Growth Fund

WCM Small Cap Growth Fund will seek long-term capital appreciation. The plan is to buy dynamic, industry-leading US small caps that have above-average growth prospects. The fund will be managed by John Rackers and Chad Hoffman. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $1,000.

Manager Changes, August 2019

By Chip

Every month we track changes to the management teams of equity, alternative and balanced funds, along with a handful of fixed-income ones. Why “a handful”? Because most fixed-income funds are such sedate creatures, with little performance difference between the top quartile funds and the bottom quartile, that the changes are not consequential. Even in the realms we normally cover, the rise of management committees dilutes the significance of any individual’s departure or arrival.

This is one of the months in which the number of funds making changes is relatively large – 60 – but the number making dramatic changes is minimal. The newly-launched Harbor Focused International Fund will lose its most senior member of a very successful management team to retirement at year’s end. Meridian Enhanced Equity Fund is losing Minyoung Sohn, its founding manager and one of Meridian’s founding partners. At the other end, the management team at Otter Creek Long/Short Opportunity, which has suffered a period of atypically rough performance, has added Otter Creek’s founder to the team. It might well be a good development for investors, but one suspects that the dress code at team meetings just moved up one notch.

Ticker	Fund	Out with the old	In with the new	Dt
SHNAX	AIG Flexible Credit Fund	Jonathan Stanley is no longer listed as a portfolio manager for the fund.	Eric Hess and William Eastwood join David Albrycht and Francesco Ossino, none of whom have reported investments in their fund.	8/19
RAGHX	AllianzGI Health Sciences Fund	Brett Jones will no longer serve as a portfolio manager for the fund.	Peter Pirsch will continue to manage the fund.	8/19
IONAX	American Beacon Ionic Strategic Arbitrage Fund	Effective July 31, 2019, Adam Radosti of Ionic Capital Management LLC retired from his position as a portfolio manager for the fund.	Bart Baum, Douglas Fincher, and Daniel Stone will continue to manage the fund.	8/19
ACIMX	American Century International Core Equity	Vinod Chandrashekaran has announced his plans to leave American Century Investments. As a result, he will no longer serve as a portfolio manager for the fund effective August 17, 2019.	Elizabeth Xie will continue to manage the fund.	8/19
ACVUX	American Century International Value	Vinod Chandrashekaran has announced his plans to leave American Century Investments. As a result, he will no longer serve as a portfolio manager for the fund effective August 17, 2019.	Elizabeth Xie will continue to manage the fund.	8/19
ANTVX	American Century NT International Value	Vinod Chandrashekaran has announced his plans to leave American Century Investments. As a result, he will no longer serve as a portfolio manager for the fund effective August 17, 2019.	Elizabeth Xie will continue to manage the fund.	8/19
DCPIX	BNY Mellon Core Plus Fund	No one, but …	James DiChiaro joins Gerard Berrigan, Jason Celente, and Gautam Khanna on the management team.	8/19
DPREX	Delaware REIT Fund	Damon Andres, Babak Zenouzi, and Scott Hastings are no longer listed as portfolio managers for the fund.	Stefan Löwenthal and Jürgen Wurzer are now managing the fund.	8/19
DAMDX	Dunham Monthly Distribution Fund	The fund has changed subadvisors – Perella Weinberg Partners Capital Management is out – but, not portfolio managers.	Weiss Multi-Strategy Advisers LLC is the new subadvisor, and the new employer, for continuing manager, David Baker.	8/19
SPDAX	DWS Multi-Asset Conservative Allocation Fund	Pankaj Bhatnagar and Darwei Kung are no longer listed as portfolio managers for the fund.	Sophia Noisten joins Dokyoung Lee in managing the fund.	8/19
SUPAX	DWS Multi-Asset Growth Allocation Fund	Pankaj Bhatnagar and Darwei Kung are no longer listed as portfolio managers for the fund.	Sophia Noisten joins Dokyoung Lee in managing the fund.	8/19
PLUSX	DWS Multi-Asset Moderate Allocation Fund	Pankaj Bhatnagar and Darwei Kung are no longer listed as portfolio managers for the fund.	Sophia Noisten joins Dokyoung Lee in managing the fund.	8/19
ELFNX	Elfun Trusts	David Carlson is no longer listed as a portfolio manager for the fund.	William Sandow and Chris Sierakowski will now manage the fund.	8/19
VSFAX	Federated Clover Small Value Fund	As of September 3, 2019, Martin Jarzebowski will no longer serve as a portfolio manager for the fund.	Stephen Gutch will continue to manage the fund.	8/19
FAFDX	Fidelity Advisor Financial Services	No one, but …	Matt Reed joins Christopher Lee in managing the fund.	8/19
