Yearly Archives: 2019

One Hand Clapping

By Edward A. Studzinski

“In wartime, truth is so precious that she should always be attended by a bodyguard of lies.” Winston S. Churchill to Josef Stalin, concerning plans for coordinated deception, at a party celebrating Churchill’s 69th birthday, 30 November 1943

The second quarter of the year has provided investors with a variety of results, as well as a variety of interesting stories. One of the greater debates has been about the value of individual, active investment managers versus the alternative of passive investing, relying on a low (or lower depending upon the firm) cost approach to equity investment. Subsumed within this debate has been the question of whether the day of value investing has passed, as a world of again declining interest rates and the anticipated return of central banks to quantitative easing permanently results in a world that favors growth over value.

In that vein, the Financial Times of London in the weekend issue of June 8/June 9 of this year ran a long piece on asset management concerning the travails and potential downfall of star UK stock picker Neil Woodford. The FT argued in sum that the risks of placing too much faith in the skills of a star stock picker were underestimated. At the same time, the arguments in favor of active fund managers were sometimes undercut by the often unconstrained and undisciplined antics of star managers.

In the UK, Woodford was accorded cult-like status because of his performance record, a Buffett for retail investors. That followed from a performance track record built up over twenty-six years at UK asset manager Invesco Perpetual. That record gave Mr. Woodford the confidence to depart Invesco Perpetual and set up his own firm some five years ago, Woodford Investment Management. With the perspective of hindsight, some would say that the seeds of the firm’s present difficulties were sown at the inception of the new business.

Initially, assets flowed in and the performance at the new Equity Income Fund beat its benchmark. But as the assets under management grew, Woodford found it necessary to look further afield for investment opportunities, taking stakes in small and midcap companies. This was a major investment philosophy change from what had garnered his reputation to begin with, which was out of favor, large cap blue chip companies.

Another problem was that in his own company there were fewer restraints (the better angels) upon Mr. Woodford’s investment decisions. At a large company like Invesco, there were many compliance rules and compliance personnel overseeing those rules. Not so at Woodford Investment Management according to the FT, where those raising objections to strategy or implementation found themselves ignored or exiled. As performance lagged, a familiar story to some of us took place, with financial advisors pulling client accounts and funds. This led to the selling of liquid investments to meet the redemptions. Over a short period of time, the illiquid investments in the Equity Income Fund reached a point of potentially breaching certain rules for illiquid investments. This ultimately led to a decision by the firm to bar redemptions.

“Never buy a fund named after someone. [You get a] total failure of risk control.” Sir Gerald Edgar Grimstone, chairman, Barclays Bank plc

There are a couple of lessons for investors from this situation, which is not unique to the UK. One industry insider, Mr. Gerry Grimstone, the former chairman of asset management firm Standard Life Aberdeen, made the generalization that one should never invest in a fund named after someone (such as the fund manager or managers). Grimstone indicated that the result is a total failure of risk control. The other lesson is to pay attention to the relationships that sometimes occur between asset managers and the platforms that distribute those funds. You can see that in this country where much of the ownership in funds is not direct, but rather when you review the prospectus, indirect through the distributor platforms such as Schwab, Fidelity, TD Ameritrade, et al. Make sure you understand what the incentives and inherent conflicts of interest there are between the investment managers and the distributors in terms of discounts, fees, and the like. As in equity trades, you must look to where are the real economics. Is it in the commission dollars or in the order flow? Finally, pay attention to the reputations of the fund managers involved (which is very difficult for outsiders to know). There are a lot of egos in money management. An asset gatherer may fall too much in love with the fees from a large star-manager managed fund to also pay close attention to the risk controls, often until it is too late.

The Unseen Hand

We now turn to the problems of H2O Asset Management in London, a subsidiary of Natixis Asset Management in Paris (which also owns Harris Associates in Chicago and Loomis Sayles in Boston). H20 Asset Management in its fixed income funds, according to articles in the Financial Times on June 25, 2019, had taken an outsized position in bonds tied to a German finance investor, Lars Windhurst. What prompted these stories was a report in FT Alphaville the previous week that H2O’s latest regulatory filings listed 1.4 billion Euros of investments in illiquid Windhorst bonds in six of the H2O funds.

This presents a familiar picture of a firm, H2O Asset Management, where strong performance and large inflows led to growth in assets undermanagement as well as profitability at the firm level that flowed up to the parent. Illiquidity in investments is not a problem in and of itself but can lead to problems when the position sizes increase as withdrawals from funds (with daily redemptions permitted) increase. This, as we saw with Woodford, often leads to the more liquid investments being sold to meet redemptions. The follow-on is that that often leads to increased concentrations of illiquid investments. And if you are running concentrated portfolios to begin with, the problems can be exacerbated.

As H2O clients continued to seek withdrawal of funds, they were told that they would have to accept a “haircut” of from three to seven percent on their redemption pricing, what the FT referred to as “swing pricing.” This ends up putting the burden of higher trading costs on the clients seeking their money rather than the investment firm itself and the parent.

One great driver of management behavior is the desire to keep assets high enough, long enough, to sustain the continued financial rewards at the firm and parent level.

What are the real issues here? The real issues come down to greed – of clients, investment managers, and asset gathering organizations and oversight – at the investment management firm level as well as at the parent. The structure of an investment in an investment management firm by an asset gatherer like Natixis generally leads to a quick payback of the initial purchase price of the business. What follows is basically an annuity stream of profits upwards. While the annuity stream of golden eggs continues unabated from the investment manager geese, oversight perhaps leans more towards the collegial side rather than adversarial. The danger of course comes when we are at a time of more than two standard deviation valuations in the markets, with investment managers often tempted to “reach” for performance (after all, it’s other peoples’ money). You want to keep the investors from redeeming, while keeping the asset levels high enough to sustain continued financial rewards at the firm and parent levels. Only time will tell whether the degree of oversight was adequate for the conflicts and contradictions inherent in the active management business model practiced by asset gathering firms in general.

The Rise of the Active ETFs

By David Snowball

Active ETFs are a sort of hybrid between more-traditional ETFs and actively-managed mutual funds. Like traditional ETFs, they trade on the secondary market which means that the advisor doesn’t need to keep cash on hand in order to meet day-to-day withdrawal needs. Some of the expenses traditionally borne by the advisor either don’t exist (ETFs have fewer shareholder reports than, by law, mutual funds do) or are shifted to the brokerage firm. They also offer a structural tax advantage: shareholders aren’t responsible for the yearly tax consequences (and record-keeping) of the manager’s moves; shareholders are taxed only when they sell their shares.

Unlike traditional ETFs, actively-managed ETFs allow for strategies which don’t simply try to replicate the performance of a benchmark index.

Despite those advantages, very few active ETFs (under 300) have launched, very little money has flowed to them (around $80 billion industry-wide) and few equity managers have expressed any interest in them. The reason for the lack of interest has been the transparency requirement: actively-managed ETFs have to report their complete portfolio holdings every day, whereas an actively-managed mutual fund reports only once a quarter. Since ETFs are priced and sold second-by-second, it’s essential to know their current holdings in order to be sure that the published net asset value (cumulative value of the holdings divided by the number of shares in circulation) is accurate.

That’s a problem. Managers often need several days to build a position in a stock; they move slowly and quietly because they don’t want discovery of their interest in the stock to distort its price. If a hedge fund, for example, figures out that you’re going to be buying shares of Company X for the next four days, they’ll buy them ahead of you (a practice called front-running) knowing that your money will further raise the price of the stock. The moment you’re done buying, they sell, pocketing a small profit and screwing with your portfolio.

As a result, most active ETFs – and almost all of the top-performing ones – are fixed-income funds, often focusing on short-term bonds.

Great Active ETFs

“Great Owl” is MFO’s designation for funds whose risk-adjusted returns are in the top 20% of their peer group for every trailing measure period longer than a year. They represent a standard of caution and excellence. The complete list of Great Owls is available at our companion site, MFO Premium, which is home to all of MFOs data and screeners.

In order to identify the best active ETFs, we screened for Great Owls which had been around for a minimum of five years. Only nine funds, including two equity funds, made the cut.

  Category APR
%/yr		 MAXDD
%		 STDEV
%/yr		 Ulcer
Index		 Sharpe
Ratio		 APR
vs Peer		 MFO
Risk		 MFO
Rating		 Age
yr		 ER
%/yr		 AUM
$M
AdvisorShares Sage Core Reserves  HOLD Global Income 1.1 -0.3 0.4 0.1 0.80 -1.4 1 5 5 0.35 72.2
State Street SPDR MFS Systematic Value Equity  SYV Large-Cap Value 9.3 -12.4 11.8 3.6 0.72 +1.9 4 5 5 0.60 32.1
PIMCO Enhanced Low Duration LDUR Short Investment Grade Debt 2.3 -0.7 1.0 0.2 1.56 +0.7 1 5 5 1.02 346
Invesco Ultra Short Duration  GSY Ultra-Short Bond 1.2 -0.3 0.4 0.1 1.90 +0.1 1 5 11 0.25 2,391
PIMCO Enhanced Short Maturity Active Exchange-Traded MINT Ultra-Short Bond 1.4 -0.7 0.5 0.1 1.99 +0.4 1 5 10 0.42 11,844
BlackRock iShares Short Maturity Bond  NEAR Ultra-Short Bond 1.5 -0.1 0.3 0.0 2.17 +0.3 1 5 6 0.25 6,267
FlexShares Ready Access Variable Income RAVI Ultra-Short Bond 1.2 -0.3 0.4 0.1 1.44 +0.2 1 5 7 0.25 252
State Street SPDR SSgA Ultra Short Term Bond  ULST Ultra-Short Bond 1.2 -0.2 0.4 0.0 1.34 +0.1 1 5 6 0.20 182
BlackRock iShares Ultra Short-Term Bond  ICSH Ultra-Short Bond 1.3 -0.2 0.3 0.0 1.59 +0.2 1 5 5 0.08 1,395

In eight of the nine cases, these funds have outperformed their peers on an absolute basis (APR versus peers) as well as on a risk-adjusted basis. The group’s bias toward low-risk funds is reflected in the Ulcer Index column. The Ulcer Index measures two factors: how far a fund has fallen and how long it takes to get back up. For this group, the Ulcer Index is at or barely above zero.

The Coming Rise of the Active ETFs

So, active ETFs have been held back by advisors’ fear about the transparency requirement. That all changed on May 20, 2019 in the SEC’s ruling on a request by Precidian Investments LLC to issue an active, non-transparent ETFs. Precidian is a subsidiary of Legg Mason and, in filings to the SEC, argued that it’s not necessary for everyone to know what’s in the portfolio; it’s sufficient if just a few key players, highly responsible but sworn to secrecy, know. They’re designated as “authorized participation representatives.” The involvement of the AP representatives would function to keep the price honest without requiring the release of details.

At this point, only domestic securities (stocks, REITs, ADRs, commodities, other ETFs and so on) are allowed under the rule. As a practical matter, the ruling opens the door to some 2000 domestic equity mutual funds launching active ETFs. Precidian, an affiliate of Legg Mason, listed a series of Royce and Clearbridge funds in their filings.

Precidian is now actively marketing the SEC-approved framework to mutual fund advisors. American Century announced a partnership with Precidian on the very day of the SEC approval. Since then, interest has been widespread. According to a ThinkAdvisor report,

American Century is one of 10 asset management firms that has licensed the ActiveShares methodology from Precidian, and 20 other asset managers are in discussion with Precidian to do the same, according to Daniel McCabe, the firm’s chief executive… The 10 asset managers that already have signed contacts with Precidian account for 25% of the active U.S. equity mutual fund market, according to the firm. (SEC Gives Final Nod to First Nontransparent ETF Strategy. 05/21/2019)

Precidian’s approach is not the only one possible that balances the needs of the portfolio manager and the market; Eaton Vance, for example, has filed for approval of a different structure to achieve the same goals.

At its best, the Precidian Active Share structure might revive the mutual fund industry by allowing them to substantially lower expenses (partly by shifting them to others) and reducing short-term tax bills.

The Word from Walden Pond

MFO’s position about the fund industry is clear, consistent and realistic: 80% of all extant mutual funds could disappear without any loss to anyone except their advisors. That includes not only freakish little funds peddling some advisor’s weird vision of the investment world but also the vast numbers of large, timid, undistinguished, index-hugging funds whose only goal in life is maintaining the invisible mediocrity that keeps people from yanking their money in horror.

Nothing about an active ETF structure can redeem those funds, though even as we speak the wheels of a hundred marketing engines are turning. MFO has been covering ETFs, active and otherwise, and we’ll continue to do so. But we’ll do so with Henry David Thoreau’s warning pasted to the wall:

As with our colleges, so with a hundred “modern improvements”; there is an illusion about them; there is not always a positive advance. The devil goes on exacting compound interest to the last for his early share and numerous succeeding investments in them. Our inventions are wont to be pretty toys, which distract our attention from serious things. They are but improved means to an unimproved end. (Walden, 36)

Launch Alert: Harbor International Small Cap (HIISX)

By David Snowball

On May 23, 2019, Harbor Capital Advisors did a hard reset on Harbor International Small Cap (HIISX). Over its first three years, the fund’s returns trailed nearly three-quarters of its peers with only a tiny bit less volatility. Harbor chose to empanel a new subadvisor, Cedar Street Asset Management which was founded in April of 2016, is an employee-owned investment management firm and has $220 million in assets under management as of May 31, 2019. Since Cedar Street brings a distinct strategy that has little in common with their predecessors, MFO classifies this as a new fund, hence a new fund Launch Alert.

The managers are seeking long-term growth of capital. The plan is to invest in a fairly compact portfolio of small cap stocks, primarily but not exclusively domiciled in developed international markets, using Cedar Street’s disciplined, valued-oriented approach.

What are they planning to do?

The guys will build a portfolio of 50-70 international small cap stocks. The current market cap range for their universe is about $100 million – $8 billion. While they have the authority to invest in emerging markets, they anticipate that direct EM exposure will be “minimal.” Position sizes will be “conviction weighted” but any individual position is capped at 5%. They anticipate turnover in the range of 25-35% which implies a typical holding period of three to four years.

In building the portfolio, they give exceptional attention to downside protection. The team’s investment process review places the “downside review” before the “upside analysis,” which strikes me as singularly sensible. They have a strong preference for value-priced stocks of firms with solid underlying businesses and clean balance sheets. They also spend a lot of effort in a governance analysis. They argue that “Because of varied laws around corporate governance and knowledge of the local players in the markets and their views on minority investors, Cedar Street feels that a detailed review of corporate governance practices is key to success in this space.”

Who’s going to do it?

Jonathan Brodsky, Founder and Principal, and Waldemar Mozes, Director of Investments for Cedar Street, will be the portfolio managers for the Fund. Mr. Brodsky co-managed Advisory Research International Small Cap Value from its launch in 2010-2016, Calvert International Opportunities from 2011-2016 and Acuitas International Small Cap from 2014-2016. Prior to joining Cedar Street, Mr. Mozes joined TAMRO Capital Partners LLC as a manager in 2008 after stints with Artisan Partners and The Capital Group, adviser to the American Funds. At TAMRO he developed the international small cap strategy and managed ASTON/TAMRO International Small Cap Fund (AROWX/ATRWX) from its launch in 2014 to its untimely liquidation in January, 2016.

In the topsy turvy world of asset management M&A Advisory Research was bought in 2010 by Piper Jaffray then sold again in 2019 while Aston was bought in 2016 by AMG, with all of its funds absorbed or liquidated.

Why might the fund warrant your attention?

There are three arguments for considering the fund.

1. International small caps are a major asset class.

In rough terms, four-five thousand stocks, 46 countries with, depending on how you count, somewhere between 100-200% of the total market capitalization of the two thousand US small caps. Collectively, they represent about 6% of the global stock market.

2. You’re underexposed to them.

The average US investor holds about 15% of their portfolio in international stocks but the average “core” international fund only has 1.5% of its money in small cap stocks. In rough terms, the average US investor might then have 0.225% in international small caps, about a 25:1 underweight.

The bias toward international large caps is ironic since small caps have greater price inefficiencies linked to low (and falling) analyst coverage, substantially higher 10-year returns than their large cap peers, higher risk-adjusted returns, lower correlation to the US market and better valuations. And their advantage over international large caps has been persistent over time and across markets.

As of May 2019, GMO projects international small caps to have higher returns than any asset class outside of the emerging markets over the next five to seven years.

3. The managers have a pretty solid record in exploiting them.

The managers’ records at their prior funds were quite solid, though in the TAMRO / Aston case regrettably cut short. Cedar Street has enough AUM that they’re been able to build out a robust analyst corps in order to find the opportunities that firms relying on “bought research” might miss. Their screening process helps them reduce a 5,000 stock universe down to an investable 500 stock one, with something like 100-200 names on their shopping list.

Potential investors should be aware that the process of portfolio transition could trigger a substantial short-term capital gains accrual, which might mean an unusually high tax bill.

The administrative details

The minimum initial investment for the retail shares (HIISX) is $2,500 and the expense ratio, after waivers, is 1.32% on assets of $54 million. The fund offers three other share classes.

Name / ticker Expense ratio Minimum investment
Administrative HRISX 1.20 $50,000
Institutional HAISX 0.95 $50,000
Retirement HNISX 0.87 $1,000,000

The fund is available through Schwab, TDAmeritrade, Vanguard and a few other platforms. Its website, Harbor International Small Cap, doesn’t yet offer commentary from the Cedar Street team. The Cedar Street Asset Management site isn’t noticeably richer, except for a bunch of video clips (2016-19) on the In the News page. Those mostly offer commentary on external events (“X is overpriced”) rather than discussions of strategy and approach.

The general case for international small cap investing was nicely summarized in a December 2018 white paper from AMG. It’s worth reading for folks new to the field. Mike Lipper, president of the Royce Funds, has a comparable piece (May 2019) but it requires a slightly annoying registration in order to get access.

 

Launch Alert: Palm Valley Capital Fund (PVCMX)

By David Snowball

On April 30, 2019, Palm Valley Capital Management launched their first, and likely only, fund: Palm Valley Capital Fund (PVCMX). The managers are seeking long-term total return. The plan is to invest in a compact portfolio of high-quality, substantially undervalued small cap stocks.

What are they planning to do?

Their goal is to provide “an attractive absolute return” over the course of a full market cycle. A market cycle encompasses the period between the peak of one bull market (October 2007 for the current one, for example), through the subsequent bear market and bull market phases, to the peak of the next one. Such cycles typically run from 7-10 years. By highlighting the “full market cycle” as the right period for judgment, they’re reminding investors that over shorter spans within the cycle they’ll look, variously, like heroes, geniuses, fuddy-duddies then idiots. For long-term investors, none of those individual phases should sway your investment decisions: charging into the fund after they’ve established themselves as geniuses is about as destructive to wealth as charging out of the fund when you’ve concluded they’re idiots.

The portfolio construction process has three steps:

  1. Identify good businesses – their universe is about 300 small cap U.S. blue chip companies: established firms, profitable businesses, predictable cash flows and a strong balance sheet.
  2. Buy them when they’re available at a good price – using a discounted free cash-flow model that accounts for the short-term ebbs and flows of a firm’s cash flow.
  3. Sell them when the price exceeds value, or when you can no longer be certain of the value.

