We thought we’d start catching up with the 130 U.S. equity funds which have passed their second anniversary but have not yet reached their third, which is when conventional trackers such as Morningstar and Lipper pick them up. As Charles has repeatedly demonstrated, the screener at MFO Premium allows you to answer odd and interesting questions. I’ll try to look at several questions over the next week, starting with “which of these new funds might be badly miscategorized?”
That’s an important question, since investors tend to buy the (Morning)stars. In general, that’s an okay decision: five star funds rarely become stinkers, one star funds rarely become gems. Except when a fund has gotten dropped in an inappropriate peer group, so that Morningstar is looking at a banana and trying to judge it as an apple. Our two favorite examples are RiverPark Short Term High Yield (RPHYX) and Zeo Strategic Income (ZEOIX). Both are outstanding at what they do: generate low single-digit returns (say, 2-4%) with negligible volatility. And both get one star from Morningstar because they’re being benchmarked against funds with very different characteristics.
How did we check for miscategorized funds? Simple, we get our screener to identify all U.S. equity funds that had been around for under three years. We downloaded that to Excel, eliminated funds with under two years of history then sorted them by their correlation to their peers. We found that over half of the funds were indexes or closet indexes (correlations over 95, with some “active” funds at 98). Just six funds, three active and three index, had correlations under 75.
Cambria Value and Momentum ETF (VAMO, as in Vamoose?) has the lowest correlation (0.43) with peers of any of the two-year-olds; Lipper thinks it's a large cap value fund. Why should you care? Because a low correlation with the peer group raises the prospect that a fund has been miscategorized and it makes it very likely that any rating it receives – positive or negative – will be unreliable. One illustration of that possibility: 5 of 6 six low correlation funds trail their peer group with VAMO lagging by 14% annually. Does that mean they’re bad funds? No, it means that its strengths and weakness can’t be predicted from its peer group.
The other two-year-olds with peer group correlations under 0.75 so far:
HTDIX Hanlon Tactical Dividend and Momentum Fund (Lipper: Equity Income)
PTMC Pacer Trendpilot 450 ETF (Mid-Cap Core)
BMVIX* Baird Small/Mid Cap Value Fund (Small-Cap Core)
PTLC Pacer Trendpilot 750 ETF (Large-Cap Core)
FSUVX Fidelity SAI US Minimum Volatility Index Fund (Multi-Cap Core)
Note: BMVIX is actually just shy of 2 years through October, but I want to touch on it for December commentary.
Next up: two-year-olds leading their packs.
David

FYI: For the past 20 years or so, as a business columnist for The New York Times, I’ve had a front-row seat for bull and bear markets, scandals, crises and management mischief.
But I am leaving The Times, and this is my last shot at Fair Game. So it seems a fitting moment to look back at what’s changed and what hasn’t in the financial world, for better or worse.
Regards,
Ted
https://www.nytimes.com/2017/11/10/business/after-20-years-of-financial-turmoil-a-columnists-last-shot.html?rref=collection/sectioncollection/business&action=click&contentCollection=business&region=rank&module=package&version=highlights&contentPlacement=1&pgtype=sectionfront

@msf, you're right about the fund but the question is how much reality should we suspend for a decision that isn't very realistic to begin with. There are other funds people would have chosen that are closed to new investors and picking a single fund for the next 15 years isn't really a model for diversification, admitting that some of the choices would be far better than others just in terms of being reasonably diversified. I don't think GPMCX is a bad choice and while I'd agree with you on growth vs. value these guys are GRP guys and that makes me more comfortable. The thing I'd think long and hard about is how big can the fund get before it's a lot more difficult to pursue their stated purpose. The fund was started at roughly $25 million 2 years ago and it's now $41 million according to M*. If it doubles in 7 years plus the contributions existing investors are allowed to make, does $80 or $100 million make pursuing the tiniest of the tiny a lot more difficult. They currently have 187 holdings and the average market cap of their holdings is $326 million. That's $200K on average and suggests to me they could deal with more assets as long as the float isn't a small percentage of the market caps. Nothing suggests a big problem to me in the few minutes I worked on it but that's what I'd be focused on.

