Gerstein Fisher Multi-Factor International Growth Equity Fund will seek long-term capital appreciation. They’ll focus on “smaller growth companies that may also display characteristics typically associated with value-oriented investments.” Gregg S. Fisher, the firm’s chief investment officer, will manage the fund. Expenses of 1.37%, $5,000 minimum initial investment.
FPA International Value Fund (FPIVX) seeks above average capital appreciation while attempting to minimize the risk of capital loss. FPA looks in all their funds for well-managed, financially strong, high quality businesses whose stock sells at a significant discount. The managers, Eric Bokota and Pierre Py, are both former Harris Associate (i.e., Oakmark) analysts. Initial expense ratio of 1.98% (they don’t believe in fee waivers), but at least the minimum initial investment ($1500) is low.
Forward Floating NAV Short Duration Fund seeks maximum current income consistent with the preservation of principal and liquidity. Their investment strategy is generic (investment grade, US and non-US, government and corporate debt), but they’re benchmarked against the three-month T-bill and the prospectus goes to pains to say that they’re not a money market. That, of course, says that they’re trying to market themselves as “better than a money market.” David L. Ruff and Paul Broughton will manage the fund. Both have extensive experience, though not in fund management. Expenses not yet set, $4000 minimum initial investment, reduced to $2000 if you sign up for eDelivery, $500 for accounts with automatic investing plans.
Sierra Strategic Income Fund wants “to provide total return (with income contributing a significant part) and to limit volatility and downside risk.” It will be a fund of income funds, including funds or ETFs which invest in foreign, emerging or domestic bonds, issued by governments or corporations, and REITs. They look with asset classes with price momentum, try to find high-alpha managers in those classes and have a fairly severe stop-loss discipline. The fund will be managed by a team from Wright Fund Management, which has been using this strategy in separate accounts since the late 1980s. Expenses not yet set, $10,000 minimum initial investment.
Scharf Fund will seek long-term capital appreciation. The fund will mostly invest in stocks (daringly, the manager targets stocks which “have significantly more appreciation potential than downside risk over the long term”), might invest up to 50% in international stocks and might invest up to 30% in bonds. Brian A. Krawez, former “Head of Research at Belden and Associates<” will manage the fund. $10,000 investment minimum, reduced to $5000 for tax-advantaged accounts and those with automatic-investing plans, expense ratio of 1.25%.
Miller Tabak Merger Arbitrage and Event Driven Fund will pursue capital appreciation by investing the stocks of companies that are undergoing, or may undergo, “transformational corporate events” such as “announced merger transactions, announced or have possible spin-offs, split-offs or sales of divisions; businesses that are exploring “strategic alternatives” such as stock buybacks, or sales of the entire companies; companies that may announce or have completed attractive acquisitions; and other special situations.” Michael Broudo will manage the fund, and also manages Miller Tabak’s merger arbitrage and event-driven equity group. Miller Tabak is a heavy weight institutional firm that executes trades for hedge funds and institutions, and this has the feel of a “friends and family” fund for those unable to afford MT’s private accounts. $1000 investment minimum, but an expense ratio (after waivers!) of 2.75%.
Kottke Commodity Strategies Fund (“N” shares) will seek positive absolute returns. The plan is to invest 75% in cash and 25% in exchange-traded commodity futures and options. The cash – currently offering negative real returns – is collateral for the commodity positions. The fund will be managed by a team led by Michael Crouch (“head trader”). $2500 investment minimum, expense ratio not yet set.
William Blair Small-Mid Cap Value Fund will seek long-term capital appreciation, which they’ll pursue by investing in domestic small- and mid-cap stocks. The management team are the same folks who run Blair Small Cap Value and Mid Cap Value, neither of which is bad. Expenses not yet set, $5000 minimum initial investment, reduced to $3000 for IRAs.
Vanguard Target Retirement 2060 Fund will seek to provide capital appreciation and current income consistent with its current asset allocation. It invests in just three underlying funds, Vanguard Total Stock Market Index (63%), Vanguard Total International Stock Index (27%) and Vanguard Total Bond Market II Index (10%). As with all such funds, it was slowly become more conservative as 2060 approaches. (Given that I’m not going to be here to confirm it, I’ll take Vanguard’s word on the matter.) The investment minimum is a remarkably low $1000, expense ratio is equally remarkable, at 0.18%.
TFS Hedged Futures Fund will pursue long-term capital appreciation. It will be a global long/short equity fund. It will be managed by a six-person team. Expenses, after waivers, of 2.30%, $5000 minimum investment.
Vanguard Total International Bond Index Fund will track the Barclays Capital Global Aggregate ex-USD Float-Adjusted Index (Hedged) that measures the investment return of investment-grade bonds issued outside of the US. They anticipate a weighted average maturity of 5-10 years. Greg Davis and Yan Pu will manage the fund. Expense ratio of 0.40%, minimum initial investment is $3000.
Vanguard Emerging Markets Government Bond Index Fund will track the performance of the Barclays Capital Emerging Markets Sovereign Index (USD) that measures the investment return of U.S. dollar-denominated bonds issued by governments of emerging market countries. They anticipate a weighted average maturity of 10-15 years. Greg Davis and Yan Pu will manage the fund. Expense ratio of 0.50%, minimum initial investment is $3000.
Pinnacle Value (PVFIX)
Pinnacle Value seeks long-term capital appreciation by investing in small- and micro-cap stocks that it believes trade at a discount to underlying earnings power or asset values. It might also invest in companies undergoing unpleasant corporate events (companies beginning a turnaround, spin-offs, reorganizations, broken IPOs) as well as illiquid investments. It also buys convertible bonds and preferred stocks which provide current income plus upside potential embedded in their convertibility. The fund can also use shorts and options for hedging. The manager writes that “while our structure is a mutual fund, our attitude is partnership and we built in maximum flexibility to manage the portfolios in good markets and bad.”
Bertolet Capital of New York. Bertolet advises one $10 million account as well as this fund.
John Deysher, Bertolet’s founder and president. From 1990 to 2002 Mr. Deysher was a research analyst and portfolio manager for Royce & Associates. Before that he managed equity and income portfolios at Kidder Peabody for individuals and small institutions. The fund added an equities analyst, Mike Walters, in January 2011.
In excess of $1,000,000, making him the fund’s largest shareholder. He also owns the fund’s advisor.
April Fool’s Day, 2003.
$2500 for regular accounts and $1500 for IRAs. The fund is currently available in 25 states, though – as with other small funds – the manager is willing to register in additional states as demand warrants. A key variable is the economic viability of registered; Mr. Deysher notes that the registration fees in some states exceed $1000 while others are only $100. The fund is available through TD Ameritrade, Fidelity, Schwab, Vanguard and other platforms.
1.47% on assets of $47 million. Some sources report a slightly higher ratio, but that’s based on the fund’s ownership of a number of closed-end and exchange-traded funds. There is a 1% redemption fee for shares held less than a year.
Could you imagine a “Berkshire Hathaway for ultra-micro-caps”? Five factors bring the comparison to mind. With Deysher, you’re got:
Like Mr. Buffett, Mr. Deysher practices high commitment investing and expects it of the companies he invests in. His portfolio holds only 47 stocks and his largest holding consumes 4% of the fund. The fund’s prospectus allows for as much as 10% in a single name. One of the key criteria for selecting stocks for the portfolio is high insider ownership, because, he argues, that personal investment makes them “pay more attention to capital allocation and not do dumb things just to satisfy Wall Street.”
Also like Buffett, he invests in businesses that he can understand and companies which practice very conservative accounting and have strong balance sheets. That excludes many financial and tech names from consideration.
The average market cap is under $250 million, 10thlowest of the 2300 domestic stock funds that Morningstar tracks, and he’s willing to consider companies with a market cap as low as $10 million.
Deysher acquires these shares through both open-market and private placements. He seems intensely aware of the need to do fantastic original research on these firms and to proceed carefully so as not to upset the often-thin market for their shares.
One interesting measure of his independence is Morningstar’s calculation of his “best fit” index. Morningstar runs regressions to try to figure out what a fund “acts like.” Vanguard’s Small Value Index acts like, well, an index – it tracks the Russell 2000 Value almost perfectly. Pinnacle acts like, well, nothing else. Its “best fit” index is the Russell Mid-Cap Value index which tracks firms 22 times larger than those in Pinnacle. When last I checked, the closest surrogate was the MSCI EAFE non-dollar index. That is, from the perspective of statistical regression, the fund acted more like a foreign stock fund than a small cap US one. (Not to worry – even there the correlation was extremely small.)
And he does have the resources to go shopping. Just over 42% of the portfolio is in cash (as of mid-October, 2011). While that is well down from the 53% it held at the end of the first quarter of 2011, it still provides a substantial war chest in the case of instability in the months ahead. Part of those opportunities come when stocks “go dark,” that is they deregister with the SEC and delist from NASDAQ. At that point, there’s often a sharp price drop which can provide a valuable entry point for watchful investors.
He has, in addition, committed to closing the fund as soon as money becomes a problem. His argument, often repeated, is pretty clear: “We expect to close the fund at some point. We don’t know if we will close it at $100 million or $500 million, but we won’t dilute the quality of investment ideas just to grow assets.”
Over the past few years, Mr. Deysher experimented with adding some additional elements to the portfolio. Those included a modest bond exposure and short positions on a growth index, both achieved with ETFs. He also added some international exposure when he bought closed-end funds that were selling at a “crazy” discount to their own NAVs.
Quick note on CEF pricing: CEFs have both a net asset value (the amount a single share of the fund is worth, based on the minute-to-minute value of all the stocks in the portfolio) and a market value (the amount that a single share of the fund is worth, based on what it’s selling for at that moment. In a panicked market, there can be huge disconnects between those two prices. Those disconnects sometimes allow investors to buy $100 in stock for $60. Folks who purchase such deeply discounted shares can pocket substantial profits even if the market continues to fall.
