Monthly Archives: November 2016

November 1, 2016

By David Snowball

Dear friends,

I walked along today, kicking leaves, marveling at the maples, crunching through my last Golden Russet apple and wondering at the tension between local delight and global despair. Things are good in my life. My classes are full and my students are … hmmm, fascinating in a “bright but so very different from what I recall” way. My son just earned his driver’s license and I bought him a respectable used car. I harvested my first-ever potato crop and the last of my carrots and onions, so roasted root veggies are on the menu this week. I’m happy.

The world beyond mine is less happy. Weather forecasters report that Halloween temperatures in much of the country are at mid-summer level, the eastern US – from the Gulf Coast to New England – is trapped in drought, a condition which climatologists think might linger in California for several decades. While we’re distracted by the most dispiriting presidential campaign since, perhaps, the Civil War, several diminutive dictators are exploiting our preoccupation by raising global tensions, unchallenged. And perhaps a third of our brethren are so discouraged about their children’s future that they see a prancing, prattling mountebank as their last, best hope.

And yet, hope endures. More amazing people are putting more thought and energy in the questions of environmental sustainability than ever before. Some of what they’ve found, from sidewalks that convert sunlight to power to the first breakthroughs in carbon capture, is startling. Nations did join together to ban one incredibly powerful greenhouse gas, and to boot Russia out of the U.N. human rights agency. Finding ways to talk with, rather than shout about, those with whom we disagree, is rising on the post-election agenda. It’s certainly on my academic department’s agenda as we imagine the new curriculum we’ll create as Augustana moves to semesters. And I’m hopeful that November 9th feels a lot better than November 7th.

Mea culpa. Mea maxima culpa.

Apologies to the folks at Grandeur Peak and their shareholders for a needlessly worrisome snippet. Last month I reported on a couple changes to the Grandeur Peak prospectuses which seemed to imply a somewhat-tighter close. Wrong! Eric Huefner, GP’s president, explains the reality of the change:

The Global Micro Cap Fund remains hard closed (it was closed the day it opened on 10/20/15, and was officially hard closed as of 12/31/15).  Under the hard closure, there has been an exception for just those shareholders who hold the Fund directly through Grandeur Peak Funds to be able to purchase additional shares of up to $6000/year, during each calendar year.  As of 9/1/16 we made one very minor change to this, which was to increase the annual limit from $6000/year to now be $6500/year (simply to match the IRA annual Catch-Up limit for those who are investing in this Fund in their IRA).

Thanks to Eric for the clarification. Apologies to all of you for any miscommunication.

Good stuff in the Observer this month!

Leigh Walzer of Trapezoid LLC continues offering sharp, quantitative analyses. This month’s focus is on, well, focus. Our colleague Charles Boccadoro lifts the hood on the Vanguard Quantitative Equity Group. Ed Studzinski surveys the swirling mess around us and recommends caution: avoid conventional wisdom, appreciate cash, ease away from bonds and hold on.

With the return of capital gains season, we’ve also returned to capital gains distribution coverage. Mark Wilson, proprietor of The Cap Gains Valet, offers some preliminary observations on the evolving capital gains season and word on changes at his site. The ever-faithful folks on MFO’s Discussion Board have begun compiling their annual list of announced distributions. Thanks to The Shadow for coordinating it and all of the folks on the board for keeping it current.

There’s more, all of it now easily accessible from our new table of contents page.

In response to several reader requests, Chip and Andrew have added two cool new features for you. First, it’s easier than ever to get back to seeing our traditional layout, which we call “the long scroll.” It turns out that the scroll is helpful to folks who rely on vision augmentation technology and really comfortable to others who’ve become accustomed to it over the past 15 years or so. Second, it’s easier than ever to print and save individual articles. We’ve adapted our stylesheet to accommodate a print layout and added a printer icon to every story. We hope you like the changes.

Thanks for your support of the Observer

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Thanks, in particular, to David from Beaver Dams, NY, Donald from Indiana and to our now three (!) regular subscribers, Greg, Deb and Jonathan. We couldn’t do it without you.

As the holiday shopping season approaches, please do consider using the Observer’s link to when you can. It costs you nothing and earns the Observer 6-7% of the value of your purchases.

As ever,


Concentrated Solutions

By Leigh Walzer

Last month we discussed  Nuance Concentrated Value Fund (NCVLX.) The fund had some big exposures to less liquid names and the strategy was nearing its capacity. At some point the advisor is likely to soft-close the concentrated fund but continue to grow the smaller and more diversified midcap fund.

