Category Archives: Funds

April 2013, Funds in Registration

By David Snowball

DoubleLine Equities Growth Fund

DoubleLine Equities Growth Fund (DLEGX) will invest mostly in U.S. companies and in foreign ones which trade on American exchanges through ADRs. The managers profess a “bottom up” approach to identify investment. They’re looking for a set of reasonable and unremarkable characteristics: consistent and growing earnings, strong balance sheet, good competitive position, good management and so on. The fund will be managed by Husam Nazer and Brendt Stallings, former TCW managers recently recruited to DoubleLine. The minimum initial investment in the retail class is $2,000, reduced to $500 for IRAs. The expense ratio will be 1.31% after waivers.

DoubleLine Equities Global Technology Fund

DoubleLine Equities Global Technology Fund (DLETX) intends to invest in global, all-cap equity portfolio of techn-related companies including those involved the development, marketing, or commercialization of technology or products or services related to or dependent on tech. The managers profess a “bottom up” approach to identify investment. They’re looking for a set of reasonable and unremarkable characteristics: consistent and growing earnings, strong balance sheet, good competitive position, good management and so on. The fund will be managed by Husam Nazer and Brendt Stallings, former TCW managers recently recruited to DoubleLine. The minimum initial investment in the retail class is $2,000, reduced to $500 for IRAs. The expense ratio will be 1.36% after waivers.

Geneva Advisors International Growth Fund

Geneva Advisors International Growth Fund will pursue long-term capital appreciation by investing in high-quality companies from around the world. (I know it says “International” but the statement of investing strategies says “investing primarily in common stocks of U.S. and foreign issuers”). The fund will be managed by Robert C. Bridges, John P. Huber and Daniel P. Delany. Bridges and Huber run two other very solid, low expense funds for Geneva. All three guys are former Wm. Blair employees; Bridges and Huber left in 2003 to found Geneva, Delaney joined in 2012. The minimum initial purchase is $1000. Expense ratio will be 1.45%.

Pear Tree PanAgora Risk Parity Emerging Markets Fund

Pear Tree PanAgora Risk Parity Emerging Markets Fund will invest in emerging markets stocks, using a proprietary risk parity strategy. A risk parity strategy attempts to balance risk across the countries, sectors and issuers. The model assigns a country-, sector-, and issuer-risk value to each emerging market security and then builds a portfolio of securities that balances those risks, rather than relies on the securities’ market weights. The fund will be managed by Edward Qian, Chief Investment Manager and Head of Multi Asset Research at PanAgora and Bryan Belton, a PanAgora manager. The minimum initial investment in the retail class is $2,500, reduced to $1000 for IRAs. The expense ratio will be 1.37% after waivers.

Robeco Boston Partners Global Long/Short Fund

Robeco Boston Partners Global Long/Short Fund will seek long-term growth of capital through a global long/short equity strategy and some cash. They expect to be 50% long and 40-60% short. Robeco is, in case you hadn’t heard, really good at long/short investing. They expect at least 40% international exposure (compared to 10% in their flagship long/short fund and 15% in the new long/short Research fund. There are very few constraints in the prospectus on their investing universe. The fund will be managed by Jay Feeney, an original Boston Partner, co-CEO and CIO-Equities, and Christopher K. Hart, Equity Portfolio Manage. Mr. Feeney comanages Robeco Boston Partners Long/Short Research and John Hancock3 Disciplined Value Mid Cap, both of which are very strong funds. Mr. Hart comanages Robeco Boston Partner’s global and international funds, which have shorter records which are good rather than great. The minimum initial investment in the retail class is $2,500. The expense ratio will be 3.77% after waivers. Let me just say: “Yikes.” At the risk of repeating myself, “Yikes!”

T. Rowe Price Global Allocation Fund

T. Rowe Price Global Allocation Fund will seek long-term capital appreciation and income through a broadly diversified global portfolio of stocks, bonds, cash and alternative investments. The baseline asset allocation will be 60% stocks, 30% bonds and cash and 10% alternative investments. They’ll actively adjust those allocations based on its assessment of U.S. and global economic and market conditions, interest rate movements, industry and issuer conditions and business cycles, and so on. They may invest in publicly-traded assets, but also derivatives, Price funds, unregistered hedge funds or other private or registered investment companies. Normally half of its stocks and one third of its bonds will be non-US, though the managers will hedge their currency exposure. The fund will be managed by Charles Shriver. He joined Price in 1991 and is the lead manager for their Balanced, Personal Strategy and Spectrum funds. He has between $500,000 and $1 million invested in those funds. The minimum initial purchase is $2500, reduced to $1000 for IRAs. Expense ratio will be 1.05%.

Teton Westwood Mid-Cap Equity Fund

Teton Westwood Mid-Cap Equity Fund will pursue to provide long-term capital growth of capital and future income. They’ll buy mid-cap stocks which have good growth potential, strong balance sheets, attractive products, strong competitive positions and high quality management so long as they’re selling at reasonable prices. The fund will be managed by Diane M. Wehner and Charles F. Stuart. They’ve been managing mid-cap portfolios for GE Asset Management for more than a decade. “AAA” shares should be available without a load through fund supermarkets. The minimum initial purchase is $1000, reduced to $250 for various tax-advantaged products. The minimum is waived for accounts set up with an AIP. Expense ratio will be 1.50%.

Villere Equity Fund

Villere Equity Fund will seek long-term growth by investing in 20-30 US stocks. They use a bottom-up approach to select domestic equity securities that they believe will offer growth regardless of the economic cycle, interest rates or political climate. It will be an all-cap portfolio with no more than 10% investing internationally. The fund will be managed by George V. Young and Sandy Villere, the team behind Villere Balanced (VILLX). Mr. Villere, cousin to Mr. Young, just became a co-manager of VILLX in December, 2012. The minimum initial purchase is $2000. Expense ratio will be 1.26%.

Seafarer Overseas Growth & Income (SFGIX)

By David Snowball

THIS IS AN UPDATE OF THE FUND PROFILE ORIGINALLY PUBLISHED IN July 2012. YOU CAN FIND THAT PROFILE HERE.

Objective and Strategy

Seafarer seeks to provide long-term capital appreciation along with some current income; it also seeks to mitigate volatility. The Fund invests a significant amount – 20-50% of its portfolio – in the securities of companies located in developed countries. The remainder is investing in developing and frontier markets. The Fund can invest in dividend-paying common stocks, preferred stocks, convertible bonds, and fixed-income securities.

Adviser

Seafarer Capital Partners of San Francisco. Seafarer is a small, employee-owned firm whose only focus is the Seafarer fund.

Managers

Andrew Foster is the lead manager. Mr. Foster is Seafarer’s founder and Chief Investment Officer. Mr. Foster formerly was manager or co-manager of Matthews Asia Growth & Income (MACSX), Matthews’ research director and acting chief investment officer. He began his career in emerging markets in 1996, when he worked as a management consultant with A.T. Kearney, based in Singapore, then joined Matthews in 1998. Andrew was named Director of Research in 2003 and served as the firm’s Acting Chief Investment Officer during the height of the global financial crisis, from 2008 through 2009. Andrew is assisted by William Maeck and Kate Jaquet. Mr. Maeck is the associate portfolio manager and head trader for Seafarer. He’s had a long career as an investment adviser, equity analyst and management consultant. Ms. Jaquet spent the first part of her career with Credit Suisse First Boston as an investment banking analyst within their Latin America group. In 2000, she joined Seneca Capital Management in San Francisco as a senior research analyst in their high yield group. Her responsibilities included the metals & mining, oil & gas, and utilities industries as well as emerging market sovereigns and select emerging market corporate issuers.

Management’s Stake in the Fund

Mr. Foster has over $1 million in the fund. Both Maeck and Jaquet have between $100,000 and $500,000 invested.

Opening date

February 15, 2012

Minimum investment

$2,500 for regular accounts and $1000 for retirement accounts. The minimum subsequent investment is $500.

Expense ratio

1.40% after waivers on assets of $35 million (as of February 2013). The fund has two fee waivers in place, a contractual waiver which is reflected in standard reports (such as those at Morningstar) but also a voluntary one which is not reflected elsewhere. The fund does not charge a 12(b)1 marketing fee but does have a 2% redemption fee on shares held fewer than 90 days.

Comments

Investors have latched on, perhaps too tightly, to the need for emerging markets exposure. As of March 2013, e.m. funds had seen 21 consecutive weeks of asset inflows after years of languishing. Any time there is that much enthusiasm for an asset class, prudent investors should pause. But we also believe that prudent investors who want emerging markets exposure should start at Seafarer. The case for Seafarer is straightforward: it’s going to be one of your best options for sustaining exposure to an important but challenging asset class.

There are four reasons to believe this is true.

First, Andrew Foster has been getting it right for a long time. This is the quintessential case of “a seasoned manager at a nimble new fund.” In addition to managing or co-managing Matthews Asian Growth & Income for eight years (2003-2011), he was a portfolio manager on Asia Dividend for six years and India Fund for five. His hallmark piece, prior to Seafarer, indisputably was MACSX. The fund’s careful risk management helped investors control the impulse to panic. Volatility is the bane of most emerging markets funds (the group’s standard deviation is about 25, while developed markets average 15). The average emerging markets stock investor captured a mere 25 – 35% of their funds’ nominal gains. MACSX’s captured 90% over the decade that ended with Andrew’s departure and virtually 100% over the preceding 15 years. The great debate surrounding MACSX during his tenure was whether it was the best Asia-centered fund in existence or merely one of the two or three best funds in existence.

Second, Seafarer is independent. Based on his earlier research, Mr. Foster believes that perhaps two-thirds of MACSX’s out-performance was driven by having “a more sensible” approach (for example, recognizing the strategic errors embedded in the index benchmarks which drive most “active” managers) and one-third by better security selection (driven by intensive research and over 1500 field visits). Seafarer and its benchmarks focus on about 24 markets. In 14 of them, Seafarer has dramatically different weightings than do the indexes (MSCI or FTSE) or his peers. It’s striking, on a country-by-country level, how closely the average e.m. fund hugs its benchmark. Seafarer dramatically underweights the BRICs and Korea, which represent 58% of the MSCI index but only 25% of Seafarer’s portfolio. That’s made up for by substantially greater positions in Chile, Hong Kong, Japan, Poland, Singapore, Thailand and Turkey. While the average e.m. fund seems to hold 100-250 names and index funds hold 1000, Seafarer focuses on 40.

Third, Seafarer is cautious. Andrew targets firms which are well-managed and capable of sustained growth. He’s willing to sacrifice dramatic upside potential for the prospect of steady, long-term growth and income. The stocks in his portfolio receive far high financial health and slightly lower growth scores from Morningstar than either indexed or actively managed e.m. funds as a group. Concern about stretched valuations led him to halve his small cap stake in 2012 and move into larger, steadier firms including those domiciled in developed markets.

Combined with a greater interest in income in the portfolio, that’s given Seafarer noticeable downside protection. E.M. funds as a group have posted losses in five of the past 12 months. In those down months, their average loss is 2.9% per month. In those same months, Seafarer posted an average loss of 1.3% (about 45% of the market’s). In three of those five months, Seafarer made money. That’s consistent with his long-term record. During the global meltdown (10/07 – 03/09), his previous charge lost 34% but the average Asia fund dropped 58% and the average emerging markets fund dropped 59%.

Fourth Seafarer is rewarding. In its first year, Seafarer returned 18% versus the MSCI emerging market index’s 3.8%. It outperformed the only e.m. fund to receive Morningstar’s “Gold” designation, American Funds New World (NEWFX), the offerings from Vanguard, Price, Fidelity and PIMCO, its emerging markets peer group and First Trust/Aberdeen Emerging Opportunities (FEO), the best of the EM balanced funds.

Bottom Line

Mr. Foster is remarkably bright, thoughtful, experienced and concerned about the welfare of his shareholders. He thinks more broadly than most and has more experience than the vast majority of his peers. The fund offers him more flexibility than he’s ever had and he’s using it well. There are few more-attractive emerging markets options available.

Fund website

Seafarer Overseas Growth and Income. The website is remarkably rich, both with analyses of the fund’s portfolio and performance, and with commentary on broader issues.

Disclosure: the Observer has no financial ties with Seafarer Funds. I do own shares of Seafarer and Matthews Asian Growth & Income (purchased during Andrew’s managership there) in my personal account.

March 2013, Funds in Registration

By David Snowball

Barron’s 400 ETF

Barron’s 400 ETF will try to duplicate the returns of the Barron’s 400. What is that, you ask? An equal-weighted index of the 400 fundamentally-strongest companies in America, give or take the effects of later screens for liquidity, diversification and such. Over the past decade, the Barron’s index has returned 10.3% per year while the Dow Jones US Total Stock Market returned 5.9%. Michael Akins, Senior Vice President, Director of Index Management & Product Oversight for ALPS, will manage it. Expenses not yet set.

CV Sector Rotational Fund

CV Sector Rotational Fund seeks to provide long-term growth of capital by investing in stocks, including “special situations.” Surprisingly, the prospectus says very little about sector rotation except that they have an “aggressive strategy of portfolio trading to respond to changes in the marketplace.” It will be managed by a four person team from ICC Capital Management. Nothing in the prospectus suggests that they’re particularly accomplished. The minimum initial investment is $2000. Expenses of 1.75% after waivers.

Grandeur Peak Emerging Markets Opportunities Fund

Grandeur Peak Emerging Markets Opportunities Fund will seek long-term growth of capital by investing in small and micro-cap companies domiciled in emerging or frontier markets. They’re willing to consider common stock, preferred and convertible shares. Up to 90% of the fund might be microcaps and up to 35% might be mid-cap or larger. Heck, they may also invest in “early stage companies with limited or no earnings history if the Adviser believes they have outstanding long-term growth potential” and IPOs. And, too, it’s non-diversified. It will be managed by Grandeur Peak’s founders, Robert Gardiner & Blake Walker, since inception. The minimum initial investment is $2,000, reduced to $1,000 for accounts with an automatic investing plan and $100 for UGMA/UTMA or a Coverdell Education Savings Accounts. Expenses not yet set but this fund lists at 12(b)1 marketing fee and a higher management fee than does Global Reach. Odd.

Grandeur Peak Global Reach Fund

Grandeur Peak Global Reach Fund will invest mostly in in foreign and domestic small and micro cap companies, but could put up to 35% in mid- to large cap names. Typically 50% in the emerging markets. They might invest in some IPOs and new companies. The Fund is diversified and will typically have between 200 and 500 holdings. Like a number of folks on the Observer’s discussion board, it’s not clear how exactly this will differ from the existing Global Opportunities fund. It will be managed by Grandeur Peak’s founders, Robert Gardiner & Blake Walker, since inception. The minimum initial investment is $2,000, reduced to $1,000 for accounts with an automatic investing plan and $100 for UGMA/UTMA or a Coverdell Education Savings Accounts. Expenses not yet set.

KKR Alternative Strategies Fund

KKR Alternative Strategies Fund will seek to generate capital appreciation by giving money to teams of as-yet-unnamed outside managers who might invest using some combination of Relative Value, Event Driven, Global Macro/Managed Futures, Equity Hedge and/or Opportunistic Strategies. For these services they will charge an as-yet-undisclosed amount and will require a so-far-secret minimum investment. Their Alternative High Yield fund has expenses which are high but not criminal and a $2500 minimum.

Manning & Napier Global Fixed Income

Manning & Napier Global Fixed Income will try to provide long-term total return by investing in government and corporate fixed income securities of issuers located anywhere in the world. They may also invest “a substantial portion of its assets” (it appears to be 20%) in junk bonds. They can also invest in emerging markets bonds. The fund will be managed by the same gang that manages all of the other M&N funds. This is actually a fund that’s climbed out of “the dustbin of history.” It operated back in 2002, was liquidated in 2003 and remained dormant until now. The minimum initial investment is $2000.The expense ratio is 0.85%.

Matthews Asia Focus Fund

Matthews Asia Focus Fund seeks long-term capital appreciation by investing in 25-35 common or preferred stocks issued by firms in developed, emerging, and frontier countries and markets in the Asian region (except Japan). They will look for a high quality management team, strong corporate governance standards, sustainable return on capital over an extended period, strong free cash flow generation and an attractive valuations. They’ll mostly target mid- to large-cap stocks. Kenneth Lowe will be the lead manager, assisted by Michael Oh and Sharat Shroff. Mr. Lowe also helps manage Matthews Asian Growth & Income. Prior to joining Matthews in 2010, he was an Investment Manager on the Asia and Global Emerging Market Equities Team at Martin Currie Investment Management in Edinburgh, Scotland. The minimum initial investment in the fund is $2500, reduced to $500 for IRAs and Coverdell accounts. Expenses for both Investor and Institutional shares are capped at 1.90%.

Matthews Emerging Asia Fund

Matthews Emerging Asia Fund will pursue long-term capital appreciation by investing in common and preferred stock and convertible securities of companies that have “substantial ties” to the countries of Asia, except Japan. Under normal conditions, you might expect to see companies from Bangladesh, Cambodia, China, India, Indonesia, Laos, Malaysia, Mongolia, Myanmar, Pakistan, Papua New Guinea, Philippines, Sri Lanka, Thailand and Vietnam. They’ll run an all-cap portfolio which might invest in micro-cap stocks. The manager looks for “companies capable of sustainable growth based on the fundamental characteristics of those companies, including balance sheet information; number of employees; size and stability of cash flow; management’s depth, adaptability and integrity; product lines; marketing strategies; corporate governance; and financial health.” Taizo Ishida will be the lead manager, assisted by Robert Harvey. Ishida also manages Matthews Asia Growth and Japan funds. Prior to joining Matthews in 2006, he spent six years on the global and international teams at Wellington Management Company. The minimum initial investment in the fund is $2500, reduced to $500 for IRAs and Coverdell accounts. Expenses for both Investor and Institutional shares are capped at 1.90%.

Parnassus Asia Fund

Parnassus Asia Fund will seek capital appreciation by investing in Asia stocks of all sizes. Equities include common and preferred stocks, convertible preferred stocks, warrants, and ADRs. They will take environmental, social and governance factors, in light of local culture, into account. Jerome L. Dodson, Parnassus’ president and founder, will manage the fund. The minimum initial investment is $2000, reduced to $500 for various tax-advantaged accounts. Expenses are capped at 1.45%. They intend to launch on May 1, 2013.