Mr. Deysher reports that the bond ETF purchase was about a break even proposition, but that the short ETFs have been sold to generate tax losses. He pledges to avoid both “inverse and long-macro bets” in the future, but notes that the CEFs have been very profitable. While those positions have been pared back, he’s open to repeating that investment should the opportunity again present itself.
The manager trained with and managed money for twelve years with the nation’s premium small cap investor, Chuck Royce. He seems to have internalized many of the precepts that have made both Mr. Royce and Mr. Buffett successful.
Pinnacle Value offers several compelling advantages over better known rivals: the ability to take meaningful positions in the smallest of the small, a willingness to concentrate and the ability to hedge.
Many smart people hold two beliefs in tension about small cap investing: (1) it’s a powerful tool in the long term and (2) it may have come too far too fast. If you share those concerns, Pinnacle may offer you a logical entry point – Mr. Deysher shares your concerns, he has his eye on good companies that will become attractive investments should their price fall, and he’s got the cash to move when it’s time. In the interim, the cash pile offers modest returns through the interest it earns and considerable downside cushion.
© Mutual Fund Observer, 2011. All rights reserved. The information here reflects publicly available information current at the time of publication. For reprint/e-rights contact [email protected].
The fund seeks to provide long-term capital appreciation by investing in a focused portfolio of small cap U.S. stocks. “Focused” translates to 20-40 stocks. “Small cap” means comparable to those in the Russell 2000 index, which places it at the higher end of the small cap universe. They limit individual holdings to 10% of the portfolio (yikes) and single industries to 25%.
SouthernSun Asset Management, which is headquartered in Memphis, Tennessee. The firm specializes in small- to mid-cap equity investing. It was founded in 1989 by Michael Cook and has about $1.9 billion in assets under management (as of 09/11). This is SouthernSun’s only mutual fund.
Michael Cook. Mr. Cook is SouthernSun’s founder and he has managed this fund since inception. He manages another $1.4 billion in other pooled and separate accounts. He’s supported by five analysts.
Mr. Cook has between $100,000 and $500,000 in the fund (as of December 2010).
October 1, 2003. Before November 2008, it was known as New River Small Cap Fund.
$1000 for all account types. The fund is available through a variety of platforms, including Fidelity, Schwab, Scottrade and TD Ameritrade.
1.31% on assets of $388 million (as of July 2023).
SouthernSun has been recognized as the top-performing small cap value fund by both Morningstar and The Wall Street Journal. In the 2010 Annual Report, the advisor was “pleased to report the Fund was ranked NUMBER ONE based on total return for the trailing twelve month period ending September 30, 2010 in Lipper’s Small Cap Value category out of 252 funds.” That honor is dimmed only slightly by the fact that the fund’s portfolio is neither small cap nor value.
It is durn fine. It’s just not small-value.
The advisor specializes in small and “SMID cap” strategies, and SSSFX has migrated slowly but steadily out of the pure small cap realm. As of the last portfolio report, 60% of assets were invested in mid-cap stocks and the fund’s average market cap is $2.5 billion, substantially above its benchmark’s $800 million. Likewise, the portfolio sports – by Morningstar’s calculation – 23% in growth stocks against 37% in value. In the end, the current portfolio averages out to a sort of SMID-cap core.
That structure makes comparisons to the fund’s nominal peer group problematic. SSSFX’s returns place it in the top 1-2% of all small-value funds, depending on the time period you track.
Even allowing for that difficulty, SSSFX is a stand-out fund. Start with the assumption that its closest peer group would be core or blend funds that sit near the small- to mid-cap border. Morningstar identifies 75 such funds. Over the past 12 months (through 9/30/11), SSSFX has the second-highest returns in the group (behind Putnam Equity Spectrum “A” PYSAX). SSSFX also finishes second on the past three years, trailing only Appleseed (APPLX). No one in the group has a better five-year record.
What’s the manager doing? He looks for firms with three characteristics:
Financial strength: generally measured by internally-generated cash flow
Management quality: measured by the presence of transparent, measurable goals that the managers – from the C-level on down – set and meet
Niche dominance: which is a sustainable competitive advantage created by superior products, processes or technologies.
As of September 2011, those criteria tilted the portfolio heavily toward industrial firms but entirely away from energy, communications and real estate.
The manager’s selection process seems slow, deliberate and labor intensive. The 2010 Annual Report notes that they added one position in six months. In the Barron’s profile, below, Mr. Cook reports sometimes adding one position in an entire year.
There are two concerns worth considering as you look at the fund:
It is highly concentrated, especially for a smaller cap fund. Only nine of the 75 SMid-cap core funds place a greater fraction of their assets in their top ten holdings than does SouthernSun (47%). That said, most of those concentrated funds (including Appleseed, FPA Capital FPPTX, Gratio Values GRVLX and Longleaf Partners Small Cap LLSCX) have posted strong risk-adjusted returns.
It is volatile, though not gut-wrenchingly so. The fund’s five-year standard deviation (a measure of volatility) is 29. By comparison, FPA Capital is 22, Longleaf is 24, and Vanguard Extended Market Index (WEXMX, which has a similar market cap though far lower concentration) is 27. Morningstar rates is as having above-average risk and Lipper rates it as “low” in capital preservation. Both services agree, though, that the risk has been well-rewarded: Morningstar gives it “high” returns and Lipper makes it a “Lipper Leader” in the category.
A strong track record earned in both small- and mid-cap investing, an efficient low-turnover style, reasonable asset base and a portfolio constructed slowly and with great deliberation makes a compelling case for keeping SSSFX on your short-list of flexible, diversifying funds.
SouthernSun Funds. For folks interested in his stock-picking, there was a nice interview with Mr. Cook in Barron’s, May 7, 2011.
Fact Sheet (Download)
© Mutual Fund Observer, 2011. All rights reserved. The information here reflects publicly available information current at the time of publication. For reprint/e-rights contact [email protected].
The fund will pursue above-average long-term capital appreciation by investing in 40-45 small cap stocks. For their purposes, “small caps” have a market capitalization under $3.4 billion at the time of purchase. The manager is authorized to invest up to 25% of the portfolio in foreign stocks and to invest, without limit, in convertible securities (but he plans to do neither). Across all their portfolios, Mairs & Power invests in “carefully selected, quality growth stocks” purchased “at reasonable valuation levels.”
Mairs & Power, Inc. Mairs and Power, chartered in 1931, manages approximately $4.2 billion in assets. The firm provides investment services to individuals, employee benefit plans, endowments, foundations and close to 50,000 accounts in its three mutual funds (Growth, Balanced and Small Cap).
Andrew Adams. Mr. Adams joined Mairs & Power in 2006. From August 2004 to March 2007, he helped manage Nuveen Small Cap Select (EMGRX). Before that he was the co-manager of the large cap growth portfolio at Knelman Asset Management Group in Minneapolis. He also manages about $67 million in 64 separate accounts (as of 08/11).
Mr. Adams and the other Mairs & Power staff have invested about $2 million in the fund. At last report, that’s 83% of the fund’s assets. Mr. Adams describes the process as “passing the hat” after “the lowest key sales talk you could imagine.”
August 11, 2011.
$2500, reduced to $1000 for various tax-sheltered accounts. The fund should be available through Fidelity, Schwab, Scottrade, TD Ameritrade and a few others.
1.25% after substantial waivers (the actual projected first-year cost is 12.4%) on an asset base of $2.4 million.
If you’re looking for excitement, look elsewhere. If you want the next small cap star, go away. It’s not here.
If you’d like a tax efficient way to buy high-quality small caps, you can stay. But only if you promise not to make a bunch of noise; it startles the fish.
The Mairs & Power funds are extremely solid citizens. Much has been made of the fact that this is M&P’s first new fund in 50 years. Less has been said about the fact that this fund has been under consideration for more than five years. This is not a firm that rushes into anything.
Small Cap is a logical extension of Mairs & Power Growth (MPGFX). While Mr. Adams was a successful small cap fund manager, his prime responsibility up until now has been managing separate accounts using a style comparable to the Growth funds. That style has three components.
Mr. Adams intends to do the same here. He’s looking for consistent performers, and won’t sacrifice quality to get growth. About two-thirds of his portfolio are firms domiciled in the upper Midwest. While he can invest overseas, in a September 2011 conversation, he said that he has no plan to do so. The prospectus provision reflects the fact that there are some mining and energy companies operating in northern Minnesota whose headquarters are in Canada. If they become attractive, he wants authority to buy them. Likewise, he has the authority to buy convertible securities but admits that he “doesn’t see investing there.” And he anticipates portfolio turnover somewhere in the 10-20% range. That’s comparable to the turnover in a small cap index fund, and far below the 50% annual turnover which is typical in other actively-managed small cap core funds.
Mairs & Powers’ sedate exterior hides remarkably strong performance. Mairs & Power Growth (MPGFX) moves between a four-star and five-star rating, with average to below-average risk and above-average to high returns. Lipper consistently rates it above-average for returns and excellent for capital preservation. Mairs & Power Balanced (MAPOX) offers an even more attractive combination of modest volatility and strong returns.
There’s simply no reason to be excited about this fund. Which is exactly what Mairs & Power wants. Small Cap will, almost certainly, grow into a solidly above-average performer that lags a bit in frothy markets, leads in soft ones and avoids making silly mistakes. It’s the way Mairs & Power has been winning for 80 years and it’s unlikely to change now.
© Mutual Fund Observer,2011. All rights reserved. The information here reflects publicly available information current at the time of publication. For reprint/e-rights contact [email protected].
The Fund pursues capital appreciation by investing in small cap stocks. For their purposes, “small cap” is under $2 billion at the time of purchase. The manager reserves the right to go to cash as a temporary move.