FCLAX	Fidelity Advisor Industrials	No one, but …	Tobias Welo joins Janet Glazer in managing the fund.	8/19
FSCHX	Fidelity Select Chemicals	No one, but Richard Malnight is expected to retire next June.	David Wagner joins Richard Malnight on the management team, and will continue to manage the fund upon Mr. Malnights retirement.	8/19
FMNEX	Free Market International Equity	Sean Babin is no longer listed as a portfolio manager for the fund.	Daniel List joins Mark Matson in managing the fund.	8/19
GSYIX	Goldman Sachs Imprint Emerging Markets Opportunities	Basak Yavuz is no longer listed as a portfolio manager for the fund.	Lee Gao and Jamieson Odell are now managing the fund.	8/19
GSAUX	Goldman Sachs Long Short Credit Strategies Fund	Effective immediately, Salvatore Lentini no longer serves as a portfolio manager for the fund.	Michael McGuiness joins Ashish Shah in managing the fund.	8/19
HNFIX	Harbor Focused International Fund	Vincent Houghton has announced his plans to retire on or about December 31, 2019.	Laure Négiar, Zak Smerczak, and Alexandre Narboni will continue to serve as co-portfolio managers for the fund.	8/19
HIMGX	Harbor Mid Cap Growth Fund	Effective March 1, 2020, Michael T. Carmen will no longer serve as a portfolio manager of the fund.	Stephen Mortimer and Mario Abularch will continue to serve as co-portfolio managers for the fund.	8/19
HTUS	Hull Tactical US ETF	Effective August 19, 2019, Vident Investment Advisory, LLC will no longer serve as a sub-adviser to the fund.	Exchange Traded Concepts, LLC will continue to serve as the fund’s adviser, and HTAA, LLC will continue to serve as the fund’s sub-adviser. Andrew Serowik and Travis Trampe of ETC will join Petra Bakosova of HTAA on the management team.	8/19
HEMAX	Janus Henderson Emerging Markets Fund	On or about September 16, 2019, Michael Cahoon and Stephen Deane are no longer managing the fund.	Daniel Graña takes over managing the fund.	8/19
HFOAX	Janus Henderson International Opportunities Fund	Ian Warmerdan is no longer listed as a portfolio manager for the fund.	Daniel J. Graña joins Dean Cheeseman, Andrew Gillan, Nicholas Cowley, Paul O’Connor, Junichi Inoue, Gordon MacKay, James Ross, and Marc Schartz on the management team.	8/19
HFOAX	Janus Henderson International Opportunities Fund	On or about September 16, 2019, Nicholas Cowley no longer managing the fund.	Daniel J. Graña joins Dean Cheeseman, Andrew Gillan, Nicholas Cowley, Paul O’Connor, Junichi Inoue, Gordon MacKay, James Ross, and Marc Schartz on the management team.	8/19
JVSIX	Janus Henderson Small-Mid Cap Value Fund	Alec Perkins will no longer serve as a portfolio manager for the fund.	Kevin Preloger and Justin Tugman will now manage the fund.	8/19
MASVX	Madison Small Cap Fund	Shaun Pederson and Timothy McCormack are no longer listed as portfolio managers for the fund.	Faraz Farzam, Aaron Garcia, and Richard Lane will now manage the fund.	8/19
MRIEX	Meridian Enhanced Equity Fund	Effective as of September 3, 2019, Minyoung Sohn no longer serves as the manager of the fund.	Clay Freeman will take over managing the fund.	8/19
MEIAX	MFS Value Fund	Effective December 31, 2020, Steven Gorham will no longer be a portfolio manager of the fund.	Effective December 31, 2020, Katherine Cannan will join Nevin Chitkara in managing the fund.	8/19
NOEMX	Northern Emerging Markets Equity Fund	Steven Santiccioli is no longer listed as a portfolio manager for the fund.	Robert Anstine and Brent Reeder will now manage the fund.	8/19
NOINX	Northern International Equity Index Fund	Steven Santiccioli is no longer listed as a portfolio manager for the fund.	Brent Reeder and Brendan Sullivan will now manage the fund.	8/19
OTCRX	Otter Creek Long/Short Opportunity Fund	No one, but …	Roger Keith Long, Otter Creek’s founder, joins Michael Winter and Tyler Walling on the management team.	8/19
PKPIX	PPM Core Plus Fixed Income Fund	Erica Lankfer will no longer serve as a portfolio manager for the fund.	Michael Kennedy will continue to manage the fund.	8/19
PKDIX	PPM Credit Fund	Erica Lankfer will no longer serve as a portfolio manager for the fund.	Michael Kennedy, Mark Redfearn, and Matthew Willey will continue to manage the fund.	8/19
PKLIX	PPM Long Short Credit Fund	Erica Lankfer will no longer serve as a portfolio manager for the fund.	Michael Kennedy will continue to manage the fund.	8/19
PKSIX	PPM Strategic Income Fund	Erica Lankfer will no longer serve as a portfolio manager for the fund.	Michael Kennedy will continue to manage the fund.	8/19
PEMMX	Putnam Emerging Markets Equity Fund	Daniel Graña is no longer managing the fund after 10 years. Hint: He’s now (or soon to be) with Janus Henderson.	Brian Freiwald and Andrew Yoon will now manage the fund.	8/19
