M*, Day 3: notes off-the-record

David_Snowball

Things that folks said, not quite in passing but not quite for attribution:

Ralph Wanger won't be back. A fund manager had an exchange with him that went something like this:

Squirrel One: Do you know what my first quarter returns were?
Amiable Foil: Uhhh ... no, I don't.
Squirrel One: That's right! And neither does anyone else! (Laughing) I'm so happy.

Amit Wadhwaney (Marty disciple, ex-TAVIX) might well be. Perhaps within a year.

It's not exactly a rolling coup, but the fact that Third Avenue was introducing three new managers (for Value, International and Real Estate) at the conference wasn't inconsequential. Marty loves investing but didn't really love a fund company and so delegated those responsibilities to folks he thought shared his vision. Ooops. AMG + Ooops = change of culture, change of team.

Smead Value (SMVLX) will soon be getting cheaper. They're one of three or four boutiques that are either seriously reviewing fees or have committed internally to dropping them.

Litman Gregory Masters Alternative Strategies (MASNX) won't. Representatives of the fund seemed surprised that anyone thought they were overpriced. Their contention was that they charge fees below the Morningstar multi-alternative group average.

Insert "uhhhh" about here.

This is a damnably tough category to price because of the very variable nature of short expenses and the prevalence of fee waivers, some of which Morningstar doesn't credit. Here are the numbers as best I can find them:

MASNX, expenses ex shorting: 1.74%
MASNX, expenses including shorting: 1.91%
Median expenses, no-load multialternative: 1.65%
Average expenses, multialternative: 1.69%
MASNX, gross expenses before waiver: 2.06%

Worst in class expenses: 4.74%, Hatteras Hedged Alpha "C"
Number of multi-alt funds, all share classes: 429
Number of multi-alt funds with expenses reported in the M* database: 372
Number of multi-alt funds more expensive than 1.91%: 129
Number of multi-alt funds less expensive than 1.91%: 243

Number of no-load retail multialternative funds: 84
Number of no-load retail multialternative funds cheaper than MASNX: 59
Number of no-load retail multialternative funds smaller and cheaper than MASNX: 52
But number of those smaller, cheaper funds that outperformed MASNX in 2013: 18/52
Number of smaller, cheaper funds that outperformed MASNX over the past 12 months: 25/52

Here's the inception-to-date picture.

Bottom line: clearly expensive, but not clearly overpriced.

For what it's worth,

David

ET91

Hi David, I wasn't aware that Third Avenue real estate has a new manager. Last I checked Winer and Wolf were lead portfolio managers. I think that Winer might retire at some point but I wasn't aware about a new portfolio manager.

heezsafe

Awwwwww, no, say it ain't so, re. Third Avenue. I just felt it in my bones it wasn't going to be limited to a single fund but was hoping the vibe was wrong.
Sooooo, where does that leave us? "Hanging" (open to all meanings)?

@David_Snowball
Did Artisan see you coming and run away? [Keep hope alive; yours expectantly, xxxx]

rjb112

David_Snowball said:

Smead Value (SMVLX) will soon be getting cheaper.............Litman Gregory Masters Alternative Strategies (MASNX) won't. Representatives of the fund seemed surprised that anyone thought they were overpriced. Their contention was that they charge fees below the Morningstar multi-alternative group average.

Insert "uhhhh" about here.

David

David, thanks very much for addressing the expense ratio issue with them, and for your analysis. Very much appreciated. Looks like they are a bit clueless and moderately in denial regarding their fees, and also playing the game that 'if others charge a lot, we can charge a lot'. They say they charge less than the M* multi-alternative group average, yet M* says their expense ratio is "above average!" They have 4 management teams sub-contracted to run the fund, Jeffrey Gundlach, the FPA Crescent team, a Loomis Sayles Team, and the Water Island Capital/Arbitrage team. And there's nothing that these 4 teams are doing that warrants an expense ratio of 1.91%. The proof of the pudding is found in looking at the expense ratios of these team members' own individual mutual funds. They have no problem executing their strategies on their own with reasonable expenses........

But you gave it a very admirable, old college try. Thanks.

David_Snowball

Two quick updates on a travel day

To ET91: you're right. The new guy is doing Value and Small Cap, not Value and Real Estate.

To heezsafe: I'll post manager notes later today. Talked at length with Mr. Krug and a couple others. Also tracked down several interesting fund leads.

More soon!

David

Charles

Thanks David. Good to hear SMVLX is getting cheaper. Hopefully, the new er will not exceed 1%.

David_Snowball

99 bps, I believe.

Charles

Very cool.