Walthausen & Co., LLC. Walthausen & Co., LLC. is an employee-owned investment adviser located in Clifton Park, NY. Mr. Walthausen founded the firm in 2007. It specializes in small- and mid-cap value investing through separate and institutional accounts, and its one mutual fund. Being employee owned, Mr. Walthausen and team control the decision making process on important management issues such as limiting assets under management in order to maximize their client’s returns. In September 2007, he was joined by the entire investment team that had worked previously with him at Paradigm Capital Management, including an assistant portfolio manager, two analysts and head trader. Subsequently this group was joined by Mark Hodge, as Chief Compliance Officer, bringing the total number of partners to six.
John B. Walthausen. Mr. Walthausen is the president of the Advisor and has managed the fund since its inception. Mr. Walthausen joined Paradigm Capital Management on its founding in 1994 as a Portfolio Manager. Mr. Walthausen was the lead manager of the Paradigm Value Fund from January 2003 until July 2007 and oversaw approximately $1.3 billion in assets. He’s got about 30 years of experience and is, as I noted above, supported by the team from his former employer.
February 1, 2008.
Mr. Walthausen has over $1 million invested in the fund and also owns the fund’s adviser.
$2,500 for all accounts.
1.21% on an asset base of about $40 million, as of August 2023. When I first profiled the fund in April 2010, expenses were 1.48% on just $25 million in assets, so it seems unlikely that the fund will ever become inexpensive.
Walthausen Value started as Mr. Walthausen’s attempt to reproduce the success of his Paradigm Value (PVFAX) fund by using the same investment objectives, strategies and policies with his new fund. It’s not entirely clear what those strategies are. Mr. Walthausen maintains a pretty low profile and the prospectus refers only to “a proprietary valuation model to identify companies that are trading at a discount to intrinsic value.” If a stock passes that valuation screen, Walthausen and his team construct detailed earnings and cash flow projections. Those projections are driven, in part, by evidence of “internal drivers” of growth, such as new managers or new products. They’ll frequently talk with company managers, and then decide whether or not to buy.
His strategy appears to be fairly adaptable. In explaining the fund’s strong relative performance in 2008, he notes that it “was achieved by populating the portfolio with companies which, by and large, had strong balance sheets, conservative, bottom-line oriented managements, and products that were in reasonable demand from their customers” (Annual Report, 1/09). His letter, written while the market was still falling, concludes with his belief that excess negativity and a tumbling valuation meant “that outsized returns become a real possibility.” Six months later, as he began harvesting those outsized returns, the portfolio had been moved to overweight cyclical sectors (e.g., information tech and consumer discretionary) and underweight defensive ones.
Mr. Waltausen’s public record dates to the founding of Paradigm Value. His ability to replicate PVFAX’s record here would be an entirely excellent outcome, since his record there was outstanding. The SEC believes the funds are close enough to allow Paradigm’s record into Walthausen’s prospectus.
| Last year at PVFAX
7/31/06- 7/31/07 |
Last 3 years at PVFAX
7/31/04 – 7/31/07 |
From inception to departure
1/1/03 – 7/31/07 |
|
| Paradigm Value | 21.45 | 21.55 | 28.82 |
| S&P 600 | 14.11 | 14.63 | 18.48 |
| Russell 2000 Value | 7.67 | 13.42 | 18.86 |
The fund has quickly earned itself a spot among the industry’s elite. It returned over 40% in each of its first two full years of operation. Its 2011 performance (through 08/25/2011) is -12.6%, about average for a small-value fund.
Since the fund has an elite pedigree, it makes sense to compare it to the industry’s elite. I turned to Morningstar’s list of small core “analyst pick” funds. Morningstar’s analyst picks are their “best ideas” funds, selected category-by-category, on the basis of a mix of quantitative and qualitative factors: thoughtful strategies, experienced management, low expenses, high stewardship grades and so on. I tested Walthausen against those funds for two time periods. The first is 2/1/08 – 7/30/2011 (that is, inception to the present). A skeptic might argue that that comparison is biased in Walthausen’s favor, since it was likely still holding a lot of start-up cash as the market imploded. For that reason, I also included the period 3/2/09 – 3/2/10 (that is, the year of the ferocious rally off the March market bottom).
| $10,000 would have become . . . | Since inception | Year after the market bottom |
| Walthausen Small Cap Value | $16,120 | $24,000 |
| Royce Special (RYSEX) | 13,000 | 16,700 |
| Paradigm Value (PVFAX) | 12,200 | 18,300 |
| Vanguard Tax-Managed Small Cap (VTMSX) | 11,800 | 18,800 |
| Bogle Small Cap Growth (BOGLX) | 11,400 | 20,400 |
| Third Avenue Small-Cap Value (TASCX) | 10,000 | 17,100 |
| Bridgeway Small-Cap Value (BRSVX) | 9400 | 18,400 |
When I last ran this comparison (April 2010), the funds ended up in exactly the same order as they do today (August 2011).
The majority of Walthausen’s investors come by way of Registered Investment Advisers, a fairly sophisticated group who don’t tend to be market timers. As a result, the fund saw very little by way of outflows during the summer turbulence. While closure is not imminent, investors do need to plan for that possibility. Mr. Walthausen manages both his fund and separate accounts. Between them, they have $530 million in assets. He anticipates closing the strategy, both accounts and the fund, was that total reaches $750 million. That’s well below the $1.3 billion he managed at Paradigm and could come in the foreseeable future.
There are, of course, reasons for caution. Mr. Walthausen, born in 1945, is likely in the later stages of his investing career. The fund’s expenses are above average, though its returns are higher still. Mr. Walthausen has invested through a series of very different market conditions and has produced consistently top decile returns throughout. This fund keeps rising to the top of my various screens and seems to be making a compelling case to rise on yours as well.
North Star Small Cap Value Fund, which is a pretty durn Spartan spot but there’s a fair amount of information if you click on the tiny text links across the top.
© Mutual Fund Observer, 2011. All rights reserved. The information here reflects publicly available information current at the time of publication. For reprint/e-rights contact [email protected].
The Fund pursues long-term capital appreciation by investing primarily in common stocks of small and mid capitalization companies. Small and mid capitalization companies are those with market capitalizations of $4 billion or less at the time of purchase. The Fund typically invests in 40 to 50 companies. The manager reserves the right to go to cash as a temporary move.
Walthausen & Co., LLC, which is an employee-owned investment adviser located in Clifton Park, NY. Mr. Walthausen founded the firm in 2007. In September 2007, he was joined by the entire investment team that had worked previously with him at Paradigm Capital Management, including an assistant portfolio manager, two analysts and head trader. Subsequently this group was joined by Mark Hodge, as Chief Compliance Officer, bringing the total number of partners to six. It specializes in small- and mid-cap value investing through separate and institutional accounts, and its two mutual funds. They have about $540 million in assets under management.
John B. Walthausen. Mr. Walthausen is the president of the Advisor and has managed the fund since its inception. Mr. Walthausen joined Paradigm Capital Management on its founding in 1994 and was the lead manager of the Paradigm Value Fund (PVFAX) from January 2003 until July 2007. He oversaw approximately $1.3 billion in assets. He’s currently responsible for about half that amount. He’s got about 30 years of experience and is, as I noted above, supported by the team from his former employer. He’s a graduate of Kenyon College (a very fine liberal arts college in Ohio), the City College of New York (where he earned an architecture degree) and New York University (M.B.A. in finance).
December 27 2010.
Mr. Walthausen has between $100,000 and $500,000 in this fund, over $1 million invested in his flagship fund and also owns the fund’s adviser.
$2,500 for all accounts. There’s also an “investor” share class with a $10,000 minimum and 1.46% expense ratio.
1.70% on an asset base of about $1.2 million (as of 01/31/2011).
The case for Walthausen Select Value is Paradigm Value (PVFAX), Paradigm Select (PFSLX) and Walthausen Small Cap Value (WSCVX). Mr. Walthausen is a seasoned small- and mid-cap investor, with 35 years of experience in the field. From 1994 to 2007 he was a senior portfolio manager at Paradigm Capital. He managed Paradigm Value from its inception until his departure, Paradigm Select Value from inception until his departure and Walthausen Small Cap Value from its inception until now.
Mr. Walthausen’s three funds have two things in common: each holds a mix of small and mid-cap stocks and each has substantially outperformed its peers.
Walthausen Select parallels Paradigm Select. Each has a substantial exposure to mid-cap stocks but remains overweight in small caps. In his two years at Paradigm Select, Morningstar classified the portfolio as “small blend.” Paradigm currently holds about one third of its assets in mid-caps while Walthausen Select is a bit higher, at 45% (as of 04/30/2011). In each case, the stocks were almost-entirely domestic. Walthausen Small Cap Value has about 85% small cap and 15% mid-cap, while Paradigm Value splits about 80/20. In short, Mr. Walthausen is a small cap investor with substantial experience in mid-cap investing as well.
Each of Mr. Walthausen’s funds has substantially outperformed its peers under his watch.
Paradigm Select turned $10,000 invested at inception into $16,000 at his departure. His average mid-blend peer would have returned $13,800.
Paradigm Value turned $10,000 invested at inception to $32,000 at his departure. His average small-blend peer would have returned $21,400. From inception until his departure, PVFAX earned 28.8% annually while its benchmark index (Russell 2000 Value) returned 18.9%.
Walthausen Small Cap Value turned $10,000 invested at inception to $14,000 (as of 08/2/2011). His average small-value peer would have returned $10,400. Since inception, WSCVX has out-performed every Morningstar “analyst pick” in his peer group. That includes Royce Special (RYSEX), Paradigm Value (PVFAX), Vanguard Tax-Managed Small Cap (VTMSX), Bogle Small Cap Growth (BOGLX), Third Avenue Small-Cap Value (TASCX) and Bridgeway Small-Cap Value (BRSVX). WSCVX earned more than 40% in each of its first two full years.
