July 8 Episode

Royce discusses why his Royce Pennsylvania Mutual Fund has outperformed its benchmark for over half a century and why he believes small-caps are laying the foundation for an extended cycle of above-average returns.

chuck-royce-shares-50-years-of-investment-wisdom-on-his-small-cap-outperformance/

M* used to have some great tools:
- Charts with rolling returns (customizable)
- Returns of entire asset classes / categories over various time frames (1 month to 5 years)
- Brokerage availability of mutual funds / share classes showing TF / NTF
and many more. All gone.
Of course, M* Discuss was destroyed. Largely during the tenure of Chief IT Office Gregg Goff, who drew a salary of $1.4 million. Go figure.

Few star managers can make the transition to a team much less assume it will be your kid.
Michael Price is another example of a one man show that became problematic after he left.
Another example is Albert Nicholas who ran the Nicholas Fund.
According to Bloomberg Markets in 2015, "The Nicholas Fund, which he has run since 1969, has topped the Standard & Poor's 500 Index by an average of 2 percentage points a year for the past 40 years and [beat] it every year since 2008 [through 2014]."
His son David was in and out of the family company and finally back in, but a quick look shows that he hasn't done nearly as well as Pops.

Uh. Pretty sure NICSX has beat the 500 since David took over after his father passed. He has been on NICSX since 2011. Their stated thesis hasn't changed:

Growth rate of 10% or better
Consistent earnings
Return on equity (ROE) of 15% or an improving ROE
Debt to total capitalization of less than 50%
A price to earnings ratio lower than two times the growth rate
An enduring franchise or brand
Honest, capable management
Significant management ownership of stock
Long-term and short-term business momentum

I sold it out of the my IRA after Ab died. And I wish I hadn't. They have added two new managers to the fund. And David is ten years younger than me. So it's back on my watch list for consolidating the IRA.
David has been running small cap funds at Nicholas since 1993. They don't look so good. But few small caps do these days.

Old_Joe, 2 of them were 6 month CDs, and 1 of them was a 9 month CD. CDs maturing in 2025 were paying less than 5.3%. If the FEDs do raise rates 2 more times this year, there may be an opportunity to pick up longer term CDs with a little higher rates, but I am not counting on it.

@dtconroe- Could you advise time to maturity on those? Can't find anything on Schwab better than 5% going out to 2025.
Thanks- OJ

I chose to reinvest CD money, from recent maturing CDs, into several new CDs. I was able to purchase several new CDs for 5.3% rates. That may become more challenging in the future, if the FEDs do not choose to raise rates at their next meeting.

+1 Nice summary @Yogibearbull.
Their emphasis on intermediate duration bonds seems to be pretty much limited to investment grade. I haven’t read much of this issue yet. But find the following title bemusing …..
”The S&P 500 Is Now A Tech Fund” (Barron’s Article by Lauren Foster)
Just adding a bit re: above article - As folks know, a handful of large cap tech stocks comprise something like 30% of the S&P 500. Apple and Microsoft at the top. The article recommends several specific indexes and mutual funds to help investors diversify away from this large cap dominance. In particular international & domestic small cap represent better long term value. Well worth a read if you can link to the article.
My Kindle subscription to Barron’s ends in September when Amazon pulls the plug on its Kindle subscriptions. Questionable if I’ll subscribe elsewhere right away. Prices are higher than the Kindle edition was. Albeit, the Kindle only includes the articles - not access to all the the data. Already subscribe to NYT, FT & Bloomberg online. Too much to handle really. Will surely miss Barron’s.

Sold 1 stock Friday that constituted a bit under 5% of portfolio. Took equity exposure down from around 45% to closer to 40%. Most of that’s thru funds (but still own 2 stocks). The $$ went into a new position in a CEF that can invest in virtually any type of fixed income / related hybrid product + use leverage. So may have leapt from kettle into flame.
PS - The only rationale I can give is that fixed income has begun to look interesting with the 10-year above 4%. In addition, equities have had a nice run since mid 2022.