It is not unusual that fund purveyors offer a version with a higher concentration of the manager’s high-conviction ideas. Sometimes you can spot these derivative funds based on names like Focused or Select Opportunities.

Generally, the concentrated version is smaller and more active. Sometimes (as with Nuance) the portfolio management team overlaps but is not identical. The investment focus can also differ slightly. The concentrated version tends to carry slightly greater fees and expenses.

When the same advisor manages multiple funds in the same space, giving an extra dollop of the manager’s best ideas to one fund seems like a delicate balancing act. After all, the advisor owes an equal fiduciary duty to all funds. The manager can rely on differences in stated objectives, fund flows, and personnel as safe harbors.

Should you seek out amanager who runs a concentrated fund? You are attracted to the fund because you believe the active manager is worth his salt and can beat his benchmark. If you aren’t hampered by diversification requirements, shouldn’t you choose the fund that has more of the manager’s best ideas?

In the June 2016 edition of Mutual Fund Observer, Professor Snowball quoted Eric Cinnamond of Aston River as follows:

Just like with processed food, investment fillers are often there just to fill up the portfolio, but often provide little value and in some cases can be hazardous to your health!

Mr. Cinnamond was making the point that investors might be better off with a manager who just holds extra cash instead of diluting his portfolio with low conviction ideas or a closet-index sub-portfolio.

We tend to agree. Our evaluations do not punish managers whose returns are weighed down by large cash balances

Concentration makes good managers better and bad managers worse. But on average [it] hurts everyone

But for funds running concentrated portfolios the reality is more complicated. To test this, we studied funds in our database of actively managed equity funds with a concentrated fund overlapping a more diversified portfolio under common management. Excluding funds with insufficient history we identified 70 conjugate pairs; we compared manager skill the three years ending July 31, 2016

By way of explanation: The figures in the article are based on Trapezoid’s sS metric. Skill is the manager’s value added from security selection and other factors. Our methodology backs out the manager’s factor exposures and weightings to arrive at a true measure of whether the manager delivered value relative to a similarly constituted passive portfolio. Fund expenses are not reflected in our skill metrics including sS. But we consider separately whether a manager’s historic and projected skill justifies what he charges. The methodology behind our approach is explained at the FundAttribution website. Additional information, including free demo, is available to eligible MFO readers. We are not considering here differences in expense ratio.

What we found: 39 times out of 70, the concentrated fund did worse. On average the skill differential was 40 basis points per year, a noticeable shortfall.

To some extent, concentration makes good managers better and bad managers worse. But as the trendline in Exhibit I suggests, on average concentration hurts everyone. This is truer for the focus funds over $1bn AUM. Larger focus funds may be constrained by capacity limitations. In other words, the focus funds are fishing more intensively in a small pond. When the fund gets too large, the pond is overfished and returns suffer.


You will notice the scatterplot in Exhibit I is skewed to the lower left. This means the 70 funds are a relatively unskilled bunch, with an average annualized sS of -.53% (and -1% on an unweighted basis.) Had we picked the funds at random, the odds of that occurring are exceedingly small. Our take way: the more skilled managers don’t choose to run several overlapping funds in parallel. Maybe they don’t feel the need, maybe it signifies something about their firms’ investment and marketing culture.

Here are a few examples where investors can choose between a diversified and concentrated portfolio.

Columbia Acorn  

Columbia markets the Columbia Acorn Select Fund (CACIX) as a concentrated version of its $5 billion Columbia Acorn Fund (CANIX). Currently, Acorn Select manages just over $300 mm. Expenses run 10 basis points higher than the diversified fund. Although the portfolio managers are different, 26 of CACIX’s  31 positions come from the big fund as of June 30, 2016 — the acorn doesn’t fall far from the other acorn. The average position weighting in CACIX is 4x that of CANIX. Annualized sS for the Acorn Fund was -2% over the 3 years ending July 2016. The concentrated version of the fund registered sS of -2.3% over the same period. One interpretation: the focused portfolio effectively magnified some bad bets. While Acorn Fund did poorly the past 3 years, the long term record for CANIX is positive. Although Acorn select has historically lagged the big fund, it has outpaced CANIX in recent months.

Capital Growth – Playing Offense

In a piece two months ago entitled Playing Defense, I excoriated managers who rest on their laurels by hewing close to the index while charging very active fees. Playing defense is never an issue with Capital Growth (“CGM”). CGM, based in Boston, is managed by the legendary Ken Heebner. Heebner compiled a pretty good track record at Loomis Sayles and the CGM Focus Fund (CGMFX) was ranked by some people as the #1 in its category for the decade ending 2007. However, the fund lost its mojo and has ranked close to the bottom ever since. Assets are down 90% from peak levels.

