Monthly Archives: July 2021

July 1, 2021

By David Snowball

Welcome to July, dear friends.

It’s summertime, an especially blessed and cursed interval for those of us who teach. On the one hand, we’re mostly freed from the day-to-day obligation to be in the classroom. Some of us write, some travel, some joke about “going topless at the beach” which translates to leaving their masks at home, some undertake “such other duties as may from time to time be assigned” by our colleges. On the other hand, we hear the clock ticking. All year long, as we try to face down a stack of 32 variably literate essays at 11 p.m. Sunday night, we think “if I can just make it to summer, I’ll recharge and it’ll be great!” About the first thing we notice when summer does arrive, is that summer is almost spent and we’re already receiving anguished pleas from students who gotta gotta gotta get into fall courses that (a) are already overfilled and (b) I don’t want to think about.  Just yet.

And so, I’ll think about the errant silliness of supposed adults instead!

Investors are being fools. It’s a good time for it.

Want a snapshot of foolishness: someone has made, and intends to auction, a non-fungible token made from his own … uh, fecal matter. It’s unlikely to top the $69 million on a Beeple NFT (nope, no idea either) back in March, but it might certainly go for millions.

Of course, they’ve been assisted in their foolishness. FINRA announced its largest ever financial penalty, around $70 million, levied against Robinhood. FINRA found in its investigation that,

despite Robinhood’s self-described mission to “de-mystify finance for all,” during certain periods since September 2016, the firm has negligently communicated false and misleading information to its customers. The false and misleading information concerned a variety of critical issues, including whether customers could place trades on margin, how much cash was in customers’ accounts, how much buying power or “negative buying power” customers had, the risk of loss customers faced in certain options transactions, and whether customers faced margin calls.

Additionally, between January 2018 and December 2020, Robinhood failed to report to FINRA tens of thousands of written customer complaints that it was required to report.

None of which seems likely to faze the company. Assets under custody (basically, the size of its users’ accounts) grew from $19 billion in March 2020 to $80 billion in March 2021. The number of live user accounts grew from 7.2 million to 18 million and the firm is preparing to offer an IPO. They estimate their own value at $40 billion.

Against the backdrop of last year’s frenzy, a 2021 Natixis survey of relatively sophisticated investors shows that American investors now expect 17.5% annualized real returns on stock investments.

Nonetheless, if you’re going to be a fool, this is about as good a time as any.

Investors have a larger-than-average cash cushion.

We love spending our money, often bucketloads at a time. For better and worse, the Covid pandemic slammed the brakes on many types of consumer spending. In consequence, people left money pile up in the bank.

Since the onset of the coronavirus outbreak, bank deposits of households and companies across the world have swelled to levels never seen before. This situation stands in stark contrast to the similarly pronounced global financial crisis (GFC) between 2007 and 2009 when deposit levels at banks declined amidst a debilitating global credit crunch. But today, as the pandemic continues to shutter businesses and restrict households, deposits at banks continue to balloon—and perhaps most concerning of all is that this expansion shows no signs of slowing down.

“Any way you look at it, this growth has been absolutely extraordinary,” Brian Foran, an analyst at Autonomous Research, told CNBC last July. “Banks are flooded with cash; they’re like Scrooge McDuck swimming in money.” But if deposits had reached unprecedented levels back then, it has only become even more concerning since then.

According to the Quarterly Banking Profile (QBP), which provides a comprehensive summary of financial results for all US institutions insured by the Federal Deposit Insurance Corporation, deposits grew by $635.2 billion during the first quarter of 2021 to reach a whopping $18.5 trillion. This is 3.6 percent higher than last year’s fourth quarter and thus underlines the startling pace at which deposits have grown over the last few quarters. (Joseph Moss, International Banker, 6/28/2021).

A quick check of Fed data (6/30/2021) shows an enormous spike in personal savings as a percentage of our income.

Many people have enough surplus cash that losing a chunk of it won’t be devastating. (And many of the folks living paycheck-to-paycheck have marginal exposure to the stock market.) Merryn Somerset, writing in the Financial Times, wryly notes that this surplus might inconvenience any number of marketing departments:

The upshot of this is that one of the industry’s main marketing strategies has to be the constant release of the kind of statistics that keep you in a state of perpetual anxiety about whether you have or have not saved enough. (“Time for an investment step change,” FT.com, 6/10/2021)

The most speculative investments are correcting.

James Mackintosh, writing in the Wall Street Journal, notes that we might have passed peak silliness for a number of … investment-like objects. He illustrates the possibility with this graphic.

The most speculative sectors don’t threaten the larger markets, at least not in the way that the bursting of the dot.com bubble in 2000 did.  James Mackintosh, writing in the Wall Street Journal, reflects on the fact that the price of … oh, marijuana or marijuana stocks really doesn’t mean all that much to us.

But the plunge of share prices in clean energy, electric cars, and cannabis, and even the halving of bitcoin, puts much less of a dent in the wallets of consumers than the dot-com bust did because the bubble is less widespread. Nasdaq’s bubble gave it a value of about half that of the S&P at its 2000 peak, while even with Tesla, the frothy sectors of the past nine months are a fraction of that.

The boom-bust parts of the market also raised and spent less money than the dot-coms, and employ fewer people. If businesses fail as shares deflate they are likely to have less economic impact. Fewer large companies are investing in an imaginary “new economy,” and where they are investing, as with the shift to electric cars, they will probably continue for other reasons, even as shareholders pull back.  (“Tesla and Other Bubble Stocks Have Deflated Just Like 2000,” WSJ.com, 6/17/2021)

At the same time that investors are pouring money into equities (US equity funds recorded $189 billion in inflows since February), they’re also buying record numbers of hedges in the options market.

the Skew index — which measures the difference between the cost of derivatives that protect against big market drops on one side, and the right to benefit from a rally on the other — has hit record heights. The Skew gauge rises when fear outpaces greed, so the widening divergence indicates how worries are bubbling up beneath the seemingly placid surface of the stock market.

The Skew Index is compiled by the big Chicago-based options exchange Cboe and is constructed to typically range between 100 to 150 points, where a value of 100 signals that stock market movements are expected to be roughly normal, and higher readings indicate that investors are paying up to hedge themselves against crashes. The index has mostly drifted upwards over the past decade but has climbed particularly sharply over the past month as the rising demand for protection has swamped the fading willingness of other investors to sell it. That lifted the index to a record 170.5 points last week, according to Refinitiv data. (Robin Wigglesworth in Oslo and Michael Mackenzie, “Record Skew index shows nagging investor nerves on US stocks rally,” FT.com, 7/1/2021)

Here’s the picture of it …

Here’s the summary: people have money, they’ve bought insurance and their foolishness is unlikely to hurt the rest of us. So, let the kids have their fun.

An unlikely champion of this view is Morningstar’s John Rekenthaler, not the sort of guy who’d ever be cast as one of the carefree travelers in any remake of Bill and Ted’s Excellent Adventure (“This should be most triumphant, dude.”) In reviewing many of the same arguments we just did, Mr. Rekenthaler comes away with a distinct “it’s summer … meh” conclusion.

Looking Forward

My take:

1) Some investments undoubtedly are frothy. Morningstar calculates that the average stock in ARK Innovation’s portfolio trades at 106 times its trailing 12-month earnings. That is pricey by any standard.

2) However, given the relatively modest level of consumer debt, shareholders should be able to withstand reasonably large investment losses.

3) They also are protected by the $46 trillion that they hold in mutual fund shares and bank deposits.

In summary, if the general economy remains solid–all bets are off during recessions–everyday investors should be relatively immune to a sell-off in speculative investments, should that event occur. I do not believe that such damage would spread. (“Investing During an Era of Speculation,” 6/28/2021).

Even the venerable Benjamin Graham seemed to be willing to grant that speculating is probably stupid but it isn’t necessarily fatal. Jason Zweig, who prepared the 2006 annotated release of Graham’s The Intelligent Investor (1949) shares his, and Graham’s, take on the activity:

Whenever you buy any financial asset because you have a hunch or just for kicks, or because somebody famous is hyping the heck out of it or everybody else seems to be buying it too, you aren’t investing.

In the book, after which this column is named, Graham said, “Outright speculation is neither illegal, immoral, nor (for most people) fattening to the pocketbook.”

However, he warned, it creates three dangers: “(1) speculating when you think you are investing; (2) speculating seriously instead of as a pastime, when you lack proper knowledge and skill for it; and (3) risking more money in speculation than you can afford to lose.” (Investor, Trader, Speculator: Which One Are You?, 6/18/2021)

None of which justifies any of you joining in the silliness. The US markets remain at record valuations and much of its advance is driven by a touching faith in the federal government: faith that the Biden administration will spend trillions and faith that the Fed won’t be touching that punchbowl – except perhaps to spike it with a bit of rum – at any time in the next couple years.

For those committing new money to the market regardless (and consistent, disciplined investing is a key to success), the recommendations from the ultra-skeptical folks at GMO make considerable sense. Peter Chiappinelli, a member of their Asset Allocation Team comments:

It gives us no pleasure to remind clients that U.S. stocks’ valuations, by almost any measure we can come up with — backward or forward looking —are at levels that concern us … we absolutely concede that somewhere in the Global Growth basket sits “the next Amazon.”   Unfortunately, they’re ALL being priced that way, and that is a bridge too far.

We also remind ourselves that during the month of May, the S&P 500’s real earnings yield (the inverse of P/E minus inflation) dipped into negative territory, the lowest in 40 years. Even at the height of the tech bubble mania, this scary event did not occur.   

Combine that sober statistic with the negative real yields being offered by sovereign bonds, and you may come to see why we are loathe to recommend a traditional 60/40 mix. There will come a day when global equities and government bonds are fairly valued and should deliver a “normal” real rate of return. Today, however, is not that day.  

But May’s forecast is not all doom and gloom, in fact far from it. Emerging Markets Value, which has rallied strongly in the past year, with the MSCI EM Value index up 49%, is still priced to deliver quite decent relative and absolute returns. Japan small value stocks are also quite attractive.

Further, the valuation spread between global Value and Growth remains at some of the widest levels we have seen in our working careers, and there are all sorts of interesting ways to exploit this dislocation. Importantly, valuation spreads across asset classes more broadly in rates and FX and commodities, represent huge opportunities in non-traditional long/short space.

In a global Growth bubble, we are advising clients to do three things: exploit the bubble (via equity long/short), avoid the bubble (via alts), and concentrate assets where the bubble ain’t (EM Value, Japan small Value, Cyclicals, and Quality).  

Our recent profiles have been highlighting folks who share many of those same conclusions: value has value, quality is quality. But quality remains at its cheapest, relative to the broad market, in a generation. Brian Sozzi writes,

Quality is on sale in the stock market.

Higher quality stocks are trading at their largest valuation discount to the broad market since the dot com bubble of the early 2000s, BlackRock CIO of U.S. fundamental equities Tony DeSpirito said in a new research note. (6/22/2021)

Evie Liu, in Barron’s, reached about the same conclusion:

Investors have been favoring stocks, and assets such as cryptocurrencies, that look a lot like lottery tickets, taking on a high probability of poor returns for a small chance of large gains. That has bid up the prices of riskier stocks, while leaving more-stable stocks underappreciated.

“If you think about what happened to GameStop, the popularity of Dogecoin, the increasing online trading, and the high volume of call buying in the options market, investors have really been embracing risk,” says Nick Kalivas, Invesco’s head of factor strategy.

