Monthly Archives: November 2020

November 1, 2020

By David Snowball

And now we wait.

I’m writing this less than 48 hours before the end of the most divisive and likely most consequential presidential election in a hundred or a hundred and fifty years. (It depends on your view of the sea change enacted in 1932 or the tumult of 1860.) I am exceptionally distracted by the unfolding events.

In general, I have faith that things will work out okay. People are, on the whole, sensible when not terrified. And, while many of our fellow citizens are terrified – in part because conditions in many parts of the country are unremittingly hard and, in part, because political parties have learned that it’s in their best interests to enflame our worst fears – we have an okay track record of tempering our fears with hope and our anxiety with charity.

Adjusting your portfolio for the next market

2020 has been a sort of freak show in the markets and beyond. In the face of uncertainty and intermittent economic catastrophe, 31 funds have posted gains of 50-120%. Those are powered by Zoom (up 577% YTD), Tesla (363%), and company. Six stocks have posted gains of over 1000% – from fitness equipment maker Nautilus to a bunch of biotech stocks – and more than 20 have posted 500%+ gains so far this year.

And now a second (or third) wave of a pandemic, an election, the exhaustion of the stimulus relief funds that many depend upon … what’s an investor to do?

Nothing, mostly. If you’ve got a plan, the worst possible moment to upend it is when you’re panicked. If you haven’t got a plan, you need to read MFO more frequently. We’ve been kind of walking folks through the process for a decade now. But you’ve got time.

Things to think about as you ponder a plan.

Holding cash is probably pretty bright.

Even the somber John Rekenthaler now allows that “A Stock Market Bubble is Forming” (10/29/2020). Mr. Rekenthaler walks through arguments made by Bill Bernstein in his upcoming book, The Delusions of Crowds (2021). The specific crowd that concerns JR are investors, and he makes a case that we’re moving toward disaster. Not imminently, but not far.

About the best resource possible in the face of a rout is cash, dry powder, resources with which to take advantage of the panic-selling of others. My own portfolio typically sits at 25% cash (partly in the form of RiverPark Short-Term High Yield shares), and we’ve repeatedly modeled the effect of that allocation on my portfolio during a market crisis. Short version: my losses will be annoying, not devastating. You can hold cash directly or invest it with managers who pursue an absolute value discipline: when stocks are crazy, they hold cash. At the beginning of this year, Akre Focus (AKREX) sat at 20% cash, for instance. KL Allocation (GAVAX), the former Knowledge Leaders fund, has 31% cash, a five-star rating, and a 14% gain this year. Palm Valley Capital (PVCMX) deployed cash to rack up gains early this year and is back t0 72% cash and a 12% YTD gain. Provident Trust (PROVX) is at 15%, with large-cap core and gains of 7% so far this year.

Thinking about inflation hedges isn’t a bad idea, either.

The Fed recently, but quietly, revised its policy regarding inflation. At base, it announced that it was willing to allow inflation to exceed its target rate (2% per year) for a period of years to help re-inflate the economy. At the same time, they forecast that interest rates – their first-line tool for controlling inflation – were staying near zero at least through 2023.

In a “don’t fight the Fed” world, if the Fed says “we’re hoping for inflation,” you might reconsider the possibility of investing in real assets.

Put bonds in your non-retirement / tax-exposed portfolio.

Usually, advisors want you to keep bonds in tax-advantaged accounts, but if interest rates actually linger near zero, the tax hit from bonds becomes (regrettably, in a way) negligible, and they might offer a bit of ballast when the equity markets become, as they’re wont to do, unhinged.

Refining your watchlist for small/emerging/value is a good use of time.

Many champions of “the Newest New Normal” say that looking at centuries of market history is a delusion since “Everything is Different This Time.” Being an agreeable bunch of quants, the Leuthold Group shortened their time horizon to look at 2020 purely in the light of the past 15 years. Even by the standards of the recent past, the behavior of the large / growth segment of the market is … umm, crazy.

The argument for [small/value] has become stronger over the past year. Most importantly, we’ve experienced an economic calamity on par with the Tech Bubble and Financial Crisis—both of which ushered in regime changes.

If you’re one of the dwindling few who believes in valuations, the case for Small Value over Large Growth is obvious. With 2020 being particularly kind to Large Growth, median forward P/E ratios have spiked to incredible levels given the past fifteen years of history. Small Value, on the other hand, remains well below its median observation.

They illustrate that claim by looking at the current P/E ratios for large growth and small value stocks. The horizontal line in each case is what’s normal for the past 15 years.

At this point, a simple return to normal 21st-century valuations would require a drop of about 40% in the price of the market’s favorites and a gain of about 15% for its saddest puppies. Mark Oelschlager, manager of Towpath Focus (TOWFX), offers a similar speculation:

Today feels a lot like 1999 in that the market as a whole is highly valued, optimism is high, speculative day-trading by individual investors is rampant, the IPO market is hot, and growth/tech stocks have led the way to an extreme degree, particularly those of companies that are unprofitable.  So, caution is warranted.  On the other hand, this market reminds us of 1999 in another important way: the disdain for certain areas of the market.  In 1999, many companies with lesser growth prospects were shunned by investors in favor of the sexier growth stocks.  But during the correction of 2000-2002, their fortunes reversed, with the lowly-valued stocks outperforming the growth stocks dramatically.  We believe the probability of something similar happening this time around is high.

Analysts make similar arguments for emerging market equities and, in particular, EM value.

Beware the greenwashers

The investment industry is desperate for your money. Mainline firms like Invesco have announced 200 layoffs, Wells Fargo 700 so far, Eaton Vance is likely to see a purge under its new ownership. Compensation consultant Johnson Associates projects that the industry will cut 10% of its entire workforce between late 2020 and 2021. People are panicked, and panicked people do worrisome things. In particular, the industry is desperately slapping a “green” label on every failing fund in hopes of drawing assets and rolling out every variant of new green / socially-responsible / sustainable strategies that they can imagine.

Sustainable investing is a good thing. It is certainly possible that a new administration might commit a trillion dollars – an amount that just 12 months ago seemed unimaginably large – to building green infrastructure. Even given that, entrusting your future to folks who learned only yesterday that they were sustainable investment managers is unwise. Two key strategies to protect yourself: (1) establish whether or not the adviser has a public track record for the strategy and (2) check the fund’s actual sustainability scores (at Morningstar and elsewhere) rather than trusting the marketing promises. Morningstar, for example, gives their lowest sustainability score to 61 funds that present themselves as “socially conscious,” which is Morningstar’s tag for the sustainable / ESG universe.

None of those recommendations have anything to do with national election outcomes or Covid case counts. They simply reflect that prospect that conditions over the next 3-7 years will likely favor some assets, and some strategies, that have gotten neglected or punished. We’re not arguing that you need to fling money at them now, but certainly that you should identify one or two managers in each niche with whom you feel most comfortable.

RiverPark Short-Term High Yield, ten years on

Nine years ago, we wrote a quick Fund Update for RiverPark Short-Term High Yield (RPHYX). It read, in part:

We profiled RPHYX in July as one of the year’s most intriguing new funds. It’s core strategy – buying, for example, called high yield bonds – struck me “as a fascinating fund.  It is, in the mutual fund world, utterly unique . . .  And it makes sense.  That’s a rare and wonderful combination.”  

On October 13, 2020, RiverPark celebrated the fund’s signal achievements.

The RiverPark Short Term High Yield Fund (ticker symbols RPHIX and RPHYX) celebrated its 10th anniversary on September 30, 2020. Over the ten years since its inception, the Fund has generated an annualized return of 2.96% and a Sharpe ratio of 2.89, which is the highest Sharpe ratio for any non-money market mutual fund tracked by Morningstar over that period. The Fund currently has about $725 million in assets, and while it had been closed in prior years, it is now open to new investors. (emphasis added)

The lifetime returns chart reflects a remarkably placid growth path.

The hiccup you see in March represented a drop of 1.2%. The fund’s maximum drawdown spanned 30 days, and it had recovered its previous high by the beginning of August.

It’s a good choice for investors who dislike the prospect of a decade of effectively zero (and potentially negative) real returns on their savings. Our profile might be worth your review.

Thanks, as ever and more than ever …

We appreciate your faith and generosity, most especially in challenging times. And so thanks to Wilson, Dale, Jonathan, Sunil, Lee, and the good folks at S&F Investments.

Thanks to our subscribers, Gregory, William, Matthew, William, Brian, David, and Doug.

Thanks to The Shadow for being indefatigably (though tenebrously) present.

If you’d like to join them in supporting MFO, that would be great.

And thanks, most especially, to my students for their profound commitment to a better world and to their joyful silliness.

Both feed hope.

As ever,

david's signature

 

 

The End of Many Eras

By Edward A. Studzinski

“A genius is the man who can do the average thing when everyone else around him is losing his mind.”

            Napoleon Bonaparte

For those who missed my comments last month, there were not any. I felt I had nothing new to say. And while the same may be true this month, I thought I would give it a shot.

The other day I was joking with David Snowball about the fact that, although this publication is called The Mutual Fund Observer, it was perhaps time to admit that the day of the 1940’s Act mutual fund was over. David responded by indicating that more new funds had been started recently than had been seen in a long time. Many of those newly formed funds were shutting down almost as quickly as they had been started.

Some of that is a function of the increasing presence of exchange-traded funds, with their low fees and daily investor liquidity. At the same time, a generational shift continues in the portfolio managers of established active-managed funds, along with shrinkage in terms of assets under management.

When I left Harris Associates in January of 2012, the Oakmark Equity and Income Fund had, on 12/31/2011, $18.9B in assets. Performance over the long-term had been above the relevant benchmarks. As of 10/31/2020, per Morningstar, the fund’s assets are at $7.2B, and performance has been lagging benchmarks for the last 1, 3, and 5 years. 

What is the problem? Has my former colleague Clyde McGregor lost his touch? No, certainly not that I can see. The equity portion of the portfolio is a classic Harris Associates’ value portfolio, and it looks very interesting to me looking forward over a three to five-year time horizon. 

There are two areas of issue. Please recognize that I am speaking about balanced funds, which is the class of investment I am most familiar with, having managed the same for more than twenty-five years at a national bank trust department as well as at Harris Associates. The first competitive issue is fees. When Fidelity’s Balanced Fund shows a 53-basis point expense ratio and Vanguard’s Wellington Fund shows a 25-basis point expense ratio (and the Vanguard Admiral share class drops that fee to 17 basis points). A 25 to 35 basis point fee disadvantage is a lot of baggage to overcome consistently in terms of its detrimental impact upon performance. If the fee disparity is larger, making up the differential becomes nigh on impossible. I will leave it to others to address the issue of the fee disadvantages relative to exchange traded funds.

The other area of disadvantage currently is fixed income as an asset class for a balanced portfolio. With rates where they are and where they are likely to be for the foreseeable future, it is almost impossible to add any value in the fixed income area without taking on extreme amounts of risk. Money market rates, when not negative, are running from zero to perhaps eight basis points. Maturities beyond two years are not compensating you for the risk you are taking on (if you are lucky, you can find 1% on a credit union’s three-year insured certificate of deposit). 

I will leave aside the issue of value being out of favor as opposed to growth. Those of us who are value investors are prepared to wait through those periods of underperformance. That said, the goalposts for various asset classes have shifted. Small cap was equities with a market capitalization of $500M to $1B. Now, the range is extended up to $2.5B. And one must consider the extent to which other asset classes impinge on your allocation decisions. An article on the “Seeking Alpha” website was making an argument not too long ago that the better way to achieve portfolio diversification going forward was to pair an S&P 500 Index Fund with one of the publicly-traded C-Corporation private equity firms. It is an interesting question to think about.

The final wildcard here is the election. What does a different administration mean for fiscal policy? Instead of Steve Mnuchin at Treasury, what does Lael Brainerd mean as Treasury Secretary mean to policy going forward? 

Oldies but Goodies

One of the old favorite value-investor approaches has been to have passbook savings accounts at mutual savings banks throughout the country, waiting for them to convert to publicly-traded stock corporations. When the conversion occurred, as a longer-term depositor, you were given the first crack at subscribing for shares, which were usually priced at a 20–30 percent discount to book value. Depending on the capitalization of the thrift involved, you would then wait three to five years (three years being the minimum period imposed by the regulators before the publicly-traded bank could sell/merge with another institution). Those transactions usually happened at 1.5–1.6X book value. I had the good fortune over my career to be tutored in that form of investment by one of the grandmasters of the art, Mr. Stanley Wells, who was a Senior Vice President with the Hartford, CT office of Keefe, Bruyette and Woods and is now retired and working on his golf game in Florida. 

I bring this up because after a multi-year drought of conversions, this past summer Eastern Bank of Massachusetts, one of the largest mutual savings banks in the country at $11B in assets, converted and offered shares to its depositors as Eastern Bankshares, Inc. Besides great results, Eastern had the distinction of a large branch network, a low-cost deposit base, and is the largest SBA lender in Massachusetts. The senior management team is highly regarded in banking circles. We shall see whether lightning can strike again, going forward. 