Barron’s Funds Quarterly (2023/Q2–July 10, 2023)
https://www.barrons.com/topics/mutual-funds-quarterly
(Performance data quoted in this Supplement are for 2023/Q2 and YTD to 6/30/23)
Pg L2: Growth is outperforming value/cyclicals as techs have led on AI-hype. But rates are still rising, and growth valuations are stretched; recession may be out there. Stick with high-quality growth; there are also several large-cap growth ETFs. Small-cap growth may be attractive. Funds mentioned include FBGRX, IVV, QGRO, XLK, VUG, QQQ, SLYG. (By @LewisBraham at MFO)
Pg L7: It may be time to go beyond T-Bills, money-market funds and short-term bonds. The Fed is almost done raising rates and they should remain high for a while. Funds mentioned include MWTRX, VBTLX, PONAX, SLQD, BIV, IBMN.
Pg 9: The SP500 has become a mega-cap tech growth fund with big 7 accounting for 30%. But there are many alternatives – small-cap value AVUV; value IVE, SPYV, VOOV; foreign IXUS, VXUS, VEU, DFAI; glide-path hybrids target-date funds (TDFs).
Fund news from elsewhere in Barron’s (Part 2).
Pg 20, INCOME. Don’t stay in T-Bills and money-market funds for too long. Use a barbell to mix short-term and intermediate/long-term bond funds including the MBS. Eventually, when the rates fall, these would have capital gains. Mentioned are preferreds PFLD, PSK, PFF.
Pg L33: In 2023/Q2 (SP500 +8.30%): Among general equity funds, best were LC-growth +12.34%, and worst were SC/MC 3.xx%; ALL general equity categories were positive AGAIN. Among other equity funds, the best were Lat Am +15.85%. sc & tech +12.14%, and worst were China -10.36%, precious metals -7.75%. Among fixed-income funds, domestic long-term FI +0.14%, world income +0.83%; ALL FI categories were positive too AGAIN (FI isn’t very refined in Lipper mutual fund categories listed in Barron’s).
LINK

https://www.sec.gov/Archives/edgar/data/1593547/000139834423012759/fp0084056-1_497.htm
497 1 fp0084056-1_497.htm
THE ADVISORS’ INNER CIRCLE FUND III
(the “Trust”)
FS Chiron SMid Opportunities Fund
(the “Fund”)
Supplement dated July 7, 2023 to the Fund’s Prospectus (the “Prospectus”), Summary Prospectus
(the “Summary Prospectus”) and Statement of Additional Information (“SAI”), each dated
March 1, 2023, as supplemented
This supplement provides new and additional information beyond that contained in the Prospectus, Summary Prospectus and SAI, and should be read in conjunction with the Prospectus, Summary Prospectus and SAI.
The Board of Trustees of the Trust, at the recommendation of Chiron Investment Management, LLC (the “Adviser”), the investment adviser of the Fund, has approved a plan of liquidation providing for the liquidation of the Fund’s assets and the distribution of the net proceeds pro rata to the Fund’s shareholders. In connection therewith, the Fund is closed to investments from new and existing shareholders effective immediately. The Fund is expected to cease operations and liquidate on or about July 31, 2023 (the “Liquidation Date”). The Liquidation Date may be changed without notice at the discretion of the Trust’s officers.
Prior to the Liquidation Date, shareholders may redeem (sell) their shares in the manner described in the “How to Sell Your Fund Shares” section of the Prospectus. For those Fund shareholders that do not redeem (sell) their shares prior to the Liquidation Date, the Fund will distribute to each such shareholder, on or promptly after the Liquidation Date, a liquidating cash distribution equal in value to the shareholder’s interest in the net assets of the Fund as of the Liquidation Date.
In anticipation of the liquidation of the Fund, the Adviser may manage the Fund in a manner intended to facilitate the Fund’s orderly liquidation, such as by holding cash or making investments in other highly liquid assets. As a result, during this time, all or a portion of the Fund may not be invested in a manner consistent with its stated investment strategies, which may prevent the Fund from achieving its investment objective.
The liquidation distribution amount will include any accrued income and capital gains, will be treated as a payment in exchange for shares and will generally be a taxable event for shareholders investing through taxable accounts. You should consult your personal tax advisor concerning your particular tax situation. Shareholders remaining in the Fund on the Liquidation Date will not be charged any transaction fees by the Fund. However, the net asset value of the Fund on the Liquidation Date will reflect costs of liquidating the Fund. Shareholders will receive liquidation proceeds as soon as practicable after the Liquidation Date.
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.
CHI-SK-042-0100

@Observant1 posted:
As such, the average bank loan and high-yield bond funds posted solid returns of 2.7% and 1.5%, respectively."