Vanguard Emerging Markets Government Bond Index Fund

Vanguard Emerging Markets Government Bond Index Fund (and ETF) will launch in the second quarter of 2013. The fund was originally proposed in 2011 but never launched. The fund will the Barclays USD Emerging Markets Government RIC Capped Index, which features approximately 540 government, agency, and local authority bonds from 155 issuers. The fund will invest solely in emerging markets bonds that are denominated in U.S. dollars (USD). Gregory Davis and Yan Pu will manage the fund. The minimum initial purchase is $3000 for investor class shares. The expense ratio is 0.50% (rather higher than what was proposed 15 months ago) for the investor shares and 0.35% for the ETF.

Vanguard TIPS Transition Fund

Vanguard TIPS Transition Fund “seeks to transition a portfolio of long-, intermediate-, and short-term inflation-indexed bonds contributed by six Vanguard funds into a portfolio of short-term inflation-indexed bonds that resembles the Barclays U.S. Treasury Inflation-Protected Securities 0-5 Year Index. Upon completion of the transition, it is expected that the Fund will merge into Vanguard Short-Term Inflation-Protected Securities Index Fund, which seeks to track the Index.” I thought I’d offer that as a fun fact to know and tell since the only possible purchasers of the shares of this fund are six other Vanguard funds.

WisdomTree Global Corporate Bond Fund

WisdomTree Global Corporate Bond Fund will seek a high level of total return consisting of both income and capital appreciation. They’ll invest in both dollar-denominated and local currency issues, but they will hedge all of their currency exposure back to the dollar. They can invest in both investment grade and high-yield debt. Up to 25% of the assets might be in emerging markets debt and 20% may be in derivatives. They haven’t selected the management team yet which says a lot about how funds like this get created. Expenses not yet set.

Artisan Global Equity Fund (ARTHX), February 2013

By David Snowball

This is an update of the fund profile originally published in December 2012. You can fined that original profile here.

Objective and Strategy

The fund seeks to maximize long-term capital growth. They invest in a global, all-cap equity portfolio which may include common and preferred stocks, convertible securities and, to a limited extent, derivatives. They’re looking for high-quality growth companies with sustainable growth characteristics. Their preference is to invest in firms that benefit from long-term growth trends and in stocks which are selling at a reasonable price. Typically they hold 60-100 stocks. No more than 30% of the portfolio may be invested in emerging markets. In general they do not hedge their currency exposure but could choose to do so if they owned a security denominated in an overvalued currency.

Adviser

Artisan Partners of Milwaukee, Wisconsin with Artisan Partners UK LLP as a subadvisor. Artisan has five autonomous investment teams that oversee twelve distinct U.S., non-U.S. and global investment strategies. Artisan has been around since 1994. As of 9/30/2012, Artisan Partners had approximately $70 billion in assets under management. That’s up from $10 billion in 2000. They advise the 12 Artisan funds, but only 5% of their assets come from retail investors.

Manager

Mark L. Yockey, Charles-Henri Hamker and Andrew J. Euretig. Mr. Yockey joined Artisan in 1995 and has been repeatedly recognized as one of the industry’s premier international stock investors. He is a portfolio manager for Artisan International, Artisan International Small Cap and Artisan Global Equity Funds. He is, Artisan notes, fluent in French. Charles-Henri Hamker is an associate portfolio manager on Artisan International Fund, and a portfolio manager with Artisan International Small Cap and Artisan Global Equity Funds. He is fluent in French and German. (Take that, Yockey.) Andrew J. Euretig joined Artisan in 2005. He is an associate portfolio manager for Artisan International Fund, and a portfolio manager for Artisan Global Equity Fund. (He never quite knows what Yockey and Hamker are whispering back and forth in French.) The team was responsible, as of 9/30/12, for about $9 billion in investments other than this fund.

Management’s Stake in the Fund

Mr. Yockey has over $1 million invested, Mr. Eurtig has between $50,000 – 100,000 and Mr. Hamker has not (yet) invested in the fund. As of December 31, 2012, the officers and directors of Artisan Funds as a group owned 17.20% of Investor Shares of the Global Equity Fund, up slightly from the year before.

Opening date

March 29, 2010

Minimum investment

$1,000, which Artisan will waive if you establish an account with an automatic investment plan.

Expense ratio

1.28% on assets of $68.4 million for Investor class shares, as of June 2023.

Comments

The argument for considering ARTHX has changed, but it has not weakened.

In mid-January 2013, lead manager Barry Dargan elected to leave Artisan. Mr. Dargan had a long, distinguished track record both here and at MFS where he managed, or co-managed, six funds, including two global funds.

With his departure, leadership for the fund shifts to Mr. Yockey has famously managed two Artisan international funds since their inception, was recognized as Morningstar’s International Fund Manager of the Year (1998) and was a finalist for the award in 2012. For most trailing time periods, his funds have top 10% returns. International Small Cap received Morningstar’s highest accolade when it was designated as the only “Gold” fund in its peer group while International was recognized as a “Silver” fund.

The change at the top offers no obvious cause for investor concern. Three factors weigh in that judgment. First, Artisan has been working consistently and successfully to move away from an “alpha manager” model toward a team-based discipline. Artisan is organized around a set of autonomous teams, each with a distinctive and definable discipline. Each team grows its own talent (that is, they’re independent of the other Artisan teams when it comes to staff and research) and grows into new funds when they have the capacity to do so. Second, the amount of experience and analytic ability on the management team remains formidable. Mr. Yockey is among the industry’s best and, like Artisan’s other lead managers, he’s clearly taken time to hire and mentor talented younger managers who move up the ladder from analyst to associate manager, co-manager and lead manager as they demonstrate they ability to meet the firm’s high standards. Artisan promises to provide additional resources, if they prove necessary, to broaden the team as their responsibilities grow. Third, Artisan has handled management transitions before. While the teams are stable, the firm has done a good job when confronted by the need to hand-off responsibilities.

The second argument on the fund’s behalf is that Artisan is a good steward. Artisan has a very good record for lowering expenses, being risk conscious, opening funds only when they believe they have the capacity to be category-leaders (and almost all are) and closing funds before they’re bloated.

Third, ARTHX is nimble. Its mandate is flexible: all sizes, all countries, any industry. The fund’s direct investment in emerging markets is limited to 30% of the portfolio, but their pursuit of the world’s best companies leads them to firms whose income streams are more diverse than would be suggested by the names of the countries where they’re headquartered. The managers note:

Though we have outsized exposure to Europe and undersized exposure to the U.S., we believe our relative country weights are of less significance since the companies we own in these developed economies continually expand their revenue bases across the globe.

Our portfolio remains centered around global industry leading companies with attractive valuations. This has led to a significant overweight position in the consumer sectors where many of our holdings benefit from significant exposure to the faster growth in emerging economies.

Since much of the world’s secular (enduring, long-term) growth is in the emerging markets, the portfolio is positioned to give them substantial exposure to it through their Europe and US-domiciled firms. While the managers are experienced in handling billions, here they’re dealing with only $25 million.

The results are not surprising. Morningstar believes that their analysts can identify those funds likely to serve their shareholders best; they do this by looking at a series of qualitative factors on top of pure performance. When they find a fund that they believe has the potential to be consistently strong in the future, they can name it as a “Gold” fund. Here are ARTHX’s returns since inception (the blue line) against all of Morningstar’s global Gold funds:

Not to say that the gap between Artisan and the other top funds is large and growing, but it is.

Bottom Line

Artisan Global Equity is an outstanding small fund for investors looking for exposure to many of the best firms from around the global. The expenses are reasonable, the investment minimum is low and the managers are first-rate. Which should be no surprise since two of the few funds keeping pace with Artisan Global Equity have names beginning with the same two words: Artisan Global Opportunities (ARTRX) and Artisan Global Value (ARTGX).

Fund website

Artisan Global Equity

Q3 Holdings (June 30, 2023)

Matthews Asia Strategic Income (MAINX), February 2013

By David Snowball

This is an update of the fund profile originally published in February 2012, and updated in March 2012. You can find that profile here.

Objective and Strategy

MAINX seeks total return over the long term with an emphasis on income. The fund invests in income-producing securities including, but not limited to, debt and debt-related instruments issued by government, quasi-governmental and corporate bonds, dividend-paying stocks and convertible securities (a sort of stock/bond hybrid). The fund may hedge its currency exposure, but does not intend to do so routinely. In general, at least half of the portfolio will be in investment-grade bonds. Equities, both common stocks and convertibles, will not exceed 20% of the portfolio.

Adviser

Matthews International Capital Management. Matthews was founded in 1991 and advises the 13 Matthews Asia funds. As of December 31, 2012, Matthews had $20.9 billion in assets under management. On whole, the Matthews Asia funds offer below average expenses. They also publish an interesting and well-written newsletter on Asian investing, Asia Insight.

Manager(s)

Teresa Kong is the lead manager. Before joining Matthews in 2010, she was Head of Emerging Market Investments at Barclays Global Investors (now BlackRock) and responsible for managing the firm’s investment strategies in Emerging Asia, Eastern Europe, Africa and Latin America. In addition to founding the Fixed Income Emerging Markets Group at BlackRock, she was also Senior Portfolio Manager and Credit Strategist on the Fixed Income credit team. She’s also served as an analyst for Oppenheimer Funds and JP Morgan Securities, where she worked in the Structured Products Group and Latin America Capital Markets Group. Kong has two co-managers, Gerald Hwang, who for three years managed foreign exchange and fixed income assets for some of Vanguard’s exchange-traded funds and mutual funds before joining Matthews in 2011, and Robert Horrocks, Matthews’ chief investment officer.

Management’s Stake in the Fund

As of the April 2012 Statement of Additional Information, Ms. Kong and Mr. Horrocks each had between $100,000 and 500,000 invested in the fund. About one-third of the fund’s Investor class shares were held by Matthews.

Opening date

November 30, 2011.

Minimum investment

$2500 for regular accounts, $500 for IRAs for the retail shares. The fund’s available, NTF, through Fidelity, Scottrade, TD Ameritrade, TIAA-CREF and Vanguard and a few others.

Expense ratio

1.40%, after waivers, on $50 million in assets (as of January, 2013). There’s also a 2% redemption fee for shares held fewer than 90 days. The Institutional share class (MINCX) charges 1.0% and has a $3 million minimum.

Comments

The events of 2012 only make the case for Matthews Asia Strategic Income more intriguing. Our original case for MAINX had two premises:

Traditional fixed-income investments are failing. The combination of microscopic domestic interest rates with the slow depreciation of the U.S. dollar and the corrosive effects of inflation means that more and more “risk-free” fixed-income portfolios simply won’t meet their owners’ needs. Surmounting that risk requires looking beyond the traditional. For many investors, Asia is a logical destination for two reasons: the fundamentals of their fixed-income market is stronger than those in Europe or the U.S. and most investors are systematically underexposed to the Asian market.
Matthews Asia is probably the best tool you have for gaining that exposure. They have the largest array of Asia investment products in the U.S. market, the deepest analytic core and the broadest array of experience. They also have a long history of fixed-income investing in the service of funds such as Matthews Asian Growth & Income (MACSX). Their culture and policies are shareholder-friendly and their success has been consistent.

Three developments in 2012 made the case for looking at MAINX more compelling.

Alarm about the state of developed credit markets is rising. As of February 2013, Bill Gross anticipates “negative real interest rates approaching minus 2%” and warns “our credit-based financial markets and the economy it supports are levered, fragile and increasingly entropic – it is running out of energy and time.” Templeton’s Dan Hasentab, “the man who made some of the boldest contrarian bets in the bond market last year has,” The Financial Times reported on January 30, “a new message for investors: get out of supposedly safe government debt now, before it is too late.” The 79 year old maestro behind Loomis Sayles Bond and Strategic Income, Dan Fuss, declares “This is the most overbought market I have ever seen in my life . . . What I tell my clients is, ‘It’s not the end of the world, but . . .”

Ms. Kong points to Asia as a powerful counterbalance to these concerns. Its beta relative to US Treasuries bonds is among the lowest around: If, for example, the 5-year Treasury declines 1% in value, U.S. investment grade debt will decline 0.7%, the global aggregate index 0.5% and Asia fixed-income around 0.25%.
Strategic Income performed beautifully in its first full year. The fund returned 13.62% in 2012, placing it in the top 10% of Morningstar’s “world bond” peer group. A more telling comparison was provided by our collaborator, Charles Boccadoro, who notes that the fund’s absolute and risk-adjusted returns far exceeded those of its few Asia-centered competitors.
Strategic Income’s equity exposure may be rising in significance. The inclusion of an equity stake adds upside, allows the fund to range across a firm’s capital structure and allows it to pursue opportunities in markets where the fixed-income segment is closed or fundamentally unattractive. Increasingly, the top tier of strategists are pointing to income-producing equities as an essential component of a fixed-income portfolio.

Bottom Line

MAINX offers rare and sensible access to an important, under-followed asset class. The long track record of Matthews Asia funds suggests that this is going to be a solid, risk-conscious and rewarding vehicle for gaining access to that class. By design, MAINX will likely offer the highest Sharpe ratio (a measure of risk-adjusted returns) of any of the Matthews Asia funds. You really want to consider the possibility before the issue becomes pressing.

Fund website

Matthews Asia Strategic Income

Commentary

2013 Q3 Report

PIMCO Short Asset Investment Fund, “A” shares (PAIAX), February 2013

By David Snowball

The “D” share class originally profiled here was converted to “A” shares in 2018. Retail investors now pay a 2.25% front load for the shares

Objective and Strategy

The fund seeks to provide “maximum current income, consistent with daily liquidity.” The fund invests, primarily, in short-term investment grade debt. The average duration varies according to PIMCO’s assessment of market conditions, but will not normally exceed 18 months. The fund can invest in dollar-denominated debt from foreign issuers, with as much as 10% from the emerging markets, but it cannot invest in securities denominated in foreign currencies. The manager also has the freedom to use derivatives and, at a limited extent, to use credit default swaps and short sales.

Adviser

PIMCO. Famous for its fixed-income expertise and its $280 billion PIMCO Total Return Fund, PIMCO has emerged as one of the industry’s most innovative and successful firms across a wide array of asset classes and strategies. They advise the 84 PIMCO funds as well as a global array of private and institutional clients. As of December 31, 2012 they had $2 trillion in assets under management, $1.6 trillion in third party assets and 695 investment professionals.

Manager

Jerome Schneider. Mr. Schneider is an executive vice president in the Newport Beach office and head of the short-term and funding desk. Mr. Schneider also manages four other cash management funds for PIMCO and a variety of other accounts, with combined assets exceeding $74 billion. Prior to joining PIMCO in 2008, Mr. Schneider was a senior managing director with Bear Stearns.

Management’s Stake in the Fund

None. Mr. Schneider manages five cash management funds and has not invested a penny in any of them (as of the latest SAI, 7/31/12).

Opening date

May 31, 2012

Minimum investment

$1,000 for “D” shares, which is the class generally available no-load and NTF through various fund supermarkets.

Expense ratio

0.65%, after waivers, on assets of $3 Billion, as of July 2023.

Comments

You need to know about two guys in order to understand the case for PIMCO Short Asset. The first is E.O. Wilson, the world’s leading authority in myrmecology, the study of ants. His publications include the Pulitzer Prize winning The Ants (1990), which weighs in at nearly 800 pages as well as Journey to the Ants (1998), Leafcutter Ants (2010), Anthill: A Novel (2010) and 433 scientific papers.

Wilson wondered, as I’m sure so many of us do, what characteristics distinguish very successful ant colonies from less successful or failed ones. It’s this: the most successful colonies are organized so that they thoroughly gather all the small crumbs of food around them but they’re also capable of exploiting the occasional large windfall. Failed colonies aren’t good about efficiently and consistently gathering their crumbs or can’t jump on the unexpected opportunities that present themselves.

The second is Bill Gross, who is on the short list for the title “best fixed-income investor, ever.” He currently manages well more than $300 billion in PIMCO funds and another hundred billion or so in other accounts. Morningstar named Mr. Gross and his investment team Fixed Income Manager of the Decade for 2000-2009 and Fixed Income Manager of the Year for 1998, 2000, and 2007 (the first three-time recipient). Forbes ranks him as 51^st on their list of the world’s most powerful people.

Why is that important?

Jerome Schneider is the guy that Bill Gross turns to managing the “cash” portion of his mutual funds. Schneider is the guy responsible for directing all of PIMCO’s cash-management strategies and PIMCO Short Asset embodies the portfolio strategy used for all of those funds. They refer to it as an “enhanced cash strategy” that combines high quality money market investments with a flexible array of other investment grade, short-term debt. The goal is to produce lower volatility than short-term bonds and higher returns than cash. Mr. Schneider is backed by an incredible array of analytic resources, from analysts tracking individual issues to high level strategists like Mr. Gross and Mohamed El-Erian, the firm’s co-CIOs.

From inception through 1/31/13, PAIUX turned a $10,000 investment into $10,150. In the average money market, you’d have $10,005. Over that same period, PAIUX outperformed both the broad bond market and the average market-neutral fund.

So here’s the question: if Bill Gross couldn’t find a better cash manager, what’s the prospect that you will?

Bottom Line

This fund will not make you rich but it may be integral to a strategy that does. Your success, like the ants, may be driven by two different strategies: never leaving a crumb behind and being ready to hop on the occasional compelling opportunity. PAIUX has a role to play in both. It does give you a strong prospect of picking up every little crumb every day, leaving you with the more of the resources you’ll need to exploit the occasional compelling opportunity.

More venturesome investors might look at RiverPark Short Term High Yield Fund (RPHYX) for the cash management sleeve of their portfolios but conservative investors are unlikely to find any better option than this.

Fund website

PIMCO Short Asset Investment “A”

Fact Sheet

(2023)

February 2013, Funds in Registration

By David Snowball

Artisan Global Small Cap Fund

Artisan Global Small Cap Fund (ARTWX) will pursue maximum long-term capital growth by investing in a global portfolio of small-cap growth companies. “Small” means “under $4 billion.” The fund will be managed by Mark L. Yockey, Charles-Henri Hamker and David Geisler. Yockey & co. manage three other funds for Artisan and do so with considerable and consistent distinction. The plan is to apply the same investing discipline here as they do with Artisan International Small Cap (ARTJX) and their other funds. The investment minimum is $1000 and expenses are capped at 1.5%. Given that Artisan has yet to launch a dud, this will be particularly worth following.

