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FINANCIAL INVESTORS TRUST: GRANDEUR PEAK FUNDS
GRANDEUR PEAK EMERGING MARKETS OPPORTUNITIES FUND
GRANDEUR PEAK GLOBAL MICRO CAP FUND
GRANDEUR PEAK GLOBAL OPPORTUNITIES FUND
GRANDEUR PEAK INTERNATIONAL OPPORTUNITIES FUND
GRANDEUR PEAK INTERNATIONAL STALWARTS FUND
(Each, a “Fund,” and together, the “Funds”)
SUPPLEMENT DATED FEBRUARY 12, 2021 TO THE SUMMARY PROSPECTUS AND PROSPECTUS OF THE FUNDS DATED AUGUST 31, 2020, AS SUPPLEMENTED FROM TIME TO TIME
Effective as of the close of business on February 26, 2021, the Grandeur Peak Global Opportunities Fund, Grandeur Peak International Opportunities Fund, Grandeur Peak International Stalwarts Fund and Grandeur Peak Global Micro Cap will no longer accept purchases, from new or existing investors, through financial intermediaries unless the purchase is part of
●a retirement plan which held the Fund prior to this closure,
●an automatic reinvestment of a distribution made by the Fund, or
●a de minimis annual rebalancing approved by a member of the Grandeur Peak client team.
Also, effective as of the close of business on February 26, 2021, the Grandeur Peak Emerging Markets Opportunities Fund will close to new investors seeking to purchase shares of the Fund through third party intermediaries subject to certain exceptions for financial advisors with an established position in the Fund and participants in certain qualified retirement plans with an existing position in the Fund.
The Funds remain open to purchases from existing investors, and to new investors who purchase directly from Grandeur Peak Funds.
The Funds retain the right to make exceptions to any Fund closure or limitation on purchases.
INVESTORS SHOULD RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
February 12, 2021
Dear Fellow Shareholders,
With the continued strength of global markets and the performance of the Grandeur Peak Funds, we find it necessary to announce the following fund closures effective as of market close on Friday, February 26, 2021.
Moving to Hard Closure:
Grandeur Peak Global Opportunities Fund (GPGOX/GPGIX)
Grandeur Peak International Opportunities Fund (GPIOX/GPIIX)
Grandeur Peak International Stalwarts Fund (GISOX/GISYX)
Grandeur Peak Global Micro Cap Fund (GPMCX)
Moving to Soft Closure:
Grandeur Peak Emerging Markets Opportunities Fund (GPEOX/GPEIX)
As you know, we carefully review capacity at both the strategy and firm level. We are committed to keeping our investment strategies nimble to fully pursue their investment objectives without being encumbered by their individual asset base or the firm’s collective assets. Achieving performance for our clients remains our paramount objective as always.
Funds Remaining Open:
Grandeur Peak Global Reach Fund (GPROX/GPRIX)
Grandeur Peak Global Stalwarts Fund (GGSOX/GGSYX)
Grandeur Peak Global Contrarian Fund (GPGCX)
Grandeur Peak US Stalwarts Fund (GUSYX)
Thank you for your continued trust. If you have any questions, don’t hesitate to reach out to me or a member of our Client Relations Team.
"Hard Closure": means that these Funds will no longer accept purchases, from new or existing investors, through financial intermediaries unless the purchase is part of: (1) a retirement plan which held the Fund prior to this closure, (2) an automatic reinvestment of a distribution made by the Fund, or (3) a de minimis annual rebalancing approved by a member of the Grandeur Peak client team. The Funds will remain open to purchases from existing investors, and to new investors who purchase directly from Grandeur Peak Funds. The Funds retain the right to make exceptions to any Fund closure or limitation on purchases.
 "Soft Closure" means that the Fund will close to new investors seeking to purchase shares of the Fund through third-party intermediaries subject to certain exceptions for financial advisors with an established position in the Fund and participants in certain qualified retirement plans with an existing position in the Fund. The Fund will remain open to purchases from existing investors, and to new investors who purchase directly from Grandeur Peak Funds. The Funds retain the right to make exceptions to any Fund closure or limitation on purchases.
