Monthly Archives: July 2024

July 1, 2024

By David Snowball

Dear friends,

Welcome to Really, Really Summer … and to the July issue of Mutual Fund Observer.

Summertime is 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, and 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, do some deeper reading, wake when I want and it’ll be great!” About the first thing we notice when summer does arrive, is that summer is almost spent.

Rather than despair, I garden. And discover that nature will do as it pleases. In this case, seeding a sunflower patch next to my garage door for, let’s call it, no discernible reason.

And maybe that’s cause to celebrate, and to breathe.

In this month’s issue …

By long tradition, Charles and I attended the Morningstar Investment Conference in celebration of the 40th anniversary of the firm’s founding. I, here, and Charles in a separate essay, will share the most memorable events of the two-day gathering at Navy Pier. I would commend, especially, his really perceptive observations about which of yesterday’s hottest topics did not get a single mention within his earshot: Cathie Wood, COVID, direct indexing, crypto …

Devesh continues his investigation into international investing and reports on two days spent with the teams from Artisan Partners. In support of his work, we provide a list of the 10 most consistently excellent international funds and ETFs. You might be surprised to learn which fund and which ETF are breathing hard down Artisan International Value’s neck.

Lynn Bolin, enjoying retirement BTW, takes a serious look at Berkshire Hathaway as a mutual fund. Given Mr. Munger’s passing and Mr. Buffett’s increasingly open discussions of a future in which he’s not present, it seems like a good time to think beyond The Oracle of Omaha model.

One of the most intriguing questions for investors is “Who can you really trust?” Working in partnership with the folks at Morningstar, we can say with fair confidence that 10 mutual fund families get it right – really right – consistently, year after year. We talk through the separate data sets we plumbed and the reason that we both agree on #1: Dodge and Cox.

At this point, you might reasonably conclude, “the screener at MFO Premium does amazing stuff for a few hundred that other screeners might not accomplish for tens of thousands.” Yep. As Charles notes in a separate article, he is hosting a free / live / interactive / useful briefing on MFO Premium on Wednesday, 10 July, at 11 a.m. Pacific (2 p.m. Eastern). He’ll walk you through how to use the MultiSearch and talk about recent upgrades including fund flows, an Analytics user interface, and selectable ETF benchmarks. If you’re serious about vetting funds and ETFs head-to-head, you should register.

Shadow, as ever, tracks down the industry’s turnings and squirmings, with a huge number of liquidations underway … and happy word of the Primecap reopenings.

But first …

Ten takeaways from the Morningstar Investment Conference …

The convention itself

  1. It’s not a conference for investors anymore. Only 12 of the presenters carried the title “portfolio manager” in the convention program, but nine of those 12 represented firms – Franklin Templeton, Gabelli, MFS, PIMCO, T Rowe Price, Baillie Gifford, JP Morgan AM – that were sponsoring the conference. The only “name” managers were David Herro (Oakmark) and Rajiv Jain (GQG), both consigned to speak late in the afternoon of the second day.

    In an attempt to rebuild dwindling attendance, Morningstar offered to waive the conference fees for financial planners who agreed to attend three sponsored sessions (which were definitely not sales pitches by Franklin Templeton, Gabelli, MFS …).

    The exhibitor hall was marked by unstaffed tables (Fidelity reserved a single 5’ table with a handful of printouts but, for much of the conference, no representative … which was oddly common) and missing stalwarts (Chicago-based firms such as Ariel, Calamos, Northern Trust and RiverNorth, notably).

    The conference theme was “Evolve Forward,” which begs the question, “In what other direction could you evolve?”  It might simply be a healthy evolution that financial planners are spending less time on things that are hard and iffy (selecting up-and-coming managers) and more time learning about “winning the next generation of high-net-worth investors.” Especially with the infiltration of AI into asset management, more and more of the investment part might simply be outsourced so that planners can spend more time and creativity helping their clients manage life’s million other challenges.

  2. Morningstar is taking AI seriously in its analytics and interface. Morningstar has launched its own propriety AI model, named “Mo.”

    left to right, Morningstar’s Mo and MFO’s Mofo

    Mo debuted last year and supports both a typed and verbal interface. You ask an investment question which is routed to The Morningstar Intelligence Engine. Mo does not (yet) give advice but does synthesize investing insights from the 750,000 products Morningstar tracks and has the potential to help advisers and others automate tasks automate dull, routine calculating in order to free up time for person-to-person contact.

    I suppose I should have asked Mo how Morningstar determined that the fair value for Trump Media – a firm with $4 million in annual revenue – is $50.62 / share, implying an $8 billion market cap, making it deeply undervalued today. But the moment passed.

    As a quick update for MFO fans, we’ll note that we’re also working on an artificially intelligent avatar. We’ve named him … Mofo. Mofo’s answer to all investment questions will be the same: “If you’re not willing to put it in a lockbox for 10 years and get on with your life, don’t buy it!”

Broad considerations about markets and firms

  1. Large cap value stocks might represent the market’s next sweet spot. At least if you believe Savita Subramanian, Head of US Equity & Quantitative Strategy for BoA / Merrill Lynch. Ms Subramanian was the conference’s kickoff speaker and was introduced by a high-energy Morningstar podcaster with the shout-out: “Are you ready to hear her bullish take on this market? Are. You. Ready!”

    Subramanian made two arguments. First, the US stock market is not overvalued in support of which she offered the usual blizzard of graphs (pro tip: if you don’t want people to think about whether you’re right, bury them with dozens of carefully selected data points). 

    Second, large cap value is the coming sweet spot. Pensions and hedge funds have become dramatically underweight publicly traded equities in favor of private equity, but the attraction of the latter is fading as correlations rise and gains are arbitraged away. In particular, she projects that boomers will need income, that fixed-income isn’t attractive (we recently reached, she reports, a 5,000-year low in interest rates), and so there will be a migration to equity-income strategies centered on dividend-paying stocks. Prior to 2013, 50% of equity returns came from dividends (a troubled statement depending on the timeframe since, as she noted, the economy has changed) and that might recur. Meta and Alphabet are both looking to initiate dividends, a sign that big tech growth stocks are maturing into more traditional value corporations. Some IPOs have even played with the idea of incorporating a dividend into their initial offering (my head hurts). Sectors like energy (companies that are now rewarding their executives for decarbonizing and cash return rather than on meeting production targets), tech, and financials stand to benefit.

  2. Parnassus is taking AI seriously in its security selection. I spoke with Andrew Choi, co-PM of Parnassus Core Equity. He was attending a sustainable investment conference being held next to one of the conference hotels and agreed to chat with me. Choi joined the firm as an intern in ’17, was hired in ’18, and became co-PM in ’22. One of the other Parnassus folks allowed that he might well be leading the firm in a decade.

    At $30 billion in assets, Parnassus Core Equity is just a bit outside our normal coverage universe. The fund has three tenets: quality companies, value consciousness, and ESG sensitivity. They view the ESG stuff as performance-relevant, rather than being just an expression of a set of values.  It is, by all of the metrics we track, an exceptionally solid, sustainable core holding.

    A lot of our conversation centered on the team’s work in assessing how companies are managing their use of and exposure to AI. He argues that AI might be a black box, but the corporate planning around it is assessable. Are there policies on use? Committees responsible for keeping up with it? Monitoring systems? Formal written criteria? If not, that’s a major governance flag, both because the company might misuse AI and because they will be more likely to become a victim to it. He argues that lots of tech titans (Microsoft, Google …) are making major investments in managing AI while lots and lots of small firms are cutting corners (for example, training their models on illegally obtained content and skimping on internal controls) that risk biting them, and us, in the butt.

    He struck me as an exceptionally bright guy.

  3. Workers will enjoy being replaced by AI. Really. Zack Kass, a keynote speaker (“my current jobs are being a keynote speaker, serving on boards, advising boards and thinking about the future”) and former OpenAI executive, argued that AI is better at some sorts of tasks and always will be. In particular, AI is good at things he calls “calculating tasks,” such as winnowing through a thousand court precedents or a hundred thousand investment data points. Those tasks are essential to professionals but, he argues, incredibly stressful, exhausting, boring, and disheartening. AI’s great potential, he argues, is to free people to do the stuff they love (critical and ethical thinking) while AI does the scutwork in the background.

  4. Baird thinks success starts with getting the culture right. I had a wide-ranging conversation with Mary Ellen Stanek, winner of Morningstar’s 2022 Outstanding Portfolio Manager award, and Warren Pierson, who are co-CIOs at Baird and co-managers of the $30 billion Baird Core Plus Bond Fund. The fund does exactly what such funds should do: it steadily offers modestly higher returns and modestly lower volatility than its peers. Over the past 10- and 15-year periods it has posted top quartile returns.

    We talked less about the fund and more about their approach to creating a healthy corporate culture, which Pierson described as “priority #1.” It’s in part about consistent internal messaging – the younger associates hear rather frequently that “our ally is time, not timing” and “we should be able to set it and forget it” – that orients their future leaders, in part about being willing to host 20 interns in hopes of finding one phenomenal new colleague, and in part about being confident enough in your own abilities that you don’t forever feel the need to prove that you’re all-knowing and all-wise.

    In consequence, good ideas rise to the top and valid concerns get freely expressed. That seems fundamentally healthy. Their perspectives struck me as singularly healthy, thoughtful, and productive … the fact that they align with my own organizational impulses doesn’t hurt at all!