The End of Brands

A question I will leave you with is this – during the disruption and shut-in period, which has caused shortages in various consumer goods, has the American consumer finally discovered and accepted that high-end store private label is a better buy than the old standard brands? Anecdotally, I have the sense that is the case, based on my discussion with managers in Ace Hardware Stores and Kroger. And of course, there is Costco’s Kirkland brand, which has blazed new trails in traditional branded areas such as beer, spirits, and wine. One of the only areas that I see brand strength continuing in is in cigarettes – the Marlboro brand still dominates globally. If this plays out as I think it will, the implications going forward have not yet been priced into the germane equities—something to think about for the future.  

Newest MultiSearch Metrics

By Charles Boccadoro

The search for yield has never been tougher. The 10-year Treasury Rate is below 1% per year.

As a retiree of eight years now, with today marking Happy Medicare Day, I’m acutely aware for myself and many fellow retirees.

Fortunately, nearly all of the 140 Core Bond mutual funds through September in our Lipper (Refinitiv) database yield more than that 1%. And while none of these funds are “risk free” and many suffered drawdowns of 5% or more in March (even more intra-month), nearly all have delivered absolute returns of 2.5% or more this past year. Thank you, Mr. Powell.

To be balanced, inflation remains low, as does energy and mortgage rates … the latter at 50-year lows.

Return Greater Than Yield

Some investors care less about dividends from their bond funds and more about total return (appreciation plus yield). It’s more reassuring to me to see return consistently exceed yield. For example, there are 118 High Yield Bond mutual funds that have paid yields as high as 7% these past 12 months, but only 18 have returned more than their yield.

Here are the top returning five of those 18. Two are from the Diamond Hill fund family. Two are MFO Great Owls and one, RBC BlueBay High Yield Bond I (RGHYX), is also on the MFO Honor Roll list, which means it has consistently delivered top quintile absolute and risk-adjusted performance.

This new selection criterion is one of several added to the MultiSearch tool on the MFO Premium site this month. Others include Yield Ratings and Sector Allocations.

Yield Ratings

Similarly, there are nearly 100 Multi-Sector Income mutual funds. They are very popular with retirees. The most popular by far being PIMCO’s Income Fund (PIMIX). Its performance this past year has not beaten its yield, unlike the next most popular Guggenheim Total Return Fund (GIBIX).

Only three funds with top quintile yield in this category have beaten their yield this past year, as shown below. They include Catalyst Enhanced Income Fund (EIXIX).

Sector Allocations

Another screening feature this month is the ability to search for funds by Industry Sector allocation. Refinitiv currently provides 10 sectors and will be expanding to 11 next month. MultiSearch users can screen funds for any combination of sector allocations. For example, there are 24 mutual funds that allocate more than 20% of their portfolios to both Technology and Consumer Goods … although these days it can be hard to know the difference (e.g., Amazon). Here are the top three performers year-to-date, the best of which is Prudential PGIM Jennison Global Opportunities Fund Z (PRJZX), another MFO Great Owl:

One last new feature worth mentioning is the ability to screen for both return value and rating, separately. So, for example, MultiSearch users can specify a return value, like 9% per year, and also require funds have top quintile returns in category. This can be helpful in screening out under-performing categories and bear cycles.

MultiSearch now enables fund searches with over 100 screening criteria across some 60 evaluation periods. You can view the 40 screenshots highlighting all the site’s features in the upper right corner of the Welcome page.

Please enjoy the latest!

Chuck Akre & the Future of Focus

By David Snowball

Chuck Akre is an iconic investor, the sort of guy whose very existence vexes the efficient market advocates. Some years ago, Mr. Akre managed FBR Focus. After a dispute with the parent company (they, incorrectly, didn’t think he was worth what they were paying him), Mr. Akre left to found his own adviser and launch his own fund.

Akre Focus (AKREX) launched on August 31, 2009. Against all conventional wisdom, it’s grown to nearly $14 billion and continues to generate exceptional absolute and risk-adjusted returns for its shareholders. It’s done that by capturing almost all of the upside of the S&P 500 (96%) but only two-thirds of its downside (67%). Morningstar notes that it pairs low risk with above-average returns. MFO recognizes it as a Great Owl fund, one which has posted top 20% risk-adjusted returns over the past 3-, 5- and 10-year periods.

  Annual return Maximum drawdown Downside deviation Sharpe ratio
Akre Focus 17.2 -14.2 6.4 1.41
Multi-cap growth 15.2 -20.7 9.5 0.92

Over the past decade, that’s the highest Sharpe ratio of any fund in its 150 fund Lipper multi-cap growth peer group. No one has offered a better balance of risk and returns.

Investors and potential investors might have been a bit anxious at the news that Mr. Akre intends to step away from the day-to-day management of his fund on December 31, 2020.

They need not be.

At base, the announcement merely formalizes the status quo. Mr. Akre has been preparing an orderly transition for several years. We walked through the team’s evolution in a February 2020 report on a manager change at the fund. That announcement formalized the position of John Neff and Chris Cerrone as managers of the fund. Messrs. Neff and Cerrone have been handling the day-to-day operations of the fund for quite a while. Mr. Akre is a daily presence, “our North Star,” at the office: reading, talking, thinking, and, often enough, sleeping there. (In a remodel a couple of years ago, Mr. Akre had a bedroom built for himself so that he wouldn’t have to manage the hour-long commute after a late night at work.) In a long conversation with the managers, it was quite clear that they expect no change in the environment or relationships they’ve had in place for years.

They do, however, remain in a state of heightened vigilance about the market. Mr. Cerrone notes that

We had about a 20% cash stake back in February, quickly deployed $2 billion in market fall but were whipsawed again as the market made a record rebound. This is behavior that’s characteristic of a greed-dominated market environment – stocks that split trade up by double digits, IPO market is robust, and things are valued highly even on “the new metrics.”

We’re quite a way from where we’d be comfortable. Depending on where you look, things are 20-40% higher than where we’d be comfortable putting capital to work. And it’s not just stocks. The art market is heating up and the luxury yacht market is at 40-50 year highs.

Both managers kept returning to Mr. Akre’s core discipline, enshrined in the notion of the three-legged stool. They’re committed to finding (1) extraordinary business with (2) talented management and (3) a history of great capital allocation decisions. Even in the best of times, they note, “these businesses are rare.” Their success in finding rare businesses is reflected in their extraordinarily high active share, 92.9%. And their faith in them is similarly reflected in their extraordinarily low turnover rate, 4%.

Bottom Line

Change is inevitable. It’s healthy for a firm when it’s well-managed; that is when the people chosen to lead have the habits of heart and mind that created the firm’s success in the first place. Some firms – Mairs & Power and T. Rowe Price come immediately to mind – have proven that these transitions can be seamless, painless, and productive. From the evidence available to us, that’s true at Akre Focus as well.

The Rookie Roster

By David Snowball

Each month we chronicle the funds newly in registration with the SEC. You could think of them as akin to all of the players who declare their eligibility for the NFL draft each year. “Put me in, coach,” they cry. “I’m ready to play!”

Here’s the football math: each year, around 3500 players are eligible for the NFL draft. Two hundred fifty-four will actually get drafted. Of the drafted players and undrafted free agents, about a third make it to a training camp. By the calculations in Pro Football Reference, of those making the final roster, only 20% of those players earn a “good” rating or better as professional players.

Ummm … 7% of hopefuls are drafted, half wash out early, and 80% of the remainder end up as mediocre or worse.

And, somewhere in that marsh, you also find Patrick Mahomes.

Mutual funds, likewise. Lots of people with lots of letters after their names and delusions of adequacy conclude that (a) the world needs an 11,000th mutual fund and (b) they’re just the person to give it to them.

And, sometimes, they’re right. Below we profile all of the funds which appeared one year ago, November 2019, in our Funds in Registration feature. Consider it the league’s rookie class. Academic research tends to support the idea that younger, smaller funds tend to have better than expected performance; that is, better risk-adjusted returns than their peers. While not a rigorous test of that hypothesis, we thought we’d let you see who’s held up during one of the industry’s craziest, if not worst, years.

We’d placed all funds into one of four categories:

Stars: the rookie starters on good teams, with top tier performance and enough money to keep the lights on.

Guys in the trenches: funds that aren’t embarrassing themselves and have enough assets to push through to next season.

The guys on the benches: funds which unsustainably small asset bases and, often, really discouraging performance.

Didn’t even make it on the bus: funds that failed to launch or were liquidated within months of birth.

The Stars – top tier performance with enough assets to push on to 2021

AdvisorShares DWA FSM US Core ETF (DWUS) uses the FSM Core Solution US Core Model, constructed by Dorsey, Wright, to build a portfolio of ETFs. The fund may move toward cash if the markets turn ugly. The fund has assets of $59 million and top 1% performance, up 25% YTD through 10/23

Aperture Discover Equity Fund (ADSRX) – formerly called Aperture Small Cap Opportunities Fund, takes “long and short positions in equity securities of companies that the Adviser believes are undergoing transformational change.” The focus is on North American small-cap stocks. Its opening expense ratio is 2.45%. Nonetheless, it has gathered $295 million and has results in the top 1% of the small-cap core universe with a gain of 33% YTD.

Franklin Disruptive Commerce ETF (BUYX) has ridden Covid-friendly names like Amazon.com, PayPal, and Shopify to a 69% YTD return. Still, it has drawn only $27 million.

Grandeur Peak US Stalwarts Fund (GUYSX) invests in the sorts of stocks that have graduated from Grandeur Peak’s core micro-to-small cap growth funds. While registered in fall 2019, the fund didn’t launch until March 19, 2020. Which is to say, it launched around the time the bear market crash ended and has posted a 71% gain since then—about $37 million in assets in a strategy designed to accommodate billions.

Q3 All-Weather Tactical Fund (QAITX) seems like the more conservative version of their sector rotation fund. It’s drawn $62 million despite 2.27% expenses and has posted peer-crushing 8.2% returns.

Segall Bryant & Hamill Small Cap Core Fund (SBHCX) is another converted hedge fund, Lower Wacker Small Cap Investment Fund, LLC, (Ummm … Lower Wacker Drive in Chicago is a subterranean stretch that could easily double for the set of a post-apocalyptic zombie flick.) It is crushing its small-cap peers, but that still translates to returns of under 1% YTD. $37 million has found its way to the fund. Morningstar likes it (Bronze Q) though only one of the two managers has invested in it.

SP Funds S&P 500 Sharia Industry Exclusions ETF (SPUS) invests in all Sharia-compliant companies in the S&P 500 Index, so think of the S&P 500 without sin stocks (guns, porn, alcohol, and banks). A good year for the strategy! The fund is up nearly 12% YTD, placing it in the top 3% of all large-cap core funds. It has about $30 million in assets.

The Guys in the Trenches – funds with enough assets to survive and middling performance

Axonic Strategic Income Fund (AXSIX) invests primarily in asset-backed, income-producing securities with the slightly worrisome note that “for speculative or hedging purposes, the Fund may use various cleared and uncleared over-the-counter and exchange-traded derivatives.” Good news: $630 million in assets. Bad news: underwater since launch and slightly behind its multisector bond peers.

Baron FinTech Fund (BFINX) invests in tech-driven financial service companies. $14 million in assets, a Silver Q rating from Morningstar, with returns in the bottom third of their peer group. To be clear: that’s a 23% YTD gain.

Catalyst/Teza Algorithmic Allocation Income Fund (TEZAX) uses futures contracts to gain broad exposure to different asset classes, with the exposure changing daily. They aim at 9-12% volatility and get whatever return that allows. So far, $7.5 million in assets and a 3.5% YTD loss, which is in the middle of its global allocation peer group.

First Trust Vivaldi Merger Arbitrage ETF (MARB) does regular merger arbitrage stuff. $13 million in assets, underwater YTD, and about in the middle of its pack.

FMI International Fund II – Currency Unhedged (FMIFX) uses the same strategy as FMI International (FMIJX, large-cap, value-oriented, quality-oriented, successful) without the currency hedge. $45 million in assets but down 15% YTD, which puts it in the bottom 10% of its peer group. That performance is about comparable to its Gold-rated sibling.

Guardian Fundamental Global Equity Fund (GFGEX) invests in quality global growth companies. $23 million in assets with modestly above-average performance and a YTD gain of 2.4%

Lebenthal Ultra Short Tax-Free Income Fund (LETAX) buys munis with a maturity of a year or less. (Yawn.) $9 million in assets and a 0.5% YTD return. That’s at the bottom of the short-term muni peer group, which isn’t awful for an ultra-short-term fund.

LHA Market State Alpha Seeker ETF (MSVX) uses the S&P 500 and VIX futures to pursue market-free returns. Since its inception, it has drawn $25 million and is underwater by a couple of percent.

