Monthly Archives: June 2021

June 1, 2021

By David Snowball

Dear friends,

Welcome to summer.

On the morning of Sunday, May 23, Dean Wendy Hilton-Morrow sent the following short email from the floor of the convention center in which our commencement was held.

Subject: It’s showtime!

The stage is set.

The players are gathering, nervously, outside. Over the next eight hours we’re going to celebrate 835 successes. 835 answers to the question, “what is worth it?” 835 testaments to the work you’ve done.

We made it!

-Wendy

Thus began Augustana’s 2021 commencement day, with three ceremonies in sequence to protect the safety of visiting families.

It was Augustana’s 160th graduating class. It was my 36th college commencement.

But it was their first. It was a first for all of the students, and for many of the families. It was a special first for the 40% of our students who are in the first generation of their families to attend college, and the roar that occasionally rose and reverberated in the vast hall was a testament to the pride and joy experienced by them all.

For now, I’ll breathe.

In a month, we begin meeting the class of 2025: 665 hardy souls including 166 students of color plus 110 students from 20 other nations. Together they represent 41% of our incoming class and 100% of the hopes and dreams of their families.

We will serve them well.

Summertime blues

Stock markets in summer tend to be more interesting than profitable, which led to the hackneyed adage “sell in May and go away.” That’s never seemed terribly sensible to me and the underlying research is pretty thin. Most markets, most years, do rise over the summer months though at a noticeably lower rate than in the winter months.

Source: Yardeni Research, Stock Market Indicators: Historical Monthly & Annual Returns, May 29, 2021

Mark Hulbert, for example, argues that it’s a profitable strategy only in the third year of a presidential term. CXO Advisory Group notes that a “cash in summer” strategy underperforms buy-and-hold, especially when transaction costs are taken into account.

That having been said, due caution remains in order. Valuations in the US stock market remain stunningly high, justified almost exclusively by the phrase “yeah, but look at how much worst the fixed income market is!”  And yet the near vertical ascent in the market’s Shiller PE ratio is historic and worrisome:

That’s compounded by the fact that small investors are joyfully “beating the market” by pouring their wealth into “meme” stocks. Research reported by the Wall Street Journal notes that small investors tend to pour “far more money into stocks with high momentum” than into their staid counterparts. Occasionally because “God told me to put money into Hertz,” reported one small investor. Small investors are borrowing record amounts to underwrite the stock bets and Fidelity, helpfully, has now opened a service that will allow 13-to-15 year-olds (among our most hormonally stable citizens) to have stock trading accounts.

Gunjan Banerji and Alexander Osipovich, writing for the Journal, point out the obvious risk:

The market’s upside-down turn, featuring a sustained rally in smaller companies with shaky financials and easy fortunes made by some early buyers of these shares, doesn’t make everyone happy. Analysts and portfolio managers recall that the market meltdowns of 2000 and 2008 were preceded by roaring bull markets in speculative areas such as dot-com startups and mortgage finance. When those manias ended, the broader economy paid the price.

Millions of individual investors stampeded into the market last year, enticed by zero-commission brokerages and easy-to-use investing apps, and their interest helped fuel the post-pandemic rally. That, and the fervor with which many small investors have piled into market winners, have potentially set the stage for severe selloffs if spooked investors flee hot stocks en masse (“‘God Told Me to Put Money Into Hertz’: Small Investors Are Winning Big Again,” Wall Street Journal, 5/27/2021).

In what might be a sign of summer troubles, bitcoin just booked its worst month in history (down 36%). The three ETFs that track the once sizzling SPAC market are down 6-17% over three months. The Investor Who Can Do No Wrong (I’ve been reading financial pornographers again) has seen her flagship ARKK Innovation ETF drop 14% over three months despite a steadily rising market.

Over a longer time horizon, today’s elevated valuations are going to pinch your returns. The uptick in inflation will inevitably eventually lead to an uptick in interest rates, which will make fixed income more attractive and force equity investors to consider the consequences of having overpaid. Northern Trust (2021) estimates the five-year real returns on cash to be 0.1% and US stocks to be 4.7% with 14.4% volatility. Their models give the best future prospects to global high yield debt (5.6% real, 9.9% vol) and emerging equity (7.1% real but 23.4% vol).  GMO (April 2021) thinks everything will be negative, except EM value stocks (2.2% real). Research Affiliates (May 2021) puts the 10-year returns on US large caps below zero (-0.7%, 15.3% vol) with EM equity positive but volatile (5.3%, 21.3% vol).

Bottom line: in the short term, take on no more risk than you can afford. In the longer term, budget for modest returns and continue to take EM equities as a serious possibility.

Take care of the pennies, and the pounds will look after themselves

One good strategy in a low return/rising inflation environment might be to minimize your exposure to zero-return assets. The estimable Jason Zweig offers one recommendation for a risk-free gain:

Speculators in cryptocurrencies and in meme stocks like GameStop have been bragging for months about earning “10X” or even “100X”—10-fold or 100-fold profits.

That’s nothing.

Here’s how you can make more than 170X, raising your return 177-fold in a single trade. Move your cash from a bank account, where it’s probably earning about 0.02%, into an inflation-protected U.S. savings bond, which will yield 3.54% annualized. Unlike daredevil stock or crypto trading, buying an “I bond” is almost risk-free and delivers significant tax advantages. (The Safe, High-Return Trade Hiding in Plain Sight,” Wall Street Journal, 5/28.2021).

“I’m buying I bonds,” he concluded, “and so should you.”

Series I bonds are available direct from the US Treasury. PIMCO 1-5 Year US TIPS Index (STPZ) might be an alternative, with five-year returns of 2.8% and volatility of 1.8%.

In the same vein, investors might want to consider a position in RiverPark Short Term High Yield Fund (RPHYX/RPHIX) ahead of its soft-close in mid-June. The fund’s lifetime returns average of 2.8% annually with minimal volatility (maximum drawdown of 1.1%, downside deviation of 0.4%). That gives the fund the highest risk-adjusted returns, as measured by the Sharpe ratio, of any fund over the past decade. RPHIX has a Sharpe ratio of 3.0, the next highest fund is under 2.0.

Manager David Sherman requested the closure as the fund reached $1.1 billion in AUM. While he does not face immediate constraints on the fund’s capacity, he says that he could imagine challenges in the year ahead and would rather act now to protect his investors than wait until it’s a day later than ideal.

The fund will remain open to existing investors and to new investors who invest directly with RiverPark. By way of full disclosure, I’ve owned the fund almost since inception and we’ve written repeatedly about it.

Planning for extra innings

In May I announced my decision to retire as MFO’s publisher by year’s end. Three bits of follow-up to that note:

  1. As I said then, that does not necessarily mean that I’ll stop writing or that MFO will stop publishing. It just means that I recognize we need fresh energy, vision, and leadership.
  2. We’re exploring potential partnerships that will preserve MFO’s public service mission and (we hope) independent excellence. Our status as a federally registered 501(c)3 both helps and constrains us. Several folks have suggested the possibility of a partnership with either a journalism school or a business school, both of which strike me as logical. Others have raised interesting initiatives, but those remain to be explored.
  3. I’m profoundly grateful to the folks who’ve reached out, both to celebrate MFO’s work and to express understanding of the need to hit the “refresh” button.

MFO will be on hiatus in August 2021. It’s typically our short “Dogs Days of Summer” issue. This year, Chip and I will be back east for my son-in-law’s wedding (she thinks of it as “her son’s wedding”) in late July, which made an August break sensible for us.

Slow but steady! I’ll check you updated.

Thanks!!

To our 2,000,000th reader, who joined us on May 2, 2021. Large round numbers are incredibly cool.

To our faithful subscribers, Greg, Matthew, William, William, Brian, David, and Doug.

To John Voigt (thank you, sir, both for the generous contribution and the warm wishes … I’ll try not to be a stranger), Wilson, and good folks at S&F Investment Advisors.

And, as ever, to the indefatigable, joyful, curious, querulous folks on our discussion board: The Shadow (who sees all), Dave Moran, Ira Artman (dude, sent more leads!), OJ, and you all.  Thanks!

I’m speaking to the folks at the FPA NorCal conference on Thursday and with Chuck Jaffe on Friday. Next week, we’ll be gearing up for July by chatting with the folks at Appleseed Fund.

Until then, be well!

david's signature

Currency Games

By Edward A. Studzinski

“Look straight ahead. What’s there?
If you see it as it is
You will never err.”
Bassui Tokusho

I’m probably not the person to weigh in on the issue of whether the indications of inflation that are surfacing in the economy are anything more than temporary as we are being told by the Chairman of the Federal Reserve Board. That said, at least in terms of energy and food, something more than anticipated seems to be happening. When the cost of gasoline in Chicago starts hovering around $4 a gallon, that gets my attention. When the price of fresh chicken also starts hovering closer to the $4 a pound mark, that gets my attention. And let us not ignore dairy, where the price of butter has increased to close to $4 a pound. More and more, we hear tales in the hospitality industry of the inability to get workers without having to pay a wage premium. This accompanies the need for restaurateurs to push through menu price increases, lest the costs of running their businesses do to them what COVID and state governments failed to do over the last fourteen months.

I mention all of this as it forces one to ponder the attendant investment implications. As building and other raw material components surge in price (not to mention availability), we see the ratcheting up of the costs to build or repair a home. The ripple effect is the inability of those who would like to purchase a home being able to find an affordable one. Will this be the end of the American dream, home ownership for the aspiring and present middle class? Will it parallel the inability for most to get a college education without carrying a mountain of student debt? Have colleges and universities become the new loan shark class?