There's some ambiguity in the question. Does owning a fund for 10-15 years mean only that one doesn't make changes, or does it also imply that one is investing with the intent to draw from the fund after 10-15 years?
jlev seems to take the former view - starting at age 31, the portfolio could still have many years to go past the 15 year target before getting tapped. In that case, a more aggressive, pure equity fund would be a reasonable choice. No disagreement on that broad perspective.
Ted is hooked on growth funds (we've had this exchange before). Value and growth tend to take turns leading, but the alternations can be glacial. Personally, I wouldn't bet the farm on growth over the next fifteen years considering the long run that growth has already had. So in that sense I'd disagree with GPMCX.
Note that even existing shareholders can't buy much of GPMCX. From the prospectus:
"Fund is closed to both new and existing investors seeking to purchase shares of the Fund either directly or through third party intermediaries, subject to certain exceptions for participants in certain qualified retirement plans with an existing position in the Fund and direct shareholders with existing accounts who may purchase up to the amount of the current IRA catch up limit per year in additional shares, regardless of account type."

"The interesting thing about this kind of lending is that from a legal perspective two mutual funds even if they're run by the same manager are separate investment companies ..."
How deep into the weeds do we want to go? :-)
These days, many funds are structured as separate series of a common trust. For example, Fidelity Contra (FCNTX) is a series of a trust containing FCNTX, FNITX, FVWSX, and FAMGX.
While Fidelity funds are generally organized as Massachusetts trusts, most series trusts are Delaware trusts. Here's a somewhat old (Feb 2009) but likely still accurate description of Delaware trusts. On p. 3 is a section entitled "Is a Series of a Delaware Statutory Trust Functionally a Separate Legal Entity?" The authors note that the law isn't crystal clear, but that various facts they present lead "the authors to conclude that a series of a Delaware statutory trust is not a separate legal entity and does not possess many of the characteristics often associated with separate legal entities."
Of particular note for Delaware trusts is that the "ability to limit the liabilities of a series is not an inherent attribute of a series—it is only available to statutory trusts that comply with the requirements of Section 3804(a)." Of course virtually all mutual fund series trusts do comply with the legal requirements. But this raises the interesting possibility that if fund A (MMF) lends cash to fund B (stock/bond fund) in the same trust, then the lender might not be assuming more risk. It might have already been on the hook for B's debts, even before lending money.
The Delaware doc cited observes that "the limitation of interseries liability provided in Section 3804(a) has not been interpreted by any Delaware court, so whether equitable or other exceptions are applicable is unclear." In plain English, even though funds may comply with the statute to keep each fund's liabilities separate, there may nevertheless be reasons why a court would hold fund A liable for fund B's debts.
You'll find the same sort of formalities for Massachusetts trusts explained in the Contra SAI I linked to above. There it says that "Under Massachusetts law, shareholders of such a trust may, under certain circumstances, be held personally liable for the obligations of the trust. Each Declaration of Trust contains an express disclaimer of shareholder liability for the debts, liabilities, obligations, and expenses of the trust or fund."
Bottom line is the same as in your column: if anything goes wrong, “It will be a bonanza for the lawyers.” That's even before one gets to a fund lending another money.

Hi @Catch22,
Thanks for making comment. I'm thinking I read it correctly because the Schwab fund summary reads as follows ...
KCTMX is shown to be open for purchase with an initial purchase of $100.00 in basic, ira, and custodial accounts. I'm taking the basic account being a taxable account and any ira account being just that and custodial being for minors. How Schwab can make it available with the $100.00 minimum is beyond me because the fund's fact sheet, itself, reads $5,000.00 is the min. which is more in line with my expected purchase. Below is the link with this information.
https://www.schwab.com/public/schwab/investing/investment_help/investment_research/mutual_fund_research/mutual_funds.html?path=/Prospect/Research/MutualFunds/Summary.asp?symbol=KCMTX
Anyway, the fund is on the Schwab platform open for purchase. It will be the after the first of the year before I move on this. So, they have some time to correct the summary information, if wrong.

