Updates

The ETF end of the investment industry continues to be shaped by the mutual fund end. Jeff Benjamin at ETF.com reports “The mutual fund industry is setting new records for ETF conversions in 2024. According to Morningstar, there have been 55 ETF conversions this year through Dec. 17, which compares to 35 last year and 20 in 2022. The majority of the conversions this year have been in the fixed income space…” (“Mutual Funds Convert to ETFs at Record Levels,” ETF.com, 12/19/2024). The hottest trend has been the conversion of actively managed OEFs into ETFs.

That’s likely to accelerate if the existing dynamic remains in place: even bad funds experiencing outflows as OEFs experience inflows as soon as they become ETFs. Leo Almazora, writing for InvestmentNews, reports on a recent study by Bank of America.

The research offers a positive sign for firms who want to join the part, which over the past five years has seen 121 actively managed funds holding $125 billion in assets go through such conversions. … The study found that, on average, funds experienced $150 million in outflows during the two years before conversion but saw $500 million in inflows in the two years afterward. This “ETF advantage” applied to both funds that outperformed and underperformed their benchmarks. (“Mutual fund-to-ETF flips are winning moves, finds BofA research,” 11/27/2024)

The huge bulk of those inflows were gathered by DFA which is used by an awfully dedicated corps of advisors.

At the same time, assets in actively managed ETFs, whether original or converted, are soaring. In the past five years, worldwide, ETF assets have tripled. But the strongest growth has been in active management.

Actively managed ETFs have outshone this rate, albeit from a low base, particularly in the US where they have risen 700 per cent since 2019 to $806bn at the end of October, data from Morningstar shows. They now account for 8.1 per cent of money held in US ETFs, while their share of inflows hit a record 27.9 per cent in the first 10 months of this year. (Steve Johnson, “Active ETFs gain ground on more passive benchmark trackers,” FT.com, 12/8/2024, paywall likely)

Those funds are, in general, rather more risk-conscious than the average equity OEF is. The world’s largest active ETF, for instance, is the hedged $36bn JPMorgan Equity Premium Income ETF, which relies on the sort of “covered call” strategy that our colleague Devesh decried for its undue complexity and unattractive risk profile.

Small Wins for Investors

The Otter Creek Long/Short Opportunity Fund, I share class, has lowered the initial minimum investment from $100,000 to $2,500 effectively immediately.

Grandeur Peak Global Advisors has reopened all of its closed funds to new and existing shareholders, due to outflows, through all channels where the funds are sold effective January 1, 2025. Fund management will be applying a modest fee waiver to the small- and mid-cap growth funds for the full 2025 calendar year. This will be a 10 basis point waiver on Global Opportunities (GPGOX/GPGIX), International Opportunities (GPIOX/GPIIX), Emerging Markets Opportunities (GPEOX/GPEIX), Global Reach (GPROX/GPRIX), and Global Explorer (GPGEX); and a 5 basis point waiver on Global Stalwarts (GGSYX/GGSOX), International Stalwarts (GISYX/GISOX), and US Stalwarts (GUSYX). Snowball owns shares of two Grandeur funds, but would not currently recommend that folks open new, or add to existing, positions. The company has suffered a lot following the sabbatical of founder Robert Gardiner. Mr. Gardiner left in July 2022 with an anticipated return after three years. Morningstar reports that, over the past three years, only 7% of GP funds have beaten their peers on a risk-adjusted basis and their average three-year rating is 1.8 stars. In his December 2024 shareholder letter, CEO Blake Walker admits to both poor performance and shared frustration:

Over the last three years, Grandeur Peak portfolios, apart from our Global Contrarian Fund, have realized poor performance in both absolute terms and relative to our benchmarks and peers. We are very disappointed and frustrated with the results, as I’m sure you are … the last three years have been a new low for me and for Grandeur Peak.

Many have already voted with their feet as the firm has lost nearly half of its AUM. The two hopeful notes are the valuations for global small- and micro-caps are historically low, and founder Robert Gardiner is returning in the summer:

We look forward to founder, Robert Gardiner, returning to Grandeur full time in July 2025. Given the headwinds our investment style has faced during his absence, he’s excited to be back on the front lines. He plans to resume a leadership role on the Global Opportunities and International Opportunities strategies. He also plans to take an oversight role for Global Reach and Global Explorer strategies.