As concerns about a market correction bubble up, however, it might make sense to shift part of your stock portfolio into more-defensive names [including] high-quality stocks with strong fundamentals—higher margins, healthier balance sheets, and more-consistent cash flows. (“With correction fears rising, it’s time to explore underappreciated, low volatility and quality stocks,” Barrons.com, 5/27/2021)

Thanks …

To all of our readers (now more than 2,000,000 in total, which still strikes me as endlessly amazing) and to the good folks who’ve continued to support MFO as we’ve worked through options for our future: the folks S&F Investment Advisors, Wilson, Martin (thank you, sir, for everything – I’ll try to keep my brain in gear, my better half happy and my spirits high!), the incomparable Victoria Odinotska and our PayPal subscribers: Greg, William, Matthew (take care, sir, and thanks!), William, Brian, David, and Doug.

Chip and I will spend much of the month of July in New York, starting with her son’s wedding in mid-July and our retreat to the Finger Lakes region (I’m already working on Wine Trail priorities) in the second half of the month. Our original plan was to place the Observer on hiatus for a month but we already have a half dozen stories in the pipeline, from a profile of the best international small-cap fund around to the impending launch of a whole new series of funds from T. Rowe Price. With your kind support, I suspect that we’ll share a lite issue with you on August 1st.

As ever,

david's signature

Summer Solstice

By Edward A. Studzinski

“The predicament
You find yourself in,
Is not as dire,
As you imagine
The door you
Think is closed,
Is an illusion,
Self-imposed …”

By J.P. Niemeyer, 5/21/2021

One of the things I would suggest to people is that they broaden their horizons with regards to the things they read about the investing world, managers, and strategies. A publication I would heartily recommend is the Graham and Doddsville Newsletter put out several times a year by the students in the Graham and Dodd program in the graduate school of business at Columbia University. Each issue usually has several interviews that are in-depth, often running fourteen or fifteen pages of small print. The interviews usually cover the history, investment philosophy, and implementation of a portfolio manager or firm. You will get a much better feeling from them about an individual money manager than you will from the usual quarterly letter or marketing material that has been carefully pre-scripted and curated by a firm’s publication relations or marketing department.

In a recent edition, there was an interview with Dan Rasmussen of Verdad Advisers (Spring 2021), who started his career at Bain Capital. One of the things he said that brought me up short was that at Bain they spent a lot of time developing growth forecasts for the companies they were investing in. He said that when he looked at the predictive power of the forecasts if Bain had just said 3% was an appropriate growth rate for every portfolio company, they would have been 20% more accurate than their internal forecasts. This begged the question as to what can really be known as a fundamental investment analyst.

“I found was that the price paid seemed to overwhelm all the other diligence items. Competitive advantage was often a transient thing. If a company seemed competitively advantaged in 2010, by 2015 it wasn’t competitively advantaged anymore. In contrast, the price paid was predictive because it was one of the key variables determining how much money you made.” Dan Rasmussen, 4/16/2021

Rasmussen considers growth projections to be a trap that sucks up a lot of time and energy. The result is Excel spreadsheet models with little predictive power. Indeed, he would argue that the models end up having negative predictive power, as they often are trend extrapolated, especially if the company has been doing well. Rasmussen would argue that thinking about reinvestment opportunities and their returns put you in a better place investment decision-wise. Return on assets and credit quality really matter when it comes to determining valuation. At the end of the day, valuation is what really matters.

I commend the article to you, as it will give you a better frame of reference to assess what you see and hear from other investment presentations.  You will often find in the back issues a more detailed set of interviews and comments from managers than what you have generally seen and heard from them in other places. All in all, it is a great resource.

One final FYI – for those who have been curious about my interest over the years in the closed-end fund, Central Securities Company, there is a twelve-page interview with Wilmot Kidd and John Hill from there starting on page 44 of the Winter 2021 issue of the Graham and Doddsville Newsletter.  

The Iceberg

David mentioned to me that there are a lot of profiles this month. Many of them seem to be of managers jumping ship and moving on to other organizations. They start a similar product to the one they managed, but with different fees (and perhaps different loyalties up the ladder). There has been for the last several years a shift from active management to passive and exchange traded funds that has placed a considerable amount of financial pressure on firms, especially firms that are investment manager roll-ups. I will not say that the model no longer works. I will say that the revenue and expense sharing terms are shifting. Much of what is going on is invisible to the clients until it is not.

In London, one firm that had a reputation for a tremendous amount of intellectual investment capital (which produced superior returns) lost one of its founding partners to a disagreement and the other two are allegedly not involved in the day-to-day running of investments. That firm had had two partners running one of the best-known Buffet-like partnerships (with similar returns). They withdrew and ultimately shut down their partnership, primarily because the regulatory burdens imposed by securities regulators were geared to catching the bad actors, with no reward or credit to the good actors. A well-known hedge fund manager in Chicago shifted operations to Florida during the pandemic. It remains to be seen whether those operations will return to Chicago. As mentioned in a previous month, a firm that was running money for Affiliated had those funds pulled, resulting in a shutdown. Another firm is dealing with the questions of generational shift as its two chief investment officers spend much of their time in Florida or Michigan. The pandemic taught us that there is a lot that can be done remotely. But the creative bursts and cross-pollination of ideas that comes from having everyone in an office together for a majority of the time cannot be easily dismissed.

Sustainability

I used to think that small firms, those with one or two investment products or funds, had an advantage over the big fund complexes such as Blackrock, Fidelity, and Price. They could avoid the dilution of their investment efforts by having a limited number of products, allowing a laser-like focus on the investment strategy and implementation thereof. I am increasingly questioning that. I wonder what the right size is for a firm (similar to I think the questions that a lot of community banks face these days when Bank of America says it is spending a billion dollars a year on cybersecurity). I have not yet reached a conclusion. But I am weighing what things are important for sustainability. How do you achieve consistent recruitment AND retention of like-minded talent? Low or no turnover of key investment personnel often dictates success for the firm and for clients (you will find out what someone contributed to the process after they have left). The genesis for this questioning is an article that appeared last week in The Financial Times of London, discussing Baillie Gifford of Edinburgh, one of the few (and largest) true partnerships, with the partners having absolute legal liability. One of the striking things about that firm is that they have consistently recruited the same type of people – intellectually curious and students of history, literature, or the classics. No cookie-cutter finance degrees there. It will be interesting to see in five years whether they or some other kind of organization will stand the test of time.

Uncorrelated Funds for Building a Low Risk Portfolio

By Charles Lynn Bolin

Correlation measures the relationship between two assets such as stocks and bonds and has a value of +1.0 for two assets that are perfectly correlated and -1.0 for two assets that move in the opposite direction. The most common example of correlation is that the S&P 500 has a correlation of about zero to US Bonds. The balanced 60 stock and 40 bond portfolio is familiar to investors as a way of building a portfolio of these two uncorrelated assets. In this article, I search for uncorrelated funds with good performance over time that can be used to reduce the risk in a portfolio.

1. Correlation of Asset Classes and Selected Funds

In researching correlation for this article, I ran across an interesting blog called Keep Investing $Imple, $Tupid (Ki$$) by Dan who is a US Army Officer and Physical Therapist. It shows the Correlation Matrix of selected Vanguard Funds. Note that most funds are highly correlated to the S&P 500 and each other with the exception of Bonds, and to a lesser extent Real Estate and Health Care.

Table #1: Correlation Matrix of 12 Vanguard Funds

This Asset Class Correlation Map by Guggenheim shows funds that are not correlated to the S&P 500 more clearly. Currency, Cash, Managed Futures, Market Neutral and Commodity funds can be added to the list of funds that are uncorrelated to the S&P 500.

Figure #1: Uncorrelated Asset Classes

2. Uncorrelated Funds with Consistent Performance

For this article, I filtered the thousand funds that I track each month to find those that have a correlation of 0.85 or less to both the S&P 500 and US Bonds. This alone filters out most of the funds. I reduced the list further based on Consistency, Capital Preservation, MFO Risk Rating, and MFO Rank, among others. I also used a minimum three-year return of 5%. I added Columbia Adaptive Risk (CRAZX, CRAAX) because it is one of the funds that I am interested in as a potential purchase. 

Table #2 shows the final list of funds that have performed consistently well with low correlations to the S&P 500 and bonds. They are sorted from least risky, as measured by the Ulcer Index to the riskiest. Those with an Ulcer Index shaded green are the least risky while those shaded red have an Ulcer Index equal to or higher than the S&P 500. The Martin Ratio measures the return for the level of risk taken. The funds with the lowest Ulcer Index generally tend to have higher Martin Ratios, meaning that they have higher risk-adjusted-performance. The notable exception is Pacer Trendpilot 100 (PTNQ) which has an Ulcer Index similar to the S&P 500, but higher risk-adjusted return. Six of the funds have Mutual Fund Observer designations of being a “Great Owl” which means that the fund has been in the top 20% of its category for risk-adjusted returns for the past three years. Almost all of the funds are in the top two quintiles of the MFO Rank for risk-adjusted performance for the category.

Table #2: Least Correlated Funds with Consistent Performance

Source: Author Using Mutual Fund Observer

The Funds are limited to those available at Fidelity. RiverPark Long/Short Opportunity (RLSIX, RLSFX), Carillon Reams Unconstrained Bond I (SUBFX, SUBYX), Columbia Thermostat Inst (COTZX, CTFAX), and Columbia Adaptive Risk Allocation Inst (CRAZX, CRAAX) are available at Fidelity as the second share class shown in the parenthesis. River Canyon Total Return Bond (RCTIX), Absolute Strategies Convertible Arbitrage Inst (ARBIX), and Natixis Loomis Sayles Strategic Alpha Y (LASYX) have transaction fees.

The next table shows the correlation to the S&P 500 over the past 3, 5, 10, and 15 years sorted from highest to lowest. The correlation has remained consistent over longer time periods. The Columbia Adaptive Risk Allocation Fund (CRAZX, CRAAX) has a low Ulcer Index, but the highest correlation to the S&P 500. This means that that it will move in the same direction as the S&P 500, but generally will suffer less than half of the drawdown. The T. Rowe Price Multi-Strategy Total Return Fund has had an even lower Ulcer Index of 1.3 and a much lower correlation to the S&P 500.

Table #3: Funds Over Different Time Periods

Source: Author Using Mutual Fund Observer

Below is the correlation matrix which compares the correlation for three years of each of the funds to each of the others. The table is broken into S&P 500 and Bond Baseline funds at the bottom, and low, medium, and high-risk funds. Pairs of funds that are the least correlated will tend to reduce the volatility in a portfolio. These are shaded red and yellow.

Table #4: Correlation Matrix of Funds with Low Correlation to the S&P 500

Source: Author Using Portfolio Visualizer

3. Portfolios with Uncorrelated Funds

Suppose that you want to own Janus Balanced (JABAX), T. Rowe Price Spectrum Conservative Allocation (PRSIX), Columbia Thermostat (COTZX, CTFAX) which were profiled in One Stop Shop Mutual Fund Options With Good Multi-Year Metrics along with the SPDR S&P 500 ETF (SPY) and Vanguard Intermediate Term Corporate Bond Fund (VCIT), and are interested in adding one or more uncorrelated funds to reduce volatility. I used Portfolio Visualizer to build a moderate and conservative portfolio as shown below. The link to Portfolio Visualizer is provided here. Interested Readers may change the constraints to suit their own preferences.

Figure #2: Moderate (14% Volatility) and Conservative (Maximum Sharpe Ratio) Portfolios

Source: Author Using Portfolio Visualizer

The metrics of the Conservative and Moderate Portfolios are compared to the Fidelity Balanced Fund (FBALX) in Table #5 and the growth of $10,000 is shown in Figure #3. Note that the Moderate Portfolio (Maximum Return at 14% Volatility) only has a standard deviation of 11% compared to 14% for FBALX, but has comparable returns.