As absolute value investors, the corollary of all that is: if they can’t find companies and stocks that meet our criteria, they will not buy stocks just for the sake of being fully invested. That means during each cycle, it is utterly predictable that the fund will hold a cash stake that’s somewhere between negligible (0% when the market is tanking and values abound), substantial (say, 40% as values become scarce) and huge (90% at the market’s frothy peak). The short-term judgment of “genius” or “idiot” will be determined by where in the market cycle we are, rather than by any change in the managers’ behavior.

Who’s going to do it?

The fund will be managed by Eric Cinnamond and Jayme Wiggins. This fund’s first incarnation appeared in 1996, when Mr. Cinnamond’s Evergreen Small Cap Equity Income fund earned a five-star designation from Morningstar and was twice recognized by Barron’s as a Top 100 mutual fund. In the late 90s, he moved to Florida and was hired by Intrepid to replicate the strategy in a series of separately managed accounts. From 2005-2010, Mr. Cinnamond built and managed the five-star Intrepid Endurance (ICMAX) then, from 2010 – 2016, he managed Aston / River Road Independent Value (ARIVX). In an exceptional move, Mr. Cinnamond recommended return of capital to his investors, noting that the market was fundamentally hostile to his investment style and that he was unwilling to charge investors “equity fund prices” while sitting at 90% cash. That struck me as a singularly sensible and principled decision.

Mr. Wiggins managed Intrepid Endurance from the day after Mr. Cinnamond’s departure in 2010 to September, 2018. He’d worked with Endurance as a member of its investment team since the fund’s launch.

Why might the fund warrant your attention?

Absolute value investors are the industry’s most sensible and most endangered species. They start with the simple principles that stocks are risky and stocks aren’t always worth the risks they pose. Absolute value investors only own stocks when the likely rewards substantially outweigh the likely risks. Every market cycle has phases when stocks, on whole, are wildly undervalued, more-or-less reasonably valued, and wildly overvalued. On average, absolute value investors pour money into the market during the first phase when everyone else is fleeing, ride the market back up during the second phase, and sell down their holdings during the third phase. Because the third, frothy phase can last a long time, executing the strategy requires fortitude and patience on the part of both managers and shareholders.

Since most investors have limited patience, most absolute value investors have limited careers.

That said, Messrs. Cinnamond and Wiggins have performed exceptionally well over the course of two lengthy careers. Below is the combined record for their tenures as lead manager for Intrepid Endurance (10/03/2005 – 9/10/2018).

For much of those 13 years, Endurance crushed both the S&P 500 and its small cap peers. As the frothy phase – depending on your metrics, 2013-present – dragged on, its raw performance advance dwindled then disappeared. (As did most of its investors.)

The strength of the managers’ stock-picking is understated by the fund’s total returns, since their portfolios often held substantial cash reserves. Over the years, several spot calculations showed that the fund’s stocks were returning a multiple of the index’s returns.

The stock market remains, in the managers’ view, frothy. As a result, the fund’s initial portfolio remains lightly invested and focused on liquidity.

Given our views on valuation and risk, we are currently placing considerable emphasis on liquidity, quality, and minimizing mistakes. T-bills, in our opinion, are particularly attractive relative to many of the small cap stocks we’ve analyzed and valued. In addition to protecting capital, T-bills are liquid, provide a competitive yield, and allow investors to act decisively when future opportunities return.

In addition to T-bills, we are attracted to a handful of small cap equities with strong balance sheets. Our goal is to focus on businesses we believe will survive and gain market share during the next economic downturn. In summary, at this stage of the cycle, we want liquidity in the portfolio and liquidity in the balance sheets of the businesses we own.

The administrative details

The minimum initial investment for PVCMX is $2,500 and the opening expense ratio, after waivers, is 1.25%. That’s 13 bps lower than the expenses for ICMAX. The fund is available from the advisor, which is working hard to arrange access through various online brokerages. Its website is PalmValleyCapital.com. There’s a fair richness of market analyses on site already, which would give potential investors an insight into the managers’ approach.

Matthews Asia Value (MAVRX / MAVAX) (Liquidated), July 2019

By David Snowball 

This fund has been liquidated.

Objective and strategy

Matthews Asia Value pursues long-term capital growth by investing in a diversified portfolio of securities of undervalued companies from the Asian region. The target is firms that are high quality, undervalued with strong balance sheets, focused on their shareholders, and well-positioned to take advantage of Asia’s economic and financial evolution. The goal is to buy shares at a discount of 30% or more to their calculation of intrinsic value.

It is an all-cap portfolio, which translates to an exceptional weighting in small- and mid-cap names. At the most recent portfolio report, 65% of the portfolio was in mid-cap and smaller names with 12% in micro-cap stocks. That’s double the peer average. While the manager would prefer to be fully invested, as he was in 2015 and 2016, he is willing to hold cash when there aren’t rich opportunities. The cash stake currently is above 15%.

Adviser

Matthews International Capital Management, more commonly known as Matthews Asia. Matthews Asia is the largest dedicated Asia-only investment specialist in the United States. They were founded in 1991 by Paul Matthews and launched their first funds in 1994. As of May 31, 2019, Matthews Asia had US$28.9 billion in assets under management. They advise the 17 Matthews Asia mutual funds, which range from “risk-conscious and pretty good” to “risk-conscious and outstanding.” As a firm they pursue a bottom-up, fundamental investment philosophy with a focus on long-term investment performance.

Manager

Beini Zhou, with the assistance of Michael Han. Mr. Zhou manages the firm’s Asia Value Strategy and co-manages the Asia Small Companies Strategy. Prior to joining Matthews in 2013, he was a Research Analyst with Artisan Partners on the Global Value Team. He earned an M.S. in Computer Science and a B.A. in Applied Mathematics, both from Harvard and both relevant to his investing discipline. Mr. Han is the fund’s co-manager and the primary answer to the question, “what happens if Beini Zhou gets hit by a bus?” Before joining Matthews in 2007, he worked at Luxor Capital Group and Crystal Investment Group. He has earned an MBA from Columbia. Both have been with the fund since launch.

Strategy capacity and closure

The capacity is about $5 billion. Matthews has an excellent track record of closing funds in order to manage inflows and protect existing investors. That said, with assets currently at 1% of capacity, this might remain a hypothetical protection for a bit.

Management’s stake in the fund

Mr. Zhou has invested between $50,000 – 100,000 in the fund; Mr. Han has not invested in it. One of Matthews other portfolio managers, Tiffany Hsiao, also had invested in the fund. As of December 2018, none of Matthews’s independent or interested trustees had invested in the fund. That’s rarely reassuring.

Opening date

November 30, 2015

Minimum investment

$2,500 for retail shares, $100,000 for institutional shares.

Expense ratio

1.5%, after waivers, for investor shares and 1.25% for institutional shares, on assets of $26 million.

Comments

Matthews Asia Value is an exceptional fund. It possesses three characteristics that make it well worth your consideration.

It is a Matthews fund.

Matthews is the industry’s top Asia specialist. It’s been their focus for nearly 30 years. While the largest firms might offer a few Asia-focused funds (Vanguard, one; T. Rowe Price, three; Fidelity, four), Matthews has seventeen. They’ve had “boots on the ground” for decades, they have operations based in Asia and their investment team is rooted in the region and its cultures. Matthews notes:

The 48 members of our investment team each have deep experience in Asia and share a commitment to helping you understand and leverage Asia’s long-term growth potential. They bring to that effort a range of skills, experiences, and backgrounds, with 35 team members hailing from Asia, speaking 15 different Asian languages and dialects.

Matthews funds are, across the board, solid, disciplined and risk conscious.

It is a value fund.

The story about investing in Asia has always been the growth story. Louise Kavanagh, a Hong Kong-based managing director for Nuveen notes:

Over the next few decades, the weight of economic power and structural megatrends will lean heavily towards the Asia-Pacific region. By 2030, Asia-Pacific, led by China, will account for nearly half of the world’s output, more than 50% of the world’s urban population growth and almost all of the top 50 global cities, with the largest forecasted change in wealthy households.

Matthews themselves strike the same chord: “Asia is the fastest-growing, most dynamic region in the world, currently representing one-third of global GDP and more than half of the world’s annual growth.” In JPMorgan’s “10 Reasons to Invest in Asia” (2019), the word “growth” occurs five times and “value” not at all. That growth bias once made sense, but Asia’s markets are now evolving in ways that will finally reward value investors.

The same growth bias manifests itself in the structure and portfolios of mutual funds. The only diversified Asian fund or ETF that even has “value” in its name is this one. Eight diversified Asia funds and ETFs– that is, ones focused neither on the emerging markets or a single country – have value-tilted portfolios. Several are, frankly, tiny and bad.

In international markets over the past 1-, 3- and 5-year periods, large has beaten small and growth has beaten value by about 300 bps. And still Matthews Asia Value, whose portfolio is tilted toward “small” and “value”, has been beating the larger-and-growthier pack since inception.

Three year performance, through 05/2019

  Value Rank among all diversified Pacific region funds and ETFs
Annual return 9.9% 4th
Standard deviation 11.3 5th
Sharpe ratio 0.75 2nd
Downside deviation 11.3 5th
Sortino ratio 1.10 3rd

Among the Asian value options, Matthews has the second-highest returns and the highest Sharpe ratio.

It has Beini Zhou.

I’ve spoken twice, at length, with Mr. Zhou at the Morningstar Investment Conference. I talk with lots of managers each year. He is among the most impressive I’ve met in terms of clarity and precision of thought and expression. He was, at our last conversation, in the midst of taking courses on artificial intelligence and teaching himself a new programming language with the intent of designing a program that could scrape qualitative data, not just statistical data, from conference calls and other corporate documents.

Mr. Zhou made two arguments: that Asian markets were evolving in a way that will benefit value investors and that most of the folks attempting value investing in Asia don’t “get it.” Doctrinaire thinking, or an over-dependence on quantitative measures, leads most investors into value traps.

The Asia ex-Japan market has an abundance of undervalued stocks. Many, however, are undervalued for good reasons. It could be the business has not been growing and has no prospects for growth; corporate governance could be poor; management could include questionable characters or a shady past; business quality could be mediocre; or its financial numbers may seem too good to be true. A few years ago, we passed on a sizable Chinese specialty chemicals company at a single-digit price-to-earning (P/E) ratio even though all our checks, qualitative and quantitative, came back fine. We passed simply because we did not feel comfortable with the company’s operating margin of almost 60%. The stock was subsequently suspended by the local stock exchange due to concerns of potential fraud.

With its less-developed economies and markets, Asia is full of such landmines if one blindly invests in statistically cheap companies. (“Value Investing in the Digital Age,” 2019)

He attempts to avoid those landmines using two, complementary strategies. First, he spends a lot of face-to-face time with management, deciding whether or not they’re the sort of people with whom he could invest. “The jockey,” he argues, “is often as important as the horse. When we meet with a founder in Asia, numbers are secondary and we use our initial first-hour meeting to inquire about the history, culture and DNA of the organization.” That’s the point at which individual intellect partners with deep linguistic and cultural knowledge to produce clues that others might miss.

Second, he tries to connect the dots in ways that others don’t. He sees great value in tech stocks despite the fact that “value orthodoxy avoids tech.” Ten of the hundred firms on his immediate watchlist, those that meet his quality criteria but don’t yet represent good value, are tech firms.

Two key conditions are now in place for a value-oriented investing strategy in Asia.  First, the slowdown in Asia in recent years has led to a compression of earnings multiples in the valuation of many companies in the region. Many of these same stocks used to be growth darlings trading at a highflying multiple that is the bane of value investors. But many now trade at no higher than a mid-teen P/E ratio while still generating double-digit profit growth, albeit not growing as fast as before. This presents opportunities to value investors that were not as readily available earlier. Case for Asian value investing (2017)

With luck, and skill, he identifies 30-40 “quality businesses where bad things have happened” that are actively changing their fate and that sell for $.70 on the dollar (“I want to buy a dollar for $.70 so long as it’s soon going to be worth more than a dollar”).

Bottom Line

American investors have long been underexposed to international markets (foreign stocks represent 60% of global market cap but under 20% of US equity portfolios) and that problem has been getting worse (Fidelity estimates that international exposure has fallen 3-8% this decade, with young investors having the least international exposure). Even in perfectly normal markets, that’s bad because an undiversified portfolio tends toward both lower returns and higher volatility than one with a substantial global balance.

The problem is especially pressing now. The US stock market has the highest valuations in the world and the second-highest in US stock market history. Sober folks – Vanguard, Research Affiliates, GMO – all project the US to underperform in the decade ahead. It happens. Really.

graph showing outperformance of US vs International Equities

(source: The Hartford Funds, US & International Markets Move in Cycles, 2019)

Sober but more alarmed folks are a bit more emphatic. “The Case for Avoiding U.S. and Buying Asia Instead” (Barron’s, 03/08/19) draws on the work of Chris Wood, a very well-respected analyst, to conclude that the financial engineering that’s been propping up the US market leaves us in a singularly fragile space.

For those interested in looking beyond, this is both an exceptional fund and an exceptional manager. While Mr. Zhou is risk-conscious in his decisions, though, it is not a “conservative” fund per se. You should not invest in it expecting low volatility or a downside hedge against either US or global market declines. The argument, instead, is that it offers a distinctive take on a dynamic region; Mr. Zhou has been finding value in ways, and in places, that others miss. In doing so, he’s been serving his investors in ways that other vehicles – both active and passive – have not been able to do.

For investors looking to re-establish their domestic / international balance, this is a first tier option.

Fund website

Matthews Asia Value. The Matthews site, in general, is chock-a-block with information on developments in Asia and their investment implications. Mr. Zhou has also authored a short, clear piece entitled “Value Investing in the Digital Age” (2019) which you’d benefit from reading.

Around the Isle in Eleven Days

By David Snowball

Chip and I aspire to travel internationally once every two years. Our hope, in part, is to get far away from the noise long enough that we actually manage to unwind. Our ideal trips feature cool sites, the opportunity to sit and talk with people, and one outstanding meal a day. Two years ago that took place in Scotland, this year Ireland, and two years hence, Italy. (We hope.)

The plan was simple: arrive, get away from Dublin as fast as possible, head west to the Gaeltacht, then spend as little time driving each day as possible. The east of Ireland has ancient wonders, but it’s also the most like England: country estates, formal gardens, and self-important young professionals glued to their iPhones. In the east, Gaelic is not spoken and rarely understood; my relatives, who’ve lived in the same house in County Kilkenny since the 1720s, admit that they can speak nary a word of the island’s native language.

The west of Ireland is more rugged, slower-paced, more … Irish. So there we went.

June 1: trapped in Row 11, seats A and B on the overnight from O’Hare. Not first class but something called “Premium Economy,” which gave us six additional inches for $150. Don’t scoff; I’m six foot tall and those inches were precious.

June 2: we stagger, jet-lagged, around Dublin. The plan was to avoid driving when we were too tired to reliably distinguish the roadway from the sidewalk. Mission accomplished?

June 3: the cross-country drive from Dublin to the Rock of Cashel to Dingletown (An Daingean in Gaelic, which translates to “stronghold”).

June 4, 5: in Dingle. A beautiful harbor town, home to outstanding ice cream and the best chowder either of us has ever had. The two highlights were (1) starting the Slea Head Drive – a scenic bit of cliffside road that appears precisely one foot wider than the tour buses that are coming directly at you – and (2) a sea safari, seated on pommels and riding a speedboat for four hours out of the harbor, along the coast and around the Blasket Islands. We were accompanied for much of the way by a pod of 50 dolphins, which was intensely cool.

June 6: drove to Doolin. The roadmap from Dingle to Doolin looks a lot like the diagram of your small intestine.

June 7: visited the Cliffs of Moher, drove through the Burren, snuck in a trip to Hazel Mountain Chocolate (the world’s smallest and most remote chocolate factory) hopped a ferry and made it to Galway.

June 8 -9: in Galway. Food, shopping, open air markets, lovely walks along the River Corrib, followed by a full-day trip via ferry to the largest of the Aran Islands, Inis Mór. Patrick, who was actually Padraig and thought of English as his second language, took us most of the length of the island in his pony trap. A high point, literally and figuratively, was the long trek up to the hilltop fortress at Dun Aengus (locally, Dún Aonghasa ). It was an excellent spot to contemplate the beauty of Ireland and your own prospects for an untimely death, before retreating down the mountain to buy a handmade sweater or two.

June 10: drove eastward to Brú na Bóinne, roughly “Mansion on the River Boyne.” There are three huge tombs (Knowth, Dowth and Newgrange) at Brú na Bóinne that predate the Pyramids by a millennium and Stonehenge by more. They’re interspersed with 35 smaller tombs and other Neolithic structures.

June 11: Dublin International, a four hour delay, eight hours in Row 11, seats A and B (again!), landed at O’Hare at either 7:00 p.m. or 3:00 a.m. (depending on whether you believed the local clocks or our brains) and spent three lovely hours driving across Illinois to home. Immediately confronted with the question, “whatcha bring me?”

Life is good.

We would very much encourage folks to visit. The country is lovely, the food is excellent, and the hospitality is incomparable. That said, we also wanted to distill our travel wisdom – insofar as we could – into Ten Tips for Traveling to Ireland. Then we discovered an 11th.

Tips for traveling in Ireland

  1. Go west. Immediately. The east of Ireland is England (traffic jams, huge estates, formal gardens and Very Important young professionals in power suits and iPhones with only the ubiquitous Guinness signs as a reminder than you’re in Ireland), a nice place but not where you’d intended to travel.
  2. Pack light. Cars are small. They have stores and they take Visa.
  3. Remember that posted speed limits are an example of Irish humor. Twisting dirt paths dotted with sheep dung are typically posted at 80 kilometers per hour. Yes. That road over there.
  4. The “coffee” typically served at your B&B has two of the three attributes of fine coffee: it’s hot and dark-colored. That’s about it.
  5. Ireland has more castles and ruins (30,000+) than actual coffee shops (500+). Plan accordingly.
  6. Eat the seafood chowder. At its worst, it’s quite good. At its best (Out of the Blue, Dingle), sublime.
  7. If you plan to drive on any other than M-routes, the Irish equivalent of an interstate, your motto needs to be “Xanax all around!”
  8. Fans of escape rooms are going to love venturing into an Irish bathroom. They have a lot in common, including time pressure, inscrutable technology and occasional panics. Toilets require handle pumping, priming, double flushing, chain pulls and entreaties in Gaelic. Having a 20-cent coin sometimes helps. Showers are worse. Good luck!
  9. It’s an island. The best way to see it is by boat. Take a Sea Safari from Dingle around the coast and travel with pods of dolphins. Take a small ferry to gaze at the Cliffs of Moher from below. Take a high-speed ferry to the Aran Islands and a pony trap to the heights of Dun Aengus.
  10. Seek out chocolates.
  11. Invite us along!

Thirty days in The Shadows

By David Snowball

I write, frequently, with admiration and gratitude, about the contributions TheShadow makes both to our discussion board and to our final double-check of coverage in each month’s Briefly Noted column. For those wondering exactly how much cool stuff one person might extract from the swamp of SEC filings each month, here are The Shadow’s contributions for the month of June 2019.

The live, clickable version is TheShadow’s profile page.