Funds that I hadn’t yet noticed

  1. Centre is thinking about “infrastructure” in 21st-century terms. We talked a bit with Gregory Stitt of Centre Asset Management, adviser to Centre Global Infrastructure. “Infrastructure” normally brings to mind the structures of the 19th and 20th centuries: roads, bridges, pipelines, airports and so on. Centre argues for a more contemporary reading, and so one-third of the fund is invested in “social infrastructure” which might look like SoftBank, HCA Healthcare, or the French telecom Orange. The fund has, by Morningstar’s reckoning, 42% in telecom and health while its average peer has under 2%.

    The fund pays a monthly dividend, driven by a 2.38% yield on the portfolio. The question, of course, is whether “different” is also “better.”

    Performance since inception (02/2018 – 06/2024)

      Annual return Maximum drawdown Ulcer Index Sharpe ratio
    Centre Global Infra 3.4% -24.4 7.7 0.08
    Lipper Global Infrastructure peers 3.7 -25.2 9.7 0.10

    I’m scheduled to talk a bit more about the strategy with manager James Abate, who also runs the very sold Centre American Select fund, about the fund’s positioning as part of an upcoming article on infrastructure investing. So, more soon!

  2. Boston Partners just launched a long/short small-cap fund. That’s driven by the recognition that about 40% of small-cap companies are losers with … umm, negative earnings in any given year. The fund will be run by the manager of WPG Partners Select Small Cap Value Fund, using its portfolio for the long positions and quant screens to establish the shorts. That fund has an exceptional record in its 2.5-year history and is based on a private fund with a longer, equally exceptional record. We write more about Select SCV in this month’s article, “Families you can trust,” as our nominee for the one Boston Partner’s fund that you should really get to know.

    Select Hedged (WPGHX) launched on May 3, 2024, so it is new but promising. Shorting small caps is rare. Boston Partners has a good record of managing long/short funds. And the WPG team seems solid. We’ll watch it for you.

  3. Driehaus just launched an international developed equity fund. It’s called the … uh, Driehaus International Developed Equity Fund (DIDEX), and the fund launched on April 30, 2024. Daniel Burr is co-manager of the fund, he’s an Oberweis alumnus and also co-manager of the five-star Driehaus International Small Cap Growth (DRIOX). That’s a very good thing, given that DRIOX has sort of clubbed its peer growth for the past 20 years. Morningstar notes that Driehaus “specializes in high-conviction, actively managed, and growth-oriented strategies designed to complement an investor’s core equity and fixed-income exposure.” All of their work starts with the belief that “market expectations tend to be ‘anchored’ to historical information and that points of inflection, therefore, introduce dislocations between market expectations and fundamentals which generate significant alpha capture opportunities.” We’ll watch this one, too.

    They’re also indirectly responsible for Chicago’s Driehaus Museum, which celebrates the architecture and design of the late 19th and early 20th centuries. Intensely excellent.

  4. AllSpring Core Bond Plus is ready to spring! AllSpring Core Bond Plus has a solid record in the core-plus category, steadily inching out its peers in performance often with a bit less volatility. Morningstar designates it as a four-star fund. Lead manager Janet Rilling argues that one advantage is her team’s time horizon. Most intermediate-bond teams work from a 3–5-year forecast, while her team has a six-month horizon for positioning the portfolio. At base, she argues, the longer horizon makes teams less able to adapt to sudden changes in conditions because … you know, long-term investing! Her argument is that by focusing just six months out, the team can naturally, easily, and continuously reposition the portfolio to maintain resilience in the face of unanticipated developments. For other teams, any change feels portentous and excessively visible, so they hesitate.

Portfolio update

I rarely change my portfolio and my holding period for funds tends to be 10 to 20 years. I tend to work hard to generate confidence in a manager and a strategy, and then step back except to add funds.

In June 2024, I invested in Seafarer Overseas Value Fund (SIVLX). We have written frequently and with respect, about lead manager Paul Espinosa and his work. The fund has earned five stars from Morningstar, it was the best performing EM fund during the ugly 2022 downturn, has the lowest Ulcer Index of any emerging markets fund … and has comfortably outperformed its peers since inception (five years ago) and most notably over the past three years.

Our profile of SIVLX concluded:

Seafarer has a long history of dogged independence, of managing to preserve their investors’ wealth, and of producing reasonable returns in unreasonable markets. Seafarer Overseas Value Fund has embodied those family traits and has served its investors exceptionally well, even in markets that did not favor their style. As the world begins to grapple with the realities that Seafarer has already mastered, their prospects seem exceptionally bright. It surely deserves a place on any equity investor’s due-diligence list.

Purchased directly from Seafarer with an automatic investing plan, my account qualified for access to the low-cost Institutional share class. I funded the purchase by shifting money between other funds. It has earned rather more attention, and assets, than it’s received.

Thanks, as ever …

to the good folks at Morningstar, both the Morningstar staff and analysts who were superb hosts and guides, and to the managers who found time to sit and chat. You make a difference.

To reader Bradley Barrie, of the Dynamic Wealth Group, who’s also co-PM for the Dynamic Alpha Macro Fund. The fund launched exactly a year ago, and we wrote a bit about it in August 2023. It (represented by the blue line) has gathered $100 million in AUM and has, as the little graph to the right suggests, done remarkably well. We’ll watch.

To Paul of New Paltz and Richard of Atlanta. For your kind gifts, grazie!

And to our faithful regulars, Wilson, Roger Fox and S&F Investment Advisors, Gregory, William, William, Stephen, Brian, David, and Doug, erg bedankt!

Chip and I will be heading off for a bit of R&R in the UP of Michigan at mid-month. It’s not quite a honeymoon but it promises some blessed quiet. We’ll overnight in Green Bay on our way up, base in St. Ignace for the better part of a week, then drop through the … uhh, LP of Michigan (?) with stops at Archival Brewing in Grand Rapids (their specialty is “recreating historic and forgotten styles of beer from around the world tapping into ancient brewing processes, ingredients, and recipes”) and Zingerman’s Deli (the best in America, Chip’s New York biases notwithstanding) in Ann Arbor, along the way.

We’ll be thinking of you, but only occasionally.

By month’s end, I’m hoping to meet with some of the folks in Kansas City, most particularly the Buffalo Funds managers … and, quite possibly, their neighbors at Avantis, Nuance, and Harbor. We’ll let you know how finances and travel work out!

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Morningstar Celebrates 40th Year – MICUS Chicago 2024

By Charles Boccadoro

Morningstar held its annual investment conference [Morningstar Investment Conference US (MICUS) 2024] last week in Chicago, on 26 and 27 June. It employed a new venue and conference schedule: The Navy Pier and a chock-full, two-day agenda. The 292-foot-wide Pier, which opened originally in 1916, and was “built by the city for the people, is the largest in the world, projecting east 3,040 feet into Lake Michigan. It remains the longest public pier in the world today.”

The occasion also marked Morningstar’s 40th year anniversary, having been launched in 1984 by founder Joe Mansueto, a then young analyst at Harris Associates, out of his Chicago apartment with a $70,000 start-up investment. The name Morningstar derives from the last sentence in Thoreau’s Walden: “The sun is but a morning star.” But one of Morningstar’s senior analysts shared with David Snowball and I that Mansueto’s original name for the new firm was … “Mutual Fund Sourcebook.”

To put 1984 in context: 1976—John Bogle introduces the no-load Vanguard 500 Index Fund. 1977—Steve Jobs introduces Apple II. 1978—first implementation of 401(k) plan. 1979—Charles Schwab computerizes stock transactions. 1980—SEC establishes 12b-1 Rule, and Reagan is elected. 1981—40-year bond bull market begins. 1982—SEC establishes 10b-18 Rule allowing buy-backs. 1983—Internet is established, and Bill Gates launches Windows. 1984—Morningstar rises. 1987—Black Monday, a scary but momentary blip in what was to be a 20-year equity bull run. 1989—Savings & Loan Crisis. 1992—Clinton elected. 1993—State Street debuts the first US exchange traded fund (ETF) SPY.

At a press reception Wednesday night, CEO Kunal Kapoor reflected on the changes in the industry with Morningstar senior analysts and the press, including Don Phillips and WSJ’s Intelligent Investor columnist, Jason Zweig:

  • Back then, funds were sold not bought, with emphasis on commissions and loads. Today, with no commissions and loads a rarity, the preponderance of funds are “definitely bought,” not sold.
  • The panel expressed an almost nostalgic desire for more in-depth articles with less click-bait titles, but also the recognition that this desire is at odds with today’s media business model.
  • Earning trust remains a constant, whether it be a financial advisor or a reporter. It involves three tenents: the person you entrust should 1) have your best interest at heart, 2) is competent and prepared, and 3) will suffer a consequence if wrong, like you will. Only this last point generated a bit of skepticism.

Some general observations and impressions, with the caveat that I could not attend all sessions, but I attended numerous:

  • No mention of Bitcoin, cryptocurrency, or blockchain. Zero. Except in a wonderful 3-member panel session on the greatest 21st century US financial frauds.
  • No mention of COVID or vaccines. (Such a relief!)
  • No mention of Direct Indexing.
  • No mention of ESG, well very sparsely.
  • A few mentions of Active ETFs, but just glancing reference to Cathy Wood and ARKK, in hushed tones and whispers.
  • A zillion mentions of AI and an almost equally “Model Portfolios” usually in same sentence. Mo too returned, after being introduced last year, but a bit more subdued.
  • “The Magnificent Seven” mentioned a lot, as was private equity.
  • For the first time since 2017, when Kunal became CEO, he did not lead with Morningstar’s Fair Market Value chart at the welcome keynote. (It shows US Market being 2.5% overvalued.) But during an outstanding interview/podcast for Barron’s Advisor The Way Forward, he did insist that it’s been a good predictor, ex ante. (I would agree.)
  • Several sessions doubled as podcasts or video recordings for Morningstar (e.g., Christine Benz’s The Long View) and others, which I found both entertaining and efficient.
  • Morningstar, like it always does, went out of its way to make this conference informative and current with lots of staff and volunteers to help direct attendees and answer questions. For two full days, all hands on deck. Diverse topics and demonstrations, excellent guest speakers, all of whom must be invited … no one can pay to be a speaker. That said, this was the first year that financial advisors could attend for “free,” if they agreed to listen to some fund company sales pitches. Attendance seemed larger than last year’s 2200, and I found the audience to be diverse … younger, older, female, male. (Although David says most attendees had grey hair, like us, but I disagree.)
  • The conference target audience remains advisors. And more and more, the message to advisors is focus on client relationships and let us (our tools and platforms) take care of the rest … portfolio construction, rebalancing, tax management, estate planning, etc.
  • One too many mentions of … “Let’s make some FOMO.”