CGM Focus Fund has an 80% overlap with CGM Mutual Fund (LOMMX), one of the oldest mutual funds in the country. But CGMFX uses a combination of leverage and focus to sharply overweight the largest holdings while LOMMX runs with negative leverage, allocating 25% to 2 year T-bills. Even excluding the impact of financial leverage and factor exposures, CGMFX has given investors a much rougher ride over the past twenty years. If you invested $1 in CGMFX at June 30, 2016 roughly $.80 would be allocated to homebuilders, building products, and money center banks. These sectors have been untimely and volatile. CGMFX over-weighted two high conviction names: Lennar, which outperformed the homebuilder indices, and Toll Brothers, which lagged. In recent years, sS in the more concentrated CGMFX portfolio has been running neck and neck with that of LOMMX; most of the difference in returns is attributable to portfolio leverage. Investors may excoriate CGM for being wrong and losing boatloads of money, but at least the manager retains the courage of his convictions. Heebner is a prognosticator’s nightmare. But our statistical model gives him a 20% of justifying his 1.13% expense ratio over the next 12 months.

cgm-focus-fundBaron Midcap

Baron runs a number of funds which address the midcap growth space including the 5 listed in Exhibit II.


It appears that all these funds draw on the same stable of 60 mid cap growth ideas. Baron Opportunity Fund (BIOIX) blends in 30% large cap exposure (including 20% FANG stocks.) Baron Partners (BPTIX) focuses on 30 names and employs 30% leverage. Baron Asset Fund (BPTIX) targets somewhat more mature names but still has a 50% portfolio overlap.

Not all the names in Baron Focused Growth Fund (BFGIX) come from the much larger Baron Growth Fund (BGRIX) portfolio (overlap is only 40%), but the funds are very similar in makeup — except Focused Growth takes bigger positions. Positions from Baron Growth over-weighted in Focused Growth include Vail Resorts, Costar, and Factset Research. Focused Growth also has a 75% overlap with Baron Partners including positions such as Tesla Motors and Hyatt Hotels. Roughly 10% of the ideas are drawn from other Baron portfolios and 5% are unique to this fund.  In our estimation, the focus hasn’t helped. sS over the 3 years ending July has been -2.6% for Focused Growth compared to -1 to -1.5% for the constituent funds.


Despite the nomenclature, Delaware Select Growth Fund (DFSRX) is a broader version of Delaware US Growth Fund (DUGAX). Both funds are actually managed by Jackson Square, a Delaware spinoff. Roughly 80% of the DUGAX portfolio is drawn from positions comprising 50% of DFSRX. Over the past 3 years, the more concentrated portfolio has done considerably better, measured in returns and sS. However, over the longer haul, the two funds have similar return and skill profiles

Bottom Line:

In theory concentrated funds offer investors more bang for the buck based on greater exposure to a skilled manager’s best ideas. But on average they don’t deliver extra value to the investor, even before considering fees. For whatever reason, the most skillful managers in America seem to avoid these structures. Strategy capacity matters; as the assets in the strategy grow, keep a close eye on the manager’s ability to continue to execute his strategy. Investors should also value fidelity to the strategy on which the manager built his track record.

Slogo 2What’s the Trapezoid story? Leigh Walzer has over 25 years of experience in the investment management industry as a portfolio manager and investment analyst. He’s worked with and for some frighteningly good folks. He holds an A.B. in Statistics from Princeton University and an M.B.A. from Harvard University. Leigh is the CEO and founder of Trapezoid, LLC, as well as the creator of the Orthogonal Attribution Engine. The Orthogonal Attribution Engine isolates the skill delivered by fund managers in excess of what is available through investable passive alternatives and other indices. The system aspires to, and already shows encouraging signs of, a fair degree of predictive validity.

The stuff Leigh shares here reflects the richness of the analytics available on his site and through Trapezoid’s services. If you’re an independent RIA or an individual investor who need serious data to make serious decisions, Leigh offers something no one else comes close to. More complete information can be found at MFO readers can sign up for a free demo.

Ten million miles high

By David Snowball

Technically, 10,315,656 miles high.

The IMF reported in October that global debt, government, corporate and individual, is now $152 trillion. (That’s $152 followed by 000,000,000,000.) That’s historically high, both in absolute terms and relative to global GDP. And it’s not limited to slow-growing developed economies; increasingly emerging markets are issuing debt at a record pace.

Folks at the Endowment for Human Development, who have either spiffy calculators or too much free time, calculate that a stack of $152 trillion one-dollar bills would stand ten million miles high. Pluto and CharonLaid end-of-end, they’d stretch 14.4 billion miles. That is, to Pluto.