Funds in Registration

By David Snowball

Before funds and ETFs can be offered to the public, they’ve got to be submitted to the SEC which has 70 days to review the application. In general, advisers try to launch just before year’s end because that allows them to have clean “year to date” and calendar year results to share. The funds on-file this month will be eligible to launch in September, though not required to do so. A surprising number of advisors filed virtual “red herring” prospectuses: substantially incomplete documents that were pushed through to meet some self-imposed deadline but that fail to stipulate strategy, manager and costs.

There are a series of intriguing and potentially outstanding funds in this month’s collection: BBH Large Cap which shares its manager with BBH Core Select, DoubleLine Income which is the latest variation on DoubleLine’s asset-backed theme, Frontier Caravan Emerging Markets Fund which features the return of a former Eaton Vance star manager, Grandeur Peak Global Contrarian Fund which seems like a sort of “special situations” fund for the global micro-cap crowd, and Wasatch Global Select which seems like a “best ideas without constraints” fund for the firm’s successful, younger generation of managers.

Aperture Endeavour Equity Fund

Aperture Endeavour Equity Fund will seek “return in excess of the MSCI ACWI hedged to USD Net Total Return Index.” (sigh) The plan is to establish a global long/short portfolio of misunderstood stocks. The fund will be managed by Thomas Tully of Aperture Investments, formerly an analyst for a small hedge fund provider, Kingdon Capital Management. Its opening expense ratio is 2.09% for “X” shares, and the minimum initial investment will be $500.

Avantis Emerging Markets Equity ETF

Avantis Emerging Markets Equity ETF, an actively-managed ETF, seeks long-term capital appreciation. The plan is to invest a diverse group of companies related to emerging markets across market sectors, industry groups and countries but the prospectus admits to a small cap and value bias. The fund will be managed by someone as yet unnamed. Its opening expense ratio has not been disclosed.

BBH Select Series-Large Cap Fund

BBH Select Series-Large Cap Fund will seek “to provide investors with long-term growth of capital.” Okay, “investor-focused” is good. The plan is to buy US large cap stocks “based on fundamental business analysis and a long-term orientation that blends aspects of growth and value investing.” The fund will be managed by Michael R. Keller. Mr. Keller has been co-manager of the very solid BBH Core Select Fund since 2008 and sole manager since July 2018. He’s supported by 11 analysts. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $5,000 or $10,000, depending on share class.

DoubleLine Income Fund

DoubleLine Income Fund will seek to maximize total return through investment principally in income-producing securities. The plan is to create “a portfolio of income-producing instruments of varying characteristics selected by the Adviser for their potential to provide a high level of current income, capital appreciation or both.” Mostly asset-backed securities, which are sort of a DoubleLine specialty. They promise “a controlled risk approach” and have the ability to short in order to further that goal. That said, it’s not clear to me what the fund’s distinctive niche among DoubleLine products is. I had that same problem with the Royce Funds and their penchant for 100 flavors of small cap value investing. The fund will be managed by Morris Chen, Andrew Hsu and Ken Shinoda. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $2,000, reduced to $500 for IRAs and HSAs.

ETF Opportunities Strategy One Fund 

ETF Opportunities Strategy One Fund, apparently an actively-managed ETF though they don’t exactly say that, will seek long-term capital appreciation with capital preservation as a secondary objective. (I’ve also wondered what the prospects are for long term gains when capital protection is secondary.) The plan is to invest in stocks with the proviso [Additional description of investment strategy of Fund to be included in a subsequent pre-effective amendment.]. The fund will be managed by an as-yet unnamed person, possibly affiliated with RidgeLine Research, LLC. Ridgeline is a newly-formed advisor with no assets under management. Its opening expense ratio has not been disclosed. There is an identical companion filing for ETF Opportunities Strategy Two Fund.

Federated Hermes SDG Engagement High Yield Credit Fund

Federated Hermes SDG Engagement High Yield Credit Fund will seek current income and long-term capital appreciation alongside positive societal impact. That seems awfully wholesome. The plan is to invest globally in the high-yield securities the advisor believes have attractive risk-return characteristics as well as alignment with at least one of the UN Sustainable Development Goals. They exclude companies “that manufacture tobacco and/or controversial weapons.” The fund will be managed by Mitch Reznick and Fraser Lundie of Hermes Investment Management, Ltd. Hermes has about $44 billion in AUM but provides stewardship advisory services to folks with another $587 billion in assets. Its opening expense ratio is 0.90%, and the minimum initial investment will be $1500.

Fiera Capital U.S. Equity Long-Term Quality Fund

Fiera Capital U.S. Equity Long-Term Quality Fund will seek long-term capital appreciation. The plan is to build a portfolio of 20-45 high quality US stocks. On face, there’s nothing terribly novel about their view of what qualifies as “quality” or how to find it (stock-by-stock) though “our unique approach to investing is rooted in the firm’s deep Canadian heritage.” The fund will be managed by Nadim Rizk and Andrew Chan of Fiera Capital. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $1,000.

Frontier Caravan Emerging Markets Fund

Frontier Caravan Emerging Markets Fund will seek long-term capital appreciation. The prospectus reveals virtually nothing about the proposed strategy, other than “invest in EM stocks with 25% or more in the banking sector.” The fund will be managed by Cliff Quisenberry who founded Caravan Capital Management LLC, a small boutique investor, in 2008. Mr. Q’s online bio reports that “As the portfolio manager of the Eaton Vance Tax-Managed Emerging Markets Fund (EITEX), his fund achieved a consistent, top-decile ranking, obtained a 5-star Morningstar rating and outperformed the MSCI Emerging Markets Index by over 500 basis points per annum since the fund’s inception in July of 1998 and until his departure in April 2007.” At the time, he favored smaller markets and quant investing. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $10,000.

Grandeur Peak Global Contrarian Fund

Grandeur Peak Global Contrarian Fund will seek long-term growth of capital. The plan is to invest primarily in foreign and domestic small- and micro-cap companies with the stipulations that a “significant” portion might be in micro-caps and a “meaningful” slice in mid-caps and larger. In general they target three themes:

  • “Core Contrarian”—what the Adviser believes to be best-in-class growth companies, but which are part of a currently out-of-favor industry, sector, or geography.
  • “Fallen Angels”—high quality growth companies that the Adviser believes have hit a temporary setback relative to their long-term growth potential.
  • “Undiscovered Gems”—smaller growth companies that the Adviser believes are undervalued because they are lesser known, have high product or client concentration, or are otherwise not well understood yet by the market.

And maybe some other stuff that looks good but doesn’t quite fit into one of those categories. The fund will be managed by Mark Madsen. Mr. Madsen is on the management teams for Grandeur Park Global Reach and International Opportunities and, like most of the GP professionals, spent time as an analyst at Wasatch. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $2,000, reduced to $1,000 for accounts opened with an automatic investing plan.

iM DBi Long Short Hedge Strategy ETF

iM DBi Long Short Hedge Strategy ETF, an actively-managed ETF, seeks long-term capital appreciation. The plan is to fire up the Dynamic Beta Engine and have it “invest in an optimized portfolio of long and short positions in U.S. exchange-traded futures contracts.” Since futures are cheap, the rest of the portfolio will be invested in investment grade, short-term bonds. The manager has been studying hedge funds and has concluded that they can be beaten at their own game. The fund will be managed by Andrew Beer and Mathias Mamou-Mani of Dynamic Beta investments (note the small “i” as a dynamic marketing gesture.) Its opening expense ratio is 0.85%.

Karner Blue Animal Welfare Fund

Karner Blue Animal Welfare Fund will seek achieve long-term total returns by investing in companies that lead their industries in animal welfare performance. The plan is to invest, mostly, in mid- to mega-cap stocks of firms that are nicer-than-average to animals, either in their R&D (testing on animals), production or impact on wildlife habitat. Curiously the prospectus highlights “leaders in their industries with respect to animal welfare performance” but says hardly a word about the investment characteristics that they target. The fund will be managed by three folks from Karner Blue Capital, “a pioneer in compassionate investing.” Its opening expense ratio is 1.25%, and the minimum initial investment will be $2,000 for Investor class and $2,000,000 for Butterfly class shares. I scanned the prospectus to see if the “Butterfly” class was anything other than a silly marketing gimmick; I had imagined, incorrectly, that investments in that share class might trigger some eco-friendly activity on the advisor’s part. Not so much.

Overlay Shares Large Cap Equity ETF

Overlay Shares Large Cap Equity ETF, an actively-managed ETF, seeks long-term capital gain. The plan is to invest in other ETFs to get US market exposure and buying or selling short-term put options to generate income and hedge the portfolio. The hope is that the fund will manage positive returns in rising, flat or modestly falling equity markets, and will buffer losses in major declines. The manager is not named, nor is the expense ratio disclosed. The advisor is launching four other active ETFs with it: Overlay Shares Small Cap ETF, Overlay Shares Foreign Equity ETF, Overlay Shares Core Bond ETF and Overlay Shares Municipal Bond ETF. Their strategies (and missing info) are parallel.

Pzena International Value Fund

Pzena International Value Fund will seek long-term capital appreciation. The plan is to buy stocks, mostly in developed foreign markets, using “a classic value strategy.” That said, the prospectus also allows up to 15% in emerging markets, 15% in illiquid securities, 15% in derivatives and 10% in limited partnerships. The fund will be managed by Caroline Cai, John P. Goetz and Allison Fisch, all of Pzena Investment Management. The team began running Ivy Pzena International Value in July 2018; results to date have been weak. They’ve managed Pzena EM Value for five years with no great distinction. Its opening expense ratio is 1.04%, and the minimum initial investment will be $5,000 for regular accounts and $1000 for tax-advantaged ones.

Sierra Tactical Bond Fund

Sierra Tactical Bond Fund will seek total return. The plan is to tactically trade high-yield bond mutual funds and ETFs. The fund will be managed by Kenneth L. Sleeper, David C. Wright, and Terri Spath. The team’s multi-sector bond fund, Sierra Tactical All Asset, trails 97% of its Morningstar peer group over the past five years with low returns, below-average risk but high expenses. This fund’s opening expense ratio is 1.84%, and the minimum initial investment will be $10,000.

Wasatch Global Select Fund

Wasatch Global Select Fund will seek long-term growth of capital. The plan is a bit unclear to me; it’s global, all-cap, and concentrated with managers who will “travel extensively outside the U.S. to visit companies and expect to meet with senior management.” The fund will be managed by five people who manage other Wasatch funds (International Opportunities, International Growth, Micro-cap …) which largely bear four- or five-star ratings. So maybe this is Wasatch’s “best ideas” fund: young, successful managers largely unconstrained by size, geography, industry or style able to buy whatever is most compelling? Its opening expense ratio has not been disclosed, and the minimum initial investment will be $2,000, reduced to $1,000 for accounts established with an automatic investing plan.

Wasatch International Select Fund

Wasatch International Select Fund will seek long-term growth of capital. The plan is a bit unclear to me; it’s global, all-cap, and concentrated with managers who will “travel extensively outside the U.S. to visit companies and expect to meet with senior management.” The fund will be managed by Ken Applegate and Linda Lasater, who are also members of the Global Select team. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $2,000, reduced to $1,000 for accounts established with an automatic investing plan.

William Blair Small-Mid Cap Core Fund

William Blair Small-Mid Cap Core Fund will seek long-term capital appreciation. The plan is to build a diversified portfolio of “high quality but undervalued” stocks. The fund will be managed by Daniel Crowe, Robert C. Lanphier IV, and Ward D. Sexton. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $500,000.

Manager changes, May and June 2019

By Chip

Each month, dozens of funds report manager changes to the SEC. The vast majority of those are inconsequential: one MBA-yielding member of a 12-person management team is popped out and another is popped in. This month’s compendium covers manager changes at 122 funds. That’s a larger-than-normal report mostly because we shared only a compressed list in our June issue, which reflected the competing time demands that Chip faced as she prepared for Ireland.

This month sees few blockbuster moves, though several “A” tier managers are on the move. Kathleen Gaffney is departing several Eaton Vance funds. John Carlson, Fidelity’s lead EM debt guy, formalized word of his year-end retirement. And the Zacks funds are losing one of their two Zackses.