Equity Outlook
Savita Subramanian, Head of Equity Strategy, at BofA kicked off the conference. She professes that we are beginning a “goldilocks” period for equities because of the industry efficiencies, strong balance sheets (lack of leverage), and the need for retirement income for the boomers. This last point will help broaden the recent market rally beyond the “Magnificent Seven” to the other 493, because of equity income.

She sees bottom-line benefits from increased automation and AI over people: “People are risky!” IP as capital instead of traditional infrastructure. She even sees the end of the “anomalous” zero interest rates (ZIRP) as healthy: “Now CEOs and CFOs will need to hustle.” She sees public companies as better investments than private because of illiquidity and lack of transparency in the latter. Our public companies are the most scrutinized in the world and boards are getting better at incentivizing.

Her one emphatic take-away: invest in large cap value, especially if it comes with dividend yield. Fewer opportunities exist in small caps because venture markets delay IPOs. She also sees little risk in the US government doing anything detrimental to big tech: “Nobody wants to help us lose the tech war.”

David posted his perspective of her talk on the MFO Discussion Board. And here is link to Morningstar’s report.

Conversation with Ian Bremmer
Daniel Needham, President Morningstar Wealth, gave another excellent interview, like last year’s with Larry Summers. This year it was with Ian Bremmer, Founder of Eurasia Group and renowned geopolitical strategist. The conversation focused on dealing with uncertainty in current geopolitical environment. Bremmer was breath-taking: We no longer have global stability … we no longer talk of globalization, like 1990’s … we question whether democracy will be a leading political system … and, the threat to democracy in the US is real.

He believes that the “US is the most dysfunctional major democracy” and democracy’s incumbency is being challenged by disinformation, inflation, and immigration, while people rail against the “elites” in the establishment. “The trend is unsustainable.” On the upcoming US election, “whoever wins, the other side will have a trouble accepting legitimacy.” While he does not believe Trump is fit for office, because he “does not care about values” and intends to undermine rule of law, targeting the DOJ, the IRS, and the FBI, Bremmer sees the potential for “bigger tail-risk, both up and down,” largely because he is so transactional. Trump is beholding to men with money, which explains why he flip-flops, like with TicTok. So, bottom-line regarding the election, he asks: “Do you feel lucky?” The Biden administration does care about values and multilateralism and so far, has done a good job containing conflict in Europe (Ukraine) and Asia (Taiwan). 

Money has changed representation. “CEOs don’t come to Washington wanting fairer representation.”  Just look at former President Trump, Senator Menendez, and Judge Thomas. “Every American has reason to believe democracy is in crisis.” But he ultimately does not think the US will succumb to civil war or a dictatorship.

The US is the most individualistic of all countries, which provides fertile ground for the algorithms coming out of Silicon Valley. “They are not interested in social norms.” Healthy societies need ties that bind: churches, classes, family, civic events. Without them, everybody that feels on the periphery will get spooled-up through social media. Ultimately, a crisis is needed to address the root cause of our divisions.

Internationally, he sees UK returning to EU. Germany and Netherlands and most of Europe as center right and mostly stable. But if the far right takes over France, we will see a France like no other. “Macron made a huge mistake in calling for the snap election.” Bremmer does not lump China in with Russia, Iran, North Korea. The latter are chaos actors that want the US to fail. “China wants stability, but with a different world order.” Bremmer believes China will lead the world in energy transition, while the US leads in AI. The rest of the world will need to be integrated with both. And that may be the silver lining.

Here is link to Morningstar’s report.

Five Trends Reshaping Financial Advice
Michael Kitces of Kitces.com gave a fascinating talk examining how disruptive technology has changed the world. Despite many predictions of obsolescence for the financial advisor, the industry has adapted and even prospered.

Kitces coins the five trends: Technology, The Great Convergence, Crisis of Differentiation, The Search for New Models, The Client Experience.

His talk ranged from The Luddite Revolution to The Industrial Revolution to May Day 1975, when the SEC decommissioned brokerage and stock transaction fees paving way for discount brokers, like Charles Schwab, to the “no-load mutual fund supermarket” to turn-key asset manager platforms (TAMPS) to rebalancing software to RoboModels and RoboAdvisors to the “model marketplace.”

Each generation this past century has experienced disruptive technologies. The computer in 1970’s, internet in 1990’s, AI in 2010’s. The technology broke down traditional barriers in the investment industry. And now, it’s becoming harder to distinguish your services and attract new clients. What’s worse? “Clients don’t believe you.” Boomers represent the dominant target client base with assets outside already defined retirement plans. We are all focused on retirees because “no one else has AUM (assets under management).”

He groups investors into delegators, which love the AUM model, and validators, which hate the AUM model. The former hand-over management of their savings to the advisor, while the latter just look to them to validate their investment ideas. 

He recommends that advisors ask themselves what they are best at and then craft their interactions with their clients accordingly. When an advisor makes “doing business” a positive experience for the client, it becomes easier to differentiate. 

Chicago
In the aftermath of COVID, riots on Michigan Avenue following George Floyd’s killing, the exodus of Ken Griffin’s Citadel and Guggenheim Partners, and a new mayor elected in 2023, the city appeared bustling and vibrant on these last days of June. Crime is down from its 2021 highs. “Best summer city in America,” I heard more than once. Morningstar’s headquarters remains in Chicago, its chairman a big champion, and many of its staff seem very happy with life in the city and surrounding communities.

On Thursday evening, after the last session, I walked to the Art Institute of Chicago, where I enjoyed its permanent Impressionist Collection and a new Georgia O’Keeffe exhibit. Afterward, I strolled through the gardens around Millennial Park, where Chicagoans were enjoying an outdoor concert open to all. Despite its challenges, on this evening all seemed right with the world.

This year marks my 12th in attendance. I regard the event as an annual touchstone for staying on-top of trends in our industry, getting access to investment and global thought leaders, while feeling the pulse of big city life in America.    

Families you can trust

By David Snowball

Fund families that get it right, over and over

Briefly brilliant performance isn’t all the tough. It requires rather more luck the skill and it can be wildly profitable for the adviser, though deadly for the investors. ARK Innovation ETF is, of course, the current poster child for boom-then-bust. The fund posted triple-digit returns in 2020, saw its assets explode then promptly (and predictably) crashed. Anyone who bought five years ago and has devoutly held on has lost 1% annually and has trailed 99.9% of all similar investors. Those who bought at the peak three years ago have clocked annual losses of 30.3%.

In collaboration with the folks at Morningstar, MFO decided to identify the firms that were least likely to ever betray their investors by soaring and then smashing.

The MFO Premium screener rates every fund family based on the performance of their existing funds. We assign every family of five or more funds into tiers based on the absolute performance of their funds against their peers. The families with the “top” rating are in the top 20% of all families for raw performance. We track that rating over a variety of periods, as a measure of consistent excellence. By our measure, only 10 families have excelled in every period we track.

The fly in the ointment is survivorship bias. We only analyze the records of funds that still exist; if an adviser had 15 funds a decade ago and was forced to liquidate 10 of them, they could still receive a Top ranking if the five survivors were excellent. In order to combat survivorship bias, we enlisted the assistance of Dillon McConnell, an Associate Quantitative Analyst at Morningstar, who was able to query Morningstar’s survivorship-free database for us. He identified firms with a 100% 10-year success rate. That means that every fund that the firm had 10 years ago is still in operation and has beaten its peers over the past decade. There are 68 firms with a 100% 10-year success rate, although almost all of those are advisers with a single fund (e.g., Bretton Fund). Forty-one of those firms also have a perfect five-year record. (The complete list is here.)

We have melded those two lists to identify the fund families (five or more funds) that have consistently gotten in right by both MFO standards (top 20% batting average for the past 1-, 3-, 5- and lifetime periods) and Morningstar’s standards (above average performance while factoring in the effects of fund liquidations and mergers).

Top Tier Fund Families, data through 6/30/2024

  MFO Lifetime rating One-year rating Three-year rating Five-year rating Morningstar 10-year success rate Morningstar 5-year success rate Morningstar “parent” rating
Dodge & Cox Top Top Top Top 100 100 High
Boston Partners Top Top Top Top 86 70 Above average
Marsico Top Top Top Top 83 100 Above average
FPA Top Top Top Top 67 71 Above average
Gotham Top Top Top Top 67 38 Average
Third Avenue Top Top Top Top 67 100 Below average
Hotchkis & Wiley Top Top Top Top 63 80 Above average
Driehaus Top Top Top Top 50 75 Above average
AQR Top Top Top Top 37 40 Average
Easterly Top Top Top Top 25 50 Average

Source: MFO Premium (columns 2-5), Morningstar Direct (columns 6-7), Morningstar.com (column 8)

The unambiguous winner is Dodge & Cox.  Dodge & Cox was founded in 1930 by Van Duyn Dodge and E. Morris Cox. They shared the belief that the investment firms of their day were undisciplined and self-serving; that is, the principals put their own interests ahead of their clients’. Dodge and Cox aimed to change that.