Investors in Walthausen Select are betting that Mr. Walthausen’s success is not due to chance and that he’ll be able to parlay a more-flexible, more-focused portfolio in a top tier performer. A number of other small cap managers (at Artisan, Fidelity, Royce and elsewhere) have handled the transition to “SMID-cap” investing without noticeable difficulty. Mr. Walthausen reports that there’s a 40% overlap between the holdings of his two funds. There are only a few managers handling both focused and diversified portfolios (Nygren at Oakmark and Oakmark Select, most famously) so it’s hard to generalize about the effects of that change.
There are, of course, reasons for caution. First, Mr. Walthausen’s other funds have been a bit volatile. Investors here need to be looking for alpha (that is, high risk-adjusted returns), not downside protection. Because it will remain fully-invested, there’s no prospect of sidestepping a serious market correction. Second, this fund is more concentrated than any of his other charges. It currently holds 42 stocks, against 80 in Small Cap Value and 65 in his last year at Paradigm Select. Of necessity, a mistake with any one stock will have a greater effect on the fund’s returns. At the same time, Mr. Walthausen believes that 75% of the stocks will represent “good, unexciting companies” and that it will hold fewer “special situation” or “deeply troubled” firms than does the small cap fund. And these stocks are more liquid than are small or micro-caps. All that should help moderate the risk. Third, Mr. Walthausen, born in 1945, is likely in the later stages of his investing career. Finally, the fund’s expenses are high which will be a major hassle in a market that’s not surging.
There’s considerable reason to give Walthausen Select careful consideration despite its slow start. From inception through late August 2011, the fund has slightly underperformed a 60/40 blend of Morningstar’s small-core and midcap-core peer groups. Mr. Walthausen’s track record is solid and he’s confident that this fund “will be better in a muddled market” than most. While it’s more concentrated than his other portfolios, it’s concentrated in larger, more stable names. Folks willing to deal with a bit of volatility in order to access Mr. Walthausen’s considerable skill at adding alpha should carefully track the evolution of this little fund.
Walthausen Funds homepage, which is a pretty durn Spartan spot but there’s a fair amount of information if you click on the tiny text links across the top.
© Mutual Fund Observer, 2011. All rights reserved. The information here reflects publicly available information current at the time of publication. For reprint/e-rights contact [email protected].
Dear friends,
In celebration of the hazy, lazy, crazy days of summer, we’ve decided to slow down, take a deep breath, and enjoy the long days. At least to the extent that you can enjoy days when a twitchy computer program can appreciably change your fortunes in a fraction of a second. So we’re taking time to catch up with the funds we’re already presented, starting with . . .
Attracting a billion dollars’ in assets is hard. There are about 5200 funds below that threshold and only 1200 over it. 260 of those smaller funds have earned five stars from Morningstar and some of those smaller five-star funds (CGM Mutual, Mair & Powers Balanced, Valley Forge, FMI Common, Greenspring . . . ) have been in operation for decades. As a result, it’s noteworthy when a new fund is able to draw more than a billion in just a few years. This month’s New Fund page focuses on the nine funds that we’ve previously profiled which have crossed that threshold. Here’s the snapshot and link to each.
Dodge & Cox Global (DODWX), launched 05/01/2008 and now at $1.1 billion. Dodge & Cox is one of the most respected names in investing. They do just about everything right, and have been doing it right for 80 years. Global, which had a wretched 2008, combines the strengths of Dodge & Cox Stock (DODGX) and Dodge & Cox International (DODFX).
Leuthold Asset Allocation (LAALX), launched 05/25/2006 and now at $1.3 billion. Before the Leuthold funds, there was The Leuthold Group which did quantitative historical research to develop sophisticated models for institutional investors. Steve Leuthold was prevailed upon to launch a fund, Leuthold Core (LCORX), to give folks with less than a million to invest access to his models. LCORX’s closing led to the launch of look-alike LAALX. Steven Goldberg, writing for Kiplinger’s, was unambiguous about the virtues of these eclectic offerings: “In uncertain times, I think Leuthold Asset Allocation will prove its worth. Put 20% of your money here.” Yes, sir! (See “The 7 Best Mutual Funds for This Market,” 06/22/2010)
Northern Multi-Manager International Equity (NMIEX), launched 06/22/2006 and now at $2.6 billion. Northern’s multi-manager funds proceed from a simple premise: different people do different things well. Pick out what needs done well, then go find the best managers for the job. Northern concluded, for example, that “absolute value” stocks should be represented as should “aggressive growth” ones, so they hired high value institutional managers who specialize in each of those niches. With the large size of the resulting management teams, some worry that too many cooks might spoil the broth. Northern, though, hires only one broth chef (to complement the pastry chef and the soup guy). The results have been consistently solid.
PIMCO Global Advantage Strategy Bond, “D” shares (PGSDX) launched 02/05/2009 and now at $1.8 billion. PIMCO’s chief, the legendary Bill Gross, is unambiguous: “Bonds have seen their best days.” The question is, what’s a bond specialist like PIMCO to do about it? They’ve offered two answers, in Global Advantage and Global Multi-Asset, below. Global Advantage addresses the risk of a bond market bubble and long, slow decline by changing the rules for bond investing. Instead of focusing on the biggest borrowers (the “market cap” approach used by virtually all bond indexes and benchmarks), shift to the credit-worthy borrowers (those whose Gross Domestic Products are large enough, and growing vigorously enough, to support their bond obligations). Global Multi-Asset goes a step further.
PIMCO Global Multi-Asset, “D” shares (PGMDX), launched 10/29/2008 and now at $2.2 billion. PIMCO tried diversifying away from bonds before, in the 1980s, but Mr. Gross’s heart simply wasn’t in the move. When their handful of stock investors tried to get PIMCO invested at the start of the greatest bull market in the 20th century, they got shut down. Mr. Gross admits, “Those sessions basically said, ‘Hey, we’re a bond shop. This is what we’re going to do. It’s the party line.’” With the help of CEO Mohamed El-Erian, a distinguished emerging markets investor and former head of Harvard Management Company, PIMCO is beginning to market opportunistic strategies that encompass a far wider array of asset classes and economic possibilities than ever before.
Rydex/SGI Managed Futures Strategy (RYMFX), launched 03/02/2007 and now at $2.3 billion. Sometimes it seems that intriguing new asset classes remain excellent options only until you invest in them. That must be the way that RYMFX investors feel. The fund, which holds long and short positions solely in financial instruments (e.g., currency futures and bonds) and commodities, amazed everyone by completing ignoring the 2008 market crisis and turning a handsome profit. But as the investors rushed in, the underlying market conditions changed and the fund has spent 18 months drifting lower. Fans argue that the long-term record of its underlying index (the Diversified Trends Index) gives reason for cheer: once financial markets start being “normal” again, this fund will take off again.
T. Rowe Price Overseas (TROSX), launched 12/29/2006 and now at $2.2 billion. Back in 2006, T. Rowe Price had a problem: their flagship international fund Price International (PRITX) utterly mediocre and had been so for years. In apparent response, they delegated the very successful manager of one of their smaller international funds (International Growth and Income TRIGX) to manage both this fund and his old charge. That turns out poorly, as TRIGX sagged to mediocrity while TROSX never rose above it. But the other response, fix the original problem by getting a more-focused manager for PRITX, has done a world of good for that fund.
Vanguard Dividend Appreciation Index (VDAIX), launched 04/21/2006 and now at $3.9 billion. In 2006, a lot of new investments were aimed at exploiting the virtues of dividends: high dividends, high dividend growth, high relative dividends or whatever. Most of them have fallen flat, but VDAIX (and its ETF clone, VIG), have gotten it right: high alpha, low beta large cap domestic investing. With low expenses and a focus on companies, that advantage seems likely to prove durable.
Wintergreen (WGRNX), launched 10/17/2005 and now at $1 billion. This is what mutual funds were supposed to be. Not “wimpy, cover my butt, don’t get too far out of line and do keep CNBC blaring in the background” investing, but “I’m smarter and I’m getting their first” investing. If DC Comics ever wanted to create a new super-hero, The Superman-ager, they’d surely model him off Mr. Winters who presents the perfect alter ego (funny, thoughtful, self-effacing, the unremarkable guy in the next cubicle over). But when night falls, off comes the green (wintergreen?) tie and out The Superman-ager flies.
The oddest thing about the Billionaire’s Club? No Fidelity funds. The titan of asset accumulation is still rolling out new funds – something like 65 in three years – but the vast majority are either retirement products (their target-date funds of funds), funds open only to other Fidelity funds or cloned share classes of long-standing funds (for example, the all-important “F” and “K” classes of Diversified International). Their most-successful new retail funds – at least as measured by their ability to attract assets – areDynamic Strategies (FDYSX, at $250 million) and Emerging Middle East and Africa (FEMEX, at $120 million). There are profiles of both in the archives, below. Beyond that, their most successful launches are index funds and “enhanced” index funds.
Fidelity. Small. Index funds. Eeeek.
SteelPath offers the only open-end mutual funds which invest exclusively in master limited partnerships. In my June 2010 profile of SteelPath Alpha (MLPAX), I argued that “This seems to be an asset class with sustained, compelling advantages. SteelPath is, currently, the only game in town for mutual fund investors. Fortunately they seem to be a pretty good game: experienced players, rational arguments about their portfolio, and reasonable expenses especially for folks who can access the no-load shares.” Some of the posters on FundAlarm’s discussion board had follow-up questions, in particular about the peculiar tax status of MLPs. I put those questions to SteelPath and Gabriel Hammond, SteelPath’s founder and the fund’s manager, was kind enough to respond. Here are the highlights:
Q. Since your fund is structured as a corporation, are payments to shareholders taxed as income?
A. “No, the Funds’ distributions are taxed as qualified dividends. The Funds’ distributions may also be classified as return of capital in some cases, and not subject to taxation.”
