Monthly Archives: January 2025

January 1, 2025

By David Snowball

Dear friends,

Welcome to the January issue of Mutual Fund Observer.

January was named after Janus, the tutelary deity of the year’s first month. As tutelary, he was guardian, patron, and protector. Absent from the Greek pantheon, Janus was the Roman god of beginnings, transitions, and endings. It was the “transitions” part that led Romans to place the two-faced god near entries and passageways, where he oversaw their comings and goings.

Janus, ca 1225-1230, Museum of Ferrara Cathedral, Ferrara, Italy. (He’s holding a jug of wine, which might be a clue to what he sees.)

This was a strange, liminal time of year in ancient Rome. Traditionally, the old year ended with a solstice festival, and the new year began around the time of spring planting, in March. In between those two events was an imprecise, unnamed period roughly corresponding to January and February. Even after January and February were formalized, they were seen as the end of the preceding year rather than the beginning of a new one.

When exactly the year began was up to the high priest of Rome’s College of Pontiffs, the pontifex maximus. Since politics is the second-oldest profession (you know the first, and I suspect “brewer” was the third), things promptly got messy. Newly elected governments took power on the first day of the new year, which created an irresistible temptation for the pontifex to accelerate the start of the year when parties they favored were coming to power and to delay the new year when disagreeable parties were incoming.

(One could imagine the anguish felt by pontifex John Roberts, sympathetic with the incoming administration’s political predispositions and yet apparently fearful of “the specter of open disregard for federal court rulings,” which “ must be soundly rejected.”)

Julius Caesar eventually put his foot down to end that foolishness and disorder; the Julian reforms standardized both the date the year began and the rhythm of the months.

But through it all, January was a month for taking stock, looking both upstream and down as we stood in the river of time. And so we shall.

Taking stock: the passing of James Earl “Jimmy” Carter (1924 – 2024)

On December 29, 2024, Mr. Carter was reunited with Rosalyn, his wife and partner of 77 years who had passed away 13 months earlier.

The Smithsonian’s Andrea Michelson offered the best one-sentence capsule of Mr. Carter’s time with us: “Carter enjoyed the longest life of any U.S. president, and he made his many years count.” We think of him as a simple man and yet he was an Annapolis graduate involved in the design and development of nuclear propulsion plants for naval vessels. His studies in nuclear engineering were disrupted only by his father’s sudden death.

As a practical matter, his political career centered on a single decade – 1971-1981 – in which he served as Georgia’s governor and America’s president. Mr. Carter walked to his inauguration; he was only the second American president, after Thomas Jefferson, to do so, and celebrated the fact that children in the crowd called out “Hi, Jimmy!” He enrolled his daughter in a public school; he was only the second American president, after Teddy Roosevelt, to do so. His presidency saw normalizing relations with China, returning the Panama Canal to Panama, and negotiating the Camp David Peace Accords between Egypt and Israel. He was the first president to understand the risk of climate change and acted vigorously to encourage research, fossil fuel alternatives (including placing solar panels on the roof of the White House), and conservation. In all candor, he was a better person than a president; his policies were more driven by politics (likely a misreading of politics) than principle and encouraged coal as much as solar. In any case, his successor quickly reversed all of those initiatives, setting the stage for decades of diddling in the face of the greatest challenge of our age.

Mr. Carter devoted the second half of his life to public service activism. Rather than establish a self-serving “presidential library,” he created a center for conflict resolution, the Carter Center. Instead of talking, he embraced doing. Claire Jerry, curator of political history at the Smithsonian’s National Museum of American History noted, “He doesn’t just talk about housing issues; he’s building houses. He doesn’t just talk about fair elections; he’s traveling the world to ensure that they happen. He’s actually doing the things that other people only give words to.” He ultimately contributed to the construction of 4,000 homes and spent time in 140 different countries.

Our challenge now is not to mourn the passing of a remarkable man. It’s to celebrate the fact that we had time with him and had time to learn from him: to learn about charity and human decency, about ambition tempered by humility, about the power of rolling up our sleeves and doing the work that needs to be done. Jimmy Carter showed us that true leadership isn’t measured in grand pronouncements but in hammer strikes and foundation stones, in showing up where help is needed most. His greatest legacy may be the simple truth he lived every day: that one person, committed to action and guided by compassion, can build homes, heal communities, and change lives. The best way to honor his memory isn’t with words but with work – by picking up our own hammers, finding our own causes, and transforming our own corners of the world with the same quiet determination that defined his remarkable life.

Take stock: 2024’s Hidden Progress, A Year of Remarkable Gains

There is no real question that the global climate is becoming less stable and less hospitable; the rate of deterioration has been accelerating and the prospect of disastrous disruptions (through the effect of so-called feedback loops where, for example, warming thaws permafrost which releases unanticipated gigatons of methane which further accelerates warming) can’t be ignored.

And yet, progress requires hope. An optimistic mindset is associated with both good health and personal success because optimists are able to see opportunities and seize them; pessimists see threats and recoil from them. On measures such as extreme poverty, infant mortality, and human rights, despite occasional setbacks like wars and pandemics, things are getting dramatically better, not worse.

For those seeking a satisfying answer to the question, “What’s there to be optimistic about, Snowball?” here’s a partial list of 2024’s victories.

The headlines in 2024 frequently painted a picture of global turmoil and political upheaval. Yet beneath these headlines, humanity continued its quiet march of progress. The world is now ten gigatonnes below the worst-case CO2 emissions scenarios of a decade ago. While it’s easy to fret about Insta-addled youth being driven to misery by toxic comparisons and Shein fashions, the reality is that 80% of the world’s youth live in emerging economies and they are “far better off than their parents were. They are richer, healthier and more educated; those who have smartphones are better informed and connected …. Small wonder that, in a survey by the UN in 2021, the young in emerging economies were more optimistic than those in the rich world” (“Reasons to be cheerful about Generation Z,” The Economist, 4/20/24, paywall possible). Clean energy is transforming not just electricity generation but transport and industry. While daunting challenges remain, 2024’s achievements demonstrate that humanity’s capacity for positive change continues undiminished.

Solar power installation shattered all previous records. Global solar installations reached an unprecedented 660GW in 2024, a 50% increase from 2023. The pace of deployment accelerated dramatically – what once took a month in 2010 now takes just 12 hours. Solar became not only the cheapest form of new electricity in history but also the fastest-growing energy technology ever deployed.

Battery storage transformed renewable energy economics. Global battery storage capacity surged 76% in 2024, making investments in solar and wind energy significantly more attractive. Price wars between Chinese manufacturers pushed costs to record lows, while manufacturing capacity increased by 42%, setting the stage for rapid growth in both grid storage and electric vehicles.

China completed the world’s largest desert containment project. A 3,000-kilometer green belt around the Taklamakan Desert was completed after 46 years of effort. The project, which is over a kilometer wide in places, effectively “locked the desert shut,” marking the completion of the first phase of the planet’s largest ecological restoration project.

The American chestnut is coming back. The American chestnut once dominated our eastern forests. After being virtually wiped out by fungal blight a century ago (think “four billion dead trees”), genetically modified chestnuts are now being planted across New York state. A new biotech startup called American Castanea is leading commercial efforts to restore the species, with plans to plant millions of blight-resistant trees that could transform Eastern forests and provide a model for saving other threatened tree species. (You can barely imagine how cheered I am at the prospect.)