Table #5: Moderate (14% Volatility) and Conservative (Maximum Sharpe Ratio) Portfolios

Source: Author Using Portfolio Visualizer

Figure #3: Moderate (14% Volatility) and Conservative (Maximum Sharpe Ratio) Portfolios

Source: Author Using Portfolio Visualizer

4. Additional Information About Funds

The following sources of information are available for those interested in learning more about some of these funds:

Your 2019 funds watchlist: Draft #1 (RLSIX) by David Snowball

Reviewing Your Portfolio Hedges (RLSIX) by David Snowball

T. Rowe Price Multi-Strategy Total Return (TMSRX) by David Snowball

The Long (and Short) of It: Top-Tier Long-Short Options (RLSIX) by David Snowball

Getting What You Paid For: High capture ratio funds (RLSIX) by David Snowball

Alternative and Global Funds during a Global Recession by Lynn Bolin

Carillon Reams Unconstrained Bond Fund (SUBFX)

Columbia Thermostat Fund (COTZX/CTFAX)

Columbia Adaptive Risk Allocation Fund (CRAZX)

Pacer Benchmark Industrial Real Estate SCTR ETF (INDS)

Pacer Funds Trust – Pacer Trendpilot 100 ETF (PTNQ)

River Canyon Total Return Bond Fund Institutional Class (RCTIX)

5. Closing

As I near retirement, I continue to build a low-risk portfolio of mixed-asset funds as the core “buy and hold” funds. The best funds are described in One Stop Shop Mutual Fund Options With Good Multi-Year Metrics. I have added a Tactical Sleeve as described in Tactical Sleeve for the Conservative Minded. 

The third focus of my portfolios is an uncorrelated portion as described in this article. Three of the Funds that I own make the list of “Best Uncorrelated Funds”. These are Absolute Strategies Convertible Arbitrage (ARBIX), T Rowe Price Multi-Strategy Total Return (TMSRX), and Columbia Thermostat (COTZX, CTFAX). I use Watchlists on Mutual Fund Observer Multi-Search to track the performance of these funds each month. The funds can also found in the Portfolios in the Author’s Profile when I write an article on Seeking Alpha such as The Best Mixed-Asset Funds. 

Best Wishes and Stay Safe!

MFO Premium Webinar: Mid-Year Review and Latest Site Upgrades – Thursday, 15 July 2021

By Charles Boccadoro

The next MFO Premium webinars will occur Thursday, July 15th.

Our premium search tool site helps individual investors and financial advisers 1) sort through the vast number of funds available today based on criteria important to them, 2) maintain candidate lists of promising funds to conduct further due diligence on, and 3) monitor risk and return performance of their current portfolios.

In addition to the recent upgrades, described below, the webinars will highlight fund performance for the first half of 2021. Month ending June data should post Sunday, 4 July.

Since our last webinar in April, significant upgrades include:

  • Redesigned MultiSearch Column Selection interface that enables quick-and-easy customization of metric groups and individual metrics, resulting in a much more responsive tool.
  • New MultiSearch Display Periods, Model Portfolios, and Pre-Set Screens.
  • New MultiSearch screening metrics: Lipper Leaders, Equity Portfolio Ratings, Debt and Currency Holdings, and Smart Beta.
  • Additional MultiSearch screening options: Set APR against key reference indexes, like SP500, and set “Less Than” Sector Allocations.
  • MultiSearch options to overwrite and nickname during export of WatchLists, Searches, and Preferences to the user profile.
  • Stored MultiSearch Preferences, up to 10. Each Preference holds your preferred view: Active Groups on the Search Input page, column order in Results Table, and much more.

Here’s a preview of the new Column Group selection menu:

And here’s a preview of the new Individual Column selection menu (first three groups):

The morning session will be at 11 am Pacific time (2pm Eastern). The afternoon at 2pm Pacific time (5pm Eastern). The webinars will be enabled by Zoom. You are welcome to register for both webinars.

Please use the following links to register for the morning session or afternoon session. Each will last nominally 1 hour, including questions.

Material covered in the previous webinar can be found here.

Hope you can join us again on the call. If you have any topics you’d like discussed, or general questions, happy to answer promptly via email ([email protected]) or scheduled call.

Launch Alert: First Eagle Small Cap Opportunity Fund

By David Snowball

On July 1, 2021, First Eagle Investment Management launched the First Eagle Small Cap Opportunity Fund (FESAX / FESCX / FESRX). The investable universe is primarily domestic small- and micro-cap value stocks. In general, they’ll own 180 – 300 of them.

The fund pursues an opportunistic small-cap value strategy, investing in companies that the portfolio management team believes to be attractively valued and have the potential to benefit from a catalyst—such as new management, a more favorable business cycle, product innovation and/or margin improvement—for a recovery in earnings growth. Small caps are very sensitive to asset flows and even small changes in underlying economic conditions, as a result, “the limited liquidity in the US small-cap equity market can amplify stock price movements in both directions.” The manager believes that can be harvested by disciplined investors.

The fund will be managed by Bill Hench, with Associate Portfolio Managers Suzanne Franks and Rob Kosowsky and Senior Research Analyst Adam Mielnik.

The management team is what will draw attention to the fund, for good or ill.

The Fund is managed by First Eagle’s Small Cap team which, until April 2021, was Royce’s Small Cap Opportunistic Value team. Two things are clear about them:

  1. The team is experienced, coherent and talented. Mr. Hench has been working with the strategy since 2004, serving as lead manager from 2018. He has been “building an excellent track record, first as an understudy and then as successor to Boniface ‘Buzz’ Zaino.” Mr. Kosowsky joined Royce in 2015 and has nearly two decades of small-cap experience. Ms. Franks worked for a firm that provided research to Messrs. Zaino and Hench from 2012 to 2018.
  2. The team appears to have left without warning. There’s no word on why and Morningstar’s references to the event are negatively framed: “a less-than-ideal transition” when an “abrupt manager change” which “surprised their colleagues” occurred as “the squad bolted to a competitor” which “forced Royce Investment Partners to scramble to assemble a backup plan” involving a “cobbled-together team.”

Whether the circumstances surrounding their departure are material, is in the eyes of the beholder (or the potential investor, as the case might be). Regardless, it’s quite clear that the strategy generates alpha. When I pulled the risk profile of Royce Opportunity from the MFO Premium database, it shows the fund posting returns in the top 20% of their peer group for the following periods:

    • 1 -year
    • 3-year
    • 5-year
    • 10-year
    • 20-year
    • Since inception
    • Full market cycle, 2000-07
    • Full market cycle, 2020-2021
    • Up cycle, 2002-07
    • Up cycle, 2009-19
    • Up cycle, 2020-2021

The fund lags badly in down cycles, but more than makes up for it in the rebound.

Bottom line: a winning but volatile strategy, a strong team, and a demonstrable performance record.  

“A” shares have an expense ratio of 1.25% and a minimum initial investment of $2,500. The First Eagle site has not yet been updated to account for the fund’s existence but should be soon.

 

Launch Alert: AMG Yacktman Global

By David Snowball

On July 1, 2021, AMG Funds and Yacktman Asset Management launched the AMG Yacktman Global Fund (YFSNX).

Sort of.

In reality, Yacktman chose to dump the least attractive name in their stable – AMG Yacktman Focused Fund – Security Selection Only – in favor of the simple “Global” moniker. Yacktman manages two of the most outstanding funds in excellent: Yacktman (five stars, Silver-rated, Great Owl, multi-million dollar investment by the lead managers, top 2% returns over 15 years) and Yacktman Focused (five stars, Silver-rated, Great Owl, multi-million dollar investment by the lead managers, top 1% returns over 15 years). Yacktman Global uses the exact same security selection process that drives Yacktman Focused.

The investment approach is identical:

The Fund seeks long-term capital appreciation and, to a lesser extent, current income. The Fund is non-diversified and mainly invests in common stocks of … companies of any size, some but not all of which pay dividends. Yacktman employs a disciplined investment strategy, buying growth companies at what it believes to be low prices. Yacktman believes this approach combines the best features of “growth” and “value” investing. When they purchase stocks, they generally search for companies they believe to possess one or more of the following three attributes: Good Business … Shareholder-Oriented Management … Low Purchase Price.

There are three differences between Focused and Global.

  1. Global is more … global. Currently, 63% of the portfolio is invested in international equities, compared to 37% in Focused.
  2. Global is cheaper. The resolution, which renamed the fund, also reduced the management fee from 87 basis points down to 71 and capped the expense ratio. As a result, an investor in Global is charged 1.04% versus 1.28% in Focus.
  3. Global remains fully invested. By prospectus, the fund intends to keep at least 95% of the portfolio in equities. In the past five years, Yacktman Focused and Yacktman have never had more than 83% in equities.

That last factor strikes us as central. Yacktman believes that there are times when the risks of stocks are disproportionate to their rewards, and in those times, they allow cash (18-31% over those five years) to accumulate. Financial advisors and market bulls hate it when they do that. Both groups lean toward a “we make our own dang asset allocation decisions; we hired you to pick stocks, not to make allocation decisions for us!”

That decision has serious implications. One of the surest ways to make money is to avoid losing it. Yacktman’s intelligent caution and decades of experience lead them to occasionally tap the brakes when they see caution lights flashing. That’s reflected in the different risk/return profiles of Focused and the former Focused – Security Selection Only funds.

  Focused Global
Three year returns 16.0% 16.8
Maximum drawdown 21.0% 24.7
Standard deviation 16.4 19.1
Downside deviation 10.3 12.4
Down market deviation 10.3 12.2
Upside capture / S&P500 86 98
Downside capture / S&P500 74% 94
Beta 80 91
Sharpe 1.01 0.92
Morningstar rating Five stars Four stars
MFO rating Great Owl Great Owl

Surely part of the difference is attributable to Global’s higher stake in international equities, but the significance of that effect is hard to measure.

Are you smarter than …?

One of the most popular game shows of the 21st century was “Are you smarter than a 5th grader” (2007-11). In it, adults were challenged to correctly answer questions on issues normally covered in elementary school. To date, only two contestants managed to make it to the final round and answer the question correctly.

Four years-plus. Two people definitively smarter than a 5th grader.

The follow-on question might be, “Are you smarter than Stephen Yacktman?” An investor who chooses their own tactical asset allocation (that is, who answers the question “are the caution lights flashing?” on their own) is betting that they are. For those folks, Yacktman Global will be a premier vehicle for accessing the security selection skills of one of the industry’s most accomplished teams.

Others might choose to look at Yacktman or Yacktman Focus, which we named as two of our 21st Century champions.

Fund website: Yacktman Global

Launch Alert: Semper Brentview Dividend Growth Equity

By David Snowball

On June 1, 2021, Semper Capital Management (semper as in “semper fidelis”) launched Semper Brentview Dividend Growth Equity Fund (SEMBX) in partnership with Brentview Investment Management. Both are minority-owned advisers, with Semper being veteran-owned as well. Brentview has an AUM of $175 million, so they’re a capable firm. They intend to provide both a high level of risk-adjusted current income and the prospect of capital growth.

The fund is currently available only to institutional investors, but the advisors are authorized to offer retail shares and hope to do so once the demand is evident and AUM permits.

The plan is to buy dividend-paying mid- to large-cap stocks. The dividends are a key part of the process, which is different from saying “the fund seeks to maximize dividend income.” It does not. The manager thinks of himself as a risk manager first and foremost, which leads him to take diversification seriously. He expects to invest in some firms with a long history of dividend payments, as well as those who have only recently initiated them. Similarly, he expects to intentionally seek some firms whose dividends might be substantial but slow-growing (Johnson & Johnson, as an example) and others whose dividends have been rising sharply (Visa yields only 0.55% but has grown that by 20% in a year).

Dividend diversification is complemented by sector diversification (they’ll own at least one company in each major sector) and beta diversification (combining some traditionally high beta names with some low volatility ones) with a compact portfolio.