Hi @Old_Skeet
This is a broad based link for the fund you noted at Schwab. Not sure, of course; if this is what you mentioned for an investor link.
https://www.schwab.com/public/schwab/investing/investment_help/investment_research/mutual_fund_research/mutual_funds.html?path=/Prospect/Research/MutualFunds/Summary.asp?symbol=KCMTX
Also, the minimum of $100 you noted is for the R-1 share class. This class is not likely available to you with new money; as this class is designed for offering inside of employer retirement accounts.
This link is for the fund info from Kerns web site.
http://kernscapital.com/kcm-macro-trends-fund/
Please correct me if I have misstated.
My 2 cents.
And away I must be.....
Catch

In order to check my current funds owned at Charles Schwab to see if they could be moved I was directed to an investor link that I have tried to link on the board for others to use; however, it has to have some kind of wall that keeps it from being linked. Anyway, KCMTX is available at Schwab for as little as $100.00 min for those interested.
I plan to open an account at Schwab in the near term and KCMTX will be one of the funds purchased. I most likely will leave exisitng funds at current broker's firm since I am and have paid for investment advice through commissions and ongoing 12b-1 fees on existing funds owned.
At one time, I did use two brokers but consolidated to one after one of my brokers retired.
As @MikeM says ... Schwab has some good funds some of them that I can not purchase through my present broker as they are not on their platform. But, their office is near me and I can get in front of them when warranted. So, I'll be keeping what I've got with them and some of new purchases will be at Schwab.