Ticker Fund Out with the old In with the new Dt
EGALX Aberdeen International Real Estate Equity Fund Bruce Ebnother will no longer serve as a portfolio manager for the fund. Svitlana Gubriy, Jon Stewart, and Toshio Tangiku will continue to manage the fund. 5/19
AEOVX AC Alternatives Emerging Opportunities Total Return Fund Kevin Akioka has announced his plans to leave American Century Investments. As a result, he will no longer serve as a portfolio manager for the fund. Alessandra Alecci, John Lovito, Margé Karner, and Abdelak Adjriou will continue to manage the fund. 5/19
ACOIX AC ONE China Fund Frederick Ruopp will no longer serve as a portfolio manager for the fund. Patrick Pascal will continue to manage the fund. 5/19
FNG AdvisorShares New Tech and Media ETF David Chojnacki is no longer listed as a portfolio manager for the fund. Scott Freeze will now manage the fund. 5/19
AAIPX American Beacon International Equity Fund Foster Corwith has retired and is no longer listed as a portfolio manager for the fund. The other twenty managers will continue to manage the fund. 5/19
KORP American Century Diversified Corporate Bond ETF Kevin Akioka is no longer listed as a portfolio manager for the fund. Le Tran, Gavin Fleischman, Jeffrey Houston, and Charles Tan will continue to manage the fund. 5/19
AEDVX American Century Emerging Markets Debt Fund Kevin Akioka has announced his plans to leave American Century Investments. As a result, he will no longer serve as a portfolio manager for the fund. Thomas Youn, John Lovito, Margé Karner, and Brian Howell will continue to manage the fund. 5/19
ABHIX American Century High-Yield Fund Kevin Akioka is no longer listed as a portfolio manager for the fund. Le Tran, Gavin Fleischman, Jeffrey Houston, and Charles Tan will continue to manage the fund. 5/19
BGESX Baillie Gifford EAFE Fund Kavé Sigaroudinia will no longer be a portfolio manager for the fund. James Anderson, Thomas Coutts, Lawrence Burns, Brian Lum, and Julia Angeles will continue to manage the fund. 6/19
BGBKX Baillie Gifford Multi Asset Fund No one, immediately, but Patrick Edwardson is expected to retire effective on or about May 1, 2020. The rest of the team will continue to manage the fund while keeping an eye on the calendar. 6/19
MDLOX BlackRock Global Allocation Fund Kent Hogshire is no longer listed as a portfolio manager for the fund. Rick Rieder joins Russ Koesterich, David Clayton, and Dan Chamby in managing the fund. 5/19
HRCVX Carillon Eagle Growth & Income Fund No one, but … Brad Erwin will join Edmund Cowart, David Blount, and Harald Hvideberg on the management team. 6/19
LIIAX Columbia Corporate Income Fund No one, but … Timothy Doubek has returned from a medical leave of absence to resume his investment responsibilities as co-manager with Thomas Murphy. 5/19
ALDAX Columbia Limited Duration Credit Fund No one, but … Timothy Doubek has returned from a medical leave of absence to resume his investment responsibilities as co-manager with Thomas Murphy and Royce Wilson. 5/19
CMIEX Columbia Multi-Manager International Equity Strategies Fund Foster Corwith has retired and is no longer listed as a portfolio manager for the fund. The other sixteen managers will continue to manage the fund. 5/19
CRMEX CRM All Cap Value Fund Jay Abramson has retired. Robert Maina will continue to manage the fund. 5/19
DBALX Davenport Balanced Income Fund William Noftsinger, Jr. has resigned from Davenport & Company LLC. Christopher Pearson joins David West, George Smith, Robert Giles, E. Trigg Brown, John Ackerly, Christopher Kelley, Charles Gomer, and Michael Beall on the management team. 6/19
DAVPX Davenport Core Fund William Noftsinger, Jr. has resigned from Davenport & Company LLC. Christopher Pearson joins David West, George Smith, Robert Giles, E. Trigg Brown, John Ackerly, and Michael Beall on the management team. 6/19
DVIPX Davenport Value & Income Fund William Noftsinger, Jr. has resigned from Davenport & Company LLC. Christopher Pearson joins David West, George Smith, Robert Giles, E. Trigg Brown, John Ackerly, and Michael Beall on the management team. 6/19
DTCAX Dreyfus Sustainable U.S. Equity Fund Raj Shant is no longer listed as a portfolio manager for the fund. Rob Stewart and Yuko Takano join Jeff Munroe in managing the fund. 5/19
SSTGX DWS ESG Global Bond Fund Rahmila Nadi and Bernhard Falk are no longer listed as portfolio managers for the fund. Thomas Farina and Joseph Bowen are now managing the fund. 6/19
MGSFX DWS Fixed Income Opportunities Fund John Ryan, Kevin Bliss, and Onur Uncu are no longer listed as portfolio managers for the fund. Rick Smith joins Thomas Sweeney in managing the fund. 5/19
KTRAX DWS Global Income Builder Fund John Ryan and Kevin Bliss are no longer listed as portfolio managers for the fund. Thomas Farina and Scott Agi join Dokyoung Lee, Di Kumble, and Darwei Kung in managing the fund. 5/19
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. 5/19
SPGRX DWS Multi-Asset Global Allocation Fund, which becomes DWS Multi-Asset Global Allocation Fund Pankaj Bhatnagar and Darwei Kung are no longer listed as portfolio managers for the fund after the change in name. Sophia Noisten joins Dokyoung Lee in managing the fund. 5/19
PPLSX 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. 5/19
KSTAX DWS Multisector Income Fund John Ryan and Kevin Bliss are no longer listed as portfolio managers for the fund. Kelly Beam and Thomas Farina will now manage the fund. 5/19
EBABX Eaton Vance Core Plus Bond Fund Henry Peabody and Kathleen Gaffney are no longer listed as portfolio managers for the fund. Vishal Khanduja and John Croft join Matthew Buckley in managing the fund. 6/19
EVBAX Eaton Vance Multisector Income Fund Henry Peabody and Kathleen Gaffney are no longer listed as portfolio managers for the fund. Kelley Baccei, Justin Bourgette, and John Redding will now manage the fund. 6/19
FEAAX Fidelity Advisor Emerging Asia Fund No one, immediately, but John Dance is expected to transition off of the fund effective on or about December 31, 2019. Xiaoting Zhao joins John Dance on the management team and will continue to manage the fund upon Mr. Dance’s departure. 5/19
FSEAX Fidelity Emerging Asia Fund No one, immediately, but John Dance is expected to transition off of the fund effective on or about December 31, 2019. Xiaoting Zhao joins John Dance on the management team and will continue to manage the fund upon Mr. Dance’s departure. 5/19
FNMIX Fidelity New Market Income Fund No one, immediately, but John Carlson is expected to retire on or about December 31, 2019. Jonathan Kelly and Timothy Gill will continue to manage the fund upon Mr. Carlson’s retirement. 6/19
FPBFX Fidelity Pacific Basin Fund No one, immediately, but John Dance is expected to transition off of the fund effective on or about December 31, 2019. Bruce MacDonald and Kirk Neureiter join John Dance on the management team and will continue to manage the fund upon Mr. Dance’s departure. 5/19
FTEMX Fidelity Total Emerging Markets Fund No one, immediately, but John Carlson is expected to retire on or about December 31, 2019. Jonathan Kelly joins the rest of the team and will remain upon Mr. Carlson’s retirement. 6/19
FCARX Fiera Capital Diversified Alternatives Fund Geoffrey B. Doyle no longer serves as portfolio manager of the fund. Mark Jurish and Kazuhiro Shimbo will continue to manage the fund. 6/19
FEBAX First Eagle Global Income Builder Fund No one, but … Julien Albertini joins Edward Meigs, Sean Slein, and Kimball Brooker on the management team. 5/19
GABAX Gabelli Asset Fund No one, but … Brian Sponheimer joins Mario Gabelli, Kevin Dreyer, Christopher Marangi, and Jeffrey Jonas on the management team. 6/19
GNOM Global X Genomics & Biotechnology ETF James Ong is no longer listed as a portfolio manager for the fund. Kimberly Chan joins Chang Kim, Nam To, and Wayne Xie on the management team. 6/19
GDAFX Goldman Sachs Alternative Premia Fund Evgeny Gladchenko will no longer serve as a portfolio manager for the fund. Federico Gilly and Matthew Schwab will continue to serve as portfolio managers for the fund. 6/19
SFAFX Goldman Sachs Strategic Factor Allocation Fund Christian Morgenstern will no longer serve as a portfolio manager for the fund Matthew Schwab and Nishank Modi will manage the fund. 6/19
TTIFX Goldman Sachs Tactical Tilt Overlay Fund No one, but … Siwen Wu will join Sergey Kraytman and David Hale in managing the fund. 6/19
Various Goldman Sachs Target Date Funds Scott de Haai will no longer serve as a portfolio manager for the fund. Neill Nuttall joins Christopher Lvoff in managing the funds. 5/19
HNISX Harbor International Small Cap Fund Colin Riddles, Rosemary Simmonds, and Nicholas Williams are no longer listed as portfolio managers for the fund. Waldemar Mozes and Jonathan Brodsky will now manage the fund. 5/19
HSFAX HSBC Frontier Markets Fund Talib Saifee no longer serves as a portfolio manager of the fund. Jennifer Passmoor joins Razmi Sidani in managing the fund. 5/19
ICCCX ICON Consumer Discretionary Fund Scott Snyder is no longer listed as a portfolio manager for the fund. Brian Callahan, Craig Callahan, and Scott Callahan will now manage the fund. 5/19
ICLEX ICON Consumer Staples Fund Scott Snyder is no longer listed as a portfolio manager for the fund. Brian Callahan, Craig Callahan, and Scott Callahan will now manage the fund. 5/19
ICARX ICON Emerging Markets Fund Scott Snyder and Rob Young are no longer listed as portfolio managers for the fund. Brian Callahan, Craig Callahan, and Scott Callahan will now manage the fund. 5/19
ICENX ICON Energy Fund Derek Rollingson will no longer serve as a portfolio manager for the fund. Brian Callahan, Craig Callahan, and Scott Callahan will now manage the fund. 5/19
IOEZX ICON Equity Income Fund Derek Rollingson will no longer serve as a portfolio manager for the fund. Brian Callahan, Scott Callahan, and Donovan Paul will now manage the fund. 5/19
ICFSX ICON Financial Fund Derek Rollingson will no longer serve as a portfolio manager for the fund. Brian Callahan, Craig Callahan, and Scott Callahan will now manage the fund. 5/19
ICTRX ICON Industrials Fund Rob Young is no longer listed as a portfolio manager for the fund. Brian Callahan, Craig Callahan, and Scott Callahan will now manage the fund. 5/19
ICTEX ICON Information Technology Fund Derek Rollingson will no longer serve as a portfolio manager for the fund. Brian Callahan, Craig Callahan, and Scott Callahan will now manage the fund. 5/19
ICNEX ICON International Equity Fund Scott Snyder and Rob Young are no longer listed as portfolio managers for the fund. Brian Callahan, Craig Callahan, and Scott Callahan will now manage the fund. 5/19
ICBMX ICON Natural Resources Fund Rob Young is no longer listed as a portfolio manager for the fund. Brian Callahan, Craig Callahan, and Scott Callahan will now manage the fund. 5/19
IOCZX ICON Risk-Managed Balanced Fund Craig Callahan will no longer serve as a portfolio manager for the fund. Brian Callahan joins Scott Callahan and Donovan Paul in managing the fund. 5/19
ICTUX ICON Utilities Fund Derek Rollingson will no longer serve as a portfolio manager for the fund. Brian Callahan, Craig Callahan, and Scott Callahan will now manage the fund. 5/19
ICMBX Intrepid Capital Fund Ben Franklin is no longer listed as a portfolio manager for the fund. Joe Van Cavage, Matt Parker, Clay Kirkland, Hunter Hayes, and Mark Travis will continue to manage the fund. 6/19
ICMIX Intrepid International Fund Ben Franklin is no longer listed as a portfolio manager for the fund. Matt Parker will manage the fund. 6/19
CHTRX Invesco Charter Fund Ronald Sloan will no longer serve as a portfolio manager for the fund. Benajmin Ram, Paul Larson, and Manind Govil will now manage the fund. 6/19
AGAAX Invesco Global Small & Mid Cap Growth Fund James Leach is no longer listed as a portfolio manager for the fund. Ryan Amerman joins Borge Endresen, Shuxin Cao, and Jason Holzer on the management team. 6/19
GTAGX Invesco Mid Cap Core Equity Fund Ronald Sloan will no longer serve as a portfolio manager for the fund. Matthew Ziehl, Adam Weiner, Raman Vardharaj, Magnus Krantz, Kristin Ketner, Joy Budzinski, and Raymond Anellow will now manage the fund. 6/19
VGRAX  Invesco Mid Cap Growth Fund James Leach is no longer listed as a portfolio manager for the fund. Ronald Zibelli and Justin Livengood 6/19
OPTFX Invesco Oppenheimer Capital Appreciation Fund Paul Larson will no longer serve as a portfolio manager for the fund. Erik Voss and Ido Cohen are now managing the fund. 6/19
OPPEX Invesco Oppenheimer Capital Income Fund Michelle Elena Borré Massick and Krishna Memani are no longer listed as portfolio managers for the fund. Scott Wolle, Christian Ulrich, Scott Hixon, Chris Devine, John Burrello, and Mark Ahnrud will now manage the fund. 6/19
OSVAX Invesco Oppenheimer Dividend Opportunity Fund Laton Spahr is no longer listed as a portfolio manager for the fund. Meggan Walsh, Christopher McMeans, Kristina Bradshaw, and Robert Botard are now managing the fund. 6/19
OAEIX Invesco Oppenheimer Equity Income Fund Laton Spahr is no longer listed as a portfolio manager for the fund. Meggan Walsh, Christopher McMeans, Kristina Bradshaw, and Robert Botard are now managing the fund. 6/19
QMGIX Invesco Oppenheimer Global Multi-Asset Growth Fund Benjamin Rockmuller and Alessio de Longis are no longer listed as portfolio managers for the fund. Scott Wolle, Christian Ulrich, Scott Hixon, Chris Devine, John Burrello, and Mark Ahnrud will now manage the fund. 6/19
QMAIX Invesco Oppenheimer Global Multi-Asset Income Fund Benjamin Rockmuller and Alessio de Longis are no longer listed as portfolio managers for the fund. Scott Wolle, Christian Ulrich, Scott Hixon, Chris Devine, John Burrello, and Mark Ahnrud will now manage the fund. 6/19
QVSCX Invesco Oppenheimer Mid Cap Value Fund Eric Hewitt and Laton Spahr are no longer listed as portfolio managers for the fund. Jeffrey Vancavage will manage the fund. 6/19
OVSIX Invesco Oppenheimer Small Cap Value Fund Eric Hewitt will no longer serve as a portfolio manager for the fund. Jonathan Mueller and Jonathan Edwards are now managing the fund. 6/19
CGRWX Invesco Oppenheimer Value Fund Laton Spahr is no longer listed as a portfolio manager for the fund. James Warwick, Kevin Holt, Charles DyReyes, and Davin Armstrong are now managing the fund. 6/19
IECAX Ivy Pictet Emerging Markets Local Currency Debt Fund No one, but … Robert Simpson has joined Mary-Therese Barton, Philippe Petit, Guido Chamorro, Carrie Liaw, and Alper Gocer on the management team. 6/19
MNVAX Madison Investors Fund Adam Sweet will no longer serve as a portfolio manager for the fund. Richard Eisinger joins Matthew Hayner in managing the fund. 6/19
MIGFX Massachusetts Investors Growth Stock Fund No one, but … Joseph Skorski joins Jeffrey Constantino in managing the fund. 5/19
MGJRX MassMutual Select BlackRock Global Allocation Fund Kent Hogshire is no longer listed as a portfolio manager for the fund. Rick Rieder joins Russ Koesterich, David Clayton, and Dan Chamby in managing the fund. 5/19
MMVYX MassMutual Select Small Company Value Fund Stephen Gutch, J. David Wagner, Glen Murphy, Martin Jarzebowski, Michael Abata, and Brian Morandi are no longer listed as portfolio managers for the fund. Shri Singhvi, James MacGregor, Miles Lewis, and Jeff John are managing the fund. 6/19
DIFAX MFS Diversified Income Fund Effective September 1, 2019, Ward Brown will no longer serve as a portfolio manager for the fund. In September, Neeraj Arora will join Robert Almeida, David Cole, Rick Gable, Matt Ryan, Jonathan Sage, Geoffrey Schechter, and Michael Skatrud on the management team. 5/19
MEDAX MFS Emerging Markets Debt Fund No one, but … Effective September 1, 2019, Neeraj Arora will join Ward Brown and Matthew Ryan in managing the fund. 5/19
TALTX Morgan Stanley Alternative Strategies Fund Matthew Rizzo is no longer listed as a portfolio manager for the fund. Zachary Apoian joins Sukru Saman in managing the fund. 5/19
MELAX Morgan Stanley Emerging Markets Leaders Portfolio Ashutosh Sinha will no longer serve as a portfolio manager for the fund. Vishal Gupta will continue to manage the fund. 6/19
TILUX Morgan Stanley Inflation-Linked Fixed Income Fund Jeremie Banet no longer serves as a portfolio manager for the fund. Stephen Rodosky joins Mihir Worah in managing the fund. 5/19
TSGUX Morgan Stanley Pathway Funds Small-Mid Cap Equity Fund Michael Whitfield, Stephen Knightly, Christopher Scarpa, John Schaeffer, Brent Miley, N. Carter Newbold, Dennis Scannell, and Peter Schliemann are no longer listed as portfolio managers for the fund. Thomas O’Neil, Scott Moore, Gary Mitchell, John McPherson, Bruce Kennedy, Matthew Dent, Chad Baumler, and David Adams join the other eight team members on the management team. 5/19
NDNAX Navigator Duration Neutral Bond Fund No one, but … Alexander Meyer joins K. Sean Clark and Jonathan Fiebach in managing the fund. 5/19
NTBAX Navigator Tactical Fixed Income Fund No one, but … Alexander Meyer joins Robert Bennett, Mason Wev, David Rights, K. Sean Clark, and Jonathan Fiebach in managing the fund. 5/19
NUSAX Navigator Ultra Short Bond Fund No one, but … Alexander Meyer joins Robert Bennett and Jonathan Fiebach in managing the fund. 5/19
NHINX Neuberger Berman High Income Bond Fund Patrick Flynn is no longer listed as a portfolio manager for the fund. Christopher Kocinski joins Joseph Lind, Daniel Doyle, William Covode, and Thomas O’Reilly on the management team. 5/19
NHSAX Neuberger Berman Short Duration High Income Fund Patrick Flynn is no longer listed as a portfolio manager for the fund. Christopher Kocinski joins Joseph Lind, Daniel Doyle, William Covode, and Thomas O’Reilly on the management team. 5/19
NCGFX New Covenant Growth Fund Patrick Kaser, James Clarke, Peter Thompson, Brian Kramp, Patrick Kelly, and Ankur Crawford are no longer listed as portfolio managers for the fund. David Hintz, Stephen Dolce, Paul Bouchey, and Thomas Seto will continue to manage the fund. 5/19
NCEGX North Country Equity Growth Fund Peter Capozzola is no longer listed as a portfolio manager for the fund. Alina Kindron joins Adam Horowitz in managing the fund. 6/19
NSBRX Nuveen Santa Barbara Dividend Growth Fund James Boothe will no longer serve as a portfolio manager for the fund. David Chalupnik and David Park have taken over management of the fund. 6/19
NUGIX Nuveen Santa Barbara Global Dividend Growth Fund James Boothe will no longer serve as a portfolio manager for the fund. David Chalupnik and David Park have taken over management of the fund. 6/19
NUIIX Nuveen Santa Barbara International Dividend Growth Fund James Boothe will no longer serve as a portfolio manager for the fund. David Chalupnik and David Park have taken over management of the fund. 6/19
NCOAX Nuveen Symphony Credit Opportunities Fund No one, but … Scott Caraher joins Jenny Rhee in managing the fund. 5/19
NFRAX Nuveen Symphony Floating Rate Income Fund No one, but … Jenny Rhee joins Scott Caraher in managing the fund. 5/19
PEBIX PIMCO Emerging Markets Bond Fund Michael Gomex and Francesc Balcells are no longer listed as portfolio managers for the fund. Yacov Arnopolin is joined by Javier Romo and Pramol Dhawan on the management team. 5/19
PLMAX PIMCO Emerging Markets Currency and Short-Term Investments Fund Michael Gomex and Francesc Balcells are no longer listed as portfolio managers for the fund. Pramol Dhawan is joined by Ismaiel Orenstein in managing the fund. 5/19
PLMAX PIMCO Emerging Markets Currency and Short-Term Investments Fund Michael Gomez and Francesc Balcells are no longer listed as portfolio managers for the fund. Ismael Orenstein joins Pramol Dhawan in managing the fund. 5/19
PFSIX PIMCO Emerging Markets Full Spectrum Bond Fund Michael Gomex and Francesc Balcells are no longer listed as portfolio managers for the fund. Yacov Arnopolin and Pramol Dhawan will continue to manage the fund. 5/19
PELAX PIMCO Emerging Markets Local Currency and Bond Fund Francesc Balcells and Michael Gomez are no longer listed as portfolio managers for the fund. Ismael Orenstein joins Pramol Dhawan in managing the fund. 6/19
PWLIX PIMCO RAE Worldwide Long/Short PLUS Fund Josh Davis is no longer listed as a portfolio manager for the fund. Graham Rennison joins Robert Arnott, Christopher Brightman, Mohsen Fahmi, Bryan Tsu, and Jing Yang on the management team. 5/19
POLRX Polen Growth Fund Damon Ficklin will no longer serve as a portfolio manager for the fund. Dan Davidowitz and Brandon Ladoff will continue to manage the fund. 6/19
RMPLX RiverNorth Marketplace Lending Corporation Philip Bartow will no longer serve as a portfolio manager for the fund. Janae Stanton joins Patrick Galley and Andrew Kerai on the management team. 5/19
RMBTX RMB International Fund Robert Gwin and Egor Rybakov are no longer listed as portfolio managers for the fund. Masakazu Hosomizu will now manage the fund. 6/19
RMBSX RMB International Small Cap Fund Robert Gwin and Egor Rybakov are no longer listed as portfolio managers for the fund. Masakazu Hosomizu will now manage the fund. 6/19
ULST SPDR SSGA Ultra Short Term Bond ETF No one, but … John Mele joins James Palmieri in managing the fund. 6/19
SKLCX Steben Managed Futures Strategy Fund Basak Akiska is no longer listed as a portfolio manager for the fund. Carl Serger joins Kenneth Steben and John Dolfin on the management team. 6/19
TRIGX T. Rowe Price International Value Equity Fund Sebastien Mallet will no longer serve as a portfolio manager for the fund. Colin McQueen takes over management of the fund. 6/19
TGPNX TCW Conservative Allocation Fund Jess Ravich will no longer serve as a portfolio manager for the fund. Adam Coppersmith, Stephen Kane, and Michael Reilly will continue to manage the fund. 6/19
TIGIX Timothy Plan Growth & Income Fund David James, Barry James, R. Brian Culpepper, Matthew Watson, and Trent Dysert will no longer serve as portfolio managers for the fund. James Investment Research is no longer sub-advising the fund. Barrow, Hanley, Mewhinney & Strauss, LLC will subadvise the fund, with Arthur Ally, David Hardin, Mark Luchsinger, and Scott McDonald serving on the management team. 6/19
TARBX Touchstone Credit Opportunities II Fund David Stuehr, Barbara McKenna, Alexander Graham, and Andrew Bail are no longer listed as portfolio managers for the fund. Kapil Singh, Jason Duko, and Seth Brufsky will now manage the fund. 6/19
TPYAX Touchstone Premium Yield Equity Fund Deepak Ahuja is no longer listed as a portfolio manager for the fund. Gregory Powell, Bryan Spratt, Lowell Miller, and John Leslie will continue to manage the fund. 5/19
STITX Virtus SGA International Growth Fund Kurt Winrich, Michael Trigg, Peter Hunkel, and Paul Black are no longer listed as portfolio managers for the fund. Gordon Marchand, Alexandra Lee, and Tucker Brown are now managing the fund. 6/19
WFRPX Wealthfront Risk Parity Fund Celine Sun has resigned as a porfolio manager to the fund. Alex Michalka joins Ashley Johnson in managing the fund. 6/19
EWEAX Wells Fargo Intrinsic World Equity Fund Jen Robertson will no longer serve as a portfolio manager for the fund. Miguel Giaconi joins Amit Kumar and Jean Baptiste in managing the fund. 6/19
SMVAX Wells Fargo Small Cap Value Fund Michael Schneider and Erik Astheimer are no longer listed as portfolio managers for the fund. Craig Pieringer, Garth Nisbet, and Jeff Goverman will manage the fund. 6/19
WHGMX Westwood SMidCap Fund Thomas Lieu is no longer listed as a portfolio manager for the fund. William Costello, Prashant Inamdar, and Grant Taber will continue to manage the fund. 5/19
WHGPX Westwood SMidCap Plus Fund Thomas Lieu is no longer listed as a portfolio manager for the fund. William Costello, Prashant Inamdar, and Grant Taber will continue to manage the fund. 5/19
WMRIX Wilmington Real Asset Fund Timothy Atwill is no longer listed as a portfolio manager for the fund. Stephen Rodosky, Matthew Glaser, Jordan Strauss, Paul Bouchey, Thomas Seto, and Mihir Worah continue to manage the fund. 5/19
CZOVX Zacks All-Cap Core Fund Benjamin Zacks will no longer serve as a portfolio manager of the fund. Mitch Zacks will continue to manage the fund. 6/19
ZDIVX Zacks Dividend Fund Benjamin Zacks will no longer serve as a portfolio manager of the fund. Mitch Zacks will continue to manage the fund. 6/19
ZMNVX Zacks Market Neutral Fund Benjamin Zacks will no longer serve as a portfolio manager of the fund. Mitch Zacks will continue to manage the fund. 6/19
ZSCCX Zacks Small-Cap Core Fund Benjamin Zacks will no longer serve as a portfolio manager of the fund. Mitch Zacks will continue to manage the fund. 6/19

 

Briefly Noted

By David Snowball

Updates

“At a special meeting held on June 7, 2019, shareholders of Nuveen High Income Bond Fund did not approve the proposed reorganization of the Fund into TIAA-CREF High-Yield Fund that was previously approved by the Board of Directors of the Fund in December 2018 … the Board will review and take such action as it deems to be in the best interests of the Fund, including continuing to operate the Fund as described in the prospectus, liquidating the Fund, or such other options the Board may consider. Fund shareholders will be notified when the Board approves a course of action for the Fund.”