What I will weigh in on is to say that I agree with Larry Summers, the economist and former chief economic advisor to President Obama. Summers, somewhat in the fashion of Cato the Elder (“Carthage must be destroyed”) now at every opportunity warns the current administration and central bank about the dangers of unleashing rampant inflation as a result of too much well-intended but unnecessary economic stimulation. One of the major differences we see from previous days is that foreign central banks are less inclined to let us inflate away our national debt than they were twenty years ago. Absent their support, we face a rather bleak future.

A Manager Update

Recently, I put in a call to John Deysher, the manager of the Pinnacle Value Fund (MFO profile, fund factsheet) a fund that I have long admired for the consistency of its philosophy as well as the implementation of same. What had caught my eye was that the fund’s assets under management had been cut in half over the last three years.

Part of that I attribute to value being out of favor for a good part of that period. I also think that small-cap value has been an especially hard sell during that period. After all, with Google, Facebook, Apple, and the like being part of the new core growth stocks (or value stocks), who wants to invest in a fund that invests in stocks that no one has heard of (and can’t brag about) at Zoom cocktail parties?

The short answer is that I think the masses are once again missing the boat. Mr. Deysher has been making some tweaks to his strategy, which I think will improve the fund’s potential as an investment vehicle. One, the fund will be looking for investments where there is a potential catalyst for change on the horizon (lessening the chance for a security to be a dead money investment). Two, there will be a renewed emphasis on the quality of company management. Everyone says they want to invest alongside good management. In the universe Mr. Deysher is hunting in, he actually gets to interface more with management than a mid-cap or large cap manager. Try doing that with Tim Cook of Apple at something other than a well-choreographed investor day. And finally, the extensive due diligence performed by Mr. Deysher will be attuned more to weeding out the “cigar butt” businesses that may look cheap but are cheap for a reason. Given the paucity of small cap value funds out there that are not tied to a large asset gathering firm’s desires for bigger paydays, I would suggest the fund is worth a look.

Asset Allocation Thoughts

At this juncture, l think the shift from growth to value will continue for some time, leaving value overall as an attractive area. But all things being equal (and they are not), I would prefer to be investing new money in the areas of emerging market value stocks that fall outside the current group of benchmarks. I would also be interested in a domestic small-cap value that falls under $1B in market capitalization. (Snowball’s interjection: There are just nine such funds, with North Star Micro Cap being a standout and both Aegis Value and Pinnacle Value performing well.) And finally, to the extent the investments involved are denominated in non-U.S. dollars, I would want to make sure that they remain unhedged. An interesting vehicle in that regard to look at would be the unhedged version of the Tweedy Browne Global Value Fund.

Royko Wisdom

Many years ago Mike Royko wrote a column entitled “A ChicagoFest Lesson” for the Chicago Sun-Times that espoused bringing back the draft (compulsory military service). One of his arguments was that those who had been exposed to the draft got to see first-hand how big government was “unwieldy, wasteful, indifferent to the individual, bullying, secretive and bureaucratic. And anyone who has been exposed to it for two or three years will come out disliking anything like it.” Contrarily he made the point that “those generations to whom the government is just a smiling face on a TV set ……. will be the easiest for government to control and manipulate.” Think about that the next time you see on television a governor or Federal official at a podium, with a row of flags against the wall behind him or her, with another row of Charlie McCarthys interposed in between.

New MultiSearch Screens To Help Analyze Impact of Rising Rates and More

By Charles Boccadoro

Rates on US Bonds have been falling generally for more than 40 years, prompting many to coin the term: “The 40-Year Bond Bull Market.” Below is the FRED chart depicting 3-month T-Bill rates since 1940. The bond bull started in June 1981. In the forty years proceeding this bond bull, rates were doing just the opposite … rising generally, which we’ll call the “The 40-Year Bond Bear Market.”

Today on MFO Premium, we went live with several new evaluation periods to help assess the impact of rising rates, if that ever happens again. Fact is, most bond funds did not exist prior to 1981, including many of today’s largest bond funds by AUM. Vanguard’s Total Bond Market Index (VBMFX), the largest core bond fund with $302B, launched in January 1987. Only four bond funds in our Lipper database existed back in 1960, one being Putnam Income (PINCX).

Here are the new Display Period options in MultiSearch, the site’s main tool:

  • SEC – 193406 To Present, which covers the period from inception of U.S. Securities and Exchange Commission,
  • Act 40 – 194008 To Present, which covers the period from inception of the Investment Company Act of 1940,
  • Sarbanes-Oxley [SOX] – 200207 To Present, which covers the period from inception of Sarbanes-Oxley Act,
  • Buybacks [SEC 10b-18] – 198211 To Present, which covers period from inception of SEC Rule 10b – 18,
  • Dodd-Frank – 201007 To Present, which covers the period from inception of Dodd-Frank Wall Street Reform and Consumer Protection Act,
  • Rising Rates – 200406 To 200702, which covers the rare period of rising rates since 1981 when the 3-month T-Bill went from 0.3 to 5.3%,
  • 40-Year Bond Bear – 194001 To 198105, which covers the 40-year bond bear market with rates rising generally,
  • 20-Year Bond Bear – 196001 To 198105, which covers the 20-year bond bear market with rates rising generally,
  • 40-Year Bond Bull – 198106 To Present, which covers the 40-year bond bull market with rates falling generally.
  • Lipper Database – 1960 – Present, which represents start of Refinitiv’s Lipper Global Data Feed (LGDF), the database used in MFO Premium.

Previously, we announced the Normalization option, which covers the most recent period when Fed attempted to raise interest rates closer to normal, 201601 – 201812.

While it’s difficult to analyze actual funds during these older periods, indexes are available in the MultiSearch database for the S&P 500 Total Return (SP500) and Long Government Bonds (LGovBnd) back to 1926 and US Aggregate Bonds (USBond) back to 1960, as detailed in A Thirty Year Proposition.

Setting the Rising Rates period shows an annualized percent return (APR) for US Aggregate Bonds from June 2004 to February 2007 of 4.8%. Unfortunately, the excess return was only 1.3%. Similarly, excess return for the Normalization period was 1.0% and a less than zero -0.5% for the 20-Year Bond Bear.

In contrast, APR has been an attractive 7.6% and excess 3.7% for the 40-Year Bond Bull, which helps explain why Rob Arnott stated not too long ago that most of the return has been bonds. The contrast is greater with long bonds, which have rewarded investors with 9.3% APR since June of 1981 and 5.4% excess. During the 40-Year Bond Bear? Just 2.3% APR and -1.2% excess.

Fortunately, more than a dozen mixed asset funds existed back in 1960, including Dodge & Cox Balanced (DODBX), Vanguard Wellington (VWELX), and Fidelity Puritan (FPURX), which are worth examining and contrasting during the bear and bull portions of the bond market.

Another new feature is the first “Model” portfolios in MultiSearch, which include Dodge & Cox Allocations, The Ivy Portfolio, the simple 5 asset class portfolio Mebane Faber wrote about in 2009, and 50/50 SPY/TLT (aka “Zig/Zag”), which frequent MFO Discussion Board contributor bee coined. These can be found under Pre-Set Screens in MultiSearch.

Finally, other new Pre-Set Screens include:

  • Vanguard Regional ETFs,
  • iShares Developed Markets Countries ETFs,
  • iShares Emerging Markets Countries ETFs,
  • Expanded Reference Indices, now totaling 56 each assigned “convenience” tickers, like SP500, USBond, Value, HighYld, Ginnie, and Cash.
  • Largest Funds, by AUM in each category, arranged in the 11 SubTypes (US Equity, Mixed Asset, Global Equity, International Equity, Sector Equity, Commodity, Alternative, Trading, Bond, Muni Bond, and Money Market).

All of these provide quick and easy insight into broad market risk and return metrics.

Please enjoy the new features!

Launch Alert: Alger 35 ETF

By David Snowball

On May 4, 2021, Fred Alger Management launched the Alger 35 ETF (ATFV), their second active/nontransparent ETF (known colloquially as an ANT). The fund will invest in 35 stocks, typically US, typically mid- to large-cap (98% of the portfolio), and uniformly high growth.

Alger was founded in 1964 as a growth investor with all of its strategies using the same underlying discipline that focused on original, bottom-up research, stress testing of their investment assumptions, high levels of collaboration between analysts and managers, and a focused/high conviction approach.

They believe that one of the firm’s signature advantages is its ability to identify growth companies, that are emerging from a plateau or period of consolidation, and which are about to resume their upward trajectory. That might be because of the arrival of new management, corporate restructuring, and the launch of new products. Their term for this growth renaissance is “positive dynamic change.”

As of mid-2021, all of Alger’s funds and separately managed account composites receive either four- or five-star ratings from Morningstar.

The prime attraction of the Alger 35 ETF is Dan Chung and the Alger 35 Fund. Mr. Chung is Alger’s CEO and Chief Investment Officer. He’s worked at Alger since the mid-1990s and became CEO in the wake of the attack on the World Trade Center, in which Alger’s entire senior management team perished. Mr. Chung says, “The number 35 has special and personal meaning to me, as I lost 35 of my colleagues on September 11th nearly 20 years ago. As a way of honoring them, we will donate 5% of the net management fee of ATFV to charities and causes that were important to these Alger employees who perished.” Mr. Chung has a law degree from Harvard, edited the Harvard Law Review, and clerked for Justice Anthony Kennedy.

The Alger 35 Fund launched on March 29, 2018. It builds on the experience of their first focused strategy, launched in 2012. It has earned a five-star rating from Morningstar and a Great Owl designation from MFO for consistently top-tier risk-adjusted returns. While the market has been favorable to growth investing, in general, Alger 35 has posted a particularly noticeable record for offering higher returns and lower volatility than its peers.