Hi everyone, I'm 49 for another month or so and I have 5 kids ranging in age from 2 to 17. They have 529 plans that will hopefully cover a decent portion of college costs and I keep contributing, although the youngest 2 could be worse off if the cost of education continues rising faster than inflation. I've basically been retired for almost 6 years because I took a nice package to walk away from my job in a downsizing and didn't find something new, but I'm still interested in going back to work for a decent opportunity.
I have a couple of overriding principles for my portfolio that will help explain some of my allocations. First, I believe that emerging markets, especially in Asia, are the future. I want to be overweight. I'm also a believer in healthcare. Considering the world's demographics are getting older and the developed world's demographics even more so, I want to be overweight. In general I want to be equal weight the US and underweight developed international markets because the demographics are the worst there and they are pretty highly correlated with the US in the large cap space. If I want to make currency bets, which I've done before, I'd rather do it in the futures market. I want most of my exposure to developed international markets to be small cap. Finally, other than healthcare, I'm generally sector agnostic. I don't target any specific allocations but I do monitor them compared to the S&P 500 to make sure I know and am comfortable with the opinions my sector allocations are expressing.
My portfolio currently has two parts and a third part is being reduced. The first is a collection of funds that I rebalance or adjust at irregular intervals but mostly doesn't change. The second is what I'd call a modified risk parity portfolio of my own making that trades monthly based mostly on momentum. The part being reduced is made up of individual stocks that I picked based on a newsletter I used to subscribe to or stocks that M* identified as undervalued. That didn't work very well for me. The stocks currently represent about 12.5%. I plan to keep 2 stocks, which are uranium stocks that I'm still comfortable/happy with. They make up 6% of my portfolio and will stay, so a little less than half of my total stocks.
I normally don't count cash as part of my portfolio except in my IRA and the cash there represents 3% of what I consider my portfolio.
Mutual funds
I'll indicate the current allocation as well as my planned allocation once I eliminate the stocks I hold with a comment or two where relevant.
GPIIX 9.65--->8.5 I would have preferred Global Opportunities to International Opportunities but the original intention was to pair International with their intended US fund, which hasn't come yet, and to manage the allocation myself. At the time I wasn't thinking about hard closes that make managing an allocation difficult so if I ever had the chance to switch this for GPGIX I would.
POAGX 8.75--->8.5
GPEIX 7.75--->8.5
SBIO 3--->2
HQL 2.9--->2
OBIOX 2.75--->3.5
MAPIX 2.5--->2
PRHSX 2.25--->2
IWIRX 2.15--->2
MEASX 1.6--->2
QUSOX 1.45--->2
ARTGX 1.4--->0 I don't dislike the fund, just decided I'd prefer OAKWX
MSCFX 1.4--->2
OAKWX 1.35--->2
PRNHX 1.35--->2
TVRVX 1.3--->2
DSEEX 1.3--->2
PTSGX 1.3--->1
SFGIX 1.3--->2
FSCRX 1.25--->0 This fund was great for me but with Chuck Myers leaving I started switching to the Mairs & Power fund.
KGGAX 1.2--->2
GPMCX 0.8--->2 This won't happen by year-end because of the limited annual contributions they allow but I'll get there.
Trading
The holdings currently make up 25.7% of my portfolio and includes EWX, IJH, IJK and VBR. I expect it will be 34% at year-end. I started this approach 18 months ago because I was concerned about valuations and wanted something that would hopefully protect me when things eventually go south but hopefully participate in most of the upside as long as it continues.
I track my overall portfolio as well as each "bucket" against 12 benchmarks on a monthly basis. Broadly speaking those benchmarks include a few all equity options (like the S&P 500 and a total world etf), a few balanced options that are all 60/40 but with different equity options, and a few risk parity portfolios like @hank's Permanent Portfolio, Faber's Ivy Portfolio and David Swenson's Yale portfolio.
For the individual funds I mostly watch category rankings. I do see 1, 3, 5 and 10 year returns in my M* portfolio but I don't use them to make any decisions. I don't change funds very much but manager changes usually worry me and I occasionally change for something I believe will be better. For instance, I used to hold a number of Wasatch funds that I eliminated and bought Grandeur Peak funds and I'm replacing FSCRX with MSCFX because of a manager change.
There are a few funds I'd be happy to own if they open again one day. They are VVPSX and TDVFX. I know I can buy the Towle Fund direct and I may do that at some point but I'd prefer to keep it in my brokerage account if possible. As mentioned I'll buy Grandeur Peak's US fund whenever it launches.
A portfolio X-ray will show you that I'm around 80% small and mid cap stocks. I understand most people would be uncomfortable with that. One third of that is the risk parity trading I do and that will be into other asset classes when the momentum changes. Nonetheless, I've never been uncomfortable with volatility and I don't tend to make emotional decisions. The risk parity idea was specifically designed to make me comfortable with whatever volatility occurs in the mutual funds. X-ray will also show I'm a little more than 20% emerging markets and overweight healthcare but I'll be pretty close to equal weight healthcare at year-end. This is something I want to keep an eye on because I don't want to end up underweight healthcare. I'm actually underweight the US at about 43-44% but that's okay for now because I'm somewhat, less than many but still somewhat concerned about valuations in the US. And I'm significantly underweight developed international markets except for Asia. I think that's mostly because M* calls Taiwan and South Korea developed while MSCI doesn't.
Oh, one last thing, how could I forget, I have no bonds and haven't for a few years. Friends have argued that I either should already regret that or I certainly will in the future. They may be right but I'm well aware of the bet I'm making and I'm more concerned now about getting hurt in bonds than hurt in equities. Time will tell.
Thanks in advance for your feedback.
Jim