Shareholder democracy in action! The shareholders say “no” and the Board says, “we’ll see about that.”

Centaur Total Return (TILDX), one of our favorite funds when Zeke Ashton (2005-2018) ran it. In November, 2018, it became a new fund after its purchase by DCM Advisors which wanted to transition it from an equity fund with an absolute value (effectively stock plus cash) to a balanced fund (60/40 stocks and bonds). On June 28, 2019, that strategy was revised to focus on high-dividend stocks plus covered calls.

The transition has been … a bit rocky.

Potential investors need to disregard the fund’s five-star rating, earned under a different manager and different discipline, and assess whether the new manager, new discipline(s) and new record align with their goals. If so, they should go for it!

Briefly Noted . . .

The Harbor Funds seem intent on making some noise in the international / global arena. In the past four months they:

  • launched of Harbor Overseas in March
  • completed the portfolio transition at Harbor International in April
  • brought in a new team and new strategy at Harbor International Small Cap in May
  • launched Harbor Focused International in mid-June
  • reduced the expense ratio for Harbor Global Leaders in late June.

I wrote Harbor representatives in late June to ask if this is all part of some greater strategic plan. I’ll let you know what, if anything, I hear. For now, though, I’d urge you to check in on this month’s Launch Alert for Harbor International Small Cap. Intriguing asset class + experienced management team.

SMALL WINS FOR INVESTORS

Effective immediately, Class II shares of the JOHCM Global Income Builder Fund (JOIIX) are being publicly offered. Class I and II shares are both marketed through online brokerages; the difference is that Class II has a higher 12(b)1 fee, 25 bps versus 10 bps for Class I. There’s no rationale offered in either the announcement or prospectus; my guess is that the higher fee allows for distribution on a wider array of platforms.

We’ve written a bit about JOHCM Global Income Builder. It’s a good fund and continues to outpace its peers.

CLOSINGS (and related inconveniences)

The Board of Trustees of The Alger Funds has authorized a partial closing of Alger Small Cap Focus Fund (the “Fund”), effective July 31, 2019.

Bright Rock Mid Cap Growth Fund (BQMIX) and Bright Rock Quality Large Cap Fund (BQLIX) have closed the Investor Class share class. Current Investor Class shares will become Institutional shares. The former Investor class folks will be permitted to hang around with the proviso that any additional purchases they choose to make must be at least $5,000.

Janus Henderson Enterprise Fund, Janus Henderson Triton Fund, and Janus Henderson Venture Fund have all been closed to new investors.

Bad news for the cost conscious: “PIMCO Dynamic Bond Fund’s (PUBAX) current contractual advisory fee waiver of 0.01% of the average daily net assets of the Fund, in effect through July 31, 2019, will not be renewed.” Perfidy.

OLD WINE, NEW BOTTLES

The Aberdeen China Opportunities Fund changed its name to the Aberdeen China A Share Equity Fund (GOPAX) with a predictable change to its investment strategy.

At the end of July, Bridgeway Blue Chip 35 Index Fund will become Bridgeway Blue Chip Fund (BRLIX). It’s a fascinating fund. In the 1990s, Bridgeway’s founder John Montgomery – by training, a transportation engineer – did extensive research into the sources of excess return in the stock market. He discovered, at base, that most of the market’s alpha was produced by just two groups of stocks: the ultra-small and the ultra-large. He promptly launched the Bridgeway Ultra-Small Company Fund (BRUSX) and the Ultra-Large Company Fund (BRLIX), the latter of which has been renamed a couple times. BRLIX is an exceptionally strong performer. BRUSX crushed for about 20 years but it’s sort of sucked pond water over the past five years.

On September 9, 2019, JPMorgan Disciplined High Yield ETF’s (JPHY) name will change to the JPMorgan High Yield Research Enhanced ETF. I am gladdened to hear that their research will enhance the product, much as salt enhances the umami sensation in a sauce. (Cooking tip: if you can taste the salt, you’ve added too much.  Except, I guess, in the case of pretzels.)

Virtus WCM International Equity Fund’s name has changed to Virtus SGA International Growth Fund (SCIIX) subsequent to the appointment of Sustainable Growth Advisers, LP, as the fund’s sub-advisor.

OFF TO THE DUSTBIN OF HISTORY

The Board of Directors has approved a plan of liquidation for the AC Alternatives Emerging Opportunities Total Return Fund (AEOVX). Under the plan, the liquidation date of the fund will be August 23, 2019. Sort of an EM bond fund that invested in things like:

Why couldn’t investors see the value in that?

BNP Paribas has arranged a wholesale execution. BNP Paribas AM Emerging Markets Total Return Fixed Income Fund, BNP Paribas AM U.S. Small Cap Equity Fund, BNP Paribas AM Emerging Markets Equity Fund, BNP Paribas AM Absolute Return Fixed Income Fund, BNP Paribas AM Global Inflation-Linked Bond Fund, BNP Paribas AM MBS Fund and BNP Paribas AM U.S. Inflation-Linked Bond Fund are expected to cease operations and liquidate on or prior to July 10, 2019 .

Brandes Value NextShares (BVNSC) liquidated on June 28, 2019.

I love it when boards and advisors are honest with people: “The Board of Trustees has approved a Plan of Liquidation for B. Riley Diversified Equity Fund (BRDRX) … due to underperformance of the Fund resulting in diminished assets.” Well, yes. The fund liquidated on June 28, about two weeks after deciding that it was time.

The Chou Opportunity Fund (CHOEX) and the Chou Income Fund (CHOIX) will be pretty much liquidated on July 31, 2019. “Pretty much” in the sense that the funds each hold “1.75 Term Lien Loans of Exco Resources, Inc.,” the now-illiquid securities of an insolvent company.

The filing speaks for itself: “On June 20, 2019, shareholders of CRM Large Cap Opportunity Fund approved the reorganization of CRM Large Cap Opportunity Fund with and into CRM All Cap Value Fund. The reorganization was completed as of the close of business on June 21, 2019 and CRM Large Cap Opportunity Fund was dissolved.” Uhh … 24 hours between trial and execution?

The Board of Trustees of Legg Mason Partners Equity Trust on behalf of EnTrust Global – Alternative Core Fund (LPTAX) has approved a proposal to terminate and liquidate the fund. The fund is expected to cease operations on or about September 6, 2019. The fund has seen rather a lot of change, in both strategy and management. It was probably time to press the “reset” button.

On June 25, 2019, First Trust AQA Equity Fund (AQAAX) was terminated and liquidated.

The FundX Tactical Upgrader Fund (TACTX) will merge into the FundX Conservative Upgrader Fund (RELAX) on July 26, 2019. The FundX line is an attempt to translate the brilliant if hypothetical performance of newsletter portfolios into actual funds. Our colleague, Charles Boccadoro, warned in 2013 of the difficulty of pulling that off in his profile of the FundX Upgrader (FUNDX) flagship: “It is maddeningly hard, as Value Line and FundX have certainly discovered, to translate portfolios which look brilliant in newsletter systems into actual mutual funds with distinguished records. The psychological quirks which affect all investors, high operating expenses, and the pressure to gain and retain substantial AUM all erode even the best-designed system.”

Both TACTX and RELAX have strong risk-adjusted returns paired with regrettably high expenses and really cool ticker symbols. That said, Vanguard Wellesley Income (VWINX) would get you to virtually the same spot with a bit less volatility at one-seventh the cost.

“Due to the Fund’s assets remaining quite small and the expectation that the assets of the Fund will not grow,” Global X JPMorgan Efficiente Index ETF (EFFE) and Global X JPMorgan U.S. Sector Rotator Index ETF (SCTO) will liquidate and terminate on July 5, 2019.

Goldman Sachs Tactical Exposure Fund was liquidated on June 28, 2019.

Harvest Edge Absolute Fund, Harvest Edge Equity Fund and Harvest Edge Bond Fund, all parts of the Harvest Volatility Edge Trust, will liquidate on August 27, 2019.

iShares 10+ Year Investment Grade Corporate Bond ETF (LLQD), iShares 5-10 Year Investment Grade Corporate Bond ETF (MLQD), iShares Adaptive Currency Hedged MSCI Eurozone ETF (DEZU) and iShares Adaptive Currency Hedged MSCI Japan ETF (DEWJ) will be liquidated on August 20, 2019.

The Leuthold Global Industries Fund (LGINX) will be liquidated on July 29, 2019. I’m saddened but not surprised. Leuthold excels at the macro-level and I like their allocation funds – Leuthold Core and Leuthold Global Core – a lot. Their individual equity funds, such as the late Undervalued and Unloved Fund (UGLYX) have not been nearly so compelling.

Merk Absolute Return Currency Fund (MABFX) is becoming a money market fund on its way to liquidation, slated to occur on July 31, 2019.

O’Shaughnessy All Cap Core Fund (OFAIX) and the O’Shaughnessy Enhanced Dividend Fund (OFDIX) will be reorganized into the O’Shaughnessy Market Leaders Value Fund (OFVIX) on July 22, 2019. Good move: OFVIX has more stars (4) than the other two combined (3), as well as 15 times the assets.

Palmer Square Strategic Credit Fund(PSQAX) will be liquidated on or about July 22, 2019.

Principal International Multi-Factor Index ETF (PXUS) liquidated on June 25, 2019.

Rice Hall James SMID Cap Portfolio (RHJVX) has closed to new investors and will be liquidated on July 30, 2019. $3 million in AUM, bottom 2% in peer performance … yep.

The Rogers AI Global Macro ETF (BIKR) has been closed and will be liquidated on July 17, 2019. Why BIKR? Because “BIKR combines the investment expertise of Jim Rogers with artificial intelligence” and Jim Rogers is, famously, The Investment Biker. The plan was to use Mr. Roger’s vast intellect to rotate among dozens of single country ETFs. The reality is that the ETF drew negligible interest (under $4 million AUM and its average daily trading volume was 238 shares) and produced negligible returns (1.28% TTM, through June 30, 2019).

Back on the bike, Jimmy.

Sims Total Return Fund (SIMFX) liquidated on June 26, 2019.

The $90 million WV Concentrated Equities Fund (WVCAX) has closed and will be liquidated on or about July 15, 2019.

June 1, 2019

By David Snowball

Dear friends,

Oops … I did it again!

On May 19, 2019, I helped launch my 35th cohort of Augustana grads on an unsuspecting world. With modest pomp, stirring music, one thoughtful address (that no one will remember) and one clunky one (likewise, thank God), I participated in the college’s 159th commencement. Afterward, by long tradition, the graduates filtered through the throng of faculty, exchanging tears and laughter, thanks and hugs.

And then they were gone. It’s bittersweet to have a career forever predicated upon bidding farewell to amazing young folks just as they hit their stride. They were a challenge, and they’re your challenge now.

Don’t underestimate them. Be careful imposing easy stereotypes upon them. They are different. But they always are: one of Plato’s contemporaries fussed endlessly about the indolent and irresponsible college students on his day, Ralph Waldo Emerson (in Walden) groused about the high cost of tuition and students’ concern more for comfort than contemplation, and Teddy Roosevelt decried their tendency toward talking rather than acting (“The first great lesson which the college graduate should learn is the lesson of work rather than of criticism.”)

You should read Roosevelt’s 1894 essay on college and society. If you’re patient and have time for a quiet, thoughtful walk afterward, you’ll find yourself reprocessing it for a long time.

My students are more connected and more aware than I ever was. They’re more resilient, and more fragile. (I suspect they’re more responsible for the former, and we bear a lot of responsibility for the latter.) Their great strength – connection – is their great weakness. They are never far from the portal to the hive mind, never disconnected. Their attention is continuous, partial, divided and fleeting. They work hard, but under a different set of assumptions than those I brought to young adult life. I’m still trying to translate between their language and mine.

It’s hard and never-ending. But they’re worth it. And so are you.

Remaining engaged with the implications of an unstable climate

We highlight this month the launch of Zeo Sustainable Credit, which focuses on the debt offerings of firms that pursue sustainable business practices. Manager Venk Reddy’s argument is sustainable practices are important predictors of a firm’s creditworthiness, not just gestures toward social good.

Morningstar’s sustainability coverage is becoming broader and deeper. On June 6, 2019, they will host the Inaugural Edition of The Morningstar Sustainable Investing Quarterly Webinar. Each webinar promises “the latest news and trends in ESG investing, [to] bring you up to date on sustainable funds, and [will] feature a conversation with a sustainability leader. It’s pitched at financial advisors but it’s not clear why other thoughtful folks wouldn’t benefit.

Finally, my favorite podcast, Make Me Smart, offered a remarkably thoughtful and insightful program entitled “How to survive climate change” (5/14/2019). It’s very much worth listening to. It makes three points that struck me as worth thinking about: there is no credible challenge to the reality of the situation (though there are feverish challenges), the response to climate instability needs to be balanced between mitigation and adaptation (parts of Davenport’s downtown have been underwater for 80 consecutive days, and so I nod) and there’s more to life than coping with this one problem.

Kai and Molly, the hosts, really are remarkable folks. You might consider making it a habit to listen in.

Snowball elsewhere

I’ve had the privilege of sharing some reflections with other readers lately. the publishers of those pieces kindly gave us permission to share the links with you.

For the American Association of Individual Investors monthly AAII Journal, I reworked two essays that we published here into a single, compact, updated piece: “Investing in Response to Climate Change” (June, 2019). I’ve been invited to address a session at their October annual convention in Orlando, and gratefully accepted.

I appear, with some frequency, in the Bottom Line: Personal newsletter. Most of my articles there flow from a collaboration with Mark Gill. He asks, we talk, he drafts, I edit. There’s an art involved in making meaning in such short pieces, and Mark’s really good at it. Our most recent conversation led to These Attractive Funds Focus on Overlooked Midcap Stocks (May 1, 2019).

I hope you enjoy both and hope, too, that they help folks we might not otherwise have reached.

Go raibh maith agat!

Which, I dearly hope, is the Gaelic phrase for “Thanks! “ (I’m haunted by those possibly apocryphal stories of dimwits whose poetical Chinese tattoos actually translate as “serious mistake” or “abundant mound; it’s common enough that the Hanzi Smatter blog provides regular translations of its readers’ tattoos.) That celebrates both my current holiday and our gratitude for your support.

We mentioned last month, in the wake of the demise of Money magazine, that we are exclusively reader-supported and a fair number of folks stepped up and chipped in. A never-quite-complete list of thanks starts with Wilson from Lexington, Marc (we think you’re awesome, too!), John from Columbia, SC, an anonymous donor, Lee, Tom from Mizzou, David (not me-David, another David), Gregory, Vicki from CA (friends in Sacramento are trying to lure me back with the promise that “it’s a dry 106”), Curtis (thanks to you, too!), Donald from Seattle, Richard (to whom we note, we were tempted to party like it’s 2025!), Sherwin, William from Richland and Kirk from Richland Hills.

We celebrate, especially, Seshadri (thank you, sir!) who became the latest reader to set up a small monthly contribution through PayPal. In doing so he joins our corps of subscribers: Doug, Deborah, Greg, William, David (no, not the David above nor me-David) and Brian.

If you’d like to join them, you can either click on the PayPal link (no, you don’t need a PayPal account, they’re just a processing agent) over to the right side of this page or on the “Support Us” tab on the top navigation bar. Since we’re a 501(c)3 non-profit, contributions are, mostly and generally, tax-deductible.

Following up on Morningstar

Because it conflicted with my teaching schedule, I was only able to attend part of the first day of the Morningstar Investment Conference. Charles, who was there throughout, reports on his experiences in this month’s issue.

Despite the brevity of my stay, I had the opportunity to talk with a bunch of folks, some of whom are startlingly thoughtful. (I’m regularly amazed that they’re so generous with their time.) In the crush of work at the end of an academic year, I wasn’t able to do justice to their insights and strategies.

Partly by plan and partly by happenstance, most of the folks I met fish the turbulent seas beyond the US: the quietly erudite Amit Wadhwaney, founder of Moerus Capital; Inbok Song, who leads Seafarer’s growth investing team; Bryce Fegley, who co-manages Sextant Global High Income (SGHIX, which Morningstar assigns to its “cautious allocation” category for the purpose of sustainability ratings) and Beini Zhou, manager of Matthews Asia Value (MAVRX). In July, we’ll follow up with fuller discussions of our time together.

I missed the opportunity to meet with Josh Vail, president of 361 Capital and Abhi Patwardhan, co-manager of the new FPA Flexible Fixed Income Fund (FPFIX), but I’m working on it.

Russell Baker, a Pulitzer-prize winning journalist and humorist, passed away in January. At 93, he’d led a life full of years, honor and meaning. I’ll leave you, for now, with a reminder to gird yourself for the craziness ahead while still celebrating the days that life has given us.

“Ah, summer,” he wrote, “what power you have to make us suffer and like it.” –

Take care,

david's signature

What Color Are the Swans?

By Edward A. Studzinski

 “Bureaucracy is a giant mechanism operated by pygmies.”

     Honoré de Balzac, Epigrams (trans. Jacques Leclercq, 1959)

When last our heroes met at the end of April, the market had been on a tear pretty much since the beginning of the year. Many domestic funds were showing total returns in the high teens. International funds were likewise showing total returns in the vicinity of twenty percent at April 30th. Active fund managers, to the background music of “Happy Days are Here Again” were waxing poetic about how it was an active manager’s kind of market, when stock picking would once again come to the fore. And this was notwithstanding valuation metrics that as May advanced continued to increase to higher levels. From their point of view, regardless of market valuations, investors should return their moneys to the equity markets, preferably to the funds that had suffered both a tragic bout of under-performance as well as a loss of assets under management in 2018.

Look forward to almost the end of May. The total returns on those domestic and international funds have melted away by anywhere from five hundred to a thousand basis points. Those who were afraid that the train was leaving the station and piled back into the equity markets in the first week of May now find themselves sitting on some rather large paper losses. Coming on top of what was for many a disastrous 2018, the potential exists for another substantial drawdown in both assets and performance.

Nissim Taleb, of Black Swan fame, gave a rather interesting interview on Bloomberg in May 2019. One of the points he makes is that there is an assault on risk takers now as failures as they more often than not lose money. He moves on to talk about the assault on capitalism by those who make decisions that cause harm to the economy, partly because they don’t have skin in the game. He considers it to not be capitalism but rather crony capitalism, which is what we saw with Wall Street being bailed out by being close to the government. He is worried because we have very low unemployment with huge and growing deficits. He thinks we should still be worried about the possibility of hyper-inflation. What we have done according to him since the financial crisis is to shift debt from private hands to public. And that is because the public debt burden arises as a result of those without skin in the game, the politicians. Taleb strongly feels that one should not invest in the financial markets without tail risk insurance, that is, a hedge. He strongly argues that one should not have exposure to financial assets without the protection of hedging. But he feels that hedging is quite complicated if it is to be done successfully. And if one cannot hedge one’s financial assets, his argument is people should be in cash to avoid the possibility of catastrophic loss.