Across all of the portfolio companies, they look for markers of quality (such as high ROE / ROIC) and resilience. At the bottom line, they hope for a portfolio with faster dividend growth, above-market yield, and lower beta characteristics.

The fund will be managed by James Boothe and Hai Vu. Therein lies some of the interest large investors might have in the fund. Mr. Boothe, Brentview’s CIO, has over 40 years of investment experience. Prior to joining Brentview in 2019, Mr. Boothe served as Chief Investment Officer and Portfolio Manager at Santa Barbara Asset Management from 2002 to 2019. While he was there, he managed the Santa Barbara Dividend Growth Fund (now the $6.4 billion Nuveen Santa Barbara Dividend Growth following Nuveen’s acquisition of the adviser) from 2006-2019. The two most senior investment professionals of Santa Barbara left in 2019 after Nuveen’s acquisition of the firm.

Bottom line: it’s an interesting opportunity for those who were more fans of Santa Barbara’s approach than with Nuveen’s acquisition of them.

Website: Semper Brentview Dividend Growth Equity

Channel Short Duration Income Fund (CPSIX), July 2021

By David Snowball

Objective and strategy

Channel Short Duration Income Fund pursues total return, comprised of both income and capital appreciation. In general, at least 65% of the portfolio will be investment-grade securities and up to 35% might be high-yield bonds. The bulk of the portfolio is short-term investment-grade debt, but the manager can opportunistically add other securities – longer-term debt, for instance – so long as the portfolio as a whole maintains a weighted average duration of 1 to 3.5 years.

The adviser expects the portfolio to be actively managed, with relatively frequent moves to exploit emergent opportunities and reallocate resources toward attractive sectors. The willingness to re-weight sectors and tweak duration are the primary sources of alpha.

Adviser

Channel Investment Partners, a boutique fixed-income investment firm founded in August 2019 by Matthew Duch. The Channel Short Duration Income Fund is the firm’s sole focus.

Manager

Matthew Duch.

Mr. Duch formed Channel Investment Partners in 2019 and registered it with the SEC in April 2020 with a bigger business vision built around the launch of the Channel Short Duration Income Fund. From 2016 to the present, Matt has managed private investments through Duch Capital Management LLC. From 2006 to 2016, Matt was a vice president and senior portfolio manager for Calvert Investment Management. He chose to leave Calvert shortly before its acquisition by Eaton Vance, which is not unusual. Prior to Calvert, Mr. Duch had stints at Deutsche Asset Management and Zurich Scudder.

Strategy capacity and closure

Mr. Duch successfully managed over $1 billion with rapid asset growth in a comparable short-duration strategy at Calvert. As with many thoughtful managers, he believes that the size of the strategy is less important than the predictability (hence, manageability) of inflows and outflows. With consistent inflows, the advisor might build out its infrastructure by adding people, then $4 billion would be manageable.

Management’s stake in the fund

None, or a lot. Mr. Duch has no direct investment in the fund, nor do any of the fund’s trustees. At the same time, Mr. Duch founded the adviser and is personally underwriting the majority of its start-up expenses.

Opening date

Nominally, October 4, 2005, but that was under a different adviser and strategy. The current iteration of the fund began to emerge in March 2020 as the new advisor transitioned –in and became formal in August 2020 as the transition period ended. FCI Bond Fund (FCIZX)

Minimum investment

$2,500. The fund is now available on Schwab and TDAmeritrade, Interactive Brokers, and Apex Clearing.

Expense ratio

0.95%, after a waiver, on assets of $30.3 million, as of July 2023. 

Comments

Riddle me this, Batman: when is a five-star fund not a five-star fund, though possibly still a five-star fund?

Adam West might not have puzzled his way to “when it’s the Channel Short Duration Income Fund,” but that’s the answer.

At Morningstar, Channel Short Duration Income (CPSIX) is rated as a five-star fund with a 15-year record but that is invalid and misleading. What Morningstar is actually reflecting is the performance of the now-defunct FCI Bond Fund. FCI Bond was managed by a private asset manager in Kansas City, primarily for the benefit of one core client (a bank in Pennsylvania). FCI managed it as a conservative short-to-intermediate term bond fund. They managed it quite well but, apparently, did not see it as an important part of their business future.

They arranged in 2020 to transfer ownership of the fund to a newly created adviser, Channel Investment Partners. Under Channel, the fund’s name and advisor changed but the strategy was simply tweaked and better defined to fit more traditional investor allocation buckets. As a result, the prior fund’s record and five-star rating should not be used to assess Channel Short Duration Income.

Nonetheless, it might well be a new five-star fund in the making as performance under Channel is very strong. In consequence, it earns the Observer’s “most intriguing new funds” designation.

What does the manager do?

The fund invests primarily in a diversified portfolio of short-term, investment-grade, fixed-income securities. The fund may purchase intermediate and long-term bonds while maintaining an effective weighted average portfolio duration, under normal circumstances, of one to three and one-half years.

Its FCI predecessor fund had greater stress on intermediate-term bonds, landing it in Lipper’s “short-intermediate bond” peer group. 

In general, the manager expects to have a core allocation “bucket” that offers broad exposure to his primary asset class. The prospect of outperforming his benchmark and peers would be driven by a few, opportunistically acquired issues. The challenge is identifying outlier opportunities while not becoming antsy and making purchases based on hope rather than on clear-eyed, unemotional analysis.

Why might you have faith in his ability to do it?

Mr. Duch has a long and distinguished track record as a fixed-income manager. As lead manager of Calvert Short Duration Income, he earned a five-star rating from Morningstar. In 2013, his fund won the Lipper Fund Award for Best Short-Investment Grade Debt Fund, 10 Years. He also helped manage successful ultra-short, intermediate-term, and high-yield portfolios. The latter was also recognized by Lipper as having the best five-year record of any corporate debt / BBB-rated fund (2008).

He describes himself as being “responsible for portfolio construction, credit analysis and trading delivering top decile and quartile performance, winning Lipper Fund Awards in 2008 and 2013. [During his tenure] assets under management nearly doubled from approximately $5bn in 2006 to approximately $9bn in 2009.”

Channel’s approach to security selection is driven by an interplay between the manager and analysts. The Channel Investment Partners site describes them as something like “reformed specialists,” folks whose responsibilities at larger firms forced them to focus narrowly on a single asset class or sub-class. That focus might, they believe, have limited their ability to comprehend and respond to the bigger picture: “The push to specialize has resulted in reduced relative value analysis and misallocations of capital. Time spent managing people and processes through preset, philosophical meetings rather than [those] with tangible outcomes result in missed opportunities.”

We subscribe to the old mantra, “No bad bond, just bad price.”

The [portfolio manager uses] a top-down approach while the Analysts use a bottom-up approach. The meaningful conversation happens in the middle around the security’s role in the portfolio, creditworthiness, expectations, liquidity, and valuation. This is important because it defines responsibilities and reduces biases while aligning views toward timely, specific actions upon market-moving events.

In theory, that interplay reduces the number of errors arising from cognitive bias and improves the quality of the resulting decisions.

Bottom Line

Mr. Duch hopes to achieve returns comparable to an intermediate-term fund with volatility comparable to a short-term fund’s. That would be a recipe for a five-star fund.

Channel’s 2021 (1.62%, top 10% of its peer group) and first-year performances (4.03%, top 20% of its peer group) have been promising and it has been cash-flow positive as investors have begun to take notice. The ability to use high-yield bonds in a short-term fund offers a valuable tool to combat what appears to be the Fed’s long-term commitment to real interest rates at or near zero.

On whole, the fund bears watching. It has many of the hallmarks of an intriguing new fund.

Fund website

Channel Short Duration. The advisor’s site, Channel Investment Partners, has a bit more content and a couple of interesting graphics.

Appleseed Fund (APPLX), July 2021

By David Snowball

Objective and strategy

The Appleseed Fund seeks long-term capital appreciation. They do that through a portfolio that combines a global, all-cap portfolio of undervalued equities with other diversifying, and sometimes defensive, assets. Its investable universe centers on companies that have “sustainable competitive positions, solid financials, and capable, shareholder-friendly management teams.” The “other assets” in the fund might include bonds (though it currently does not), convertible securities, ETFs, commodities, REITs, and other real estate entities, currencies, and cryptocurrencies. Finally, they use derivatives to hedge portfolio risks and for other purposes.

All investments are screened for ESG factor performance which the managers believe contributes materially to an understanding of their financial performance.

The fund is non-diversified.

Adviser

Pekin Hardy Strauss Wealth Management was founded in 1990 and is headquartered in Chicago, Illinois.  They describe their investing approach as “a contrarian, patient, [and] value-oriented investment.” In 2015, Pekin Hardy became the first wealth management firm in Chicago certified as a B Corporation. B Corporations commit to balancing purpose and profit. “They are legally required to consider the impact of their decisions on their workers, customers, suppliers, community, and the environment,” according to the accreditor.  Pekin Hardy manages approximately $950 million of investors’ capital in separately managed accounts and through Appleseed Fund.

Managers

Bill Pekin, Adam Strauss, Joshua Strauss with assistance from Shaun Roach. Mr. Pekin has been a portfolio manager at Pekin Hardy Strauss Wealth Management for nearly 20 years and has managed the fund since inception. Prior to joining the firm, Bill served with Credit Suisse, Donaldson Lufkin & Jenrette, and MetLife Investment Management. Because we believe that thinking broadly really does matter, we also celebrate his Bachelor of Arts in History from Haverford College as well as his professional degrees.

Adam Strauss has been a portfolio manager at Pekin Hardy Strauss since 2004, is their co-CEO, and has managed Appleseed Fund since inception. He has earned the CFA Charterholder designation, led the firm’s initiative to become a B Corp, and serves on the board of several socially responsible businesses. He earned a Bachelor of Arts in East Asian Studies with honors from Stanford University (still celebrating the breadth of perspective!), as well as an MBA, also from Stanford.

Joshua Strauss is the other co-CEO and has also managed Appleseed since its inception. He’s also earned the CFA Charterholder designation. His undergraduate degree is a  Bachelor of Arts in Foreign Affairs from the University of Virginia, complemented by an MBA from Michigan. 

Shaun Roach is an assistant portfolio manager, a CFA Charterholder who has earned degrees from the University of Illinois and the University of Chicago Booth School of Business.

Strategy capacity and closure

At its asset peak, the managers successfully handled $300 million; they estimate that the strategy and their investment infrastructure could easily handle a billion.

Management’s stake in the fund

Messrs Pekin, Strauss and Strauss have each invested in excess of $1 million in the fund; Mr. Roach, a relative newcomer, has invested between $100,000 and $500,000. The managers affirm that having their own money at risk “makes us more careful about our investment decisions, about what we purchase and at what price.” There is little to no investment by the fund’s trustees.

Opening date

December 6, 2006

Minimum investment

$2,500 for Investor shares, $100,000 for Institutional shares

Expense ratio

1.23% for Investor shares and 1.04% for Institutional shares, on assets of $72.4 million

Comments

The Appleseed Fund is defined and, in some ways, bedeviled by three characteristics:

  1. It is doggedly independent. In a category where large-growth rules ($70 billion average market cap, virtually no mid- or small-cap exposure, average P/E ratio of 17), Appleseed is all-cap and value-conscious ($11 billion market cap, 50% micro- to mid-cap, P/E of 15). Most dramatically, it holds no fixed income while its peers stash 30% of their portfolios there. In lieu of fixed income, it currently holds some convertible securities, some gold, and some cryptocurrency.
  2. It is focused. Appleseed holds 28 stocks and a handful of other securities. The average fund in its Lipper peer group holds 287.
  3. It is committed to investing in corporations that embody best practices in environmental, social, and governance issues. Only eight of the 169 funds in its Lipper category carry an ESG designation.