Comparison of Lifetime Performance (Since 201805)

In sum: 7.7% higher annual returns with a smaller maximum drawdown, lower “normal” volatility, lower “bad” volatility, and substantially better risk-return metrics (the last four columns) than its peers.

The special attractions of the ETF are its economics (you are charged the same expense ratio as the $500,000 institutional share class but face no investment minimum yourself) and its prospects for higher tax efficiency (which is a structural advantage of active ETFs over mutual funds).

While the winds will not always favor Alger’s style and almost all of its long-established funds have recovered maximum drawdowns of more than 60%, Alger hews to a disciplined, transparent, repeated process that has paid off handsomely for long-term investors.

The Alger 35 ETF.

Tactical Sleeve for the Conservative Minded

By Charles Lynn Bolin

Momentum is contrasted with “Buy and Hold” to develop a Tactical Sleeve. The objective is to increase risk-adjusted returns and benefit from the evolving business cycle.

I have written articles on Mutual Fund Observer about investing according to the business cycle, fund rotation, and trend following as well as finding funds that manage risk over the complete business cycle. As an individual investor nearing retirement, I like to evaluate funds and the investment once a month and make small adjustments if appropriate. I am settling on having 75% of my portfolio in buy and hold funds that get rebalanced roughly once a year or when the markets reach extremes, and 25% for a Tactical Sleeve. Tactical Strategy and Strategic Asset Allocation are defined by Investopedia as:

Tactical trading (or tactical asset allocation) is a style of investing for the relatively short term based on anticipated market trends. Tactical trading involves taking long or short positions in a range of markets, from equities and fixed income to commodities and currencies. Diversified long-term portfolios will often include a tactical trading overlay, which involves allocating part of the portfolio to short-term and medium-term trades, in order to boost overall portfolio returns.

Strategic asset allocation is a portfolio strategy. The investor sets target allocations for various asset classes and rebalances the portfolio periodically. The portfolio is rebalanced to the original allocations when they deviate significantly from the initial settings due to differing returns from the various assets.

I have been building the Ranking System for a couple of years, but only added the Watchlist with Tactical View this past month. In this article, I compare my Ranking System which consists of seven factors including momentum to the Momentum Factor. The Ranking System is intended to identify funds with good long-term histories that are doing well now while the Momentum Factor attempts to find funds that are now trending up and attracting inflows. The first step is to choose a manageable number of funds to include in the Watchlist based on the direction that I believe the investment environment is headed. The final product divides the nearly sixty funds in the Watchlist into nine boxes of lower, medium, and high Rank versus lower, medium, and high momentum. The positioning of the funds are relative to each other and will move around based on mostly momentum.

This article is divided into sections for those who wish to skip to particular topics of interest. Key Points are added at the top of each section for those who have limited time.

  1. Adjusting Allocations: Keeping Your Powder Dry (cash, COTZX/CTFAX)
  2. Sector and Business Cycle Rotation
  3. One Stop Shop Mutual Funds with a Tactical Strategy
  4. Momentum vs Author’s Ranking System
  5. Closing

Adjusting Allocations: Keeping Your Powder Dry

Key Point: COTZX/CTFAX is selected as a partial alternative to holding cash. The fund changes allocations to stock, based on cyclically adjusted valuations.

John Bogle, Founder of the Vanguard Group and the father of passive index investing, wrote Enough: True Measures of Money, Business, and Life. In 1999, Mr. Bogle was “concerned about the (obviously) speculative level of stock prices.” Mr. Bogle reduced his equity exposure to about 35 percent of assets, which he held through the time of writing Enough in 2010. Currently, this is approximately my allocation to stock.

“Clearly, investors would have been wise to set their expectation for future returns on the basis of the current sources of returns rather than fall into the trap of looking to past returns to set course. That dividend yield as 2000 began was at an all-time low of just 1 percent and the P/E at a near-record high of 32 times earnings together explain why the average return on stocks in the current decade is at present running at an annual rate of less than 1 percent.”

The stock market by about any measure is in bubble territory. One solution is to follow Mr. Bogle’s lead and increase allocations to cash or bonds. Timing the market is difficult to do consistently. Take Columbia Thermostat. It had a drawdown of 43% during the Financial Crisis but performed outstandingly during the 2020 recession. D. Michael Sullivan from Raymond James Financial Services explained to me that when the Financial Crisis began Columbia Thermostat would either be invested 100% in stocks or 100% in bonds. It has changed its strategy to be based on an allocation table.

Effective May 1, 2021, Columbia Thermostat Fund changed its allocation table which is based on the level of the S&P 500 as shown in Table #1. The new allocation is now 10% equity and 90% fixed-income compared to the prior allocation of 50% equity and 50% fixed-income. When Columbia Thermostat updated its allocation, I moved my “Dry Powder” to COTZX/CTFAX.

The updates to the S&P 500 Index levels in the table below are calculated based on a cyclically adjusted price-to-earnings (P/E) ratio for the prior seven-year period. If the P/E ratio is in the top 25%, we determine that the market is “expensive” and use the full version of the table. As a result of last year’s historic rise, we are currently in the top ninth percentile of P/E—well within the top 25% that designates an expensive market.

Table #1: Columbia Thermostat Allocation Table – May 2021

We are in the “Everything Bubble” and interest rates are low, and likely to rise if inflation proves to be more than transitionary. Over 70% of the bonds currently listed in COTZX/CTFAX have a rating of “A” or higher and an effective duration of about 5 years. Interest rates are low and may rise, reducing the returns of bonds, but quality short to intermediate bonds will lose less than stocks.

Sector and Business Cycle Rotation

Key Point: At the time of this writing, Technology Funds are down 6% for the past three months as investors rotate into inflation hedges, value stocks, industrials, materials, infrastructure, and international stocks.

Fidelity provides their summary of sector performance during the business cycle as shown in Table #2. Investors (and massive stimulus) have pushed valuations to extreme levels, particularly in technology which does well when the economy is rebounding or in a mid-cycle stage. There appears to be a rotation into assets that perform better during the late stage of a business cycle such as materials, consumer staples, health care, energy, and utilities. While I include representative funds from most sectors in the Watchlist, I focus attention on the “late stage” funds. There is a large disconnect between the markets and economy, and I believe that while the economy may churn on with the continued stimulus, while high valuations and margin debt ensure there will be high volatility over the next few years. My focus remains on capital preservation and managing risks.

Table #2: Sector Performance During the Business Cycle

Source: Fidelity

Table #3 shows the performance of sectors over the past twenty years. Consumer Goods (Staples) and Health Care have historically done the best during downturns. Utilities and Materials perform in line with the S&P 500. Technology and Real Estate were influenced by the Housing and Technology Bubbles and performed significantly worse during downturns. The Price to Earnings Ratio (P/E) shows that all sectors are highly valued. Industrials and real estate have come off slow years and now have strong returns year to date. Utilities are having higher returns relative to 2020. Debt to Equity (D/E) gives an indication of which industries may be most affected if interest rates rise. Consumer Goods, Health Care, and Consumer Services have the highest risk adjusted returns (Martin Ratio).

Table #3: Sector Performance – Twenty Years

Source: MFO Premium data and screener

Table #4 is my blueprint for asset rotation and allocation following the business cycle. There is no traffic sign shown what stage of the business cycle the economy is in, but momentum provides clues where investors think it is headed.

Table #4: Asset Performance During the Business

Source: Author

One Stop Shop Mutual Funds with a Tactical Strategy

Key Point: With valuations at extremes, conservative funds for long-term buy-and-hold positions are evaluated with respect to the Tactical Sleeve. I expect these funds to outperform more aggressive funds over the next decade.

Benjamin Graham, Warren Buffett’s mentor, described in The Intelligent Investor that allocations should never be less than 25% to stocks, nor more than 75% based on market conditions. Warren Buffet closed Buffett Partnership in 1969 because of valuations:

However, I just don’t see anything available that gives any reasonable hope of delivering such a good year and I have no desire to grope around, hoping to “get lucky” with other people’s money. I am not attuned to this market environment and I don’t want to spoil a decent record by trying to play a game I don’t understand just so I can go out a hero.

Table #5 shows the One Stop Shop Funds from my article last month which use a tactical strategy and have achieved excellent risk adjusted returns with relatively low drawdowns. My objective nearing retirement is to build a low-risk portfolio that is easy to manage. I look for funds where the fund managers do the heavy lifting. “Week” refers to the week ending May 14th when the S&P 500 lost about 1.3%, intermediate treasuries lost about 0.2%, and gold gained 0.6%. This provides some relative insight into how the One Stop Funds might perform during a downturn. COTZX held up relatively well, as did most of the other funds. FMSDX and JABAX will tend to be more volatile. After researching these funds further, I favor adding PRSIX as a lower-risk conservative fund with a tactical strategy, given that I already own FMSDX and COTZX/CTFAX.

Table #5: One Stop Shop Funds Momentum Metrics (Returns as of May 14th)

Source: MFO Premium data and screener

Momentum vs Author’s Ranking System

Key Point: Momentum and the Author’s Ranking System are used to identify both long term buy and hold funds as well as funds for the Tactical Sleeve. My view of the economy and market does not change much from month to month, so I only make small adjustments to my portfolios each month.