The Klamath River flowed freely for the first time in a century. The largest dam removal project in U.S. history was completed ahead of schedule and on budget. Within one month of the removal of four major dams, hundreds of salmon returned to spawn in previously blocked areas, opening up 400 miles of habitat.

Amazon deforestation was cut in half over two years. Brazil’s deforestation rates dropped dramatically under President Lula’s administration, approaching all-time lows. Colombia’s deforestation fell by 36%, hitting a 23-year low, while 62.4% of the Amazon rainforest came under some form of conservation management.

The whale population recovery exceeded all expectations. Thanks to the 1985 commercial whaling moratorium, multiple whale species showed remarkable recovery. Humpback populations in Icelandic waters and the South Atlantic Ocean returned to pre-whaling levels, while blue whales were spotted in the Seychelles for the first time in decades.

Native otters solved an invasive species crisis. European green crabs are one of the most widespread invasive marine species on the planet. They are predatory, prolific, and destructive to native shellfish and the marine environment and have no natural predators in the western …  Oh, wait! About that. Turns out that sea otters react to green crabs about the way Midwesterners reacted to Red Lobster’s ill-fated “all you can eat” shrimp offer by scarfing down a thousand of the crabs a year. Southern sea otters along the U.S. West Coast reduced invasive European green crab populations by 90-95%. Just 120 otters consumed between 50,000 and 120,000 crabs annually at the Elkhorn Slough National Estuarine Research Reserve, demonstrating nature’s capacity for self-regulation.

Murder hornets have been completely eradicated from the United States. And British Columbia. After first appearing in Washington state four years ago and sparking widespread concern, the invasive species was eliminated through coordinated efforts. The successful eradication involved over 1,000 citizen scientists and dedicated beekeepers working alongside officials.

Global access to education reached historic levels. Between 2000 and 2023, the number of children not attending school fell by nearly 40%. Eastern and Southern Africa achieved gender parity in primary education, with 25 million more girls enrolled than in the early 2000s. Since 2015, an additional 110 million children entered school worldwide.

College has become significantly more affordable in the United States. Average in-state tuition at public universities dropped to $11,610, down from $12,830 five years ago. Major institutions like Cooper Union reinstated free tuition traditions, while MIT extended free tuition to families earning below $200,000. Bloomberg’s donation ensured free medical education at Johns Hopkins University. Bad for Augie’s budget, good for yours!

School meal programs expanded dramatically worldwide. Nearly 480 million students now receive meals at school, up from 319 million before the pandemic. Nigeria plans to feed 20 million children by 2025, Kenya aims to expand from two million to ten million recipients, and Indonesia is committed to providing lunches to all 78 million of its students.

Paris transformed its urban core for people over cars. The city banned thru traffic in central areas, pledged to convert 60,000 parking spaces to trees, and saw a 40% decline in air pollution over a decade. Cyclists now outnumber motorists for trips from the suburbs to the city center, marking a fundamental shift in urban mobility.

African cities pioneered urban environmental solutions. Kigali, Rwanda, became Africa’s cleanest city through innovative community-based policies and initiatives. The success provides a model for rapidly growing cities in developing nations to achieve environmental sustainability.

Cities globally expanded green infrastructure. Berlin became a “sponge city” designed to capture and reuse rainwater, while New York opened 60km of new greenways. These achievements demonstrate how cities are developing nature-based solutions to climate challenges.

A game-changing HIV drug emerged as a potential pandemic-ender. Lenacapavir showed 100% efficacy in preventing HIV infections during African trials, marking the closest thing to a vaccine in four decades. By year’s end, manufacturer Gilead had committed to providing affordable versions to 120 resource-limited countries and was developing a single annual shot version.

Tuberculosis deaths hit their lowest level ever recorded. Africa led global progress with a 42% reduction in deaths and a 24% decrease in infection rates since 2015. Ethiopia achieved a sixfold drop in infections since the 1980s, while Cambodia saved an estimated 400,000 lives this century. New oral treatments now allow patients to be cured in half the conventional time.

The opioid crisis showed its first sustained reversal. U.S. overdose deaths dropped by an unprecedented 15% in 2024, representing 20,000 fewer deaths than the previous year. Both researchers and frontline workers confirmed this marked a genuine turning point in the epidemic.

Global disease elimination reached historic milestones. Multiple countries eliminated long-standing diseases in 2024, including leprosy in Jordan, sleeping sickness in Chad, and maternal tetanus in Guinea. India, Vietnam, and Pakistan eliminated trachoma, while Brazil and Timor-Leste eliminated elephantiasis. These successes demonstrate the effectiveness of coordinated public health campaigns.

Brain-machine interfaces restored human speech. An ALS patient regained the ability to speak to his daughter through revolutionary sound decoders and AI software. The breakthrough is part of a new wave of brain-machine interfaces that could transform life for paralyzed individuals.

Artificial intelligence revolutionized disease detection. AI systems demonstrated unprecedented accuracy in medical diagnosis, from spotting skin cancer to finding hidden brain tumors in seconds. ChatGPT-4 outperformed human doctors in diagnostic tests, while AI tools in 1,400 GP clinics boosted cancer detection rates across England.

Critical mineral concerns evaporated. Known reserves of essential minerals increased dramatically: enough lithium for 250 million EVs, cobalt for 500 million EVs, and copper for 1.7 billion EVs was discovered. Major deposits were found in Arkansas, Wyoming, and Norway, alleviating concerns about resource scarcity.

And while you might think of it as silly, I’m cheered by the stories of the Chinese zoo that tried to disguise dogs as pandas because … well, they couldn’t get pandas, and Chinese zoos really need to have pandas and so …voila! Paris is opening a cheese museum, the Musee du Fromage this summer. (Wisconsin is jealous.) Dolly Parton launched a line of Dolly Wines (in a typically Dolly fashion she was engaged with every part of the process, from selecting the wines to designing the bottles), which offset the sting of learning that Fruit Stripe gum is no more. (Where now will I get my collectible zebra tattoos?) And, scientists have demonstrated what mystics knew: a feeling of awe – think about standing at the base of the Grand Canyon and looking up – slows our sense of time, a phenomenon known as time dilation.

The Japanese practice of forest bathing, known as “shinrin-yoku,” embodies that insight. The practice involves being calm and quiet in nature, observing the surroundings, and breathing deeply. Participants are encouraged to turn off devices, move slowly, and engage their senses fully. Studies have shown that forest bathing can lower blood pressure, alleviate depression and anxiety, improve sleep quality, and boost the immune system. It is now recognized as a vital part of preventative healthcare in Japan. And you can practice it in your backyard once you get past an obsession with “perfect lawns” and “flowers of the year.”

Three questions for you:

  1. Did you know any of this?
  2. If not, why not?
  3. What might you do about it?

In answer to questions 1 and 2, most people don’t know how good we’ve got it because doom (doom-scrolling on your part and doom-casting on the media’s part) is vastly more profitable than the truth. The truth, so far as I can tell, is that the world is vastly less screwed-up and lives are vastly better than at any point in history.