Why would any of this bedevil the fund’s managers? Simple: fund monitoring firms such as Morningstar and Lipper circulate portfolio metrics that are reliable if and only Appleseed looks like – and acts like – its nominal peers.

But it does not and, consequently, they are not.

By way of illustration, here are the Lipper metrics for Appleseed since its inception, benchmarked against its “flexible portfolio” peers.

Comparison of Lifetime Performance (Since 200701)

How do you read that? Since its inception, Appleseed has substantially higher returns, a substantially smaller maximum drawdown, and a substantially faster recovery from that drawdown than its peers have. In consequence, the fund’s Ulcer Index (a measure of the depth and duration of drawdowns) is far better but its standard deviation and downside (aka “bad”) deviation are higher. As a result, the standard measures of risk-adjusted return (Sharpe and Sortino) are just average.

The key is that smaller stocks (which they vastly overweight) are more volatile than larger ones and stocks are more volatile than bonds (which they don’t currently hold). The proof of those differences is reflected in the last column: the correlation of Appleseed to its Morningstar peer group over the past five years is a pretty low 80. Among the 60 flexible portfolio funds that earned double-digit returns over the past five years, only eight have lower correlations – that is, greater independence – than Appleseed.

What’s might drive Appleseed over the next five years?

Unless conditions change: inflation. In a long interview in June 2021, folks from the fund expressed the concern that the economy is ripe for price inflation and that the Fed has decided that they need to let it happen. They are informed by the US experience in the 1960s, when then-President Lyndon Johnson pressured the Fed into monetary easing (“printing money”) so that he could pay simultaneously for his Great Society social programs and the war in Vietnam. The chair of the Fed reluctantly, and unwisely, caved under pressure.

In consequence, inflation rose during the last five years of the 1960s and spiked during the 1970s but President Johnson’s debt was kept manageable. A comparable pressure, they believe, exists today.

Debt to GDP level in the US is at a historic high. The only way out is to let inflation accelerate in a sustained way, capping yields under inflation for a negative real interest rate, which happened for 10 years after WW2. The net effect will be that debt is inflated away, though at the expense of bondholders.

Presumably, trillions of infrastructure spending, no matter how socially or environmentally desirable, would compound both the debt and the pressure for continuously low (or negative) real interest rates. How did various asset classes fare? They write:

  • Stocks: Adjusted for inflation, the S&P 500 Index generated a total return of 0.3% per year … as is often the case when inflation increases, the P/E ratio of the S&P 500 Index contracted, from 18.8x to 15.8x, and the dividend yield increased from 2.9% to 3.5% between the beginning of 1965 and the beginning of 1970 …Increasing inflation generally results in a contraction of P/E ratios and an expanding dividend yield. In our view, the risk exists that accelerating inflation today could result in a significant downward rerating of U.S. stock prices.
  • Bonds: In 1965, the yield-to-maturity on 10-year Treasury bonds was 4.2%; by the time the decade ended, the yield-to-maturity on that same bond, with five years remaining until maturity, was 8.2%. We estimate the total return of that Treasury bond from 1965-1969 to have been -33.1%, or -7.7% per annum, adjusted for inflation … The yield-to-maturity on 10-year Treasury bonds is currently 1.7%, which means that the downside risk of a rise in bond yields is greater today than it was in 1965.
  • House prices: Housing performed better than bonds in the late 1960s but still did not keep up with inflation.
  • Gold: During the Johnson administration, the dollar was pegged to gold at $35/ounce, and it was not yet legal for Americans to own physical gold during that period. However, demand for gold from Europe increased significantly; during the 1960s, U.S. gold reserves dropped by 38%, from 15,800 tonnes to 9,800 tonnes as undervalued U.S. gold was shipped to Europe. After the dollar/gold peg was removed in 1971, gold’s investment return was spectacular during the following decade as investors sought to sell dollars to invest in gold as a store of value. While not an investment option in the late 1960s, gold is an attractive asset class for investors in the current era and should serve as an excellent long-term store of value should inflation continue to accelerate.

All of which explains why – in a move doggedly independent of their peers – Appleseed has eliminated its fixed-income holdings, added substantial amounts of gold, and dabbled in cryptocurrency (“Crypto is very volatile but isn’t correlated with stocks so adding crypto actually reduces portfolio volatility”).

Bottom Line

The question is not, “does Morningstar (or Lipper or MFO) like Appleseed?” The legitimate questions are, “does Appleseed make sense to you, and does it strengthen your prospects of achieving your financial goals?” The former question is irrelevant because it does not play by its category’s rules: it is far more value-conscious, far more willing to invest in the opportunities presented by smaller stocks, far more skeptical of the mess that the fixed income market is in and, with just 28 stocks in the portfolio, far more willing to concentrate resources on high-confidence areas.

Appleseed embodies independence,  has strong ESG credentials, and a stable management team. Its distinctiveness means that it is out-of-step with its Morningstar peer group, investing in places where few peers go and where conventional ESG metrics – designed to assess the behavior of large domestic corporations – have little heft.

The ideal investor here is someone balancing two sets of concerns: (1) the desire to invest in a sustainable strategy and (2) the desire to assert independence from the least rational parts of the market, currently large momentum stocks and investment-grade bonds. Both desires embody concern over the state of our physical and financial environment and favor a long-term perspective over the twitchy degree not to “miss out.”

If that describes you, or your clients, it would be prudent to add Appleseed to your due diligence list and, perhaps, reach out to the team during the relative summer lull.

Fund website

Appleseed Fund. Folks interested in the historic relation of Fed policy, asset class performance, and inflation should read their First Quarter 2021 Fund Commentary.

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 36 new products in the pipeline, most of which will launch by late 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.

Three to add to your radar:

Brown Advisory Sustainable Small-Cap Core Fund, which draws on the discipline behind their wildly successful Brown Advisory Sustainable Growth fund, the small-cap core strategy itself has an outstanding record in the separate account space.

CrossingBridge Pre-Merger SPAC ETF, managed by David Sherman who believes that a subset of the SPAC universe can function like high yield, short-term bonds.

Ninety One Global Environment Fund, the US version of one of Europe’s most successful ESG funds.

Wasatch Long/Short Alpha Fund, which is intriguing because Wasatch rarely launches new funds and rarely screws up when they do.

By way of full disclosure and special thanks, the SEC’s Edgar database appears to have had a life crisis sometime in the middle of June. For a period of weeks, the search algorithm that usually allows us to identify new funds in registration simply stopped working. Then, in the last week of the month, it worked again. As a result, this is apt to be a somewhat more fragmentary report than usual.

Thanks then to the indefatigable Shadow on MFO’s discussion board, who quickly identified a number of intriguing possibilities – Wasatch Long/Short Alpha, Fidelity Water Sustainability, and Brown Advisory Sustainable Small-Cap Core among them – that my backup search strategy simply missed.

Brown Advisory Sustainable Small-Cap Core Fund

Brown Advisory Sustainable Small-Cap Core Fund will seek long-term capital appreciation by investing primarily in equity securities of small-cap companies. They target companies that focus on economic development, social inclusion, health & well-being, and environmental improvement. The fund will be managed by Timothy Hathaway and Emily Dwyer. They manage the Sustainable Small-Cap Core Strategy which has vaguely crushed its benchmark since inception (2017) with high active share and low beta. Its opening expense ratio is 1.09%, and the minimum initial investment will be $100.

Conestoga Mid Cap Fund

Conestoga Mid Cap Fund will seek long-term growth of capital. The plan is to apply the same growth-at-a-reasonable-price discipline used with their four-star small- and SMID-cap funds to mid-caps. The fund will be managed by Derek S. Johnston, co-manager of the SMid Cap Fund, and Ted Chang. Its opening expense ratio is 1.05%, and the minimum initial investment will be $2,500.

CrossingBridge Pre-Merger SPAC ETF

CrossingBridge Pre-Merger SPAC ETF, an actively managed ETF, seeks total returns consistent with the preservation of capital. The plan is to invest in the shares and units of Special Purpose Acquisitions Companies (SPACs) that have a minimum market cap of at least $100 million and were trading, at the time of purchase, at or below the SPAC’s pro-rata share of the trust account. At base, the SPACs collect money from investors and place that money in a trust account; CrossingBridge will buy shares only if the collateral in the bank exceeds the price of the shares. That account limits the downside and offers a bond-like yield. The fund will be managed by David Sherman. Its opening expense ratio has not been disclosed.

Easterly Snow Long/Short Opportunity Fund

Easterly Snow Long/Short Opportunity Fund will seek long-term capital appreciation and protection of investment principal. (The Easterly Snow is more prosaic here since Easterly is the advisor and Snow is the manager.) The plan is to invest in 30-60 stocks that are undervalued and short those which are overvalued. (No duh.) In addition, they may invest up to 50% in fixed income. The fund will be managed by Richard A. Snow, Jessica W. Bemer, and Anne S. Wickland. Its opening expense ratio has not been released, and the minimum initial investment will be $2,500.

Easterly Snow Small Cap Value Fund

Easterly Snow Small Cap Value Fund will seek long-term capital appreciation. I’ll note, in passing, that the name seems incredibly poetic. (The Easterly Snow part, not the Small Cap Value Fund part.) The plan is to invest in 40-60 stocks that are undervalued and are likely to experience a rebound in earnings due to an event or series of events that create a price-to-earnings expansion that leads to higher stock price valuations. Up to 25% might be international and up to 15% might be bonds. The fund will be managed by Joshua R. Schachter and Philip J. Greenblatt. Its opening expense ratio has not been released, and the minimum initial investment will be $2,500.

Ecofin Global Energy Transition Fund

Ecofin Global Energy Transition Fund seeks to generate a long-term total return. The plan is to invest in equity securities of companies that are exposed to secular growth opportunities related to the energy transition associated with decarbonization. The fund will be managed by Matthew Breidert and Max Slee of TCA Advisors. This is a repackaged version of a private fund that’s been running since 2019, though its performance information is not yet available. Its opening expense ratio has not been disclosed. The minimum initial purchase for “A” shares is $2,500.

Fidelity Water Sustainability Fund 

Fidelity Water Sustainability Fund will seek long-term growth of capital. The plan is to buy the securities of “water sustainability companies.” Global, all-cap, and a mix of growth and value. The fund will be managed by Janet Glazer. Its opening expense ratio has not been released and there is no minimum initial investment.

First Trust SkyBridge Crypto Leaders ETF

First Trust SkyBridge Crypto Leaders ETF, an actively managed ETF, seeks capital appreciation. The plan is to in the stock of companies participating in the digital asset ecosystem. The fund will be managed by Anthony Scaramucci (yes, that Anthony Scaramucci) and Brett Messing. Its opening expense ratio has not been released.

Geneva SMID Cap Growth Fund

Geneva SMID Cap Growth Fund will seek long-term capital appreciation. The plan is to buy the stocks of corporations that show strong growth characteristics such as a leadership position in the relevant industry, a sustainable advantage, strong earnings growth potential, and experienced management. The fund will be managed by Jose Munoz and Scott Priebe. Its opening expense ratio is 1.25%, and the minimum initial investment will be $2,500.

Goldman Sachs Future Real Estate and Infrastructure Equity ETF

Goldman Sachs Future Real Estate and Infrastructure Equity ETF, an actively managed ETF, seeks long-term growth of capital. The plan is to build an all-cap portfolio of stocks issued by high-quality businesses with sustainable growth in the real estate and infrastructure sector. The fund will be managed by Kristin Kuney, Raj Garigipati, Abhinav Zutshi, and Jamie McGregor. Its opening expense ratio has not been disclosed.