ASTON/LMCG Emerging Markets Fund

ASTON/LMCG Emerging Markets Fund will pursue long-term capital appreciation by investing in emerging markets stocks, both directly and through ETFs. It’s a quant stock selection methodology focusing on market dynamics, value and quality. Gordon Johnson, PhD, CFA, is the lead portfolio manager of the LMCG Emerging Markets strategy. Before working for Munder (the “M” of LMCG) he served seven years as a portfolio manager for Evergreen. He’s assisted by Shannon Ericson. Expenses not yet set. The minimum initial investment is $2500, reduced to $500 for various tax-advantaged accounts.

CV Asset Allocation Fund

CV Asset Allocation Fund will seek maximum real return, consistent with preservation of real capital and prudent investment management. It’s a fund of funds with a particularly squishy explanation of its plan. At base, it will construct an asset allocation plan and then buy the best funds available to execute it, and will sell those funds “when a more attractive investment opportunity is identified.” Brenda A. Smith will be running the show. The minimum is a cool million. Expenses capped at 1.77%.

Driehaus Event Driven Fund

Driehaus Event Driven Fund seeks to provide positive returns over full-market cycles. They will employ event-driven strategies designed to exploit disparities or inefficiencies in U.S. and foreign equity and debt markets. Investment opportunities will often center on corporate events such as bankruptcies, mergers, acquisitions, refinancings and earnings surprises as well as government and regulatory agency rulings. They intend to have a proscribed volatility target for the fund, but have not yet released it. They anticipate a concentrated portfolio and turnover of 100-200%. K.C. Nelson, Portfolio Manager Driehaus Active Income Fund and Driehaus Select Credit Fund, will manage the fund. The minimum initial investment is $10,000, reduced to $2000 for IRAs. Expenses not yet set.

First Trust Enhanced High Income ETF

First Trust Enhanced High Income ETF will seek to provide current income. The Fund will invest primarily in U.S.-listed equity securities. The Fund will also sell exchange-listed call options on the Standard & Poor’s 500 Index in order to seek additional cash flow (in the form of premiums on the options) that may be distributed to shareholders monthly. The managers will be John Gambla and Rob A. Guttschow, both of First Trust. Expenses are not yet set and investment minimums don’t apply.

First Western Short Duration Bond Fund

First Western Short Duration Bond Fund will seek a high level of income consistent with preservation of capital and liquidity. They’ll invest in a diversified portfolio of short duration fixed-income securities. “Short duration” translates to 90 days to three years. Greg Haendel, and Barry P. Julien, both of First Western, will manage the fund. The minimum initial investment is $1000. Expenses are capped at 0.60%.

Gerstein Fisher Multi-Factor Real Estate Securities Fund

Gerstein Fisher Multi-Factor Real Estate Securities Fund will seek total return by investing in income-producing common stocks and other real estate securities, including real estate investment trusts. They may invest through ETFs, buy put or call options and invest up to 20% in high-yield bonds. Gregg S. Fisher, President and Chief Investment Officer of the Adviser since 1993, is the Lead Portfolio Manager, and Sheridan Titman is the other one. The minimum initial investment is $2500. Expenses capped at 0.90%.

McKinley Diversified Income Fund

McKinley Diversified Income Fund will seek “substantial current income and long-term capital appreciation.” They can invest in common and preferred stock and convertible securities with up to 25% in Master Limited Partnerships and up to 60% in REITs. The fund will be managed by a team from McKinley Capital. The minimum initial investment is $2500, reduced to $1000 for tax-advantaged accounts. Investor share class expenses are 1.46% after waivers.

Perkins International Value Fund

Perkins International Value Fund will seek capital appreciation. The plan is to invest in “companies that have fallen out of favor with the market or that appear to be temporarily misunderstood by the investment community.” They look for strong balance sheets and free cash flows, attractive valuations and a “favorable reward-to-risk” profile. Gregory R. Kolb of Perkins Investment Management will run the fund. Perkins is the value arm of Janus and they’ve got a strong track record. The retail minimum investment is $2500. Expenses are not yet set for any of the six proposed share classes. You can’t, by the way, purchase the “D” class shares. In a singularly freakish announcement, Janus declares that *CLASS D SHARES ARE CLOSED TO NEW INVESTORS even before the fund is launched.

Templeton Emerging Markets Bond Fund

Templeton Emerging Markets Bond Fund will seek current income with capital appreciation as a secondary goal. The portfolio will be non-diversified and will maintain, it seems, a substantial currency hedge. Michael Hasenstab, PH.D. and Alpha Male, and Laura Burakreis will manage the fund. Expenses will range from 0.97 – 1.66%, depending on share class.

TIAA-CREF International Opportunities Fund

TIAA-CREF International Opportunities Fund will seek a favorable long-term total return by investing in companies in the early stages of a structural growth opportunity driven by differentiated products and/or services that maintain strong barriers to entry, continue to outgrow peers and demonstrate accelerating top-line growth with margin expansion. Jason Campbell, presumably not the former Washington quarterback, will manage the fund. Like that Campbell, this one seems to be a journeyman who was one of the lower-level managers at Nicholas-Applegate Global Tech (NGTIX) when it rocketed up 500% in 1999 and one of the remaining managers when it crashed and was merged away. The minimum initial investment is $2500, reduced all the way to $2000 for various tax-advantaged accounts. The expenses for the Retail share class will be 1.09% after a pointless five basis point fee waiver.

William Blair Global Small Cap Growth Fund

William Blair Global Small Cap Growth Fund seeks long-term capital appreciation by investing in a diversified global small cap stock portfolio. “Small” means “under $5 billon.” Under normal market conditions at least 35% of the Fund’s assets will be invested in companies located outside the United States. Normally, the Fund’s investments will be divided among the United States, Continental Europe, the United Kingdom, Canada, Japan and the markets of the Pacific Basin. The Fund may invest the greater of 35% of its net assets or twice the emerging markets component of the MSCI All Country World (ACW) Small Cap Index (net) in emerging markets, which include every country in the world except the United States, Canada, Japan, Australia, New Zealand, Hong Kong, Singapore and most Western European countries. Andrew G. Flynn, who also managed William Blair International Leaders (WILNX) and Matthew A. Litfin co-manage the Fund. The minimum initial investment is $2500. Expenses are not yet set.

Bridgeway Managed Volatility (BRBPX), January 2013

By David Snowball

Objective and Strategy

To provide high current return with less short-term risk than the stock market, the Fund buys and sells a combination of stocks, options, futures, and fixed-income securities. Up to 75% of the portfolio may be in stocks and options. They may short up to 35% via index futures. At least 25% must be in stocks and no more than 15% in foreign stocks. At least 25% will be in bonds, but those are short-term Treasuries with an average duration of five months (the manager refers to them as “the anchor rather than the sail” of the fund). They will, on average, hold 150-200 securities.

Adviser

Bridgeway Capital Management. The first Bridgeway fund – Ultra Small Company – opened in August of 1994. The firm has 11 funds and 60 or so separate accounts, with about $2 billion under management. Bridgeway’s corporate culture is famously healthy and its management ranks are very stable.

Managers

Richard Cancelmo is the lead portfolio manager and leads the trading team for Bridgeway. He joined Bridgeway in 2000 and has over 25 years of investment industry experience, including five years with Cancelmo Capital Management and The West University Fund. He has been the fund’s manager since inception.

Management’s stake

Mr. Cancelmo has been $100,000 and $500,000 invested in the fund. John Montgomery, Bridgeway’s president, has an investment in that same range. Every member of Bridgeway’s board of trustees also has a substantial investment in the fund.

Opening date

June 29, 2001.

Minimum investment

$2000 for both regular and tax-sheltered accounts.

Expense ratio

0.95% on assets of $29.8 million, as of June 2023.

Comments

They were one of the finest debate teams I encountered in 20 years. Two young men from Northwestern University. Quiet, in an activity that was boisterous. Clean-cut, in an era that was ragged. They pursued very few argumentative strategies, but those few were solid, and executed perfectly. Very smart, very disciplined, but frequently discounted by their opponents. Because they were unassuming and their arguments were relatively uncomplicated, folks made the (fatal) assumption that they’d be easy to beat. Toward the end of one debate, one of the Northwesterners announced with a smile: “Our strategy has worked perfectly. We have lulled them into mistakes. In dullness there is strength!”

Bridgeway Balanced is likewise. This fund has very few strategies but they are solid and executed perfectly. The portfolio is 25 – 75% mid- to large-cap domestic stocks, the remainder of the portfolio is (mostly Treasury) bonds. Within the stock portfolio, about 60% is indexed to the S&P 500 and 40% is actively managed using Bridgeway’s computer models. Within the actively managed part, half of the picks lean toward value and half toward growth. (Yawn.) But also – here’s the exciting dull part – particularly within the active portion of the portfolio, Mr. Cancelmo has the ability to substitute covered calls and secured puts for direct ownership of the stocks! (If you’re tingling now, it’s probably because your legs have fallen asleep.)

These are financial derivatives, called options. I’ve tried six different ways of writing a layperson’s explanation for options and they were all miserably unclear. Suffice it to say that the options are a tool to generate modest cash flows for the fund while seriously limiting the downside risk and somewhat limiting the upside potential. At base, the fund sacrifices some Alpha in order to seriously limit Beta. The strategy requires excellent execution or you’ll end up losing more on the upside than you gain on the downside.

But Bridgeway seems to be executing exceedingly well. From inception through late December, 2012, BRBPX turned $10,000 into $15,000. That handily beats its long/short funds peer group ($12,500) and the 700-pound gorilla of option strategy funds, Gateway (GATEX, $14,200). Those returns are also better than those for the moderate allocation group, which exposes you to 60% of the stock market’s volatility against Bridgeway’s 40%. They’ve accomplished those gains with little volatility: for the past decade, their standard deviation is 7 (the S&P 500 is 15) and their beta is 0.41.

This occurs within the context of Bridgeway’s highly principled corporate structure: small operation, very high ethical standards, unwavering commitment to honest communication with their shareholders (if you need to talk to founder John Montgomery or Mr. Cancelmo, just call and ask – the phone reps are in the same office suite with them and are authorized to ring straight through), modest salaries (they actually report them – Mr. Cancelmo earned $423,839 in 2004 and the company made a $12,250 contribution to his IRA), a commitment to contribute 50% of their profits to charity, and a rule requiring folks to keep their investable wealth in the Bridgeway funds.

Very few people have chosen to invest in the fund – net assets are around $24 million, down from a peak of $130 million. Not just down, but steadily and consistently down even as performance has been consistently solid. I’ve speculated elsewhere about the cause of the decline: a mismatch with the rest of the Bridgeway line-up, a complex strategy that’s hard for outsiders to grasp and to have confidence in, and poor marketing among them. Given Bridgeway’s commitment to capping fees, the decline is sad and puzzling but has limited significance for the fund’s shareholders.

Bottom line

“In dullness, there is strength!” For folks who want some equity exposure but can’t afford the risk of massive losses, or for any investor looking to dampen the volatility of an aggressive portfolio, Bridgeway Managed Volatility – like Bridgeway, in general – deserves serious consideration.

Company website

Bridgeway Managed Volatility

Fact Sheet

January 2013, Funds in Registration

By David Snowball

AdvisorShares Recon Capital Alternative Income ETF

AdvisorShares Recon Capital Alternative Income ETF (PUTS) will seek consistent, low volatility returns across all market cycles. The managers will do that by selling put options on equities in each of the ten sectors of the S&P 500 Index, using a proprietary selection process. Kevin Kelly and Garrett Paolella of Recon Capital Partners have managed the fund “since 2011” (an intriguing claim for a fund launched in 2013). Expenses not yet set.

Avatar Capital Preservation Fund

Avatar Capital Preservation Fund seeks to preserve capital while providing current income and limited capital appreciation. The fund will invest primarily in ETFs and ETNs. Their investment universe includes short-, intermediate-, and long-term investment grade, taxable U.S. government, U.S. Agency, and corporate bonds, common and preferred stocks of large capitalization U.S. companies and, to a lesser extent, international companies. In addition, the Fund may use leverage to hedge portfolio positions and manage volatility, and/or to increase exposure to long positions. The managers use a Global Tactical Asset Allocation model to select investments. Much of the “investment strategies” strikes me as regrettable mumbling (“The adviser’s investment decision-making process is grounded in the use of comprehensive tactical asset allocation methodology”). Ron Fernandes and Larry Seibert, co-CIOs of Momentum Investment Partners are co-managers of the fund. The minimum initial investment $1,000 for regular accounts and (here’s an odd and, I think, unprecedented move) $2500 for tax-qualified accounts such as IRAs and 401(k) plans. Expenses are not yet set.

Avatar Tactical Multi-Asset Income Fund

Avatar Tactical Multi-Asset Income Fund seeks current income. The fund will invest primarily in ETFs and ETNs. Their investment universe includes short-, intermediate-, and long-term investment grade, taxable U.S. government, U.S. Agency, and corporate bonds, common and preferred stocks of large capitalization U.S. companies and, to a lesser extent, international companies. In addition, the Fund may use leverage to hedge portfolio positions and manage volatility, and/or to increase exposure to long positions. The managers use a Global Tactical Asset Allocation model to select investments. Much of the “investment strategies” strikes me as regrettable mumbling (“The adviser’s investment decision-making process is grounded in the use of comprehensive tactical asset allocation methodology”). Ron Fernandes and Larry Seibert, co-CIOs of Momentum Investment Partners are co-managers of the fund. The minimum initial investment $1,000 for regular accounts and (here’s an odd and, I think, unprecedented move) $2500 for tax-qualified accounts such as IRAs and 401(k) plans. Expenses are not yet set.

Avatar Absolute Return Fund

Avatar Absolute Return Fund seeks a positive total return in all market environments. The fund will invest primarily in ETFs and ETNs. Their investment universe includes short-, intermediate-, and long-term investment grade, taxable U.S. government, U.S. Agency, and corporate bonds, common and preferred stocks of large capitalization U.S. companies and, to a lesser extent, international companies. In addition, the Fund may use leverage to hedge portfolio positions and manage volatility, and/or to increase exposure to long positions. The percentage of the Fund’s portfolio invested in each asset class will change over time and may range from 0%-100%, and the Fund may experience moderate volatility. The managers use a Global Tactical Asset Allocation model to select investments. Much of the “investment strategies” strikes me as regrettable mumbling (“The adviser’s investment decision-making process is grounded in the use of comprehensive tactical asset allocation methodology”). Ron Fernandes and Larry Seibert, co-CIOs of Momentum Investment Partners are co-managers of the fund. The minimum initial investment $1,000 for regular accounts and (here’s an odd and, I think, unprecedented move) $2500 for tax-qualified accounts such as IRAs and 401(k) plans. Expenses are not yet set.

Avatar Global Opportunities Fund

Avatar Global Opportunities Fund will seek maximum capital appreciation through exposure to global markets. The fund will invest primarily in ETFs and ETNs. Their investment universe includes short-, intermediate-, and long-term investment grade, taxable U.S. government, U.S. Agency, and corporate bonds, common and preferred stocks of large capitalization U.S. companies and, to a lesser extent, international companies. In addition, the Fund may use leverage to hedge portfolio positions and manage volatility, and/or to increase exposure to long positions. The managers use a Global Tactical Asset Allocation model to select investments. Much of the “investment strategies” strikes me as regrettable mumbling (“The adviser’s investment decision-making process is grounded in the use of comprehensive tactical asset allocation methodology”). Ron Fernandes and Larry Seibert, co-CIOs of Momentum Investment Partners are co-managers of the fund. The minimum initial investment $1,000 for regular accounts and (here’s an odd and, I think, unprecedented move) $2500 for tax-qualified accounts such as IRAs and 401(k) plans. Expenses are not yet set.

Investors Variable NAV Money Market Fund

Investors Variable NAV Money Market Fund will seek to maximize current income to the extent consistent with the preservation of capital and maintenance of liquidity by investing exclusively in high-quality money market instruments. The fund is managed by Northern Trust Investments, though no individuals are named. The expense ratio is 0.35% and minimum initial investment is $2500, $500 for an IRA and $250 for accounts established with an automatic investment plan. They are simultaneously launching three other variable-NAV money market funds: Investors Variable NAV AMT-Free Municipal Money Market, Variable NAV U.S. Government Money Market and Variable NAV Treasury Money Market Fund.

LSV Small Cap Value Fund

LSV Small Cap Value Fund will seek long-term growth by investing in stocks with a market cap under $2.5 billion (or the highest market cap in the Russell 2000 Value Index, whichever is greater). Their goal is to find stocks which are out-of-favor but show signs of recent improvement. They use a quant investment model to match fundamentals with indicators of short-term appreciation potential. The fund will be managed by Josef Lakonishok, Menno Vermeulen, and Puneet Mansharamani. Lakonishok is a reasonably famous academic who did some of the groundbreaking work on behavioral finance, then translated that research into actual investment strategies. His LSV Value Equity Fund (LSVEX) turned $10,000 in $22,000 since launch in 1999; its average peer would have earned $16,200 and the S&P, $14,200. The minimum initial investment is a bracing $100,000. The expense ratio is 0.85%.

SMI Dynamic Allocation Fund

SMI Dynamic Allocation Fund seeks total return through a “dynamic asset allocation investment strategy” in which it invests in the most attractive three of six major asset classes: U.S. equities, international equities, fixed income securities, real estate, precious metals, and cash. They’ll look at momentum, asset flows and historical volatility, among other things. The asset allocation and equity sleeve is managed by a team from Sound Mind Investing (Mark Biller, Eric Collier and Anthony Ayers). The two Sound Mind funds tend to below average returns but low volatility. The fixed income sleeve is managed by Scout Investment’s Reams Asset Management Division. The Reams team (Mark M. Egan, Thomas M. Fink, Todd Thompson, and Steven T. Vincent) are really first-rate and were nominated by Morningstar as a 2012 Fixed Income Manager of the Year. The minimum initial investment is $2500. Expenses not yet set.

