Updates
The sad saga of Phaeacian Global Value and Phaeacian Accent International Value funds rolls on long after the funds’ liquidation. As MFO readers know, both started life as (entirely excellent) FPA funds. FPA and the managers negotiated a deal with London-based Polar Capital for the funds and their teams to be adopted by Polar under the Phaeacian brand. In principle, the deal made sense for both parties, with the funds receiving broader distribution and FPA receiving a revenue-sharing agreement and a chance to refocus on their core products.
In reality, the partnership imploded in recrimination and accusation within a couple of years. It has culminated in suit and counter-suit. Will Schmitt of CityWire has read the managers’ (redacted) filing against Polar Capital. Nuggets that he uncovered:
tensions between Polar and portfolio manager Py reared their head almost instantly after Phaeacian launched.
Py was quietly suspended twice by his new employer, in March 2021 and January 2022, a step that included blocking him from trading.
Py’s part-time residency in Switzerland might have triggered one of them
in 2021 Phaeacian was asked to allow Polar to control its bank accounts
Phaeacian regained control then Py was suspended again in January 2022 with the demand that Polar regain control of the bank accounts
The duo has also claimed that Polar ‘delayed multiple times’ the launch of a small-cap strategy that had been approved and seeded, that it lacked a business development team to help sell their strategies, and that it ‘blocked’ Phaeacian from hiring marketing staff, among other issues.
Py and Herr claim that these actions led to the ‘destruction of the business’.
The filings with the Delaware Court of Chancery are held by a third-party service provider, and we’ve applied for public access to the documents. Until then, interested parties should read Mr. Schmitt’s long report (“Bank battles and suspended PMs: Inside a boutique’s ‘destruction,’” 12/8/2022).
Briefly Noted . . .
PIMCO Funds has announced several reverse stock splits. Its PIMCO Extended Duration, PIMCO Long-Term U.S. Government, and PIMCO RealEstateRealReturn Strategy Fund will have a one-for-four reverse split. PIMCO RAE PLUS, PIMCO StocksPLUS Long Duration, PIMCO CommodityRealReturn Strategy, and PIMCO Long-Term Real Return Funds will have a one-for-three reverse split. The reverse splits will be effective March 24.
The beat goes on … ETF Trends reports that “Since March of 2021, 33 mutual funds, with almost $60 billion in AUM, converted themselves into ETFs” (ETF Trends, 1/27/2023). We will move to 34 conversions when Matthews Korea Fund is reorganized into an active ETF titled the Korea ETF. The Korea ETF will be managed in a substantially similar manner as the Fund, with identical investment objectives and fundamental investment policies, and substantially similar investment strategies. It is anticipated the reorganization will be completed in early 2023.
The good news about the fund is that it has roughly and consistently doubled the return of the Korean stock market. The less-good news is that its absolute returns remain subdued, about 5.7% annually since 1995 and 3.65% over the past decade.
In mid-June 2022, Matthews welcomes a new CEO, Cooper Abbott, to succeed the retiring Bill Hackett. Mr. Abbott has more than 20 years of senior investment management experience and served as president and chairman at Carillon Tower Advisors. The firm has seen a flurry of changes since his arrival, including manager departures, fund liquidations, and ETF launches. Given the challenges that the firm faces, that’s not automatically negative. Morningstar’s William Samuel Rocco concludes, “All this means that the CEO transition from Hackett to Abbott isn’t cause for fund investors to be concerned.”
Sunbridge Capital Emerging Markets Fund will liquidate its institutional share class of the fund on or about February 10. The fund’s Investor share class will be redesignated as the institutional share class as of December 30, with the investor share class having the same fee structure as the institutional share class. Total annual fund operating expenses have been agreed upon to be limited at 1.35% from its previous 1.60% of average daily net assets. The decision to combine share classes was recommended by the advisor to rationalize the fund’s expenses in the best interest of the fund’s shareholders.
As was previously announced in the January commentary, North Star Investment Management was selected as the advisor to Walthausen Small Cap Value Fund. The Walthausen Small Cap Value Fund is being reorganized into the North Star Small Cap Value Fund. The investment strategy will be primarily in common stocks of small capitalization companies that the Adviser believes have the potential for capital appreciation with market capitalizations of $2 billion or less at the time of purchase.
We regret to announce the passing of Allen D. Steinkopf (1961-2022), one of the managers of the Mairs & Power Small Cap Fund, on December 21. Mr. Steinkopf was the fund’s co-manager, but Mairs & Power chose to focus on the greater significance of the loss: of a friend, mentor, husband, father, son, and friend. They write:
Allen brought so much more to us than his keen intellect and thoughtful analysis. He was passionate about coaching and mentoring people to enable them to believe in themselves. He touched people’s hearts and changed their lives. He is survived by many family and friends. Please keep them in your thoughts and prayers as they navigate through this tremendous loss.