Hartford Schroders Commodity Strategy ETF

Hartford Schroders Commodity Strategy ETF, an actively managed ETF, seeks long-term total return. The plan is to buy commodity and currency futures contracts. The fund will be managed by James Luke, Malcolm Melville, and Dravasp Jhabvala. Its opening expense ratio has not been disclosed.

Hartford Sustainable Income ETF  

Hartford Sustainable Income ETF, an actively managed ETF, seeks current income and long-term total return, within a sustainability framework. The plan is to buy debt securities, both domestic and international, that promise reasonable yields and are issued by companies that Wellington Management believes are having a positive impact on the world. The fund will be managed by Campe Goodman, Joseph F. Marvan, and Robert D. Burn. Its opening expense ratio has not been disclosed.

iM Dolan McEniry Corporate Bond Fund

iM Dolan McEniry Corporate Bond Fund will seek total return with a secondary objective of preserving capital. The plan is to build a diversified portfolio of corporate investment-grade bonds, corporate high yield bonds, and U.S. Government and Treasury securities maturing within 10 years or less. Within the corporate bond sleeve, investment-grade will comprise 75% on average. The fund will be managed by a six-person team from Dolan McEniry, including Dolan and McEniry. The fund will operate within the Litman Gregory universe. Its opening expense ratio is 0.70%, and the minimum initial investment will be $1,000.

Jacob Forward ETF

Jacob Forward ETF, an actively managed ETF, seeks long-term growth. The plan is to construct an all-cap portfolio of growth-y and probably tech-y stocks. The manager does not anticipate more than 25% non-US. The fund will be managed by Ryan Jacob and Darren Chervitz. Its opening expense ratio has not been disclosed.

Janus Henderson International Sustainable Equity ETF

Janus Henderson International Sustainable Equity ETF, an actively managed ETF, seeks long-term growth of capital. The plan is to invest in 30-50 non-US companies whose products and services contribute to positive environmental or social change and sustainable economic development. They also avoid firms with more than de minimis exposure to 16 different categories, from “meat and dairy production” to “UN global compact violators.” The fund will be managed by Hamish Chamberlayne, CFA, and Aaron Scully, CFA. Its opening expense ratio has not been disclosed. The same prospectus covers a US Sustainable Equity ETF with the same team and strategy.

Janus Henderson Net Zero Transition Resources ETF

Janus Henderson Net Zero Transition Resources ETF, an actively managed ETF, seeks long-term growth of capital. The plan is to invest in 25-50 non-US companies whose products and services contribute to o the decarbonization of the global economy, such as carbon reduction, energy transition, sustainable mobility, sustainable industry, and sustainable agriculture. They also avoid firms with more than de minimis exposure to 12 different categories, from “chemicals of concern” to “UN global compact violators.” The fund will be managed by Tim Gerrard, Darko Kuzmanovic, Tal Lomnitzer, and Daniel Sullivan. Its opening expense ratio has not been disclosed. The same prospectus covers a US Sustainable Equity ETF with the same team and strategy.

JPMorgan Active Value ETF

JPMorgan Active Value ETF, an actively managed ETF, seeks long-term capital appreciation. The plan is to combine their U.S. Value strategy and Large Cap Value strategy. The fund will be managed by a team led by Scott Blasdell. Its opening expense ratio is 0.44%.

JPMorgan Income ETF

JPMorgan Income ETF, an actively managed ETF, seeks … well, income. The plan is to invest opportunistically among multiple debt markets and sectors. About the only constraint is a target duration of 10 years or less. The fund’s risk disclosure runs to a hefty 4,920 words. The fund will be managed by a team headed by J. Andrew Norelli. Its opening expense ratio has not been disclosed.

KraneShares China Innovation ETF

KraneShares China Innovation ETF, an actively managed ETF, seeks growth of capital. The plan is to invest in their own China ETFs, which are mostly sector-based: Internet, health, clean tech, 5G & semiconductors. The fund will be managed by James Maund. Its opening expense ratio is 0.99%.

MainStay ESG Multi-Asset Allocation Fund

MainStay ESG Multi-Asset Allocation Fund will seek long-term capital growth and some income. The plan is to become a fund of ESG-screened ETFs with a starting 60/40 asset allocation. The fund will be managed by a team from New York Life. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $2,500 for “A” shares and $1,000 for Investor shares. (No, I don’t understand it either. Nor do I find the offer to pick from the limited universe of ESG ETFs terribly compelling.)

Mohr Growth ETF

Mohr Growth ETF, an actively managed ETF, seeks capital appreciation. The plan is to create “a tactical go-anywhere approach to invest in a wide variety of asset classes” backstopped by “a proprietary technology that primarily analyzes the price of a security and attempts to identify upward and downward trends.” The fund will be managed by Dan Mohr, a former sales rep & business development guy for Principal Financial. He now runs Retireful LLC. Its opening expense ratio has not been disclosed. The same prospectus covers two other funds, Adaptive Core and Mindful Conservative, with the same manager and strategy but different risk profiles.

Ninety One Global Environment Fund

Ninety One Global Environment Fund will seek capital growth and long-term income. The plan is to invest in “environmental companies,” which are those helping to drive “sustainable decarbonization.” The fund will be managed by Deirdre Cooper and Graeme Baker. This is the American version of a British fund named “environmental fund of the year, 2020” by Environmental Finance. The fund is focused, with a high active share. The adviser has about $30 billion AUM and is headquartered in London. Its opening expense ratio is 1.15%, and the minimum initial investment for “A” shares will be set by the online platform through which you purchase them.

Ninety One International Franchise Fund

Ninety One International Franchise Fund will seek long-term capital growth. The plan is to build a portfolio of non-U.S. companies located throughout the world that the adviser believes have rare and exceptional qualities that create enduring competitive advantages and strong international brands or franchises. The fund will be managed by Elias Erickson. Its opening expense ratio is 1.10%, and the minimum initial investment for “A” shares will be set by the online platform through which you purchase them.

 Rational Inflation Growth Fund

Rational Inflation Growth Fund will seek long-term capital appreciation. The plan is to buy the stocks of (primarily) US firms whose businesses have “a strong positive correlation to inflation, including but not limited to the real estate, infrastructure, energy, and commodities.” The fund will be managed by Simon Lack and Henry Hoffman of SL Advisors. Its opening expense ratio for “A” shares, which nominally carry a 5.75% sales load, is 1.74% and the minimum initial investment will be $1,000. The fund is also issuing archaic, egregiously expensive “C” shares which is rarely a good sign.

Simplify Tail Risk Strategy ETF

Simplify Tail Risk Strategy ETF, an actively managed ETF, seeks to provide income and capital appreciation while protecting against significant downside risk. The plan is to invest in fixed income securities, equity securities, and income-generating ETFs while hedging “all or some of the downside risks” using a bunch of derivatives. The fund will be managed by a team led by Paul Kim. Its opening expense ratio is 0.50%.

Simplify Risk Parity Treasury ETF

Simplify Risk Parity Treasury ETF, an actively managed ETF, seeks to provide returns that correspond to two and half times (2.5x) of the performance of the ICE U.S. Treasury 7-10 Year Total Return Index on a calendar quarter basis. (Wow.) The plan is to invest in a combination of Treasury futures contracts and high-quality short-term securities. The fund will be managed by a team led by Paul Kim. Its opening expense ratio is 0.15%.

SPDR Loomis Sayles Opportunistic Bond ETF

SPDR Loomis Sayles Opportunistic Bond ETF, an actively managed ETF, seeks to maximize total return. The plan is to “multi-asset credit strategy” that seeks to capture credit risk premiums in countries and markets that it believes can offer strong risk-adjusted return potential over a full market cycle. In general, the effective maturity will be 0-7 years. The fund will be managed by Kevin Kearns, Andrea DiCenso, and Tom Stolberg. Its opening expense ratio has not been disclosed.

T. Rowe Price QM U.S. Bond ETF

T. Rowe Price QM U.S. Bond ETF, an actively managed ETF, seeks to outperform the US investment-grade bond market. The plan is to use quantitative models designed to help replicate the overall risk factors and other characteristics of the index in a more efficient manner. The fund will be managed by Robert M. Larkins. Its opening expense ratio has not been disclosed.

T. Rowe Price Total Return ETF

T. Rowe Price Total Return ETF, an actively managed ETF, seeks to maximize total return through income and, secondarily, capital appreciation. The plan is to invest, “with considerable flexibility,” across the fixed income universe, with up to 20% non-US and 35% high yield. The fund will be managed by Christopher P. Brown and Anna Alexandra Dreyer. Its opening expense ratio has not been disclosed.

T. Rowe Price Ultra Short-Term Bond ETF

T. Rowe Price Ultra Short-Term Bond ETF, an actively managed ETF, seeks a high level of income consistent with low volatility of principal value. The plan is to build a portfolio of shorter-term investment-grade corporate and government securities, including mortgage-backed securities, municipal securities, money market securities, and bank obligations, and securities of foreign issuers, including up to 10% of net assets in non-U.S. dollar-denominated securities of foreign issuers. The fund will be managed by Alexander S. Obaza. Its opening expense ratio has not been disclosed.

Volt Bitcoin Revolution ETF

Volt Bitcoin Revolution ETF, an actively managed ETF, seeks capital appreciation. The plan is to invest in the bitcoin infrastructure, companies that: (i) hold or have held bitcoin on their balance sheet,; (ii) are actively using blockchain; or (iii) are building the bitcoin infrastructure. The fund will be managed by Tad Park of Volt Equity LLC. Its opening expense ratio has not been disclosed.

Wasatch Long/Short Alpha Fund

Wasatch Long/Short Alpha Fund will seek long-term capital growth. The plan is to combine quantitative models and “bottom-up” analysis to build a portfolio that invests in firms with above-average revenue and growth potential and shorts … well, losers. The fund will be non-diversified with potentially significant exposure to small- and mid-cap stocks (greater than 35%), non-US equities, and short positions (the not-to-exceed for shorts is 60% of the portfolio). The fund will be managed by Mick Rasmussen. Mr. Rasmussen joined Wasatch as a quant equity analyst in 2014, but has a degree in Music Production and has DJed in Los Angeles. Its opening expense ratio is 1.75%, and the minimum initial investment will be $2,000, reduced to $1,000 for accounts with an automatic investment plan.

Manager Changes, June 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 ten 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 60 funds saw changes in their management teams. The month’s biggest story is probably a non-story: David Wallack is relinquishing the reins at the four-star, $15 billion T. Rowe Price Mid-Cap Value (TRMCX) … but, in true T. Rowe Price fashion, the retirement will come after a year-long transition and Price (along, perhaps, with Mairs & Power) have been virtually flawless in their ability to train and integrate new managers into distinguished funds.