The firm describes its core this way:

“A rather chaotic investment world” describe the Roaring Twenties—when high-priced investment products flooded the marketplace—and our founders believed clients deserved a new kind of investment firm. Dodge & Cox was founded with the goal of putting clients’ interests first through a focused set of investment strategies designed to preserve and enhance their investment capital over the long term and offered at reasonable and transparent fees. These principles still guide our firm more than 90 years later.

We have built our firm to withstand periods of turbulence on the bedrock of independent ownership, financial strength, a commitment to active, value-oriented investing, and a deep belief in the power of fundamental research, diverse perspectives, and teamwork. Our culture emphasizes our fiduciary responsibility to our clients and Fund shareholders above all else.”

The firm’s seven strategies are all team-managed. They launch a new strategy about once a generation and handle manager succession exceptionally well.  While there was some concern in 2023 that CIO David Hoeft might be front-running his firm’s funds by buying stock for his personal account ahead of a firm’s purchase of the same stock, D&C’s internal review concluded otherwise and Morningstar continues to affirm their high opinion of the company.

From both Morningstar’s metrics and ours, three firms stand out as advisers who get it right with startling consistency. Here is one fund you should learn more about from each family.

Dodge & Cox Global Bond just passed its 1o-year anniversary.  At $2.8 billion, it’s small and nimble by D&C standards. The fund

…seeks to generate attractive risk-adjusted total returns by investing across global credit, currency, and interest rate markets. We evaluate each investment with a three- to five-year investment horizon in mind, but regularly adjust our positioning in response to changes in fundamentals and market pricing.

Over the past decade, it’s had the fifth-highest returns of a fund in Lipper’s global income peer group.

Comparison of Lifetime Performance (06/2014-06/2024)

  Annual return Maximum drawdown Ulcer
Index		 Sharpe
Ratio
Dodge & Cox Global Bond 2.8 -14.7 4.9 0.20
Lipper Global Income Category 0.8 -20.2 7.7 -0.12

Each of the seven managers has invested more than $1 million of their own money in the fund.

WPG Partners Select Small Cap Value is one of Boston Partner’s two newest launches; the other is the newly launched Select Hedged Fund, which is a long/short small-cap fund. The firm launched it at the behest of current investors. The fund attempts to “identify out of cycle companies with clear catalyst and event paths through bottom-up fundamental research, executive suite engagement, and broad industry knowledge.”

The Select Small Cap Value fund is a public manifestation of a longer-running strategy. The Select Small Value strategy was launched in December 2018. Since inception, the strategy has returned 18.97% annually which crushes the Russell 2000 Value’s 6.7%. The fund launched in December 2021 and maintains a huge performance gap over the benchmark.

Comparison of Lifetime Performance (01/2022-06/2024)

  Annual return Maximum drawdown Ulcer
Index		 Sharpe
Ratio
Boston Partners WPG Partners Select Small Cap Value 11.4 -18.8 6.9 0.37
Lipper Small Core Category -0.1 -22.9 11.8 -0.18

The fund’s sole manager is Eric Gandhi. He joined the WPG Group in 2012 as an analyst and is now manager, or co-manager, of four WPG micro- to small-cap strategies. He has invested between $100,000 – 500,000 in the fund.

Marsico International Opportunities, the smallest of the Marsico funds, launched in June 2000. Founder Tom Marsico took over the reins in 2017 and added his sons Peter and James as co-managers in 2023. They joined the firm as analysts in 2008 and 2009, respectively, and now co-manage a range of funds with their father.

The fund attempts to “capitalize on various secular trends fueling growth across the globe through a portfolio of high quality, growth-oriented international companies.” The fund is concentrated, a Marsico hallmark, with use 27 stocks, an unusually high investment in US-domiciled companies (38% of the portfolio) and an active share of 90.

Comparison of Marsico-led Performance (07/2017-06/2024)

  Annual return Maximum drawdown Ulcer
Index		 Sharpe
Ratio
Marsico International Opportunities 8.9 -36.8 14.0 0.37
Lipper Int’l Large Growth Category 6.4 -34.3 12.9 0.25

Mr. Marsico the Elder has invested between $500,000 – $1 million in the fund while his co-managers have chosen not to commit their own funds to it.

Bottom Line

There are no guarantees in life or in investing. At best, an investor can seek an edge: an enduring advantage they possess over their peers. One edge you possess is time arbitrage; if you are a long-term investor in a world of short-term traders, you mostly need to make a handful of sensible commitments and then walk away from the madding crowd and their howling handlers. The other edge you possess is the ability to identify investment partners who keep getting it right: they rarely launch funds, they rarely abandon funds, and they outperform over reasonable time frames.

We’ve identified just 10, out of hundreds, of investment firms that meet that threshold. We commend them to you.

Firms with 100% 10-year Success Rates

By David Snowball

Firms with 100% 5- and 10-Year Success Ratios

No liquidations, no mergers, and 100% of funds posted above-average returns. Of the 68 firms with a 100% 10-year success rate, 41 also have a perfect five-year record.

  Firm Success Ratio 10-Year Firm Success Ratio 5-Year # of funds
Appleseed 100 100 1
Auer 100 100 1
Bretton Fund 100 100 1
Caldwell & Orkin 100 100 1
Cantor Fitzgerald 100 100 2
Changing Parameters 100 100 1
Channel Investment Partners 100 100 1
Clark Fork 100 100 1
Cook & Bynum Capital 100 100 1
Disciplined Growth Investors (DGI) 100 100 1
Dodge & Cox 100 100 6
Equity Investment 100 100 1
First Foundation 100 100 2
Freedom 100 100 1
Hamlin Capital Management 100 100 1
Hillman 100 100 1
Hood River Capital Management 100 100 1
Investment House 100 100 1
Ironclad Funds 100 100 1
Kopernik 100 100 2
Lyrical Partners 100 100 1
MainGate Funds 100 100 1
Matisse Funds 100 100 1
Meehan Focus 100 100 1
Moncapfund 100 100 1
Needham 100 100 3
New Alternatives 100 100 1
OCM 100 100 1
Otter Creek 100 100 1
Payson 100 100 1
Performance Trust Asset Management 100 100 3
Port Street Investments 100 100 1
Private Capital Management 100 100 1
Seafarer 100 100 1
Smead 100 100 2
Sound Shore 100 100 1
Sparrow 100 100 1
Stringer Asset Management 100 100 1
Teberg 100 100 1
Terra Firma Asset Management 100 100 1
Vericimetry 100 100 1

Firms with 100% 10-year success rates, but slippage over the past five years

Inevitably some of the 10-year winners have tailed off more recently. It’s reassuring that only 17 of 68 funds (25%) have tailed off badly, with fewer than half of their 10-year funds still thriving.

  Firm Success Ratio 10-Year Firm Success Ratio 5-Year
Fuller & Thaler 100 83
WCM Investment Management 100 75
Bridge Builder 100 75
Grandeur Peak 100 71
Trillium 100 50
Prospector 100 50
Medalist Partner 100 50
Jensen 100 50
Campbell & Company 100 33
Oakhurst 100 25
Swan Wealth Advisors 100 20
YCG FUNDS 100 0
Reaves 100 0
Polen Capital 100 0
Polaris Capital Management 100 0
MP 63 100 0
MAI 100 0
Long Short 100 0
Lisanti Capital Growth 100 0
JAG Capital Management 100 0
EIP Funds 100 0
Edgewood 100 0
Copley 100 0
Conestoga 100 0
Clifford Capital 100 0
BBW Capital 100 0
Akre 100 0

 

If Berkshire Hathaway was a mutual fund, what would it be?

By Charles Lynn Bolin

My largest holding by far is an actively managed, total stock market fund of funds with a tilt toward large-cap growth stocks.  According to multpl.com, the Price-to-earnings ratio of the S&P 500 is 28.5 which is 50% higher than the average of 19.8 since 1970 and higher than 80% of the years since 1970. Table #1 shows the price-to-earnings ratio of Vanguard sectors and style exchange-traded funds. While most sectors are historically high, the P/E of the Information Technology sector is particularly concerning at 50% higher than the S&P500. Warren Buffet is the CEO of Berkshire Hathaway, a highly diversified value-oriented company (P/E 12 TTM), which I am considering buying to tilt a portion of my portfolio toward value.

Table #1: Equity Lipper Category Momentum

Source: Author Using Yahoo Finance

In this article, I take a look at economic growth and valuations and compare the Berkshire Hathaway stock to value-oriented mutual and exchange-traded funds. This article is divided into the following sections:

COMPARING BERKSHIRE HATHAWAY PERFORMANCE TO FUNDS

This article was inspired by conversations with Financial Advisors to move a portion of my portfolio into individual stocks. First, I don’t want to be actively trading stocks. Secondly, I want to keep things simple and not replicate some large index. Third, I want to tilt a portion of my portfolio toward value. And finally, I want to keep ordinary income from dividends low for tax efficiency.

Growth funds have risen faster during the good times such as now, and have fallen harder during the bad times. Figure #1 shows the five-year performance of the S&P 500 (blue line), Vanguard Growth (green line) and Value Fund (orange line) and Berkshire Hathaway (BRK.B, red and green bars), along with the First Trust Morningstar Dividend Leaders Index Fund (FDL, red line). My preference is to start locking in the gains by tilting away from growth toward value. Berkshire Hathaway has fared better than the value funds over the past five years.