And most of the way back.

That wasn’t supposed to happen. The watchword after the global financial crisis was “deleveraging.” In simple terms, paying down your debts. Debt-driven spending set the stage for the 2007-09 crisis and, in its aftermath, people were supposed to get prudent, pay off their credit cards, balance their national budgets, and finance corporate operations from free cash flows. Prudence would, in the short term, depress global growth by depressing demand. But, in the long term, it would better position us for strong, sustained growth.

Good luck with that.

Instead of deleveraging, we’ve added $50 trillion in debt since the start of the crisis, raising the global total from $102 trillion to $152 trillion. Why? Central bankers were terrified of the prospect of a global depression, perhaps a new dark age.

They first drove rates toward zero, then to zero, then below zero. There are now $10 trillion in negative interest rate bonds in circulation, primarily in Europe.

In 1932, a Saturday Evening Post reporter asked the great British economist John Maynard Keynes if there had ever been anything like the Great Depression. Keynes replied, “Yes. It was called the Dark Ages and it lasted 400 years.”

People responded rationally by borrowing more because savings didn’t pay (the five-year return on Vanguard Prime Money Market VMMXX is 0.10%) and lenders were pretty much giving money away. Investors, professional and otherwise, started buying riskier assets (dividend-paying stocks, for example) to try to earn enough income to cover their obligations. And governments rushed to capitalize. Belgium and Ireland have now issued their first 100-year bonds. Austria is selling 70-year bonds. Italy, Spain, France and Belgium all sold 50-year bonds this year. Those bonds are paying less than 1.2%.

“Most hated bull market”

A search for the phrase “most hated bull market” returns 4700 results. That reflects the received wisdom that this is the MHBM. Wall Street’s cheerleaders call on you to “love the bull.”

Bull indeed.

It’s more accurate to call it the “most despised bull market” instead, because that captures analysts’ disgust with it. At base, this bull should have died four years ago from weak fundamentals and high prices. Instead, it staggers on.

It is The Zombie Bull Market, animated by unholy practices: low interest rates make borrowing free, executives use borrowed money to underwrite stock buybacks and dividends which, for now, makes their shareholders and themselves rich.


That makes sense only if you think inflation will average under one percent annually for the rest of this century (perhaps because of the aforementioned dark age). If inflation exceeds 1.2%, you lose money. And if interest rates go up, you lose a lot of money.

The rule of thumb is that a 1% interest rate rise depresses the value of a bond portfolio with an average maturity of 10 years by 10% and a 30-year portfolio by 30%. One wonders what the consequences would be for a 100-year portfolio?

Corporations have issued vast amounts of debt in response to the offer of free money and have badly misused the proceeds. J.W. Mason, economist at the liberal Republican Roosevelt Institute, found that only 10% of borrowed money goes into productive use. Much of the rest is used to buy back stock and underwrite dividends. An October 2016 FactSet Research report shows that companies now routinely payout more than they earn. Goldman Sachs concluded that the stock market’s entire return in 2015 was attributable to dividends.

Issuing 10-year debt that produces a one-year “pop” in your stock price makes a world of sense if you’re an exec who’ll be retired or snatched up by another firm in the next three years. It makes rather less sense for those left holding the bag.

If interest rates rise 1%, debtors are going to need to find $1.52 trillion dollars to cover the additional interest payments to their creditors. Bondholders, meanwhile, are going to see the market value of their existing bonds – that is, the amount they could get if they tried to sell them to somebody else – drop precipitously. It’s hard to imagine that this is going to go smoothly. The IMF put it mildly: “financial crises tend to be associated with excessive private debt levels.” On October16, Washington Post economics columnist Robert J. Samuelson allowed that it might “possibly trigger a major financial crisis … [though] whether or how this might become a full-blown crisis is uncertain.”

Traditionally, the stock market’s best period runs from November through early spring. Our collective insistence on electing either The Regular Crazy One or The Catastrophically Crazy One and the temper tantrum likely to follow either outcome, is not helpful. The Fed has reportedly been holding back on a rate increase until after the presidential election, for fear of influencing its outcome. Economists now guess there’s a 70% chance of a rate hike in December. The best argument that stocks aren’t crazy expensive is that they’re still a better value than bonds paying zero. If bonds cease paying zero, that argument is weakened.

What’s an investor to do?

Excellent question! Damned if I know the answer.