Ticker Fund Out with the old In with the new Dt
ALATX AB Multi-Manager Alternative No one, but… Brian Briskin joins Vikas Kapoor as a portfolio manager for the fund. 6/21
BSASX Baillie Gifford Asia Ex Japan Ewan Markson-Brown will no longer serve as portfolio manager for the fund. Ben Durrant joins Rod Snell as a portfolio manager for the fund. 6/21
BGEGX Baillie Gifford Emerging Markets Equities Ewan Markson-Brown will no longer serve as portfolio manager for the fund. Ben Durrant joins Andrew Stobart and Mike Gush in managing the fund. 6/21
MDBAX BlackRock Basic Value Franco Tapia is no longer listed as a portfolio manager for the fund. Joseph Wolfe, Tony DeSpirito, and David Zhao will continue to manage the fund. 6/21
MSDVX BlackRock Equity Dividend Franco Tapia is no longer listed as a portfolio manager for the fund. Tony DeSpirito and David Zhao will continue to manage the fund. 6/21
BMCIX BlackRock High Equity Income Franco Tapia is no longer listed as a portfolio manager for the fund. Tony DeSpirito, Kyle McClements, Christopher Accettella, Tom Pierce, and David Zhao will continue to manage the fund. 6/21
MARFX BlackRock Mid Cap Dividend Franco Tapia is no longer listed as a portfolio manager for the fund. Tony DeSpirito and David Zhao will continue to manage the fund. 6/21
BPEMX Boston Partners Emerging Markets No one, but… David Kim joins Paul Korngiebel and Joseph Feeney in managing the fund. 6/21
BELSX Boston Partners Emerging Markets Dynamic Equity No one, but… David Kim joins Paul Korngiebel and Joseph Feeney in managing the fund. 6/21
BUYIX Catalyst Pivotal Growth Michael Schoonover and Charles Ashley will no longer serve as portfolio managers for the fund. Christopher Chiu, George Tkaczuk, and Timothy Webb will now serve as portfolio managers for the fund. 6/21
DCXIX Catalyst/Millburn Dynamic Commodity Strategy David Miller is no longer listed as a portfolio manager for the fund. Grant Smith, Barry Goodman, and Harvey Beker will now serve as portfolio managers for the fund. 6/21
RIMHX City National Rochdale Dividend & Income David Abella is no longer serving as a portfolio manager for the fund. Thomas Galvin is now managing the fund. 6/21
QWVOX Clearwater Select Equity Effective June 11, 2021, Kennedy Capital Management, Inc no longer serves as a subadvisor to the fund.   6/21
AQEAX Columbia Disciplined Core No one, but… Oleg Nusinzon joins Pater Albanese and Raghavendran Sivaraman as a portfolio manager for the fund. 6/21
CGQFX Columbia Disciplined Growth No one, but… Oleg Nusinzon joins Pater Albanese and Raghavendran Sivaraman as a portfolio manager for the fund. 6/21
COLYX Columbia Disciplined Value No one, but… Oleg Nusinzon joins Pater Albanese and Raghavendran Sivaraman as a portfolio manager for the fund. 6/21
CFRZX Columbia Floating Rate Steven Columbaro will no longer serve as a portfolio manager for the fund. Vesa Tontti and Daniel DeYoung will continue to manage the fund. 6/21
NMIMX Columbia Large Cap Enhanced Core No one, but… Oleg Nusinzon joins Pater Albanese and Raghavendran Sivaraman as a portfolio manager for the fund. 6/21
RRGRX DWS RREEF Global Real Estate Securities John Hammond will leave the management team on September 30, 2021. Barry McConnell joins Chris Robinson, David Zonavetch, Robert Thomas, and John Hammond in managing the fund. 6/21
EIDOX Eaton Vance Emerging Markets Debt Opportunities No one, but… Akbar Causer joins John Baur and Michael Cirami as a portfolio manager for the fund. 6/21
EEIAX Eaton Vance Emerging Markets Local Income No one, but… Brian Shaw joins John Baur and Michael Cirami as a portfolio manager for the fund. 6/21
EAGMX Eaton Vance Global Macro Absolute Return  No one, but… Patrick Campbell, Kyle Lee, Sarah Orvin, and Federico Sequeda join John Baur and Michael Cirami in managing the fund. 6/21
EGRAX Eaton Vance Global Macro Absolute Return Advantage No one, but… Patrick Campbell, Kyle Lee, Sarah Orvin, and Federico Sequeda join John Baur and Michael Cirami in managing the fund. 6/21
FDIV First Trust Strategic Income ETF No one, but… Dan Suzuki joins the management team for the fund. 6/21
FKSCX Franklin International Small Cap Edwin Lugo and Pankaj Nevatia are no longer listed as portfolio managers for the fund. Sean Bogda, Paul Ehrlichman, Safa Muhtaseb, and Grace Su will now manage the fund. 6/21
MXLGX Great-West Large Cap Growth  No one, but… David Chamberlain and Yves Raymond join Joseph Wilson, Larry Lee, Holly Fleiss, Giri Devulapally, Paul Cloonan, and Andrew Acheson in managing the fund. 6/21
GMLVX GuideMark Emerging Markets Stephen Platt will no longer serve as a portfolio manager for the fund. Ronan Heaney and Khalid Ghayur continue to manage the fund. 6/21
GMLGX GuideMark Large Cap Core Stephen Platt will no longer serve as a portfolio manager for the fund. Ronan Heaney and Khalid Ghayur continue to manage the fund. 6/21
GMSMX GuideMark Small/Mid Cap Core Stephen Platt will no longer serve as a portfolio manager for the fund. Ronan Heaney and Khalid Ghayur continue to manage the fund. 6/21
GIWEX GuideMark World ex-US Stephen Platt will no longer serve as a portfolio manager for the fund. Ronan Heaney and Khalid Ghayur continue to manage the fund. 6/21
HAIDX Harbor Diversified International All Cap David Cull and Michael Godfrey will no longer serve as portfolio managers for the fund. Alex Duffy joins the rest of the management team. 6/21
HAEMX Harbor Emerging Markets Equity David Cull and Michael Godfrey will no longer serve as portfolio managers for the fund. Alex Duffy will remain as the sole portfolio manager for the fund. 6/21
HAINX Harbor International David Cull is no longer listed as a portfolio manager for the fund. Alex Duffy joins the rest of the management team. 6/21
JUCAX Janus Henderson Absolute Return Income Opportunities No one, but… Dylan Bourke and Daniel Siluk join Nick Maroutsos and Jason England as portfolio managers for the fund. 6/21
LBCGX Left Brain Compound Growth Mark Hines is no longer listed as a portfolio manager for the fund. Noland Langford and Brian Dress continue to manage the fund. 6/21
MVPFX Marathon Value Portfolio Todd Jones will no longer serve as a portfolio manager for the fund. Joel Hirsh, Mitchell Kovitz, and Jonathan Shapiro will now serve as portfolio managers for the fund. 6/21
MIDAX MFS International New Discovery Effective April 15, 2023, Jose Luis Garcia will no longer be a portfolio manager of the fund. In March 2021, Lionel Gomez joined Peter Fruzzetti, Jose Luis Garcia, Robert Lau, and Sandeep Mehta in managing the fund. 6/21
NABAX Neuberger Berman Absolute Return Multi-Manager Effective June 18, 2021, Good Hill Partners LP will no longer act as a subadviser to the fund. David Kupperman, Jeffrey Majit, and Fred Ingham continue to manage the fund. 6/21
OWLSX Old Westbury Large Cap Strategies Effective June 30, 2021, Harding Loevner LP will no longer serve as a sub-adviser for its portion of the fund’s portfolio. Effective June 30, 2021, a team from  Baillie Gifford Overseas Limited will act as a sub-adviser to the fund. 6/21
PXWEX Pax Ellevate Global Women’s Leadership Barbara Browning will no longer serve as a portfolio manager for the fund. Christine Cappabianca joins Scott LaBreche as a portfolio manager for the fund. 6/21
PXDIX Pax Global Sustainable Infrastructure Andrew Braun will no longer be listed as a portfolio manager for the fund. Christine Cappabianca joins Scott LaBreche as a portfolio manager for the fund. 6/21
PXNIX Pax International Sustainable Economy No one, but… Christine Cappabianca joins Scott LaBreche as a portfolio manager for the fund. 6/21
PWGIX Pax U.S. Sustainable Economy Andrew Braun will no longer be listed as a portfolio manager for the fund. Christine Cappabianca joins Scott LaBreche as a portfolio manager for the fund. 6/21
RESGX Responsible ESG U.S. Equity Portfolio No one, but… Amy Wilson joins Vladimir de Vassal, Paul Sullivan, and Alexander Atanasiu as a portfolio manager for the fund. 6/21
SHE SPDR SSGA Gender Diversity Index ETF Lynn Blake will no longer serve as a portfolio manager for the fund. Melissa Kapitulik and Amg Cheng continue to manage the fund. 6/21
SEECX Steward Large Cap Core  Ryan Caylor and John Wolf will no longer serve as portfolio managers for the fund. Robert Doll joins Brent Lium in managing the fund. 6/21
SCECX Steward Small Cap Growth John Wolf is no listed as a portfolio manager for the fund. Brent Lium and Ryan Caylor continue to manage the fund. 6/21
TRAOX T. Rowe Price Asia Opportunities Effective April 1, 2022, Mr. Moffett will step down as the fund’s co-portfolio manager. Effective July 1, 2021, Ji Hong Min will join Eric Moffett as a co-portfolio manager of the fund. 6/21
TRMCX T. Rowe Price Mid-Cap Value Long-time manager, and the 2016 Morningstar Fund Manager of the Year, David Wallack, will retire on June 1, 2022. Vincent DeAugustino will take over the fund upon Mr. Wallack’s retirement. 6/21
WEIAX TETON Convertible Securities  Jane O’Keeffe has retired as a portfolio manager of the fund. Thomas Dinsmore and James Dinsmore will continue to manage the fund. 6/21
TWAOX Thomas White American Opportunities Ramkumar Venkatramani is no longer serving as a portfolio manager for the fund. Wei Li, Douglas Jackman, Jinwen Zhang, Jianzhong Wu, and Rex Mathew continue to serve as portfolio managers of the fund. 6/21
TWWIX Thomas White International Ramkumar Venkatramani is no longer serving as a portfolio manager for the fund. Wei Li, Douglas Jackman, Jinwen Zhang, Jianzhong Wu, and Rex Mathew continue to serve as portfolio managers of the fund. 6/21
TLGQX TIAA-CREF Life Growth Equity No one, but… Karen Hiatt has joined Terrence Kontos as a portfolio manager for the fund. 6/21
UNAVX USA Mutuals Navigator  Ben Warwick is no longer listed as a portfolio manager for the fund. Paul Stehle is the sole portfolio manager for the fund. 6/21
VICEX USA Mutuals Vice Global  Ben Warwick is no longer listed as a portfolio manager for the fund. Paul Stehle is the sole portfolio manager for the fund. 6/21
VAPPX VALIC Company I Capital Appreciation  Ernesto Ramos has left the fund but remains with the company. Jason Hans, David Corris, and J.P. Gurnee will continue to manage the fund. 6/21
VCIGX VALIC Company I Dividend Value Timothy Pettee, Timothy Campion, Franco Tapia, and Jane Algieri no longer serve as portfolio managers for the fund. Tony DeSpirito and David Zhao continue to manage the fund. 6/21
VMMSX Vanguard Emerging Markets Select Stock Ewan Markson-Brown is no longer serving as a portfolio manager for the fund. Andrew Stobart and Mike Gush remain as the portfolio managers for the fund. 6/21
IEDAX Voya Large Cap Value No one, but… Gregory Wachsman joins Vincent Costa and James Dorment as a portfolio manager for the fund. 6/21
GWILX Women in Leadership U.S. Equity Portfolio No one, but… Amy Wilson joins Vladimir Vassal, Paul Sullivan, and Alexander Atanasiu in managing the fund. 6/21

 

Briefly Noted

By David Snowball

Updates

AMG River Road Long-Short is no more. At an as-yet-unspecified date following the inevitable shareholder approval, the $20 million / four-star AMG River Road Long-Short Fund will be wiped away, with its regulatory paperwork giving rise to AMG River Road International Value Equity Fund. Its portfolio (which has only 5% international equity exposure) will be liquidated and replaced with a new all-cap, absolute value portfolio. The new managers will be Wenjun (William) Yang and Jeffrey Hoskins, the latter being an ESG specialist. On the upside, several fees – including the management fee – are dropping, which might translate to a less expensive fund.

David Hobbs has resigned as Principal, Vice President, Treasurer, and Principal Financial Officer at Cook & Bynum Capital Management. His resignation is effective on September 30, 2021. David’s corporate bio now reads, “Mr. Hobbs currently serves as Chief Financial Officer and Chief Investment Officer for EBSCO Industries.” Folks familiar with doing online academic research would be familiar with the EBSCO research databases, a huge searchable corpus covering 375 full-time databases and 600,000+ ebooks. Like Cook & Bynum, it’s a private, Alabama-based firm with a strong record of community engagement.