The answer to question 3 is the easiest and hardest of all: step away from the mediated world and step into the immediate (aka “real”) one. Put your phones away. Hug someone today. Smile at a stranger. Do a good deed. Be like Jimmy.

– – – – –

Progress is rarely dramatic. It’s built day by day through the determined efforts of scientists, healthcare workers, conservationists, educators, and ordinary citizens working to solve problems both great and small. While 2024’s headlines often focused on conflict and crisis, millions of people worldwide continued humanity’s long tradition of quietly building a better world. From eliminating diseases that have plagued us for millennia to restoring ecosystems we once thought lost forever, from expanding educational access to developing breakthrough medical treatments, their achievements remind us that human ingenuity and cooperation remain our most powerful tools for positive change.

As we face the challenges ahead – from climate change to political polarization to emerging technologies – 2024’s hidden successes offer an important lesson: progress is possible when we combine scientific innovation with human compassion, when we balance technological advancement with environmental stewardship, and when we measure success not just in profits but in human flourishing. While the path forward isn’t always clear, our capacity to solve seemingly intractable problems remains undiminished.

Without any question, we face a multitude of challenges. We need to return to operating with a modicum of trust in one another and of faith in our institutions. We need to accept evidence rather than conspiracy. We need to adult up if we want to bequeath a better world to our children and to theirs.

But we can.

And we will.

In the January Mutual Fund Observer …

Much of our success as investors is driven by two factors: a good plan and resilience in executing it. Our colleague Lynn Bolin recommends “Lifetime Investment Strategies For Younger Investors” that focus on time and patience much more than on hot topics. He demonstrates that even during challenging bear markets like 2000-2010, young investors who consistently invest small amounts (as little as $5 per day) can build significant wealth over time. Behaviors that support a “rich” life:  

  • The importance of automated savings
  • Increasing financial literacy
  • Building a “margin of safety” for unexpected events
  • Maintaining work-life balance while not sacrificing long-term savings
  • Having both emergency savings and retirement savings

For those looking for concrete recs rather than long-term reflections, Lynn also offers “My ETF Picks for the Bucket Approach In 2025.” Lynn is optimistic about intermediate-term bond opportunities while being cautious about equity valuations.

As is our tradition, we try to start the year with a note of realistic optimism. Jeff Bezos strikes me as a detestable wanker, but we do agree that almost everything, including infant mortality, global literacy, and global poverty rates, has improved over the last 50 years. Everything except the climate:

When people talk about the good old days, that’s such an illusion. Almost everything is better today than it was … with one exception, which is the natural world.

(One of the Washington Post’s cartoonists tried to capture Bezos genuflecting with others of his class before a statue of Mr. Trump. It was quickly spiked and the cartoonist resigned.)

Draft cartoon, courtesy of Ann Telnaes via The Wrap

It’s easy to become despondent over the torrent of despair pouring from the media, mainstream and otherwise. Such despondence blinds us to opportunities and makes our lives some combination of “nasty, brutish and short.” And so, we want to offer a celebration of the miracles that routinely transpire when smart and good people put their minds to changing the world for the better. (Murder hornets, take notice.)

In “Not Built for This,” I try to balance long-term reflections on the worsening state of the global climate with specific (some might say “concrete”) recommendations for infrastructure funds that might prosper as a result of our belated attempts to manage the consequences of our failure to make serious attempts to moderate climate change. This essay builds on four simple arguments:

  • Infrastructure is the umbrella term for all of those creations that make modern society possible.
  • Our infrastructure, much dating to the early 20th century, was never designed for the world we’ve created.
  • Politicians can ignore global climate change.
  • Politicians cannot ignore infrastructure collapses. While climate change is distant, abstract and somebody else’s problem, the collapse of a city’s water treatment is an existential threat to state and local politicians. They will respond.

We highlight a half dozen funds that might be variously poised to profit from those responses.

And, in a bargain-obsessed world, we offer a Launch Alert for Virtus KAR Mid-Cap ETF. It’s an active ETF whose strategy parallels five-star institutional funds – but is offered at a one-third discount.

Speaking of launching an ETF, this month, Charles shares, “You Too Can Start an ETF,” which attempts to highlight the burgeoning ETF marketplace and the challenges we, investors, and advisors face in understanding just who is behind the various strategies being offered.

The Shadow, as ever, shares the month’s most striking changes in the fund and ETF world in “Briefly Noted.”

Thanks, in this New Year to …

The good folks at CrossingBridge and Cook & Bynum for enriching our winter reading stack (Amy Tan’s Backyard Bird Chronicles is drawing to a close), and to Brad Barrie and the folks at the Dynamic Alpha Funds for the cookies that go with it!

Thanks to Matt, for words of good cheer in response to a somber question in our December issue:

Regarding “is this still worth doing? Are we making a difference?” – my answer to both is an emphatic “Yes!” I always look forward to each issue and never miss reading it. I especially appreciate Briefly Noted, since it’s so easy to miss fund-specific developments (I’m really looking forward to the launch of Tweedy, Browne’s COPY, for example). I view the launch of so many active ETFs as a positive, so it’s valuable to get a heads-up on some of the more interesting ones on the horizon. And your sense of humor is always on point – I only just noticed this gem and might need to borrow some of it: “…and spends an amazing amount of time ferrying his son, Will, to baseball tryouts, baseball lessons, baseball practices, baseball games … and social gatherings with young ladies who seem unnervingly interested in him.”

Thank you, Matt. You make a difference.

Thanks to Doug, one of our stalwart subscribers, whose monthly contribution arrived at dawn on Christmas morning, and to Greg, another regular, whose support arrived on New Year’s Day morning. Both were sources of unreasonably good cheer. It’s good to know you’re there.

Thanks to the Grinch, on his way down Mt. Crumpet, who shared a gift on Christmas Day.

Thanks, as always, to our other regular contributors S&F Investment Advisors, Wilson, William, William, Stephen, Brian, and David. 

And, to John from Wexford, Kathy of MA, Benjamin from Ann Arbor, Philip of MI, and Charles from Indy, thank you.

As ever,

david's signature

 

MFO Premium Year-End Review 2024

By Charles Boccadoro

On Wednesday, 8 January, at 11 a.m. Pacific (2 p.m. Eastern), we will be conducting our year-end webinar to review funds and MFO Premium updates. 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.

Significant upgrades this year include:

  • Introduced “Parent” and “White Label” into MultiSearch and Fund Family Scorecard, as motivated by MFO piece: You Too Can Start an ETF.
  • Introduced Price-Based Metrics, as described in our December commentary.
  • Expanded Fund Family Scorecard, including family annual revenue based on assets under management and expense ratio.
  • Introduced Quarterly Metrics tool, as described in our October commentary.
  • Expanded Averages to include peer groups of Category, SubType, Type, and other classifications, like actively managed funds and ETFs (convenience symbols AV-ACTIVE and AV-ETFS, respectively).
  • Refinements to Calendar Year category averages and flow sums.

December marked the 36th full month of The Great Normalization (TGN) market cycle and the 27th month of this market’s bull run, including 10 months at all-time highs. The run has propelled the S&P 500 70% so far, netting investors 29% after the -24% drawdown in 2022, or a normal-like 9% per year. The 30-day T-Bill has also been 4% annualized over this time, which too is about normal. Bonds, however, have generally lagged.