Here are our Top Ten recommendations:

  1. Don’t be stupid. This is not the time to rush into a fully invested, market cap weighted ETF, index fund or closet index. By their nature, they accelerate as we approach cliffs then fall fast and hard when the market goes over them.
  2. Don’t be stupid. Don’t try to protect yourself by investing in strategies that you can’t explain or, worse, which the manager can’t explain to you.
  3. Don’t be stupid. Don’t invest with a manager who still has training wheels on; there are a lot of funds being launched that try to escape the all-ETF-all-the-time temptation by offering tricky strategies that have only worked in computerized back-tests but not in the real world. Let them practice with somebody else’s money.
  4. Don’t be stupid. Don’t wait until you’re in a panic, personal or otherwise, to make a financial plan. Talk it through now. Write it down. Write the paragraph on a piece of paper: “I don’t care what the stock market does when it’s panicked. I won’t let other people’s panic force me into making mistakes. I promise myself and my family that I will not sell anything for the next 12 months.” Then explain it to your family and stick it on the refrigerator door. The inimitable Jason Zweig goes a step further. Keynes was a good investor not because he was always right but because he was always resolute. Drawing on that lesson, Mr. Zweig advises you to “write a bind contract with yourself, witnessed by a friend or family member, committed you to buy more stocks when they fall 25%, 50% or more.” The refrigerator still works as a bulletin board for it!
  5. Really, resist the temptation to be stupid.
  6. If the past predicts the future, you could try to ride the dividend-stock wave. Timothy McIntosh argues, in The Snowball Effect (2016) that during the four great bear markets in the past 110 years, “The only reliable way to make positive returns during secular bear market periods is to invest in dividend-paying stocks.” I’m skeptical because dividend-paying (and low volatility) stocks have been dramatically bid up, but I could be wrong.
  7. Tilt toward what’s cheapest. The Leuthold Group argues that valuations in the emerging markets are downright cheap and that they are, in developed markets outside the US, no higher than “neutral.” That’s led a number of global stock fund managers to lighten their US exposure, if not flee.
  8. When there’s nothing good to buy, don’t buy anything. That is, hold cash and wait. In the past 12 months, Vanguard Total Stock Market Index (VTSMX) is up 3.5%. Unless you believe things are fundamentally better now, that’s a proxy for the cost of lightening up on your investments; you might miss out on a two or three percent gain. As Jason Zweig observes, “with stocks still not far from their record highs, sitting on some cash is a better idea than ever” (WSJ, 10/14/16).
  9. Trust your money to the people who have earned your trust. In May 2016, we profiled the Dry Powder Gang, the small handful of fund managers who refuse to put your money needlessly at risk. They are resolute when you are wavering and they have, over time, richly rewarded investors who didn’t get greedy and bolt. This month we’ve tracked down the 25 funds that had the best risk-adjusted returns in the 2007-09 market crisis and identified those which have continued to perform exceptionally during the relentless bull that followed. (See Counting The Winners.)
  10. Celebrate life. You used to do that more than you do now. You should get back to it. Here’s a start: go out to dinner with your family and intentionally leave your cell phones at home! Eeeeeeeeeee! You can tell that I wrote that suggestion on Halloween. It’s scarier than the headless horseman!

Priceless – Worth Absolutely Nothing!

By Edward A. Studzinski

“Under this flabby exterior is an enormous lack of character.”

  Oscar Levant

This has proven a rather difficult time to write something and feel that you are either (a) not repeating things you have said before or (b) speaking with the certainty that you are offering some genuine insight that will prove advantageous to our readers as they pursue their investment programs. For those reasons, I will endeavor to be brief, which will probably result in my being more obscure in my comments than usual. I offer thus a number of random thoughts which should hopefully raise questions without providing any answers.

A friend of mine in the public finance/investment banking business attended a conference on private equity investments recently. The takeaway was that some eighty per cent of private equity funds are finding their new investments by purchasing them out of existing private equity funds that have a need, as limited life funds, to liquidate investments. Thinking this a little strange, as I had recently heard a Boston-based investment consultant recommending that endowments in particular should increase their allocations to private equity, I raised the question with a Boston-based hedge fund manager with a superb long-term record. His response – yes, we are seeing musical chairs being played now. It will be interesting to see what happens when the music starts to slow more than just incrementally. The other question this begs is the potential for having rather subtle conflicts of interest when your endowment committee consists of too many private equity managers from the same community or same part of the country, where both fee structures and business models suffer from a distressing sameness.

The question I would ask is whether we are seeing the same madness in the public investment arena? With the increase in assets held in index funds, where the shares are purchased and sit unless the funds are hit with redemptions or the composition of the index changes, are the so-called active managers, especially the closet indexers (see this weekend’s excellent article on that group by Jason Zweig in the Saturday Wall Street Journal) also engaged in a game of musical chairs. And what of those mutual fund portfolio managers who adhere to a strategy of “regression to the mean” investing? A corollary question – is a regression portfolio manager worth eighty or ninety basis points as a fee?