The part of this interview that gave me pause was the argument that one should not be investing in equities or long-term bonds without the appropriate degree of hedging. This goes along with my comments in months prior about needing to seek out uncorrelated investments. Which has of course become very hard, as (a) huge amounts of capital continues to pour into passive investments, indexing, and (b) so many of the purported active managers are closet indexers. One needs to pay attention now to not just performance, but also to the accuracy of the active share numbers being used in marketing.

There is a very real possibility of this being yet another variation on the marketing scams that come out of the mutual fund industry.

The question then becomes, borrowing from the title of Lenin’s 1901 book, What is to be Done?

I suspect that the most appropriate answer is nothing. Yes, one can sell everything, go to cash (and generate a lot of commissions and taxes), but the average person once out of the market will find it very hard to get back into it when panic (and thus opportunity) sets in. One can try and hedge your investments, but for the average person that is difficult if not impossible. There are, of course, long-short funds as well as market neutral funds, but finding the good ones with good long-term records is not easy. And they are not suitable for an entire investment portfolio. The average investor with the average consultant will most likely be driven, as they were in March and April, by FOMO, Fear of Missing Out. The best advice I can offer is think again about risk tolerance, time horizons, and what your goals are. For someone on the cusp of retirement the answers will be quite different than the answers from someone with thirty or forty working years in front of them. But beware of following the lemmings, as one sees the explosive growth in managed volatility products which have not yet been tested over time.

All Global, All the Time

Some ten years ago global funds (international and domestic equities in one fund) were the bastard children of the mutual fund world, generally shunned by consultants in their asset allocation models. The argument was that they wanted to pick international managers separately from domestic managers. There was some logic to the argument given that many global funds were the result of stapling together an international set of stocks from the international team and a set of domestic stocks from the domestic team and calling it a global product. This usually reflected more the internal politics of a firm, as well as the allocation of revenues and profits between the domestic segment and the international segment than a thought-out and consistently managed investment product.

Now things have reversed. The preference is for global mandates to be filled by integrated global investment teams. This usually results in a more cost-efficient product and a more dynamic investment process, since the politics (or personal economics) are stripped out and the best ideas (and country allocations) win out, whether on a top down macro or bottom up fundamental basis. I think that this makes a great deal of sense.

Indeed, it reflects how I am thinking about asset allocation personally these days. Unfortunately, I can’t take the credit for the idea. It comes from a well-respected West Coast investment consultant. That firm uses a value-oriented global fund as a core, with an overlay of a growth-driven global manager’s fund (which has a concentrated portfolio). For those with a ten year or longer time horizon, it is an approach that seems to make a great deal of sense.

Edward A. Studzinski

An MFO Quick List: Top Global Value Funds

The funds that Ed refers to in his final paragraph are managed by Dodge & Cox and Sands Capital. Interested readers might look into Dodge & Cox Global Stock (DODWX) and Harbor Global Leaders (HGGIX) as affordable, low-minimum ways of accessing those managers.

As a complement to Ed’s article, we screened for global value equity funds and ETFs with the highest Sharpe ratio over the complete market cycle, from October 2007 – now. They are sorted by risk-adjusted returns.

  Annual Return Sharpe Ratio
Tweedy Browne Value TWEBX 5.5% 0.41
Franklin Mutual Global Discovery MDISX 4.9 0.39
FPA Paramount FPRAX 6.8 0.36
Oakmark Global Select  OAKWX 7 0.35
John Hancock Global Shareholder Yield JGYIX 4.8 0.34
MainStay Epoch Global Equity Yield EPSYX 4.5 0.31
Wasatch Global Value FMIEX 4.8 0.3
Cambiar Global Ultra Focus CAMAX 6.7 0.25
Voya Global Equity NAWGX 4.7 0.24
Columbia Global Equity Value IEVAX 4.4 0.24
Polaris Global Value PGVFX 4.8 0.23

Top Concentrated Global Growth Funds

We screened for concentrated global growth equity funds and ETFs with the highest Sharpe ratio over the complete market cycle, from October 2007 – now. Sorted by risk-adjusted returns.

  Annual Return Sharpe Ratio
Morgan Stanley Global Franchise MSFAX 9 0.62
Guinness Atkinson Global Innovators IWIRX 8 0.4
Marsico Global MGLBX 7.1 0.36

Ed did not select and does not necessarily endorse any of the funds noted above.

Morningstar Investment Conference – 2019 #MICUS

By Charles Boccadoro

When people have no choice, life is almost unbearable …

But as the number of choices keeps growing, negative aspects of having a multitude of options begin to appear …

the negatives escalate until we become overloaded.

At this point, choice no longer liberates, but debilitates.

Barry Schwartz in Paradox of Choices

If last year’s Morningstar Investment Conference, which consolidated the once separate ETF venue, was one of the worst in memory, this year’s was one of the best.

Once again, it occurred in the beautiful and vibrant city of Chicago, where the 35-year old company Morningstar is headquartered, on May 8-10 at the sprawling but impressively run McCormick Place, which happens to be the largest convention center in North America. The conference’s 1350 registered attendees can look out onto Lake Michigan and the Field Museum as they hurry to dozens of break-out sessions focused along so-called “tracks,” like Passive Track or Practice Management Track.

As a sign of the times, the hall’s food court offers an impressive and even friendly Pho Bar, where David bought me lunch, and an Uber sign is now a permanent fixture outside the conference’s south entrance, where customers would rather wait for their rides hailed via iPhone than participate in the shorter traditional taxi line.

Morningstar showcases the most prominent of this year’s 49 speakers here, where you will find presentation summaries and interviews. This year’s speakers included AQR’s Cliff Asness, T. Rowe Price’s David Giroux, and Royce’s Charlie Dreifus. Mr. Giroux manages Capital Appreciation (PRWCX), which is an MFO Great Owl fund, and Mr. Dreifus manages Special Equity (RYSEX).

Kunal Kapoor, Morningstar’s CEO, opened the conference by stating: “The story of Morningstar is the story of the modern financial advisor.” In a play on his previous opening message, which received some pushback from folks like Josh Brown, this year Mr. Kapoor closed with … “there’s never been a better – or more important – time for great advice.”

On that and much more in his talk, I agree. Our latest Lipper Global Data Feed shows 12,500 funds (33,440 all share classes), including 550 CEFs, 2250 ETFs, and 2150 Insurance Funds. In the conference’s main hall, there were 168 exhibits and vendor booths, with displays, company brochures, colorful trinkets, and well-dressed spokespersons (numbering 701) … all vying for your business!

How does an investor funnel down from the vast universe of offerings to the handful or less to ultimately invest in? Even if the advice is as simple as: “Set all your 401K savings and contributions to the Vanguard Balanced (VBINX) and forget about it.” Most people I know need financial advice.

Mr. Kapoor stressed the firm’s commitment to remaining independent, transparent, and investing for the long term. I find him to be a very impressive, young CEO. His opening keynote is worth viewing here, as is reading the recent piece by Amy Merrick in his alma mater’s magazine, entitled “All In for Investors.”

Since Mr. Kapoor became CEO at the start of 2017, Morningstar’s stock (MORN) is up 93%.

Cliff Asness gave the opening keynote. He kiddingly started by stating that if he had known how “crappy” a year quants were going to suffer, he would never have agreed to do the talk. “Bad year for quant last year,” he quipped. But before I get into just how bad, a bit more on his good talk, which I think included sound advice.

He believes investors have an easier time recognizing and accepting when traditional discretionary investing strategies have bad years. They don’t expect them to always work. One reason is they have good stories, quoting Warren Buffett: “If a business does well, the stock eventually follows.”

Mr. Asness says that “the most certain long-term failure” is investing in a strategy you can’t stick with. It’s easier if the strategy is 1) intuitive, 2) delivers very high Sharpe, and 3) isn’t too “maverick.” He recognizes that a strategy like “market-neutral multi-factor quantitative” fails on all three counts.

To help fund architects (and ultimately their investors) handle periods of poor performance with such strategies, he suggests building a process (at least) that is intuitive, size bets reasonably, check whether something has changed (acknowledging human nature desperately wants to find something), and resign yourself to that fact that the strategy really is intuitively hard.

If “(if!)” you’ve done the above and haven’t found a smoking gun, “stick like grim death” to your beliefs.

How bad has it been?

Latest MFO Fund Family Scorecard gives AQR a “Lower” grade. Of AQR’s 39 funds, 26 trail their peers since launch through April 2019 based on absolute return.

Fortunately, most of AQR’s AUM is in just five funds: Managed Futures Strategy (AQMIX), Style Premia Alternative (QSPIX), Large Cap Defensive Style (AUEIX), Long-Short Equity (QLEIX) and Large Cap Multi-Style (QCELX), which have all bested their peers since launch.

But it’s been a tough past year for two of these: Style Premia Alternative (QSPIX) and Long-Short Equity (QLEIX), each down 13-14% through April, particularly since alternatives tend to target investors with more moderate risk tolerance.

AQR is in good company … Wes Gray’s AlphaArchtect, Meb Faber’s Cambria, and O’Shaughnessy Asset Management – all quant shops, all recognized leaders – have struggled this past year with 19 of their 20 funds between them under-performing. (Notable exception: Joel Greenblatt … 18 of 21 Gotham Funds outperformed this past year.)

But as much as I admire Mr. Asness and enjoyed his talk, he never directly addressed why he thought quant generally and funds like QLEIX have been ‘crappy’ lately. Perhaps as close as he may come can found in his paper, entitled “Looking for the Intuition Underlying Multi-Factor Stock Selection.”

My experience with AQR Funds is that when things start going wrong, they circle the wagons and stop communicating. Our colleague and friend Sam Lee of SVRN Asset Management, who championed QSPIX back in 2015, believed “something is broken in the strategy” when it retracted on numerous consecutive days for no apparent reason. He also started questioning AQR’s drawdown protection process. It was not apparent during this year’s drawdowns.

Being significantly negative while the rest of the market is positive is a tough place for alternative funds to be, making them especially hard to stick with, reinforcing Mr. Asness’s point.

David Giroux, a discretionary investor for-sure, suggests that maybe something has changed: “Secular risk is what has changed value.” In the face of sector giants like Apple, Amazon, Facebook, Google there is no more “just having a bad year” for competitors. Worse, too often, management of out-of-favor companies try for the “Hail Mary Pass” to return to glory (e.g., Yahoo), just hastening their demise with destruction of capital. Mr. Giroux’s assertion: “No more reversion to the mean.”

An exception? He’s very bullish on GE, since Larry Culp took the helm.

Interestingly, Adam Seessel published a piece (recently reprinted in the WSJ) that mimics Giroux’s view: “Why Value Investing Is Broken.”

Given the banter, Morningstar’s Ben Johnson chaired an excellent session entitled “The Value Premium is Dead, Long Live the Value Premium,” with BlackRock’s Holly Framsted, Wes Gray, and Patrick O’Shaughnessy.

In defense of value, Wes shared his healthy and candid perspective afterward, which also strikes me as good advice:

This skepticism is a recurring narrative throughout the history of value and arguably why value works in the first place. Value is a strategy of watching the market throw the ugly baby out with the bathwater and eventually realizing that even ugly babies should live in one form or the other (even though they will never be as cute as the pretty babies).

When this revaluation occurs, value earns the extra kick. There is always some monopolistic competitor or technology in the marketplace that “can’t lose.” For example, can you imagine what people thought when airplanes were invented? You can look at newspapers, cable, as recent examples of “once dominant, now losers.” They were dominant industries with huge moats, now they all stink.

Value strategies often died with them … a little bit. But value through these different cycles has historically won in the end. And remember, in order to be a generic value stock you need to have some fundamental (e.g., earnings). So systematic value, even in the most generic form, boots out total trash fairly early on. An example is GE. No value strategy will hold it because the net income is negative and has been for almost 2 years now.

So, QED on the importance of good financial advice … even the experts give conflicting views!

I’ve listened to perhaps a hundred of Meb Faber’s excellent podcasts (yes, it seems we’re being flooded with podcasts), and invariably, from one expert guest to the next, I will hear conflicting views, both equally compelling (e.g., Ken Fisher’s bullishness versus James Montier’s caution).

Certainly, the one reason investing can be so hard is that it involves predicting the future, which of course is not entirely knowable. So, we frame investment strategies based on past behavior and experience, which can be subject to individual biases resulting in differing expert opinions … many well intended!  

Ultimately, it’s about understanding your own risk tolerance and investment time horizon. Then, finding products to match that charge low fees, apply good processes, and are run by firms that really put investors first. Finally, and here’s the hard part, those products need to behave as you expect, or you will indeed exit, just like Mr. Asness says. Bruce Berkowitz’s Fairholme fund (FAIRX) is a classic example of a fund that set volatility expectations one decade, attracting huge AUM, only to see it evaporate when the fund experienced a completely different kind of volatility the next decade.

Break, break.

On David’s strong recommendation, I visited the Art Institute of Chicago after the conference ended. Filled with the works of extraordinary impressionists: Monet, Renoir, van Gogh, Degas. And, the Dutch master Rembrandt. Sheer delight.

Just as beautiful were the thoughtful words of Doris Kearns Goodwin, who gave the conference’s luncheon keynote, based on her latest book: “Leadership in Turbulent Times.” She was a White House Fellow during the Johnson administration, even after she had written against the Vietnam War. President Johnson is said to have responded: “Oh, bring her down here for a year and if I can’t win her over, no one can.” Ultimately, he asked her to write his biography.

Ok, let’s finish this off with lifetime and past-year risk and performance numbers on three fund families that continue to impress me … all represented well at this year’s conference: Mairs & Power (St. Paul MN), FMI (Milwaukee WI), and Frost (San Antonio TX).

MAPOX is probably the most under-appreciated balanced fund out there … it arguably outperforms Vanguard’s Wellington (VWELX). (And, their spokesmen at the conference handed-out cans of Spam … Hormel is based in the Great Lakes area, a region considered Mairs & Power’s expertise.)

The impressive FMI funds are again open to new investors. All three FMI funds are MFO Great Owls.

Frost’s bond funds are a must-consider for conservative investors, even if you don’t live in Texas.

Index Funds S&P 500® Equal Weight NoLoad (formerly Index Funds S&P 500® Equal Weight), (INDEX), June 2019

By David Snowball 

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

Objective and strategy

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

Adviser

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

Manager

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

Strategy capacity and closure

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

Management’s stake in the fund

Neither the manager nor the trustees has a direct investment in the fund. That having been said, the manager and his partner (aka The Index Boys) are pouring all of their money into running the fund which is reflected in the fact that they only charge investors 0.25% for a fund that costs them nearly 2% to operate. The trustees accept only $79/year for their services.

Opening date

April 30, 2015.

Minimum investment

$1,000

Expense ratio

0.25%, after waivers, on assets of $102.8 million, as of July 2023. 

Comments

This is an update to our fund profile of June, 2018. For a complete discussion of the fund’s rationale and structure, please check the original profile. This update provides a short synopsis of the full argument and will provide updated performance information.

Thanks!

Standard and Poor’s compiles several versions of their famous S&P 500 index. The most famous is designated SPX. It is the cap-weighted version of the index. That means that the percentage weight each stock has in the index is directly tied to their market cap; a stock that represents 4% of the cumulative value of all the S&P stocks gets a 4% weighting in the index. As of April 2019, the top ten firms in the index comprise almost 25% of its entire weight. Over $3.4 trillion is invested in SPX index funds.

Another version of the index, designated Equal Weight Index or EWI, takes the exact same stocks but weights them differently. It gives every stock an equal weight in the index, 0.2% for everybody. Microsoft, which occupies 4% of the SPX is only 0.2% of EWI. The same 10 names that are almost 25% of SPX are just 2% of EWI. Once a quarter, the index is rebalanced to sell the winners back down to 0.2% and buy more of the losers to restore them to 0.2%. About $22.5 billion is invested in EWI index funds.

That simple difference in weighting creates significant differences in the biases embedded in the indexes:

  1. SPX is a large cap index, EWI acts like a midcap one. The average market cap for SPX is $110 billion, while EWI clocks in at $23 billion. 90% of the money in SPX, but only 57% of the money in EWI, is in large and mega-cap stocks.
  2. SPX is momentum-driven, EWI is a bit contrarian. The mantra for a cap-weighted index is “buy more of your winners.” To a limited extent, the discipline of an equal-weighted index is to sell down your winners and buy into your losers.
  3. SPX tilts more to growth, EWI tilts more to value. The “story stocks” from growth darlings (often the FAANGs) become a larger slice of the index as more investors pile up, increasing their size and the index’s valuations.
  4. SPX tilts more toward tech and telecomm, EWI has more exposure to the real world. Some of the greatest EWI overweights are in industrials, materials, real estate, utilities and energy.

The argument for investing in the S&P 500 Equal Weight Index is simple: you’re troubled by the fundamental flaw in the original S&P 500, which is its cap-weighting. It rewards, and becomes dependent on, the market’s largest and most overvalued stocks. And the sheer popularity of S&P 500 indexing (over $9.9 trillion indexed or benchmarked to the index, with indexed assets comprising approximately $3.4 trillion of this total) means that more money is automatically poured into those stocks, driving them to even higher valuations.

Two points worth knowing.

Over time, EWI beats SPX.

This chart of the 10-year performance comes from Standard and Poor’s itself.

Over the past decade, the conventional SPX index has beaten 85% of all large cap core funds. The unconventional EWI index has beaten 95% of them. Over 15 years, SPX leads 92% and EWI leads 98%. But, more centrally, EWI leads SPX.

Over time, INDEX has been your single best option for accessing EWI.

There are three vehicles that track EWI: two funds and one ETF. INDEX has been the best of them over its four-year lifetime. The other two options are huge: Invesco Equally-Weighted S&P 500 Fund (VADDX) holds $7.3 billion and charges 28 bps while Invesco S&P 500® Equal Weight ETF (RSP) has $15.2 billion and charges 20 bps.

Despite the popularity of the two older products, INDEX has since inception outperformed both on pure return and risk-adjusted returns.

  Four year Three year Two year One year AUM
  Annual Returns Sharpe Annual Returns Sharpe Annual Returns Sharpe Annual Returns Sharpe Millions
INDEX 9.4% 0.68 12.68 0.98 10.8 0.68 10.42 0.47 42
RSP 9.1 0.66 12.57 0.97 10.8 0.68 10.44 0.47 16,100
VADDX 9.2 0.66 12.58 0.97 10.7 0.67 10.35 0.46 7,700

All data as of 4/30/2019, from the Lipper Global Data Feed and Morningstar. Thanks to my colleague Charles Boccadoro for adding the four-year performance metrics to the MFO Premium screener.

Those are very small performance differences, but they compound over time. A $10,000 investment in each of the three funds on the day INDEX launched would, four years later, have grown by 40.8 – 43.4%.

INDEX $14,340
Invesco ETF RSP 14,076
Invesco Fund  VADDX 14,083

Calculation from Morningstar for the period 04/30/2015-05/01/2019.

The INDEX manager attributes their long-term success to tiny daily gains they have from intelligent cash management. By way of example, since prices in the first few and last few minutes of the market each day are highly volatile, they choose not to execute trades then which gains them an advantage that’s small but that more than offsets the ETF’s small price advantage.