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.

My ETF Picks for the Bucket Approach In 2025

By Charles Lynn Bolin

My retirement planning for the past two years since retiring has focused on the Bucket Approach to have the right funds in the right investment buckets to have high-risk adjusted returns while minimizing taxes over my lifetime. This article focuses on forty of the top performing ETFs that I believe can form a good foundation for the coming decade. I wrote Investing in 2025 And the Coming Decade describing why I think bonds will outperform stocks on a risk-adjusted basis because interest rates will have to stay higher for longer to finance the national debt and starting equity valuations are so high. Federal Reserve Chairman Jerome Powell basically said as much this past Wednesday and the S&P 500 dropped 3%.

I rated over five hundred ETFs that I track in over one hundred Lipper Categories, using the MFO Risk and Rating Composites, Ferguson Mega Ratio which “measures consistency, risk, and expense adjusted outperformance”, Return After-Tax Post Three Year Rating, and the Martin Ratio (risk-adjusted performance) to select the top fund for each Lipper Category. I then subjectively adjusted the funds to favor the Great Owls and for my own preferences of Fund Families. I eliminated the Lipper Categories where the final fund had a high price-to-earnings ratio and fell further than the S&P 500 following Mr. Powell’s announcement. I used the Factset Rating System to eliminate several funds. I eliminated almost twenty funds to keep the final list of funds to keep the selection diversified and simple.

What Will the Investing Environment Bring in The Next Decade?

The coming decade will bring uncertainty because:

  • National debt as a percentage of gross domestic product (GDP) has not been this high since World War II.
  • Federal Debt as a percentage of (GDP) is growing at six percent adding to the national debt.
  • Population growth which drives economic growth has slowed for decades.
  • Tax cuts are coming and are likely to reduce Federal revenue with benefits favoring the wealthy and adding to the national debt.
  • Tariffs raise the cost of inflation favoring keeping rates higher for longer.
  • Stock valuations are high implying below average long-term returns.
  • Interest rates will likely be elevated compared to historical averages in order to finance the national debt and contain inflation.
  • Geopolitical risk has risen.
  • Political brinkmanship has risen.

For ideas about how to prepare for more volatile markets, I refer you to David Snowball’s article last month, “Building a chaos-resistant portfolio”, as well as mine, “Envisioning the Chaos Protected Portfolio”. The selection of ETFs in this article reflects some of these ideas from the MFO December newsletter.

Bucket Approach

The Bucket Approach is a simple concept of segregating funds into three categories to meet short-, intermediate-, and long-term spending needs. It can be more complicated in a dual-income household with separate account ownership, and different tax characteristics. For those in higher tax brackets, asset location to manage taxes is very important.

For example, if an investor owns both Traditional and Roth IRAs, then funds with lower growth and less tax efficiency should be put into the Traditional IRAs. Roth IRAs are ideal for higher growth funds that are less tax-efficient. After-Tax accounts held for the long term are best suited for tax-efficient “buy and hold” funds with low dividends and higher capital gains.

These are the concepts included in the following buckets. Investors need to select what is appropriate for their individual circumstances. Some funds can fit comfortably into multiple buckets or accounts with different tax characteristics.

I arrange my accounts in order of which ones I will withdraw money from first. The first ones are the most conservative and the last ones are the most aggressive. I prefer to consider these being in Investment Buckets. On the day that the S&P 500 fell 3%, my accounts that will fund the next ten years of living expenses fell 0.35% while producing income.

Bucket #1 – Safety and Living Expenses for Three Years

The list of funds in Bucket #1 is short because I used fund performance in 2022 and the COVID recession to push funds with high drawdowns into Bucket #2. Money market funds, certificates of deposit, and bond ladders should be considered a staple of a conservative bucket for emergencies and living expenses. The Tax Cost Ratio reflects the portion of the returns that will be lost due to taxes. The higher one’s tax brackets, the more applicable it becomes to invest in municipal bonds. For an investor wanting to minimize taxes, BlackRock iShares Short Maturity Municipal Bond Active ETF (MEAR) may be a great choice.

The blue shaded cells signify a Great Owl Fund which has “delivered top quintile risk-adjusted returns, based on Martin Ratio, in its category for evaluation periods of 3, 5, 10, and 20 years, as applicable.”

Bucket #1 – Safety and Living Expenses for Three Years

Source: Author Using MFO Premium fund screener and Lipper global dataset.

Bucket #2 – Intermediate (three to ten years) Spending Needs

There is a very important distinction between MFO Risk and MFO Rating. MFO Risk is based on risk as measured by the Ulcer Index which is a measure of the depth and duration of a drawdown. MFO Risk applies to all funds. MFO Rating is the quintile rating of risk-adjusted performance as measured by the Martin Ratio for funds with the same Lipper Category.

I recently changed my investment strategy for Bucket #2 from Total Return to Income because interest rates are historically high. In the table below, I calculate the Yield to Ulcer ratio to see how much risk I might be taking for that income. The risk over the past three years has come from rising rates and the anticipation of a recession which may have transformed into a soft landing. I expect interest rates to remain relatively high for longer but gradually fall. I favor bonds with intermediate durations.

Bond portfolios should be high quality, but riskier bond funds can be added to diversify for higher income or total return. High Yield, Loan Participation, and Multi-Sector Income funds carry more risk than quality bond funds but are typically less risky than equity funds.

Several International Equity Funds make it into Bucket #2 because the valuations are lower and they have lower volatility. Franklin Templeton International Low Volatility High Dividend Index ETF (LVHI) stands out for having a high yield and Yield/Ulcer ratio along with high returns, but it is not particularly tax-efficient.

Bucket #2 is where I see the most opportunity over the next five to ten years because of high starting interest rates. I will be tracking higher-risk bond funds and income-producing funds to potentially add.

Bucket #2 – Intermediate (three to ten years) Spending Needs

Source: Author Using MFO Premium fund screener and Lipper global dataset.

Bucket #3 – Passing Along Inheritance, Longevity, Growth

My concerns about Bucket #3 are mostly high valuations. The theme in Bucket #3 is growth at a reasonable price. Equity funds may do well in 2025 and 2026 because of tax cuts. I offer fewer funds to consider in Bucket #3 because I excluded those with high valuations and high recent volatility.

I was thinking of buying Berkshire Hathaway next year, but now favor Fidelity Fundamental Large Cap Core ETF (FFLC) instead.

Bucket #3 – Passing Along Inheritance, Longevity, Growth

Source: Author Using MFO Premium fund screener and Lipper global dataset.

Closing

I have delayed making some small changes to my portfolio until next year in order to keep taxes lower in 2024. I plan to make normal withdrawals from riskier investments to lower my stock-to-bond ratio. Below is a chart of Total Return of some of the funds that I am tracking with the most interest.

Figure #1: Selected Author’s ETF Picks for 2025

Source: Author Using MFO Premium fund screener and Lipper global dataset.

I wish everyone and productive and pleasant new year.

Not Built for This: The Argument for Infrastructure Investing in an Unstable Climate

By David Snowball

There’s a famous New Yorker cartoon that we don’t have permission to reproduce. It shows a cheerful executive speaking from a lectern in a conference room.