I might call it a demisemi-hard closure. The hard closed funds will remain open for for two more weeks, and when they do close they'll remain open to direct investments including new accounts.
As an absurd example, consider a hypothetical fund with 20% in each of the FAANG stocks. Highly concentrated, yet it would have no problem taking in tons of cash, because it wouldn't have an impact on the stocks it held.
GPIOX and GPGOX each hold about 3/4% of Metropolis Healthcare. Not enough to move the needle, but GP as a whole has a fascination with this company. Should GP sour on the company, it might try to unload its 13% ownership. Regarding Dechra Pharmaceuticals, GP holds almost 1/4 of the company.
It's different when a large fund complex owns a sizeable percentage of a company, e.g. Fidelity (FMR) owns nearly 1/5 of Dechra. But that's spread over more funds with more varied objectives (albeit virtually all growth-oriented).
BCSIX has been soft closed since Oct 18, 2013. IMHO that's more a way of limiting hot money than it is to slow the growth of the fund. Forcing new investors to buy directly from Grandeur Peak similarly serves as an obstacle to traders. But additionally, GP's refusal to take money from existing investors through third parties will slow inflows in a way that BCSIX's soft close does not. IMHO the two sets of closures are not that similar.
I share some of your cynicism when it comes to management motives generally in closing funds. Ages ago I read a paper or two on how fund companies optimize profits by closing their funds late enough to allow the garnering of significant AUM, but not too late as to so harm their funds' performance as to induce outflows. Funds' performances were nevertheless harmed to some extent by delaying closures to optimize profits rather than performance. (FMAGX is a poster child for funds that close too late.)
BCOIX played the same game as GP - announcing its closing two weeks before it took effect.
In contrast, when Vanguard announces a fund is closing, it closes that day.
GP face two choices if GP let the funds open, they face two choices. If GP want own stocks in the same range of %, they need to buy many new stocks that may dilute their best ideas. The other choice is buy larger cap stocks with new $ that results in market cap creeping upward away from the charter of the fund. In the longer term, the fund performs quite different from the original benchmark.
Stay safe, Derf
I wanted to follow up with the GP folks before sharing anything. Exchanged notes with their president yesterday, and we've just sent this note to the folks on MFO's mailing list. I wanted to share if with you against the prospect that any of it is interesting to you.
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On February 12, Grandeur Peak announced their intention to institute a "hard close" for four funds and a soft close on one fund. A hard close is one that stops additional purchases by both new and existing shareholders; a soft close stops new investors from opening accounts. The funds affected are:
Hard closed: Global Opportunities, International Opportunities, International Stalwarts and Global Micro Cap.
Soft closed: Emerging Markets Opportunities.
Each of the affected funds returned between 30-50% in 2020; Global Micro Cap and Emerging Markets have already posted double-digit returns for 2021. The hard closed funds all have four star ratings from Morningstar and are MFO Honor Roll funds; in addition, International Stalwarts is an MFO Great Owl which signals consistently first-tier risk-adjusted returns.
The public explanation was "we carefully review capacity at both the strategy and firm level. We are committed to keeping our investment strategies nimble to fully pursue their investment objectives without being encumbered by their individual asset base or the firm’s collective assets."