Whew. This started out as a simple exercise and will try and provide commentary on my portfolio in addition to allocations and percentages. I have three portfolios. First one , is a taxable account which has a majority of the bond allocation at 80%, which includes 2 munis I am holding til maturity, also have two stocks in that portfolio, one of which I am getting ready to sell for its gains. That portfolio is 27% of my total. The other two are a traditional ira and a roth, and the roth is the larger of the two. You will notice some duplications in fund characteristics, the result of my moving from Merrill Lynch last year to Fidelity. Some positions I could not add to since they are institutional funds, so had to add similar funds from another fund company. I take a barbell approach to the total, balancing aggressive funds with conservative ones. More people seem to use balanced funds, I chose this method. That said, I am 68% equities, 32% bonds and cash, and 66 and retired. SS provides me about 1/3 of my expenses, rest comes from taxable account, which will be the first to be depleted, but I do have to start taking from the ira in four years. I am trying to follow the basic set up that Pudd used, adding my own tweaks. This reflects iras only. I threw in etfs into the mix. Here goes:
Large and multi cap:
MSEGX 1.5%
POGRX 2.6%
RSP 1.0%
SMGIX 6.4%
TWEIX 2.5%
VIG 3.0%
VDIGX 6.5%
VOO 5.6%
VPCCX 2.9%
VWINX 2.7%
Sector funds
CMTFX 3.1%
PHSZX 1.4%
FRUAX 1.5%
FSPHX 1.3%
IHI 2.0%
JRBFX 1.3%
PRGTX 6.2%
RHS 3.7%
SHSAX 1.4%
VPU 2.0%
FRIFX 2.9%
Small-midcap
CCASX 1%
SMDV 1%
UBVSX 1.3%
Global non sector funds (with a minimum of 30% foreign)
APDGX 3.0%
IWIRX 2.6%
Foreign
FMIJX 4.5%
SIGIX 4.9%
GSIHX 1.8%
OSMYX 2.8%
MINDX 2.5%
Stocks
MMM 2.1%
TRV 1.2%
Bonds and cash are 9.6% of total iras, since taxable portfolio has the high bond allocation. I use PONDX, PYACX, CPXAX, GIBIX.
According to Fidelity, in the iras, I am 76% large cap, 17% mid cap, 7% small. The above small cap funds I have do not reflect total small cap exposure since I have small cap stocks in a number of funds that are multi cap. I usually have more stocks, and use them more for trading than investment.
Im sure I have many more funds and etfs than most, but this is cut down from earlier this year :) All comments welcome, good and bad.

Skeet, I used to have M-Star's premium and used that for x-rays but got tired of paying that yearly cost. Now days I don't bother with the x-ray. I do lean to value funds and small/mid caps but that has not been the place to be the last few years. My biggest positions are in the 401 and I don't have many funds available that I am not using. VIGRX and ODMAX are available and I have used them in the past. Just sold both of these earlier this year. I am in the process of reducing small positions with a goal of 5% or more per fund. Allocation just happened, not planned. When you have go anywhere funds then that is what you get. I have made some bad choices, like selling EM to soon, so no tips for others from me other than save as much as you can.

@Art
One of the things I like to do is input the holdings into Xray. In doing this provides me some insight as to your overall portfolio's structure. In review of Xray, I am finding that your portfolio is 142% long, 42% short mostly in the cash and bond areas. The net asset allocation is 18% Cash, 41% US Stocks, 17% Foreign Stocks, 23% Bonds and 2% Other. Within equities it appears you are 50% large & 50% smids. The portfolio appears to have a value tilt with a P/E ratio of 16.66% but is short in the defensive sectors (at about 14% allocated) consisting of staples, health care and utilities. In addition, Morningstar indicates your mutual fund expense ratio on the portfolio is 0.98%. Is this by design?
Could you share with me and others your positioning along with expectations. If my assessment is close then was this allocation planned or just a happening? And, why? Also, could you share with us tools you use to know what your have and also monitor your portfolio. In addition, is there some things you would like to comment on that your feel might be of interest and possibly a tip you might have for others that has helped you in the past.
Thanks,
Old_Skeet

Puddnhead, I will start a new thread for my portfolio.
I am 59, married(3rd time) with plans to retire in 3 years. I will have 40+ years as an IBEW member and have a defined benefit along with a 401 at the workplace. The DB will pay about $150/month per year of service. The exes will get some of that. I also have a small ROTH and IRA. Live in the Midwest. No mortgage. No kids but recent wife has 2 so I inherited grandkids. Portfolio percentages are rounded up or down for convenience. The smaller %'s are in the ROTH and IRA. My wife also has a 401 with DFA and a ROTH. I am not including these monies but when you put it all together and add SS I should have enough money to live on and take the yearly vacation to Florida or somewhere warm, so why do I fret over money spent on kids and grandkids? I guess one of us needs to be conservative while the other spends. Probably like that in most marriages.
PTTDX-22%
Cash-11%
OARIX-11%
PCVAX-10%
CHTTX-10%
OARBX-7%
VFINX-6%
AMRMX-5%
FPACX-4%
EVGBX-3%
FARNX-3%
IVWIX-2%
ARTGX-2%
GPROX-2%
VVPSX-2%

@Puddnhead commented:

The economy is booming in our neck of the woods.