And so, while the end-of-the-world scenario will be rife with unimaginable horrors, we believe that the pre-end period will be filled with unprecedented opportunities for profit!

Welcome to the case for infrastructure investing in a world where the global climate has been allowed to become increasingly hostile to human life.

Climate change as a catalyst for infrastructure investing

The underlying argument is simple.

  1. Infrastructure is the umbrella term for all of those creations which make modern society possible: roads, harbors, drinking and wastewater systems, the internet-of-things, fuel pipelines and power grids, and so on.
  2. Our infrastructure, much dating to the early 20th century, was never designed for the world we’ve created. In the simplest example, rising sea levels drive rising groundwater, which floods buried infrastructure – water, gas, electric, phones – that was designed to sit well above the water table.
  3. Politicians can ignore global climate change. And have.
  4. Politicians cannot ignore infrastructure collapses. While climate change is distant, abstract and somebody else’s problem, the collapse of a city’s water treatment is an existential threat to state and local politicians. They will

Up until now, our infrastructure has suffered benign neglect. Bridges that haven’t yet collapsed get repainted rather than rebuilt. US drinking water systems that haven’t been maintained lose about 2.1 trillion gallons of water each year, but mostly the taps still work so we have ignored the need for $500 billion in water-related investments (Report Card for America’s Infrastructure, 2021). Victorian-era sewage systems are common and are prone to failure during increasingly common “once in 500-year” storms (“Climate change could overwhelm our sewers,” The Conversation, 12/17/2024). The number of weather-related power outages has increased by 80% since 2000 and the length of the average outage has doubled. The US Department of Energy places the cost of outages at $150 billion / year. The good news is that the US spends about $27 billion / year to maintain its grid. The bad news is that we need to spend $700 billion to balance rising demand with ancient failing equipment.

Climate change has the potential to trigger cascading failures that will move trillions from the “someday” list to the “today” list. Amrith Ramkumar, writing for the Wall Street Journal, made the case succinctly:

Efforts to address the cause of climate change have fallen short so far. That is leading to a big push to treat the symptoms.

Government and private money is pouring into plans to control flooding, address extreme heat, and shore up infrastructure to withstand more severe weather caused by climate change.

For private-sector investors, putting money into adaptation is a bet that mitigation won’t fully address climate change or will take longer than expected. The cost of adaptation is immense, particularly if mitigation efforts are delayed. The longer society waits to address climate change, the more it will spend to fend off the impact of hotter, wetter weather, researchers say. (“Climate Cash Pivots to New Reality of a Hotter, Wetter Planet,” WSJ.com, 8/1/2024)

Increasingly, investors suspect that “the pre-end period will be filled with unprecedented opportunities for profit.” Ed Ballard reports,

Another set of climate-change investments is now coming into focus: the businesses that will help us live on a hotter planet. For investors, adaptation and resilience have been an afterthought. …But net zero is a long way off, and heatwaves, storms, and wildfires are intensifying. Governments are under growing pressure to close an adaptation funding gap tallied in the trillions.

Investors are looking for companies that will make money if the gap is closed. A report by BlackRock published in December pointed to rising demand for products and services that build resilience to climate change, like air filters that help during wildfires and financial derivatives that allow for hedging weather risk.

“We think markets likely underappreciate the extent of that growth,” BlackRock wrote. (“Could Adaptation Be the Next Climate-Finance Gold Rush?” Wall Street Journal “Climate and Energy” newsletter, 3/14/2024)

Sectors that provide compelling investment opportunities

Where might those opportunities center? Climate instability may drive additional or accelerated spending in a number of areas.

  1. Addressing aging and vulnerable infrastructure: Many US infrastructure systems are aging and increasingly vulnerable to climate impacts. There will be a need for major investments to repair, upgrade, and modernize critical infrastructure like roads, bridges, water systems, and the electrical grid to make them more resilient to extreme weather and changing climate conditions.
  2. Improving resilience to extreme weather: More frequent and intense storms, floods, heat waves, and other extreme weather events are damaging infrastructure. Significant investments will be needed in flood protection, stormwater management, heat-resistant materials, and other resilience measures.
  3. Transitioning to clean energy: The Bipartisan Infrastructure Law provides over $65 billion for clean energy transmission and grid upgrades to facilitate the expansion of renewable energy. This represents the largest-ever US investment in clean energy transmission. It seems unlikely that the incoming administration will rescind funds beloved by its corporate friends.
  4. Expanding sustainable transportation: Major investments are planned for public transit, rail, electric vehicle charging networks, and active transportation infrastructure like bike lanes and pedestrian facilities to reduce emissions from the transportation sector.
  5. Protecting coastal areas: Rising sea levels and more intense coastal storms will drive investment in natural and built coastal defenses, managed retreat from high-risk areas, and upgrades to coastal infrastructure.
  6. Addressing environmental justice: There will be a focus on directing infrastructure investments to disadvantaged communities that are often most vulnerable to climate impacts. Lest you think this is the dead fantasy of a liberal regime, “red” states are likely to face the greatest economic risks from climate change. Despite their populations and elected officials being less likely to acknowledge the threat, the impacts are likely to be disproportionately felt by the poorest regions within these states. Internal migration to Florida has already collapsed, with the state’s population growth dependent almost entirely on international migrants (hah!). Texas faces more billion-dollar weather events than any other state: from 1980 – 2000, about three events a year (CPI adjusted dollars) which has spiked to 12 disasters a year in the past five years.
  7. Implementing natural infrastructure: Many anticipate increased use of natural systems like wetlands, forests, and green spaces to provide flood protection, heat reduction, and other climate resilience benefits.
  8. Upgrading water infrastructure: Investments in water conservation, reuse, flood management, and resilient water supply systems to deal with droughts, floods, and other climate-driven water challenges. The EPA estimates the needed upgrades at north of $20 billion / year, pretty much forever.

How does Mr. Trump play into all this?

Be danged if I know. The incoming Trump administration’s likely actions present both opportunities and challenges for infrastructure investing in 2025 and beyond. Here are key ways the administration may strengthen or weaken the case for infrastructure investments:

Continued Government Spending

The Trump administration is expected to maintain significant infrastructure spending, with nearly $294 billion of the Infrastructure Investment and Jobs Act (IIJA) funds still to be allocated. This ongoing federal investment provides a strong foundation for infrastructure growth and development across various sectors.

Streamlined Regulations

Trump’s pledge to reduce bureaucratic red tape and expedite infrastructure projects could accelerate the construction and repair of critical systems. This streamlining of regulations, particularly targeting the environmental impact assessments required by the National Environmental Policy Act (1970), may lead to faster project approval (think “nuclear power plants”) and potentially higher returns for investors.

Focus on Energy Infrastructure

The administration is likely to prioritize expanding and modernizing energy infrastructure, including pipelines, refineries, and distribution networks. This focus could create substantial investment opportunities in the energy sector, particularly in fossil fuel-related infrastructure. (sigh) Trump’s administration may reallocate funds away from public transportation, high-speed rail, and electric vehicle infrastructure. (Sorry, Elon.)

Emphasis on Public-Private Partnerships (P3s)

Despite past skepticism, the Trump administration may embrace P3s as a means to modernize infrastructure and reduce federal debt. This approach could open up more opportunities for private investors to participate in infrastructure projects.