SPDR SSgA Large Cap Risk Aware ETF

SPDR SSgA Large Cap Risk Aware ETF seeks to provide competitive returns compared to the large cap U.S. equity market and capital appreciation. I’ll let the managers speak for themselves: “invests in a diversified selection of equity securities included in the Russell 1000 Index that [they] believes are aligned with predicted investor risk preferences. . . During periods of anticipated high risk, the Adviser will adjust the Portfolio’s composition to be defensive and may increase exposure to value companies.” (The assumption that “value” and “low-risk” are interchangeable seems, to me, to be debatable.) In low risk periods, they’ll emphasize riskier assets and in periods of moderate risk they’ll look more like the Russell 1000. The fund is non-diversified. The fund will be managed by Gary Lowe, Simon Roe and John O’Connell, all of SSgA. Expenses not yet set.

SPDR SSgA Risk Aware ETF

SPDR SSgA Risk Aware ETF seeks to provide competitive returns compared to the broad U.S. equity market and capital appreciation. I’ll let the managers speak for themselves: “invests in a diversified selection of equity securities included in the Russell 3000 Index that [they] believes are aligned with predicted investor risk preferences. . . During periods of anticipated high risk, the Adviser will adjust the Portfolio’s composition to be defensive and may increase exposure to large cap and/or value companies.” In low risk periods, they’ll emphasize riskier assets and in periods of moderate risk they’ll look more like the Russell 3000. The fund is non-diversified. The fund will be managed by Gary Lowe, Simon Roe and John O’Connell, all of SSgA. Expenses not yet set.

SPDR SSgA Small Cap Risk Aware ETF

SPDR SSgA Small Cap Risk Aware ETF seeks to provide competitive returns compared to the small cap U.S. equity market and capital appreciation. I’ll let the managers speak for themselves: “invests in a diversified selection of equity securities included in the Russell 2000 Index that [they] believes are aligned with predicted investor risk preferences. . . During periods of anticipated high risk, the Adviser will adjust the Portfolio’s composition to be defensive and may increase exposure to value companies.” In low risk periods, they’ll emphasize riskier assets and in periods of moderate risk they’ll look more like the Russell 2000. The fund is non-diversified. The fund will be managed by Gary Lowe, Simon Roe and John O’Connell, all of SSgA. Expenses not yet set.

Stone Toro Relative Value Fund

Stone Toro Relative Value Fund will seek capital appreciation with a secondary focus on current income by investing, primarily, in US stocks. Up to 40% of the portfolio may be invested in ADRs. The managers warn us that “The Fund’s investment strategy involves active and frequent trading.” They don’t say much about what they’re up to and they use a lot of unnecessary quotation marks when they try: “The Adviser employs a unique proprietary process, the Relative Value Process (the ‘Process’), to identify ‘special investment value’.” The Process is managed by Michael Jarzyna, Founding Partner and CIO of Stone Toro. He spent a year or so (2008-09) as Associate Portfolio Manager of Blackrock Value Opportunity Fund. From 1998-2006, he managed the technology portions of Merrill Lynch’s small and mid-cap value funds. The minimum initial investment is $1,000. The expense ratio is 1.57%.

Artisan Global Equity Fund (ARTHX) – December 2012

By David Snowball

Objective and Strategy

Adviser

Manager

Barry P. Dargan is lead portfolio manager and Mark L. Yockey is portfolio manager. Dargan and Yockey are jointly responsible for management of the fund, they work together to develop investment strategies but Mr. Dargan generally exercises final decision-making authority. Previously, Mr. Dargan worked for MFS, as an investment analyst from 1996 to 2001 and as a manager of MFS International Growth (MGRAX) from 2001 to 2010. Mr. Yockey joined Artisan in 1995 and is the lead manager for Artisan International (ARTIX) and Artisan International Small Cap (ARTJX). The fact that Mr. Dargan’s main charge handily outperformed ARTIX over nearly a decade might have helped convince Artisan to bring him on-board.

Management’s Stake in the Fund

Mr. Dargan has over $1 million invested with the fund, and Mr. Yockey has between $500,000 and $1 million invested. As of December 31, 2011, the officers and directors of Artisan Funds owned 16.94% of Artisan Global Equity Fund.

Opening date

March 29, 2010

Minimum investment

$1,000, which Artisan will waive if you establish an account with an automatic investment plan.

Expense ratio

1.50%, after waivers, on assets of $16.7 million. There is a 2% redemption fee for shares held less than 90 days.

Comments

Q: What do you get when you combine the talents of two supremely successful international stock managers, a healthy corporate culture and a small, flexible fund?

A: Artisan Global Equity.

The argument for considering ARTHX is really straightforward. First, both managers have records that are both sustained and excellent. Mr. Dargan managed, or co-managed, six funds, including two global funds, while at MFS. Those included funds targeting both U.S. and non-U.S. investors. While I don’t have a precise calculation, it’s clear he was managing more than $3 billion. Mr. Yockey has famously managed two Artisan international funds since their inception, was once recognized as Morningstar’s International Fund Manager of the Year (1998). For most trailing time periods, his funds have top 10% returns. International Small Cap received Morningstar’s highest accolade when it was designated as the only “Gold” fund in its peer group while International was recognized as a “Silver” fund. Based on head-to-head comparisons from 2001-2010, Mr. Yockey is really first rate and Mr. Dargan might be better. (Being British, it’s almost certain that he has a cooler accent.)

Second, Artisan is a good steward. The firm’s managers are divided into five teams, each with a distinctive philosophy and portfolio strategy. The Global Equity team has four members (including Associate Portfolio Managers Charles Hamker and Andrew Euretig who also co-manage International Small Cap) and their discipline grows from the strategies first employed in ARTIX then extended to ARTJX. Artisan has a very good record for lowering expenses, being risk conscious, opening funds only when they believe they have the capacity to be category-leaders (and almost all are) and closing funds before they’re bloated.

Though we have outsized exposure to Europe and undersized exposure to the U.S., we believe our relative country weights are of less significance since the companies we own in these developed economies continually expand their revenue bases across the globe.

Our portfolio remains centered around global industry leading companies with attractive valuations. This has led to a significant overweight position in the consumer sectors where many of our holdings benefit from significant exposure to the faster growth in emerging economies.

Not to say that the gap between Artisan and the other top funds is large and growing, but it is.

Bottom Line

Artisan Global Equity is an outstanding small fund for investors looking for exposure to many of the best firms from around the global. The expenses are reasonable, the investment minimum is low and the manager is first-rate. Which should be no surprise since two of the few funds keeping pace with Artisan Global Equity have names beginning with the same two words: Artisan Global Opportunities (ARTRX) and Artisan Global Value (ARTGX).

Fund website

Artisan Global Equity

December 2012, Funds in Registration

By David Snowball

DoubleLine Floating Rate Fund

DoubleLine Floating Rate Fund will seek a high level of current income by investing in floating rate loans and “other floating rate investments.” The “other” includes “floating rate debt securities; inflation-indexed securities; certain mortgage- and asset-backed securities, including those backed by collateral that carry an adjustable or floating rate of interest, such as adjustable rate mortgages; certain collateralized loan obligations; certain collateralized debt obligations; certain collateralized mortgage obligations; adjustable rate mortgages; floaters; inverse floaters; money market securities of all types; repurchase agreements; and shares of money market and short-term bond funds”. The fund will be managed by Bonnie Baha and Robert Cohen. Ms. Baha was part of Mr. Gundlach’s original TCW team. No word on Mr. Cohen’s background. The minimum initial investment is $2000, reduced to $500 for IRAs. Expenses not yet set.

Epiphany FFV Global Ecologic Fund

Epiphany FFV Global Ecologic Fund will seek long-term capital growth by investing in a global portfolio of common and dividend-paying preferred stocks. They seek “to encourage environmentally responsible business practices and a cleaner environment by investing … in environmentally responsible and sustainable companies.” They anticipate holding about 50 names and, they assure us, they’ll invest no more than 5% in “pure play renewable energy.” The managers will be Frank Morris, founder and CEO of Ecologic Advisors andSamuel J. Saladino, CEO of Trinity Fiduciary Partners and the manager of Epiphany FFV Fund and Latin America Fund. The former is a tiny, perfectly respectable US large cap fund. The latter is new but doing well so far. FFV refers to Faith and Family Values and represents the underlying theme of the social and moral screening. The minimum initial investment is $1000, reduced to $100 for accounts set up with an automatic investing plan. The expense ratio is 1.56%.

Lyrical U.S. Value Equity Fund

Lyrical U.S. Value Equity Fund will seek to achieve long-term capital growth by buying “the stocks of companies that the Adviser believes are undervalued, the undervaluation to be temporary, the underlying business to have sufficient quality and durability, and the estimated discount in the stock price to be large enough to compensate for the risks of the investment.” Good companies temporarily down. Got it. The fund will be managed by Andrew Wellington, Chief Investment Officer of Lyrical Asset Management. The manager ran a hedge fund for a while, managed institutional midcap value money for Neuberger and was a founding member of Pzena Investment Management. The minimum investment is $10,000, reduced to $1,000 for IRAs. The expense ratio is 1.45%.

Market Vectors High-Yield/Treasury Bond ETF

Market Vectors High-Yield/Treasury Bond ETF will track an index that invests in global high yield bonds and shorts U.S. Treasuries in order “to hedge interest rate sensitivity.” Michael Mazier and Francis Rodilosso of Van Eck will manage the fund. Expense not yet set.

MCM All-Cap Growth Fund

MCM All-Cap Growth Fund (MCAEX) will seek capital appreciation by investing in 25-50 smaller cap US growth stocks. The fund will be managed by Rich Jones and Jonn Wullschleger, both of Mitchell Capital Management. Their separate account composite, for accounts managed in this style, modestly outperformed the Russell 3000 Growth Index pretty consistently. The minimum initial investment is $2500. Expenses are capped at 1.0%.

PIMCO Emerging Markets Full Spectrum Bond Fund

PIMCO Emerging Markets Full Spectrum Bond Fund will pursue maximum total return, consistent with prudent investment management. The plan is to invest in “a broad range of emerging market fixed income asset classes, such as external debt obligations of sovereign, quasi-sovereign, and corporate entities; currencies, and local currency-denominated obligations of sovereigns, quasi-sovereigns, and corporate issuers.” The managers will actively manage both the asset allocation and security selection. The benchmark asset allocation is 50% JPMorgan Global Bond Index Emerging Markets- Global Diversified, 25% JPMorgan Emerging Markets Bond Index Global and 25% JPMorgan Corporate Emerging Market Bond Index Diversified. They can implement their allocation plan directly by buying securities or indirectly by investing in funds and ETFs. The manager has not yet been named. There will be a $1000 investment minimum for the no-load “D” shares. Expenses have not yet been set.

Shelton Green Alpha Fund

Shelton Green Alpha Fund will seek a high level of long-term capital appreciation by investing in stocks “in the green economy.” The prospectus is bereft of potentially useful details, such as what they’ll charge and who’ll manage the fund. We do know that it’s a no-load fund, that the minimum investment is $1000, and that “green” funds have largely been a disaster for both sponsor and investor. I wish them well.

Scout Unconstrained Bond Fund (SUBFX), November 2012

By David Snowball

This fund is now the Carillon Reams Unconstrained Bond Fund.

Objective and Strategy

The fund seeks to maximize total return consistent with the preservation of capital. The fund can invest in almost any sort of fixed-income instrument, though as a practical matter their international investments are quite limited. The fund’s maturity will not normally exceed eight years, but they maintain the option of going longer in some markets and even achieving a negative duration (effectively shorting the bond market) in others. They can use derivative instruments, such as options, futures contracts (including interest rate futures contracts), currency forwards or swap agreements (including credit default swaps) to enhance returns, increase liquidity and/or gain exposure to particular areas of the market. Because they sell a security when it approaches fair market value, this may be a relatively high turnover fund.

Adviser

Scout Investments, Inc. Scout is a wholly-owned subsidiary of UMB Financial, both are located in Kansas City, Missouri. Scout advises the eleven Scout funds. As of June 30, 2012, assets under the management of the Advisor were approximately $22.37 billion. Scout’s four fixed-income funds are managed by its Reams Asset Management division, including Low-Duration Bond (SCLDX), Core Bond (SCCYX, four stars) and Core Plus Bond (SCPZX, rated five star/Silver by Morningstar, as of October 2012).

Manager

Mark M. Egan is the lead portfolio manager of the Fixed Income Funds. Thomas M. Fink, Todd C. Thompson and Stephen T. Vincent are co-portfolio managers of the Fixed Income Funds. Mr. Egan joined the Advisor on November 30, 2010. He oversees the entire fixed income division of the Advisor, Reams Asset Management, and retains oversight over all investment decisions. Mr. Egan was a portfolio manager of Reams Asset Management Company, LLC (“Reams”) from April 1994 until November 2010 and was a portfolio manager of Reams Asset Management Company, Inc. from June 1990 until March 1994. Mr. Egan was a portfolio manager of National Investment Services until May 1990.

Management’s Stake in the Fund

Messrs. Egan, Fink and Thompson have each invested over $1,000,000 in the fund. Mr. Vincent has between $10,000 – 50,000 in it.

Opening date

September 29, 2011.

Minimum investment

$1,000 for regular accounts, reduced to $100 for IRAs or accounts with AIPs.

Expense ratio

0.99%, after waivers, on assets of $45 million (as of October 2012).

Comments

There are 6850 funds of all kinds in Morningstar’s database. Of those, precisely 117 have a better one-year record than Scout Unconstrained Bond.

There are 1134 fixed-income funds in Morningstar’s database. Of those, precisely five have a better one-year record.

98.3% of all funds trail Scout Unconstrained between November 1, 2011 and October 30, 2012. 99.6% of all fixed-income funds trailed Scout for the same period.

Surprised? You might not be if you knew the record of the management team that runs Scout Unconstrained. Mark Egan and his team from Reams Asset Management have been investing money using this strategy since 1998. Their audited performance for the private accounts (about $231 million worth of them) is stunningly better than the records of the most renowned bond fund managers. The funds below represent the work of the three best-known bond managers (Jeff Gundlach at DoubleLine, Bill Gross at PIMCO, Dan Fuss at Loomis) plus the performance of the Gold-rated funds in Morningstar’s two most-flexible categories: multi-sector and world.

	1 Yr.	3 Yrs.	5 Yrs.	10 Yrs.
Unconstrained Composite	33.98%	20.78	17.45	15.67
SUBFX	25.37	–	–	–
DoubleLine Core Fixed Income	8.62	–	–	–
Loomis Sayles Bond	14.25	10.83	7.08	10.41
Loomis Sayles Strategic Income	14.02	10.63	6.89	11.14
PIMCO Total Return	9.08	11.51	8.92	6.95
Templeton Global Bond	12.92	8.03	9.47	10.95
ML 3 Month LIBOR	0.48	0.37	1.44	2.26

Annualized Performance Ending September 30, 2012

You’ll notice that the performance of Scout Unconstrained does not equal the performance of the Unconstrained Composite. The difference is that the team bought, in the private accounts, deeply distressed securities in the 2008 panic and they’re now harvesting the rewards of those purchases. Since the fund didn’t exist, its investors don’t have the benefit of that exposure. Clark Holland, a Portfolio Analyst on the Fund, reports that, “We strive to invest the separate accounts and the mutual fund as closely as possible so returns should be similar going forward.”

Just because I’m a cautious person, I also screened all bond funds against the trailing record of the Unconstrained Bond composite, looking for close competitors. There were none.

But I’m not sure why. The team’s strategy is deceptively simple. Find where the best values are, then buy them. The Reams website posits this process:

STEP 1: Determine whether the bond market is cheap or expensive by comparing the current real interest rate to historical rates.

STEP 2: Focus on sectors offering relative value and select securities offering the highest risk‐adjusted return.

STEP 3: Continually measure and control exposure to security‐ and portfolio‐level risks.

It looks like the fund benefits from the combination of two factors: boldness and caution.

It’s clear that the managers have sufficient confidence in their judgment to act when other hesitate. Their 2012 Annual Report cites one such instance:

A contribution to performance in the asset-backed securities (ABS) sector can be traced to our second lien or home equity holdings, which strongly outperformed. We purchased these securities at an extreme discount after the 2008-2009 financial crisis, when defaults on home equity loans were high. Since then, default rates declined, the perceived risk of owning these securities lessened, and the prices of the securities have risen sharply.

As you comb through the fund’s reports, you find discussions of “airline enhanced equipment trust certificates” and the successful exploitation of mispricing in the derivatives market:

High-yield index swaps (CDX) such as those we own, which represent groups of credit default swaps (CDS), usually are priced similarly to high-yield cash bonds. Due to somewhat technical reasons, a price gap opened, in the second quarter of this year, between the price of high-yield CDX index swaps and high-yield cash bonds .We took advantage of the price gap to buy the CDX index swap at an attractive price and captured a nice return when pricing trended back toward a more normal level.

One simple and bold decision was to have zero long exposure to Treasuries; their peers average 35%. As with RiverPark Short Term High Yield, the fact that their strategy (separate accounts plus the fund) has attracted a relatively small amount of investment, they’re able to drive performance with a series of relatively small, profitable trades that larger funds might need to skip over.

At the same time, you get a sense of intense risk-consciousness. Cautious about rising interest rates, the managers expect to maintain a shorter average duration as they look for potential investments. In his October 3, 2012 letter to investors, Mr. Egan lays out his sense of how the market is evolving and how his team will respond:

What to do? Recognize the reality of a challenging environment, focus on your realistic goals as an investor, and be ready to seize opportunities as they arise. A well-known investor recently opined as to the death of equity as an asset class. Our take is the death of static risk allocations, or even what constitutes risk, along with buy and hold investing. The successful investor will be aware of the challenges we face as a society, understand the efficacy or lack of it in the various (mostly political) solutions prescribed, and allow volatility, and the inevitable mispricing that will result, to be your guide. Flexibility and nimbleness will be required. For our part, we have positioned accounts in a cautious, conservative stance as the cost of doing so has rapidly declined. We may be early and we may forgo some modest gains in risk assets, but it is both appropriate and in keeping with the style that has generated returns well in excess of our peers over most time periods.