SP Funds Dow Jones Global Sukuk ETF (SPSK) is the equivalent of an investment-grade bond fund for Muslim investors. The fund has returned just under 2%, which puts it at the bottom of its Morningstar world bond peer group. But sukuk are not bonds, which makes the comparison problematic. The fund has drawn about $30 million in assets.

The Guys whose stomachs clench every time coach looks at them – funds that are not financially sustainable, perhaps because their early performance is … painful.

Archer Focus Fund (AFOCX) owns 40 stocks. That’s about all the detail we had. They’ve got. $2 million, bottom 3% of large growth peer group

Archer Multi Cap Fund  (ALSMX) buys stock in about 100 domestic companies that are financially sound and have good prospects for the future. $2.3 million in assets, slightly underwater bottom third of large-cap core group.

Cambria Global Real Estate ETF (BLDG) uses Meb Faber’s computer to pick 100 global real estate stocks. $3.7 million in assets and, like its peers, just underwater YTD.

Midwood Long/Short Equity Fund (MDWDX) is a former hedge fund that planned to buy small-value and short small-growth. This was probably not the year to do that. The fund appears to be down about 20% YTD while its peers are down 4%. $23 million, including a chunk of the manager’s personal money, found its way in the door. 

Q3 All-Weather Sector Rotation Fund (QAWSX) is a fund of funds with the usual plan: use a computer to target which sectors to buy and which to sell, then move to bonds if the equity market is getting too ugly. $4 million worth of investors found that attractive; presumably, they’re a bit concerned about the weather since the fund is down 10% and trails three-quarters of its peers.

Raub Brock Dividend Growth Fund (RBDGX) targets 20 high-quality, dividend-paying stocks. Apparently, no one cares: the fund has accumulated $311,000 in assets on perfectly middling returns.

The Who’s?

Acclivity Broad Equity Multi-Style Fund may not have launched. Can’t find any record unless it was renamed Acclivity Mid-Cap Multi-Style, which launched December 31. If that’s the case, it’s a fund with $124,000 AUM and performance in the bottom third of its peer group.

Alphacentric Energy Income Fund (AEIIX) peaked at $1.2 million before being liquidated in July 2020. The fund was down 18%, which might well be the top 1% of its peer group, given the energy sector’s travails.

Dynamic Global Diversified Fund appears not to have launched.

SmartETFS Marketing Technology ETF was not launched.

Trend Aggregation Cannabis ETF did not launch. Good decision! Despite the fact that hundreds of millions in assets have flooded into cannabis ETFs (what were they smoking?), the typical performance chart (The Cannabis ETF THCX in this case) looks a lot like:

Bottom line:

A surprising number of the rookie funds are legitimately top-tier performers. We’d place seven of the 27 funds profiled (25%) as first-tier performers. The other categories’ distribution remains nearly constant: nine palookas, six funds on life support, and five that were DOA.

Some of the short-term successes are attributable to luck: Grandeur Peak launched after the crash, Franklin and S&P 500 Sharia likely benefited from covid-induced shifts. Still, investors looking for a portfolio refresh could do a lot worse than looking at young funds with experienced managers and a good start out the gate!

Searching for Yield in the Coming Lost Decade

By Charles Lynn Bolin

In this article, I look at Janus Henderson Flexible Bond (JANFX), BlackRock iShares Aaa – A Rated Corporate Bond ETF (QLTA), Carillon Reams Unconstrained Bond (SUBFX), BBH Income (BBNIX), T Rowe Price Multi-Strategy Total Return (TMSRX), Advisory Research Strategic Income (ADVNX), and Vanguard LifeStrategy Income Inv (VASIX) as potential income funds to own during a lost decade that starts with high valuations and low interest rates. The second section looks at why I expect the next decade to have low returns for equity and bonds. The third section looks at Risk to Reward comparisons for income funds from 2007 to 2019, followed by the same comparison for the past twelve months. The final section looks at other top income funds that should be suitable for most investors.

The criteria that I used for selecting the funds in this article are long term performance of Lipper Category, low drawdown, a minimum yield of 2%, and very conservative or conservative MFO Risk classification. I also included performance during the past six months when bonds were not benefiting from falling rates. The starting point was my Fund Ranking system, which is based on MFO metrics.

As a quick update on funds from previous articles, Columbia Thermostat Fund (CTFAX) is now available as a no-load, no transaction fee fund at Fidelity, and (COTZX) is available through Vanguard. KL Allocation Fund Institutional Class (GAVIX) will have its minimum required investment lowered to $5,000 at the beginning of next year.

Top Low Risk Income Funds

The following funds are selected to be the finalist funds for this article and are now on my shopping list. VASIX is used as a baseline fund in the following figures. Note that the funds are from different Lipper Categories for comparison purposes. All funds are available at Charles Schwab, and all funds except BBNIX and TMSRX have inception dates older than seven years.

Table #1: Finalist Funds

Source: Mutual Fund Observer

Table #2 shows that all five funds have great long term performance and lower risk.

Table #2: Finalist Funds Composite Ratings

Source: Mutual Fund Observer

Table #3 shows that all funds, with the exception of TMSRX, will tend to rise when the S&P 500 falls and to be more volatile than the bond market.

Table #3: Finalist Funds Capture Metrics

Source: Mutual Fund Observer

Figure #1 shows the long term performance of Janus Henderson Flexible Bond (JANFX), Carillon Reams Unconstrained Bond (SUBFX), Advisory Research Strategic Income (ADVNX), and Vanguard LifeStrategy Income Inv (VASIX). VASIX and ADVNX have comparable performance and both have about 15% allocated to stocks.

Figure #1: Finalist Funds Long Term Performance

Source: Created by the Author Using Portfolio Visualizer

Figure #2 shows the best performing Finalist Funds for the past two years. ADVNX had comparable performance but is not shown. The link to Portfolio Visualizer is here, and you may substitute your own selection of funds.

Figure #2: Finalist Funds Short Term Performance

Source: Created by the Author Using Portfolio Visualizer

The Coming Lost Decade

Lost decades come from many circumstances, and we now have high valuations and low-interest rates which is a common setting for lost decades. This is a perfect storm. Vanguard writes in The New Age of Uncertainty that it estimates US equity returns to be in the mid-single digits over the coming decade. GMO 7-Year Asset Class Forecast: 2Q 2020 describes that 7-year equity returns will be negative, as well as John Hussman in Herd Mentality who estimates negative returns over the next 12 years. The reason is simple: high valuations in a low growth environment. This is best explained by Ed Easterling, from Crestmont Research as shown in Figure #3. Long periods of high increases in valuations (green bars) are followed by long periods of declining valuations (red bars). Secondly, note that dividend yields (brown bars) and earnings growth (blue bars) are near historical lows. Compound this pessimistic situation with rising COVID infections.

Figure #3: Valuations, Yield and Earnings Growth

Source: Crestmont Research

Figure #4 shows the 1960’s and 70’s as an example when stocks (blue line) did not keep pace with inflation (green line), and rising interest rates (blue line) lowered the market value of bonds. Here we are 40 years later with most yields at or below inflation.  

Figure #4: Secular Bear Market of the 1960’s and 1970’s 

Source: Created by the Author Based on the St. Louis Federal Reserve FRED database.

Historical Bond Fund Performance (2007 – 2019)

Figure #5 shows the average annualized return of over three hundred bond funds in twenty Lipper Categories plus the S&P 500 as a baseline compared to Risk as measured by the Ulcer Index for the 12 years from 2007 through 2019. The size of the bubble is proportional to the yield.

Figure #5: Risk vs Reward of Income Funds (2007 to 2019)

Source: Created By the Author Based On Mutual Fund Observer

Table #4 contains the metrics for the Lipper Categories sorted from highest Yield to Ulcer Ratio to the lowest. The Categories at the top paid the highest yield for the risk taken for this time period.

Table #4: Twelve Year Metrics of Income Funds

  #Funds Return Ulcer Yield Yield/Ulcer
U.S. Mortgage 8 4.1 0.9 2.5 2.9
GNMA 11 3.7 0.9 2.2 2.4
Short Invest Grade Debt 27 2.7 1.0 2.2 2.1
Short-Intmdt Invest Grade Debt 16 3.7 1.4 2.4 1.7
Core Plus Bond 15 5.4 1.8 2.4 1.3
Core Bond 50 4.1 1.8 2.3 1.3
Alt Credit Focus 3 2.9 2.4 2.9 1.2
Intern Income 5 4.3 3.9 4.8 1.2
Muni Gen & Ins Debt 47 4.4 2.6 2.6 1.0
Abs Return Bond 2 4.5 2.5 2.5 1.0
Corp Debt BBB-Rated 22 5.7 3.0 2.9 1.0
Corp Debt A Rated 6 6.6 3.7 3.1 0.8
Multi-Sector Inc 19 5.4 4.1 3.4 0.8
Flexible Income 4 4.9 9.6 4.9 0.5
Global Income 7 3.6 3.5 1.6 0.4
Mxd-Ast Target Consv 34 4.9 5.3 2.3 0.4
Mxd-Ast Today 5 4.7 5.4 1.9 0.3
Alt Global Macro 9 3.9 7.7 2.5 0.3
Flexible Portfolio 23 5.8 8.4 1.5 0.2
Alt Multi-Strategy 2 1.2 8.3 1.4 0.2
S&P 500 1 8.4 14.7 1.69 0.1

Source: Created By the Author Based On Mutual Fund Observer

COVID Induced Recession Metrics (12 Months)

Figure #6 represents 57 top funds for the past 12 months from the same Lipper Categories. The funds that I am most interested in are in the upper left-hand corner representing higher return, lower risk categories. While I own funds in many of the categories, I am looking for funds in the upper left-hand corner representing low risk income funds with higher returns. One caution worth noting is that some categories have benefited from the recovery from the correction earlier this year.

Figure #6: Performance of Top, Low Risk Income Funds

Source: Created By the Author Based On Mutual Fund Observer

Table #5 contains the metrics for the funds in the previous figure. The green shaded cells are the 12 best categories for the column.

Table #5: Top Lipper Categories Income – 12 Months

Source: Created By the Author Based On Mutual Fund Observer

Other Top Low Risk Income Funds

The following 35 funds are a subset of those used to create the previous table. They were chosen because they have annualized six-month returns when interest rates were not falling off 2% or more, maximum drawdowns of 5% or less, among a few other criteria. They are sorted from with the highest yield to Ulcer Index Ratio to the lowest. This provides an estimate of how much risk the fund took over the past year for the yield paid. The first two are closed-end funds. The fund names shaded green are 10 years old or older. The names shaded in yellow are less than 5 years of age.

Table #6: Top Low Risk Income Funds

Symbol Name  Rtn 1 Yr Ulcer Index Martin Ratio  Yield
MGF MFS Government Mrkts Inc Trust  7.1 0.3 19.1  7.3
MIN MFS Interm Inc Trust  7.0 0.7 9.6  8.6
ISTB BlackRock Core 1-5 Year USD Bond  4.6 0.3 11.5  2.4
SPAB State Street Port Agg Bond  6.8 0.4 15.0  2.6
SCHZ Schwab US Agg Bond  7.0 0.4 17.0  2.5
SWAGX Schwab US Agg Bond  6.8 0.4 17.0  2.5
VCOBX Vanguard Core Bond  9.1 0.4 21.0  2.1
FNDSX Fidelity Sustainability Bond  7.1 0.4 17.7  2.1
FIXD First Trust TCW Opportunity Fixed Inc  8.2 0.4 19.9  2.0
PFORX PIMCO Intern Bond (US Dollar-Hedged)  3.3 1.2 2.1  5.9
VTBIX Vanguard Tot Bond Market  6.6 0.5 12.4  2.3
IUSB BlackRock Core Tot USD Bond Market  6.7 0.6 9.4  2.7
VNLA Janus Henderson Short Dur Inc  3.0 0.5 4.3  2.2
BNDC Northern Trust Core Select Bond  7.4 0.5 12.2  2.2
PBDIX T Rowe Price US Bond Enh  7.3 0.6 11.7  2.4
SHAG WisdomTree Yld Enh US Sht-Term Agg Bond  4.6 0.6 6.4  2.3
FBNDX Fidelity Invest Grade Bond  8.9 0.6 13.7  2.1
FTHRX Fidelity Intermediate Bond  6.5 0.7 7.8  2.2
DODIX Dodge & Cox Inc  7.7 0.9 7.6  2.6
PMZIX PIMCO Mort Opportunity and Bond  4.4 1.6 2.3  4.4
VFSTX Vanguard Short-Term Invest-Grade  4.8 0.9 4.4  2.4
SUBFX Carillon Reams Unconstrained Bond  8.5 0.9 8.9  2.4
PRWBX T Rowe Price Short-Term Bond  4.3 0.8 4.3  2.1
JANFX Janus Henderson Flexible Bond  9.0 1.0 8.3  2.5
TRBUX T Rowe Price Ultra Short-Term Bond  3.1 0.8 3.1  2.0
ADVNX Advisory Research Strategic Inc  8.3 1.0 7.7  2.5
SWLRX Schwab Monthly Inc — Max Payout  5.0 1.1 3.9  2.4
BSCN Invesco BltShrs 2023 Corp Bond  5.4 1.2 4.1  2.6
BBNIX BBH Inc  8.3 1.5 5.1  3.0
QLTA BlackRock Aaa – A Rated Corp Bond  8.4 1.3 5.9  2.5
EXCPX Manning & Napier Unconstrained Bond  5.8 1.5 3.3  2.6
TMSRX T Rowe Price Multi-Strat Total Return  10.3 1.4 6.9  2.4
MMIN IQ MacKay Muni Ins  6.0 1.4 3.8  2.3
VWITX Vanguard Interm-Term Tax-Ex  4.1 1.6 2.1  2.4
TFI State Street Muni Bond  4.5 1.5 2.5  2.0

Source: Created By the Author Based On Mutual Fund Observer

Wishing You a Safe Holiday Season

I look forward to the holiday season and wish all readers a safe and pleasant holiday season. Stay safe and be well.