Figure #1: Prices of Berkshire Hathaway, S&P 500, Growth, and Value Funds

Source: Author Using Fidelity

Table #2: Metrics of Berkshire Hathaway, S&P 500, Growth, and Value Funds

Source: Author Using Fidelity

I extracted the mutual and exchange-traded funds with below-average valuations, moderate volatility, and high returns as shown in Figure #2.

Figure #2: Top Performing Funds with Below Average Valuations

Source: Author Using the MFO Premium MultiSearch Tool

I then compared two of the best ETFs to the Berkshire Hathaway stock for the past ten years. Over the past ten years, Berkshire Hathaway has had returns close to the S&P 500 and above the value funds.

Figure #3: Berkshire Hathaway, Fidelity Equity Income, Invesco Large Cap Value Returns

Source: Author Using Portfolio Visualizer

ECONOMIC WATCH – SAHM’S RULE

Key Point: The economy continues to slow in the late stage of the business cycle with the risk of a recession still on the horizon.

Soft landings following high inflation and major rate hikes have not been achieved in modern history in the US. They are rare even in milder conditions. An article by Jeff Cox at CNBC describes Sahm’s Rule which Chief Economist Claudia Sahm at New Century Advisors developed for predicting recessions. The premise is that when the unemployment rate’s three-month average is half a percentage point higher than its 12-month low, the economy is in recession. My baseline is not recession,” Sahm said. “But it’s a real risk, and I do not understand why the Fed is pushing that risk. I’m not sure what they’re waiting for.”

On the labor front, the 4-Week Moving Average of Initial Claims has started creeping up this year, the Unemployment Rate has risen to 4%, Hours Worked for All Workers (Business Sector) have stagnated since last year. Temporary Help Services (All Employees) has been dropping showing that businesses are preparing for a slowing economy.

Real GDP grew 2.5% in 2023 and the Second Quarter 2024 Survey of Professional Forecasters by The Federal Reserve Bank of Philadelphia shows estimated Real GDP Growth falling from 2.5% in 2024 to 1.9% in 2025 and 2026. The Federal Reserve Bank of New York uses the difference between 10-year and 3-month Treasury rates to estimate that the probability of a recession through 2024 and to May 2025 mostly remains above 50%.

The economy has remained surprisingly resilient with high interest rates due in large part to pandemic-era spending which is ending and savings which have been partly depleted. There are warning signs on the horizon such as Delinquency Rate on Credit Card Loans which has risen to 3.2% – just short of the 3.7% average since 1991. Real Retail and Food Services Sales, Total Business Sales, Industrial Production, Capacity Utilization, Commercial and Industrial Loans, and Real Disposable Personal Income have been stagnant or even declining since January 2023 or longer.

The Consumer Price Index for All Urban Consumers (All Items in U.S. City Average) declined to 3.3% in May and the Personal Consumption Expenditures (Chain-type Price Index) declined to 3.3% in May. According to Christopher Rugaber at the Associate Press, “Federal Reserve officials said Wednesday that inflation has fallen further toward their target level in recent months but signaled that they expect to cut their benchmark interest rate just once this year… The policymakers’ forecast for one rate cut was down from their previous projection of three cuts, because inflation, despite having cooled in the past two months, remains persistently above their target level.”

LOOKING UNDER THE HOOD OF EQUITY FUNDS

Last month, I wrote Fund Family Performance for Equity ETFs for the Mutual Fund Observer newsletter which identified ten Fund Families that had a high percentage of their equity funds that outperformed their peers for the past three years. This month, I extracted fifty-eight of those funds that have outperformed from those families to see what stocks they hold in the top ten holdings. The Top Ten Holdings contain 84 stocks of which 41 have at least 5% of the total allocation within the top ten. Thirteen of the funds own shares of Berkshire Hathaway.

Sixty percent is allocated to the Software, “Semiconductors & Semiconductor Equipment”, “Interactive Media & Services”, and “Technology Hardware, Storage & Peripherals Industries” sectors. The average Price to Earnings Ratio of all of the stocks is 29 while the average Price to Earnings Ratio in the preceding four industries is 39.

I experimented with the Fidelity Stock Screening Tool and one of the options to use is the Equity Summary Score from StarMine from Refinitiv:

StarMine from Refinitiv’s sophisticated scoring system facilitates a fair comparison of firm recommendation performance across widely disparate industries and market conditions. StarMine from Refinitiv uses recommendations from research providers and the past performance of their recommendations at the sector level to create a quantitative metric, the StarMine from Refinitiv Relative Accuracy Score, for a given stock.

Figure #4 shows the Equity Score from StarMine from Refinitiv for the 84 stocks in the Top Ten Holdings of the outperforming funds. It appears that momentum is driving valuations even higher. My preference is to look for a subset with low valuations.

Figure #4: Equity Score from StarMine from Refinitiv for Stocks in Top 10 Holdings

Source: Author Using the MFO Premium MultiSearch Tool and Fidelity Stock Screener

Berkshire Hathaway

Berkshire Hathaway is the only large company in the Multi-Sector Holdings Sub-Industry of the Financial Services Industry. Berkshire Hathaway has a market capitalization of $535 billion. To understand Berkshire Hathaway, let’s take a look at its investments, management philosophy known as the “Owner’s Plan”, and succession plan.

“List of assets owned by Berkshire Hathaway” at Wikipedia describes seventy-one companies for which Berkshire Hathaway owns wholly or controls a majority of voting shares, and fifty U.S.-listed public company and ETF holdings. “As of March 31, 2024, Berkshire Hathaway had $28.9 billion in cash and cash equivalents and $153.4 billion in short-term investments in U.S. treasury bills.”

According to Wayne Duggan in “Largest holdings in the Warren Buffett portfolio” at USA Today, “Among the 47 stocks Berkshire Hathaway holds, the top 10 represent about 84% of the company’s holdings.” The top 10 are Apple (AAPL), Bank of America (BAC), American Express Co. (AXP), Coca-Cola Co. (KO), Chevron (CVX), Occidental Petroleum (OXY), Kraft Heinz (KHC), and Moody’s Corp. (MCO).

Mr. Buffett laid out his “Owner’s Manual” for Berkshire Hathaway in 1999 which I summarize:

  1. Although our form is corporate, our attitude is partnership…
  2. In line with Berkshire’s owner-orientation, most of our directors have a major portion of their net worth invested in the company. We eat our own cooking.
  3. Our long-term economic goal (subject to some qualifications mentioned later) is to maximize Berkshire’s average annual rate of gain in intrinsic business value on a per-share basis…
  4. Our preference would be to reach our goal by directly owning a diversified group of businesses that generate cash and consistently earn above-average returns on capital…
  5. Because of our two-pronged approach to business ownership and because of the limitations of conventional accounting, consolidated reported earnings may reveal relatively little about our true economic performance…
  6. Accounting consequences do not influence our operating or capital-allocation decisions…
  7. We use debt sparingly and, when we do borrow, we attempt to structure our loans on a long-term fixed-rate basis…
  8. A managerial “wish list” will not be filled at shareholder expense…
  9. We feel noble intentions should be checked periodically against results…
  10. We will issue common stock only when we receive as much in business value as we give…
  11. …Regardless of price, we have no interest at all in selling any good businesses that Berkshire owns…
  12. We will be candid in our reporting to you, emphasizing the pluses and minuses important in appraising business value…
  13. Despite our policy of candor, we will discuss our activities in marketable securities only to the extent legally required…

Troy Segal describes Warren Buffett’s planned successor in “Greg Abel: Warren Buffett’s Successor’s Life, Salary, and Accomplishments” at Investopedia. Mr. Buffett’s role will probably be divided into several parts with Gregory Abel becoming the CEO of Berkshire, and Buffett’s son Howard likely to be named Berkshire Chair of the Board. Canadian-born Gregory Abel (62) joined Berkshire Hathway in 2000. Mr. Abel was appointed to the Berkshire Hathaway board of directors in 2018. He “oversees all of Berkshire’s railroad, auto utilities, manufacturing, and retail subsidiaries—over 90 companies in all.”

In summary, Berkshire Hathaway invests for the long term using a value strategy. It is diversified with a good long-term track record. It has the cash available to make acquisitions at lower prices if a recession becomes more likely.

Closing

The next six months will provide clarification on the economy, inflation, and interest rates. I have another meeting with Financial Advisors to discuss possibly using personalized portfolios in managed accounts. Of the accounts that I manage, I am interested in being more value-oriented in a tax-efficient manner. I have several stocks and value funds on my short list, and at this point, I am leaning toward Berkshire Hathaway.

MFO Premium Mid-Year Review 2024

By Charles Boccadoro

On Wednesday, 10 July, at 11 a.m. Pacific (2 p.m. Eastern), we will be conducting our mid-year webinar to review funds and MFO Premium. If you can make it, please join us by registering here.

We will use MultiSearch Pre-Set screens and other custom criteria to review fund performance in 2024. MultiSeach is the site’s main tool, enabling searches with numerous screening criteria. We will also demo some of the many features across the site.

MFO Flows, short for fund flows (see example below for Fidelity’s Total Bond Fund ETF), is a significant upgrade this year, as is the new Analytics user interface and ETF Benchmarks, championed by our MFO colleague Devesh Shah.

MFO Premium includes the following range of search tools, several with free access (linked and emboldened below) for the MFO community:

The site also enables the following analyses:

  • Charts
  • Flows
  • Compare
  • Correlation
  • Rolling Averages
  • Trend
  • Ferguson Metrics
  • Calendar Year and Period Performance

A screenshot of the various tools can be found on the home page.

Artisan Partners and the international investing conundrum

By Devesh Shah

International Investing in Theory

Sometimes I wish I lived in Theory. In Theory, investing is such a reasonable, predictable activity. Theoretical Investors know that they’re buying pieces of a company’s future earnings stream. And, being rational, they know that they’re better off buying $1 worth of future earnings for $0.60 rather than for $0.90. In Theory, investors will logically and smoothly migrate from high-cost providers to low-cost providers of an earnings stream.