It feels especially sad that Allen had already planned to retire at the end of 2023. The firm had been positioning the leadership of the fund in anticipation of that change. “As part of planning for his retirement, Allen had been working with backup investment managers for his separately managed accounts and sharing coverage of the companies he follows with the other investment professionals who are on the investment committee. Since 2019, we have strengthened the bench of the Small Cap team by bringing on Chris Strom and Mike Marzolf to join Andy Adams, lead manager of the Small Cap Fund.”
Our condolences to his family and friends on their loss.
SMALL WINS FOR INVESTORS
Champlain Mid Cap Fund reopened to investors on January 17. The five-star rated fund was closed to new investors on October 1, 2017. According to Citywire:
“Its assets continued to grow since then, peaking at $7.5bn in October 2021. Like almost all growth funds, the strategy suffered last year, falling 26.5% with assets dropping from $7.4bn at the end of 2021 to $5.3bn at the end of 2022 amid a steep selloff in equities. Net outflows over the year were relatively muted at just $123m.”
Frontier MFG Global Equity Fund reopened to new investors on January 9.
Vanguard Multi-Sector Income Bond Fund (VMSAX, VMSIX) became available to investors on January 26.
CLOSINGS (and related inconveniences)
None in sight.
OLD WINE, NEW BOTTLES
A long series of Pacific Funds – Portfolio Optimization Conservative, Portfolio Optimization Moderate-Conservative, Portfolio Optimization Moderate, Portfolio Optimization Growth, Portfolio Optimization Aggressive-Growth, Ultra Short Income, Short Duration Income, Core Income, ESG Core Bond, Strategic Income, Floating Rate Income, High Income, Small/Mid-Cap, Small-Cap, and Small-Cap Value Funds – into a newly created corresponding series of Aristotle Funds. A proxy statement will be sent to shareholders in February 2023, seeking their approval.
Q3 All-Season Sector Rotation Fund will undergo a reorganization. The name of the fund will be changed to the Q3 All-Season Systematic Opportunities Fund. The investment objective will be changed to reflect that the Fund will seek to achieve capital appreciation. The reorganization is anticipated to take effect on or about March 30, 2023.
OFF TO THE DUSTBIN OF HISTORY
Hartford Schroders Securitized Income Fund will be liquidated on or about February 28.
Invesco International Core Equity Fund will be liquidated on or about April 10.
Additionally, Invesco will liquidate the following ETFs: Invesco Balanced Multi-Asset Allocation ETF, Invesco Conservative Multi-Asset Allocation ETF, Invesco Focused Discovery Growth ETF, Invesco Growth Multi-Asset Allocation ETF, Invesco Moderately Conservative Multi-Asset Allocation ETF, Invesco Select Growth ETF, Invesco US Large Cap Core ESG ETF, Invesco BulletShares 2023 USD Emerging Markets Debt ETF, Invesco BulletShares 2024 USD Emerging Markets Debt ETF, Invesco Investment Grade Value ETF, Invesco RAFI Strategic Developed ex-US ETF, Invesco RAFI Strategic Emerging Markets ETF, Invesco RAFIStrategic US all Company ETF, Invesco FTSE International Low Beta Equal Weight ETF, Invesco S&P International Developed High Dividend Low Volatility ETF. Invesco PureBeta FTSE Emerging Markets ETF, Invesco PureBeta FTSE Developed ex-North America ETF, Invesco PureBeta MSCI USA all Cap ETF, Invesco PureBeta US Aggregate Bond ETF, Invesco Russell 1000 Enhanced Equal Weight ETF, Invesco Russell 1000 Low Beta Equal Weight ETF, Invesco BLDRS Emerging Markets 50 ADR Index Fund, and Invesco S&P allCap 600 Equal Weight ETF will be liquidated on or about April 6.
Matthews Asia Total Return Bond and Matthews Asia Credit Opportunities, the firm’s only two bond funds, are being liquidated. Founding manager and fixed-income CIO Teresa Kong left the firm in August 2022. Ms. Kong’s argument was that the center of the globe’s financial universe is shifting irreversibly toward Asia and that long-term investors should get there ahead of the crowd. She might well be right, though China’s Xi Jinping may have moved from wild card to joker in the game. Despite excellent performance – Total Return has top decile returns over the past decade, the more-aggressive Credit Opportunities fund has a more mixed record – the funds did not thrive in the marketplace and are finito.
The Securian AM Balanced Stabilization and the Securian AM Equity Stabilization Funds will be liquidated on or about February 27, 2023.
Manager changes
Matthews Asia announced several management changes. Effective January 31, Yu Zhang will no longer be the portfolio manager of the Matthews Asia Dividend and China Dividend Funds. Robert J. Horrocks, Ph.D., and Kenneth Lowe, CFA, will continue to act as Lead Managers along with Siddharth Bhargava, Elli Lee, and Winnie Chwang (effective January 5) will continue to act as Co-Managers of the Matthews Asia Dividend Fund; Sherwood Zhang, CFA, and Winnie Chwang will continue to act as Lead Managers along with Elli Lee and Andrew Mattock, CFA, will continue to act as Co-Managers of the Matthews China Dividend Fund.