Disclaimer

I am not an economist nor an investment professional. I became interested in economic forecasting and modeling in 2007 when a mortgage loan officer told me that there was a huge financial crisis coming. There were signs of financial stress if you knew where to look. I have read dozens of books on business cycles since then. Discovering the rich database at the St. Louis Federal Reserve (FRED) provides most of the data to create an Investment Model. The tools at Mutual Fund Observer provide the means for implementing and validating the Investment Model.

Funds in Registration

By David Snowball

We warned last month that we were “at the beginning of the annual insanity.” This month, it’s at flood tide.

The Securities and Exchange Commission, by law, gets between 60 and 75 days to review proposed new funds before they can be offered for sale to the public. Fund companies anxious to have a new fund up and running by December 31st need to have it in the hopper by the third week in October at the latest. And, my goodness, a lot of folks did find time to file.

The fund industry is given to fads and herding behavior. The success of one “tactical multi-asset income” fund triggers a rush of poseurs and wannabees, embracing the same language or strategy. The wave that has yet to crest is “socially responsible investing,” an entirely excellent idea now being embraced by folks with no prior commitment to the discipline and, in many cases, no demonstrated competence at it.

This season’s hot list: (1) socially responsible and (2) “hedged with put options.” A half dozen of the funds below implement sustainability screens, and ten are pledging to protect you with options—only a couple of others any evidence of demonstrated competence.

Before you even think about investing in any of these funds, some of which are sure to be splendid, check for evidence that the fund manager(s) can execute the strategy through good markets and bad. Everyone spends time figuring out how to do their jobs, but that’s not an argument for why you should be the one paying for the manager’s on-the-job training or for their “I’m sure I can make magic” moments.

How? Two spots: the “portfolio managers” section (there’s a one-sentence one just before the purchase requirements section; skip that one and search for the longer bio under “portfolio managers”) and a section called “related performance,” which will detail the record of separate accounts or private funds that they’ve run using the same strategy. If the manager has no public record of success, run away!

Likewise, if they plan on charging you something near or above two percent, run even faster! That’s a crazy hurdle that almost none of them will surmount with any consistency.

The Great Gabelli offers the month’s longest list of new launches, nine, with the majority being ETF versions of existing mutual funds. (And, occasionally, ETF versions of pretty regrettable existing mutual funds.) His roster, all covered in the same prospectus, includes:

  • Gabelli Growth Innovators ETF (GGRW)
  • Gabelli Financial Services ETF (GABF)
  • Gabelli Global Small Cap ETF (GABS)
  • Gabelli Small & Mid Cap ETF (GSMD)
  • Gabelli Micro Cap ETF (GMRO)
  • Gabelli Love Our Planet & People ETF (LOPP)
  • Gabelli Asset ETF (GAST)
  • Gabelli Equity Income ETF (GABE)
  • Gabelli Green Energy ETF (GGRE)

Love our Planet and People? I think this is someone’s attempt to “talk in a language that young people will hear!” Remember, this is the firm with the Pet Parents ETF too. In any case, it’s a pretty run-of-the-green-mill ESG equity fund. All of the Gabelli ETFs charge the same: 0.90%.

Close behind Gabelli in the race for the most filings is James Alpha, which seems to have concluded that liquid alternatives are the wave of the future.

On the whole, we identified more than 50 new mutual funds and active ETFs in the pipeline. Almost all will launch on the last day of December. We saw the same sort of surge in filings last November, and we’ve tracked the performance of those funds in this month’s Rookie Roster essay. You might enjoy it.

Adaptive Growth Opportunities ETF

Adaptive Growth Opportunities ETF, an actively-managed ETF, seeks capital appreciation. The plan is to invest in ETFs, equities, and fixed income securities in sectors that the managers predict will outperform the market. The manager will allocate a significant percentage to cash and cash equivalents, when appropriate, to position the portfolio defensively. Brian Shevland will manage the fund. Its opening expense ratio is 1.55%.

Advisors Capital Small/Mid Cap Fund

Advisors Capital Small/Mid Cap Fund will seek long-term capital appreciation. The plan is to invest in 30-45 small- to mid-cap stocks issued by firms that are attractively valued, conservatively-structured, competitively-advantaged, dynamic companies with growing free cash flow and honest, competent leadership. The fund will be managed by a three-person team from AC Funds. Its opening expense ratio is 1.99%, and the minimum initial investment will be $2,500.

Advisors Capital Tactical Fixed Income Fund

Advisors Capital Tactical Fixed Income Fund will seek total return with capital preservation as a secondary objective. The plan is to use an “opportunistic and unconstrained investment strategy” to choose some combination of bonds, ETFs, preferred stocks, and so on. The fund will be managed by Kevin Kelly and Kevin Strauss. Its opening expense ratio is 2.29%, and the minimum initial investment will be $2,500.

Advisors Capital US Dividend Fund

Advisors Capital US Dividend Fund will seek long-term capital appreciation. The plan is to invest in 30-50 dividend-paying stocks issued by firms that are attractively valued, conservatively-structured, competitively-advantaged, dynamic companies with growing free cash flow and honest, competent leadership. The fund will be managed by a four-person team from AC Funds. Its opening expense ratio is 1.99%, and the minimum initial investment will be $2,500.

AdvisorShares Alpha DNA Equity Sentiment ETF

AdvisorShares Alpha DNA Equity Sentiment ETF, an actively-managed ETF, seeks long-term capital appreciation. The plan is to (jargon alert!) “deploy a systematic quantitative research platform that combines companies’ alternate digital performance data (data about the online interactions between customers and the digital properties of a company) with financial fundamentals (such as revenue and earnings per share) to algorithmically identify companies that it determines are likely to surprise the market with breakout performance in upcoming quarters.” The resulting portfolio will contain small-cap, mid-cap, and large-cap US stocks and will typically be hedged with put options. The fund will be managed by Wayne Ferbert of Alpha DNA Investment Management. Its opening expense ratio has not been disclosed.

ALPS Active REIT ETF

ALPS Active REIT ETF, an actively-managed, non-transparent ETF, seeks total return through dividends and capital appreciation. The plan is to invest in publicly traded common equity securities of US REITs and US real estate operating companies (not structured as REITs), publicly-traded preferred equity of US REITs and real estate operating companies, cash, and cash equivalents. The fund will be managed by Nicholas Tannura and Julie Pence of GSI Capital. Its opening expense ratio has not been set.

AXS Merger Fund

AXS Merger Fund will seek to achieve positive risk-adjusted returns with less volatility than in the equity markets. The plan is to use a research-driven process to identify investment opportunities with favorable risk/reward trade-offs and pursue “merger arbitrage” techniques. The fund will be managed by George Kellner and Christopher Pultz of Kellner Management, LP. Its investor class opening expense ratio is 2.51%, with a minimum initial investment of $2,500 and a ticker symbol of GAKAX. The institutional share class (GAKIX) has an initial minimum investment of $5,000, with no minimum on subsequent investments and an opening expense ratio of 2.26%.

BBH Partner Fund – High Quality Reserves

BBH Partner Fund – High Quality Reserves will seek income balanced with low price volatility. The plan is to buy very high-quality asset-backed securities, both domestic and foreign. The fund will be managed by Andrew Hofer and Neil Hohmann of Brown Brothers Harriman & Co. Its opening expense ratio has not been established. The minimum initial investment will be $5,000, with no minimum on subsequent purchases.

Boston Common ESG Impact Emerging Markets Fund

Boston Common ESG Impact Emerging Markets Fund will seek long-term capital appreciation. The plan is to create a portfolio of firms that are high quality (lower debt/total capital, earnings stability and stable cash flow), sustainable and undervalued. They’re risk-conscious, rely on bottom-up, fundamental research, and are activist investors who try to influence corporate practices. Their other two “impact” funds – US and International – have been only … uhh, modestly successful. The fund will be managed by Matt Zalosh, Praveen Abichandani, and Liz Su. Its opening expense ratio is 0.99%, and the minimum initial investment will be $10,000.

Cabot Equity Growth ETF

Cabot Equity Growth ETF, an actively-managed ETF, seeks capital appreciation. The plan is to invest in equity securities of companies that will experience above-average secular growth in expanding market segments. The adviser uses the research of the Cabot Wealth Network (CWN). While the fund intends to remain fully invested, it may invest in cash or cash equivalents when CWN’s proprietary Market Timing Indicators predict or identify a bear market. Joe Hegener will manage the fund. Its opening expense ratio has not yet been established.

Catalyst Dynamic Portfolio Fund

Catalyst Dynamic Portfolio Fund will seek long-term capital appreciation. The plan is to use a proprietary quantitative, fundamental top-down investment strategy to allocate its assets to equity, fixed income, and commodity ETFs representing diverse market sectors. The fund will be managed by Richard Oberuc and Philip Nehro of First National Corp. Its opening expense ratio is 1.71%, and the minimum initial investment will be $2,500 for regular and IRA accounts and $100 for automatic investment accounts. The minimum subsequent investment is $50.

Certeza Convex Core Fund

Certeza Convex Core Fund seeks total return. The plan is to buy long and short put and call options on the S&P and on the VIX to provide “a structured return and risk profile that provides upside exposure to the US large-cap equity market and downside risk mitigation.” The fund will be managed by Brett, Jim Macfarlane, and Patrick Sharp. Its opening expense ratio has not been disclosed, and the minimum investment for “A” shares is $2,500.

Corbett Road Tactical Opportunity ETF

Corbett Road Tactical Opportunity ETF, an actively-managed ETF, seeks to provide long-term total return. The plan is to employ its proprietary MACROCAST™ scoring system to allocate investments between equity securities and cash, cash equivalents, and fixed income ETFs. The fund will be managed by Rush Zarrabian, Andrew Serowik, and Travis Trampe. Its opening expense ratio is not yet set. The ticker symbol is OPPX.

Eaton Vance Taxable Municipal Bond Fund  

Eaton Vance Taxable Municipal Bond Fund will seek total return with an emphasis on income. The plan is to buy taxable, intermediate-term munis. Those might be bonds issued by an airport authority, a state university, or a port authority. The fund will be managed by Cynthia Clemson and Craig Brandon. Its opening expense ratio is 0.80%, and the minimum initial investment will be $1,000 for Class A shares.

Esoterica-Lucerne European Sustainability ETF

Esoterica-Lucerne European Sustainability ETF, an actively-managed ETF, seeks capital appreciation. The plan is to invest primarily in small and midcap European companies with favorable ESG qualities. The fund managers have not yet been named. Its opening expense ratio has not been established. The ticker symbol is SUST.

Euclid Capital Growth ETF

Euclid Capital Growth ETF, an actively-managed ETF, seeks capital appreciation. The plan is to invest through “Underlying ETFs” in various US and non-U.S. equity sectors during bull markets and fixed income securities, cash, or cash equivalents in a higher-risk environment. ETFs to be included must be listed on a major U.S. Exchange and meet certain liquidity, trading volume, and expense ratio criteria. The fund will be managed by Michael Venuto, Charles Ragauss, William Hoover, Frederic Smoak, John Creekmur, and Karl Ashley. Its opening expense ratio is not yet set.

Franklin Exponential Data ETF

Franklin Exponential Data ETF, an actively-managed ETF, seeks capital appreciation. The plan is to invest in the common stock of companies that are relevant to the theme of exponential data – those that benefit from the use of large data sets and the growth of data or related to data creation, amplification, collection, cleaning, recording, analysis, processing, transmission, delivery, storage, encryption, and security. The fund will be managed by Matthew Moberg and Joyce Lin. Its opening expense ratio has not been set.

Horizon Kinetics Inflation Beneficiaries ETF

Horizon Kinetics Inflation Beneficiaries ETF (INFL), an actively-managed ETF, seeks long-term growth of capital in real (inflation-adjusted) terms. The plan is to invest in the stocks of domestic and foreign companies that are expected to benefit from rising prices of real assets (such as commodities, precious metals, natural resources, real estate, basic materials, equipment, utilities, and infrastructure). They’ll hold 20-60 names. The fund will be managed by Steven Bregman and James Davolos. Its opening expense ratio has not been disclosed.