The great unanswered question of course is whether interest rates are finally due to increase (by themselves) or as a result of the decisions of the Federal Reserve. I am one of those who thinks that the Fed waited far too long to raise rates, and has done immeasurable and lasting damage to the savings of middle class Americans. This was all done in the name of stimulating employment in a weak economy. Unfortunately that was done without thinking through what kind of job creation we needed in a twenty-first century economy. So the Fed is left without a lot of wiggle room if the domestic economy does fall off a cliff in the next twenty-four months.

Finally, we have the play out of BREXIT as well as our Presidential Election. Much has been written about BREXIT and what it means to Britain’s economy and that of Europe. I don’t think anyone knows the answer now, after four months going on five. I doubt that anyone will know the real answer for at least another five years. So perhaps there should be a focus on those things that are not so much luxuries that are in occasional demand, but rather the necessities of everyday living (or national survival, such as national defense).

Which brings me to our election? Other than uncertainty, who knows? What does it mean? I doubt very much we will know for some time. We are faced as they say, with choosing the evil of two lessers. It was reassuring to see, again in the weekend Wall Street Journal, that we have been through such contentious periods before. If anyone doubts that, they should research the election pitting Andrew Jackson against John Quincy Adams. It was decided by the House of Representatives. And if we survived that, we should be able to survive what we may face in coming days.

Which leaves me with the question of how to invest at this point in time? My primary suggestion is that you avoid the conventional wisdom. Look for investments that are uncorrelated with other investments. I still consider cash to be the undervalued and underappreciated asset. And indeed, as fears of the ability of money market funds, especially in the tax exempt area, to break the $1 price per share have surfaced, investors had briefly been presented with some greater arbitrage opportunities than they have seen in recent years, assuming those same money fund managers did not raise their fees back to recoup lost income. Bonds, except for the very short-term ones, should be avoided. And equities range from fair to over-valued, so tread very carefully and understand what you own. And also understand whether the equities you own represent a large and constituent weighting part of indices such as the S&P 500.

Good luck!

Always Late to the Party, or Understanding Investment Biases

By Robert Cochran

It’s a funny thing, momentum. Some investments can do nothing at all for years, then suddenly produce very strong performance numbers. At the same time, other investments will have years of consistent out-performance and then, seemingly overnight, crash and burn. More often than not, these behaviors happen to individual stocks and sector funds, although some diversified funds fall victim to similar behaviors. Investors themselves often act in ways that lead to their own crashing and burning, causing them to think they are always late to the party, or that the punchbowl was taken away just before they arrived.

Behavioral finance is the study of individual investor behavioral biases, and there is a lot of material readily available to those interested in the subject.

Some biases are cognitive, meaning they are based on so-called rules of thumb that may or may not be factual. Here are a few of the most common.

  • The Bandwagon Effect: John Templeton was one of the world’s greatest value investors, suggesting that the time to buy was when blood was running in the streets, when everyone was shouting “Sell, Sell!” Resisting the crowd of lemmings, especially when you are standing in their path, is darned hard for many individual investors.
  • Negativity Bias: Liz Ann Sonders has termed the 2009-2016 (and still going) period the most unloved bull market in history. How many people bailed out of the market in late 2008 and early 2009 and have been sitting on the sidelines since? They have missed one of the biggest recoveries ever, and will likely never recoup their losses. But they remain stuck in cash, fearing another imminent crash, or paralyzed because of political bias, or both.
  • Confirmation Bias: Virtually all of us are guilty of this to some extent. We latch on to views that are similar to our own, and we ignore or avoid those with which we disagree. Confirmation bias can manifest itself in the television programs we watch, the radio programs we like, how we view the economy, the politicians we support and those we dislike, and for sure how we invest.
  • Status-Quo Bias: Those of us who have pets know how they are creatures of habit. We get a kick out of watching them follow the same behavior patterns over and over again. But investors are also creatures of habit. We tend to have a very small group of funds that we use again and again, rather than looking at new ideas that might offer greater diversification, lower expenses, less volatility, etc.

Emotional biases can be even more ingrained, and they are harder for us to overcome.