I built my Ranking System to consist of Long Term Performance using MFO Composite Ratings and Ferguson Metrics for the Lipper Category, Medium Term Performance over three years using Risk Adjusted Returns (Martin Ratio) and volatility (Downside Deviation), Short Term Performance using three-month trends and investment flows, Snapshot information such valuations and yield, and various momentum estimates. The objective is to identify good funds to buy for the long term that are doing well now. Figure #1 shows sector, value, and international fund performance over the past five years. They have underperformed the S&P 500 which will tend to lower them in the Ranking System.

Figure #1: Sector, Value and International Fund Performance – Five Years

Source: Yahoo Finance

Figure #2 shows these same funds are now outperforming the S&P 500, and momentum will tend to increase them in the Ranking System. These are the types of funds that I look for to own as more tactical investments. They have not performed as well over the past five years, but may be relatively undervalued and starting a trend upwards. The Momentum Indicator consists of a three-month trend combined with the one-month return, money flows, and a combination of algorithms that search for funds that are starting to trend upwards.

Figure #2: Sector, Value, and International Fund Performance – Three Months

Source: Yahoo Finance

Figure #3 contains the funds in my Watchlist displayed as Author’s Ranking System versus Momentum. For Buy and Hold Funds, I generally like for funds to have a Rank above 70 which means they are in the top 30% of the thousand funds that I track. There are nearly 60 funds in the Watchlist which are divided with about twenty funds in each of low, medium, and high categories of Author’s Rank and Momentum as shown along the axis. The funds in bold are the One Shop Stop Funds that I wrote about in the MFO May newsletter. Funds that may be candidates for “Bottom Fishing” are those with low Rank and high Momentum. Vanguard Commodities (VCMDX) has a low Rank mainly because it is the only fund that does not have a three-year history. The matrix may be used to compare similar funds. For example, last year I purchased the three-year-old Vanguard Global Wellington (VGWAX) to gain international exposure as opposed to other international funds. I have also been adding the more conservative Vanguard Global Wellesley (VGYAX). As I have described over the past year, I also own the high Rank, high momentum VictoryShares US EQ Income Enhanced Volatility Wtd ETF (CDC) and Amplify CWP Enhanced Dividend Income ETF (DIVO). As an inflation hedge, I own Fidelity Strategic Real Return Fund (FSRRX) because it is more diversified and less volatile than commodity funds.

Figure #3: Author’s Rank vs Momentum Source: MFO Premium data and screener

Source: MFO Premium data and screener

Funds will move very slowly along the Author’s Rank because they are based mostly on intermediate and long-term metrics. They will move more quickly along the Momentum axis which is based on one month return, three-month trends, money flows, and momentum algorithms. In general, I expect the bulk of my investments to be buy-and-hold mutual funds in the Medium to High Author’s Rank (>70) boxes with Medium Momentum. I look for Tactical Funds among the exchange traded funds in the Medium and High Momentum Categories and consider the Author’s Rank. A storyline needs to be built around why these Tactical Funds should be in a portfolio. As someone who makes few trades per month, I look for funds starting upward trends. For portfolio adjustments in May, I found value stocks, commodities, natural resources, infrastructure funds, international exposure, and real estate of interest.

A higher-level view of the 59 funds in the Watchlist is shown in Table #6.

Table #6: Lipper Category of Funds in Watch list

Source: Author Using Mutual Fund Observer

Table #7 contains my Tactical View of the funds. The first number is my Ranking System. The second number is the Ulcer Index which measures the length and duration of drawdown over the past three years. Author’s Rank favor’s funds that are less risky than the S&P 500 which has an Ulcer Index of 5.2 for the past three years. The third number is Fund Flows which I include as a Sentiment Indicator. The fourth number is a three-month trend and the final number is a three-month return.

In general, long-term buy and mixed asset mutual funds will move around the medium to high rank and low to medium momentum. The bold funds are the One-Stop Shop Funds that I wrote about last month. The exchange-traded funds are mostly the ones that I look at for tactical assets.

Table #7: Author’s Rank and Momentum Metrics of Funds in Watchlist Source: MFO Premium data and screener

Source: MFO Premium data and screener

Table #8: Fund Names in Watchlist

Source: Author

Closing

Over the past year, I have added tactical funds, but it was only last month that I formalized the process. It is important to manage risks. Adding commodities helps protect against the risk of inflation but adds to the risk of drawdowns. To avoid increasing risk in a portfolio, an investor may need to reduce other risky assets. I maintain a diversified sleep at night portfolio with some “Dry Powder” and COTZX/CTFAX, conservative mixed-asset funds (VSCGX, VWIAX), international mixed-asset funds, multi-strategy TMSRX, market neutral ARBIX, multi-asset fund FMSDX, and bonds, and a Tactical Sleeve which contains real estate, real return, commodities, global infrastructure, gold, and value funds.

Best Wishes and Stay Safe!

Northern U.S. Quality ESG Fund (NUESX), June 2021

By David Snowball

Objective and strategy

This Fund seeks to invest in high-quality companies that are industry leaders with regards to their environmental, social, and governance practices. Their investable universe is mid- to large-cap US stocks excluding those companies involved in ESG controversies or those that violate global norms like the United Nations Global Compact. They also remove companies that do a poor job of managing their ESG risks and opportunities relative to their peers.

Having established the investable universe, the managers screen out firms that don’t meet their quality standards, which involves measures of profitability, management efficiency, and cash generation.

Finally, they use a portfolio optimization model to work through how to create the most attractive portfolio, accounting for factors like sector and style tilt, concentration, and so on. The current portfolio holds 185 stocks, about 25% mid-cap and 75% large-cap.

Adviser

Northern Trust Investments, a subsidiary of Northern Trust Corporation. As of December 30, 2020, Northern Trust Corporation, had assets under management of $1.4 trillion. Their fund complex had assets of $220 billion and they are the industry’s 12th largest ETF sponsor.

Manager

Jeffrey Sampson and Peter Zymali.

Jeff Sampson is a Senior Portfolio Manager on the Global Equity Team. He currently co-manages the Northern Income Equity Fund. He joined Northern in 1999, earned an MBA from the University of Chicago, and is an active CFA Charterholder. Mr. Sampson has specialized in working with high-net-worth families, family offices, and institutional investment teams. He manages over 50 portfolios valued in excess of $5 billion.

Peter Zymali is a Senior Portfolio Manager on the Global Equity Team with special expertise in ESG investments. Like Mr. Sampson, he earned his MBA at the University of Chicago. He’s earned the Certified Financial Planner designation. Mr. Zymali helps manage 84 other accounts but no other mutual funds.

Strategy capacity and closure

Effectively unlimited.

Management’s stake in the fund

The fund’s managers have de minimis personal investments in the fund, $1–$10,000 as of the latest Statement of Additional Information. Likewise, none of the fund’s eight trustees have chosen to invest in it.

Opening date

October 2, 2017

Minimum investment

$2,500 for direct purchase “K” shares

Expense ratio

0.39% for direct purchase “K” shares and 0.49% for purchases through third parties, on assets of $393 million (as of 7/18/23).

Comments

Many hundreds of billions, by some estimates tens of trillions, of dollars are being poured into socially responsible investment vehicles.

Nonetheless, there’s a vigorous debate about whether such investments make particular economic sense. Some believe that ESG-screened investments offer better risk-adjusted returns than do their peers; others believe that they tend to cost a bit in total returns without any offsetting risk reductions. Much brave and innocent data has been tortured on both sides.

The most recent research suggests that ESG investments are attractive only because they tend to be associated with higher quality companies, and high-quality companies represent attractive opportunities. Some research does confirm a correlation between ESG factors and the quality factor in investing.

What’s an investor to do? For investors who would prefer not to subsidize the destruction of the only planet they’ve got, finding a socially responsible fund that aligns with their interests makes a lot of practical and moral sense. If the skeptics turn out to be right, your portfolio might lag the broad market by a half percentage point a year which you might see as a perfectly reasonable outcome.

If you want to do better, to tilt the odds in your favor, the research we cited above suggests that you want to pair your intentional ESG focus with an equally intentional quality focus.

That’s where Northern US Quality ESG Fund comes in. Northern takes three actions on your behalf.

  1. They use ESG screens to eliminate one sort of bad actor. While the screens are proprietary and not discussed in great detail, we know that they avoid firms “with a material involvement in controversial business practices, including, but not limited to, tobacco and civilian firearms,” as well as those involved in ESG controversies or those that violate global norms. The result is a universe of good citizens (Apple, Microsoft, Google) but not do-gooders (First Solar, Brookfield Renewable Partners, NextEra Energy) per se.

  2. They use quality screens to eliminate challenged companies and inept managers. Their screens are quantitative: they look for the empirical evidence of good decision-making. That comes in the form of good capital allocation decisions which leads to high returns on equity, on invested capital, and so on.

    By quality measures, Northern has one of the three highest-quality portfolios among all ESG screened funds in their Lipper peer group. We screened for large-cap core funds that are also socially screened, looking at their 3-year performance since that’s approximately the age of the Northern Fund. There are 34.

    Return  on Asset Capital Equity Investment
    Northern US Quality ESG 2nd of 34 4th 3rd 3rd

    As important, only one other fund has landed consistently in the top tier. That is, the other funds with great returns on assets tended to have much lower returns on equity, and vice versa.

    Both Lipper and Morningstar confirm that Northern has a far higher return on equity than its respective peer groups; we can confirm through MFO Premium that the superiority is pretty much across the board.

  1. They use portfolio optimizers to help manage the risk-return trade-offs inherent in juggling hundreds of stocks without blundering into unforeseen sources of risk.

The result has been solid performance with no more than market-like risk.

Comparison of Lifetime Performance (Since 201711)

So Northern returned 2.1% annually more than the average large core fund (both ESG and non-ESG) with comparable volatility, a smaller maximum drawdown, and better risk-return metrics.