James Alpha Global Real Estate Investments Fund

James Alpha Global Real Estate Investments Fund will seek total return through a combination of current income and capital appreciation. The plan is to use quantitative screens to find the top 100 real estate securities then rely on fundamental/qualitative research to whittle that down to the top 40. The fund will be managed by Andrew Duffy of Ranger Global Real Estate Advisors, LLC. Mr. Duffy’s previous posts include Eagle Asset Management, TIAA-CREF and a hedge fund. Its opening expense ratio and minimum initial investment have not yet been established.

James Alpha Hedged High Income Fund

James Alpha Hedged High Income Fund will seek high current income. The plan is to combine a combination of long-short, long-only, short-only, and hedging strategies with a fixed-income portfolio. The fund will be managed by Kevin Greene, James Vitalie, Michael Montague, Akos Beleznay, Glenn Koach, Tom Krasner, Jon Duensing, Sal Naro, Vincent Mistretta, and Michael Cannon. Its opening expense ratio and minimum initial investment have not yet been established.

James Alpha Macro Fund

James Alpha Macro Fund will seek attractive long-term risk-adjusted returns relative to traditional financial market indices. The plan is to construct a multi-asset portfolio using a lot of complicated and expensive hedge fund-like strategies. The record for such funds is … not universally affirming. I’d look pretty carefully at the track record of the management team. The fund will be managed by Kevin Greene, James Vitalie, Michael Montague, and Akos Beleznay. Its opening expense ratio and minimum initial investment have not yet been established.

James Alpha Managed Risk Domestic Equity Fund

James Alpha Managed Risk Domestic Equity Fund will seek capital appreciation. The plan is to pair investments in the S&P 500 with an options hedging strategy. The fund will be managed by Kevin Greene, James Vitalie, Michael Montague, Akos Beleznay, Edward Boll, and William Visconto. Its opening expense ratio and minimum initial investment have not yet been established.

James Alpha Managed Risk Emerging Markets Equity Fund

James Alpha Managed Risk Emerging Markets Equity Fund will seek capital appreciation. The plan is to pair investments in the MSCI EM Index with an options hedging strategy. The fund will be managed by Kevin Greene, James Vitalie, Michael Montague, Akos Beleznay, Edward Boll, William Visconto, and James Ryan. Its opening expense ratio and minimum initial investment have not yet been established.

James Alpha Multi Strategy Alternative Income Fund

James Alpha Multi Strategy Alternative Income Fund will seek long-term capital appreciation. The plan is to combine a bunch of hedge fund-like income-oriented strategies, from long/short equity to merger arbitrage and risk-adjusted long/short debt. The fund will be managed by Kevin Greene, James Vitalie, Michael Montague, Akos Beleznay, Andrew Duffy, William Bales, Jakob Holm, George Kellner, Christopher Pultz, Sal Naro, Vincent Mistretta, and Michael Cannon. Its opening expense ratio and minimum initial investment have not yet been established.

Loomis Sayles International Growth Fund

Loomis Sayles International Growth Fund will seek long-term growth of capital. The plan is to invest in growth stocks, targeting companies with sustainable competitive advantages, good management, strong cash flows, and long-term value. The fund will be managed by Aziz Hamzaogullari. Its opening expense ratio has not been established. The minimum initial investment will be $2,500, with a $50 minimum subsequent purchase.

Main Thematic Innovation Rotation ETF

Main Thematic Innovation Rotation ETF, an actively-managed ETF, seeks to outperform the MSCI ACWI Index® in rising markets while limiting losses during periods of decline. The plan is to use a “fund of funds” structure to invest in theme-based equity ETFs in “dynamic thematic rotation.” The fund will be managed by Kim Arthur, James Concidine, and J. Richard Fredericks. Its opening expense ratio has not been set.

MFS Emerging Markets Equity Research Fund

MFS Emerging Markets Equity Research Fund will seek capital appreciation. The plan is to build an all-cap EM portfolio. No particular suggestion about what the “Research” in the fund’s name signals unless it’s the generic “hey, we do our research before buying.” The fund will be managed by Sanjay Natarajan and Deividas Seferis. Its opening expense ratio is not yet set. The minimum initial investment will be $1,000 (reduced to $0 for automatic investment plans) with no minimum subsequent investment.

Mirova U.S. Sustainable Equity Fund

Mirova U.S. Sustainable Equity Fund will seek long-term capital appreciation. The plan is to select stocks by considering important “major transitions” (e.g., climate change, cloud computing, aging populations) that the world is undergoing and selecting companies that it believes are well managed, are expected to benefit from strong, sustainable competitive advantages, and have demonstrated a solid financial structure while avoiding irresponsible risks. The fund will be managed by Amber Fairbanks, Jens Peers, and Hua Cheng. Mirova’s global and international versions of the strategy have been quite successful; that’s a hopeful sign. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $2,500.

Nationwide Large Cap Equity Fund

Nationwide Large Cap Equity Fund will seek long-term capital appreciation. The plan is to buy large-cap stocks with all of the usual virtues: higher quality, reasonably priced, strong business model … The fund managers have not yet been identified. Its opening expense ratio is not established, and the minimum initial investment will be $2,000.

Overlay Shares Hedged Large Cap Equity ETF

Overlay Shares Hedged Large Cap Equity ETF, an actively-managed ETF, seeks total return. The plan is to get equity exposure through other ETFs and use put options to hedge the portfolio. The fund will be managed by Bradley Ball, Adam Stewart, CFA, Shawn Gibson and Justin Boller of Liquid Strategies LLC. Its opening expense ratio has not been disclosed.

Overlay Shares Short Term Bond ETF

Overlay Shares Short Term Bond ETF, an actively-managed ETF, seeks total return. The plan is to invest in short-term, investment-grade domestic bonds through other ETFs and to use listed short-term put options to generate income. The fund will be managed by Bradley Ball, Adam Stewart, Shawn Gibson, and Justin Boller of Liquid Strategies LLC. Its opening expense ratio has not been disclosed.

Parvin Hedged Equity Solari World Fund

Parvin Hedged Equity Solari World Fund (PHSWX) seeks capital preservation, current income, and growth. The plan is to create a global equity portfolio (45-55% US, 30-40% developed international, 10-25% emerging) of ESG-screened, seasoned, well-capitalized businesses. The managers then hedge the portfolio with put options. The fund will be managed by J. Steven Smith of Parvin Fund Management. Mr Smith’s 40+ year career has included stints at Nuveen, Morgan Stanley, and Lehman Brothers. Its opening expense ratio has not been disclosed, and its minimum initial investment will be $1,000. The same prospectus covers the launch of Parvin Select Equity Solari World Fund, the unhedged version of the strategy.

Performance Trust Credit Fund

Performance Trust Credit Fund will seek long-term investment returns by investing in income-producing securities with the potential for capital appreciation. The plan is to use a value-oriented strategy on a top-down basis to determine allocations among sectors in the fixed-income universe and on a bottom-up basis to select specific investments within each sector. The fund will be managed by Anthony Harris, G. Michael Plaiss, Jason Appleson, and Lars Anderson. Its opening expense ratio is 0.99%. The minimum initial investment will be $2,500, with a subsequent investment minimum of $500.

Rayliant Quantamental China Equity ETF

Rayliant Quantamental China Equity ETF, an actively-managed ETF, seeks long-term capital appreciation. The plan is to invest in China using “a combination of quantitative and fundamental investment approaches, known as ‘quantamental’ investing, whereby large amounts of data and algorithms are paired with human insights about economic and financial features (i.e., fundamentals) to make investment decisions.” In addition to being an ugly word, quantamental has rather a lot of marketing buzz surrounding it. If you search the phrase “quantamental investing,” you find some number of folks describing a magic wand. The fund will be managed by Jason Hsu, PhD, Vivek Viswanathan, PhD, and Phillip Wool, PhD. Messrs Hsu and Viswanathan held senior positions at Research Affiliates for around a decade, Dr Wool has been on faculty at SUNY-Buffalo. Its opening expense ratio has not been disclosed.

RBC Small Cap Growth Fund

RBC Small Cap Growth Fund will seek long-term capital appreciation. The plan is to invest in 60-80 small-cap stocks. The ideal portfolio companies have a unique market niche, long-term revenue and earnings growth, consistent financial results, high sales and earnings growth rates, returns on equity and profit margins, “high-quality earnings,” and reasonable valuation. The fund will be managed by Kenneth Tyszko and Richard Drage. Mr. Tyszko runs a SMID-cap fund for US investors and a mid-cap fund for Canadians, both of which are pretty middle-of-the-road. Its opening expense ratio is 1.14%, and the minimum initial investment will be $1,000.

Sirios Focus Fund

Sirios Focus Fund will seek long-term capital appreciation. The plan is to invest primarily in mid- and large-cap stocks of “companies with long-term earnings potential by focusing on earnings growth drivers such as new products, capital spending programs, acquisitions, volume and pricing trends, cost reduction and restructuring programs, and product mix changes.” The fund will be managed by the adviser’s co-founder John F. Brennan. Mr. Brennan also manages an okay long/short fund. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $2,500.

Sound Fixed Income ETF

Sound Fixed Income ETF, an actively-managed ETF, seeks current income. The plan is to invest in US corporate bonds, preferred securities, and ETFs that invest in bonds, sovereign debt, and private placement debt securities. The statement of the discipline comes down to, “we’ll try to choose wisely.” The fund will be managed by a team from Sound Income Strategies, LLC. Its opening expense ratio has not been disclosed. The same portfolio announces four other active ETFs managed by the same team: Enhanced Fixed Income, Sound Equity Income, Sound Enhanced Equity Income, and Sound Total Return.

Swan Hedged Equity US Large Cap ETF

Swan Hedged Equity US Large Cap ETF, an actively-managed ETF, seeks long-term capital appreciation while mitigating overall market risk. The plan is to invest in domestic large-cap stocks then hedge the portfolio with index put options. There’s a whole series of Swan Defined Risk funds concerning which Morningstar’s frets about “a small team, higher fees, and a process that lacks an edge.” The fund will be managed by Randy Swan, Robert Swan, Micah Wakefield, and Chris Hausman. Its opening expense ratio has not been disclosed.

Virtus Newfleet ABS/MBS ETF

Virtus Newfleet ABS/MBS ETF, an actively-managed ETF, seeks income. The plan is to invest in “the securitized credit sectors of the fixed income market by utilizing a relative value, sector rotation approach, which seeks to target ABS and MBS that provide competitive yield and current income.” The fund will be managed by David Albrycht, Andrew Szabo, Nick Rinaldi, and Zachary Szyndlar. Its opening expense ratio has not yet been set.

Ziegler FAMCO Hedged Equity Fund

Ziegler FAMCO Hedged Equity Fund will seek growth of capital and income. The plan is to buy large-cap domestic stocks and use options to hedge the portfolio. Technically, a “covered call” strategy. The fund will be managed by Wiley Angell of Zeigler and Davis Rushing and Kelly Rushing from USCA Asset Management, LLC. The team runs about $90 million in assets in a separate account version of this strategy. From inception (November 2916) through December 2019, the separate account composite returned 4.4%, and its benchmark index returned 7.4%. Its opening expense ratio has not yet been established. The minimum initial investment will be $1,000 for investor class shares, with a $100 minimum subsequent investment.

Launch Alert: West Hills Tactical Core Fund

By David Snowball

On October 26, 2020, Frank Capital Partners launched the West Hills Tactical Core Fund (LEBOX).  The plan is to invest half or more of the portfolio directly, or through ETFs, in domestic large-cap stocks. The remainder will be placed in cash or options.  The fund will be managed by Alan McClymonds. From 2011 to 2015 Mr. McClymonds was a consultant for Whitaker Securities in New York, NY. Whitaker’s “primary goal is to provide global liquidity in the fixed income markets,” which they do for 200 or so clients.  From 2016 to present, Mr. McClymonds has been a private investor who was introduced to founder Brian Frank by a professional associate.

Three things to know about the fund:

  1. The fund seeks the address structural problems created by passive, capitalization-based indexes such as the S&P 500. Mr. Frank argues that the rise of passive indexing is a structural cause behind heightened market volatility. He argues:

    Passive investing … continues to drive the US equity market to record valuations while weakening the underlying market structure. Higher passive market share means fewer available buyers and sellers at any market price. Equity prices will continue to rise as passive vehicles experience inflows, but severe instability in prices and liquidity will eventually result as shareholders become concentrated in a few massive players. This instability will cause material declines in US stock valuations. Outflows from passive strategies have the potential to crash the equity market… (Slaughterhouse-Five (Hundred), 4/3/2020)

    At base, so long as funds continue to flow in, stock prices will rise without regard to underlying stock valuations. Conversely, when inflows cease, stock prices will fall, perhaps catastrophically. That decline would normally be buffered by purchases made by active investors with “dry powder” available but such investors are fewer and passive investors hold no cash reserves. The risk, as he sees it, is that the structure that drives blind upward movements when the flow is coming in could drive blind downward movements when it is not.