I asked president Eric Huefner to talk a bit about the necessity to close a $60 million fund and the oddity of hard-closing one of their least capacity-constrained funds. He noted that Global Micro Cap closed on the day it was launched but has doubled in size in the past 12 months. That's due to modest inflows, "sticky" investors and a 50% return in 2020. Grandeur's goal is "total investment flexibility in the micro-cap arena"
The Stalwarts funds were created, primarily, to serve the needs of investment advisors who had worked with Grandeur for years but found that Grandeur's "core" funds were now closed and, hence, inaccessible to new clients. The suite of Stalwarts funds were designed to give investors access to Grandeur's style through funds that targeted slightly larger (hence, more liquid) stocks. The hope was that those funds would not have to close as quickly as the small- and micro-cap focused core funds. I asked about what had happened to limit capacity. Mr. Huefner noted that total capacity for the Stalwarts strategy - funds + SMAs, US/global/international - was in the $5-7 billion range with International having more assets than the other two combined. "We soft closed the Int’l Stalwarts strategy in June [but] the AUM in the International Stalwarts strategy has still grown more than 40% since then. Given the continuing rapid growth, it felt necessary to close it in order to preserve space for our other Stalwarts strategies."
If you believe that the market will continue on its recent trajectory, dominated by US large tech stops, then there's nothing much you need to do. If you believe that the market might be rotating in response to a new administration, a new environment or simple exhaustion, you might anticipate international outperforming domestic, developing outperforming developed, small outperforming large. These funds are at the vanguard of investing in those style.
Possible responses to their closing:
Check your target asset allocation, whether for the individual fund or the asset class it represents. Consider whether you want to make an additional allocation now, in an admittedly pricey market, to bring your investment in line with your target.
In my case, Global Micro Cap is my third-largest holding and represents 15% of my portfolio. As much as I'm delighted by its performance - 18% annually since launch - it would be hard for me to justify allocating more there now.
Consider alternative GP funds as options. The young Global Contrarian fund has an R-squared of 97 against Global Micro Cap. Both have substantial micro cap exposure (about 40%) with Contrarian's stocks being a bit larger and noticeably lower priced than Micro Caps.
Similarly, Global Stalwarts has a correlation to International Stalwarts of 98 and a nearly identical Sharpe ratio, annual return and maximum drawdown. Global is about 55% international.
Consider Rondure, Wasatch and Seven Canyons funds as options. All four families are driven by Wasatch alumni. While they have very distinctive perspectives and strengths, all have a shared perspective on global small- and micro-cap investing and a respect for their investors as partners. By way of example, Rondure New World (four star, $250 million) has an R-squared of 95 against Emerging Markets Opportunities and Wasatch EM Small Cap (four star, $520 million) has an R-squared of 93. These are all very solid advisors with investor-centered cultures and strong records, though not identical strategies. Between them, 11 of their 24 eligible funds (those with records of three years or more) have earned an MFO Great Owl designation.
So it appears one can still buy directly through the fund , YES or NO ?
I thought several of the funds were going to be "hard closed" to all investors. After reading the footnotes, it appears that the funds are closing primarily through financial intermediaries. This should signal to potential investors/existing investors that these funds may close at any time. At least by leaving the funds open through GP allows GP to control and monitor incoming monies into these funds.
Amy Johnson, MBA, CFP(R)
Sr. Manager, Client Relations
has been very helpful and quick to answer investor questions. She also has an email, which may be on the Grandeur Peak site.
Stay Safe, Derf
Spoke with Mr. Huefner again. Direct investors can continue to invest even in a hard closed fund, though Mr. Huefner notes that the amount of money directly invested "is a pretty small component" of the funds' assets. All retail investors in Global Micro Cap had to be direct but advisors were allowed to use intermediaries, so the closure stops them (and their potentially large inflows) from further investment.
Thank you Lewis Carroll.
The footnotes say the same thing that you were told. M* supposedly tags such funds as "limited" access, i.e. "limited to certain classes of investors", neither open nor closed.
I used to own GPMCX and GPGCX, but I now hold only GUSYX which has done well. I can’t understand GP’s reasoning for holding so many securities in a given fund. They say they comb the world for the best companies at good prices, which is fine, but I prefer more concentration. @msf has commented on the concentration in certain favorite stocks. I may have missed it, but I have seen no explanation from GP as to how their analysts can be traveling these days to keep tabs on several hundred companies overseas. Professor Snowball has spoken very highly of GP and his commitment to the firm.