On whole, you’d be silly not to pocket the extra money given that all three vehicles do exactly the same thing.

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

Bottom Line

In the long-term, biases toward value, smallness and diversification have paid off handsomely. One attempt to calculate the returns of the equal-weight and cap-weight versions of the S&P 500 back to 1926 estimate that the equal-weight version outperforms the cap weighted version by 281 basis points per year; another, calculating from 1958, can EWI a nearly 350 bps year advantage. Skeptics of this approach, including our colleague Sam Lee, note that “there’s no such thing as a free lunch.” The higher returns come at the price of higher volatility, higher taxes as a result of more frequent portfolio rebalancing and the prospect of lagging badly during periods where mega-caps soar. All of which is true, though modestly so. For investors looking to de-FAANG their portfolios while maintaining exposure to the S&P 500 companies, INDEX offers a sensible, affordable option.

Fund website

Index Funds

Launch Alert: Zeo Sustainable Credit Fund (ZSRIX)

By David Snowball

On May 31, 2019, Zeo Capital Advisors launched Zeo Sustainable Credit Fund (ZSRIX). The fund seeks to provide risk-adjusted total returns consisting of income and moderate capital appreciation. This marks the launch of Zeo’s second fund, after Zeo Short Duration Income (ZEOIX).

ZEOIX has performed exceedingly well over its eight years. The fund’s risk-adjusted returns have been best-in-class and its expenses have fallen. The limitation perceived by some of its major investors is that it is duration-constrained; that is, it doesn’t have the flexibility to pursue many attractive longer-duration opportunities. ZSRIX is designed to address those concerns.

“Sustainable Credit”

Sustainable: Investors view “sustainability” as offering one of two virtues. Some see sustainability as good, primarily, because it’s good for the planet. Others see sustainability as good because it’s good for the portfolio. Zeo falls in the latter camp. Firms pursuing sustainable practices (relatively sustainable practices, since some industries are more resource-intense by nature) are more credit-worthy. They’re giving evidence of making better long-term capital allocation decisions and they’re less subject to headline risk, policy risk or costly litigation.

Credit: Fixed income securities are subject to a combination of macro-level risks (the Federal Reserve or ECB acting to deal with an economic problem) or company-level risk (the management misallocating capital and being unable to pay their creditors).  On whole, Zeo prefers dealing with the latter since it’s within management’s ability to control. So “credit” means that the portfolio is relatively interest-rate insensitive; that is, performance is driven primarily by corporate actions rather than macro-level ones.

The Process

The manager, humbly enough, understands that he cannot directly control his portfolio’s returns, but he can control its risk exposures and so that’s where he starts.  He anticipates portfolio volatility, which some interpret as “risk,” at 150-250% of ZEOIX’s.  “The market will,” he notes, “pay more or less of a premium for that portfolio compared to Short Duration’s.”

The fund will:

  • Use the same investment discipline as ZEOIX.
  • Be managed by Venkatesh Reddy, Zeo’s founder and ZEOIX’s manager.
  • Invest primarily, and actively, in fixed income securities; they define that asset class pretty broadly.
  • Target companies who are leaders among their peers in key areas of sustainable business practices.
  • Typically be longer-dated than ZEOIX but shorter-dated than the total bond market.

The fund may:

  • Invest internationally, including securities from emerging markets issuers.
  • Invest a majority of its assets in high-yield bonds.
  • Manage interest-rate risks by varying the duration of the portfolio or hedging.

The Case for Considering the Fund

The firm’s flagship fund offers reason for some optimism about the prospects of Sustainable Credit. Here’s the performance of Zeo Short Duration, since inception, against its Lipper “multisector income” peer group.

 Comparison of Lifetime Performance (06/2011 – 04/2019)

  APR Max DD Std Dev Down Dev Bear market dev Sharpe ratio Sortino ratio Martin ratio Ulcer Index
Zeo Short Duration Income 3.1 -1.5 1.2 0.6 0.2 2.05 4.41 9.21 0.3
Multi-Sector Income Average 3.8 -5.7 3.8 2.3 1.2 0.91 1.57 2.40 1.7

How do you read that? Annual percentage returns (APR) measure the fund’s upside for the period mentioned, while the next four measure its downside: deepest decline during the period, normal volatility, downside or “bad” volatility and volatility in bear markets. The remaining four reflect the state of the balance between return and risk; Sharpe is the most widely-followed metric, Sortino is a bit more risk-averse and Martin is the most risk-averse of all. The Ulcer Index combines means of how far a fund falls and how long it takes to recover; funds that fall a lot and stay down tend to give their investors ulcers, hence the name.

ZEOIX has offered returns that are a bit lower than its peers with risks that are vastly lower; in consequence, its risk-return ratios are among the best in its peer group. Its Sharpe and Martin ratios are the second-best among its 53 peers, while its Ulcer index and Sortino ratio are the group’s best.

Morningstar places Zeo Short Duration in its high-yield peer group, which strikes us as misleading. Because Zeo is much more cautious than a high-yield fund – for example, its standard deviation is one-quarter of the average HY fund and its effective duration is one-fifth the average – its performance is wildly out-of-step with the group’s. In years when the group soars, Zeo has terrible relative performance and in years when the group tanks, Zeo has great relative performance. As a result, Zeo’s peer ranking and Morningstar rating tell you more about how the group has done lately than about whether Zeo continues to deliver on its promise: steady, positive absolute returns.

To get an idea of its steadiness, here’s a chart of ZEOIX against Morningstar’s equivalent to the Multi-Sector Income group:

In short, over time and with great consistency, Mr. Reddy has delivered what he promised. Mr. Reddy has a comparable goal for Short Duration: “best-in-class risk-adjusted returns measured by Sharpe ratio, among other ways.”

The fund carries a $5,000 minimum initial investment and expenses of 1.25% (after waivers for 2019). The Zeo Sustainable Credit Fund (ticker ZSRIX) should be open for investment Monday, June 3 on the following platforms: 

  • Direct through the transfer agent
  • Charles Schwab 
  • Fidelity
  • Pershing (within a week of launch)

Other custodial platforms added upon request. Given that ZEOIX is available for purchase on JPMorgan, Pershing, TD Ameritrade, and Vanguard, it’s likely this one will appear there, too.

Elevator Talk: Paul Privitera, Virtus Newfleet Dynamic Credit ETF (BLHY)

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 300 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 a few hundred 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. 

Virtus Newfleet Dynamic Credit ETF (BLHY) is an actively-managed ETF that focuses on two non-investment-grade asset classes, bank loans and high-yield bonds. The fund tries to generate high current income and capital appreciation; because the performance of non-IG assets is relatively interest rate insensitive, it may also provide a rising interest rate hedge.

Why?

Good question!

In normal times, income-oriented investors could count on substantial, predictable returns from very unambitious, core investment grade bond funds. To illustrate that contention we identified the five core bond funds that have been around for 40 years or more, then studied their rolling one, three, five, ten and twenty year annualized returns. Since each fund has up to 20 rolling periods each year (the 1, 3, 5, 10 and 20 year periods following January 1990, then the 3, 5 and 10 year periods following February 1990 and so on), there are a lot of data points (11,955 rolling periods) but only one answer: “about 7.3%.” Historically, it simply didn’t matter how long you held a core bond fund, it was going to return an average of 7.3%. Hold it for one year and, on average, you’d get 7.28%. Hold it for five years and, on average, you’d get 7.32%.

If Dr. John Watson was writing about it, he might recycle the title, The Seven-Per-Cent Solution.

Two caveats: (1) these returns are nominal, not real. If you made 7% and inflation is running at 8%, your real return is negative. Over the long term, inflation runs just above 2% so you might think of your real buying power as growing by about 5% per year. (2) Short-term returns are much more volatile than long-term averages. One of the five funds had one twelve month loss of 25% and one 12-month gain of 55% but that’s out of 700 observation periods. On average and over time, 7.3%.

Back to the question, why? The simplest answer is, future returns – and future risk-adjusted returns – are likely to be dramatically different from the past.  Recent analyses published by Morningstar and MFO point to far lower bond fund returns in the future, likely in the range of 0 – 3% real returns with heightened volatility. That’s not good. The picture is further complicated by the changing composition of issuers. Bond benchmarks offer the greatest weight to the most heavily indebted borrowers in a particular class. Federal policy-makers (abetted by economists touting Modern Monetary Theory which describes deficits as harmless) have surrendered any attempt at deficit control; the projected $1.0 – 1.4 trillion federal budget deficit for 2019 requires issuing $1.0 – 1.4 trillion in new Treasury bonds. The weight of traditionally low-yielding Treasuries has doubled in just a decade, and is rising steadily. The New York Times reports:

Over the last decade, as the United States government has issued more and more debt, Treasuries have grown from 22 percent of the index (and index funds) to 40 percent. The index’s Treasury stake is likely to increase in the coming years because the new tax law has reduced corporate tax revenue and a growing federal budget deficit will require more Treasury debt to pay the country’s bills. (Carla Fried, For a While, Bond Funds Were an Exception to the Indexing Rule, 1/11/2019)

That evolution means that investors face falling returns and exposure to fewer issuers, hence more issuer risk. Investors who find that situation intolerable look for income elsewhere: in bond-like equities, financial derivatives, international bonds and in non-investment-grade bonds.

And that’s where Newfleet comes in. Newfleet Asset Management, now part of Virtus, is a $10.5 billion fixed-income manager that specializes in a multi-sector approach. While they don’t quite believe “there’s always a bull market somewhere,” they do believe that there’s always better value somewhere. You might think of them as “disciplined agnostics.” They are not “always and only muni bonds” or “always and only” anything. Instead, they’ve constructed an active strategy that allocates resources between two distinct but convergent non-investment-grade universes.

High-yield bonds can offer equity-like returns with minimal correlation to interest rates. There’s now a $1.1 trillion dollar high-yield market.

Bank loans can offer a powerful hedge against rising interest rates, since the loan interest rates get reset periodically, with the security of knowing that Newfleet is purchasing senior secured loans. There’s now a $1.1 trillion dollar securitized loan market.

While the markets are large, liquid and similar in size, there are significant differences between the two asset classes. By way of example, some industries issue (tech, for example) very few high yield bonds but do participate in the loan market while other industries (energy, as an example) do the reverse. By Newfleet’s calculation, about 800 issuers participate in the bond loan market but not the high-yield market, about 600 do the reverse and only 300 participate in both. The ability to move between the two allows managers to tap into very different income streams, depending on where the best opportunities lie.

Newfleet, through a number of 40-act funds, has been pursuing this strategy since 2014. I had a chance in April 2019 to chat with Paul Privitera, one of Newfleet’s business development guys, and through him with Newfleet’s investment team.  Here are Mr. Privitera’s 238 words on why investors ought to consider both an active strategy and exposure to asset classes like high yield and bank loans:

The value proposition behind Dynamic Credit is simple. Over the past decade, high yield bonds are continuing to look more like bank loans and vice versa, so instead of splitting the allocation between both asset classes, we believe investors can more efficiently access the leveraged finance space through a single, flexible strategy. The benefit of this approach is that it enables a single investment manager with purview over a larger opportunity set to capitalize on technical dislocations and differential relative value opportunities within industries, credit quality tiers, and across the capital structure. Additionally, the fund has the ability to utilize Treasuries should conditions warrant, a feature that we feel is especially important to managing risk late cycle and a feature we are currently utilizing.

Given the number of issuers that have a significant presence in both the loan and high yield markets, a plan sponsor or other investor with dedicated strategies may have exposure to an issuer through both its loan and high yield portfolios. In contrast, a manager with a flexible mandate has broader oversight and control over aggregate exposures. Similarly, the use of dedicated strategies may lead to unintentional industry concentration risk or manager style risk that a single-manager, flexible mandate can avoid.

Combining high yield bonds and bank loans in an actively managed strategy takes advantage of the two asset classes’ common and complementary attributes, enhancing diversification and providing the potential for attractive risk-adjusted returns.

This is an actively-managed ETF. While equity investors are used to equating passive with “good and cheap,” that’s not such a sure thing in fixed-income investing. Passive products don’t have a performance advantage over active ones and aren’t all that cheap. The average high-yield ETF – almost all passive – returned 5.76% annually over the past three years. The average high-yield mutual fund – almost all active – made substantially more: 6.17%. Similarly, bank loan mutual funds returned 4.39% while bank loan ETFs clocked in at 3.72% (per Morningstar, as of 5/28/19).

Dynamic Credit was launched in December 2016, has assets of $15.7 million and a 0.68% expense ratio (per Morningstar, 5/28/19). That’s below-average for the bank loan ETF peer group, though above-average for the high yield bond ETF group. Compared to mutual funds, it is below average for both bank loan and high yield. As of March 31, 2019 Newfleet Asset Management had approximately $10.5 billion in assets under management.

The ETF is managed by a team led by David L. Albrycht, Newfleet’s CIO. Mr. Albrycht has crafted a team that’s frequently recognized as being in the industry’s top tier. In addition to this ETF, they manage fixed-income assets through two other ETFs, three closed-end funds, part of all of seven mutual funds and two offshore funds. The Virtus Newfleet Dynamic Credit homepage offers all the basic information, with the Newfleet Flexible Credit Strategy site offering a bit more depth. The difference is that the latter page focused on the performance of somewhat older SMAs and is written with greater detail for an institutional audience.

Launch Alert: Cannabis Growth Fund (CANNX/CANIX)

By David Snowball

On February 22, 2019, Foothill Capital Management launched the Cannabis Growth Fund (CANNX/CANIX). The fund seeks to provide long-term capital appreciation through investing globally in companies “engaged exclusively in legal cannabis activities under applicable national and local laws, including U.S. federal and state law.” This marks the launch of Foothill’s second fund, after All-Terrain Opportunity Fund (TERIX), a four-year-old fund of funds that’s done quite well since inception.

Morningstar rates TERIX as a four-star fund (as of 5/29/19).

MFO’s May issue incorrectly identified CANNX as a “fund in registration,” that is, a fund not yet available for sale.

Here’s a quick rundown of the newly-launched fund:

  • Its investable universe includes the 350 or so publicly-traded firms which derive 50% or more of their earnings from the cannabis industry.
  • Those firms are located in a variety of sectors, including agricultural and bio-technology, cultivation and retail, and industrial hemp.
  • Their universe is populated primarily by micro- to mid-cap growth companies, though they won’t invest in any stock with a market cap below $100 million and their largest single holding is a large cap Canadian firm, Canopy Growth (CGC) as of March 31, 2019.
  • The fund is non-diversified with about 32 stocks in the portfolio currently; it anticipates relatively high turnover.
  • The manager uses options in an attempt to (partially) manage volatility and increase performance.
  • The portfolio manager is Korey Bauer, who co-manages All-Terrain Opportunity Fund (TERIX) and previously managed Catalyst Macro Strategy Fund in 2014.

The upside, by the manager’s reckoning, is that you’re gaining early access to an exploding market. They write:

More than 22 countries covering a population of nearly 1 billion have laws that cover the legal use of medical cannabis as well as the decriminalization and use of hemp. With legalization helping to expand various health care and consumer uses, the global cannabis market is anticipated to grow 60% to over $30 billion by 2021.

Other estimates are rather more aggressive. One places the global cannabis market at $340 billion by 2025 with the legal industry capturing about 25% of the total. Canopy Growth published a 2019 analysis of the global market that suggested that cannabis products could disrupt a half trillion dollar market for products ranging from pain relief and animal health to sleep aids and … recreational alternatives to alcohol.

The downside, of course, is that the stuff is illegal in the U.S. The use, sale, and possession of cannabis with over 0.3% THC in the United States is illegal under the federal Controlled Substances Act of 1970. While states, eyeing a potential tax windfall, have been merrily legalizing medical and recreational marijuana, under the Supremacy Clause of the U.S. Constitution, federal law preempts conflicting state and local laws. On the upside, the 2018 Farm Bill made low-THC cannabis, sometimes called “industrial hemp,” legal though highly regulated. A second channel might be the incredibly popular cannabis-derived product cannabidiol (CBD), which has been faddishly added to everything. The New York Times announced that

cannabidiol is everywhere. We are bombarded by a dizzying variety of CBD-infused products: beers, gummies, chocolates and marshmallows; lotions to rub on aching joints; oils to swallow; vaginal suppositories for “soothing,” in one company’s words, “the area that needs it most.” (Can CBD really do all that? 5/14/19)

The fund’s retail shares (CANNX) carry a $2,500 minimum initial investment and expenses of 1.35% (after waivers in effect through 2020). The institutional shares (CANIX) require $100,000 and charge 1.10%. The fund is available through direct purchase or the online TD Ameritrade and InteractiveBrokers sites. The Cannabis Growth homepage offers a reasonable amount of information about the strategy and its investable universe.

Funds in Registration

By David Snowball

Before funds and ETFs can be offered to the public, they’ve got to be submitted to the SEC which has 70 days to review the application. In general, advisers try to launch just before year’s end because that allows them to have clean “year to date” and calendar year results to share. In general, launching new funds in July and August is a dumb idea. Investment returns in summer are, in general, miserable and you lose the advantage of being able to report a full calendar quarter.

Happily, not many fall victim to that trap. Well, these guys did but not many others.

Aberdeen Standard AI Driven US Equity ETF

Aberdeen Standard AI Driven US Equity ETF, an actively-managed ETF, seeks long-term capital appreciation. The plan is to invest in US stocks. Who will be doing the investing, you ask? Our robot overlord … uh, overmanager? … I say. The portfolio will be constructed by “a proprietary, quantitative and artificial intelligence driven model [that] utilizes machine learning to analyze constantly evolving financial markets data and to identify and recall patterns in markets. Based on those patterns, the Model dynamically allocates to exposure combinations value, quality, momentum, small size and low volatility.”  According to the prospectus, the fund will be managed by “employee [   ] and [   ].” Its opening expense ratio has not been disclosed.

Aberdeen Standard AI Driven Emerging Markets Equity ETF

Aberdeen Standard AI Driven Emerging Markets Equity ETF, an actively-managed ETF, seeks long-term capital appreciation. The plan is to do the same thing to the emerging markets that its sibling will do to the US market: a constantly evolving computer program will select varying exposures to five different investing factors: value, quality, momentum, size and volatility. Neither the manager(s) nor the expense ratio has been disclosed.

First Trust EIP Carbon Impact ETF

First Trust EIP Carbon Impact ETF, an actively-managed ETF, seeks a competitive risk-adjusted total return balanced between dividends and capital appreciation. The plan is to invest in utility and/or energy companies who are seeking to reduce the carbon impact of the production, transportation, conversion or storage of energy. That includes companies trying to reduce emissions of carbon and other greenhouse gases or companies that aid the broader decarbonization of the economy through renewables or smart transmission technology. The fund will be managed by a team from Energy Income Partners, LLC. Its opening expense ratio has not been disclosed.

First Trust Multi-Manager Small Cap Core ETF

First Trust Multi-Manager Small Cap Core ETF, an actively-managed ETF, will seek long-term capital appreciation. The plan is to assign part of the portfolio to an as-yet unnamed growth manager and part of the portfolio to an as-yet unnamed value manager and let them have at it. Its opening expense ratio has not been disclosed.