Northern US Quality ESG has earned a five-star rating from Morningstar.

Bottom Line

Northern has a broad and enduring commitment to ESG investing, and the resources to do it really well. The combination of quality and ESG factors makes a world of sense. The solid early track record and the fund’s low expenses make it an attractive option for socially responsible investors who are not looking for an “impact” fund (that is, one dedicated to the higher-risk world of do-good actors).

Fund website

Northern US Quality ESG

Funds in Registration

By David Snowball

The Securities and Exchange Commission, by law, gets between 60 and 75 days to review proposed new funds before they can be offered for sale to the public. Each month we survey actively managed funds and ETFs in the pipeline. This month brings 28 new products in the pipeline, most of which will launch in August or September. The recent record, though, is that many authorized products are being withheld from the market; that is, there are funds that advisers could launch but haven’t chosen to. It might be a sign of market anxiety.

Bitcoin mania is in full bloom.

The primary advantage of Bitcoin and its crypto-competitors is simple: it’s a way to hide money from governments. That’s a very good thing if you live in a nation where the government might impose currency controls (so that you can’t move your money out of their control) or where it has a history of seizing assets. Other potential advantages (it offers a stable store of value or can be used to buy stuff) are either unproven or available in less volatile forms.

The primary disadvantages of Bitcoin and its crypto-competitors are simple:

They are wildly volatile. Bitcoin, for example, has had five double-digit corrections in about six months. As we write, bitcoin booked a 42% decline in value over just six weeks, from $65,000 to $38,000.

Their value can be savaged by a single tweet from a single autistic savant. Irritate Elon, lose 20% (When Elon Musk tweets, Crypto prices move, Vox, 5/18/2021).

They required unconscionable amounts of energy to produce. There’s general agreement that bitcoin, both in mining and in transactions, consumes as much electricity as some entire nations (Ireland and Brazil are cited) or millions of American homes.  The estimates vary substantially because different mining rigs differ in efficiency. Still:

Cambridge’s Centre for Alternative Finances estimates that bitcoin’s annualized electricity consumption hovers just above 115 terawatt-hours (TWh) while Digiconomist’s closely tracked index puts it closer to 80 TWh.

A single transaction of bitcoin has the same carbon footprint as 680,000 Visa transactions or 51,210 hours of watching YouTube, according to the site (Electricity needed to mine bitcoin is more than used by ‘entire countries’, The Guardian, 2/27/2021).

They are in competition with every other cryptocurrency and fiat currency, which will inevitably drive the price of most cryptocurrencies to zero. A currency is useful only if someone will accept it, but no vendor will be willing to simultaneously price their goods or services in dozens of highly volatile currencies. How many “highly volatile currencies”? The Investopedia estimates that there are 4,000 cryptocurrencies in circulation.

Naturally, the investment industry is swooning over the opportunity. Despite the lack of SEC approval for such investments, firms are quickly queuing up for the distinction of being the first to relieve you of unneeded and unwanted cash in your investment account. This month’s entrants include:

Bitcoin Strategy ProFund

Bitcoin Strategy ProFund will seek capital appreciation. The plan is to actively manage exposure to Bitcoin futures contracts. No hint about the basis for the “active management.” No word yet on who will manage the fund. Its opening expense ratio has not been disclosed, and the minimum initial investment will vary between $5,000 (for accounts that list a financial professional) and $15,000 for self-directed accounts.

Cboe Vest Bitcoin Target Volatility Strategy Fund

Cboe Vest Bitcoin Target Volatility Strategy Fund will seek total return. The plan is to construct “a dynamic portfolio with the aim of both managing the volatility of the Fund and limiting losses due to severe sustained declines in the market performance of Bitcoin, which it will do through the use of exchange-traded derivative contracts.” The translation is that the portfolio will have more or less exposure to Bitcoin and to stable alternatives such as Treasuries, based on Bitcoin’s volatility. More volatility = less exposure.  The fund will be managed by Karan Sood and Howard Rubin. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $1,000.

First Trust Skybridge Bitcoin Strategy Fund  

First Trust Skybridge Bitcoin Strategy Fund will seek capital appreciation. The plan is to have 100% nominal exposure to Bitcoin primarily through Bitcoin futures contracts, with the remainder of the portfolio invested in bonds. The fund will be managed by Anthony Scaramucci and Brett Messing. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $2,500.

NYDIG Bitcoin Strategy Fund II

NYDIG Bitcoin Strategy Fund II  will seek capital appreciation. The plan is to use Bitcoin futures contracts to maintain 100-125% exposure to Bitcoin, with the remainder of the portfolio invested in bonds. The fund will be managed by [                ], [                ]and [                ] (the “Portfolio Managers”). Its opening expense ratio has not been disclosed, and the minimum initial investment will be $2,500.

We’ll be carefully watching, on your behalf, for crypto-art, non-fungible token, and collectibles funds in the months ahead. You know they’re coming.

As to the rest of the registrants:

  • Most will debut in August or September
  • For the first time in a long time, almost every fund has at least one female team member. That said, it’s hard to guess the sex of [               ] or [               ], who have been introduced as the managers of several new funds.
  • ETF versions of Cambiar Opportunity and FMI Large Cap, both fine funds, are coming online.
  • ESG and, explicitly or implicitly, “disruptive” investments remain greatly in vogue.

Aberdeen Global Equity Impact Fund

Aberdeen Global Equity Impact Fund seeks long-term growth of capital. The plan is to invest in companies that aim to create positive, measurable environmental and/or social impacts. The fund will be managed by Dominic Byrne and Sarah Norris. The initial expense ratio is unknown. The minimum initial purchase is $1000.

Aberdeen International Sustainable Leaders Fund

Aberdeen International Sustainable Leaders Fund seeks long-term growth of capital. The plan is to invest in equity securities of foreign companies that the Adviser deems to have sound and improving prospects and which demonstrate that they are current or emerging sustainable leaders through their management of ESG risks and opportunities. The fund will be managed by Joanna McIntyre, Dominic Byrne, and Ella-Kara Brown. The initial expense ratio is unknown. The minimum initial purchase is $1000.

AltShares Event-Driven ETF

AltShares Event-Driven ETF seeks to achieve capital appreciation over a full market cycle with lower volatility than the broad equity market. They’ll employ a long/short event-driven strategy, which seeks to profit by investing, long and/or short, in the equity and debt securities of companies whose prices are or will be impacted by a publicly announced or anticipated corporate event. The ETF will inherit the assets, and possibly the record (?), of the Water Island Long/Short Fund. It will be managed by Eric Becker and John Orrico. The initial expense ratio is 1.30%.

AAM Bahl & Gaynor Small/Mid Cap Income Growth ETF

AAM Bahl & Gaynor Small/Mid Cap Income Growth ETF, an actively-managed ETF, seeks high current dividend income. The plan is to factor in a company’s historical earnings and dividends growth, as well as its balance sheet and cash flow generation, competitive position, and prospects for future cash flow and dividend growth.  The fund will be managed by Scott D. Rodes and Robert S. Groenke . Its opening expense ratio is unknown.

BlackRock Sustainable High Yield Bond Fund

BlackRock Sustainable High Yield Bond Fund will seek – okay, I’m going to quote at painful length here – “to maximize total return, consistent with income generation and prudent investment management, and to seek to maintain certain environmental, governance and social characteristics, climate risk exposure and climate opportunities relative to the Fund’s benchmark.” So, the plan is to do all that stuff with non-investment grade bonds with maturities of ten years or less. The fund will be managed by David Delbos, Mitchell Garfin, and Ashley Schulten. Its minimum initial investment will be $1,000.

BNY Mellon Responsible Horizons Corporate Bond ETF

BNY Mellon Responsible Horizons Corporate Bond ETF, an actively-managed ETF, seeks a total return consisting of capital appreciation and income. The plan is to buy investment-grade corporate bonds issued by companies that demonstrate attractive investment attributes and attractive business practices based on an ESG evaluation. There’s no duration target. The fund will be managed by Erin Spalsbury and Scott Ruesterholz. Its opening expense ratio has not been disclosed.

BNY Mellon Ultra Short Income ETF

BNY Mellon Ultra Short Income ETF, an actively-managed ETF, seeks high current income consistent with the maintenance of liquidity and low volatility of principal. The plan is to buy investment grade, U.S. dollar-denominated fixed, variable, and floating rate debt or cash equivalents. The typical duration is one year or less. The fund will be managed by [_____] and [______].  (sigh) Its opening expense ratio is unknown.

Cambiar Large Cap ETF

Cambiar Large Cap ETF, an actively managed ETF, seeks total return and capital preservation. The plan is to look among large cap stocks for the usual suspects: quality, value, a catalyst, and the prospect of seeing some gain within the next 1-2 years. It sounds a lot like an ETF version of the firm’s four-star Opportunity Fund (CAMOX). The fund will be managed by a team led by Brian Barish. Its opening expense ratio has not been disclosed. The same prospectus lists small cap and SMID cap versions of the same strategy with the same team.

Discipline Fund ETF

Discipline Fund ETF seeks long-term growth of capital. It’s an ETF-of-ETFs whose neutral position is 50% equity/50% income, though the managers can push either of those allocations from 30-70%. The fund is managed by Cullen Roche, the Pragmatic Capitalist guy. The opening expense ratio is 0.39%.

First Trust Limited Duration Investment Grade Corporate ETF

First Trust Limited Duration Investment Grade Corporate ETF, an actively-managed ETF, seeks current income. The plan is to buy investment-grade corporate debt, with the usual hoo-hah about rigorous top-down and bottom-up analysis. The portfolio duration will linger within one year of its benchmark index. The fund will be managed by a First Trust team. Its opening expense ratio has not been disclosed.