Trade policies are a wild card since much of what we need to accomplish is reliant on imported materials, technologies, and workers. (Depending on region and specialty, immigrant workers account for 30-50% of all skilled and unskilled construction laborers in the US). Republican-led budget-cutting measures could lead to reduced federal funding for some infrastructure projects which would increase reliance on state and local funding, potentially affecting the scale and scope of certain infrastructure investments.

Even without climate change serving as an accelerant, infrastructure funds have produced competitive and uncorrelated results over the past 15 years. Benjamin Morton, head of global infrastructure at Cohen and Steers highlights the group’s characteristics:

Listed infrastructure has little overlap with broad equity allocations, accounting for just 4% of the MSCI World Index, and provides access to subsectors and investment themes that are typically under-represented in broad equity market allocations.

Performance data over the past 17 years indicates that listed infrastructure offers the potential for:

  • Competitive performance relative to global equities, with total returns averaging 7.2% per year
  • Lower volatility, supported by the relatively predictable cash flows of infrastructure businesses
  • Improved risk-adjusted returns, as measured by a higher Sharpe ratio
  • Resilience in down markets, with infrastructure historically experiencing 74% of the market’s decline, on average, in periods when global equities retreat

In 2022, in an environment characterized by slowing growth, rising interest rates, and high inflation, infrastructure substantially outperformed broader stocks. This was consistent with infrastructure’s history of resilience and relative outperformance in most equity market declines. (Essential assets: The case for listed infrastructure, 10/2023)

Funds for infrastructure investors

You need to consider two factors before creating your shortlist of possible portfolio additions:

  1. Active or passive? The argument for active management revolves around the high degree of uncertainty about the direction of the Trump administration’s policies, both those directly aimed at infrastructure but also those impacting international currencies and trade.
  2. Focused or diversified? You might choose to express broad optimism for infrastructure investments, or you might find a reason to target particularly investments in energy infrastructure. Within energy, you have the option of targeting “next-gen” sorts of companies or traditional pipeline ‘n’ power people.

This is all complicated by the fact that the number of funds that name themselves “Infrastructure” far exceeds the number of funds (and ETFs) that Morningstar or Lipper place in their infrastructure categories. Lipper, for instance, recorded 92 funds named “infrastructure” but placed only 33 in the “global infrastructure” category. As a result, some “infrastructure income” funds reside in “core-plus bonds” while others are classified as utility, global infrastructure, natural resources, or energy MLP funds. That makes direct comparisons hard. We screened for every fund with “infrastructure” in its name and then reviewed its performance and mission.

Three-year performance and characteristics of profiled funds

Diversified and active

Centre Global Infrastructure Fund (DHIVX): DHIVX pursues long-term capital growth and current income by investing in infrastructure-related companies from developed global markets. The fund employs a bottom-up, active management approach, focusing on what manager James Abate deems the most attractive infrastructure opportunities. It aims to balance exposure across telecommunications, utilities, energy, transportation, and social infrastructure industries. The key diversifier here is the fund’s structural mandate to invest about one-third of its assets in “social infrastructure,” such as hospitals. Mr. Abate has a concentrated, low-turnover portfolio here and also manages the four-star Centre American Select Fund. DHIVX was the top-returning infrastructure fund of 2024.

Fidelity Infrastructure Fund (FNSTX): This is a five-year-old fund with just $50 million in AUM, which is rare for Fido. About 70% of the current portfolio are American companies in the full spectrum of infrastructure industries: airports, highways, railroads, and marine ports; electric, water, gas, and multi-utilities; oil and gas storage and transportation; and communications infrastructure, such as cell towers. The fund has four-star ratings from both Morningstar and MFO.

Lazard Global Listed Infrastructure Fund (GLFOX): This 15-year-old fund is the 800-pound gorilla of the category, weighing in at $9.1 billion. Infrastructure encompasses utilities, pipelines, toll roads, airports, railroads, ports, telecommunications “and other infrastructure companies” (sigh). The managers target “preferred infrastructure” companies, mid- to large-caps which are characterized by “longevity of the issuer, lower risk of capital loss and revenues linked to inflation.” Unlike the Fidelity fund, this is a primarily international fund with 75% in non-US investments. I’m distinctly unimpressed that only one of four long-time managers has invested even a penny in the fund.

Diversified and passive

Global X U.S. Infrastructure Development ETF (PAVE): This ETF offers broad exposure to U.S. infrastructure development companies and has shown strong performance. PAVE has outperformed its benchmark and category, making it an attractive option for long-term growth investors. The key is that it has both high upside capture and high downside capture, with Morningstar giving it a “high” in both risk and return. This is the largest infrastructure ETF at $8.5 billion. It has a five-star rating from Morningstar and is an MFO Great Owl Fund which signals top-tier risk-adjusted performance across all trailing periods.

iShares Global Infrastructure ETF (IGF) and SPDR S&P Global Infrastructure ETF (GII) are the sort of Frick and Frack of infrastructure ETFs. Both are passive, equity, about 50/50 US and international, about 3% yield, about 0.4% expenses, with identical Morningstar and MFO ratings.

Focused and active

Eagle Energy Infrastructure Fund (EGLAX): The fund makes long-term investments primarily in energy infrastructure in the “midstream” transportation and storage segment of the energy supply chain. These are long-lived, high-value physical assets that are paid a fee for the transportation and storage of natural resources. It’s structured to minimize that tax drag typical of MLP investments. The Eagle Global team is based in Houston, stable, experienced (on average, 18 years), and heavily invested in the fund. It has been recognized as a Lipper Leader for consistency for the past 3-, 5- and 10-year periods. It has a five-star rating from MFO and a four-star rating from Morningstar.

Focused and passive

First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID): The fund invests in companies that are primarily engaged and involved in electric grid, electric meters and devices, networks, energy storage and management, and enabling software used by the smart grid infrastructure sector. It focuses on clean energy infrastructure and smart grid technologies. By design, 80% of the portfolio are “pure play” companies (e.g., the Swiss energy engineering firm ABB), and 20% are diversified (e.g., Johnson Controls). GRID is suitable for investors interested in the growing renewable energy and smart infrastructure sectors. It has a five-star rating from Morningstar and a four-star rating from MFO.

Infrastructure income

These are two very different funds for investors anxious to maximize income generation.

DoubleLine Infrastructure Income (BILTX): This is the only bond fund in the infrastructure world, with all other “infrastructure income” plays focusing on stocks and partnerships. It brings a value-oriented discipline to investing in infrastructure-related debt: debt that finances airports, toll roads, and renewable energy, as well as debt secured by infrastructure-related assets such as aircraft, rolling stock, and telecom towers. The fund has been around since 2016 and has consistently outperformed the US Aggregate Bond Index in every trailing period.

NXG NextGen Infrastructure Income Fund (NXG): this is a closed-end fund that invests in equity and debt securities of infrastructure companies, including energy infrastructure companies, industrial infrastructure companies, sustainable infrastructure companies, and technology and communication infrastructure companies. The ideal targets are responsible and sustainable investments in companies that have a high degree of demand inelasticity; that is, those with predictable, consistent revenues regardless of the state of the economy. Because it has the ability to use leverage, yields are in the double digits. It’s probably best used by folks already comfortable in the wacky world of CEFs, but it’s got an interesting take.