Bottom Line

You need to approach any “too good to be true” investment with care and diligence. The track record behind SUBFX, which is splendid and carefully documented, was earned in a different sort of investment vehicle. As assets grow, the fund’s opportunity set will change and, possibly, narrow. That said, the managers have successfully invested substantial sums via this strategy for nearly 15 years; the fact that they’ve placed millions of their own dollars at risk represents a very serious endorsement.

Fund website

Scout Unconstrained Bond. Mr. Egan also wrote a very good white paper entitled “Fixed Income: The Search for Total Returns in Volatile Markets” (March 2012). If you’re intrigued by the fund, you’ll get a better sense of the managers’ approach. Even if you’re not, you might well benefit from their discussion of “the growing risks of not taking risks.”

Fact Sheet

Stewart Capital Mid Cap Fund (SCMFX), November 2012

By David Snowball

This fund has been liquidated.

Objective and Strategy

Stewart Capital Mid Cap Fund seeks long-term capital appreciation. It invests, primarily, in domestic midcap stocks. While it is technically a “diversified” fund, the managers warn that they prefer to invest in “a relatively small number of intensively researched companies.” They operationalize “relatively small” as 30-60. They target firms that don’t need “large amounts of leverage to execute their business plan” and firms with sustainable business advantages (favorable demographics and long-term trends, high barriers to entry, good management teams, and high returns on invested capital).

Adviser

Stewart Capital Advisors, LLC, was founded in August 2005. It is a wholly-owned subsidiary of S&T Bank, headquartered in Indiana, PA. As of December 31, 2011, Stewart had $965 million in assets under management.

Managers

Matthew A. Di Filippo, Charles G. Frank, Jonathan V. Pavlik, Malcolm E. Polley, Helena Rados-Derr and Nicholas Westric. Mr. Di Filippo is the senior manager and the adviser’s investment strategist. Mr. Polley is president and CIO. His investing career started on Black Monday, 1987 and includes 25 years of primarily-midcap investing. Except for Ms. Rados-Derr and Mr. Westric, the managers have all been with the fund since inception. Each of the managers also handles something like 100-300 private accounts.

Management’s Stake in the Fund

Modest. Three of the managers have invested between $10,001-50,000 in the fund: Polley, Di Filippo and Pavlik. The others have invested under $10,000. I expressed my concern about such modest commitments to President Polley. He writes:

I could require that staff invest solely in the fund, but realize that a portfolio that is solely mid-cap oriented for some folks does not meet their risk parameters. Also, I want staff to invest in the fund on its merits. That said, I have exactly two investments: S&T Bank stock and the Stewart Capital Mid Cap Fund. I also have two children in college and have been using some of my investment in that fund to pay for that expense. So, I believe I put my money where my mouth is.

Opening date

December 29, 2006. The fund converted to no-load on April 1, 2012.

Minimum investment

$1,000 or $100 for accounts with an automatic investment plan.

Expense ratio

1.50%, after waivers, on assets of $37.0 million.

Comments

I wandered by the Stewart Capital booth at Morningstar Investment Conference in June, picked up the fund’s factsheet and reports, and then stood there for a long time. Have you ever had one of those “how on earth did I manage to miss this?” moments? As I looked at the fund’s record, that’s precisely what went through my mind: small, no-load, independent fund, great returns, low risk, low minimum investments. Heck, they’re even in Steeler Country. How on earth did I manage to miss this?

Part of the answer is that Stewart was not always a no-load fund, so they weren’t traditionally in my coverage universe, and their marketing efforts are very low-key.

There’s a lot to like here. The two reliable fund rating services, Morningstar and Lipper, agree that SCMFX is at the top of the midcap pack in both risk management and returns. Here’s the Morningstar snapshot:

	Returns	Risk	Rating
3-year	High	Below Average	Five Stars
5-year	High	Below Average	Five Stars
Overall	High	Below Average	Five Stars

(Morningstar ratings, as of 10/30/12)

Morningstar’s estimate of tax-adjusted returns places Stewart in the top 1% of mid-cap funds over the past five years.

Lipper supports a similar conclusion:

	Total Return	Consistent Return	Preservation	Tax Efficiency
3-year	5	5	5	4
5-year	5	5	5	5
Overall	5	5	5	5

(Lipper Leaders ratings, as of 10/30/12)

The fund has a striking pattern of performance over time. Normally good funds make their money either on the upside or the downside; that is, they consistently outperform in either rising or falling markets. Stewart seems to do both. It has outperformed its peer group in eight of eight down quarters in the past five years (2008 – Q3 2012) but in only four of 11 rising quarters. But it still wins in rising markets. In quarters when the market has been rising, SCMFX gains an average of 10.65% versus 10.58% for its peer group, reflecting the fact that its “up” quarters rarely trail the market by much and sometimes lead it by a lot.

When I asked the simple question, “which mid-cap funds have been as successful? And screened for folks who could match or better Stewart over the past one, three and five year periods, I could find only four funds in a universe of 300 midcaps. Of those, only one fund, the $1.6 billion Nicholas Fund (NICSX), was less volatile.

That’s a distinguished record in a notably volatile market: 10 of the past 23 quarters have seen double-digit gains (six) or losses (four) for midcap stocks.

The fund is distinguished by effective active management. They buy the stocks they expect to outperform, regardless of the broader market’s preferences. They target stocks where they anticipate a 15% annual rate of return and which are selling at a discount to fair-value of at least 15%. Their question seems to be, “would we want to own this whole company?” That leads them to buy businesses where the industry is favorably positioned (they mostly avoid financials, for example, because the industry only thrives when assets are growing and Stewart suspects that growth is going to be limited for years and years) and the individual firm has exceptional management. An analysis of the portfolio shows the result. They own high quality companies, ones which are growing much more quickly (whether measured by long-term earnings, cash flow, or book value) than their peers. And they are buying those companies at a good price; their high-quality portfolio is selling at a slight discount (in price/earnings, price/sales, price/cash flow) to their peers.

Bottom Line

This is arguably one of the top two midcap funds on the market, based on its ability to perform in volatile rising and falling markets. Their strategy seems disciplined, sensible and repeatable. Management has an entirely-admirable urge “to guard against … making foolish decisions” based on any desire to buy what’s popular at the moment. They deserve a spot on the due diligence list for anyone looking to add actively-managed, risk-conscious equity exposure.

Fund website

Stewart Capital

Fact Sheet

November 2012, Funds in Registration

By David Snowball

Advisory Research Value Income Fund

Advisory Research Value Income Fund will seek high current income and long term capital appreciation. Interesting plan: they intend to invest primarily in preferred securities, but retain the option of buying “other income producing securities including convertible securities, debt securities, common stocks, and securities of other investment companies.” No more than 20% of the portfolio will be non-U.S. This fund represents a conversion of two hedge funds (Advisory Research Value Income Fund, L.P. and Advisory Research Value Income Fund II, L.P.) into one mutual fund. The hedge fund returned an average of 4.7% per year from 2003 to 2011, vastly better than the 1.2% registered by its benchmark (Merrill Lynch US Preferred Fixed Rate Index). Brien M. O’Brien, James M. Langer and Bruce M. Zessar will manage the portfolio. The minimum initial investment is $2,500. The expense ratio is not yet set.

BBH Global Core Select

BBH Global Core Select will seek to provide investors with long-term growth of capital by investing in mid- and large-cap stocks around the world. They describe themselves as “buy and own” investors. They intend to invest mostly in developed markets, but can invest without limit in emerging markets as well. At least 40% of the portfolio will be non-US and they can hedge their currency exposure. Regina Lombardi and Timothy E. Hartch will manage the portfolio. BBH recently described Lombardi as part of their team of media and consumer analysts. Hartch comanages the excellent, recently closed BBH Core Select (BBTRX) fund. The minimum initial investment is $10,000. The expense ratio is not yet set.

BRC Large Cap Focus Equity Fund

BRC Large Cap Focus Equity Fund (Advisor Class Shares) wants to achieve long-term capital appreciation that will exceed the S&P 500 Index over a three- to five-year time horizon. They’ll invest in 30-35 large cap stocks. BRC stands for “Bounded Rationality Concepts.” These guys believe in behavioral economics and think that they can anticipate events like positive earnings surprises and upgrades. John R. Riddle will head the portfolio team. The three managers previously worked for Duff & Phelps which, like Leuthold, is known for its investment research and analysis. The minimum initial investment is $2,500. The expense ratio, after waivers, will be 1.24%.

Drexel Hamilton Multi-Asset Real Return Fund

Drexel Hamilton Multi-Asset Real Return Fund will seek (duh) real return which they define as “total return that exceeds U.S. inflation over a full [five-year] inflation cycle.” They plan to invest, mostly, in other Drexel Hamilton funds, in TIPs and in commodity-linked ETFs and ETNs. The other two Drexel funds in which it will invest have been around less than a year. Andrew Bang, a West Point grad and the firm’s founder, is the portfolio manager. Before founding Drexel, he was a Senior Vice President at Shinhan Investment America, a Vice President at AIG Global Investments, and a Portfolio Manager for GE Asset Management (GEAM). In that latter role he managed $2.5 billion or so. The minimum initial investment is $10,000. The expense ratio is 1.81% after waivers.

First Trust High Yield Long/Short ETF

First Trust High Yield Long/Short ETF will be an actively-managed ETF which will invest most of its portfolio (long and short) in high yield U.S. and non-U.S. corporate debt obligations, bank loans and convertible bonds. It may invest in “special situations” including defaulted securities and common stocks; companies whose financial condition is troubled or uncertain and that may be involved in bankruptcy proceedings, reorganizations or financial restructurings. Finally, the manager expects routinely to short U.S. Treasuries and some investment grade U.S. corporate debt; the fund “intends to use the proceeds from the Fund’s short positions to purchase high yield debt securities, thereby creating a form of financial leverage.” William Housey, Scott D. Fries, Peter Fasone, Todd Larson and Eric Maisel will manage the fund. All of them seem to have extensive high yield experience at other firms (Morgan Stanley/Van Kampen, BNP Paribas, ABN AMBR)). Expenses are not yet set.

First Trust Global Tactical Asset Allocation and Income Fund

First Trust Global Tactical Asset Allocation and Income Fund will be an actively-managed ETF that “seek[s] total return and provide income [and] a relatively stable risk profile.” It will invest in other ETFs, plus some ETNs and sovereign debt. They’ll also try to sell calls on a portion of the portfolio to supplement their yield. The description of the fund’s underlying asset allocation strategy isn’t terribly informative; they’ll have a neutral allocation (which isn’t spelled out) and will move from it as conditions call for. John Gambla and Rob A. Guttschow will manage the fund. Up until 2011, they managed five closed-end funds for Nuveen: Dow 30 Premium and Dividend Income (DPD), Dow 30 Enhanced Premium & Income (NYSE: DPO), NASDAQ Premium Income & Growth (QQQX), Nuveen Core Equity Alpha Fund (JCE) and Nuveen Tax-Advantaged Dividend Growth Fund (JTD). Expenses not yet set.

Hotchkis & Wiley Global Value Fund

Hotchkis & Wiley Global Value Fund seeks capital appreciation by investing, primarily, in stocks of companies located in developed markets. At least 40% will be non-US and up to 20% might be in emerging markets. They plan a bottom-up, fundamentals-driven strategy. Scott McBride and Judd Peters will manage the fund. They have managed private accounts using this strategy since 2011 but the firm hasn’t released performance information yet. Their public record is mixed: they’re on the management teams for two sad sack domestic funds, Diversified Value (HWCAX) and Large Cap Value (HWLAX). Since joining the teams, the funds have gone from dreadful to mediocre, so that’s sort of an endorsement. The minimum investment is $2500. Expenses are not yet set. There is a 5.75% front-load but H&W funds are generally available no-load at Schwab.

Huber Capital Diversified Large Cap Value Fund

Huber Capital Diversified Large Cap Value Fund seeks to achieve current income and capital appreciation by investing in 40-80 large caps that trade “at a significant discount to the present value of future cash flows.” The fund is benchmarked against the Russell 1000 Value, whose smallest firm has a $230 million market cap, but the managers expect to invest mostly in U.S. stocks above $5 billion. It may invest up to 20% in ADRs. Joseph Huber, who also manages the five-star Huber Small Cap Value (HUSIX) and Huber Equity Income (HULIX) funds, will manage the portfolio. The minimum initial investment is $5000, reduced to $2500 for IRAs. The opening expense ratio will be 1.25%.

Janus Diversified Alternatives Fund

Janus Diversified Alternatives Fund will seek absolute return with low correlation to stocks and bonds. Their description of investment strategies is mostly self-important babble about “risk premia opportunities.” It looks like they use a risk-parity model to set their neutral asset allocation across equity, fixed income, commodity, and currency asset classes. That is, they adjust allocations so that the risk generated by stocks is the same as that generated by bonds or commodities. They then look for the sources of the aforementioned “risk premia opportunities,” which is to say, mis-priced securities. They can invest both long and short. They can invest directly or through mutual funds, ETFs or ETNs. Andrew B. Weisman and John S. Fujiwara will manage the fund. Both are hedge fund guys who joined Janus in 2012. “S” shares are available no-load and NTF. The minimum initial investment is $2500. The expense ratio is not yet set.

Kellner Event Fund

Kellner Event Fund seeks to achieve positive risk-adjusted returns independent of the returns generated by the overall equity markets. The plan is to invest, long and short, “using various strategies” in order to “seek to profit from securities experiencing catalyst driven change.” Such events might include mergers, bankruptcies, financial or operational stress, restructurings, asset sales, recapitalizations, spin-offs, litigation, regulatory and legislative changes “as well as other types of events.” It can invest in pretty much any asset class. George A. Kellner, the adviser’s founder & Chief Executive Officer, will lead the management team. The public record for the team is awfully thin. They launched a merger-arbitrage fund in July 2012 and it’s been pretty average. Several of the managers have experience with event-driven hedge funds, but of course there’s no record available. The minimum initial investment is $2500, reduced to $2000 for various tax-advantaged plans and $100 for accounts set up with an AIP. The opening expense ratio will be 2.75% (yikes) in addition to a 2% redemption fee.

Managers AMG Chicago Equity Partners Balanced Fund

Managers AMG Chicago Equity Partners Balanced Fund, yet another convert from the world of loaded funds, will pursue “a high total investment return, consistent with the preservation of capital and prudent economic risk.” The fund will ordinarily invest 50-65% in stocks and the rest in bonds and cash. It will invest mostly in mid- to large-cap stocks, selected on the basis of “momentum, value, and quality factors.” The predecessor fund, the same except for a sales load, has been quite consistently above-average. David C. Coughenour of CEP leads the management team. The minimum initial investment is $2,000. The expense ratio, after waiver, is 1.10%. The “service class,” sold through financial intermediaries, is 0.25% cheaper.

Oakseed Opportunity Fund

Oakseed Opportunity Fund will seek long term capital appreciation by investing, mostly, in the stocks of high quality US companies. They do have the right to invest overseas and they may also invest up to 10% short. Greg L. Jackson and John H. Park will manage the fund. These guys managed or co-managed some “A” tier funds (Oakmark Global, Acorn, Acorn Select and Yacktman) around the turn of the century. Both worked at Blum Capital, a private equity firm, from about 2004-2012. The minimum initial investment is $2500, reduced to $1000 for various tax-advantaged plans and $100 for accounts set up with an AIP. The opening expense ratio will be 1.4% in addition to a 2% redemption fee for shares held fewer than 90 days.

Pacific Financial Alternative Strategies, Flexible Growth & Income, Balanced, Foundational Asset Allocation, Faith & Values Based Moderate, Conservative and Aggressive Funds

Pacific Financial Alternative Strategies, Flexible Growth & Income, Balanced, Foundational Asset Allocation, Faith & Values Based Moderate, Conservative and Aggressive Funds. You’re welcome to read about them if you’d like, but I’m not going to spend time on them. Here’s the story: Pacific Financial’s three-person management team already runs five funds with diverse focuses. The “investor” class for every one of those funds is one-star (as of 10/26/2012). They’re now proposing to add seven more funds, requiring yet more expertise that they have not demonstrated that they possess. The expense ratios aren’t yet set. The minimum purchase is $5000.

Riverbridge Growth Fund

Riverbridge Growth Fund will pursue to seek long term capital appreciation by investing in small- to mid-cap US stocks (and some ADRs). The managers intend to focus on “companies that it views as building their earnings power and building their intrinsic … values over long periods of time. The advisor uses a bottom-up approach that seeks to identify high quality growth companies that demonstrate the ability to sustain strong secular earnings growth, regardless of overall economic conditions.” Mark A. Thompson, Rick D. Moulton and Dana L. Feick will manage the fund. Over the last decade, the composite performance of the private accounts using this strategy has been pretty good: up 8.2% per year versus 6.1% for the Russell 3000 over the same period. The minimum initial investment is $2,500. The expense ratio, which will include a waiver, is not yet set. There’s a 1% redemption fee on shares held fewer than 90 days.

Riverbridge Eco Leaders Fund

Riverbridge Eco Leaders Fund will pursue to seek long term capital appreciation by investing in “companies that use strategic technologies, materials and services to: (1) increase productivity by improving quality, efficiency and performance or (2) lower costs by reducing raw materials usage, scrap, and the amount and toxicity of waste as companies having a net positive impact on the environment.” The managers intend to focus on “companies that it views as building their earnings power and building their intrinsic … values over long periods of time. The advisor uses a bottom-up approach that seeks to identify high quality growth companies that demonstrate the ability to sustain strong secular earnings growth, regardless of overall economic conditions.” Mark A. Thompson, Rick D. Moulton and Dana L. Feick will manage the fund. Over the last decade, the composite performance of the private accounts using this strategy has been pretty good: up 7.5% per year versus 5.3% for the S&P500 over the same period. The minimum initial investment is $2,500. The expense ratio, which will include a waiver, is not yet set. There’s a 1% redemption fee on shares held fewer than 90 days.

Schwab Target 2045, 2050 and 2055 Funds

Schwab Target 2045, 2050 and 2055 Funds are all funds-of-Schwab-funds. It appears that they’re only available to “eligible investors,” which appears to translate as “institutions.” Not sure of why. Zifan Tang (cool name) manages them all. Expenses not yet set.