FMI Large Cap ETF

FMI Large Cap ETF, an actively-managed ETF, seeks long-term capital appreciation. The plan is to invest in US large caps and international firms that trade as ADRs. The managers look for a strong, defendable market niche, A high degree of relative recurring revenue, modestly priced products or services, attractive return-on-investment economics, and above-average growth or improving profitability prospects. The fund will be managed by a team of a dozen FMI managers. The mutual fund version of the strategy has a “Gold” rating from Morningstar and has earned a “Great Owl” designation from MFO. Its opening expense ratio is unknown.

Formidable Fortress ETF

Formidable Fortress ETF, an actively managed ETF, seeks long-term capital appreciation. The plan is to invest in mid- to large-cap stocks that have at least one of relatively low debt, relatively low beta, rising dividends, or relatively high quality. And then the managers get to add leverage, up or down. The fund will be managed by a team headed by Michael Venuto. Its opening expense ratio is 0.89%.

Harbor Scientific Alpha High-Yield ETF

Harbor Scientific Alpha High-Yield ETF, an actively managed ETF, seeks total return. The plan is to buy high-yield bonds based on the same multiple sources / economic intuition / rigorous backtesting that’s highlighted in its Income sibling. There is no target duration in the portfolio. .” The fund will be managed by a team from BlueCove Limited. The BlueCove folks are all BlackRock alumni. Its opening expense ratio is 0.48%.

Harbor Scientific Alpha Income ETF

Harbor Scientific Alpha Income ETF, an actively managed ETF, seeks total return. The plan is to buy bonds and fixed-income derivatives based on “proprietary insights based on economic intuition to form an investment hypothesis. This hypothesis is backtested to assess its validity over time, in particular with respect to returns in relation to the wider market. Insights are tested, scaled, and weighted based on their deemed strength in predicting returns, as determined by the Subadviser.  The Subadviser expects that the majority of the Fund’s total returns will be generated from coupon income and from asset allocation decisions.” The fund will be managed by a team from BlueCove Limited. The BlueCove folks are all BlackRock alumni. Its opening expense ratio is 0.50%.

Hartford Schroders ESG US Equity ETF

Hartford Schroders ESG US Equity ETF, an actively managed ETF, seeks long-term capital appreciation. The plan is to achieve a better ESG profile compared to its benchmark while still factoring value, profitability, momentum, and low volatility into their investing decisions. The fund will be managed by Ashley Lester and Ben Corris. Its opening expense ratio has not been disclosed.

Main International ETF

Main International ETF, an actively managed ETF, seeks above-benchmark returns with below-benchmark risk. The plan is to buy other ETFs in order to gain exposure to sectors or countries on the cusp of transformative change. The fund will be managed by Kim D. Arthur, James W. Concidine, and J. Richard Fredericks. Its opening expense ratio is unknown.

Metropolitan West ESG Securitized Fund

Metropolitan West ESG Securitized Fund will seek to maximize current income and achieve above-average long-term total return. The plan is to buy asset-backed bonds which pass one or more of its positive-screening ESG criteria to support sustainable initiatives. The fund will be managed by Mitch Flack, Stephen M. Kane, Elizabeth (Liza) Crawford, and Harrison Choi. Its opening expense ratio is unknown, and the minimum initial investment will be $5,000, reduced to $1,000 for retirement accounts.

Metropolitan West Opportunistic High Income Credit Fund

Metropolitan West Opportunistic High Income Credit Fund will seek maximum total returns through a combination of current income and capital appreciation. The plan is to pursue global investment opportunities related to income-generating credit securities, including distressed and defaulted securities. The fund will be managed by Tad Rivelle (the famous guy), Steven J. Purdy, Harrison Choi, and Brian Gelfand. Its opening expense ratio is unknown, and the minimum initial investment will be $5,000, reduced to $1,000 for retirement accounts.

PIMCO Municipal Income Opportunities Active ETF

PIMCO Municipal Income Opportunities Active Exchange-Traded Fund, an actively-managed ETF, seeks current income exempt from federal income tax and long-term capital appreciation. The plan is to buy muni bonds with a portfolio duration within two years of its benchmark. Up to 30% of the portfolio might be invested in high yield munis. The fund will be managed by David Hammer, Rachel Betton, and Kyle Christine. Its opening expense ratio has not been disclosed.

Spear Alpha ETF

Spear Alpha ETF, an actively managed ETF, seeks long-term capital growth. The plan is to look for companies that are poised to benefit from breakthrough innovation in industrial technology, then decide whether their stock is worth buying. The breakthrough areas are the predictable ones. The fund will be managed by Ivana Delevska, who has about 14 years of experience as an equity analyst and research director. Its opening expense ratio is unknown.

The Future Fund Active ETF

The Future Fund Active ETF, an actively managed ETF, seeks capital appreciation. The plan is to invest in US-listed mid- and large-cap stocks of the firms best positioned to take advantage of emerging technological or social developments. The fund will be managed by Gary Black and David Kalis. Mr. Black has had a long and headline-making career, including stints at Aegon, Calamos, and Janus. Its opening expense ratio is 1.00%.

Virtus Duff & Phelps Clean Energy ETF

Virtus Duff & Phelps Clean Energy ETF, an actively managed ETF, seeks capital appreciation. The plan is to create a global equity portfolio of clean energy firms. The fund will be managed by Benjamin Bielawski and Eric Fogarty. Its opening expense ratio is unknown.

Virtus KAR Small-Mid Cap Value Fund

Virtus KAR Small-Mid Cap Value Fund will seek long-term capital appreciation. The plan is to invest in 25-35 small and mid-market capitalization companies which are undervalued relative to their future growth potential. The fund will be managed by Julie Kutasov and Craig Stone. Its opening expense ratio is unknown, and the minimum initial investment will be $2,500.

Wonderfund ZEROFEE Systematic All Weather Fund

Wonderfund ZEROFEE Systematic All Weather Fund will seek positive absolute returns. The plan is to invest in U.S. and international, including emerging markets, commodity, and financial futures, and foreign currency markets. The Fund seeks investment opportunities across many market sectors, including currencies, interest rates, bonds, stock indices, metals, energy, and agricultural sectors. The Fund will typically have exposure to long and short positions across all four major asset classes (commodities, currencies, fixed income, and equities). The fund will be managed by Dr. Gerhard Entzmann. Its opening expense ratio is zero, and the minimum initial investment will be $10,000. It’s almost a service to investors that the minimum subsequent purchase, $5000, is so high.

 

Manager changes, May 2021

By Chip

Each month we track changes to the management teams of actively managed, equity-oriented funds and ETFs. That excludes index funds and most fixed income funds. The index fund exclusion is pretty straightforward: in a passive fund, the managers are interchangeable cogs whose presence or absence is almost always inconsequential to the fund’s performance.

Similarly, most bond fund managers have a very limited ability to add value. Over the past 10 years, for instance, the top performing Core Bond fund in the Lipper universe outperformed its peers by just 1% per year with a virtually identical Sharpe ratio (0.98 for the top returning fund, 0.97 for the average fund). The best global income and flexible income managers outperformed by 3.5 and 2.4%, respectively, which is comparable to the margin between the best large-core equity fund managers and the pack.

This month, over 50 funds saw changes in their management teams.