Q. Since MLPs represent a relatively small portion of the investment universe, will you be constrained to close your funds while they’re still relatively small?
A. “We believe that a manager would have difficulty delivering the type of outperformance we envision if he held more than 1%-1.5% of the float of the securities in the space. As such we would consider a soft close at $1.25bb.” Given their different mandates, SteelPath’s Alpha 40 fund doesn’t face a meaningful upper limit and the Income fund might see “a soft close at $1.75bb.”
Q. While MLPs have been great portfolio diversifiers so far – their long-term correlation to the S&P500 is 0.24, rather lower than emerging market equities’ – do you anticipate an increasing correlation to the stock market as MLPs become increasingly securitized, or mainstream?
A. Over time, as the MLP asset class becomes more institutionalized, there may be a marginal increase in correlation with other market sectors, but fundamentally, because the underlying cash flows are uncorrelated (that’s the key difference: REITS are correlated not because they’re institutionalized, but because their distributions go up and down with the vicissitudes of the broader economy, as do the cash flows of the average widget maker in the S&P 500) so we expect MLPs to remain largely uncorrelated.
The fund also offered great news for interesting individual investors. While the fund has a 5.75% front load, “the fund is available with no load if purchased through Schwab, TD, among others and directly from the Fund, through its website, telephone, or mail.”
Several months ago, Kenster, a contributor to FundAlarm’s Discussion Board, recommended Wasatch Global Opportunities(WAGOX) to me as a fund worthy of much more attention. I did the research and concluded, not surprisingly, that Kenster was right again. In my May 2010 profile of WAGOX, I concluded: “This is a choice, not an echo. Most global funds invest in huge, global corporations. While that dampens risk, it also tends to dampen rewards and produces rather less diversification value for a portfolio. This bold newer fund goes where virtually no one else does: tiny companies across the globe. Only Templeton Global Smaller Companies (TEMGX) with a value bent and a hefty sales load comes close. Folks looking for a way to add considerable diversity to the typical . . . portfolio really owe it to themselves to spend some time here.” I reported that the fund held 330 stocks, more than triple the average global fund’s average. Some of the folks on the Discussion Board were concerned that this might represent a watering-down of performance. Eric Huefner, a Wasatch Vice President and Director of Mutual Funds & Brand Management, wrote in early June:
Robert Gardiner [the manager] always ran a longer list than most others at Wasatch in his domestic funds. He feels like he is able to get to know the most promising companies better if they are actually in the portfolio, and as his confidence grows in a company so does his position size. As Robert & [co-manager] Blake [Walker] traverse the globe they are finding a handful or more of promising companies in each country they visit. In Robert’s classic style, they have initially purchased small positions in each of these companies of greatest interest. Over time you are likely to see the concentrations and number of holdings fluctuate. Even with a list of 350 holdings, Robert describes the list as we he thinks are the best 2-3% of the companies in his consideration universe.
I’ll also note that the estimable Fidelity Low-Priced Stock Fund (FLPSX) has long favored holding many hundreds of small companies – nearly 900 at the moment – without a noticeable detriment in performance.
Oak Value (OAKVX), which has recently become small enough – about $80 million, but once four times that large – to interest me and appall the managers, has agreed to become the RS Capital Appreciation fund by September. OAKVX has a very tight, large cap portfolio (27 stocks), and a long record of producing above-average returns at the cost of above-average volatility. In moving to RS, which used to be the fine no-load firm Robertson Stephens, OAKVX will gain a 4.75% sales load though the expense ratio will initially drop about 25 bps. Those who buy before the formal acquisition get “grandfathered-in” to the no-load share class.
FBR Pegasus Small Cap Growth (FBRCX) is merging into FBR Pegasus Small Cap (FBRYX) at the end of summer. In my January 2010 profile of FBRCX, I argued that the fund was “fundamentally sensible: they offer most of the upside without much of the gut-wrenching volatility. It’s hard to find managers who can consistently pull it off. Mr. Barringer seems to be one of those people, and he deserves a serious look by folks looking for core small cap exposure.” In the short term, it’s “no harm, no foul.” Mr. Barringer runs the acquiring fund and the expenses are identical. Neither fund is economically viable – the $24 million growth fund is being rolled into the $9 million core fund and FBR had to waive $90,000 in fees on each fund in 2009 – which seems to be a problem for a number of FBR funds.
There are a couple dozen funds, mostly of the “global allocation” variety, which have at least 25% of their portfolios in bonds and at least 25% in non-U.S. stocks. None of them has even 10% of their money in the emerging markets. Why would anyone want such a crazy creature? Let’s see:
Over the past ten years, the EM bond group has returned about 11% per year while the EM stock group turned in 10% annually.
GMO predicts that the highest-returning equity class over the next 5-7 years will be emerging markets equities and the highest-returning debt class will be emerging markets bonds (GMO 7-Year Asset Class Return Forecasts, 5/31/2010).
EM bonds are weakly correlated to EM stocks in the long run (around 30), though all correlations spike during crises. EM bonds also have a weak-to-negative correlation with all domestic bonds, except for high yield bonds (all of that derived from the site www.assetcorrelation.com).
The EM market is investable and broadly diversified. According to the Emerging Markets Traders Association, by 2007, secondary market trading volumes for emerging market debt (Brady bonds, sovereign and corporate Eurobonds, local markets instruments, debt options and sovereign loans) was about U.S.$6.5 trillion, with local bonds (as opposed to Brady bonds) comprising nearly 66%. Trading in such bonds was down by a third in 2008 and 2009 figures don’t seem yet available.
There are eight emerging markets bond funds and 32 emerging markets equity funds with over $1 billion in assets. A half dozen of the bond funds and 26 of the stock funds have records longer than 15 years.
But there are no funds, with a total of no assets, which systematically invest in both.
Admittedly EM bonds cratered in September and October 2008, with Fidelity New Markets (FNMIX) losing a third of their value in six weeks. That said, it has also rebounded to a new high by the following June.
Curious.
Fidelity had picked up on the alternative energy bandwagon. The former Fidelity Select Environmental Portfolio (FSLEX) has become the Select Environment and Alternative Energy Portfolio and adopted the FTSE Environmental Opportunities & Alternative Energy Index as its benchmark. The fund’s target will be “companies engaged in business activities related to alternative and renewable energy, energy efficiency, pollution control, water infrastructure, waste and recycling technologies, or other environmental support services.” Alternative and renewable energy and water infrastructures are all new, energy efficiency is more prominent now than in the old portfolio. FSLEX has been around for 20 years but has accumulated only about $50 million in assets. Morningstar classifies itself as a midcap growth fund, a group which it has solidly trounced over the past decade.
The $1.4 billion Arbitrage Fund (ARBFX) is slated to close to new investors on July 19th. The advisor announced the closing about a month ahead of time, which is almost never in the best interest of existing shareholders since it constitutes an open invitation for “hot money” investors to get in while they still can. The managers had previously planned on closing at $1 billion, so this might be a bit late. Their closest peer, Merger Fund (MERFX), is even-larger at $3.2 billion.
The Forward Frontier Markets fund (FRONX) has been recommissioned as the Forward Frontier MarketStrat fund. The difference in focus is not entirely clear from the revised prospectus. Given that Forward trails virtually all frontier market, regional frontier market and emerging markets funds since inception, the desire to make some sort of change is understandable. I just wish I understood what they were doing.
Let’s not be hasty about this whole execution thing! On May 6, 2010, the Board of Directors voted to close, liquidate and terminate (not just “liquidate,” mind you – “liquidate and terminate”) the SAM Sustainable Climate Fund, Sustainable Water Fund andSustainable Global Active Fund. On June 14, 2010, the Board issued an unexplained “hold on there!” and voted to reopen (hence, “and neither liquidate nor terminate”) the SAM Sustainable Global Active Fund (SGAQX). The funds were launched between late 2007 and late 2009, presumably to capture the then-trendy green investing passion.
The Intrepid All Cap and Income funds have added institutional share classes. Both of the funds are small, newish and have performed very solidly. These shares will be 25 basis points cheaper than the retail shares but will have a $250,000 investment minimum. Tickers not yet assigned.
For reasons unexplained, Global X has announced that the following ETFS are “not operational and unavailable for purchase:Global X Brazil Consumer ETF, Global X Brazil Financials ETF, Global X Brazil Industrials ETF, Global X Brazil Materials ETF, Global X Brazil Utilities ETF [and] Global X China Mid Cap ETF.” Geez, this really derails my plan to make a play on the booming Brazilian snack foods market.
Well, that’s it for now. The time spent with your families is far more precious than money. Enjoy it while you can. Our new fund and stars profiles will return as soon as the weather cools.
As ever,
David
Dear friends,
In celebration of the Dog Days of Summer (which have turned out to be less “lazy, hazy” and more “crazy” than I’d liked), we continue with one last potpourri of fund news before returning to the serious business of autumn.
If you didn’t know that “potpourri” originally meant “meat stew” and, in particular “slightly-rotten meat stew,” you might want to check my “Closing” note for a lead to a book purchase which will leave you enlightened and amused (and, as always, will support FundAlarm’s continued financial health).
The fund industry’s awareness of how quickly the sands are shifting is illustrated by a series of recent repackagings, renamings, and rechristenings. Since this stuff sometimes drives me to drink (in the summer heat: iced lambrusco festooned with raspberries, maybe sangria), I tend to think of them in terms of wines and bottles.