For financial professionals with an interest in the area and a fairly large AUM, Versus Capital Infrastructure Income Fund (VCRDX) offers an intriguing option. It’s a new fund from a firm with a long track record in infrastructure investing. It targets private, rather than listed public infrastructure, investments. It’s structured as a closed-end interval fund with a high minimum, which both serves to allow it access to illiquid investments and to screen out speculators.

Bottom line

At their worst, the diversified infrastructure funds nestle nicely in the large-cap, value-to-core style box. At their best, they offer investors a chance to generate above average income and potentially high long-term returns if infrastructure investing does indeed boom, generally with lower-than-average volatility. If we are to survive an unstable climate and transition from a world not built for this to one that can sustain us despite it, they’re worth your time.

You Too Can Start an ETF

By Charles Boccadoro

At Tidal … The ETF Masters: Launch, Manage, and Grow Your ETF. We are an award-winning, full service ETF platform managing 183 ETFs in partnership with 68 issuers and responsible for $29bn+ AUM. Build Your ETF.

At ETF Architect … Want to easily create an ETF? Build, launch, and manage it with us. An Affordable, Turnkey, and Transparent White Label ETF Platform. Learn how we’ve helped innovative firms create new ETFs, convert separately managed accounts (SMAS), mutual funds, and hedge funds into ETFs, and tap the power of our platform to lower costs and streamline operations for existing ETFs. Create Your ETF. (Here’s an excellent presentation.)

At ETC … ETF-in-a-Box™. Our turnkey platform provides the complete infrastructure needed to transform your investment idea into a live strategy. Work with our experienced team to bring your ETF to market in as little as 3 months. Let ETC handle all the details while you build interest in your intellectual property and identify capital to fund your ETF idea. We’re ready to help launch your ETF. Get Started.

These firms have each likely leveraged their experience in creating their own ETFs. I know that for a fact with ETF Architect, which is run by Wesley Gray and the good folks at Alpha Architect. They then offer other money managers the opportunity to bring innovative investment strategies to market, but without those managers needing to establish their own advisory firm or registered investment vehicle.

So, in principle, some really smart people who just want to focus on their strategies and not the administrative and marketing aspects of the ETF marketplace have a “turnkey” channel to do so.

On the other hand, as we start the new year, there are about 3900 ETFs offered in US markets, or 100 more than a month ago and 600 more than a year ago. Like wineries in the Paso Robles region of California’s central coast, anybody that can start a winery does. How many wineries do we need? As can be inferred from the graph below, if the launch trend continues, the number of ETFs will exceed the number of mutual funds in 1 to 2 years. How many ETFs do we need?

Morningstar reports that in 2023, while 400 active ETFs were launched, 100 closed, or 25%. The average life span for an active ETF was less than 3 years, about half as long as passive ETFs. Clearly, the competition is fierce, and unlike family wineries which run more on pride than profit, ETFs will close if they fail to attract assets under management. I suspect the ETF failure rate will only increase given the low cost of entry. And what happens when a fund closes? As Schwab reports, a failed ETF is more of an inconvenience than a significant risk. Perhaps likened to a called bond. But between possible tax implications and price-to-NAV spreads given a run on an ETF, I suspect it’s not something any investor wants to experience.

Another aspect of the burgeoning ETF market is understanding who is actually responsible for the strategy? While Empowered Funds LLC is listed as “The Advisor” for all 63 Alpha Architect ETFs, the investment team proper only manages eight (all with Alpha Architect in their fund names). Similarly, the management company, city, and state all show “Empowered Funds LLC, Havertown, PA.” But the people actually behind these strategies are diverse: from Bridgeway to Research Affiliates to Cambria. What to call these folks varies as well. Sometimes they are called “subadvisors.” Sometimes “sponsors.” Sometimes “affiliates.” Sometimes there is no name or firm at all! Until you dig into EDGAR filings.

Ditto for the consolidating mutual fund market. When Natixis buys up Oakmark, but does not rebrand the funds Natixis, should the “Fund Family” be called Oakmark or Natixis? Ditto when Franklin Templeton buys up BrandywineGLOBAL, Clarion, ClearBridge, George Putnam, K2 Alternative and Martin Currie. Or when AMG acquires Harding Loevner, Parnassus, SouthernSun and Tweedy Browne.

Many fund houses established in the 1980’s, 1990’s, and 2000’s have already or are indeed being acquired. MFO actually maintains its own fund names list to help distinguish who owns whom, but as you can see it’s increasingly difficult to keep track. At the end of the day, MFO tries to help investors and advisors distinguish which funds or fund families are standouts, mediocre, or to be seriously avoided. David often states that 80% of funds could disappear tomorrow and nobody, except the fund managers, would notice. They are either redundant or inefficient or both.

To help better decipher, perhaps just a little, we’ve revamped the fund naming and fund family methodology on MFO Premium to try and focus more on the people implementing the strategy and not the ultimate owner or parent. We’ve also added “Fund Parent” and “Fund White Label” in addition to already established “Fund Family” and “Fund Subfamily” (e.g., Virtus KAR and Morgan Stanley Counterpoint Global) metrics to MultiSearch, our main search tool, and the MFO Fund Family Scorecard.

Lifetime Investment Strategies For Younger Investors

By Charles Lynn Bolin

“For the young the days go fast and the years go slow; for the old the days go slow and the years go fast.” – Anna Quindlen, Lots of Candles, Plenty of Cake: A Memoir of a Woman’s Life.

Secular bear markets with low returns along high volatility often deter younger investors from starting to invest, yet they offer tremendous buying opportunities. Prioritizing the long-term need to save for retirement over short-term interest is another major hurdle to starting to invest.

I wrote Living Paycheck To Paycheck and the Role of Financial Counselors to show that about seventy-five percent of Americans don’t have enough saved to cover three months of living expenses. According to surveys, many people are choosing to overspend on groceries, dining out, clothing, entertainment, food delivery services, pets, travel, and/or alcohol. How much would a person who saved and invested five dollars per weekday have at the end of ten years in a secular bear market?

As the base case, Figure #1 shows how $10,000 invested in 2000 would have performed during the bursting of the Dotcom Bubble and the Great Financial Crisis. The traditional 60% stock/40% bond portfolio would have returned about 3% over the ten-year period, barely beating inflation.

Figure #1: Growth of $10,000 in the 2000 – 2010 Secular Bear Market

Figure #2 shows the same secular bear market for someone who starts with $1,300 and contributes that amount each year adjusted for inflation. By 2010, the investor would have been saving about $1,660 per year. The investor would have been “buying low” and was not significantly hurt by investing 100% in stocks. The annualized return would have been 31%.

Figure #2: Investment Foundation During a Secular Bear Market

Saving $15,000 to $20,000 in ten years would have provided a springboard for the next ten years when a secular bull market started. The $16,997 at the end of 2010 would have grown to $42,328 by the end of 2019 if invested in the S&P 500, but by contributing $1,660 per year adjusted for inflation, the portfolio would have grown to $94,387 as shown in Figure #3.