In Theory, if investors saw a low price/earnings ratio of 13 on one continent (let’s call it “Europe”) and a high price/earnings ratio of 26 on another continent (“America,” for the sake of our hypothetical), they would migrate their investments from America (causing returns to fall) to Europe (causing returns to rise). Easy peasy, problem solved, and everyone gets on with life.

But, for better and worse, I don’t live in Theory. I live in New York. And international investing here is a lot messier than international investing there, though the bagels are a lot better. The one advantage that I have over Theoretical Investors is that I have access to the Artisan Partners.

Map of Theory, generated using Google Gemini.

 

International Investing in the Real World

I have been a professional investor for my entire adult life. A few years ago, I was asked to join a private school endowment’s investment committee. Our first goal was to improve on the basic asset allocation framework with the eye to generating higher returns if possible.

Step One of the endowment’s investment process was taking a close look at the percentage weights for internationally developed market equities. The endowment had 18% invested in a passive international developed market fund, which seemed high to me.

To be fair, we were working with constraints:

  • We had no full-time staff to “trade the market” or to “pick stocks.”
  • We had adopted a passive investing model. Given the success of passive investing in US equities, it made sense to do the same for international equities, emerging equities, and fixed income. That’s what the endowment’s investment committee had pursued over the last eight years, smartly and successfully. But it became obvious that cheap and passive may not always be best when we saw the bond market collapse and the very boring returns of international and emerging market stocks.
  • We were constrained by the Expected Return for each asset class, provided by (not the endowment, not the financial intermediary, but) a third-party research firm, which was a critical ingredient in determining the weights of the main asset classes in the portfolio.

In Asset Allocation & International Equities (June 2024), I describe the process by which we abandoned the Expected Returns that could only exist in Theory, looked at actual asset class performance over the past quarter century to come up with a different Expected Return for International stocks and emerging market stocks and recalibrated the portfolio weights.

Our analysis concluded that if we were to carry a passive portfolio of international equities, we should hold about 5-6% (much less than the 18% derived from the Yale Model). The endowment decreased international equities in favor of US equities as Step One.

The committee also agreed there was room for Step Two: hiring an active manager for this asset class.

Readers of the June article will recall some questions asked by committee members:

  • “Why not zero for international stocks? Why should we invest at all in foreign stocks?”
  • “Don’t US companies get a third of revenues from abroad? If we invest in US stocks, don’t we automatically get foreign exposure?”
  • “International stocks have provided little diversification to US stocks. What’s the benefit of holding an asset class with lower returns and positive correlation to US stocks?”

Those questions haunted me.

Enter the Artisan Partners

I knew smart investors had thought about this and must have articulated an answer. I had in mind one such investor, David Samra, manager of the Artisan International Value Fund. I spent many hours listening to Mr. Samra’s interviews on podcasts. I also found a meaningful video from the 2023 Artisan Partners Investor Conference, titled, International Investing: The Complexity behind it and Why it lends itself to Value Investing. David’s case for his fund, his investment style, and his group of stocks were the insight I needed. I made it required viewing for the endowment’s investment committee.

I was in touch with Mr. Samra’s team to explore the possibility of investing in his closed Artisan International Value Fund (ARTKX) for the endowment, when the team invited me to attend two full days of the Artisan Partners Investors Conference at The St. Regis Hotel in New York in May 2024. Thirteen fund manager teams representing the full breadth of Artisan’s fund offering spoke with great candor and depth about their investment thesis and their stock selection process. Besides the intellectual gratification of listening to smart investors and learning about potential funds to add to my portfolio, my ears were attuned to foreign markets and international stocks. This was my chance to learn.

The Artisan Partners are divided into a series of semi-autonomous teams, each with its own mandates, style, analyst corps, and discipline. The teams in attendance were

Team Funds
International Value International Value (closed) International Explorer
Global Value Global Value Select Equity
US Value Value Mid Cap Value Value Income
Global Equity Global Equity International

Day One: Insights from the International Value, Global Value, and Global Equity Teams

Without doing many of the managers justice, (I don’t talk about their funds, their investment style, or their track records), I reiterate some of the memorable points about foreign stocks and markets that I could write down fast enough on paper.

Dan O’Keefe and Mike McKinnon of the Global Value Team:

  • All investing is global investing. Domicile of incorporation is meaningless.
  • Cannot figure out why anyone would want to own any non-US Index product. Active is the only solution in international markets.
  • Agree that the US is light years ahead in innovation and talent pool and international companies are permanently disadvantaged. Yet, consider this:
    • Shell/Total: trade at a significant discount to Exxon and Chevron. Economic exposure to Energy has nothing to do with Europe. We are going to need oil and gas for a long time to come. Net Zero is not going to happen.
    • BABA: very cheaply priced. Why? People have decided China is uninvestible. Meanwhile, Apple gets 20% profits directly from China. Apple’s products are manufactured in China. Apple trades at 30x earnings while Baba trades at 5x earnings. Chinese risk isn’t priced into Apple or Tesla.

Beini Zhou and Anand Vasagiri of the Artisan International Explorer Strategy

  • The duo said it is still possible to hit the pavement in developed foreign countries, glean insight into character and management, and improvise on active management in a way that one can no longer do in the US. As an example, the team snoops around in parking garages, tracking the cars driven by company owners to determine if their heart is in the money or in the company.
  • “If it doesn’t pass our initial smell test, we don’t care how cheap it looks.”
  • MFO published a profile of Artisan International Explorer Fund in September 2023.

Tom Reynolds, Dan Kane, and Craig Inman of the US Value Team

  • Diageo: British multinational alcoholic beverage company with over 200 brands. 50% revenue in North America and 50% Rest of the World. Largest spirit company in the world. When work from home ended, demand for home stash declined as people went back to work and visited bars instead. End of Covid, along with disappointment in Latin American sales, death of then CEO, and fears of changes in consumption from the Ozempic effect, have created value in the stock.

Mark Yockey, Andrew Euretig, and Michael Luciano of the Global Equity Team

  • Europe and Asia have some dominant players with dominant market share and pricing power
  • ASML: (a Dutch company) makes the machines that make the semiconductor chips powering technology revolutions
  • UBS: Dominates Private Wealth Management outside the USA.
  • Novo Nordisk: Ozempic producer. “This is just the beginning”.
  • Air Liquide & Linde: 2 of the Top 3 global players of industrial gases. 75% market shares. 10% Earnings growth for the last 50 years. They have pricing power.
  • CRH: Builds roads and aggregate. US infrastructure bill show improve fundamentals significantly. Is moving domicile from London to US.
  • Safran: As airplane manufacturing gets delayed, the duration of existing planes lengthens and engine servicers benefit.
  • BAE Systems: Submarine and defense contractor.
  • There were many other examples, but I ran out of writing breadth. Mark Yockey is a seasoned investor and someone I want to read more about/listen to his views.

There were some stocks mentioned that were crossholding across multiple Artisan funds.

For example, take the London Stock Exchange (LSE). Only 3% of LSE’s revenues are now derived from shares trading. The LSE has assembled a portfolio of proprietary databases who sells data on subscription and account for a lion’s share of their revenues. The MFO Premium search engine runs based on Refinitiv data (an LSE company).

Because these managers are on the Artisan platform (and are thus well accomplished), because they have done this for a while, and because their confidence in stocks and analysis is far superior to mine, they knew how to narrate the story in a convincing way for their audience. I figure that there were about 50-75 mid-to-large capitalization international companies in interesting businesses, growing earnings, and with dominant market shares. A good active manager-investor for this asset class would provide market exposure along with the possibility of significant outperformance.

Day Two: David Samra and the International Value team

On day two of the conference, David Samra, Joe Vari, Ian McGonigle, and Charlie Page (all senior managers) of the International Value Fund presented for two full hours (including Q&A).

Mr. Samra laid out the guiding principles for his fund:

  1. Will avoid places/stocks where minority investors will not be respected
  2. To buy a stock, something must be going on right now poorly with the financials of the company (there must be a value opportunity).
  3. Fund’s team has decades of cumulative market knowledge of management, of boards of companies, and can use their connections to help steer leadership as well as point boards to exceptional leaders in the industry. Talking to management per se is not valuable, but talking to management over decades is greatly valuable because one can pick up cues that novice investors cannot.
  4. Complexity provides opportunity. If you don’t look for (market) exposure but care about creating wealth then the kind of active management in this fund might be meaningful.

The top 10 positions are 40% of the portfolio: I like funds that take large, concentrated bets where possible. The whole purpose of getting away from passive’s 5000 positions with insignificant weights is to own stocks that can move the needle. Holding Concentrated bets means managers must be more right than wrong. There is no hiding. If the manager doesn’t know how to make money, it will be obvious to an astute observer.

The turnover is 20%: which means 20% of the portfolio roughly turns over every year. That’s a healthy amount of time for value to surface and the stock thesis validated.

The AUM of the fund is $35 Billion: Other than Vanguard’s passive Total International Stock Fund, which has a cool $430 billion in management, Mr. Samra’s fund is one of the largest in international markets for US investors. Size is important to institutional investors looking to enter or exit their position without moving the fund NAV too much.

The fund has been around for over 21 years with the same manager at the helm: I didn’t see any desire to retire on Mr. Samra’s part. In active management, cumulative growth of intuition and market knowledge creates the lollapalooza moments. Living through market crashes, corporate events (mergers, bankruptcies), and surviving provides the history needed to gain confidence in how the world works.