The Bridgeway Balanced Fund (BRBPX) is now the Bridgeway Managed Volatility Fund (still BRBPX). Most Bridgeway funds have names descriptive of their composition (Ultra-Small Company, Large Cap Value), rather than their outcomes. The new name is meant to reflect, rather than change, the fund’s long-time goals. Dick Cancelmo, the fund’s manager since inception, writes:
We seek to provide a high current return with short-term risk less than or equal to 40% of the stock market – new name has more alignment with the objective. Balanced Funds are typically a fairly generic mix of equity and fixed income. Our fund also uses options and futures to dampen risk and we wanted to highlight that distinction.
Mr. Cancelmo felt compelled to highlight that distinction, since “I can’t tell you how many times I have told an advisor that I manage a balanced fund and I am told they won’t look at it.” They hope that the new name “will at least get us a better look.”
The fund certainly warrants a long, hard look. Since inception in June 2001, it has managed to earn 2.46% per year against the S&P’s 0.01% with a beta of just 44 (pretty close to his target of 40). The fund’s recent record has been damaged by the 15% or so of the portfolio dedicated to investments mirroring those in Bridgeway Aggressive Growth I (BRAGX). BRAGX’s computer programs performed brilliantly for more than a decade, but cratered in the past three years. That collapse has reportedly led to a substantial rewriting of the programs.
In another set of changes, the IQ funds have shaken the fund world by renaming IQ CPI Inflation Hedged ETF (and the similarly-named underlying index) to IQ Real Return ETF (and similarly-named index). They compounded the tremor by dropped “ARB” from the names of IQ ARB Merger Arbitrage and IQ ARB Global Resources.
Effective at the end of June, PowerShares Value Line Industry Rotation Portfolio became the PowerShares Morningstar StockInvestor Core Portfolio (PYH) and Value Line TimelinessTM Select Portfolio became the PowerShares S&P 500 High Quality Portfolio (PIV).
Since inception, both of the Value Line versions of the fund had laughably bad performance (losing more in 2008, earning less in 2009, trailing enormously since their respective inceptions) compared to any of their benchmarks. The decision was announced on April 29. But since these are not new funds, they don’t require vetting by that sleepy ol’ SEC. The mere fact that nothing about the new funds’ strategy or portfolio will have any resemblance to the old funds’ apparently doesn’t rise to the level of material change. PowerShares is a relatively new player on the fund scene, but it’s already learning the lessons of cynicism and customer-be-damned quite well. We’re guessing that there’s more like this in the PowerShares future.
The other changes: PowerShares Autonomic Growth NFA Global Asset Portfolio became PowerShares Ibbotson Alternative Completion Portfolio, and PowerShares Autonomic Balanced Growth NFA Global Asset Portfolio became PowerShares RiverFront Tactical Balanced Growth Portfolio.
T. Rowe Price has changed its internal Short-Term Income fund into its internal Inflation-Focused Fund. Inflation-Focused is only available to the managers of Price’s funds-of-funds, but I was curious about what the rest of us might learn from the rationale for the change. Wyatt Lee, a member of Price’s asset allocation team, explained the fund’s evolution this way: originally, Price’s funds-of-funds invested separately in a short-term bond fund and cash, as part of the most conservative sleeve of their portfolios. That struck Price as clunky, so they shaped the portfolio of the Short-Term Income fund to balance cash and short-term bonds. The new version of the fund will invest in a “diversified portfolio of short- and intermediate-term investment-grade inflation-linked securities . . . as well as corporate, government, mortgage-backed and asset-backed securities. The fund may also invest in money market securities, bank obligations, collateralized mortgage obligations, foreign securities, and hybrids.”
Why now? Mr. Lee stressed the fact that Price is not acting in anticipation of higher short-term inflation. They’re projected 1% or so this year and around 2% in 2011. Instead, their research suggested that they can decrease the fund’s volatility without decreasing returns, and still be positioned for the inevitable uptick in inflation when the global economy recovers. Mr. Lee says that Price isn’t discussing a comparable change to its retail Short-Term Bond fund, but he left open the possibility.
Price has a second, more aggressive internal fund in registration, the Real Asset Fund. Real Asset will invest both in “real assets” and in the securities of companies that derive their revenue from real assets. Such assets include energy and natural resources, real estate, basic materials, equipment, utilities and infrastructure, and commodities. It’s typical of Price’s approach to pursue such a fund when everyone else is turning away from the sector and it might be prudent for the rest of us to ask whether investing in, say, T. Rowe Price New Era (PRNEX) when it’s down (by about 6% YTD through July 27) is better than waiting to rush in after it’s gone up.
AARP is liquidating all four of their funds. Damn, damn, damn. Four funds, all rated five-star by Morningstar, and all rated somewhere between “solid” and “outstanding” by Lipper. The three stock-oriented funds (Aggressive, Moderate, Conservative) are all way above average for 2010 after posting unspectacular results in the 2009 surge. Low expenses (0.5%). Ultra-low minimum ($100). Straightforward, low turnover strategy (invest in varying combinations of four indexes). All of which generated quite modest investor interest: between $20 and $50 million in assets after almost five years of operation.
These would be great funds to test Chuck Jaffe’s suggestion that retail giants might be logical marketers for lines of mutual funds (“Aisle 1: Frozen Foods, Aisle 2: Mutual Funds,” Wall Street Journal, July 13 2010). Here’s the oversimplified version of Mr. Jaffe’s argument: funds have been increasingly like commodities over the past two decades, and they’d be a good complement to firms (Wal-Mart, Microsoft) which have brand recognition and a knack for selling mass consumption items. While I like the branding possibilities of the very fine GRT Value (GRTVX) fund – it’s already Wal-Mart’s brand – the simplicity, ease of expansion, and sensibility of AARP’s approach makes it a natural fit.
AARP’s Board is not alone in the painful decision they had to make. Investors remain deeply skittish about stock investing and fund flows generally are negative, especially to “vanilla” products that don’t tout downside protection. That’s annoying to Fidelity but catastrophic to boutique firms or mom-and-pop funds
Of the 401 funds which hold Morningstar’s five-star designation (as of late July, 2010), 46 live at the edge of financial extinction, with assets under $50 million. While I would not propose a No-Load Death Watch list, investors might have reasonable concern about and, in several cases, interest in:
| Aegis High Yield AHYFX | A great value-stock manager’s bond fund, which makes sense because the small value companies that Mr. Barbee and his team were researching were also issuers of high yield bonds. 2010 has been tough, but it’s a top 1% performer since inception with annual returns of better than 8%. |
| Akros Absolute ReturnAARFX | A well-qualified manager with a complex long-short strategy that I don’t actually understand. Morningstar’s analysts are impressed, which is a good thing. The fund charges over 2%, which is less good, but not surprising for a long-short fund. It lost only 2% in 2008 and has a string of solid years relative to its peer group. |
| Bread & Butter BABFX | It sounded like a goofy fund when it was launched in 2005 and the strategy still sounds stilted and odd: the Contrarian/Value Investment Strategy driven by analyses of things like “overall management strategy” and “financial integrity.” Except for a relatively outstanding 2008 (admittedly, a big exception), the fund has been a lackluster performer. |
| CAN SLIM Select GrowthCANGX | The newspaper Investor’s Business Daily has a list of can’t miss aggressive growth stocks. The point is to identify solid firms whose stocks are about to pop and to exercise a rigid sell discipline (if a stock drops 7% below the purchase price, it’s history – no exceptions). Unlike the funds attempting to profit from Value Line’s rating system, this one actually works, though not quite as well as the theory predicts. |
| FBR Pegasus InvestorFBRPX, Midcap FBRMX and Small Cap FBRYX | The Pegasus line of funds is FBR’s most distinguished and all are managed by David Ellison, a long-time colleague of the now-departed Chuck Akre. |
| Kinetics Water Infrastructure KINWX | Kinetics just fired the fund’s sub-adviser, Brennan Investment Partners LLC, presumably because the fund managers left Brennan. Unconcerned by … oh, qualifications, Kinetics then put their regular team of (non-water) managers in place. |
| LKCM Balanced LKBAX | A mix of mostly dividend-paying stocks plus investment grade bonds, reasonable expenses, low risk, same team since inception. A thoroughly T. Rowe Price sort of offering. |
| Marathon Value MVPFX | Small, low turnover, low risk, domestic large cap fund with pretty consistently top 10% returns and the same manager for a decade. |
| Midas Perpetual PortfolioMPERX | “Perpetual Portfolio.” “Permanent Portfolio.” What’s the diff? These two funds invest in the same sorts of precious metals, solid currencies, commodities and growth stocks.Permanent Portfolio (PRPFX) just does it a lot better. Perpetual shows a remarkablysmooth, slow, upward trending return line over the past decade. It has essentially ignored the stock market’s gyrations and made about 40% over the decade, about 3.5% per year. Permanent Portfolio made about 160%, 10% a year.Perpetual Portfolio’s managers have shown no interest in investing in their fund. Three of the four managers have invested zero and one has a token investment. |
| Monetta Young InvestorMYIFX | “Young investor” funds typically buy Apple and Disney, with the illusory hope that “young investors” will be drawn to their favorite brands. Here, the fund’s top 10 holdings are all broad ETFs. Fairly short history with market-like risk but above-market returns. |
| Needham AggressiveNEAGX and Small Cap Growth NESGX | Needham’s funds suffer from relatively high cost and high manager turnover but both of these have produced strong returns with limited volatility. |
| Neiman Large Cap ValueNIEMX | Purely domestic, same managers since inception (2003), low volatility, solid returns, rather more impressive in down markets than in rallies. |
| Royce Global SelectRSFTX | The fund invests in a combination of larger stocks, preferred shares and debt. With a $50,000 minimum, it seems unlikely that Royce cares about the fund’s asset level. |
| Sextant Core SCORX andGrowth SSGFX | Part of Nicholas Kaiser’s fleet of outstanding funds, both here and through the Amana group. Core is a balanced fund,Growth is a low-risk, large cap domestic growth fund. |
| Tilson Dividend TILDX | The larger and stronger of value guru Whitney Tilson’s two funds. |
| Valley Forge VAFGX | Bernand Klawans, now 89, has run the fund since the first Nixon administration. His co-manager, added in 2008, owns 75% of the fund’s advisor, but has only $1000 invested and does not contribute (according to the latest SAI) to the fund’s day-to-day operation. The fund’s fate after Mr. Klawans eventual departure is unclear. |
The Brazos drama continues. Brazos was a line of fine, small no-load funds launched in the late 1990s. It became a loaded family in 1999 when the advisor was bought by AIG (booo! Hissss!). Its original no-load shares were redesignated as institutional shares and a new share class was launched. Their flagship Micro-cap fund closed in 2001 with $300 million in assets. In 2002, they dropped the funds’ sales loads (hooray!). In 2003, they settled an SEC case involving improper, but not fraudulent, actions. Fast forward to 2008, when the funds suffered losses of 48 to 54% which, shall we say, dented investor enthusiasm for them. In January 2010, PineBridge bought and renamed the four Brazos funds. Shareholders quickly rubber-stamped the Board’s proposal that the funds’ investment objectives were “not fundamental,” though for the life of me I can’t imagine anything more fundamental to a fund than its reason for existence. And, after all that, they’ve concluded that their US Mid Cap Growth Fund (PBDRX) is unsalvageable, so it’s being liquidated.