  2. The manager aspires to outperform the S&P 500 on a risk-adjusted basis. In particular, he hopes to have a capture ratio greater than 1.0. That will occur if the fund captures more of the S&P 500’s upside (they believe an upside capture in the mid-90s is reasonable) than it captures of the index’s downside (potentially they might have a downside capture in the low 80s). McClymonds says:

    West Hills Tactical Core Fund is designed to achieve a better risk/reward profile over a full market cycle than its benchmark, the S&P 500. The Fund works towards its goal by matching the upside performance of the index while outperforming the index in down markets due to reduced market exposure. The Fund is an active seller of listed options and employs a quantitative proprietary risk model to control market exposure.

    The plan is to inexpensively capture the returns of the S&P 500 when times are good and volatility is low, then to hedge the portfolio with tactical sales of covered calls. As a professional options trader, Mr. McClymonds has developed a volatility trigger calculated from a combination of short- and medium-term volatility indexes linked to the S&P 500 and listed on the CBOE. Mr. Frank described them as “the secret sauce” and declined to share details of the trigger’s operation.

  3. West Hills is a rechristened version of Leigh Baldwin Total Return. This fund has nothing in common with its predecessor except the legal structure. The repurposing expedited the fund’s launch to allow Frank Capital to bring this strategy to market faster. The downside is that the three-year record is bad (bottom 25% of its Morningstar peer group) and the five- and ten-year records are worse. As a result, unless Morningstar agrees to a hard reset that starts the fund’s performance record anew in 2020, the fund is going to be lugging an unearned one-star rating for rather a while.

    Mr. Baldwin retired from investment management but is sufficiently positive toward Mr. McClymonds’ approach that he maintains his personal investment in the new fund.

The good news is that options-based funds have pretty routinely been able to capture more of the S&P 500’s upside than its downside; that is, they’re able to achieve a capture ratio over 1.0 though many of those have short track records. Over the past three years, the top 10 options-based funds have managed a perfectly respectable 10% annual return. The bad news is that almost none of them manage to simultaneously capture 90% or more of the S&P and exceed 1.0. Of 41 options-based open- and closed-end funds with a three-year record, four have a capture ratio above 1.0.  Only one of those four has an upside capture above 57. That doesn’t disparage Mr. McClymonds prospects, it just notes that this would be a pretty spectacular accomplishment. We wish him well with it.

Its opening expense ratio is 1.57% and the minimum initial investment will be $1,000.  Mr. Frank noted that, while the strategy’s alpha exceeds its net expense ratio, he is “committed to reducing expenses aggressively.” For now, it reflects the expense ratio inherited from its predecessor. The fund is available at Fidelity and through direct investment.

Website: Frank Funds, As of mid-October, the West Hills fund and Mr. McClymonds had not yet appeared on the advisor’s somewhat minimalist site but they’re working on it.

Launch Alert Redux: Evolutionary Tree Innovators Fund

By David Snowball

In our October issue, we shared a Launch Alert for ET Innovators. In late October we had the opportunity to speak with manager Tom Ricketts, and so share this expanded Alert.

On September 9, 2020, Evolutionary Tree Capital Management launched the Evolutionary Tree Innovators Fund (INVNX).  The plan is to invest in 25-35 domestic growth-oriented companies that qualify as “leading innovative businesses” (hence the ticker symbol).  The fund will be managed by Thomas M. Ricketts, formerly a senior portfolio manager on Sands Capital’s flagship Select Growth US Large-Cap Growth strategy, a $20+ billion concentrated-growth strategy.

Mr. Ricketts began his career as an assistant to Frank Sands (1994-97), founder of Sands Capital Management. Over the course of the following two decades, he progressed from being a research analyst to Chief Investment Officer, Senior Co-Portfolio Manager of the $20B U.S. Large Cap Growth Strategy (2008-2015), and Global Life Sciences Sector Head (1997-2011). Over the course of his career, the firm grew from managing $100 million to managing $40 billion. About half of that was in the strategy to which he contributed. Today it’s at $51 billion.

Three things to know about Sands Capital:

  1. They mostly target rich people. Their investment minimums start at $100,000 and range sharply upward.
  2. They are not primarily a mutual fund company. When we talk about the “large cap growth strategy,” we’re not referring to an individual fund. Instead, the strategy manifests itself in a US fund, funds designed for European investors, separate accounts for high net worth investors, and so on. US funds are about one-fifth of the firm’s assets.
  3. They are really quite good. Morningstar rates both their funds for European investors and the ones for domestic investors as either four- or five-stars. The quantitative version of the Morningstar analyst rating makes the funds some version of bronze, silver, and gold.

Which is to say, Mr. Ricketts brings a pretty distinguished background to his new position. He left in 2018 to found his own firm. He is supported there by one of his former research analysts at Sands, Jonathon Ansley, and Dan Ayre, who served as an analyst for the Ricketts Family Office.

As the fund’s name implies, his discipline centers on identifying “investable innovators.” It’s not controversial to note that innovation drives growth. It’s the exact observation that Joseph Schumpeter made 80 years ago: “the process of industrial mutation … incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism” (Capitalism, Socialism, and Democracy, 83).

In Schumpeter’s analysis, the destruction was wrought by innovations but, particularly, innovations that found a home in the market. The force that destroyed old empires and gave rise to new ones was “the competition from the new commodity, the new technology, the new source of supply, the new type of organization which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives.”

Mr. Ricketts’ observations about profiting from innovation:

  1. IPO and venture capital investors get it wrong; they show up too early. These folks tend to latch on to dozens of ideas that are mostly hype, hoping for one or two that erupt. That’s both inefficient and highly volatile.
  2. Traditional growth managers and traditional screening get it wrong; they show up too late. Innovation drives growth, so managers using backward-looking screens are finding companies where the innovation has already paid off but where the future pay off might be modest.
  3. Innovation can’t be effectively indexed. Figuring out what is just now emerging is an intensely “boots on the ground” undertaking that requires subject area experts who are spending time intently following conference presentations such as “Therapeutic Base Editing of Human Hematopoietic Stem Cells” and “CASBs: The Good, the Bad, the Ugly.”

He envisions his competitive position by tracking the rise and fall of firms along with a sort of S-shaped curve.

The danger for investors is that everyone and their dog now wants to hype their new “disruptive innovations” fund. It’s the industry’s latest flavor-of-the-day (following macro, tactical, multi-asset, and crypto, but coincident with sustainable). Beyond Matthews Asia’s celebrated “investing in disruptors” (7/20) and Cambria Investments’ which aspires to disrupt the entire finance industry, Franklin, Alps, Fidelity, and ARK have all begun rolling out avowedly “Disruptive” or “Transformational” offerings and more are in registration.

Evolutionary Tree aspires to an island of sanity in a rising sea of new innovation and growth offerings.  Mr. Ricketts writes, “We have developed a risk-managed approach to innovation investing that, we believe, has a disciplined process with a stringent set of eight criteria for choosing investments.  We offer an institutional-class, risk-managed, innovation-focused strategy that owns leading innovators with competitive advantages, strong balance sheets, and multi-year growth paths.”

So far, as good. The firm manages rather more than $100 million in a separate account strategy that the call Beagle Leading Innovators. It launched on February 12, 2018, so it’s coming up on its three-year record. The first 2.5 years have been pretty flashy.

  YTD 1-year 2-year Since launch
Beagle Leading Innovators 73.77% 100.19% 40.46% 137.73%
Russell 1000 Growth Index 24.33% 37.53% 19.41% 67.84%
Excess Return % 49.44% 62.66% 21.05% 69.89%

The mutual fund’s opening expense ratio is 0.97% and the minimum initial investment is $50,000. While high, the minimum is one-tenth of the entry charge for the Sands product and the expense ratio is competitive. It’s clear that the client base here is advisers / RIAs, though individuals with the required minimum are welcome. The fund is available on Schwab and TDAmeritrade, they’re working on Fidelity and it can be purchased directly.

The fund’s website is exceptionally rich. Investors interested in the whole area of innovation-driven investing would probably benefit from subscribing to, and reading, their Insights on Innovations, Evolutionary Shifts, and Secular Trends blog which updates every couple of weeks.

Manager Changes, October 2020

By Chip

Fund managers matter, sometimes more than others. As more teams adopt the mantra, “we’re a team,” if only as window-dressing, more than more manager changes are reduced to “one cog out, one cog in.” Nonetheless, we know that losing funds with new managers tend to outperform losing funds that hold onto their teams, while the opposite is true for winning funds. Strong funds with stable teams and stable assets outperform strong funds facing instability (Bessler, et al, 2010). Because of the great volatility of their asset class, equity managers matter rather more than fixed-income investors.

This month, 48 funds saw management turnover. By far, the most eye-catching is the departure of Chuck Akre from the named management team on Akre Focus Fund (AKREX). Mr. Akre might legitimately be called “legendary” for his investment ability and for the loyalty of his investors. Happily, this particular change is mostly symbolic. Mr. Akre long-ago ceded day-to-day management to his two teammates, and he has no plans to slow down or alter the strategic role he’s had at the firm. We share a bit more detail in our article on the fund this month.