He described one such moment when the Swiss government handed over Credit Suisse to UBS for what the team calculated was a negative equity value of tens of billions (meaning UBS was being paid to buy out CS).

“The fund bought a large stake in UBS given this gift they were receiving. UBS price should have gone up, but it declined, and we ended up buying a lot more shares of UBS.”

Joe Vari, Ian McGonigle, and Charlie Page spoke at length about Samsung, Danone, Arch Capital, and Unilever. The stock analysis for each company was too long to include in this note.

At the fund level, Mr. Samra mentioned that with small pools of capital, one can cut and run. But at the size of his fund, they must affect corporate change to monetize value embedded in stocks.

Bottom Line: A real-world endorsement of Mr. Samra and Artisan International Value

At the endowment’s investment committee, we spoke at length about the International Value Fund and David Samra’s investment style. The committee liked that Mr. Samra is a seasoned investor whose expertise, track record, and positioning in the international developed market asset class would be a good substitute for our passive Vanguard fund. It was easy to see that in most cycles and observation windows, the fund did better than the passive. In crashes, it did no worse than the passive.

The committee agreed that the Artisan International Value Fund would be a suitable active manager for half of our international allocation, or about 2.5%. As the committee gets comfortable with the fund, we would look to increase our exposure to international equities through this fund. We were able to get in through our financial intermediary.

Starting the discussion on active investing at the investment committee level has already yielded benefits. There is increasing sophistication to investigate the kind of managers who would add value to the endowment portfolio. For example, on the fixed income side, we have now allocated 11% of the fund to six short-duration floating rate high-yield funds, up from zero. (We reduced the total bond portfolio from 33 to 22%).

As we build reports to compare the performance of active vs passive and track them in the portfolio, we find that we can build complementary pools of investments. No portfolio can always be safe, secure, and hope to generate returns. Risk must be taken. The hope is to find complementary managers that can still work in the endowment’s plug-and-play model.

The Most Consistent Winners, 2013-2024

By David Snowball

Our colleague Devesh Shah has been in search of a reason to have any direct international exposure. That is, for an answer to the question, “Why should I invest one cent in an international equity fund?” He notes that the default for many endowment portfolios is 18% international, but that – over the course of the 21st century so far – the actual efficient frontier portfolio held only 5% international equity.

International stocks are 40% of the total global capitalization. They are 18% of an endowment’s target. But should they actually be a 5% squidge? The problem is multiplied if you choose to invest in a traditional, passive cap-weighted fund or ETF. While indexing has excelled as a strategy for most domestic equity categories, it has been a consistent deadweight globally.

At the end of the day, Devesh has conviction in just two managers: David Samra (and Ian McGonigle) at Artisan International Value, which is closed, and Amit Wadhwaney at Moerus Worldwide Value. Most of the others have been some combination of low-returning and low consistency.

We decided to cast a broad net to identify funds that have consistently earned their keep and their place in your portfolio. Our screen started with all international equity funds – developed and developing, diversified and single country or region. We winnowed that list down to only those funds that were designated as Lipper Leaders (MFO uses the Lipper global data feed) for the past three years, five years, ten years, and since inception. That’s a group of 55 funds.

We then sorted those funds based on their 10-year Reamer Ratio. There are many standard, and some innovative, ways to gauge the risk-return tradeoffs that every investment offers. MFO Premium, our data site and screener for which Charles Boccadoro is the maestro offers a wide range of customizable measures to answer the question, “But how did it really do?” Those have sometimes been developed in partnership with financial planners who use them to help their clients navigate uncertain markets and anxious times.

The Reamer Ratio is named after Brian Reamer, a Wisconsin-based financial adviser, who uses it to help assess fund performance consistency. Specifically, it is the percentage that a fund’s 3-year rolling returns beat the rolling returns of its category peers over the past 10 years. Rolling 3-year periods would be January 2013 – December 2015, then February 2013 – January 2016, and so on. There are 85 such 3-year periods per decade. A score of 100 means that a fund beat its peers in 85 out of 85 periods.

We provide three other bits of consistency-related information.

The minimum 3-year roll is the fund’s performance in the single worst one of those 85 three-year periods: it’s sort of a long-term investor’s worst-case experience.

The average three-year roll shows the average annual return for an investor holding for three years, which eliminates the effects of short-term spikes and drops in performance.

Great Owl funds, whose names appear in blue, are MFO’s elite: A fund that has delivered top quintile risk-adjusted returns in its category for the past 3-, 5-, 10-, and 20-year periods, as applicable.

Got it? Columns one and two show how much you earned annually, over the past 10 years, and how that compared to its peers. Then how consistently did you win measured by three-year holding periods. Blue font: Great Owl. We marked the best performances with blue highlighting, for ease of scanning.

The gold standard is Artisan International Value, which has almost unbeatable performance.

Almost.

The one active international fund with the strongest case for consideration is Buffalo International which, like Artisan, won 100% of the time but had slightly higher returns and a better worst-case. We will write more about Buffalo in August, but here’s the fifty-cent summary from Nicole Kornitzer, Portfolio Manager and daughter of Buffalo’s founder:

When it comes to investing internationally, we believe our approach to stock selection is distinct. We are focused on finding good companies and aren’t constrained by benchmark alignment to countries or industries.

Our approach is based on finding companies with sound business models, exposure to long-term secular growth trends, and attractive risk/return growth and valuation characteristics, which we can own for the long term.

It’s a four-star, $1.1 billion fund whose portfolio holds about 90 names (per Morningstar, 7/1/2024) with a glacial turnover ratio of 8%. Ms. Kornitzer has between $500,000 – $1 million invested in the fund.

The one passive international fund with the most striking performance is WisdomTree International Hedged Quality Dividend Growth ETF. They screen approximately 2,000 international, developed market stocks to identify the top 300 companies with the highest return on equity, ROA, and forward-looking earnings growth. They then fully hedge their currency exposure. It’s a five-star, $2.7 billion fund whose portfolio holds about 250 names (per Morningstar, 7/1/2024) with a brisk turnover ratio of 86%. None of the five managers have chosen to invest in the fund.

Based on those criteria, and excluding funds unavailable to neither retail investors or regular financial advisors, here are the most consistently successful international funds and ETFs for the past decade.

The Most Consistent Winners, 2013-2024

  Lipper Category Annual return APR vs Peer Reamer Ratio Minimum 3-yr Roll Average 3-yr Roll
Buffalo Int’l Int’l Multi-Cap Growth 7.3% 2.4 100% 0.7% 9.2%
Artisan Int’l Value (cl0sed) Int’l Large-Cap Value 7.1 3 100 -4.1 7.6
MFS Int’l Equity Int’l Large-Cap Core 6.6 2.1 100 0.8 7.9
Allianz PIMCO StocksPLUS Int’l (US Dollar-Hedged) Int’l Multi-Cap Core 8.9 4.5 96.5 -1.3 8.6
American Funds New World Emerging Markets 5.3 2.8 96.5 -2.5 7.4
WisdomTree Int’l Hedged Quality Dividend Growth Int’l Equity Income 9.5 5.8 95.3 2.9 9.6
iShares Currency Hedged MSCI EAFE ETF Int’l Large-Cap Core 9 4.5 95.3 -0.2 8.4
Xtrackers MSCI EAFE Hedged Equity ETF Int’l Large-Cap Core 8.9 4.4 95.3 0.1 8.2
Virtus KAR Emerging Markets Small-Cap Emerging Markets 6.2 3.7 94.1 -2.8 8.6
Brown Advisory WMC Strategic European Equity European Region 7.3 2.6 89.4 -1.3 7.4
Fidelity Int’l Capital Appreciation Int’l Large-Cap Growth 8.2 2.7 88.2 -1.1 8.8
Janus Henderson Responsible Int’l Dividend Int’l Equity Income 6.3 2.6 87.1 -0.7 5.9

Source: MFO Premium. A spreadsheet with additional metrics is available for download.

How do we explain the winners? That is, what do they have in common that might help explain their success and guide our choices?

  1. Almost all of the managers are vocally risk-conscious. Samra describes “a focus on risk management” as one of the three pillars of his process. MFS professes “A risk-aware culture where risk plays a central role in decision-making and everyone takes responsibility for assessing it.” The passive funds, of course, weren’t.
  2. Almost all of the managers use the terms “quality companies” and “sensible valuations.” Some use the term explicitly, as when Fidelity’s manager notes “Our investment approach seeks to identify high-quality growth stocks.” Others focus on the markers of a high-quality firm – high and consistent free cash flow, low leverage, consistent revenue growth – without invoking the term directly.
  3. Absolutely all of the funds and ETFs actively hedge their currency exposure. As the US dollar increases in value, earnings generated in other currencies decrease. In June 2008, if you had one Euro in earnings, it translated to $1.58 here. In June 2024, if you had one Euro in earnings, it was worth $1.07. Because of the effect of currency fluctuations, your European company needed to increase earnings by 50% just to offset the effects of the strengthening dollar.

Tweedy, Browne runs one international value portfolio, but it makes it available in two packages. International Value (ticker TBGVX, in red below) hedges its currency exposure. International Value II (TBCUX, in blue) does not. Over ten years, the same $10,000 investment in the same strategy with the same managers would have grown by either $3,161 or $5,587.

Here’s an argument for active management: active managers have the option of hedging their currency exposure; passive ETFs have the obligation to do so. That’s good if the dollar is rising, but bad if the dollar is falling. In a falling dollar regime, the names on the red and blue lines above would have been reversed and the hedged portfolio would have trailed its unhedged clone by about 18%.