Stonebridge Small-Cap Growth Fund

Stonebridge Small-Cap Growth Fund appears in the SEC filings of October 5, 2012 as a new fund with an N-1A filing. It is, in reality, an old, expensive and underperforming institutional fund that is becoming a retail one. This is odd, since there already was a retail version. It claims to seek long-term growth of capital. “Short-term income is a secondary objective.” I’m not entirely sure what “short term income” is. In any case, they invest in domestic small cap stocks, those between $100 million and $3 billion. And they look for “companies with strong balance sheets, high/growing return on invested capital, positive free cash flow, and earnings growth in excess of 20%.” Up to 10% may be invested overseas. Richard C. Barrett and Matthew W. Markatos have managed it for about 30 years. The minimum initial investment is $2500. The opening expense ratio will be 1.97% and there’s a 2% redemption fee on shares held under 30 days.

Scharf Balanced Opportunity Fund

Scharf Balanced Opportunity Fund seeks long-term capital appreciation and income. They’ll invest 50-75% in global equities and the rest in global fixed income. Brian A. Krawez, president of Scharf, is the portfolio manager. Scharf manages a bunch of private accounts using this same strategy and they’ve done quite well over time. In the five years since Mr. Krawez has been around, the separate accounts outperformed a 60/40 benchmark by between 150 – 300 basis points per year. The minimum initial investment is $10,000. The expense ratio, after waiver, is 1.20%.

Sit Quality Income Fund

Sit Quality Income Fund will seek high current income and safety of principal. The fund invests at least 50% of its assets in U.S. government debt securities and the remainder in investment grade debt securities issued by corporations and municipalities, and mortgage and other asset backed securities. They’re targeting an average effective duration for the portfolio of approximately 0 to 2 years. Michael C. Brilley, Bryce A. Doty, Mark H. Book, and Chris M. Rasmussen constitute the management team and also manage the five-star Sit US Government Securities fund (SNGVX). The minimum initial investment is $5,000, reduced to $2000 for IRAs. The expense ratio, after waiver, is 0.90%.

Systematic Mid Cap Value Fund

Systematic Mid Cap Value Fund (SYAMX), which is being converted from a front-loaded fund to a no-load one, will pursue long-term capital appreciation by investing in 60-80 mid-cap stocks. The manager “[s]eeks out value companies with a confirmed catalyst for sustained fundamental improvement that should eventually lead to either revised earnings estimates or earnings surprises in the future.” Despite an uninspired track record, the earlier version of the fund did accumulate $300 million in assets. Ron Mushock and D. Kevin McCreesh have managed the fund since launch. The minimum initial investment is $2,000. The expense ratio, after a generous one basis-point waiver, is 1.13%. The “service class,” sold through financial intermediaries, is 0.25% cheaper.

WisdomTree Global Corporate Bond Fund

WisdomTree Global Corporate Bond Fund will be an actively-managed ETF that will pursue a high level of total return consisting of both income and capital appreciation. They plan to invest in debt issues by public, private, and state-owned or sponsored corporations. They’ll limit emerging market debt to 25% of the portfolio, they can invest 25% in derivatives and expect to hedge their currency exposure. It looks as if there will be four managers, but their names have not been published and the expenses not yet set.

T. Rowe Price Real Assets (PRAFX), October 2012

By David Snowball

Objective and Strategy

The fund tries to protect investors against the effects of inflation by investing in stocks which give you direct or indirect exposure to “real assets.” Real assets include “any assets that have physical properties.” Their understandably vague investment parameters include “energy and natural resources, real estate, basic materials, equipment, utilities and infrastructure, and commodities.” A stock is eligible for inclusion in the fund so long as at least 50% of company revenues or assets are linked to real assets. The portfolio is global and sprawling.

Adviser

T. Rowe Price. Price was founded in 1937 by Thomas Rowe Price, widely acknowledged as “the father of growth investing.” The firm now serves retail and institutional clients through more than 450 separate and commingled institutional accounts and more than 90 stock, bond, and money market funds. As of December 31, 2011, the Firm managed approximately $489 billion for more than 11 million individual and institutional investor accounts.

Manager

Wyatt Lee handles day-to-day management of the fund and chairs the fund’s Investment Advisory Committee. The IAC is comprised of other Price managers whose expertise and experience might be relevant to this portfolio. Mr. Lee joined Price in 1999. Before joining this fund he “assisted other T. Rowe Price portfolio managers in managing and executing the Firm’s asset allocation strategies.”

Management’s Stake in the Fund

As of December 31, 2011, Mr. Lee has under $10,000 invested in the fund but over $1 million invested in Price funds as a whole. None of the fund’s eight trustees had chosen to invest in it.

Inception

From July 28, 2010 to May 1, 2011, PRAFX was managed by Edmund M. Notzon and available only for use in other T. Rowe Price mutual funds, mostly the Retirement Date series. It became available to the public and Mr. Lee became the manager on May 1, 2011.

Minimum investment

$2,500 for regular accounts, $1000 for IRAs.

Expense ratio

0.93% on assets of $7 billion, as of July 2023.

Comments

PRAFX was created to respond to a compelling problem. The problem was the return of inflation and, in particular, the return of inflation driven by commodity prices. Three things are true about inflation:

It’s tremendously corrosive.
It might rise substantially.
Neither stocks nor bonds cope well with rising inflation.

While inflation is pretty benign for now (in 2011 it was 3.2%), In the ten year period beginning in 1973 (and encompassing the two great oil price shocks), the annual rate of inflation was 8.75%. Over that decade, the S&P500 lost money in four years and returned 6.7% annually. In “real” terms, that is, factoring in the effects of inflation, your investment lost 18% of its buying power over the decade.

Price, which consistently does some of the industry’s best and most forward-thinking work on asset classes and asset allocation, began several decades ago to prepare its shareholders’ portfolios for the challenge of rising inflation. Their first venture in this direction was T. Rowe Price New Era (PRNEX), designed to cope with a new era of rising natural resource prices. The fund was launched in 1969, ahead of the inflation that dogged the 70s, and it performed excellently. Its 1973-1882 returns were about 50% higher than those produced by a globally diversified stock portfolio. As of September 2012, about 60% of its portfolio is linked to energy stocks and the remainder to other hard commodities.

In the course of designing and refining their asset allocation funds (the Spectrum, Personal Strategy and Retirement date funds), Price’s strategists concluded that they needed to build in inflation buffers. They tested a series of asset classes, alone and in combination. They concluded that some reputed inflation hedges worked poorly and a handful worked well, but differently from one another.

TIPs had low volatility, reacted somewhat slowly to rising inflation and had limited upside.
Commodities were much more volatile, reacted very quickly to inflation (indeed, likely drove the inflation) and performed well.
Equities were also volatile, reacted a bit more slowly to inflation than did commodities but performed better than commodities over longer time periods
Futures contracts and other derivatives sometimes worked well, but there was concern about their reliability. Small changes in the futures curve could trigger losses in the contracts. The returns on the collateral (usually government bonds) used with the contracts is very low and Price was concerned about the implications of the “financialization” of the derivatives market.

Since the purpose of the inflation funds was to provide a specific hedge inside Price’s asset allocation funds, they decided that they shouldn’t try an “one size fits all” approach that included both TIPs and equities. In consequence, they launched two separate funds for their managers’ use: Real Assets and Inflation-Focused Bond (no symbol). Both funds were originally available only for use in other Price funds, Inflation-Focused Bond (as distinct from the public Inflation-Protected Bond PRIPX) remains available only to Price managers.

How might you use PRAFX? A lot depends on your expectations for inflation. PRAFX is a global stock fund whose portfolio has two huge sector biases: 38% of the portfolio is invested in real estate and 35% in basic materials stocks. In the “normal” world stock fund, those numbers would be 2% and 5%, respectively. Another 16% is in energy stocks, twice the group norm. The relative performance of that portfolio varies according to your inflation assumption. The manager writes that “real assets stocks typically lag other equities during periods of low or falling inflation.” In periods of moderate inflation, “it’s a crap shoot.” He suggested that at 2-3% inflation, a firm’s underlying fundamentals would have a greater effect on its stock price than would inflation sensitivity. But if inflation tops 5%, if the rate is rising and, especially, if the rise was unexpected, the portfolio should perform markedly better than other equity portfolios.

Price’s own asset allocation decisions might give you some sense of how much exposure to PRAFX might be sensible.

	%age of the portfolio in PRAFX, 9/2012
Retirement 2055 (TRRNX)	3.5%
Price Personal Strategy Growth (TRSGX)	3.5
T. Rowe Price Spectrum Growth (PRSGX)	3.4
Retirement 2020 (TRRBX)	2.8
Retirement Income (TRRIX)	1.5

If you have a portfolio of $50,000, the minimum investment in PRAFX would be more (5%) than Price currently devotes in any of its funds.

Mr. Lee is a bright and articulate guy. He has a lot of experience in asset allocation products. Price trusts him enough to build his work into all of their asset allocation funds. And he’s supported by the same analyst pool that all of the Price’s managers draw from. That said, he doesn’t have a public record, he suspects that asset allocation changes (his strength) will drive returns less than will security selection, and his portfolio (315 stocks) is sprawling. All of those point toward “steady and solid” rather than “spectacular.” Which is to say, it’s a Price fund.

Bottom line

Mr. Lee believes that over longer periods, even without sustained bursts of inflation, the portfolio should have returns competitive with the world stock group as a whole. New Era’s performance seems to bear that out: it’s lagged over the past 5 – 10 years (which have been marked by low and falling inflation), it’s been a perfectly middling fund over the past 15 years but brilliant over the past 40. The fund’s expenses are reasonable and Price is always a responsible, cautious steward. For folks with larger portfolios or premonitions of spiking resource prices, a modest position here might be a sensible option.

Fund website

T. Rowe Price Real Assets

Disclosure

I own shares of PRAFX in my retirement portfolio. Along with Fidelity Strategic Real Return (FSRRX) inflation-sensitive funds comprise about 4% of my portfolio.

RiverPark Short Term High Yield Fund (RPHYX), July 2011, updated October 2012

By David Snowball

This profile has been updated. Find the new profile here.

Objective

The fund seeks high current income and capital appreciation consistent with the preservation of capital, and is looking for yields that are better than those available via traditional money market and short term bond funds. They invest primarily in high yield bonds with an effective maturity of less than three years but can also have money in short term debt, preferred stock, convertible bonds, and fixed- or floating-rate bank loans.

Adviser

RiverPark Advisors, LLC. Executives from Baron Asset Management, including president Morty Schaja, formed RiverPark in July 2009. RiverPark oversees the six RiverPark funds, though other firms manage three of them. RiverPark Capital Management runs separate accounts and partnerships. Collectively, they have $567 million in assets under management, as of July 31, 2012.

Manager

David Sherman, founder and owner of Cohanzick Management of Pleasantville (think Reader’s Digest), NY. Cohanzick manages separate accounts and partnerships. The firm has more than $320 million in assets under management. Since 1997, Cohanzick has managed accounts for a variety of clients using substantially the same process that they’ll use with this fund. He currently invests about $100 million in this style, between the fund and his separate accounts. Before founding Cohanzick, Mr. Sherman worked for Leucadia National Corporation and its subsidiaries. From 1992 – 1996, he oversaw Leucadia’s insurance companies’ investment portfolios. All told, he has over 23 years of experience investing in high yield and distressed securities. He’s assisted by three other investment professionals.

Management’s Stake in the Fund

Mr. Sherman has over $1 million invested in the fund. At the time of our first profile (September 2011), folks associated with RiverPark or Cohanzick had nearly $10 million in the fund. In addition, 75% of Cohanzick is owned by its employees.

Opening date

September 30, 2010.

Minimum investment

$1,000.

Expense ratio

1.25% after waivers on $197 million in assets (as of September 2012). The prospectus reports that the actual cost of operation is 2.65% with RiverPark underwriting everything above 1.25%. Mr. Schaja, RiverPark’s president, says that the fund is very near the break-even point.

There’s also a 2% redemption fee on shares held under one month.

Update Our original analysis, posted September, 2011, appears just below this update. Depending on your familiarity with the fund’s strategy and its relationship to other cash management vehicles, you might choose to read or review that analysis first.	October, 2012
2011 returns: 3.86%2012 returns, through 9/28: 3.34%
Asset growth: about $180 million in 12 months, from $20 million
People are starting to catch on to RPHYX’s discrete and substantial charms. Both the fund’s name and Morningstar’s assignment of it to the “high yield” peer group threw off some potential investors. To be clear: this is nota high yield bond fund in any sense that you’d recognize. As I explain below in our original commentary, this is a conservative cash-management fund which is able to exploit pieces of the high yield market to generate substantial returns with minimal volatility.In a September 2012 conference call with Observer readers, Mr. Sherman made it clear that it’s “absolutely possible” for the fund to lose money in the very short term, but for folks with an investment time horizon of more than three months, the risks are very small.Beyond that, it’s worth noting that: they expect to be able to return 300 – 400 basis points more than a money market fund – there are times when that might drop to 250 basis points for a short period, but 300-400 is, they believe, a sustainable advantage. And that’s almost exactly what they’re doing. Through 9/28/2012, Vanguard Prime Money Market (VMMXX) returned 3 basis points while RPHYX earned 334 basis points. they manage to minimize risk, not maximize return – if market conditions are sufficiently iffy, Mr. Sherman would rather move entirely to short-term Treasuries than expose his investors to permanent loss of capital. This also explains why Mr. Sherman strictly limits position sizes and refuses to buy securities which would expose his investors to the substantial short-term gyrations of the financial sector. they’ve done a pretty good job at risk minimization – neither the fund nor the strategy operated in 2008, so we don’t have a direct measure of their performance in a market freeze. Since the majority of the portfolio rolls to cash every 30 days or so, even there the impairment would be limited. The best stress test to date was the third quarter of 2011, one of the worst ever for the high-yield market. In 3Q2011, the high yield market dropped 600 basis points. RPHYX dropped 7 basis points. In its worst single month, August 2011, the fund dropped 24 basis points (that is, less than one-quarter of one percent) while the average high yield fund dropped 438 basis points. they do not anticipate significant competition for these assets – at least not from another mutual fund. There are three reasons. (1) The niche is too small to interest a major player like PIMCO (I actually asked PIMCO about this) or Fidelity. (2) The work is incredibly labor-intense. Over the past 12 months, the portfolio averaged something like $120 million in assets. Because their issues are redeemed so often, they had to make $442 million in purchases and involved the services of 46 brokers. (3) There’s a significant “first mover” advantage. As they’ve grown in size, they can now handle larger purchases which make them much more attractive as partners in deals. A year ago, they had to beat the bushes to find potential purchases; now, brokers seek them out. expenses are unlikely to move much – the caps are 1.0% (RPHIX) and 1.25% (RPHYX). As the fund grows, they move closer to the point where the waivers won’t be necessary but (1) it’s an expensive strategy to execute and (2) they’re likely to close the fund when it’s still small ($600M – $1B, depending on market conditions) which will limit their ability to capture and share huge efficiencies of scale. In any case, RiverPark intends to maintain the caps indefinitely. NAV volatility is more apparent than real – by any measure other than a money market, it’s a very steady NAV. Because the fund’s share price movement is typically no more than $0.01/share people notice changes that would be essentially invisible in a normal fund. Three sources of the movement are (1) monthly income distributions, which are responsible for the majority of all change, (2) rounding effects – they price to three decimal points, and changes of well below $0.01 often trigger a rounding up or down, and (3) bad pricing on late trades. Because their portfolio is “marked to market,” other people’s poor end-of-day trading can create pricing goofs that last until the market reopens the following morning. President Morty Schaja and the folks at RiverPark are working with accountants and such to see how “artificial” pricing errors can be eliminated. Bottom Line This continues to strike me as a compelling opportunity for conservative investors or those with short time horizons to earn returns well in excess of the rate of inflation with, so far as we can determine, minimal downside. I bought shares of RPHYX two weeks after publishing my original review of them in September 2011 and continue adding to that account.

Comments

The good folks at Cohanzick are looking to construct a profitable alternative to traditional money management funds. The case for seeking an alternative is compelling. Money market funds have negative real returns, and will continue to have them for years ahead. As of June 28 2011, Vanguard Prime Money Market Fund (VMMXX) has an annualized yield of 0.04%. Fidelity Money Market Fund (SPRXX) yields 0.01%. TIAA-CREF Money Market (TIRXX) yields 0.00%. If you had put $1 million in Vanguard a year ago, you’d have made $400 before taxes. You might be tempted to say “that’s better than nothing,” but it isn’t. The most recent estimate of year over year inflation (released by the Bureau of Labor Statistics, June 15 2011) is 3.6%, which means that your ultra-safe million dollar account lost $35,600 in purchasing power. The “rush to safety” has kept the yield on short term T-bills at (or, egads, below) zero. Unless the U.S. economy strengths enough to embolden the Fed to raise interest rates (likely by a quarter point at a time), those negative returns may last through the next presidential election.

That’s compounded by rising, largely undisclosed risks that those money market funds are taking. The problem for money market managers is that their expense ratios often exceed the available yield from their portfolios; that is, they’re charging more in fees than they can make for investors – at least when they rely on safe, predictable, boring investments. In consequence, money market managers are reaching (some say “groping”) for yield by buying unconventional debt. In 2007 they were buying weird asset-backed derivatives, which turned poisonous very quickly. In 2011 they’re buying the debt of European banks, banks which are often exposed to the risk of sovereign defaults from nations such as Portugal, Greece, Ireland and Spain. On whole, European banks outside of those four countries have over $2 trillion of exposure to their debt. James Grant observed in the June 3 2011 edition of Grant’s Interest Rate Observer, that the nation’s five largest money market funds (three Fidelity funds, Vanguard and BlackRock) hold an average of 41% of their assets in European debt securities.

Enter Cohanzick and the RiverPark Short Term High Yield fund. Cohanzick generally does not buy conventional short term, high yield bonds. They do something far more interesting. They buy several different types of orphaned securities; exceedingly short-term (think 30-90 day maturity) securities for which there are few other buyers.