Ticker Fund Out with the old In with the new Dt
TNXAX 1290 DoubleLine Dynamic Allocation Fund Effective immediately, R. Brendt Stallings of DoubleLine Capital LLP no longer serves as a member of the team that is responsible for the securities selection, research, and trading for the fund. Jeffrey Sherman, Emidio Checcone, Kenneth Kozlowski, Jeffrey Gundlach, Alwi Chan, and Philip Barach will continue to manage the fund. 10/20
CADTX Adaptive Hedged Income Fund Matt Boden, Rick Nelson, and Chad Stephens of Buckhead Capital Investments, LLC will no longer serve as portfolio managers for the fund. Scott Wetherington will now manage the fund. 10/20
AKREX Akre Focus Fund On December 20, 2020, Founder Charles Akre will step aside from day-to-day portfolio management for the fund. John Neff and Chris Cerrone will continue as portfolio managers for the fund. 10/20
RGSAX AllianzGI Global Small-Cap Fund Steven Klopukh will no longer serve as a portfolio manager for the fund. Jeffrey Parker has joined the portfolio management team. On November 5, Moritz Dufner and Mark Phanitsiri will join the portfolio management team for the fund. 10/20
RMDAX AllianzGI Mid-Cap Fund Steven Klopukh will no longer serve as a portfolio manager for the fund. Jeffrey Parker and Raymond Cunha will join Timothy McCarthy in managing the fund. 10/20
PCVAX AllianzGI Small-Cap Value Fund No one, but… On November 5, Jeffrey Parker, Moritz Dufner, and Mark Phanitsiri will join the portfolio management team for the fund. 10/20
MECAX AMG GW&K International Small Cap Fund Robert Ginsberg, Michael Skillman, Robert Fitzpatrick will no longer serve as portfolio managers for the fund. Daniel Miller, Karl Kyriss, and Reid Galas will now serve as portfolio managers for the fund. 10/20
MCMFX AMG GW&K Mid Cap Fund Robert Fitzpatrick, Michael Skillman, and Robert Ginsberg will no longer serve as portfolio managers for the fund. Daniel Miller and Jeffrey Thibault will now manage the fund. 10/20
MGSEX AMG Managers Special Equity Fund No one, but… Benjamin Ebel will now serve as a portfolio manager for the fund. 10/20
SSEIX AMG SouthernSun U.S. Equity Fund Elliot Cunningham and Andrew Willson will no longer serve as members of the investment team. Michael Cook continues to manage the fund. 10/20
BWBFX Baron WealthBuilder Fund No one, but . . . Michael Baron joins Ronald Baron in managing the fund. 10/20
BDAQX BMO Disciplined International Equity A Effective December 31, 2020, Dr. Ernesto Ramos will assume the role of U.S. Chief Investment Officer and relinquish his duties as a portfolio manager for the fund. Jay Kaufman and David Rosenblatt continue to manage the fund. 10/20
DJWAX BNY Mellon Japan Womenomics Fund No one, but… Masataka Horikawa will now join the four others on the portfolio management 10/20
CSEIX Cohen & Steers Real Estate Securities Fund Effective May 1, 2021, Thomas Bohjalian is retiring and will no longer serve as a portfolio manager for the fund. Effective November 30, 2020, Mathew Kirschner will join Jason Yablon and Thomas Bohjalian as a portfolio manager for the fund. 10/20
REBAX Columbia Emerging Markets Bond Fund Manager Tim Jagger passed away suddenly in early October.   Adrian Hilton will now serve as a portfolio manager for the fund. Christopher Cooke continues to manage the fund. 10/20
CNMRX Columbia Income Builder Fund Effective March 1, 2021, Colin Lundgren is retiring and will no longer serve as a portfolio manager for the fund. Gene Tannuzzo will continue to serve as a portfolio manager for the fund. 10/20
CLPFX EAVOL NASDAQ-100 Volatility Overlay Fund Joseph Halpern will no longer serve as the portfolio manager for the fund. Joseph Tigay, Brian Stutland, and Afshin Rahbari will now serve as portfolio managers for the fund. 10/20
FADAX Fidelity Advisor Dividend Growth Effective on or about December 31, 2020, Gordon Scott will transition off as portfolio manager for the fund. Zachary Turner will assume sole portfolio manager responsibilities for the fund. 10/20
GPIGX Guidepath Growth and Income Fund Gary Cox will no longer serve as a portfolio manager for the fund. Natalie Wolfsen, Davin Gibbins, Mike Cheng, and Zoë Brunson will continue as portfolio managers for the fund. 10/20
HHDVX Hamlin High Dividend Equity Fund No one, but… Michael Tang will join Charles Garland and Christopher D’Anges as co-portfolio manager for the fund. 10/20
HIEEX Harbor Emerging Markets Equity Fund Frank Carroll and Janet Wang will no longer manage the fund. Michael Godfrey and David Cull will now serve as portfolio managers for the fund. 10/20
ACCBX Invesco Corporate Bond Fund Scott Roberts will no longer serve as a portfolio manager of the fund. Niklas Nordenfelt will join Todd Schomberg, Michael Hyman, Matthew Brill, and Charles Burge as portfolio managers for the fund. 10/20
ATDAX Invesco Endeavor Mark Uptigrove and Clayton Zacharias are no longer listed as portfolio managers for the fund. Belinda Cavazos and Raymond Anello now manage the fund. 10/20
QVOPX Invesco Fundamental Alternatives Fund Michelle Elena Borré Massick and Timothy Mulvihill are no longer listed as portfolio managers for the fund. Chris Devine, Tarun Gupta, Scott Hixon, Jay Raol, and Scott Wolle will now manage the fund. 10/20
AWSAX Invesco Global Core Equity Erik Esselink, Jeff Everett, and Marty Steinik will no longer serve as portfolio managers of the Fund. Michael Hatcher, Sunny Basi, and Marina Pomerantz will now serve as portfolio managers for the fund. 10/20
GTNDX Invesco Global Low Volatility Equity Yield Glen Murphy will no longer serve as a portfolio manager for the fund. Daniel Tsai joins the portfolio management team. Sergey Protchenko, Tarun Gupta, Robert Nakouzi, and Nils Huter will continue to manage the fund. 10/20
IIBCX Invesco International Core Equity Jeff Everett and Bert van der Walt will no longer serve as portfolio managers of the fund. Erik Esselink will continue to serve as a portfolio manager for the fund. 10/20
SCNUX Invesco Low Volatility Equity Yield Fund Anthony Munchak, Glen Murphy, and Francis Orlando will no longer serve as portfolio managers of the Fund Nils Huter and Daniel Tsai join Tarun Gupta and Jerry Sun as portfolio managers for the fund. 10/20
OMSOX Invesco Main Street All Cap Jeff Everett will no longer serve as the portfolio manager of the Fund. Joy Budzinski and Magnus Krantz will manage the fund. 10/20
ATIAX Invesco Select Companies Fund Robert Mikalachki, Virginia Au, and Jason Whiting will no longer serve as portfolio managers of the fund. Matthew Ziehl, Adam Weiner, Raymond Anello, Joy Budzinski, Magnus Krantz, Kristin Ketner Pak, and Raman Vardharaj will now serve as portfolio managers for the fund. 10/20
IECIX Ivy Pictet Emerging Markets Local Currency Debt Fund Scott Roberts will no longer serve as a portfolio manager of the fund. Niklas Nordenfelt will join Todd Schomberg, Michael Hyman, Matthew Brill, and Charles Burge as portfolio managers for the fund. 10/20
JDVAX JPMorgan Diversified Fund Effective immediately, Morgan M. Moriarty is on primary caregiver leave and is expected to return on or about January 20, 2021. We wish her well those potentially exhaustive responsibilities. Jeffrey Geller will continue to serve as a portfolio manager for the fund. 10/20
JVAAX JPMorgan Value Advantage Fund No one, but… Effective November 1, 2020, Graham Spence will join Lawrence Playford and Jonathan Simon as a portfolio manager to the fund. 10/20
SWMIX Laudus International MarketMasters Karen Wong and Richard Brown will no longer serve as portfolio managers for the fund. The rest of the team will continue to manage the fund. 10/20
MFWTX  MFS Global Total Return Fund Effective September 30, 2022, Vipin Narula will no longer be a portfolio manager of the fund. Effective January 1, 2021, Johnathan Munko will join the portfolio management team. 10/20
NEOMX Neiman Opportunities Fund Harvey Neiman will no longer serve as a portfolio manager for the fund. Daniel Neiman will now serve as the portfolio manager of the fund. 10/20
OASVX Optimum Small-Mid Cap Value Fund William Costello, Prashant Inamdar, and Grant Taber will no longer manage the fund. Robert Fields, Eugene Fox, Robert Kirkpatrick, and Rachel Matthews will join the portfolio management team. 10/20
OIOAX Orinda Income Opportunities Fund Paul Gray will no longer serve as a portfolio manager. Ian Goltra will remain as the sole portfolio manager. 10/20
EIVPX Parametric Volatility Risk Premium – Defensive Fund No one at the moment, but Jay Strohmaier is expected to leave the fund by April 1, 2021. Thomas Lee and Thomas Seto will continue to manage the fund and will be joined by Alex Zweber on April 1, 2021. 10/20
REIFX REMS International Real Estate Value-Opportunity Fund (which is becoming Third Avenue International RE Value) Effective November 23, 2020, Edward Turville will no longer serve as a portfolio manager. Quentin Velleley will continue to serve as a portfolio manager. 10/20
STFGX State Farm Growth Fund Paul Eckley will no longer serve as a portfolio manager for the fund. Jon Wilson and Robert Stephan will now manage the fund. 10/20
PRMSX T. Rowe Price Emerging Markets Stock Fund Effective December 31, 2021, Gonzalo Pangaro will step down as a portfolio manager after a splendid 12-year run. Effective April 1, 2021, Eric Moffett and Malik Asif will join the portfolio management team. 10/20
THLSX Thornburg Long/Short Equity Fund Effective December 18, 2020, Robert McDonald will no longer serve as a co-portfolio manager for the fund. Bimal Shah will continue to serve as a portfolio manager. 10/20
MLPPX Tortoise MLP & Energy Infrastructure Fund James Cunnane intends to resign as a portfolio manager in the fourth quarter of 2020. Brian Kessens will join Quinn Kiley to serve as a portfolio manager for the fund. 10/20
VTRIX Vanguard International Value Fund Sandy Nairn will no longer serve as a portfolio manager for the fund. Arjun Kumar and Shirley Woo will join the portfolio management team. 10/20
VAAAX Virtus Rampart Multi-Asset Trend Fund Warun Kumar, Michael Davis, Brendan Finneran, and Robert Hofeman are no longer listed as portfolio managers for the fund. Peter Batchelar and Thomas Wagner will now manage the fund. 10/20
PWBAX Virtus Rampart Sector Trend Fund Warun Kumar, Michael Davis, Brendan Finneran, and Robert Hofeman are no longer listed as portfolio managers for the fund. Peter Batchelar and Thomas Wagner will now manage the fund. 10/20
LEBOX West Hills Tactical Core Fund (formerly Leigh Baldwin Total Return) Leigh Baldwin is no longer listed as a portfolio manager for the fund. Alan McClymonds is now managing the fund with a new strategy. See our Launch Alert for details! 10/20

Briefly Noted

By David Snowball

Updates

PIMCO Emerging Markets Currency and Short-Term Investments Fund (PLMAX) is coming back from the dead.

Last month, PIMCO announced its intention to close the $600 million fund on November 20 and liquidate it by January 7, 2021. Morningstar benchmarks it against their global long/short currency group, which is so small – just 5-8 funds – that peer comparisons are mostly nonsense. Nonetheless, the fund has a negative 10-year return, and it has lost money in seven of the past ten years.

This month, not so much. Here’s the text:

“PIMCO subsequently reconsidered its recommendation, particularly in light of its desire to offer a diverse range of funds for different possible market scenarios given unique market conditions, and determined that it would recommend that the Fund continue its operations.”

(nods) A mind is a terrible thing to waste. As, from an adviser’s perspective, is the revenue off $660 million in assets.

In December 2020, the large-cap Thornburg Value Fund (TVAFX) will become Thornburg Small/Mid Cap Core Fund. The large-cap Thornburg Core Growth Fund (THCGX) becomes Thornburg Small/Mid Cap Growth Fund. Pretty dramatic switch and potentially an expensive one for investors in taxable accounts. Thornburg has no small- or mid-cap exposure and sports a market cap of $130 billion now but will begin investing in stocks no larger than $22 billion.

That said, we really do appreciate the apparent thoughtfulness of the decision. By Thornburg’s report, they looked at their funds’ lagging performance and asked, “where can we add value for our investors?” The answer appeared not to be “large cap core investing, a stronghold of the index funds.” They write:

Thornburg as well as both of these portfolios have a long history across a variety of different market conditions. Nevertheless, more recently we at Thornburg have been concerned that as active, benchmark-agnostic investors, the environment of mega-cap company dominance in U.S. equity indexes may not offer us the future opportunity to add value for investors.

As stewards of your capital, we have analyzed where our process, people, and philosophy are effective and where they are not. Our observation is that a broader universe of small-and-mid capitalization companies is a market segment in which we believe our investment framework and process have helped generate excess return over many years. With these two portfolios, our conclusion is that we will focus on maximizing the outcome for shareholders given what we do best: generating the positive, differentiated returns that have characterized our shareholders’ experience over multiple decades.

They may or may not succeed, but it’s an honorable attempt.

Briefly Noted . . .

We saddened to report that Tim Jagger, head of emerging market debt at Columbia Threadneedle, passed away suddenly on Friday, 2 October. Jagger first joined Columbia Threadneedle in Singapore in 2017, before relocating to London upon being promoted to head of EMD a year later. Mr. Jagger earned his MA at the University of St. Andrews in 1991 and spent most of his early career at the Royal Bank of Scotland.

Adrian Hilton, head of global rates and currencies, will become head of emerging market debt on an interim basis.

Morgan Stanley is buying the asset management firm Eaton Vance (and its 88 mutual funds) for about $7 billion in a cash-and-stock deal. In theory, the deal diversifies Morgan Stanley’s revenue stream a bit.  Current MS advises 59 funds, mostly solid, with $72 billion AUM. The Eaton acquisition adds 87 funds and a mostly stagnant asset base of $77 billion.

Morgan Stanley said the acquisition would boost assets under management to about $1.2 trillion and revenue to $5 billion.

Direxion dials back. Effective October 29, 2020, Direxion throttled back three of its 3x leveraged funds to make them 2X leveraged.

Current Fund Name New Fund Name
Direxion Daily MSCI India Bull 3X Shares Direxion Daily MSCI India Bull 2X Shares
Direxion Daily Latin America Bull 3X Shares Direxion Daily Latin America Bull 2X Shares
Direxion Daily Robotics, Artificial Intelligence, & Automation Index Bull 3X Shares Direxion Daily Robotics, Artificial Intelligence, & Automation Index Bull 2X Shares

SMALL WINS FOR INVESTORS

Ummm … got nuthin.

CLOSINGS (and related inconveniences)

Hmmm … Cutler Equity (CALEX) converted all their outstanding shares to Class II shares (DIVHX) on October 28, 2020, without the slightest explanation, in their SEC filing or on their website, of what on earth that means. I guess that qualifies as “a related inconvenience.” After poking around the SEC’s database, it appears that class II has lower expenses but a marginally higher ($2500 versus $1000) minimum initial investment requirement. Not sure why, exactly, that required a new share class.

As an aside, really good, small dividend-oriented equity fund.

OLD WINE, NEW BOTTLES

Columbia Global Dividend Opportunity Fund has changed its name to Columbia International Dividend Income Fund.

Effective November 1, 2020, the tiny, one-star Dana Small Cap Equity Fund (DSCIX) became the Dana Epiphany ESG Small Cap Equity Fund. The fund is implementing ESG screens “based on the belief in responsible investing consistent with Christian moral and social justice principals as outlined by the U.S. Conference of Catholic Bishops Socially Responsible Investment Guidelines and other Christian teachings.”

First Western Financial has entered into an agreement with Lido Advisors, LLC and Oakhurst Advisors “to sell its Los Angeles based fixed-income portfolio management team” (quick note to FWF: read the 13th Amendment to the Constitution before proceeding; it pretty much says you don’t get to sell your portfolio team or anyone else) and its mutual fund business to Lido and Oakhurst. As of November 16, 2020, the name of the Trust and the Funds will be changed as follows:

 Current Name New Name
First Western Fixed Income Fund Oakhurst Fixed Income Fund
First Western Short Duration Bond Fund Oakhurst Short Duration Bond Fund
First Western Short Duration High Yield Credit Fund Oakhurst Short Duration High Yield Credit Fund

For what it’s worth, all three are three-star institutional funds with perfectly decent track records.