PEYAX	Putnam Equity Income Fund	No one, but …	Lauren DeMore joins lead manager Darren Jaroch and Walter Scully on the management team.	8/19
PEQUX	Putnam Global Equity Fund	Matthew Culley will no longer serve as a portfolio manager for the fund.	Jacquelyne Cavanaugh and Walter Scully join R. Shepherd Perkins in managing the fund.	8/19
PNGAX	Putnam International Value Fund	Karan Sodhi is no longer listed as a portfolio manager for the fund.	Lauren DeMore joins lead manager Darren Jaroch in managing the fund.	8/19
FMFIX	RBB Free Market Fixed Income	Sean Babin is no longer listed as a portfolio manager for the fund.	Daniel List joins Mark Matson in managing the fund.	8/19
FMUEX	RBB Free Market US Equity Fund	Sean Babin is no longer listed as a portfolio manager for the fund.	Daniel List joins Mark Matson in managing the fund.	8/19
PREIX	T. Rowe Price Equity Index 500 Fund	Ken Uematsu will no longer serve as a portfolio manager for the fund.	Alexa Gagliardi will now manage the fund.	8/19
PEXMX	T. Rowe Price Extended Equity Market Index Fund	Ken Uematsu will no longer serve as a portfolio manager for the fund.	Alexa Gagliardi will now manage the fund.	8/19
POMIX	T. Rowe Price Total Equity Market Index Fund	Ken Uematsu will no longer serve as a portfolio manager for the fund.	Alexa Gagliardi will now manage the fund.	8/19
TCWAX	Templeton China World	Eddie Chow will no longer serve as a portfolio manager for the fund.	Michael Lai and Yu-Jen Shih are now managing the fund.	8/19
WEBCX	TETON Westwood Balanced Fund	No one, but …	P. Adrian Helfert has been added as to the management team, joining Scott Lawson, Matthew Lockridge, Varun Singh, and Casey Flanagan.	8/19
TPYAX	Touchstone International ESG Equity Fund	John Leslie, Lowell Glaser Miller, Bryan Spratt, and Gregory Powell are no longer listed as portfolio managers for the fund.	Jimmy Chang and David Harris will now manage the fund.	8/19
UVALX	USAA Value Fund	Effective August 30, 2019, Daniel Lang will resign as Chief Investment Officer of the RS Value team and will no longer be a portfolio manager of the fund.	Robert Harris will become Chief Investment Officer of the RS Value team and will be joined by Tyler Dann, Mannik Dhillon, Wasif Latif, and Joseph Mainelli on the fund management team.	8/19
VGWIX	Vanguard Global Wellesley Income Fund	Ian Link will no longer serve as a portfolio manager for the fund.	Andre Desautels joins Loren Moran and Michael Stack on the management team.	8/19
VWELX	Vanguard Wellington Fund	Effective at the close of business on June 30, 2020, Edward Bousa will retire from Wellington Management Company LLP and will no longer serve as a portfolio manager for the fund.	Loren Moran, Daniel Pozen, and Michael Stack, who currently serve as portfolio managers with Mr. Bousa, will remain as portfolio managers upon Mr. Bousa’s retirement.	8/19
RSINX	Victory RS Investors Fund	Effective August 30, 2019, Daniel Lang will resign as Chief Investment Officer of the RS Value team and will no longer be a portfolio manager of the fund.	Robert Harris will become Chief Investment Officer and continue to manage the fund with Joseph Mainelli.	8/19
GPAFX	Victory RS Large Cap Alpha Fund	Effective August 30, 2019, Daniel Lang will resign as Chief Investment Officer of the RS Value team and will no longer be a portfolio manager of the fund.	Robert Harris will become Chief Investment Officer and continue to manage the fund with Joseph Mainelli and Tyler Dann.	8/19
RSPFX	Victory RS Partners Fund	Effective August 30, 2019, Daniel Lang will resign as Chief Investment Officer of the RS Value team and will no longer be a portfolio manager of the fund.	Robert Harris will become Chief Investment Officer and continue to manage the fund with Joseph Mainelli.	8/19
RSVAX	Victory RS Value Fund	Effective August 30, 2019, Daniel Lang will resign as Chief Investment Officer of the RS Value team and will no longer be a portfolio manager of the fund.	Robert Harris will become Chief Investment Officer and continue to manage the fund with Joseph Mainelli.	8/19
CBEAX	Wells Fargo C&B Large Cap Value Fund	No one, but …	Wesley Lim joins R. James O’Neil, Michael Meyer, Mehul Tivedi, Edward O’Connor, Steve Lyons, William Weber, and Andrew Armstrong on the management team.	8/19
CBMAX	Wells Fargo C&B Mid Cap Value Fund	No one, but …	Wesley Lim joins R. James O’Neil, Michael Meyer, Mehul Tivedi, Edward O’Connor, Steve Lyons, William Weber, and Andrew Armstrong on the management team.	8/19
IPBAX	Wells Fargo Real Return Fund	Effective immediately, Dale Winner is removed as a portfolio manager to the fund.	Kandarp Acharya, Petros Bocray, Michael Bradshaw, Christian Chan, Kayvan Malek, Jay Mueller, Garth Newport, and Thomas Price will remain as portfolio managers.	8/19