As of June 30, 2023, the total returns of my bank loan and high yield bond funds are doing a bit better than 2.7% and 1.5%, respectively. The conservative, short duration treasury bond funds are returning 2% while yielding 5% yield. (quite different from previous years). And that is good enough for us.

Excerpt from article below:

The Food and Drug Administration has fully approved the first drug shown to slow down Alzheimer's disease.
The action means that Leqembi, whose generic name is lecanemab, should be widely covered by the federal Medicare health insurance program, which primarily serves adults age 65 and older. So more people who are in the early stages of the disease will have access to the drug – and be able to afford it.
"It's not something that's going to stop the disease or reverse it," says Dr . Sanjeev Vaishnavi, director of clinical research at the Penn Memory Center. "But it may slow down progression of the disease and may give people more meaningful time with their families."
One reason is the drug's potentially life-threatening side effects, Vaishnavi says.
"I think [patients] are a little wary because they hear about bleeding or swelling in the brain," Vaishnavi says. "They are concerned, and I think rightfully so."
Another limiting factor is that the U.S. healthcare system simply isn't prepared to diagnose, treat, and monitor a large number of Alzheimer's patients, Pike says.
Leqembi requires an initial test to determine amyloid levels in the brain, intravenous infusions every other week, and periodic brain scans to detect side effects.

https://npr.org/sections/health-shots/2023/07/06/1186225580/alzheimers-drug-leqembi-gets-full-fda-approval-medicare-coverage-lecanemab#:~:text=The%20Food%20and%20Drug%20Administration%20has%20fully%20approved%20the%20first,adults%20age%2065%20and%20older.
Leqembi, from Japanese drugmaker Eisai and U.S.-based drugmaker Biogen, targets a type of protein in the brain called beta-amyloid, long thought by scientists to be one of the underlying causes of Alzheimer’s disease.
The treatment is $26,000 per year. Will see if and when insurance companies cover the medication and at what level of coverage.
https://nbcnews.com/health/health-news/leqembi-alzheimers-drug-fda-approval-eisai-biogen-rcna92377#

https://www.sec.gov/Archives/edgar/data/1317474/000089843223000450/form497-nbaf.htm
497 1 form497-nbaf.htm
Neuberger Berman Alternative Funds® (“Alternative Funds”)
Neuberger Berman U.S. Equity Index PutWrite Strategy Fund
Supplement to the Summary Prospectuses and Prospectuses, each dated February 28, 2023, as supplemented, and the Statement of Additional Information, dated February 28, 2023, as amended and restated March 3, 2023, as may be further amended and supplemented
The Board of Trustees of the Alternative Funds approved the conversion of the Neuberger Berman U.S. Equity Index PutWrite Strategy Fund (the “Mutual Fund”) to a newly organized series of Neuberger Berman ETF Trust (the “ETF”) (the “Conversion”).
The Conversion will be effected through the reorganization of the Mutual Fund into the ETF.
After the Conversion, it is anticipated that the ETF will continue to have the same portfolio managers and will be managed in a substantially similar manner as the Mutual Fund.
The ETF will not commence investment operations prior to its Conversion and the ETF’s shares are not currently being offered to the public, nor have they been approved for listing on any exchange. It is anticipated that the Conversion will occur during December 2023 or January 2024.
Prior to the Conversion, existing shareholders of the Mutual Fund will receive a combined information statement/prospectus describing in detail both the Conversion and the ETF involved in the Conversion. It is anticipated that the Conversion will not require shareholder approval. After the Conversion, it is anticipated that the ETF’s shares will be offered to the public and traded on an exchange.
It is anticipated that the Conversion will qualify as a tax-free reorganization for federal income tax purposes and that shareholders will not recognize any gain or loss in connection with the Conversion, except to the extent that they receive cash in connection with the liquidation of any fractional shares received in the Conversion.
Effective as of June 30, 2023, Rule 12b-1 fees on all applicable share classes for the Mutual Fund are waived.
The date of this supplement is July 7, 2023.
Please retain this supplement for future reference.
Neuberger Berman Investment Advisers LLC
1290 Avenue of the Americas
New York, NY 10104
Shareholder Services
800.877.9700
Institutional Services
800.366.6264
www.nb.com

June labor market data will be released on this Friday. It appears more jobs are created than expected.

From Barron’s, Private-sector employers added 497,000 jobs in June, nearly double the consensus forecast of 250,000 among economists surveyed by FactSet.