One type of investment is redeemed debt, or called bonds. A firm or government might have issued a high yielding ten-year bond. Now, after seven years, they’d like to buy those bonds back in order to escape the high interest payments they’ve had to make. That’s “calling” the bond, but the issuer must wait 30 days between announcing the call and actually buying back the bonds. Let’s say you’re a mutual fund manager holding a million dollars worth of a called bond that’s been yielding 5%. You’ve got a decision to make: hold on to the bond for the next 30 days – during which time it will earn you a whoppin’ $4166 – or try to sell the bond fast so you have the $1 million to redeploy. The $4166 feels like chump change, so you’d like to sell but to whom?

In general, bond fund managers won’t buy such short-lived remnants and money market managers can’t buy them: these are still nominally “junk” and forbidden to them. According to RiverPark’s president, Morty Schaja, these are “orphaned credit opportunities with no logical or active buyers.” The buyers are a handful of hedge funds and this fund. If Cohanzick’s research convinces them that the entity making the call will be able to survive for another 30 days, they can afford to negotiate purchase of the bond, hold it for a month, redeem it, and buy another. The effect is that the fund has junk bond like yields (better than 4% currently) with negligible share price volatility.

Redeemed debt (which represents 33% of the June 2011 portfolio) is one of five sorts of investments typical of the fund. The others include

Corporate event driven (18% of the portfolio) purchases, the vast majority of which mature in under 60 days. This might be where an already-public corporate event will trigger an imminent call, but hasn’t yet. If, for example, one company is purchased by another, the acquired company’s bonds will all be called at the moment of the merger.
Strategic recapitalization (10% of the portfolio), which describes a situation in which there’s the announced intention to call, but the firm has not yet undertaken the legal formalities. By way of example, Virgin Media has repeatedly announced its intention to call certain bonds in August 2011. Buying before call means that the fund has to post the original maturities (7 years) despite knowing the bond will cash out in (say) 90 days. This means that the portfolio will show some intermediate duration bonds.
Cushion bonds (14%), a type of callable bond that sells at a premium because the issued coupon payments are above market interest rates.
Short term maturities (25%), fixed and floating rate debt that the manager believes are “money good.”

What are the arguments in favor of RPHYX?

It’s currently yielding 100-400 times more than a money market. While the disparity won’t always be that great, the manager believes that these sorts of assets might typically generate returns of 3.5 – 4.5% per year, which is exceedingly good.
It features low share price volatility. The NAV is $10.01 (as of 6/29/11). It’s never been high than $10.03 or lower than $9.97. Their five separately managed accounts have almost never shown a monthly decline in value. The key risk in high-yield investing is the ability of the issuer to make payments for, say, the next decade. Do you really want to bet on Eastman Kodak’s ability to survive to 2021? With these securities, Mr. Sherman just needs to be sure that they’ll survive to next month. If he’s not sure, he doesn’t bite. And the odds are in his favor. In the case of redeemed debt, for instance, there’s been only one bankruptcy among such firms since 1985 and even then the bondholders are secured creditors in the bankruptcy proceedings.
It offers protection against rising interest rates. Because most of the fund’s securities mature within 30-60 days, a rise in the Fed funds rate will have a negligible effect on the value of the portfolio.
It offers experienced, shareholder-friendly management. The Cohanzick folks are deeply invested in the fund. They run $100 million in this style currently and estimate that they could run up to $1 billion. Because they’re one of the few large purchasers, they’re “a logical first call for sellers. We … know how to negotiate purchase terms.” They’ve committed to closing both their separate accounts and the fund to new investors before they reach their capacity limit.

Bottom Line

This strikes me as a fascinating fund. It is, in the mutual fund world, utterly unique. It has competitive advantages (including “first mover” status) that later entrants won’t easily match. And it makes sense. That’s a rare and wonderful combination. Conservative investors – folks saving up for a house or girding for upcoming tuition payments – need to put this on their short list of best cash management options.

Financial disclosure

Several of us own shares in RPHYX, though the Observer has no financial stake in the fund or relationship with RiverPark. My investment in the fund, made after I read an awful lot and interviewed the manager, might well color my assessment. Caveat emptor.

Fund website

RiverPark Short Term High Yield

Fact Sheet

October 2012, Funds in Registration

By David Snowball

Armour Tactical Flex Fund

Armour Tactical Flex Fund will seek long-term gains by actively trading equity and income ETFs and ETNs. In a marvel of clarity, the managers reveal that they’ll be “utilizing quantitative metrics that are not limited to a focused investment philosophy, security type, asset class, or industry sector.” They’ll track and position the portfolio in response to “factors such as, corporate earnings, valuation metrics, debt, corporate news, leadership changes, technical indicators and micro or macro-economic influences . . . political, behavioral, weather changes, terrorism, fear and greed.” Their arsenal will include double inverse ETFs to target markets they believe will fall. The fund will be managed by Brett Rosenberger, CEO of ArmourWealth. The investment minimum is a blessedly high $50,000. 1.75% expense ratio after waivers.

Buffalo Dividend Focus Fund

Buffalo Dividend Focus Fund seeks “current income, with long-term growth of capital as a secondary objective.” They’ll invest in dividend-paying equity securities, including domestic common stocks, preferred stocks, rights, warrants and convertible securities. They’ll look, in particular, at firms with a history of raising their dividends. Direct foreign exposure via ADRs is limited to 20% of the portfolio. The fund will be managed by John Kornitzer and Scott Moore. Mr. Kornitzer also manages Buffalo Flexible Income (BUFBX) where he’s assembled a really first-rate record. The minimum initial investment will be $2500, reduced to $250 for various tax-advantaged accounts and $100 for accounts set up with an AIP. There will be a 0.97% expense ratio and a 2% redemption fee on shares held fewer than 60 days.

GL Macro Performance

GL Macro Performance will seek “seeks total return with less volatility than the broad equity or fixed income markets.” It will try to be your basic “global macro hedge fund sold as a mutual fund.” They can invest, long or short, in a bunch of asset classes based on macro-level developments. The managers will be Michael V. Tassone and Dan Thibeault, both of GL Capital Partners. Mr. Tassone does not seem to have a track record for investing other people’s money, but he does run a firm helping grad students manage their loans. Before attending grad school in the 80s, Mr. Tassone spent time at Goldman Sachs and the GE Private Equity group. $1000 investment minimum. The expense ratio is capped at 1.75%.

Legg Mason ClearBridge Select Fund

Legg Mason ClearBridge Select Fund is looking for long-term growth of capital by investing, mostly, in “a smaller number of” stocks. (“Smaller than what?” was not explained.) It promises bottom-up stock picking based on fundamental research. They note, in passing, that they can short stocks. The Board reserves the right to change both the funds objectives and strategies without shareholder approval. The manager will be Aram Green, who also manages ClearBridge’s small- and midcap-growth strategies. There will be six share classes, including five nominally no-load ones. The two retail classes (A and C) will have $1000 minimums, the retirement classes will have no minimum. Expenses are not yet set.

Market Vectors Emerging Markets Aggregate Bond ETF

Market Vectors Emerging Markets Aggregate Bond ETF will track an as-yet unspecified index and will charge an as-yet unspecified amount for its services. Michael F. Mazier and Francis G. Rodilosso of Van Eck will manage the fund.

Market Vectors Emerging Markets USD Aggregate Bond ETF

Market Vectors Emerging Markets USD Aggregate Bond ETF will track an another as-yet unspecified index and will charge an as-yet unspecified amount for its services. The difference, so far, is that this fund will invest in “U.S. dollar denominated debt securities issued by emerging markets issuers.” Michael F. Mazier and Francis G. Rodilosso of Van Eck will manage the fund.

RiverNorth/Oaktree High Income Fund

RiverNorth/Oaktree High Income Fund will pursue overall total return consisting of long-term capital appreciation and income. The managers will allocate the portfolio between three distinct strategies: Tactical Closed-End Fund, High Yield and Senior Loan. Patrick Galley and Stephen O’Neill of RiverNorth will allocate resources between strategies and will implement the Tactical Closed-End Fund strategy, apparently an income-sensitive variant of the strategy used in RiverNorth Core Opportunity (RNCOX, a five-star fund) and elsewhere. Desmund Shirazi and Sheldon Stone of Oaktree Capital Management will handle the Senior Loan and High-Yield Strategies, respectively. The Loan strategy will target higher-quality non-investment grade loans. Mr. Stone helped found Oaktree, established the high-yield group at TCW and managed a $1 billion fixed-income portfolio for Prudential. There will be a $1000 minimum on the investor class shares. The expense ratio has not yet been set.

SSgA Minimum Volatility ETFs

SSgA Minimum Volatility ETFs will both be actively-managed ETFs which attempt provide “competitive long-term returns while maintaining low long-term volatility” relative to the U.S. and global equity markets, respectively. There’s precious little detail on how they’ll accomplish this feat, except that it’ll involve computers and that their particular target is “a low level of absolute risk (as defined by standard deviation of returns).” They’ll both be managed by Mike Feehily and John Tucker of SSgA. Expenses not yet announced.

T. Rowe Price Ultra Short-Term Bond Fund

T. Rowe Price Ultra Short-Term Bond Fund will pursue “a high level of income consistent with minimal fluctuations in principal value and liquidity.” The plan is to invest in a “diversified portfolio of shorter-term investment-grade corporate and government securities, including mortgage-backed securities, money market securities and bank obligations.” The average maturity will be around 1.5 years. The fund will be managed by Joseph K. Lynagh, who joined Price in 1990 and manages or co-manages a slew of other very conservative bond funds (Prime Reserve, Reserve Investment, Tax-Exempt Money, California Tax-Free Income, State Tax-Free Income, Tax-Free Short-Intermediate Funds). The investment minimum will be $2500 for regular accounts and $1000 for various tax-advantaged ones. The expense ratio will be 0.80%, which is close to what Wells Fargo charges on an ultra-short fund with $1.2 billion in assets.

T. Rowe Price Tax-Free Ultra Short-Term Bond Fund

T. Rowe Price Tax-Free Ultra Short-Term Bond Fund will pursue “a high level of income consistent with minimal fluctuations in principal value and liquidity.” The plan is to invest in a “a diversified portfolio of shorter-term investment-grade municipal securities.” The average maturity will be around 1.5 years. The fund will be managed by Joseph K. Lynagh, who joined Price in 1990 and manages or co-manages a slew of other very conservative bond funds (Prime Reserve, Reserve Investment, Tax-Exempt Money, California Tax-Free Income, State Tax-Free Income, Tax-Free Short-Intermediate Funds). The investment minimum will be $2500 for regular accounts and $1000 for various tax-advantaged ones. The expense ratio will be 0.80%.

Northern Global Tactical Asset Allocation Fund (BBALX), September 2011, Updated September 2012

By David Snowball

Objective

The fund seeks a combination of growth and income. Northern’s Investment Policy Committee develops tactical asset allocation recommendations based on economic factors such as GDP and inflation; fixed-income market factors such as sovereign yields, credit spreads and currency trends; and stock market factors such as domestic and foreign earnings growth and valuations. The managers execute that allocation by investing in other Northern funds and outside ETFs. As of 6/30/2011, the fund holds 10 Northern funds and 3 ETFs.

Adviser

Northern Trust Investments. Northern’s parent was founded in 1889 and provides investment management, asset and fund administration, fiduciary and banking solutions for corporations, institutions and affluent individuals worldwide. As of June 30, 2011, Northern Trust Corporation had $97 billion in banking assets, $4.4 trillion in assets under custody and $680 billion in assets under management. The Northern funds account for about $37 billion in assets. When these folks say, “affluent individuals,” they really mean it. Access to Northern Institutional Funds is limited to retirement plans with at least $30 million in assets, corporations and similar institutions, and “personal financial services clients having at least $500 million in total assets at Northern Trust.” Yikes. There are 51 Northern funds, seven sub-advised by multiple institutional managers.

Managers

Peter Flood and Daniel Phillips. Mr. Flood has been managing the fund since April, 2008. He is the head of Northern’s Fixed Income Risk Management and Fixed Income Strategy teams and has been with Northern since 1979. Mr. Phillips joined Northern in 2005 and became co-manager in April, 2011. He’s one of Northern’s lead asset-allocation specialists.

Management’s Stake in the Fund

None, zero, zip. The research is pretty clear, that substantial manager ownership of a fund is associated with more prudent risk taking and modestly higher returns. I checked 15 Northern managers listed in the 2010 Statement of Additional Information. Not a single manager had a single dollar invested. For both practical and symbolic reasons, that strikes me as regrettable.

Opening date

Northern Institutional Balanced, this fund’s initial incarnation, launched on July 1, 1993. On April 1, 2008, this became an institutional fund of funds with a new name, manager and mission and offered four share classes. On August 1, 2011, all four share classes were combined into a single no-load retail fund but is otherwise identical to its institutional predecessor.

Minimum investment

$2500, reduced to $500 for IRAs and $250 for accounts with an automatic investing plan.

Expense ratio

0.68%, after waivers, on assets of $18 million. While there’s no guarantee that the waiver will be renewed next year, Peter Jacob, a vice president for Northern Trust Global Investments, says that the board has never failed to renew a requested waiver. Since the new fund inherited the original fund’s shareholders, Northern and the board concluded that they could not in good conscience impose a fee increase on those folks. That decision that benefits all investors in the fund. Update – 0.68%, after waivers, on assets of nearly $28 million (as of 12/31/2012.)

UpdateOur original analysis, posted September, 2011, appears just below this update. Depending on your familiarity with the research on behavioral finance, you might choose to read or review that analysis first.

September, 2012

2011 returns: -0.01%. Depending on which peer group you choose, that’s either a bit better (in the case of “moderate allocation” funds) or vastly better (in the case of “world allocation” funds). 2012 returns, through 8/29: 8.9%, top half of moderate allocation fund group and much better than world allocation funds.

Asset growth: about $25 million in twelve months, from $18 – $45 million.

This is a rare instance in which a close reading of a fund’s numbers are as likely to deceive as to inform. As our original commentary notes:The fund’s mandate changed in April 2008, from a traditional stock/bond hybrid to a far more eclectic, flexible portfolio. As a result, performance numbers prior to early 2008 are misleading.The fund’s Morningstar peer arguably should have changed as well (possibly to world allocation) but did not. As a result, relative performance numbers are suspect.The fund’s strategic allocation includes US and international stocks (including international small caps and emerging markets), US bonds (including high yield and TIPs), gold, natural resources stocks, global real estate and cash. Tactical allocation moves so far in 2012 include shifting 2% from investment grade to global real estate and 2% from investment grade to high-yield.Since its conversion, BBALX has had lower volatility by a variety of measures than either the world allocation or moderate allocation peer groups or than its closest counterpart, Vanguard’s $14 billion STAR (VGSTX) fund-of-funds. It has, at the same time, produced strong absolute returns. Here’s the comparison between $10,000 invested in BBALX at conversion versus the same amount on the same day in a number of benchmarks and first-rate balanced funds:

Northern GTAA	$12,050
PIMCO All-Asset “D” (PASDX)	12,950
Vanguard Balanced Index (VBINX)	12,400
Vanguard STAR (VGSTX)	12,050
T. Rowe Price Balanced (RPBAX)	11,950
Fidelity Global Balanced (FGBLX)	11,450
Dodge & Cox Balanced (DODBX)	11,300
Moderate Allocation peer group	11,300
World Allocation peer group	10,300
Leuthold Core (LCORX)	9,750

BBALX holds a lot more international exposure, both developed and developing, than its peers. Its record of strong returns and muted volatility in the face of instability in many non-U.S. markets is very impressive.

BBALX has developed in a very strong alternative to Vanguard STAR (VGSTX). If its greater exposure to hard assets and emerging markets pays off, it has the potential to be stronger still.

Comments

The case for this fund can be summarized easily. It was a perfectly respectable institutional balanced fund which has become dramatically better as a result of two sets of recent changes.

Northern Institutional Balanced invested conservatively and conventionally. It held about two-thirds in stocks (mostly mid- to large-sized US companies plus a few large foreign firms) and one-third in bonds (mostly investment grade domestic bonds). Northern’s ethos is very risk sensitive which makes a world of sense given their traditional client base: the exceedingly affluent. Those folks didn’t need Northern to make a ton of money for them (they already had that), they needed Northern to steward it carefully and not take silly risks. Even today, Northern trumpets “active risk management and well-defined buy-sell criteria” and celebrates their ability to provide clients with “peace of mind.” Northern continues to highlight “A conservative investment approach . . . strength and stability . . . disciplined, risk-managed investment . . . “

As a reflection of that, Balanced tended to capture only 65-85% of its benchmark’s gains in years when the market was rising but much less of the loss when the market was falling. In the long-term, the fund returned about 85% of its 65% stock – 35% bond benchmark’s gains but did so with low volatility.

That was perfectly respectable.

Since then, two sets of changes have made it dramatically better. In April 2008, the fund morphed from conservative balanced to a global tactical fund of funds. At a swoop, the fund underwent a series of useful changes.

The asset allocation became fluid, with an investment committee able to substantially shift asset class exposure as opportunities changed.

The basic asset allocation became more aggressive, with the addition of a high-yield bond fund and emerging markets equities.

The fund added exposure to alternative investments, including gold, commodities, global real estate and currencies.

Those changes resulted in a markedly stronger performer. In the three years since the change, the fund has handily outperformed both its Morningstar benchmark and its peer group. Its returns place it in the top 7% of balanced funds in the past three years (through 8/25/11). Morningstar has awarded it five stars for the past three years, even as the fund maintained its “low risk” rating. Over the same period, it’s been designated a Lipper Leader (5 out of 5 score) for Total Returns and Expenses, and 4 out of 5 for Consistency and Capital Preservation.

In the same period (04/01/2008 – 08/26/2011), it has outperformed its peer group and a host of first-rate balanced funds including Vanguard STAR (VGSTX), Vanguard Balanced Index (VBINX), Fidelity Global Balanced (FGBLX), Leuthold Core (LCORX), T. Rowe Price Balanced (RPBAX) and Dodge & Cox Balanced (DODBX).

In August 2011, the fund morphed again from an institutional fund to a retail one. The investment minimum dropped from $5,000,000 to as low as $250. The expense ratio, however, remained extremely low, thanks to an ongoing expense waiver from Northern. The average for other retail funds advertising themselves as “tactical asset” or “tactical allocation” funds is about 1.80%.