Aston Funds closed Aston/Optimum Large Cap Opportunity Fund [AOLCX] in mid-July. The fund will be liquidated by mid-August.
Speaking of Deathwatches, the ETF Deathwatch List has grown to 133 funds, up 54% in the past year. The Deathwatch List targets funds which trade under $100,000 daily. The most moribund of the lot is FaithShares Lutheran Values (FKL), which trades an average of 41 shares a day and which doesn’t trade at all on most days. (That’s a trading volume usually associated with stocks on the smallest African frontier market exchanges.) It’s especially annoying to be trailing the durn Baptists, whose Baptist Values ETF (FZB) is equally tiny, but modestly more successful YTD.
The most interesting note is Ron Rowland’s speculation that many of these funds serve as mere “placeholders,” that is, once launched they become tools for the advisors who can – as with the PowerShares funds mentioned above – keep flipping the fund’s mission and composition until they find something that draws money. And when it stops drawing, they cut it loose again. (“ETF Deathwatch List Is Longest In A Year,” Investors.com, July 19 2010)
Another in a long line of “best investments you’ve never heard of . . . unless you read FundAlarm” articles, Kiplinger’s senior editor Jeffrey Kosnett offers up master limited partnerships for your consideration.
We lionize a mutual fund that returns 20% during a bear market. Or we assume that anything earning such fabulous returns must be a fraud or caught in a bubble. Now consider a whole class of investments, many of which have returned double digits annualized during the stock-market quagmire of the past decade. More remarkable: Few of us are aware of this phenomenon called pipeline master limited partnerships. (“The Best Investment You’ve Never Heard Of,” July 15 2010)
Kosnett’s short article reviews the asset class and options for owning MLPs, including direct ownership, ETFs and the SteelPath funds. We part company on his endorsement of direct ownership; I suspect that might be best for folks looking for a meaningful, long-term relationship with their tax accountants. Folks interested in more depth on MLPs, links to the research and a profile of the (no-load) SteelPath funds might check either FundAlarm’s June 2010 profile of SteelPath Alpha or the July 2010 update on the fund’s no-load availability, investment capacity and tax status.
SteelPath’s Investor Commentary for June 30, 2010, made two interesting points:
MLPs as a group registered gains on 63% of the trading days in June. The Alpha fund was in the black for the month as well.
The sector might be experiencing a new type of fund inflows. Traditionally MLPs have been dominated by leveraged hedge fund trading but much of the new money seems to originate with institutional investors, who are less likely to fall prey to “hot money” impulses. As a result, demand for MLP shares might see a steady, sustainable rise.
As we move into fall, we’ll also move back to the normal rhythm of things: new fund profiles and stars in the shadows, snarky comments and interviews. But before getting all serious again, you should indulge in a last few moments of diversion. Of late, I’ve been reading Martha Barnette’s amusing Ladyfingers & Nun’s Tummies (2005). Barnette tracks the origins of our food names and food related words, including a remarkable array of foods named for the body parts or … uh, bodily functions of revered religious figures. The number of foods dedicated to nuns’ … uh, toots (occasionally cleaned up for children by calling them “nun’s kisses”) is striking. If you enjoy food and diversion, and would like to painlessly help support FundAlarm, please use our link to Amazon.com to pick up a copy. While you’re there, you might pick up a can or two of delicious Spotted Dick, which you’ll probably enjoy more before you read Barnette’s history of the name.
Take care and we’ll talk again as the weather cools!
David
Dear friends,
The Silly Season is upon us. It’s the time of year when Cleveland Brown fans believe in the magic of Jake Delhomme (those last 18 interceptions were just a fluke). And it’s when investors rush to sell low-priced assets (by some measures, the U.S. stock market’s p/e ratio is lower now than at the March ’09 market bottom) in order to stock up on over-priced ones (gold at $1240/ounce, up 30% in 12 months and 275% over five years). Again. Three examples of the latest silliness popped up in late August.
A small advisory service, MarketRiders, is thrashing about mightily in an effort to get noticed. The firm offers a series of ETF portfolios. The portfolios range from 80% bonds to 80% stocks, with each portfolio offering some exposure to TIPs, emerging markets and so on. You take a sort of risk/return survey, they recommend one of their five packages, and then update you when it’s time to rebalance. $10/month. A reasonable-enough deal, though it’s not entirely clear why the average investor — having been assigned a portfolio and needing only to rebalance periodically — would stick around to pay for Month #2.
MarketRider’s key business development strategy seems to be hurling thunderbolts about, hoping to become . . . I don’t know, edgy? Their basic argument is that every other investment professional, from financial advisors to investment managers, operates with the singular goal of impoverishing you for their own benefit. They, alone, represent truth, virtue and beauty.
The last thing Wall Street wants you to do is start using a system that works. . . So here’s The System. Yale, Harvard, and wealthy families all over the world use it. Experts recommend it. MarketRiders has revealed and made it simple for you.
Actually, no. Harvard has 13% of its money in private equity, 16% in absolute return strategies, and 23% in real assets. Yale has 26% in private equity, 37% in real assets. God only knows what “wealthy families all over the world” buy.
One of their more recent rants compared the mutual fund industry to the tobacco industry, and likened Morningstar to the industry’s dissembling mouthpiece, The Tobacco Institute. A money blog hosted by the New York Times quoted their marketing e-mail at length, including the charge
For years, the mutual fund industry has waged a similar war against the passive index investment methods that we support. Like big tobacco, the mutual fund industry is large, profitable and immensely powerful. With large advertising budgets to influence “unbiased” mainstream media, they guide investors into bad investments. Morningstar has lined its pockets as a willing accomplice.
Given the presence of over 300 conventional index funds, including the world’s third-largest fund and 20 indexes with over $10 billion each, one might be tempted to sigh and move on. Add the 900 eagerly-marketed ETFs – including those from fund giants Vanguard and PIMCO – and the move away might become a determined trot.
In response to the Times blog, the estimable John Rekenthaler, Morningstar’s vice president of research, chimed in with a note that suggested MarketRiders substantially misrepresented the research both on Morningstar and on fund manager performance. Rather than respond to the substantive charge, MarketRiders’ president issued a typically pointless challenge to a five-year portfolio contest (following MarketRiders’ rules), with the loser donating a bunch of money to charity. JR has not yet responded, doubtless because he’s hiding under his desk, trembling, for having been exposed as a huckster. (Or not.)
It’s not clear that any of MarketRiders’ staff carries any particular qualifications in finance, though they might wear that as a badge of honor. They have only four employees:
Mitch Tuchman, CEO: venture capitalist. According to his various on-line biographies, for “27 years, Mitch has invested in and served as a troubleshooter for technology, software, and business services companies.” In 2000, he co-founded a venture capital fund specializing in b2b e-commerce projects. Later he advised APEX Capital “on the firm’s technology micro-cap and special situations portfolio.”
Steve Beck: “serial entrepreneur” with a B.A. in Speech.
Ryan Pfenninger: “accomplished technologist” with experience in computer games.
Sally Brandon: offers “diverse experience in product management, market analysis and client relations.”
They have no public performance record. Their website reports the back-tested results of hypothetical portfolios. Like all back-tests, it shows precisely what its creators designed it to show: that if, five years ago, you’d invested between 2.0 – 8.5% in emerging markets equities, you’d be better off than if you’d sunk all of your money into the S&P500. Which doesn’t tell us anything about the wisdom of that same allocation in the five years ahead (why 8.5%? Because that’s what we now know would have worked back then).
On whole, you’re almost certainly better off plunking your money in one of Vanguard’s Target Retirement funds (average expense ratio: 0.19% and falling).
Be ready to use it as a convenient excuse to damage your portfolio. As one on-line investor put it in September of 2005, “The Hindenburg Omen thing weirded me right out of the market.” “Weirded boy” presumably missed the ensuing 4% drop, and likely the subsequent 12% rise.
This seems to be the Omen’s main utility.
The story of “the Omen” is pretty straightforward. A guy named James Miekka, who has no formal training in finance or statistics, generated a pattern in the mid 1990s that described market movements from the mid 1980s. At base, he found that a rising stock market characterized simultaneously by many new highs and many new lows was unstable. Within a quarter, such markets had a noticeable fall.