While Snowball continues to add modestly to his Global Microcap position and could imagine transferring his Emerging Opportunities stake to Global Contrarian, there is no case for immediate action either toward or away from GP. If you own shares, watch. If you don’t own shares, watch from afar. If Mr. Gardiner’s return bears fruit, act because GP has never been hesitant to close their funds quickly and tightly.

Closings (and related inconveniences)

None that we’ve noticed.

Old Wine, New Bottles

On or about February 28, 2025, abrdn Global Equity Impact Fund becomes abrdn Focused Emerging Markets ex-China Fund.

Eaton Vance High Yield Municipal Income ETF has become Eaton Vance High Income Municipal ETF. 

The FCF funds have picked up an abacus. Effective December 13, 2024, FCF International Quality ETF became Abacus FCF International Leaders ETF while FCF US Quality ETF transmogrified into Abacus FCF Leaders ETF.

The Guggenheim funds have been reorganized as the NAA Funds. (“Nah”? I wonder if this is the work of the same team that concluded what Aberdeen really needed in the 21^st century was to get rid of all of those dumb vowels and capital letters to become abrdn?) In any case, here’s the roster:

In the process, four former funds all merge to become NAA Large Cap Value. With the exception of Allocation, all of the funds are middling-to-decent.

The Board of Trustees for JP Morgan has agreed to consider the conversion of the following open-ended funds into exchange-traded funds: JPMorgan U.S. Applied Data Science Value Fund, JPMorgan Mortgage-Backed Securities Fund, and JPMorgan International Hedged Equity Fund. If approved by the Board, the conversions of JPMorgan U.S. Applied Data Science Value Fund, JPMorgan Mortgage-Backed Securities Fund, and JPMorgan International Hedged Equity Fund will reportedly occur July 11, 2005; June 27, 2025; and July 11. 2025, respectively.

Off to the Dustbin of History

The AB Total Return Bond Fund will be merged into the AB Core Plus Bond ETF. The unitary fee for the AB Core Plus Bond ETF will be reduced from .33% to .30%. The merger and fee reduction are anticipated to take place on February 10, 2025.

AlphaMark Actively Managed Small Cap ETF was liquidated on December 27, 2024.

In anticipation of “limited future prospects for investor demand for the Fund,” Cambria Global Tail Risk ETF will cease operations, liquidate its assets, and prepare to distribute proceeds to shareholders of record on or about January 15, 2025. The fund’s ticker was FAIL. (sigh).

Christopher Weil & Company Core Investment Fund was liquidated on or about December 24, 2024.

Fidelity Advisor Equity Value Fund is reorganizing into Fidelity Value Discovery Fund and Fidelity Advisor Value Leaders Fund is being merged into Fidelity Blue Chip Value Fund. Pending shareholder approval and such, the merger will occur on May 9, 2025.

Franklin Strategic Mortgage Portfolio will be liquidated and dissolved on or about February 21, 2025.

Goldman Sachs Future Real Estate and Infrastructure Equity ETF, Goldman Sachs North American Pipelines & Power Equity ETF, and Goldman Sachs Bloomberg Clean Energy Equity ETF will be liquidated on or about January 17, 2025

iMGP Alternative Strategies Fund (once known as Litman Gregory Alternative Strategies) will be reorganized into iMGP High Income Fund. A shareholder meeting is scheduled for January 21, 2025, to vote on the change in the primary investment objective. A registration filing is required to be filed in connection with the proposed change.

John Hancock Small Cap Value Fund will merge with and into John Hancock Small Cap Core Fund on or about January 30, 2025.

NAA Market Neutral Real Estate Fund was liquidated on or about December 20, 2024.

Trajan Wealth Income Opportunities ETF departs this realm on January 23, 2025. 

Virtus NFJ Global Sustainability Fund was liquidated on or about December 20, 2024.

Virtus Seix Corporate Bond Fund was liquidated on or about December 20, 2024.

West Hills Core Fund was liquidated on or about January 3, 2025.