Bottom Line

Northern GTA offers an intriguing opportunity for conservative investors. This remains a cautious fund, but one which offers exposure to a diverse array of asset classes and a price unavailable in other retail offerings. It has used its newfound flexibility and low expenses to outperform some very distinguished competition. Folks looking for an interesting and affordable core fund owe it to themselves to add this one to their short-list.

Fund website

Northern Global Tactical Asset Allocation

Update – 3Q2011 Fact Sheet

Fund Profile, 2nd quarter, 2012

2013 Q3 Report

Aston/River Road Independent Value Fund (ARIVX), updated September 2012

By David Snowball

Update: This fund has been liquidated.

Objective and strategy

The fund seeks to provide long-term total return by investing in common and preferred stocks, convertibles and REITs. The manager attempts to invest in high quality, small- to mid-cap firms (those with market caps between $100 million and $5 billion). He thinks of himself as having an “absolute return” mandate, which means an exceptional degree of risk-consciousness. He’ll pursue the same style of investing as in his previous charges, but has more flexibility than before because this fund does not include the “small cap” name.

Adviser

Aston Asset Management, LP. It’s an interesting setup. As of June 30, 2012, Aston is the adviser to twenty-seven mutual funds with total net assets of approximately $10.5 billion and is a subsidiary of the Affiliated Managers Group. River Road Asset Management LLC subadvises six Aston funds; i.e., provides the management teams. River Road, founded in 2005, oversees $7 billion and is a subsidiary of the European insurance firm, Aviva, which manages $430 billion in assets. River Road also manages five separate account strategies, including the Independent Value strategy used here.

Manager

Eric Cinnamond. Mr. Cinnamond is a Vice President and Portfolio Manager of River Road’s independent value investment strategy. Mr. Cinnamond has 19 years of investment industry experience. Mr. Cinnamond managed the Intrepid Small Cap (ICMAX) fund from 2005-2010 and Intrepid’s small cap separate accounts from 1998-2010. He co-managed, with Nola Falcone, Evergreen Small Cap Equity Income from 1996-1998. In addition to this fund, he manages six smallish (collectively, about $50 million) separate accounts using the same strategy.

Management’s Stake in the Fund

As of October 2011, Mr. Cinnamond has between $100,000 and $500,000 invested in his fund. Two of Aston’s 10 trustees have invested in the fund. In general, a high degree of insider ownership – including trustee ownership – tends to predict strong performance. Given that River Road is a sub-advisor and Aston’s trustees oversee 27 funds each, I’m not predisposed to be terribly worried.

Opening date

December 30, 2010.

Minimum investment

$2,500 for regular accounts, $500 for various sorts of tax-advantaged products (IRAs, Coverdells, UTMAs).

Expense ratio

1.42%, after waivers, on $616 million in assets.

Update Our original analysis, posted February, 2011, appears just below this update. It describes the fund’s strategy, Mr. Cinnamond’s rationale for it and his track record over the past 16 years.	September, 2012
2011 returns: 7.8%, while his peers lost 4.5%, which placed ARIVX in the top 1% of comparable funds. 2012 returns, through 8/30: 5.3%, which places ARIVX in the bottom 13% of small value funds.
Asset growth: about $600 million in 18 months, from $16 million. The fund’s expense ratio did not change.
What are the very best small-value funds? Morningstar has designated three as the best of the best: their analysts assigned Gold designations to DFA US Small Value (DFSVX), Diamond Hill Small Cap (DHSCX) and Perkins Small Cap Value (JDSAX). For my money (literally: I own it), the answer has been Artisan Small Cap(ARTVX).And where can you find these unquestionably excellent funds? In the chart below (click to enlarge), you can find them where you usually find them. Well below Eric Cinnamond’s fund. That chart measures only the performance of his newest fund since launch, but if you added his previous funds’ performance you get the same picture over a longer time line. Good in rising markets, great in falling ones, far steadier than you might reasonably hope for. Why? His explanation is that he’s an “absolute return” investor. He buys only very good companies and only when they’re selling at very good prices. “Very good prices” does not mean either “less than last year” or “the best currently available.” Those are relative measures which, he says, make no sense to him. His insistence on buying only at the right price has two notable implications. He’s willing to hold cash when there are few compelling values. That’s often 20-40% of the portfolio and, as of mid-summer 2012, is over 50%. Folks who own fully invested small cap funds are betting that Mr. Cinnamond’s caution is misplaced. They have rarely won that bet. He’s willing to spend cash very aggressively when there are many compelling values. From late 2008 to the market bottom in March 2009, his separate accounts went from 40% cash to almost fully-invested. That led him to beat his peers by 20% in both the down market in 2008 and the up market in 2009. This does not mean that he looks for low risk investments per se. It does mean that he looks for investments where he is richly compensated for the risks he takes on behalf of his investors. His July 2012 shareholder letter notes that he sold some consumer-related holdings at a nice profit and invested in several energy holdings. The energy firms are exceptionally strong players offering exceptional value (natural gas costs $2.50 per mcf to produce, he’s buying reserves at $1.50 per mcf) in a volatile business, which may “increase the volatility of [our] equity holdings overall.” If the market as a whole becomes more volatile, “turnover in the portfolio may increase” as he repositions toward the most compelling values. The fund is apt to remain open for a relatively brief time. You really should use some of that time to learn more about this remarkable fund.

Comments

While some might see a three-month old fund, others see the third incarnation of a splendid 16 year old fund.

The fund’s first incarnation appeared in 1996, as the Evergreen Small Cap Equity Income fund. Mr. Cinnamond had been hired by First Union, Evergreen’s advisor, as an analyst and soon co-manager of their small cap separate account strategy and fund. The fund grew quickly, from $5 million in ’96 to $350 million in ’98. It earned a five-star designation from Morningstar and was twice recognized by Barron’s as a Top 100 mutual fund.

In 1998, Mr. Cinnamond became engaged to a Floridian, moved south and was hired by Intrepid (located in Jacksonville Beach, Florida) to replicate the Evergreen fund. For the next several years, he built and managed a successful separate accounts portfolio for Intrepid, which eventually aspired to a publicly available fund.

The fund’s second incarnation appeared in 2005, with the launch of Intrepid Small Cap (ICMAX). In his five years with the fund, Mr. Cinnamond built a remarkable record which attracted $700 million in assets and earned a five-star rating from Morningstar. If you had invested $10,000 at inception, your account would have grown to $17,300 by the time he left. Over that same period, the average small cap value fund lost money. In addition to a five star rating from Morningstar (as of 2/25/11), the fund was also designated a Lipper Leader for both total returns and preservation of capital.

In 2010, Mr. Cinnamond concluded that it was time to move on. In part he was drawn to family and his home state of Kentucky. In part, he seems to have reassessed his growth prospects with the firm.

The fund’s third incarnation appeared on the last day of 2010, with the launch of Aston / River Road Independent Value (ARIVX). While ARIVX is run using the same discipline as its predecessors, Mr. Cinnamond intentionally avoided the “small cap” name. While the new fund will maintain its historic small cap value focus, he wanted to avoid the SEC stricture which would have mandated him to keep 80% of assets in small caps.

Over an extended period, Mr. Cinnamond’s small cap composite (that is, the weighted average of the separately managed accounts under his charge over the past 15 years) has returned 12% per year to his investors. That figure understates his stock picking skills, since it includes the low returns he earned on his often-substantial cash holdings. The equities, by themselves, earned 15.6% a year.

The key to Mr. Cinnamond’s performance (which, Morningstar observes, “trounced nearly all equity funds”) is achieved, in his words, “by not making mistakes.” He articulates a strong focus on absolute returns; that is, he’d rather position his portfolio to make some money, steadily, in all markets, rather than having it alternately soar and swoon. There seem to be three elements involved in investing without mistakes:

Buy the right firms.
At the right price.
Move decisively when circumstances demand.

All things being equal, his “right” firms are “steady-Eddy companies.” They’re firms with look for companies with strong cash flows and solid operating histories. Many of the firms in his portfolio are 50 or more years old, often market leaders, more mature firms with lower growth and little debt.

Like many successful managers, Mr. Cinnamond pursues a rigorous value discipline. Put simply, there are times that owning stocks simply aren’t worth the risk. Like, well, now. He says that he “will take risks if I’m paid for it; currently I’m not being paid for taking risk.” In those sorts of markets, he has two options. First, he’ll hold cash, often 20-30% of the portfolio. Second, he moves to the highest quality companies in “stretched markets.” That caution is reflected in his 2008 returns, when the fund dropped 7% while his benchmark dropped 29%.

But he’ll also move decisively to pursue bargains when they arise. “I’m willing to be aggressive in undervalued markets,” he says. For example, ICMAX’s portfolio went from 0% energy and 20% cash in 2008 to 20% energy and no cash at the market trough in March, 2009. Similarly, his small cap composite moved from 40% cash to 5% in the same period. That quick move let the fund follow an excellent 2008 (when defense was the key) with an excellent 2009 (where he was paid for taking risks). The fund’s 40% return in 2009 beat his index by 20 percentage points for a second consecutive year. As the market began frothy in 2010 (“names you just can’t value are leading the market,” he noted), he let cash build to nearly 30% of the portfolio. That meant that his relative returns sucked (bottom 10%), but he posted solid absolute returns (up 20% for the year) and left ICMAX well-positioned to deal with volatility in 2011.

Unfortunately for ICMAX shareholders, he’s moved on and their fund trailed 95% of its peers for the first couple months of 2011. Fortunately for ARIVX shareholders, his new fund is leading both ICMAX and its small value peers by a comfortable early margin.

The sole argument against owning is captured in Cinnamond’s cheery declaration, “I like volatility.” Because he’s unwilling to overpay for a stock, or to expose his shareholders to risk in an overextended market, he sidelines more and more cash which means the fund might lag in extended rallies. But when stocks begin cratering, he moves quickly in which means he increases his exposure as the market falls. Buying before the final bottom is, in the short term, painful and might be taken, by some, as a sign that the manager has lost his marbles. He’s currently at 40% cash, effectively his max, because he hasn’t found enough opportunities to fill a portfolio. He’ll buy more as prices on individual stocks because attractive, and could imagine a veritable buying spree when the Russell 2000 is at 350. At the end of February 2011, the index was close to 700.

Bottom Line

Aston / River Road Independent Value is the classic case of getting something for nothing. Investors impressed with Mr. Cinnamond’s 15 year record – high returns with low risk investing in smaller companies – have the opportunity to access his skills with no higher expenses and no higher minimum than they’d pay at Intrepid Small Cap. The far smaller asset base and lack of legacy positions makes ARIVX the more attractive of the two options. And attractive, period.

Fund website

Aston/River Road Independent Value

2013 Q3 Report

2013 Q3 Commentary

September 2012, Funds in Registration

By David Snowball

Congress All Cap Opportunity Fund

Congress All Cap Opportunity Fund will seek long term capital appreciation by, uh, buying stocks. All Cap stocks. “The Fund’s investment premise is that market inefficiencies exist between fixed income and equity valuations which, if properly identified, can lead to investment opportunities which can be exploited.” One would think that their “investment premise” might lead them to be able to invest in either stocks or bonds (a la FPA Crescent) but no. They’ll mostly buy U.S. stocks, with a cap of 10% on international securities, although they may derive international exposure through other holdings. The investment minimum is $2000. The managers are Daniel Lagan and Peter Andersen, both employees of Congress Asset Management Company. Neither has experience in managing a mutual fund, but their private account composite ($30 million against their firm’s total AUM of $7 billion) has outperformed the all-stock Russell 3000 index for the past 1, 3, and 5 years. The expense ratio is 1% after a substantial waiver. There’s also a 1% redemption fee.

Congress Mid Cap Growth Fund

Congress Mid Cap Growth Fund will pursue growth by investing in U.S. midcap stocks. They define mid-caps as capitalizations between $1-5 billion. The plan is to invest in companies that “are experiencing or will experience earnings growth.” For reasons unclear to me, they limit their international investments to 10% of the portfolio. The managers are Daniel Lagan and Todd Solomon, both employees of Congress Asset Management Company. Neither has experience in managing a mutual fund, but their private account composite (also $30 million against their fund’s total AUM of $7 billion) has outperformed the Russell Mid-Cap Growth index for the past 1, 3, 5 and 10 years. The investment minimum is $2000. The expense ratio is 1% after a substantial waiver. There’s also a 1% redemption fee.

Drexel Hamilton Multi-Asset Real Return Fund

Drexel Hamilton Multi-Asset Real Return Fund will pursue total return, which is to say “returns that exceeds U.S. inflation over a full inflation cycle, which is typically 5 years.” The fund will invest globally in both securities (including REITs) and other funds (including ETNs and ETFs). It will mostly invest in other Drexel Hamilton funds, but also in TIPs and commodity-linked ETFs. Moving a bit further in hedge fund land, they’ll also hedge “to help manage interest rate exposure, protect Fund assets or enhance returns.” And, too, in “response to adverse market, economic or political conditions, or when the Adviser believes that market or economic conditions are unfavorable,” they may go to cash. Andrew Bang of Drexel Hamilton will manage the fund. Mr. Bang, a West Point graduate with an MBA from Cornell, was “a Vice President at AIG Global Investments and a Portfolio Manager in the pension group of GE Asset Management (GEAM), where he oversaw institutional clients’ investments in global and international equity portfolios in excess of $2.5 billion.” The minimum initial investment is $5000. The expense ratio will be 1.81% after waivers.

DMS India Bank Index Fund

DMS India Bank Index Fund will attempt to track the CNX Bank Index. The index includes the 12 largest Indian bank stocks, which comprise 90% of the market cap of the Indian bank sector. The fund will seek to own all of the stocks in the index, rather than engaging in sampling or the use of derivatives. The fund will be managed by Peter Kohli, CEO of DMS Advisors. The minimum initial investment will be $1500. Expenses are estimated at 0.96%, with the caveat that the fund might have to pay Indian capital gains taxes in which case the expenses would be higher. If you’re really curious, details about the index are available here.

Dreman Domestic Large Cap Over-Reaction Fund

Dreman Domestic Large Cap Over-Reaction Fund will seek high total return by investing in undervalued US large cap stocks. They intend to use “quantitative screening process to identify overlooked large cap companies with low price-to-earnings ratios, solid financial strength and strong management, that are selling below their intrinsic value and that pay relatively high dividends.” The fund will be managed by a small team headed by the legendary David Dreman. The fund’s global stock sibling, Dreman Market Over-Reaction (DRAQX), has been sort of a dud. That said, Dreman is revered. The expense ratio for “A” class shares, which have a 5.75% front load, will be 1.25% after waivers. The minimum invest is $2500 with a high $1000 minimum subsequent investment.

ING Strategic Income

ING Strategic Income “A” class shares, will seek “a high level of current income,” and perhaps a bit of capital growth. It will be a fund of income-oriented funds. They will have asset allocation targets, to which the managers make tactical adjustments. They do not, however, seem to reveal what those targets are. The fund will be managed by three ING employees (Christine Hurtsellers, Michael Mata and Matthew Toms), who previously worked for, oh, Freddie Mac, Putnam, Lehman Brothers and (the bright spot) Calamos and Northern. The minimum investment will be $1000, reduced to $250 for IRAs. It has a 2.5% front load, making it a sort of “low-load” fund. Expenses have not yet been set. Absent a disclosure of the asset allocation, publication of low expenses and access to a load-waived share class, I’m unclear on why the fund is attractive.

Jacobs | Broel Value Fund

Jacobs | Broel Value Fund will seek long-term capital appreciation. They plan a 15-20 stock portfolio, selected according to their “value-contrarian investment philosophy” (which, frankly, looks like everyone else’s). They can invest in preferred shares and convertible securities, as well as common stocks, ETFs and closed-end funds. The managers will be Peter Jacobs, President and Chief Investment Officer of Jacobs | Broel Asset Management, and Jesse Broel, their Chief Operating Officer. Both have worked a lot with the Ragen MacKenzie division of Wells Fargo. Neither seems to have experience in running a mutual fund. $5000 investment minimum, reduced to $1000 for tax-advantaged accounts and those with AIPs. The expense ratio will be 1.48% and there will be a 2% redemption fee.

Matisse Discounted Closed-End Fund Strategy

Matisse Discounted Closed-End Fund Strategy will pursue long-term capital appreciation and income through buying “closed-end funds which pay regular periodic cash distributions, the interests of which typically trade at substantial discounts relative to their underlying net asset values.” They intend to be “globally balanced” and to hold 30-90 closed-end funds. The managers will be Bryn Torkelson, Eric Boughton, and Gavin Morton of Deschutes Portfolio Strategies, LLC. Mr. Torkelson is their founder and Chief Investment Officer. In an interesting twist, the prospectus directly compares their separate account composite to the performance of RiverNorth Core Opportunity (RNCOX) and several other CEF-focused mutual funds. They modestly outperform RNCOX until you add in their management fees, which the performance table excludes. Then they modestly trail RNCOX. The minimum initial investment will be $1000. The projected expense ratio is 2.68% after waivers. There’s also a 2% redemption fee on shares held fewer than 60 days.

SPDR SSgA Ultra Short Term Bond, Conservative Ultra Short Term Bond and Aggressive Ultra Short Term Bond

SPDR SSgA Ultra Short Term Bond, Conservative Ultra Short Term Bond and Aggressive Ultra Short Term Bond will be three actively-managed ETFs. Each seeks to produce “income consistent with preservation of capital through short duration high quality investments” but they do so with slightly different degrees of aggressiveness. Tom Connelley and Maria Pino, both Vice Presidents of SSgA FM and Senior Portfolio Managers for their U.S. Cash Management group, will manage the funds. The expenses have not yet been announced and, being ETFs, there is no investment minimum.

Wasatch Emerging Markets Select

Wasatch Emerging Markets Select fund will pursue long term growth. It will be an all-cap fund holding 30-50 stocks, and the prospectus describes it as non-diversified. The managers will be Ajay Krishnan, who also manages Ultra Growth, Emerging India and Global Opportunities, and Roger Edgly, who manages International Growth, International Opportunities, Emerging Markets Small Cap, Global Opportunities and Emerging India. (Overstretched, one wonders). The initial minimum purchase is $2000 for regular and IRA accounts, $1000 for accounts with AIPs and Coverdell Education Savings Accounts. The expenses have not yet been set. There will be a 2% redemption fee on shares held fewer than 60 days.