IQ Ultra Short Duration ETF

IQ Ultra Short Duration ETF, an actively-managed ETF, seeks current income while maintaining limited price volatility. The plan is to maintain a BBB- or higher quality portfolio with a duration of a year or less; up to 20% of the portfolio can be invested in options and futures as an interest rate hedge. The fund will be managed by as as-yet unnamed party. Its opening expense ratio has not been disclosed.

John Hancock Diversified Macro Fund

John Hancock Diversified Macro Fund will seek long-term capital appreciation. The plan is to act like a global macro hedge fund. I wish them well. The fund will be managed by Kenneth Tropin and Pablo Calderini. Its opening expense ratio is between 1.34-2.45% depending on share class, and the minimum initial investment will be $1000 for retail shares and $250,000 – $1 million for institutional share classes.

Quantified Tactical Fixed Income Fund

Quantified Tactical Fixed Income Fund will seek total return. The plan is to do tactical stuff with fixed income: non-diversified, long and short, domestic and global, investment grade and not, government and corporate.  They’ve got three models to help them “balance high return, low correlation, and low volatility” while being aggressively tactical. The fund will be managed by Jerry C. Wagner and Jason Teed of Flexible Plan Investments. Its opening expense ratio is 1.77%, and the minimum initial investment will be $10,000.

Quantified Evolution Plus Fund

Quantified Evolution Plus Fund will seek capital appreciation. The plan is to do tactical stuff with equity, debt, gold and commodities. It’s going to be aggressive and it’s going to be non-diversified but, in bad times, it can reach to short-term fixed income. The fund will be managed by Jerry C. Wagner and Jason Teed of Flexible Plan Investments. Its opening expense ratio is 1.77%, and the minimum initial investment will be $10,000.

The Top Five Manager Changes

By David Snowball

Each month dozens of funds and ETFs undergo partial or complete turnover in their management teams. This month we found 85 funds and ETFs making a change. The vast majority of those changes are inconsequential to anyone other than the folks losing (or gaining) jobs: one manager on a five person team might be popped out and replaced by another, resulting in little net change.

In deference to our impending trip to Ireland, we’ve decided to report just five changes that caught our eye for now with the whole big list returning in July.

DWS ESG Global Bond Fund (SZGAX) dismissed its entire management team and brought two new guys on-board. The fund has been a long-time laggard. Seven other DWS funds had management tweaks.

Fidelity Emerging Markets Fund (FEMKX) loses star manager Sammy Simnegar, who’s taking over the reins on Fidelity Magellan, on September 30, 2019. He’s replaced by John Dance, who’s done a fine job at Fidelity Emerging Asia over the past couple years and who also ran Fidelity Pacific Basin. Fidelity Emerging Asia (FSEAX) then loses John Dance on December 31, 2019 who’s being succeeded by Xiaoting Zhao.

Harbor International Small Cap Fund (HIISX) terminated Baring International Investment Limited as its sub-adviser after three pretty uninspired years and is bringing in Cedar Street Asset Management LLC to run the fund. Since Cedar Street’s lead manager, Waldemar Mozes, did a fine job with ASTON/TAMRO International Small Cap Fund (AROWX/ATRWX), I’m pleased for the change.

Ben Franklin no longer serves as the portfolio manager of the Intrepid International Fund (ICMIX) or as part of the investment team of the Intrepid Capital Fund (ICBMX). On the one hand, ICMIX was distinctive and fascinating – international, absolute value, micro-cap – on the other hand, that discipline hasn’t worked over the past three years and the fund is about to be liquidated.

T. Rowe Price International Value Equity (TRIGX) is in the midst of an un-T. Rowe Price-like shuffle. On July 1, 2019, Sebastien Mallet steps down as manager – on very short notice, by TRP standards – after less than a year – a very short tenure by TRP standards – running this fund. Colin McQueen will take the helm of this fund. Mr. McQueen has had a long investing career, though mostly elsewhere.

Briefly Noted

By David Snowball

Updates

The Balter Invenomic Fund (BIVIX) is in the process of shedding Balter. As a practical matter, that will translate to a name change, Invenomic Fund, and little more. BIVIX is, as we noted in our May 2019 profile, an exceptionally strong performer with steady asset growth.  The manager is both talented and self-assured, so I’m not particularly concerned though I am curious. The proxy document offers this somewhat cryptic explanation for the change:

BLA (i.e., Balter Liquid Alts) informed the Board that it was making this request because it is currently exiting the investment advisory business due to uncertainty involving a “seed investor” which could potentially affect its ability to provide services to the Fund and other funds in the future. BLA believes that this transition is in the best interest of the Fund and its shareholders as it will provide continuity for the Fund and create a more direct relationship between shareholders and Invenomic. The seed investor currently holds a non-voting equity interest in BLA and initially contributed seed capital for the Fund. 

We’ve reached out to the Invenomic team for comment and will share what we’ve learned in our July issue.

Thanks, most especially, to Kirk Taylor for giving us a heads up about the impending change and the Invenomic folks for promising to talk through the change as soon as they’re able.

And thanks, as ever, to The Shadow – a long-time stalwart of MFO’s discussion board – for his indefatigable reading of SEC filings each month. He finds things before the SEC even knows they’ve been filed. It helps a lot to be able to scan his list of finds on the Board each month, just to be sure that I haven’t missed anything significant.

Which, usually, I have.

Briefly Noted . . .

A bunch of Direxion funds have announced reverse share splits. That normally occurs when a fund’s NAV has dropped to an inconvenient level. The Direxion funds are not investments; they are trading vehicles meant to be held for a day or less. A particularly stark illustration of that fact: a $10,000 investment made five years ago in Direxion Daily Natural Gas Related Bull 3X ETF (GASL) would today be worth $2.

  Reverse Split Ratio
Direxion Daily Mid Cap Bear 3X Shares 1 for 5
Direxion Daily Small Cap Bear 3X Shares 1 for 5
Direxion Daily Financial Bear 3X Shares 1 for 5
Direxion Daily MSCI Real Estate Bear 3X Shares 1 for 5
Direxion Daily Natural Gas Related Bull 3X Shares 1 for 5
Direxion Daily Junior Gold Miners Index Bull 3X Shares 1 for 5
Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 3X Shares 1 for 5
Direxion Daily Semiconductor Bear 3X Shares 1 for 10

In a move that only Vanguard could get away with, Vanguard Long-Term Bond Index Fund (VBLAX) will impose a 0.50% on all purchases of its Investor and Admiral shares. “Purchase fees,” they note, “are paid directly to the Fund to offset the costs of buying securities. This fee is separate from, and in addition to, other expenses charged by the Fund.” So the (two star) fund will advertise a 0.07% expense ratio but, for new investors, the practical expense ratio will be 0.57% – eight times as high.

In related news, “Vanguard crushing the competition with largest fund inflows so far in 2019” (Philly.com, 5/27/2019).

I miss Jack Bogle.

SMALL WINS FOR INVESTORS

As usual, a bunch of funds have lowered their expense ratios this month. That strikes me as a strategy that weakens the advisor without materially increasing the competitiveness of their funds, but it’s sort of de rigueur for advisors to make the gesture.

Some of this month’s offerings …

AdvisorShares Newfleet Multi-Sector Income ETF (MINC) from 0.65% to 0.50%
Columbia EM Core ex-China ETF from 0.35% to 0.16%
Columbia Multi-Sector Municipal Income ETF from 0.28% to 0.23%
Federated Adjustable Rate Securities Fund (FEUGX, FASSX), their also shuffling around the names of their share classes from 0.60% to 0.30%
T. Rowe Price Institutional U.S. Structured Research Fund from 0.50% to 0.33%
T. Rowe Price Capital Opportunity Fund from 0.69% to 0.50%

In other news …

Effective June 1, 2019, the Diamond Hill Long-Short Fund will re-open to new investors.

DWS Total Return Bond Fund will drop their maximum front-end sales load to 2.75% on “A” shares.

Federated High Yield (FHYAX) will eliminate its 2.0% redemption fee on June 30, 2019.

Principal Contrarian Value Index ETF is, for now, off the deathwatch. They’d been threatened with delisting by Nasdaq for having fewer than 50 investors. Principal just announced that we’ve gotten the number of investors over 50.

OLD WINE, NEW BOTTLES

AB Intermediate Bond Portfolio (ABQUX) Is being rechristened AB Total Return Bond Portfolio. Not surprisingly, it’s new mandate is to seek “total return” and it will no longer be required to hold only intermediate-term bonds.

Advisorshares Treesdale Rising Rates ETF has changed its ticker symbol to GTAA. Be still, my beating heart!

Effective as of June, 30, 2019, FAM Equity-Income Fund (FAMEX) will change its name to FAM Dividend Focus Fund. The fund is already dividend-focused so there won’t be any changes in goals, strategy or management.

Green Square Tax Exempt High Income Fund (GSTAX) has become Green Square High Income Municipal Fund

Invesco is acquiring a bunch of Oppenheimer ETFs. Absent last minute hang-ups, here are the unsurprising name translations:

 Predecessor Funds Successor Funds
Oppenheimer Emerging Markets Revenue ETF Invesco Emerging Markets Revenue ETF
Oppenheimer Emerging Markets Ultra Dividend Revenue ETF Invesco Emerging Markets Ultra Dividend Revenue ETF
Oppenheimer Global ESG Revenue ETF Invesco Global ESG Revenue ETF
Oppenheimer Global Revenue ETF Invesco Global Revenue ETF
Oppenheimer International Revenue ETF Invesco International Revenue ETF
Oppenheimer International Ultra Dividend Revenue ETF Invesco International Ultra Dividend Revenue ETF
Oppenheimer Russell 1000® Low Volatility Factor ETF Invesco Russell 1000® Low Volatility Factor ETF
Oppenheimer Russell 1000® Momentum Factor ETF Invesco Russell 1000® Momentum Factor ETF
Oppenheimer Russell 1000® Quality Factor ETF Invesco Russell 1000® Quality Factor ETF
Oppenheimer Russell 1000® Size Factor ETF Invesco Russell 1000® Size Factor ETF
Oppenheimer Russell 1000® Value Factor ETF Invesco Russell 1000® Value Factor ETF
Oppenheimer Russell 1000® Yield Factor ETF Invesco Russell 1000® Yield Factor ETF
Oppenheimer S&P 500 Revenue ETF Invesco S&P 500 Revenue ETF
Oppenheimer S&P Financials Revenue ETF Invesco S&P Financials Revenue ETF
Oppenheimer S&P MidCap 400 Revenue ETF Invesco S&P MidCap 400 Revenue ETF
Oppenheimer S&P SmallCap 600 Revenue ETF Invesco S&P SmallCap 600 Revenue ETF
Oppenheimer S&P Ultra Dividend Revenue ETF Invesco S&P Ultra Dividend Revenue ETF
Oppenheimer ESG Revenue ETF Invesco ESG Revenue ETF
Oppenheimer Russell 1000® Dynamic Multifactor ETF Invesco Russell 1000® Dynamic Multifactor ETF
Oppenheimer Russell 2000® Dynamic Multifactor ETF Invesco Russell 2000® Dynamic Multifactor ETF

Nuveen Symphony Credit Opportunities Fund is becoming Nuveen Symphony High Yield Income Fund. When the fund’s name changes, it will be permitted to invest up to 30% of its net assets in loans and will no longer invest in convertible securities as a principal investment strategy.

Effective July 31, 2019, the $400 million PIMCO Global Multi-Asset Fund (PGMAX) becomes PIMCO Global Core Asset Allocation Fund.

PNC is selling its asset manager biz to Federated.

Hmmmm … the first thing that strike me is that both operations are (largely) headquartered in Pittsburgh, my hometown. The larger part of PNC started life as Pittsburgh National Bank (PNB) before merging with Piedmont Bank. Federated launched in Pittsburgh in about 1957, got bought by Aetna, bought themselves back and are working to buy European exposure. One wonders if proximity allowed for ideas to germinate.

Federated admits that “For more than four decades, clients have turned to Federated for liquidity management solutions,” and money markets are still – even post Hermes – two-thirds of their assets. That’s an incredibly low margin business. Their corporate goals include seeking “additional options for international acquisitions and growth, particularly in the Latin America and Asia-Pacific regions, and are actively working to establish strategic relationships with select financial institutions to add regional distribution of Federated investment strategies.” So, clearly “international” and “getting beyond money markets” are on their mind.

Why might PNC sell? Perhaps because it’s a stagnant business segment with contracting margins? Their asset growth has been negative, the number of funds has been decreasing, most of the PNC-branded funds are niche-y which means their market potential is likely limited and there is no hint in the company’s annual report that they have any plans to commit to investment services.

In some instances Federated will merge PNC funds into their own existing offerings. In other cases, the PNC funds will become new Federated ones.

Therefore we get

PNC Funds becoming … Federated Funds
PNC Government Money Market Federated Government Obligations
PNC Treasury Money Market Federated U.S. Treasury Cash Reserves
PNC Treasury Plus Money Market Federated Treasury Obligations
PNC International Equity Federated International Equity  New
PNC Multi-Factor Small Cap Core Federated MDT Small Cap Core
PNC Ultra Short Bond Federated Ultrashort Bond
PNC Small Cap Federated MDT Small Cap Core
PNC Total Return Advantage Federated Total Return Bond
PNC Multi-Factor Small Cap Growth Federated MDT Small Cap Growth
PNC Multi-Factor Large Cap Value Federated MDT Large Cap Value
PNC Multi-Factor Large Cap Growth Federated MDT Large Cap Growth
PNC Tax Exempt Limited Maturity Bond Federated Short-Intermediate Duration Municipal Trust
PNC Intermediate Tax Exempt Bond Federated Intermediate Municipal Trust
PNC Multi-Factor Small Cap Value Federated MDT Small Cap Core
PNC Balanced Allocation Federated MDT Balanced
PNC Emerging Markets Equity Federated Emerging Markets Equity New
PNC Multi-Factor All Cap Federated MDT All Cap Core
PNC International Growth Federated International Growth New

Effective as of May 1, 2019, Summit Global Investments U.S. Low Volatility Equity Fund (LVOLX) becomes SGI U.S. Large Cap Equity Fund. 

Effective August 5, 2019, the Arbitrage Event-Driven Fund (AGEAX) will change its name to Water Island Diversified Event-Driven Fund.

In a slightly Orwellian announcement, there will be “a repurposing” of one of the Touchstone Funds on August 23, 2019. The small and sedentary Touchstone Premium Yield Equity Fund (TPYAX) will find new purpose in life as Touchstone International ESG Equity Fund. Rockefeller & Co. LLC will take over the fund from Miller/Howard Investments, Inc.

On or about July 29, 2019, Touchstone Sustainability and Impact Equity Fund (TEQAX) will be renamed Touchstone Global ESG Equity Fund. Nothing else will change..

Effective July 1, 2019, T. Rowe Price Capital Opportunity Fund (PRCOX) changes to T. Rowe Price U.S. Equity Research Fund. It’s a large and successful fund. Given the absence of any other change, I’m guessing that it’s just tired of being mistaken for the T. Rowe Price Capital Appreciation Fund.

Effective on or after July 9, 2019, VanEck Vectors Global Alternative Energy ETF (GEX) becomes VanEck Vectors Low Carbon Energy ETF. The fund’s history of producing negligible-to-negative returns might be a more pressing issue than its name.

Effective July 9, 2019, Virtus Newfleet Bond Fund will change to Virtus Newfleet Core Plus Bond Fund and Virtus Newfleet Low Duration Income Fund will change to Virtus Newfleet Low Duration Core Plus Bond Fund.

The former American Beacon SGA Global Growth fund is now available as the Virtus SGA Global Growth Fund (SGAAX). Small fund. Five-star rating. Top 2% returns since launch. Same management team since launch.

Effective July 22, 2019, Wells Fargo Traditional Small Cap Growth Fund (the “Fund”) becomes Wells Fargo Fundamental Small Cap Growth Fund. Zero Mostel mourns.

OFF TO THE DUSTBIN OF HISTORY

Let’s start with The Big List of Dying Funds.

  Liquidation Date
Alambic Mid Cap Value Plus Fund  (ALMVX)
Alambic Small Cap Value Plus Fund (ALAMX)		 June 30, 2019
Balter L/S Small Cap Equity Fund (BEVRX) June 28, 2019
Bishop Street Dividend Value Fund (BSLIX) June 26, 2019
BNY Mellon Absolute Insight Multi-Strategy Fund (MAJAX) July 19, 2019
Brandes Value NextShares June 28, 2019
Brandes Global Opportunities Value Fund (BGOAX) June 28, 2019
Columbia Beyond BRICs ETF (BBRC)
Columbia EM Quality Dividend ETF (HILO)
Columbia India Infrastructure ETF (INXX)
Columbia India Small Cap ETF (SCIN)		 June 14, 2019
ETF Industry Exposure & Financial Services ETF (TETF) June 20, 2019
Franklin India Growth Fund (FINGX) September 13, 2019
Franklin K2 Global Macro Opportunities Fund (FKMAX) June 24, 2019
Goldman Sachs Tactical Exposure Fund (GSMPX) June 28, 2019
Hartford Long/Short Global Equity Fund (HLOAX) July 11, 2019
Intrepid International Fund (ICMIX) September 27, 2019
JPMorgan International Equity Income Fund (JSEAX) July 8, 2019
Pax Mid Cap Fund (PWMDX) July 15, 2019
PSI Total Return Fund (FXBAX) June 27, 2019
Stadion Alternative Income Fund (TACFX) August 16, 2019
Templeton Emerging Markets Balanced Fund (TAEMX) June 24, 2019
Templeton Global Currency Fund October 10, 2019
WBI BullBear Global High Income ETF (WBIH)
WBI BullBear Global Rotation ETF (WBIR)		 June 14, 2019

Three notes about that list:

  1. Investing outside the US is proving fatal. Of the 21 funds on this list, two-thirds invested globally or internationally.
  2. Bishop Street was an excellent fund, period.
  3. Templeton EM Balanced was a solid fund benchmarked inappropriately. Morningstar benchmarks EM balanced funds against EM equity funds, a decision excused by the “too few for a peer group” argument. EM balanced funds produce equity-like returns with far lower risk but get buried in the equity group.

A number of funds are getting merged into other funds.

Disappearing fund Surviving fund
Broadview Opportunity Fund Madison Small Cap Fund
FDP BlackRock Capital Appreciation Fund BlackRock Capital Appreciation Fund
FDP BlackRock Equity Dividend Fund BlackRock Equity Dividend Fund
FDP BlackRock International Fund BlackRock International Fund
Royce Micro-Cap Opportunity Fund Royce Opportunity Fund
Royce Small/Mid-Cap Premier Fund Royce Pennsylvania Mutual Fund
Royce Small-Cap Leaders Fund Royce Pennsylvania Mutual Fund
Touchstone Credit Opportunities Fund Touchstone Credit Opportunities II Fund
Wells Fargo Asia Pacific Fund Wells Fargo Emerging Markets Equity Income Fund
Wells Fargo Capital Growth Fund Wells Fargo Endeavor Select Fund
Wells Fargo Small Cap Value Fund Wells Fargo Small Company Value Fund

I’m struck mostly by the continued unwinding of the Royce Funds. Following their acquisition decades ago by Legg Mason, they rolled out a slew of virtually indistinguishable small-cap value funds. They’ve been unwinding that decision for about a decade now.