Ticker Fund Out with the old In with the new Dt
AABPX American Beacon Balanced Mark Michel will no longer be listed as a portfolio manager for the fund. The rest of the management team remains. 5/21
AAIEX American Beacon International Equity Mark Michel will no longer be listed as a portfolio manager for the fund. The rest of the management team remains. 5/21
AALRX American Beacon Large Cap Value Mark Michel will no longer be listed as a portfolio manager for the fund. The rest of the management team remains. 5/21
MMCFX AMG Veritas China The nine manager team will no longer serve as a portfolio managers for the fund. Ezra Sun will now manage the fund. 5/21
MFQTX AMG Veritas Global Focus Fund Jia Ye and David Chrisman are no longer listed as portfolio managers for the fund. Andrew Headley and Mike Moore will now manage the fund. 5/21
ADJEX Azzad Ethical Effective as of April 30, 2021, Delaware Investments Fund Advisers  replaced Ivy Investment Management Company as sub-adviser to the fund. Kimberly Scott and Nathan Brown now manage the fund. 5/21
BDMKX BlackRock Global Long/Short Credit No one, but… David Taerstein joins Joshua Tarnow, Jose Aquilar, Stephen Gough, and Carly Wilson in managing the fund. 5/21
BUYIX Catalyst Buyback Strategy Michael Schoonover and Charles Ashley are no longer listed as portfolio managers for the fund. Christopher Chiu, George Tkaczuk, and Timothy Webb will now manage the fund. 5/21
CFHIX Catalyst Hedged Commodity Strategy Kimberly Rios is no longer listed as a portfolio manager for the fund. David Miller will now manage the fund. 5/21
QAGIX CCM Core Impact Equity (formerly Quaker Impact Growth Fund) Andrew Cowen will no longer serve as a portfolio manager for the fund. Thomas Lott, Andy Kaufman, and Alex Alario will continue to manage the fund. 5/21
QUSVX CCM Small/Mid-Cap Impact Value Fund (formerly Quaker Small/Mid-Cap Impact Value Fund) Andrew Cowen will no longer serve as a portfolio manager for the fund. Thomas Lott, Andy Kaufman, and Alex Alario will continue to manage the fund. 5/21
AUSAX Columbia Acorn USA Fund Matthew Litfin will no longer serve as a portfolio manager for the fund. Erika Maschmeyer and John Emerson will now manage the fund. 5/21
EDIRX Eaton Vance Global Income Builder Effective July 1, 2021, Lewis Piantedosi and Michael Allison will not be listed as portfolio managers of the fund. Derek DiGregorio will join Christopher Dyer, John Croft, and Jeffrey Mueller on the management team. 5/21
EALCX Eaton Vance Growth Effective July 1, 2021, Yana Barton will no longer serve as portfolio manager for the fund. Effective July 1, 2021 Douglas Rogers will join Lewis Piantedosi in managing the fund. 5/21
ETTGX Eaton Vance Tax-Managed Growth Fund 1.1 Effective July 1, 2021, Lewis Piantedosi and Michael Allison will not be listed as portfolio managers of the fund. Effective July 1, 2021, Kenneth Zinner will join Yana Barton in managing the fund. 5/21
EXTGX Eaton Vance Tax-Managed Growth Fund 1.2 Effective July 1, 2021, Lewis Piantedosi and Michael Allison will not be listed as portfolio managers of the fund. Effective July 1, 2021, Kenneth Zinner will join Yana Barton in managing the fund. 5/21
FHKCX Fidelity China Region Stephen Lieu will transition off of the fund effective on or about August 1, 2021. Ivan Xie and Peifang Sun continue to serve as portfolio managers for the fund. 5/21
FPBFX Fidelity Pacific Basin Bruce MacDonald has announce that he will retire on or about December 31, 2021. Kirk Neureiter and Stephen Lieu continue to manage for the fund. 5/21
AFLG First Trust Active Factor Large Cap ETF No one, but… Chris Bush joins Daniel Lindquist, Jon Erickson, David McGarel, Roger Testin, Stan Ueland, and Chris Peterson in managing the fund. 5/21
AFMC First Trust Active Factor Mid Cap ETF No one, but… Chris Bush joins Daniel Lindquist, Jon Erickson, David McGarel, Roger Testin, Stan Ueland, and Chris Peterson in managing the fund. 5/21
AFSM First Trust Active Factor Small Cap ETF No one, but… Chris Bush joins Daniel Lindquist, Jon Erickson, David McGarel, Roger Testin, Stan Ueland, and Chris Peterson in managing the fund. 5/21
GIPTX Goldman Sachs Balanced Strategy Christopher Lvoff will no longer serve as a portfolio manager for the fund. Siwen Wu joins Neil Nuttall as portfolio manager for the fund. 5/21
GAPTX Goldman Sachs Dynamic Global Equity Christopher Lvoff will no longer serve as a portfolio manager for the fund. Siwen Wu joins Neil Nuttall as portfolio manager for the fund. 5/21
GPITX Goldman Sachs Growth and Income Strategy Christopher Lvoff will no longer serve as a portfolio manager for the fund. Siwen Wu joins Neil Nuttall as portfolio manager for the fund. 5/21
GGSTX Goldman Sachs Growth Strategy Christopher Lvoff will no longer serve as a portfolio manager for the fund. Siwen Wu joins Neil Nuttall as portfolio manager for the fund. 5/21
GKIRX Goldman Sachs Income Builder Christopher Lvoff will no longer serve as a portfolio manager for the fund. Neil Nuttall joins Ashish Shah, Charles Dane, Collin Bell, and Ronald Arons in managing the fund. 5/21
GSRIX Goldman Sachs Rising Dividend Growth Christopher Lvoff will no longer serve as a portfolio manager for the fund. Siwen Wu joins Aron Kershner, Monalie Vora, and Kyri Loupis as a portfolio manager. 5/21
GXSTX Goldman Sachs Satellite Strategies Portfolio Christopher Lvoff will no longer serve as a portfolio manager for the fund. Siwen Wu joins Neil Nuttall as portfolio manager for the fund. 5/21
HIMGX Harbor Mid Cap Growth Stephen Mortimer and Mario Abularach will no longer serve as portfolio managers for the fund. Patrick Corcoran, Kristof Gleich, and Spenser Lerner will now manage the fund. 5/21
various Harbor Target Retirement Income Fund, Harbor Target Retirement 2020 Fund, Harbor Target Retirement 2025 Fund, Harbor Target Retirement 2030 Fund, Harbor Target Retirement 2035 Fund, Harbor Target Retirement 2040 Fund, Harbor Target Retirement 2045 Fund, Harbor Target Retirement 2050 Fund, Harbor Target Retirement 2055 Fund and Harbor Target Retirement 2060 Fund Matthew Pallai is no longer listed as a portfolio manager. Spenser Lerner joins Paul Herbert in managing  the fund. 5/21
RMRGX Highland Resolute Parametric Portfolio Associates LLC no longer serves as an investment sub-adviser to the fund. Jason Copeland and Matthew Sampson will continue to manage the fund. 5/21
JNVIX Jensen Quality Value Jorge Rivas will no longer serve as a portfolio manager for the fund. Tyra Pratt, Adam Calamar, Eric Schoenstein, and Kurt Havnaer will continue managing the fund. 5/21
JIVAX JPMorgan Intrepid Value Jason Alonzo is no longer listed as a portfolio manager for the fund. Wonseok Choi, Andrew Stern, and Jonathan Tse continue as portfolio managers for the fund. 5/21
JIGAX JPMorgan U.S. GARP Equity Jason Alonzo is no longer listed as a portfolio manager for the fund. Wonseok Choi, Andrew Stern, and Jonathan Tse continue as portfolio managers for the fund. 5/21
JIIGX JPMorgan U.S. Sustainable Leaders Jason Alonzo is no longer listed as a portfolio manager for the fund. Wonseok Choi, Andrew Stern, and Jonathan Tse continue as portfolio managers for the fund. 5/21
LAFPX Lord Abbett Affiliated No one, but… Ryan Howard joins Marc Pavese, Darnell Azeez, and Servesh Tiwari in managing the fund. 5/21
LAMAX Lord Abbett Dividend Growth No one, but… Subrata Ghose joins Marc Pavese, Darnell Azeez, Servesh Tiwari, and Jeffrey Rabinowitz in managing the fund. 5/21
LMGAX Lord Abbett Growth Opportunities No one, but… Heidi Lawrence and James Sullivan join Jeffrey Rabinowitz as portfolio managers of the fund. 5/21
LHCAX Lord Abbett Health Care No one, but… Samantha Shevins and Heidi Lawrence join Matthew DeCicco and Devesh Karandikar as portfolio managers of the fund. 5/21
BBALX Northern Global Tactical Asset Allocation Effective June 1, 2021, Daniel Phillips will no longer be listed as portfolio manager after a decade with the fund. Robert Browne and James McDonald continue to manage the fund. 5/21
OAYMX Oakmark Fund Effective December 31, 2021, Kevin Grant will be retiring and no longer listed as portfolio manager for the fund. After Mr. Grant’s retirement, William Nygren and Michael Nicolas will continue as portfolio managers of the Fund. 5/21
PDRDX Principal Diversified Select Real Asset No one, but… May Tong joins Kelly Grossman, Jessica Bush, Marcus Dummer, and Benjamin Rotenberg in managing for the fund. 5/21
PGBLX Principal Global Diversified Income No one, but… May Tong joins Kelly Grossman, Jessica Bush, Marcus Dummer, and Benjamin Rotenberg in managing the fund. 5/21
PGIAX Putnam Focused Equity Fund Daniel Schiff is no longer listed as portfolio manager for the fund. Josh Fillman joins Jacquelyne Cavanaugh and Walter Scully as portfolio manager for the fund. 5/21
TAARX Transamerica Asset Allocation Intermediate Horizon Sean Serrell no longer serves as a portfolio manager for the fund. Rufat Garalov joins Kane St. John Cotton and Christopher Staples as a portfolio manager. 5/21
TALRX Transamerica Asset Allocation Long Horizon Sean Serrell no longer serves as a portfolio manager for the fund. Rufat Garalov joins Kane St. John Cotton and Christopher Staples as a portfolio manager. 5/21
TSHRX Transamerica Asset Allocation Short Horizon Sean Serrell no longer serves as a portfolio manager for the fund. Rufat Garalov joins Kane St. John Cotton and Christopher Staples as a portfolio manager. 5/21
VHGEX Vanguard Global Equity Charles Plowden is no longer listed as a portfolio manager for the fund. William Arah, Neil Ostrer, Spencer Adair, and Malcolm MacColl continue to serve as portfolio managers of the fund. 5/21
VMNFX Vanguard Market Neutral James Stetler will retire in July 2021 and will no longer serve as a portfolio manager for the fund. Binbin Guo and Cesar Orosco will continue to manager for the fund after James Stetler’s retirement. 5/21
WEIZX Weiss Alternative Multi-Strategy (formerly Weiss Alternative Balanced Risk Fund) Charles Crow is no longer listed as a portfolio manager for the fund. Jordi Visser and Edward Olanow continue to serve as portfolio managers for the fund. 5/21

 

Briefly Noted

By David Snowball

Updates

The fund-to-ETF train appears to be leaving the station.

On May 7, 2021, the Adaptive Growth Opportunities Fund became the Adaptive Growth Opportunities ETF.

At some time in the third quarter of 2021, Water Island Long/Short Fund will become the AltShares Event-Driven ETF. That’s a more convoluted change since the fund will change both its legal structure and its investment strategies. The only logic for jumping through the hoops rather than simply launching the ETF is the desire to keep control of the fund’s four-star rating and “Gold” status at Morningstar. Oddly, Water Island already has an event-driven fund that seems unaffected by this change.