Effective November 6, 2020, Ideanomics Nextgen Vehicles & Technology ETF (EKAR) switches to the less-cumbersome name Capital Link NextGen Vehicles & Technology ETF. Its sibling Innovation Shares Nextgen Protocol ETF (KOIN) becomes the obscurely named Capital Link NextGen Protocol ETF on the same day.

On or about December 31, 2020, Jackson Square All-Cap Growth Fund (JSSSX) becomes Jackson Square International Growth Fund. The fund’s shareholders have declared that that’s (a) okay to become non-diversified and (b) equally okay to raise the fund’s advisory fee by 20%, from 65 bps to 80 bps. None of the fund’s 10 managers have run an international portfolio though three are responsible for the (markedly better) Jackson Square Global Growth (JSPTX). With minimums of $100,000 – $1 million, it’s a tiny bit irrelevant to most of us.

Effective December 31, 2020, the Jacob Micro Cap Growth Fund (JMCGX) change to Jacob Discovery Fund. “Discovery” is in vogue this year. It’s vague enough to avoid the SEC’s name rule yet still hints at “small and exotic.” Of the 31 funds that bear the name, 17 are some combination of small-cap, global, emerging, or frontier. No fixed income manager, by the way, professes to “discover” anything.

Kellner Merger Fund (GAKAX) will eventually become AXS Merger Arbitrage. Management, strategy, and fees are likely to remain the same. The SEC filing is a bit vague about timing and details. It’s a three-star fund that tends to make zero, give or take one percent.

The Stadion Funds are all slated to be North Square Investments funds. Several of the Stadion Funds are entirely reasonable offerings, including Stadion Tactical Growth (ETFAX), which has a four-star rating and top 20% returns over the past five years.

On or about November 23, 2020, REMS International Real Estate Value-Opportunity Fund (REIFX) will become Third Avenue International Real Estate Value Fund. REIFX is a four-star fund with $37 million in assets, a $50,000 minimum, and a six-year record. The new fund will retain one of its two current managers, Quentin Wellesley.

Third Avenue was, of course, famous for Third Avenue Real Estate Value Fund (TAREX), which Michael Winer led for 20 years. Mr. Winer retired two-and-a-half years ago and, despite Morningstar’s calm assurance that his former co-managers are “more than capable” of executing the strategy, performance has been weak:

That’s a 2.5-year record, generated by MFO Premium, to roughly correspond with the change in management and, perhaps, market conditions. “Value” is rarely used in the name or principal strategies of real estate funds, so it’s hard to know how much of the struggles to assign to market conditions and how much to manager skill. Regardless, this seems a net gain for the Third Avenue complex.

Effective October 1, 2020, the USAA World Growth Fund (USWGX) changed its name to the USAA Sustainable World Fund.

OFF TO THE DUSTBIN OF HISTORY

“On October 15, 2020, the AlphaSimplex Tactical U.S. Market Fund was liquidated. The Fund no longer exists, and as a result, shares of the Fund are no longer available for purchase or exchange.” Thanks for that clarification!

Effective October 8, 2020, the subadviser of AMG Managers Cadence Emerging Companies Fund (MECAX) changed from Cadence Capital Management LLC to GW&K Investment Management, LLC whereupon the name of the fund changed to AMG GW&K International Small Cap Fund.

The BNY Mellon Inflation Adjusted Securities Fund (DIAVX) will be liquidated on or about December 21, 2020.

On November 20, 2020, following a recommendation by the Fund’s investment adviser, Checchi Capital Advisers, LLC, the $24 million CCA Aggressive Return Fund (RSKIX) will be liquidated.

On October 30, 2020, Center Coast Brookfield Energy Infrastructure Fund (CEN, a closed-end balanced fund) was liquidated.

Don’t have details, but we’re guessing that the 85% drop in March followed by stagnation was … hmm, net negative to the fund’s survival.

On November 13, 2020, Convergence Market Neutral Fund (CPMNX) shifts from “neutral” to “nonexistent.” Morningstar gave it a “Gold” analyst rating. The market disagreed: the fund is underwater since launch, has about $5 million in AUM, and had an 83% correlation (that is, an R-squared of 83) with the S&P 500.

The Cornerstone Capital Access Impact Fund (CCIIX) will be liquidated on December 3, 2020. It was a high-performing fund that launched less than a year ago. I’ve always been vexed by advisors whose vision of “the long term” leads them to keep new funds in operation for months before surrendering. It’s a tough business, and if you don’t have the wherewithal to push through with negligible income for the first three years, don’t get in it.

Driehaus Active Income Fund (LCMAX) is slated to become inactive on November 6, 2020. The fund was adopted from Lotsoff Capital in 2009. As you might infer from the fact that it’s made 1.25% annually over the past ten years, it has not really flourished under Driehaus’ aegis.

Fiera Capital Diversified Alternatives Fund (FCARX) was liquidated on October 30, 2020. The five managers, none of whom chose to invest in the fund, were the 12th – 16th in the fund’s six-year history.

Goldman Sachs Imprint Emerging Markets Opportunities Fund (GSYAX) is slated to merge with Goldman Sachs ESG Emerging Markets Equity Fund (GEBNX) sometime in January 2021. The stated rationale: the merger “(i) would rationalize Funds that have the same investment objective and similar investment strategies (albeit with some notable differences); (ii) may provide enhanced opportunities to realize greater efficiencies in the form of lower total operating expenses over time; and (iii) would enable the combined Fund to be better positioned for asset growth.” Alternately: GSYAX is a tiny, terrible fund. GEBNX is a tinier, decent fund in a trendy part of the market; eating its doomed sibling gave it its best chance for survival.

Heartland Select Value Fund (HRSVX/HNSVX) was liquidated on October 19, 2020.

“Following discussions held at meetings on February 27-28, 2020, June 16-17, 2020 and October 28, 2020, the Board of Trustees unanimously approved [merging] Highland Socially Responsible Fund (HPEAX) into NexPoint Merger Arbitrage Fund (HMEAX) … on or around January 15, 2021 Shareholders of record as of November 20, 2020, will be entitled to vote on the Plan.” NexPoint is a Highland subsidiary, which explains but does not justify the merger. Notes to HPEAX shareholders. First, you’re investing in a volatile, one-star fund that has trailed 99-100% of its peers of the past 1, 3, 5, 10- and 15-year periods. Get out. Second, HMEAX is a fine fund for what it does but what it does is not what you signed up for. In truth, I’m not sure what you signed up for since the fund became “socially responsible” just a year ago. Regardless, both the earlier Highland Premier Growth and the new Highland Socially Responsible were equity funds aiming for “long-term growth of capital and future income rather than current income.” NexPoint shoots for steady, positive returns – generally in the single digits – capturing short term stock price movements when one firm announces its intention to acquire another. Two markers of the complete disconnect between the two: first, the lifetime correlation between the two funds is 0.31. You’ve got more in common with an EM stock fund (heck, you’ve got more in common with an EM bond fund) than with a merger arbitrage fund. Second, here’s the lifetime performance charts for the two.

Fine fund, but not what you signed up for.

“Later in the year,” according to the filing, the Holland Balanced Fund (HOLBX) will be liquidated. It’s a perfectly nice fund, run since 1995 by Michael Holland, albeit one with a tiny asset base and an egregious expense ratio (2.0%). Now in his mid-70s, Mr. Holland has had a long and storied career with stints at The Blackstone Group, Salomon Group, Oppenheimer Funds, JPMorgan and a while working with the endowment at his alma mater, Harvard University. We wish him well in this next chapter of his life.

Horizon Multi-Asset Income Fund (HMANX), launched in June 2019 and underwater since then, won’t be around to celebrate New Years Day, 2021.

On December 15, 2020, Invesco All Cap Market Neutral Fund and Invesco Select Opportunities Fund will cease to exist.

A couple of months later, February 18, 2021, Invesco Balanced-Risk Retirement Now Fund, Invesco Balanced-Risk Retirement 2020 Fund, Invesco Balanced-Risk Retirement 2030 Fund, Invesco Balanced-Risk Retirement 2040 Fund , and Invesco Balanced-Risk Retirement 2050 Fund will join them in oblivion.

Mission-Auour Risk-Managed Global Equity Fund (OURAX) will merge with Union Street Partners Value Fund (USPVX) on December 18, 2020. The Union Street fund is tiny, and the managers don’t invest in it, but it’s otherwise a pretty okay offering.

The Patriot Fund (TRFAX) will snap off its last salute on November 20, 2020.

PPM Floating Rate Income Fund (PKFIX), PPM Long Short Credit Fund (PKLIX), PPM Large Cap Value Fund (PZLIX), and PPM Mid Cap Value Fund (PZMIX) have all closed and will all soon be liquidated, though the exact date has not been disclosed.

Effective October 13, 2020, ProShares Ultra Communication Services Select Sector (XCOM) and ProShares UltraShort Communication Services Select Sector (YCOM) were liquidated

As of October 19, 2020, Virtus was still trying to arrange for a merger of Virtus Rampart Sector Trend Fund (PWBAX) with and into Virtus Tactical Allocation Fund (NAINX). The latter is both larger and vastly more successful. Sadly, the shareholder meeting at which the merger was to be considered had to be adjourned without action. Generally, that means that they couldn’t get enough votes – for or against – to conclude the matter. Inevitably, time, effort, and money will be spent trying to get shareholders to, oh, pay attention to their investments. We’ll update you soon.

On (or around) October 27, 2020, Rareview Longevity Income Generation Fund (RLIGX) was liquidated. Good news: “the liquidation is not expected to be a taxable event for the Fund.” Bad news: it is a taxable event for the fund’s shareholders. Good news: with a three-year gain of just 0.75% annually, a 5% loss this year, and low tax efficiency all along, there wasn’t much to be taxed on.

The Two Rivers board of trustees concluded that liquidating Redwood AlphaFactor Tactical Core Fund (RWTNX) and the Redwood Activist Leaders Fund (RWLNX) was in the best interests of the funds and their shareholders. The deed was done on October 30, 2020. Given that both funds have lost shareholder money (though not the managers’ money, since none of them chose to invest in the funds) since inception, they might well be right.

The REMS Real Estate Income 50/50 Fund (RREFX) is merging into the REMS Real Estate Value-Opportunity Fund (HLRRX) “on or about December 18, 2020, or as soon as possible thereafter.” One would have thought that the “or about” made the “or soon as possible” superfluous.

Rothko Emerging Markets Equity Fund (RKEMX) went from “tiny and bad” (10/16) to “vanished” (10/29) in under two weeks. Rothko is a Mondrian affiliate, and we’ll note that Mondrian’s EM Value Equity Fund (MPEMX, $25 million, two stars) is not looking all that healthy itself.

“Ryan Labs Core Bond Fund (RLCBX) has terminated the public offering of its shares and will discontinue its operations effective November 16, 2020.” Curious decision. The stated rationale was boilerplate (“in the best interest of shareholders”), which is questionable in the case of a four-star, silver-rated fund with absolutely top-tier performance. The likelier explanations involve the fund’s size ($50 million) and flagging interest on the part of its Canadian parent.

The one-star Transamerica Dynamic Income (IGTAX) will, pending shareholder approval, merge with Transamerica Multi-Asset Income “in the first quarter of 2021.” The asset flows for IGTAX are fascinating.

Hundreds of millions rushed in, in Year One, to a fund with no track record and unremarkable managers, which turned out to be a middling performer. Then suddenly, around the 18-month mark, it looks like a switch got flipped. One might surmise that the fund was on an internal buy list until it wasn’t.

On October 5, 2020, T. Rowe Price Institutional International Growth Equity Fund was merged into T. Rowe Price International Stock Fund (PRITX). The decedent is a clone of the survivor, with the same manager, strategy, and portfolio. A gain for the merging shareholders: the institutional share class of their new fund is 9 bps lower than their previous funds’.

On or around March 8, 2021, the $2.4 billion T. Rowe Price Growth & Income Fund (PRGIX) is expected to merge into the $1.9 billion T. Rowe Price U.S. Large-Cap Core Fund (TRULX). The funds share the same manager, Jeff Rottinghaus, virtually identical performance and a correlation of 0.99 with one another.

  Growth & Income Large Cap Core
10 year annualized returns 12.8 13.4
Maximum drawdown -20.2 -20.2
Standard deviation 12.8 12.7
Downside deviation 8.1 8.1
Down market deviation 8.0 8.0
Ulcer Index 4.0 4.0
Sharpe ratio 0.97 1.01
Capture / S&P500 1.0 1.0
R-squared / S&P500 0.97 0.97

T. Rowe has reduced the expense ratio on Large Cap Core to match Growth & Income’s lower fees.

UP Fintech China-U.S. Internet Titans ETF (TTTN) isn’t going to make it to Thanksgiving this year. Its shareholders might pause and offer a word of thanks for the fund’s 48% YTD gains.