From this linlked article is an alarming statistic for the Pittsburg, PA area related to Retail Debt Delinquencies.

Retail only makes up 2% of the $1T of HY debt maturing over the next 5 years, but as an prior owner of FAIRX (large holding of SHLD) and an investor in FSRPX I've been paying close attention to Retail.
Why is Retail Struggling?

The root cause is that many of these long-standing chains are overloaded with debt—often from leveraged buyouts led by private equity firms. There are billions in borrowings on the balance sheets of troubled retailers, and sustaining that load is only going to become harder—even for healthy chains.
The debt coming due, along with America’s over-stored suburbs and the continued gains of online shopping, has all the makings of a disaster. The spillover will likely flow far and wide across the U.S. economy. There will be displaced low-income workers, shrinking local tax bases and investor losses on stocks, bonds and real estate. If today is considered a retail apocalypse, then what’s coming next could truly be scary.

Article (Bloomberg):
America’s ‘Retail Apocalypse’ Is Really Just Beginning

I'll go with American Funds ... Global Balanced Fund (GBLAX). There are many ticker symbols for this fund including a no load F-1 ticker of GBLEX. This is a team managed fund with global exposure to both domestic and foregin securities. Although, I don't own this fund I do own Capital Income Builder (CAIBX) which is also considered a world allocation fund and one I have owned for a good number of years. From my perspective either one would be a good choice. Capital Income Builder focus more on income generation while Global Balance takes a more balanced approach towards income and growth. Both funds can be opened with only $250.00. So, they are well suited for a starting investor as I was at the age of 12.
http://www.morningstar.com/funds/XNAS/GBLAX/quote.html
____________________________________________________________________________________________________
Trailing comment after reading a few comments below. Folks, remember Old_Skeet's first investment (at age 12) was FKINX a hybrid type fund because it gave me exposure to both the bond and stock markets. Like wise, GBLAX does the same thing but from a global perspective. In addition, it has according to Xray about a 23% weighting in growth along with having about a 25% weighting (combined) in the technology and health care sectors. Being team and sleeved managed reduces manager risk.
Again, I staying with my pick.

Considering that I'm just 31 i might go with GPMCX. Should check ages of its current team leader though.

Robert Gardiner has to be in the neighborhood of 60, he's been in the investment industry since 1981, but I guess he didn't start Grandeur Peak for 10-15 years of his own thing. I'd guess he'll be around most of his life.
The two current co-managers, Amy Hu Sunderland and Mark Madsen are both young. I'd guess somewhere around 40 for both of them.
Blake Walker, who isn't managing the fund anymore but is the CEO and the manager of many of the other funds, is also young. I'd guess he's also right around 40.
With all the GP funds, I'd guess Gardiner is really the key driver of the process. I'd suspect most of those who came with him from Wasatch were people who think a lot like he does and given the team approach to their research process I wouldn't worry too much about ages and/or succession planning.

Morning Pud: I did a quick run through & it appears you have approximately 25% of portfolio from 401-k to invest ? I'm in the same boat only with a little more 33% to put to work. I'm awaiting a pull back to start DCA .
Good investing to all,
Derf

Considering that I'm just 31 i might go with GPMCX. Should check ages of its current team leader though.

Well I suppose I'd say FCNTX since I've held it since 1986 but I'd probably sell it if/when Mr. Danoff leaves/retires so POAGX or PRGTX (hold both) would be my next choices. PDI or PCI are the ones I concern myself with the least at this time.