  • Loss-Aversion Bias: We have all experienced this bias, most often in the form of a stock we purchased that was a “no brainer” great idea. Unbelievably, the stock tanked and we continued to hang on, not because we had realistic expectations it would recover. After all, if we hold the stock, we don’t have to admit to ourselves it is a loser. In the meantime, the value continues to decline, robbing us of the opportunity to re-deploy proceeds into something better. Experience can play a huge part here, as psychologists agree that people remember losses “forever”, while they tend to forget the good times.
  • Misplaced Expertise Bias: Someone has worked in the high-tech industry and thus believes they have greater ability to pick tech stocks than professional traders/investors. Or they have an uncle that worked in the pharmaceutical industry, who loves telling everyone what great investing ideas he has. More often than not, the picks turn out to be disastrous.
  • Mental Accounting Bias: For some people, an investment inherited from their parents is sacrosanct – not to be touched, no matter what. People can be emotionally tied to certain investments. If it was a gift, or if it was inherited, it is looked at differently.
  • Hindsight Bias: We have all said or thought “I knew that would happen.” It is a way for investors to think something was really more predictable than it actually was. So-called experts will look back at the com bubble and point to rather trivial things at the time and suggest they were predictors of trouble. In truth, if something was indeed that obvious, more investors would have avoided the bubble. Thinking we can predict the future (we are smart people, after all), is akin to fortune telling. But, of course, we would never use that term to describe our predictions.

These biases can affect individual and professional investors. Professionals are more likely to have access to tools that will help them recognize and limit their biases, but they are there nonetheless. The important thing is to recognize our biases and try to minimize their impact on our actions.

Here are some ways to adjust your behavior:

  1. Stop thinking you can outsmart the markets. Forget trading. Trade less, and invest more. Don’t think you can beat computer programs and institutions. Lengthen your time horizon.
  2. Set rules for yourself. When you buy a stock or ETF, set both high and low targets at which you will sell. If nothing else, set a trailing stop that will lock in gains. Don’t allow your emotions to break these rules.
  3. Don’t allow noise to affect your investment decisions. Remember that broadcast media is almost forced to hype things to the extreme to generate advertising revenue. The wilder their predictions and the louder their shouting matches, the greater their number of viewers.
  4. If you think you have discovered a trend, know that the market already identified it long before you did. When an unloved sector suddenly starts to get attention from pundits, it has probably already produced significant gains.
  5. Establish an overall investment allocation that is in line with your cash flow needs, your risk tolerance (sleep factor), and your long-term goals. Be realistic with each of these factors. Then if you have the urge to sell out of stocks every time there is a correction, or if you want to increase your stock allocation when the markets are doing well, don’t do it. Remind yourself that the allocation is there for specific reasons.
  6. Re-balance on a regular basis. This may be as important as anything, and it may force you to capture gains from the best performers, and move dollars to the unloved.

While these adjustments may go against a number of your biases, they might let you arrive at the party before anyone else and have first dibs at the punch bowl.

Vanguard’s Quantitative Equity Group

By Charles Boccadoro

Our colleague Ed remained curious about Vanguard’s Quantitative Equity Group (QEG) after we reported on our brief conversation with John Ameriks, head of QEG, at Morningstar’s ETF Conference last month. So, we reached out to Vanguard with a few follow-up questions.

ameriks_john_11_John’s group has been in existence for 25 years and currently maintains $30B in assets under management (AUM). While just a small percentage of Vanguard’s overall AUM, QEG manages ten times more money than Joel Greenblatt’s Gotham Funds or John Montgomery’s Bridgeway Funds, three times more than Longleaf or Tweedy Browne; in fact, QEG’s AUM exceeds that of notable firms like Royce, Parnassus, FPA, TCW, Matthews, American Beacon, and Waddell & Reed. It is on par with the quant heavy-weight started by Cliff Asness … AQR Funds.

What are the specific funds QEG manages?

Sole manager mandates are:

  • Global Minimum Volatility (VMNVX)
  • Market Neutral Fund (VMNIX)
  • Managed Payout Fund (VPGDX)
  • Alternative Strategies Fund (VASFX)
  • Structured Broad Market Fund (VSBPX)
  • Structured Large Cap Fund (VSLPX)
  • Strategic Equity Fund (VSEQX)
  • Strategic Small-Cap Equity Fund (VSTCX)
  • US Value Fund (VUVLX)

QEG also has sub-advisor (“multi-manager mandate”) roles in six other Vanguard US funds, including Explorer Fund, Equity Income, Windsor II, Growth and Income and two insurance products. It has both sole-manager and multi-manager mandates in more than a dozen overseas funds and ETFs, including UK, Australia, and Canada with similar strategies to its US quant mandates. Finally, it manages three separately managed accounts totaling less than $1B.