We are, according to some but not all technicians, in such a market now. For the past month, based on a Google News search, the Omen has appeared in about 10 news stories each day. The number is slightly higher if you include people incapable of spelling “Hindenburg” but more than willing to agonize about it.
The Hindenburg has passed overhead on its way to its fateful Lakehurst, NJ, mooring 27 times since 1986 (per CXO Advisory, 23 August). Its more recent appearances include:
April 14, 2004
October 5 2005
May 22 2006
October 27 2007
June 6 and 17 2008
August 16 2009
Faithful followers have managed to avoid five of the past two market declines. It’s about 25% accurate, unless you lower the threshold of accuracy: in 95% of the quarters following a Hindenburg warning, the market records at least one drop of 2% or more. (2%? The market moves by more than that on rumors that Bernanke hasn’t had enough fiber in his diet.)
So why take it seriously?
First, it’s more dignified than saying “I’m not only living in the state of Panic, I’ve pretty much relocated to the state capitol.” The condition is true for most investors since the “fear versus greed” pendulum has swung far to the left. But it’s undignified to admit that you invest based on panic attacks, so having The Hindenburg Omen on your side dignifies your actions. Fair enough.
And too, Glenn Beck uses it as proof that the Obama administration’s economic policies aren’t working.
Second, it has a cool back story (mostly untrue). The story begins with James Miekka, almost universally designated a “mathematician” though occasionally “brilliant technical analyst,” “blind mathematician” or “blind oracle.” Which sounds ever so much cooler than the truth: “legally blind former high school algebra and science teacher with a B.A.in secondary education.” The exact evolution of the Omen is fuzzy. It appeared that Mr. Miekka sat and fiddled with data until he got a model that described what had happened even if it didn’t exactly predict what would happen. Then he adjusted the model to align with each new incident, while leaving enough vagueness (it only applies in “a rising market” – the definitions of which are as varied as the technicians seeking to use it) that it becomes non-falsifiable.
Third, it has a cool name. The Hindenburg Omen. You know: “Ohhhhh! It’s–it’s–it’s the flames, . . . It’s smoke, and it’s flames now . . . This is the worst thing I’ve ever witnessed.” Technicians love spooky names. They’re very marketable. Actual names of technical indicators include: The Death Cross. The Black Cross. The Abandoned Baby. The Titanic Omen. The Lusitania Omen.
Miekka actually wanted “The Titanic Omen,” but it was already taken so a friend rummaged up the poor old Hindenburg. As a public service, FundAlarm would like to offer up some other possibilities for technicians looking for The Next Black Thing. How about, The Spanish Flu Pandemic of 1918 Omen (it occurs when a third-tier nation manages to sicken everyone else)? Or, The Half Billion Contaminated Egg Recall of 2010 Omen (which strikes investors who made an ill-timed, imprudent commitment to commodities)? Maybe, the Centralia Fire Signal (named for the half-century old underground fire which forced the abandonment of Centralia, PA, the signal sounds when small investors have discovered that it’s a bit too hot in the kitchen for them).
Academic research really ought to come with a bright red and silver warning label. Or perhaps Mr. Yuk’s lime-green countenance. With the following warning: “Hey, you! Just so you know, we need to publish something about every four months or we’ll lose our jobs. And so, here’s our latest gem-on-a-deadline. We know almost no one will read it, which allows us to write some damned silly stuff without consequence. Love, Your Authors.”
The latest example is an exposé of the fund industry, entitled “When Marketing is More Important than Performance.” It’s one of those studies that contains sentences like:
R − R =α +β *MKTRF +β * SMB +β *HML +β *UMD +ε ,t=T-36,T-1
The study by two scholars at France’s famed INSEAD school, finds “first direct evidence of trade off between performance and marketing.” More particularly, the authors make the inflammatory claim to have proof that fund managers intentionally buy stinky stocks just because they’re trendy:
. . . fund managers deliberately prefer marketing over performance.
Funds deliberately sacrifice performance in order to have a portfolio composition that attracts investors.
Their work was promptly featured in a posting on the AllAboutAlpha blog and was highlighted (“A New Study Casts Fundsters in an Unflattering Light”) on the Mutual Fund Wire news service.
All of which would be more compelling if the study were worth . . . oh, say, a pitcher of warm spit (the substantially cleaned-up version of John Nance Garner’s description of the vice presidency).
The study relies a series of surrogate measures. Those are sort of fallback options that scholars use when they can’t get real data; for example, if I were interested in the weight of a bunch of guys but couldn’t find a way to weigh them, I might use their shirt sizes as a surrogate (or stand in) for their weight. I’d assume the bigger shirt sizes correlated with greater weight. Using one surrogate measure introduces a bit of error into a study. Relying on six of them creates a major problem. One key element of the study is the judgment of whether a particular fund manager had access to super-duper stock information, but failed to use it.
They obviously can’t know what managers did or did not know, and so they’re forced to create two surrogate measures: fund family size and the relationship of portfolio rebalancing to changes in analyst recommendation. They assume that if a fund is part of a large fund complex, the manager automatically had access to more non-public information than if the fund is part of a boutique.
The folks are Matthews Asia Funds beg to differ.
Scott Barbee of sub-microcap Aegis Value (AVALX) rolls his eyes
John Montgomery, whose Bridgeway funds have no use for any such information, goes back to fine-tuning his models.
The managers tend go on to correlate the often six-month old fund portfolio data with analyst recommendations which change monthly, in order to generate a largely irrelevant correlation.
And, even with a meaningful correlation, it is not logically possible to reach the author’s conclusions – which attribute specific personal motivations to the managers – based on statistical patterns. By way of analogy, you couldn’t confidently conclude anything about my reasons for speeding from the simple observation that I was speeding.
At most, the authors long, tortured analysis supports the general conclusion that contrarian investing (buying stocks out of favor with the public) produced better results than momentum investing (buying stocks in favor with the public), though making trendy, flavor-of-the-month investments does attract more investor interest.
To which we say: duh!
Harbor has abandoned plans to launch Harbor Special Opportunities fund. The fund has been in a holding pattern since March 2009. Harbor filed a prospectus that month, then filed “post effective amendments” every month since in order to keep the fund on hold. On August 26 they finally gave up the ghost. Harbor is also liquidating their distinctly mediocre Harbor Short Duration Fund [HRSDX) in the next month.
Speaking of ghosts, four more Claymore ETFs have left this world of woe behind. Claymore/Zacks Country Rotation,Claymore/Beacon Global Exchanges, Brokers & Asset Managers Index ETF, Claymore/Zacks Dividend Rotation, andClaymore/Robb Report Global Luxury Index ETF are now all defunct. According to the firm’s press release, these are dumb ideas that failed in the marketplace. No, they’re celebrating “product lineup changes.”
The Robb Report Global Luxury ETF? For those who don’t subscribe, The Robb Report is a magazine designed to let rich people (average household income for subscribers: $1.2 million) immerse themselves in pictures of all the things they could buy if they felt like it. If you want the scoop on a $418,000 Rolls Royce Phantom Coupé, these are the guys to turn to. The ETF gave you the chance to invest in the companies whose products were most favored by the nouveau riche. Despite solid returns, the rich apparently decided to buy the car rather than the ETF.
Does it strike you that, for “the investment innovation of the millennium,” ETFs are plagued with rather more idiocy than most other investment options?
Two actively managed ETFs, Grail RP Financials and Grail RP Technology are also being . . . hmm, “moved out of the lineup.”About two dozen other ETFs have liquidated so far in 2010, with another 350 with small-enough asset bases that they may join the crowd.
Folks not able to make it to Iowa this fall might find that the next-best thing is to pick up shares of a new ETF: Teucrium Corn CORN. Long-time commodity trader Sal Gilbertie was “shocked” (“shocked, do you hear?”) to learn that no one offered pure-play corn exposure so he stepped in to fill the void. Soon to follow are Teucrium Sugar, Trecrium Soybean and Teucrium Wheat Fund.
Shades of Victor Kiam! The employees of Montag & Caldwell liked their funds so much, they bought the company. Montag was a very fine, free-standing investment advisor in the 1990s which was bought by ABN AMRO, which merged with Fortis, which was lately bought by BNP Paribas. Crying “no mas!” the Montag folks have reasserted control of their firm.
In addition to merged FBR Pegasus Small Cap Growth into the FBR Small Cap, FBR has decided to strip the “Pegasus” name from the series of very successful funds that David Ellison runs: FBR Pegasus becomes FBR Large Cap with a new “principal investment strategy” of investing in large cap stocks. FBR Pegasus Mid-Cap and FBR Pegasus Small Cap lose the “Pegasus” but keep their strategies.
As summer ends, I mourn all the great places that I haven’t had a chance to visit. My morose mood was greatly lightened by Catherine Price’s new book, 101 Places Not to See Before You Die (Harper, 2010). I’ve always been annoyed by the presumptuous twits who announce that my life will be incomplete unless I follow their to-do list. The “before you die” genre includes 2001 Things to Do, 1000 Places to See, Five Secrets You Must Discover, 1001 Natural Wonders You Must See, 1001 Foods You Must Taste and unnumbered Unforgettable Things You Must Do. I was feeling awfully pressured by the whole thing but Ms. Price came along and freed me of a hundred potential obligations. She X’s out the Beijing Museum of Tap Water, the Blarney Stone and the entire State of Nevada. I’m feeling lighter already. If you’d like to share in my ebullience and help support FundAlarm, use FundAlarm’s special link to Amazon.com to pick up a copy. (By the way, there’s a similarly-titled book, Adam Russ’s 101 Places Not to Visit: Your Essential Guide to the World’s Most Miserable, Ugly, Boring and Inbred Destinations while is a parody of the “before you die” genre while Price actually did visit, and abhor, all of the places in her book.)
I’ll see you next when the trees start to don their autumnal colors!
David