Hsiao sighting: On August 24, 2020, Matthews Asia announced the departure of manager Tiffany Hsiao. Ms. Hsiao managed Matthews China Small Companies (MCSMX, since 2015) and, with long-time lead manager Michael Oh, Matthews Asia Innovators (MATFX, since 2018). CityWire ranks her as a “AAA” manager and describes her as “a star.” By their rating system, she was the second-ranked female portfolio manager in the US. She’s piloted China Small Companies to a five-star record and considerable acclaim. She’s been described as “brilliant and driven.” Over the past five years, roughly the period in which she’s managed the fund, China Small Companies has the highest returns (21.5% annualized) and highest Sharpe ratio (0.99) of any China region fund in the Lipper database.

She joined Artisan Partners immediately upon departing Matthews.

On July 1, 2021, Artisan Partners announced that she had been given responsibility for their new Artisan China Post-Venture Strategy. Her investment passion is in finding innovators and disruptors, and her new strategy will invest in 20-40 high-growth, small- to mid-caps firms. It also has the ability to invest up to 15% in private assets.

The fund is not available to the general public.

Mairs & Power Small Cap Fund has added SPACs to its investible universe. There is no defined limit on the fund’s ability to invest in SPACs, but Mairs & Power is an awfully prudent bunch.

Osterweis Capital Management announced on July 1, 2021, that the Osterweis Strategic Investment Fund is being renamed the Osterweis Growth & Income Fund. At the same time, it reduced the management fee to 0.75% for both Osterweis Fund (OSTFX) and Osterweis Growth & Income Fund (OSTVX). We’ll update our profile of Osterweis Strategic Investment (“It is easy to dismiss OSTVX because it refuses to play by other people’s rules; it rejects the formulaic 60/40 split, it refuses to maintain a blind commitment to investment-grade bonds, its stock sector-, size- and country-weightings are all uncommon”) to reflect the changes.

Briefly Noted . . .

Moving to active: On August 28, 2021, Steward Large Cap Enhanced Index Fund will be renamed Steward Large Cap Core Fund, and Steward Small-Mid Cap Enhanced Index Fund will be renamed Steward Small Cap Growth Fund. Both become active, values-oriented funds whose managers “may also consider a company’s environmental, social and governance (ESG) characteristics.” The funds will actively avoid firms involved in alcohol, tobacco, gambling, the provisions of abortion-related services, adult entertainment, and recreational cannabis.

Moving to passive: On August 3, 2021, Aberdeen Standard Bloomberg All Commodity Strategy K-1 Free ETF and Aberdeen Standard Bloomberg All Commodity Longer Dated Strategy K-1 Free ETF will no longer operate as actively managed funds.

Moving to ETFville: Sometime in the second quarter of 2021, Cannabis Growth Fund becomes the Cannabis Growth ETF. The growth since inception has been negative: Morningstar calculates that an initial investment of $10,000 would have dwindled to $7863 (as of 6/25/2021) because of a disastrous first year.

Adding to the ETFville traffic: DFA has converted four open-end funds with around $30 billion in assets into active, transparent ETFs. They are

  • Dimensional U.S. Equity ETF (DFUS, formerly Tax-Managed U.S. Equity Portfolio DTMEX)
  • Dimensional U.S. Small Cap ETF (DFAS, formerly Tax-Managed U.S. Small Cap Portfolio DFTSX)
  • Dimensional U.S. Targeted Value ETF (DFAT, formerly Tax-Managed U.S. Targeted Value Portfolio DTMVX)
  • Dimensional U.S. Core Equity 2 ETF (DFAC, formerly T.A. U.S. Core Equity 2 Portfolio DFQTX)

The ETFs have lower expenses than their predecessors, on average 27% lower, with expense ratios of 11 – 34 bps. Two more conversions are anticipated in the fall.

Moving to space: Procure Space ETF just added a first-of-its-kind risk disclosure. UFOs.

Unidentified Aerial Phenomena (“UAP”) Risk

A UAP, formerly known as an “unidentified flying object” or “UFO,” is a flying object that looks or moves unlike any known aircraft used by the US or any foreign country. Recently, the US military has acknowledged the existence of UAPs and confirmed the authenticity of certain videos and images purporting to show UAPs. Given that currently there is no identification of these observed phenomena, it is possible that UAPs could create unintentional or deliberate operational, data security, “cyber,” and other interference with the operation of satellites and other objects in space. Such activities could result in a significant adverse impact on the Fund’s securities, thereby causing the Fund’s investment in such portfolio securities to lose value and adversely affecting the Fund’s ability to fulfill its investment objectives.

SMALL WINS FOR INVESTORS

DF Dent Premier Growth Fund, DF Dent Midcap Growth Fund, and DF Dent Small Cap Growth Fund, which are three- and four-star funds, have eliminated their 2% redemption fees. 

Effective July 1, 2021, Class I Shares of Gabelli Small Cap Growth Fund, Equity Income Fund, and Global Financial Services Funds are available to investors with a minimum initial investment amount of $10,000. Previously, the minimum was $500,000.

Effective July 1, 2021, Zeo Short Duration Income is reducing its e.r. by a little (4 bps), and Zeo Sustainable Credit is dropping it by a lot (33 bps, to 0.99%). Both funds are adding a much-needed assistant PM to add analytic support.

CLOSINGS (and related inconveniences)

As of the close of business on August 16, 2021, the American Century Small Cap Value Fund will be generally closed to new investors other than those who (i) invest directly with American Century (where American Century is listed as the dealer of record); (ii) invest through certain financial intermediaries selected by American Century; or (iii) otherwise qualify for an exemption under American Century’s closed fund policy.

Effective after the close of business on June 20, 2021, the Artisan International Value Fund will be closed to most new investors.

OLD WINE, NEW BOTTLES

AMG Managers Fairpointe Mid Cap Fund has become AMG River Road Mid Cap Value Fund.

On August 9, 2021, AMG GW&K Small Cap Value Fund II (formerly AMG Managers Silvercrest Small Cap Fund) will be merged into AMG GW&K Small Cap Value Fund. 

On or about August 31, 2021, Blackrock Basic Value Fund becomes BlackRock Large Cap Focus Value Fund. The new portfolio will hold 30 – 50 funds.

Effective August 31, 2021, “all references to BlackRock Mid Cap Dividend Fund are changed to BlackRock Mid‑Cap Value Fund to reflect the Fund’s new name.” Curiously, there’s no new strategy to be reflected. That’s curious because changing a fund’s name without changing its strategy is usually a marketing ploy, but this fund has managed to pair a mediocre YTD performance with really large YTD fund inflows.

Effective October 1, 2021, the BlackRock CoreAlpha Bond Fund will change its name to the BlackRock Advantage CoreAlpha Bond Fund.

On or about September 23, 2021, the BlackRock Emerging Markets Flexible Dynamic Bond Portfolio will change its name to the BlackRock Sustainable Emerging Markets Flexible Bond Fund. Less dynamic, more sustainable, still flexible … it’s like marketing buzz bingo.

Effective July 1, 2021, the BlackRock Systematic ESG Bond Fund becomes the BlackRock Sustainable Advantage CoreAlpha Bond Fund. The change is accompanied by a reduction in the fund’s investment advisory fee.

On June 25, 2021, the Blueprint Growth Fund became the Blueprint Adaptive Growth Allocation Fund.

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

On July 1, the name of the ClearBridge Focus Value ETF changed to ClearBridge and ClearBridge All Cap Growth ETF to ClearBridge All Cap Growth ESG ETF.

Effective June 1, 2021, the name of the Hennessy BP Energy Fund has been changed to the Hennessy BP Energy Transition Fund.

On or about July 8, 2021, JPMorgan Emerging Markets Equity Core ETF becomes JPMorgan ActiveBuilders Emerging Markets Equity ETF.

On or about June 24, 2021, the Board approved the reorganization of the Schroder Funds into the Hartford Schroders Sustainable Core Bond Fund.

Effective August 1, 2021, KraneShares CCBS China Corporate High Yield Bond USD Index ETF becomes KraneShares Asia Pacific High Yield Bond ETF. The new fund will track the performance of an unspecified “specific fixed income securities index.”

Effective June 11, 2021, Trend Aggregation Dividend Stock ETF became The Active Dividend Stock ETF.

Effective on or about July 16, 2021, USA Mutuals Navigator Fund changes its name to USA Mutuals All Seasons Fund. 

Effective June 23, 2021, VanEck Vectors Real Asset Allocation ETF became VanEck Inflation Allocation ETF. Same fund, different marketing.

On or about June 30, 2021, the name and principal investment strategies of the WCM Focused ESG Emerging Markets Fund, and WCM Focused ESG International Fund will be changed:

  • The name of the WCM Focused ESG Emerging Markets Fund will be changed to WCM Sustainable Developing World Fund.
  • The name of the WCM Focused ESG International Fund will be changed to WCM Sustainable International Fund.

OFF TO THE DUSTBIN OF HISTORY

Early in the fourth quarter of 2021, AB FlexFeeTM Large Cap Growth Portfolio will be merged into AB Large Cap Growth Fund.

Aegon Emerging Markets Debt Fund was liquidated on June 25, 2021.

Amplify CrowdBureau Online Lending, and Digital Banking ETF will be liquidated by June 28, 2021. It tracked a peer-to-peer lending index, earned a Morningstar Q analyst rating of Silver … and managed to turn $10,000 at inception into $6868.

BMO Global Low Volatility Equity Fund will be liquidated on July 30, 2021. The liquidation was approved back in February, then suspended while BMO reconsidered, and is now on track again.

BNY Mellon Large Cap Stock will be liquidated on July 28, 2021.

Dupont Capital Emerging Markets Fund will experience “final liquidation” on or about July 28, 2021.

On August 23, 2021, iShares Russell 1000 Pure U.S. Revenue ETF (AMCA), iShares Currency Hedged MSCI Mexico ETF (HEWW) iShares Adaptive Currency Hedged MSCI EAFE ETF (DEFA), iShares Factors U.S. Blend Style ETF (STLC), iShares Factors US Mid Blend Style ETF (STMB), iShares Factors U.S. Small Blend Style ETF (STSB), and iShares International Preferred Stock ETF (IPFF) will be liquidated.

On or about July 16, 2021, JOHCM International Small Cap Equity Fund will be liquidated. JOHCM has been trying to arrange a series of fund mergers but hasn’t been able to secure shareholder quorums, so they appear to be moving to Plan B.

Pacer Military Times Best Employers ETF will be closed and liquidated immediately after the close of business on July 29, 2021.

On June 25, 2021, the Board of Trustees approved the termination and winding down of Pacific Global Focused High Yield ETF with the liquidation payment to shareholders expected to take place on or about August 5, 2021.

At some point in the fourth quarter of 2021, Schroder Core Bond Fund will merge into Hartford Schroders Sustainable Core Bond Fund.

The TIFF Short-Term Fund was liquidated on June 15, 2021.

Tortoise MLP & Energy Infrastructure Fund has been merged into the Tortoise MLP & Energy Income Fund.

The TIFF Short-Term Fund was liquidated on June 15, 2021.

PGIM QMA Global Tactical Allocation Fund is expected to be liquidated on August 23, 2021.

In October 2021, Wells Fargo will simplify its target-date fund lineup by … well, merging half of its funds out of existence.

Wilmington Short-Term Bond Fund will be liquidated on July 22, 2021. That is, indeed, short-term. Wilmington Intermediate-Term Fund will be merged into the Broad Market Bond Fund, but the date has not been disclosed.