Why worry about a falling dollar? Start with the question, “Why would anyone in France or China want to own dollars?” There are two primary answers because (1) they want to buy OPEC oil which is traditionally priced in dollars and (2) they want to buy US Treasury bonds, also priced in dollars. If oil demand dwindles or if OPEC begins accepting Euros or if foreigners look at a completely unrestrained federal deficit or US national debt as say “non, merci,” the dollar falls.

Source: USDebtClock.org

Briefly Noted

By TheShadow

Updates

Effective June 3, 2024, David Baron and Michael Baron became Co-Presidents of Baron WealthBuilder Funds and of Baron Asset Management. Ron Baron remains Chairman, CEO, and Portfolio Manager.

On or about August 28, 2024, IQ Winslow Large Cap Growth ETF and IQ Winslow Focused Large Cap Growth ETF will change from semi-transparent active ETFs to fully transparent active ETFs which will publicly disclose all of its actual portfolio holdings on a daily basis.

Briefly Noted . . .

Devesh’s warnings about overreliance on options-based strategies as a magic bullet notwithstanding, the following options-based strategies posted prospectuses with the SEC in the first two weeks of June 2024:

  1. AllianzIM U.S. Large Cap Buffer10 Jun ETF
  2. Calamos Russell 2000 Structured Alt Protection ETF – April
  3. Calamos Russell 2000 Structured Alt Protection ETF – January,
  4. Calamos Russell 2000 Structured Alt Protection ETF – July,
  5. Calamos Russell 2000 Structured Alt Protection ETF – October,
  6. Calamos S&P500® Structured Alt Protection ETF – October
  7. FT Vest U.S. Equity Equal Weight Buffer ETF – December
  8. FT Vest U.S. Equity Equal Weight Buffer ETF – June
  9. FT Vest U.S. Equity Equal Weight Buffer ETF – March
  10. FT Vest U.S. Equity Equal Weight Buffer ETF – September
  11. FT Vest U.S. Equity Uncapped Accelerator ETF – December
  12. FT Vest U.S. Equity Uncapped Accelerator ETF – March
  13. FT Vest U.S. Equity Uncapped Accelerator ETF – September
  14. Innovator Equity Defined Protection ETF – 1 Yr July
  15. Innovator Equity Defined Protection ETF – 2 Yr to July 2026
  16. Innovator International Developed 10 Buffer ETF™ – Quarterly
  17. Innovator Nasdaq-100 10 Buffer ETF™ – Quarterly
  18. Innovator Premium Income 9 Buffer ETF™ — July
  19. Innovator U.S. Small Cap 10 Buffer ETF™ – Quarterly
  20. NEOS Nasdaq-100® High Income ETF (QQQI)
  21. PGIM Laddered Fund of Buffer 12 ETF
  22. PGIM Laddered Fund of Buffer 20 ETF.
  23. SGI Enhanced Nasdaq-100 ETF

Folks jonesin’ for more chances to profit from dictatorship will soon have access to the Tema Saudi Arabia Vision 2030 ETF which will invest in Saudi Arabian companies that align with the Vision 2030 Manifesto.

T. Rowe Price has entered into a sponsorship campaign with its hometown Baltimore Orioles for the rest of this season and the postseason games. A patch will adorn the sleeves of the Orioles players which began June 11.

Seafarer Capital Partners, one of the industry’s most shareholder-centered firms, has filed a registration filing to offer a third share class of its Seafarer Overseas Growth and Income and Seafarer Overseas Value Funds. They will be adding a “Retail” class which is intended for distribution through NTF platforms, in response to investor and advisor requests. The Retail share class will include a 12b-1 fee (0.20%). The Seafarer Funds’ existing share classes (Investor and Institutional) do not include a 12b-1 fee. The changes should be effective around the beginning of September. The move might benefit, in particular, shareholders in the eight-year-old, five-star Overseas Value Fund which hovers at $100 million despite Morningstar’s affirmation of its “high” returns and “low” risk over the past three years.

Seafarer Overseas Value, eight-year record (07/2016-06/2024)

  Annual return Maximum drawdown Downside deviation Sharpe ratio Ulcer Index
Seafarer 6.7% -27.1 10.1 0.34 7.5
Lipper EM equity group 5.5 -39.0 12.5 0.20 17.0

Seafarer’s Ulcer Index is particularly striking. The Ulcer Index captures how far a fund falls and how long it stays down; the higher the number, the worse the ulcer an investor might anticipate. Seafarer has the lowest Ulcer Index of any of the 234 funds meeting the eight-year performance screen.

Small Wins for Investors

Vanguard reopened Vanguard Primecap and Vanguard Primecap Core Funds on June 18 to existing and new investors.  Both funds have been closed since 2004 and 2009, respectively.  Both funds have experienced outflows over the last several years which may have led to their reopening. Both funds are rated four stars by Morningstar.

Old Wine, New Bottles

Alger Global Focus Fund becomes Alger Global Equity Fund and Alger International Focus Fund will be rechristened Alger International Opportunities Fund effective on or about August 6, 2024.

Effective June 28, 2024, FMC Excelsior Focus Equity ETF’s name will change to FMC Focus Equity ETF.

On or about August 28, 2024, the IndexIQ ETF Trust becomes the New York Life Investments ETF Trust. In consequence, a bunch of ETFs formerly designed “IQ” will now be designated “NYLI.” As an example, the IQ Merger Arbitrage ETF will become the NYLI Merger Arbitrage ETF. About 25 ETFs are implicated. At the same time, the MainStay Funds are all renamed NYLI Funds. So the MainStay S&P 500 Index Fund transmutes into the NYLI S&P 500 Index Fund. That will be 40-50 fund name changes on top of the ETF changes.

Bad news for our Robot Overlords: they’re getting booted from the portfolio. On or around August 12, 2024, iShares Robotics and Artificial Intelligence Multisector ETF becomes iShares Future AI & Tech ETF.

Effective on or about May 31, 2024, Marketfield Asset Management no longer serves as a manager of Cromwell Marketfield L/S Fund, in consequence of which the Cromwell Marketfield L/S Fund changed its name to the Cromwell Long Short Fund. This could be read as one of the “oh, how the mighty have fallen” stories since Marketfield was the 800-pound gorilla among long-short funds for years, despite surprisingly tepid performance.

Effective August 19, 2024, the name of TCW Total Return Bond Fund will be changed to TCW Securitized Bond Fund.

WCM Developing World Equity and WCM International Equity Funds will be reorganized into ETFs. WCM Developing World Equity will be reorganized into the First Trust WCM Developing World Equity ETF and WCM International Equity Fund will be reorganized into the First Trust WCM International Equity ETF. Shareholders will vote on the proposal, which if approved, will occur September 9, 2024.

Off to the Dustbin of History

AMG GW&K High Income, AMG GW&K Enhanced Core Bond ESG, and AMG Beutel Goodman International Equity Funds will be liquidated on or about September 11.

The liquidation of the Ashmore Emerging Markets Corporate Income ESG took place on June 14, 2024.

BNY Mellon Government Money Market Fund will disappear on or about August 27, 2024.

BlackRock Future Tech ETF’s liquidation is scheduled to be sent to shareholders on or about August 15, 2024.

Boston Partners Emerging Markets Fund will be closed and liquidated as a series of the Company effective as of the close of business on or about August 29, 2024.

Direxion Hydrogen ETF, Direxion Moonshot Innovators ETF, and Direxion Daily Global Clean Energy Bull 2X Shares will be closed to purchase by investors as of the close of regular trading on the NYSE on July 19 and liquidated on July 30, 2024. 

Empower Ariel Mid Cap Value Fund will be merged into Empower Mid Cap Value Fund. “It is anticipated the Merger will be consummated on or about October 25, 2024.”

The Frontier HyperiUS Global Equity Fund was liquidated on June 10, 2024. 

Frost Municipal Bond Fund will be liquidated on or about September 5.

On or about August 1, 2024, the Glenmede Core Fixed Income Portfolio, Short Term Tax Aware Fixed Income Portfolio, and High Yield Municipal Portfolio will experience liquidation and termination.

Goldman Sachs Defensive Equity ETF will be liquidated on or about July 19, 2024.

The liquidation of Guggenheim Long Short Equity, Guggenheim RBP Large-Cap Market Fund, and Guggenheim Small Cap Value is now expected to occur on or about August 16, 2024.

Invesco Liquid Assets Portfolio and Invesco STIC Prime Portfolio will be liquidated on August 28, 2024.

After market close on August 12, 2024, iShares Currency Hedged MSCI Germany ETF, iShares Gold Strategy ETF, iShares International Developed Property ETF, iShares MSCI Intl Size Factor ETF, iShares USD Systematic Bond ETF, and iShares Virtual Work and Life Multisector ETF will cease the creation and redemption of Creation Units. Trading in the Funds will be halted prior to the market opening on August 13, 2024. Proceeds of the liquidation are scheduled to be sent to fund shareholders on or around August 15, 2024. 

Lazard Managed Equity Volatility Portfolio will be liquidated on or about August 5.

The Liquidation of MetWest Opportunistic High Income Credit Fund will occur on or about July 19, 2024.

Natixis Vaughan Nelson Mid Cap ETF will be liquidated on or about July 30, 2024.

Steward Small Cap Growth Fund will be liquidated on or about August 23.

Voya U.S. High Dividend Low Volatility Fund will be liquidated on or about July 26, 2024.

On July 12, 2024, Voya Balanced, Moderately Conservative, Strategic Allocation Conservative, and Strategic Allocation Growth Portfolios get merged away. Balanced into Balanced Income, Moderately Conservative and Strategic Allocation Conservative into Solution Conservative, and Allocation Growth into Solution Aggressive. (As if anyone really cares.)

Westwood Capital Appreciation and Income Fund will be liquidated on or about July 16.