Figure #3: Growth Spurt During a Secular Bull Market

What if our young investor skipped the secular bear market from 2000 to 2010 and started investing $5 per day adjusted for inflation from 2000 ($1,660 per year)? If one began investing in 2010 with $1,660 in the S&P 500, the amount portfolio would have grown to $40,273 compared to $94387 had they been investing for the full 2000 to 2019 period. The Lesson For Young Investors: Time in the market is more important than timing the market.

Figure #4: Time In the Market Is More Important Than Timing the Market

The real world implication is that saving $5 per working day will not achieve the elusive million-dollar retirement portfolio, but it is a start. Matt Krantz wrote If You’d Maxed Out Your 401(k) for the Last 30 Years, You’d Have This Much at The Motley Fool. He concluded that a person with an initial investment of $7,313 in 1988 which was the maximum allowed for a 401(k) that year kept investing at the maximum 401(k) limit, he or she would have accumulated a $1.4 million by 2018 not including employer matches. He assumed a starting glide path stock-to-bond ratio of 80% stocks. However, he added catch-up contributions at age 50.

I used Retirement Savings by Age: Averages, Medians, Percentiles US by DQYDJ, and Nearly half of American households have no retirement savings by USA Facts to make the following generalizations. Retirement savings by age for someone nearing retirement show that approximately one in seven people approaching retirement has about one million dollars in financial assets. Financial assets exclude home equity which is included in net worth calculations. The median household approaching retirement age has around $60,000 in retirement savings.

Jessica Walrack at U.S. News and World Report explains in “How Much You Should Save by Month and by Age?” that people should develop a personalized savings approach. She suggests devoting twenty percent of one’s paycheck towards savings and investing if possible. She adds that a reasonable target for starting a savings plan is to have the equivalent of one year of salary saved by age thirty and three times by age forty. The most reliable way to start is by automating the process.

I fit the example by Mr. Krantz fairly closely. In the early 1990’s my savings was very modest. As a two-income household, we began contributing the maximum to retirement savings. We were fortunate enough to find employers with good benefits and with pensions and stay with them until retirement. We made catch-up contributions when eligible. We invested in our homes and maintained emergency savings. One breakthrough came for me in the mid-2000s when I started reading retirement planning books like Retire Secure!: A Guide To Getting The Most Out Of What You’ve Got by James Lange because I learned about the importance of financial planning and the impact of asset location on lifetime taxes. Lesson For Young Investors: Increase your financial literacy.

As part of my own financial planning, I learned about the huge impact that working in the latter years before retirement makes because you continue to contribute to savings instead of withdrawing. Life in Retirement: Pre-Retiree Expectations and Retiree Realities by TransAmerica Center for Retirement Studies found that fifty-six percent of retirees retired sooner than planned. The most common reasons are health-related such as physical limitations, disability, or ill health, and employment reasons such as unhappiness, organizational changes, job loss, and/or a buyout. I was fortunate to work two years beyond my normal retirement date. Lesson For Young Investors: Build a “margin of safety” into your plans for the unexpected.

During my parents’ or my lifetimes, we experienced the great depression, World War II, Cold War, stagflation of the 1970s, Dotcom Bubble, and Great Financial Crisis. It conditioned me to hope for the best but prepare for the worst. Personal savings rates during the 1960s and 1970s were between 10 and 13 percent, but have fallen to around four percent currently. Retirement advice in the books that I have read recently is to have “No Regrets”. I have been fortunate to work internationally for eleven years, to put our son through a good university with no college debt, to have reasonably good health considering cancer (cured), and to have a secure retirement. I regret not having a better work/life balance. I am playing a some catch up. Lesson For Young Investors: Have work/life balance which doesn’t sacrifice saving for emergencies and the long-term.

If you have not done so yet, try setting some New Year’s resolutions to make your retirement planning successful and stick to it.

Launch Alert: Virtus KAR Mid-Cap ETF

By David Snowball

On October 14, 2024, Virtus Investment Partners launched Virtus KAR Mid-Cap ETF (KMID). It targets “U.S. mid-cap companies with durable competitive advantages, excellent management, lower financial risk, and strong growth trajectories” selling at “attractive” valuations. The fund is managed by Jon Christensen and Craig Stone who also manage the five-star, $2.9 billion Virtus KAR Mid-Cap Core Fund. The ETF, like its sibling, will hold 25-35 stocks with a low annual turnover.

The fund has two attractions.

First, mid-caps are interesting and underrepresented in most portfolios. (It’s the classic “middle child” problem.) Virtus notes:

Located in the equity sweet spot between faster-growing small caps and less-volatile large caps, mid-caps represent an attractive investment opportunity. Mid-sized companies are at a critical juncture in the business lifecycle, having successfully transitioned from the make-or-break small-cap phase. Though not as mature as large caps, mid-caps typically have established business models, access to capital, and experienced management teams—putting them in position for further growth.

Despite their attractive attributes, mid-caps are missing from many investor portfolios. Mid-caps make up 24% of the total U.S. market cap, yet account for just 11% of U.S. equity fund assets.

Over the long term, mid-caps have delivered strong returns relative to small caps and large caps, with lower volatility than small caps.

Mid-caps receive less attention from Wall Street analysts and trade at a lower volume than large-cap stocks. These market inefficiencies translate into an opportunity for an active manager like KAR to add value to the stock selection process by seeking out what they consider to be the highest quality mid-sized businesses with the strongest growth prospects.

By Virtus’s calculation, higher-quality midcaps outperform lower-quality ones through both higher total returns (12.2% APR versus 10.4%) and lower volatility (15.3% standard deviation versus 18.5%). The KAR managers have executed the strategy with considerable and consistent success since its launch.

At base, they’ve generated higher total returns with smaller drawdowns and substantially lower volatility than their peers, giving them substantially higher risk-adjusted ratings across the board.

Second, this ETF gives you access to a successful strategy for a far lower price.

Mid-Cap Core Fund, four-star fund, “A” shares: 1.20% e.r.

Mid-Cap Core Fund, five-star fund, institutional: 0.95% e.r.

Mid-Cap ETF: 0.80% e.r.

It’s rare to be offered a one-third-off sale on access to a demonstrably successful strategy. Folks interested in moving a bit away from large-cap growth mania might want to consider this option.

Briefly Noted . . .

By David Snowball

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 21st century was to get rid of all of those dumb vowels and capital letters to become abrdn?) In any case, here’s the roster:

Was … Now is …
Guggenheim Large Cap Value Fund NAA Large Cap Value Fund
Guggenheim StylePlus-Large Core Fund NAA Large Core Fund
Guggenheim Market Neutral Real Estate Fund NAA Market Neutral Real Estate Fund
Guggenheim StylePlus-Mid Growth Fund NAA Mid Growth Fund
Guggenheim Alpha Opportunity Fund NAA Opportunity Fund
Guggenheim Risk Managed Real Estate Fund NAA Risk Managed Real Estate Fund
Guggenheim SMid Cap Value Fund NAA SMid Cap Value Fund
Guggenheim World Equity Income Fund NAA World Equity Income Fund
Guggenheim Directional Allocation Fund NAA Allocation Fund
Guggenheim RBP Dividend Fund NAA Large Cap Value Fund
Guggenheim RBP Large-Cap Defensive Fund NAA Large Cap Value Fund
Guggenheim RBP Large-Cap Value Fund NAA Large Cap Value Fund

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.