This spooked the market and more rate hikes are coming. Just about all bonds fell, except for bank loans.

Why are bank loans projected to be effected by maturity / refinance in 2024 if they are already making their interest payments through at least 9-12 months of 5% fed fund rates? Presumably they are floating rate loans and the rates have already been reset to the higher rates. I would think the general economy or the sector in which the debtor operates has to tank for the bank loan borrower to default. They have already shown they could manage the current interest rates, unless they borrowed more than needed for their business and are currently making the interest payments from that excess cash. This excess borrowing can not be a systemic problem in the bank loan area as much as it is in the HY area which tapped the public markets.

Perhaps the scare tactic of repeatedly telling retirees that they could outlive their money forces them to lean into equities. Advertisements seem to push this narrative - it's as if we will all live to be at least 95 years old.
Also, we all need at least $4M to retire....and gold is a fantastic (hedge) investment. Buy some now!

Good story.
It appears FOMO may have influenced several of the profiled investors.
I was surprised by the number of Vanguard investors over age 74 who had nearly all their money in stocks.
"In taxable brokerage accounts at Vanguard, one-fifth of investors 85 or older have nearly all their money in stocks, up from 16% in 2012. The same is true of almost a quarter of those ages 75 to 84."

https://www.reuters.com/markets/default-wave-imminent-will-peak-2024-deutsche-bank-2023-05-31/
From the end of May a very ominous forecast for the default rate on both junk bonds and loans in late 2024. If the default rates of 9% and 11.3% comes anywhere close to reality it would be one bad bear market for junk and bank loans. One positive is I have a treasure trove of such predictions over the past decade of the eventual demise of these markets based on default rates, debt maturity walls etc. that haven’t come close to reality.

James Mackintosh today warns of investors' "dash for trash."

...the riskiest part of the bond market has performed the best. The CCC-rated borrowers closest to default have returned 10% this year. The worst-performing are safe investment grade borrowers ... Just as junk-bond investors like the trashiest investments, big stocks with the weakest balance sheets ... are beating those with stronger balance sheets ...

Why? No recession which kept the marginal firms afloat and forced continuing high interest rates which plagued investment-grade borrowers. Even without a recession, refi is going to knife many of those companies which will ripple out. Mr. Mackintosh identifies three tiers of likely victims, starting with "the obvious disasters: super-speculative also-rans that financed themselves in the final stages of the post pandemic boom, mostly using SPACs, plus some debt-financed zombies that should have gone bust but were saved by zero interest rates."
A companion article, by Jon Sindreu, walks through the size and timing of the debt threat. Two special notes. First, ratings firms have not kept up with re-rating issuers in light of interest rate changes (some "marginal" firms might, in light of higher rates, below in the "dumpster fire" box). Second, the poop will hit the propeller in 2025 with the peak of the refinancing wave. ("Higher-for-Longer Rates are Debt Threat")
Debt investing makes my head spin but these struck me as useful yellow- or red-flags for prudent long-term investors.
On a marginally related note, Mr. Sherman's CrossingBridge Pre-Merger SPAC ETF (SPC) is a top 25% performer YTD in Morningstar's calculation, which considers it a financial sector equity fund with a return of 3.55%. Last year it was a top 1% performer when Morningstar called it as small-growth fund, with a 2% gain against its average competitor's 14% loss.

@MikeM and @InformalEconomist: Wasatch does have WAGOX, a global SCG fund, but it's really volatile and holds 57% US stocks. I also left GP, so obviously no suggestions for that firm. As for a more measured approach to global SC, I prefer either Pear Tree Polaris or Artisan. QUSOX, a foreign SCV, with 4% in US, mostly developed countries, <1% in China. My preference is for the new, thus untested over a complete market cycle, ARDBX, Artisan International Explorer. It has 8% in the US, quite a bit in Canada and Mexico, as well as large allocations to developed markets. It's slotted as a foreign SMID blend. Artisan is a really solid firm with a strong commitment to global investing. To say that they do not hire analysts right out of the nearby colleges and universities would be a polite way stating that they don't have the same culture as Grandeur Peak. Take a look at how long Artisan spent hiring the seasoned managers for ARDBX and getting the team acclimated before launching the new fund. There is ample documentation available on their professional website. From my experience, Artisan Partners do not regularly find themselves explaining why a disaster beset one or more of their funds.