Effective May 11, 2021, ClearShares Piton Intermediate Fixed Income ETF renounces its dalliance with the ticker symbol BTC. The fund was “PIFI” until April 15, when it left the dull, steady, and sensible ticker behind to hook up with BTC. But now, after just less than a month-long fling, the fund has returned to PIFI. Lesson learned, we hope.

SMALL WINS FOR INVESTORS

Hmmmm … bunches of funds continue to nibble away at their expense ratios, and several really solid funds are launching ETF versions. De facto, that eliminates the burden of meeting minimum initial expense requirements and offers at least the prospect of lower fees and higher tax efficiency.

CLOSINGS (and related inconveniences)

Effective as of the close of business on May 28, 2021, the Grandeur Peak Emerging Markets Opportunities Fund no longer accepts purchases from new or existing investors

Effective as of May 28, 2021, the Grandeur Peak Global Reach Fund closed to new investors seeking to purchase shares of the Fund through third-party intermediaries.

On Tuesday, June 1, 2021, Harbor Small Cap Value Fund will be closed to new investors. 

Effective June 18, 2021, Retail and Institutional Class Shares of the RiverPark Short Term High Yield Fund will be closed to new investors.

Effective as of June 18, 2021, the WCM International Small Cap Growth Fund will be soft-closed.

OLD WINE, NEW BOTTLES

Barings is attempting to sell their fund business to MassMutual. If the agreement goes through, six Barings funds will become MassMutual ones.

No assurance can be given that the reorganizations will occur. None of the proposed

Vanishing Fund Acquiring Fund
Barings Active Short Duration Bond MassMutual Short-Duration Bond
Barings U.S. High Yield MassMutual High Yield
Barings Global Floating Rate MassMutual Global Floating Rate
Barings Global Credit Income Opportunities MassMutual Global Credit Income Opportunities
Barings Emerging Markets Debt Blended Total Return MassMutual Emerging Markets Debt Blended Total Return
Barings Global Emerging Markets Equity MassMutual Global Emerging Markets Equity

On or about July 1, 2021, ClearBridge All Cap Growth ETF becomes ClearBridge All Cap Growth ESG ETF, and ClearBridge Focus Value ETF becomes ClearBridge Focus Value ESG ETF. ‘cause ESG.

Effective October 23, 2021, Fidelity Select Consumer Finance Fund will change its name to Fidelity Select FinTech.

On November 13, 2021, Fidelity Select Information Technology Sector becomes the Fidelity Select Tech Hardware Portfolio.

Effective May 28, 2021, Global Tactical Fund (GIVYX) became the Greenwich Ivy Long-Short Fund.

Effective on or about September 1, 2021, Harbor Mid Cap Growth Fund becomes the Harbor Disruptive Innovation Fund because if you aren’t going to be ESG, you wanna be disruptive. Nominally an all-cap portfolio, it will be benchmarked against the S&P 500. Wellington is out as manager, and some combination of NZS Capital, LLC, Sands Capital Management, LLC, Tekne Capital Management, LLC, and Westfield Capital Management Company, L.P are in. The adviser warns investors of impending turnover and the consequent tax bill.

Effective on or about July 30, 2021, A bunch of James Alpha funds become Easterly funds.

Current Fund Name New Fund Name
James Alpha Global Real Estate Investments Easterly Global Real Estate Investments
James Alpha Hedged High Income Easterly Hedged High Income
James Alpha Macro Easterly Global Macro
James Alpha Managed Risk Domestic Equity Easterly Hedged Equity
James Alpha Managed Risk Emerging Markets Equity Easterly Managed Risk Emerging Markets Equity
James Alpha Multi Strategy Alternative Income Easterly Multi Strategy Alternative Income
James Alpha Total Hedge Portfolio Easterly Total Hedge Portfolio
James Alpha EHS Easterly EHS
James Alpha Event Driven Easterly Event Driven
James Alpha Family Office Easterly Family Office
James Alpha Relative Value Easterly Relative Value
James Alpha Structured Credit Value Easterly Structured Credit Value

Pending the inevitable shareholder approval on June 29, 2021, two Macquarie funds will merge into Delaware funds.

Acquired Fund Acquiring Fund
Macquarie Core Plus Bond Portfolio Delaware Diversified Income
Macquarie High Yield Bond Portfolio Delaware High-Yield Opportunities Fund

We found a new category of fund changes: Repurposing. As in Touchstone Ohio Tax-Free Bond Fund is going to be repurposed as Touchstone Core Municipal Bond Fund.

Finally, on May 20, 2021, WisdomTree 90/60 US Balanced Fund become Wisdom Tree US Efficient Core Fund … presumably because no one had the slightest clue about what the phrase “90/60 US Balanced” meant.

OFF TO THE DUSTBIN OF HISTORY

On August 31, 2021, something will happen to the Aberdeen Total Return Bond Fund. The adviser “will no longer offer the investment strategy pursued by the Fund.” And so shareholders will have the choice either to liquidate the fund outright or to merge it into Aberdeen Global Absolute Return Strategies Fund. Either way, the original’s a deadster.

BMO Global Low Volatility Equity Fund will be liquidated on July 30, 2021.

On or about July 19, 2021, BNY Mellon Japan Womenomics Fund will be liquidated.

On November 5, 2021.BNY Mellon Structured Midcap Fund will disappear into BNY Mellon Small/Mid Cap Growth Fund.

Bridgeway Small Cap Growth Fund is merging into Bridgeway Small Cap Value Fund, “on or around the end of the third quarter of 2021.”

On July 2, 2021, four Delaware funds will be absorbed by their siblings. (Ick.)

Acquired Funds Acquiring Funds
Delaware International Fund Delaware International Value Equity Fund
Delaware Investment Grade Fund Delaware Corporate Bond Fund
Delaware Special Situations Fund Delaware Small Cap Value Fund
Delaware Fund for Income Delaware High-Yield Opportunities Fund

Fidelity Advisor Communications Equipment Fund will be liquidated on or about August 6, 2021. That’s likely part of the larger shuffle below.

On November 12, 2021, Fidelity Select Communications Equipment Portfolio will merge into Fidelity Select Computers Portfolio.

On November 19, 2021, Fidelity will merge Fidelity Select Energy Service Portfolio (which is tied to the fate of the oil path) and Fidelity Select Natural Gas into Fidelity Select Energy. Also, the Air Transportation Portfolio is transported into the Transportation Portfolio. 

Horizon Advisers agreed to sell “certain investment management-related assets” to Federated Hermes. On September 24, 2021, eight funds are merged away while one, the last one on the list, lives on under a new name:

Hasta la vista … Acquiring Fund
Hancock Horizon Burkenroad Small Cap Federated Hermes MDT Small Cap Core
Hancock Horizon Diversified Income Federated Hermes Capital Income
Hancock Horizon Diversified International Federated Hermes International Leaders
Hancock Horizon Dynamic Asset Allocation Federated Hermes Global Allocation
Hancock Horizon International Small Cap Federated Hermes International Small-Mid Company
Hancock Horizon Louisiana Tax-Free Income Federated Hermes Municipal Bond
Hancock Horizon Microcap Federated Hermes MDT Small Cap Core
Hancock Horizon Mississippi Tax-Free Income Federated Hermes Municipal Bond
Hancock Horizon Quantitative Long/Short Federated Hermes MDT Market Neutral, a new series of Federated Hermes Adviser Series

Harbor Funds’ Board of Trustees has determined to liquidate and dissolve Harbor Robeco Emerging Markets Active Equities Fund, Harbor Robeco Emerging Markets Conservative Equities Fund, Harbor Robeco Global Conservative Equities Fund, Harbor Robeco International Conservative Equities Fund, and Harbor Robeco US Conservative Equities Fund on June 15, 2021. The funds all launched in December 2019, seemed to be sensible ideas, and were sensibly structured, which earned Morningstar medalist ratings for them. Sadly, they either were not marketed well or were not marketable.

The $2 billion ICM Small Company fund is being merged into the $52 million William Blair Small Cap Value Fund. Ummm … quite beyond “minnow swallowing the whale,” the long-term performance difference between the funds is substantial. $10,000 invested in ICM in 1996 is now worth $132,000. The same money in William Blair would have grown to $91,000.

In one of history’s odder executions, MFS Tennessee Municipal Bond Fund, which launched in August 1988 is slated to be merged into the brand new MFS Municipal Intermediate Fund (launched 5/18/2021) in September 2021. Their entirely reasonable explanation:

MFS believes that the proposed reorganization is in the best interest of the shareholders of both funds. The Tennessee Municipal Bond Fund shareholders no longer realize additional tax benefits from investments in obligations of the State of Tennessee or political subdivisions thereof in light of Tennessee’s recent elimination of a tax on interest and dividend income effective January 1, 2021. Shareholders of the MFS Tennessee Municipal Bond Fund will participate in a fund with substantially similar investment objectives, investment policies and strategies, a lower management fee, a more favorable expense limitation for shareholders, and lower net expense ratios.

The Board of Trustees of the Fund has approved the liquidation and dissolution of the RBC Emerging Markets Small Cap Equity Fund on or about July 23, 2021.

Rational Trend Aggregation VA Fund will be liquidated on July 30, 2021.

On June 21, 2021, the Selective Opportunity Fund (SLCTX) will become a lot less selective. Also, a lot less of a fund, being liquidated and all.

At the close of business on May 21, 2021, Stone Harbor Investment Grade Fund was liquidated.

The Thornburg Long/Short Equity Fund will be liquidated on or around June 25, 2021.

Wells Fargo Diversified Equity Fund will be absorbed by Wells Fargo Spectrum Aggressive Growth Fund sometime in September 2020.