Regarding the multi-manager mandates, John writes:

The multi-manager approach was first adopted by Vanguard in 1987, and 18 of Vanguard’s actively managed U.S.-domiciled equity funds currently employ this structure. Vanguard believes the combination of high-caliber investment management teams with differentiated but complementary strategies can reduce portfolio volatility, provide potential for long-term outperformance, and mitigate manager risk.

David first profiled Global Minimum Volatility in April 2015, when the fund was about 16 months old. It had $700M in AUM back then, now it has $1.7B. (See also On Financial Planners.) Its performance since inception? Eye-watering. It has beaten its 54 peers in Lipper’s Global Multi-Cap Core category by an average of 7.6% total return per year with less than half the downside volatility. The nearly 3-year old fund is a top quintile performer by every measure in MFO’s rating system: Martin Ratio, maximum drawdown, recovery time, standard deviation, downside deviation, Ulcer Index, Sharpe and Sortino. It has a Bear Rating of 1 … best possible.

min_volSimilarly, QEG’s younger Alternative Strategies Fund has been a top performer since its inception. It’s only available to institutional investors, but it is a building block in the readily accessible Managed Payout Fund.

alt_stratSeven of the nine solely-managed QEG US funds have beaten their peer averages since inception, including the institutional Structured Broad Market Fund … an MFO Great Owl.

How can Vanguard charge so much less than rest of industry for its quant and alternative strategy funds?

What sets Vanguard apart—and lets Vanguard put investors first around the world—is the ownership structure of The Vanguard Group. Most investment firms are publicly traded or owned by a small group of individuals. These fund management companies have to charge fund investors fees that are high enough to generate profits for the companies’ owners.

But The Vanguard Group is different, because it’s owned by Vanguard’s US-domiciled funds and ETFs. Those funds, in turn, are owned by their investors. Under its agreement with its US-domiciled funds, Vanguard must operate “at cost”—it can charge the funds only enough to cover its cost of operations.

As a result of our at-cost approach, Vanguard US-domiciled funds share proportionately in the non-direct expenses and distribution-related expenses of an administrative nature. In other words, as a fund’s AUM grows, so does its share of these expenses. This enables us to be the low-cost leader across our entire investment lineup, not just a few products.

Does Vanguard’s QEG believe it can attract top quant talent, similar to researchers at say AQR? I did see that Vanguard hired Denis Chaves from Research Affiliates (RA), who has published works with Rob Arnott and Jason Hsu. Both AQR and RA appear to charge substantially more for their quant funds. 

Yes. Our compensation, benefits package, and work environment are competitive with those provided by organizations with which we compete for talent and for business. I would also say that our ownership structure attracts smart people who believe in the mission and have a passion for money management.

Are the fees generated by QEG’s sufficient to compete with other organizations within Vanguard for internal resources?

The answer is yes for the reasons stated above. Additionally, we don’t view QEG in isolation. It’s part of a well-established active business with about $1 trillion in total AUM.

Can Vanguard provide a breakdown of QEG’s staff members? 

  • 23 strategists, analysts and portfolio managers – 10 CFAs, 6 Ph.D.’s.
  • Average experience and tenure of more than 11 years.
  • We have two people who specialize/lead active trading (one in Australia and one in US). We also leverage Vanguards’ global operation and equity desk of 60 people.

I noticed recently that none of the trustees were invested in QEG’s Global Minimum Volatility Fund; in fact, even lead manager Michael Roach appeared to have little invested in the fund. Is this lack of investment by trustees and managers representative of all QEG’s funds? Can Vanguard provide a breakout of investment by trustees and fund managers in QEG’s funds?

Many of our board members invest in a number of Vanguard funds. However, it would neither be practical or prudent for nine independent directors to invest in nearly 180 U.S. funds. There are legitimate reasons for trustees not to invest in every fund they oversee, given the funds’ objectives and how they relate to the trustees’ own financial situation. 

We encourage our fund portfolio managers—both of our externally and internally managed funds—to own shares of their funds.  We do not, however, require such ownership. It may be neither fair nor practical for some managers to own fund shares.

We believe incentives are a better way to align the interest of fund managers and shareholders. For example, a portfolio manager’s bonus is determined by a number of factors. One factor is gross, pre-tax performance of a fund relative to expectations for how the fund should have performed, given the fund’s investment objective, policies, strategies, and limitations, and the market environment during the measurement period. This performance factor is not based on the amount of assets held in the fund’s portfolio. For Vanguard Global Minimum Volatility Fund, the performance factor depends on how successfully the portfolio manager meets or exceeds the performance expectations of the fund and maintains the risk parameters of the fund over a three-year period.

Does QEG manage any ETFs? Or, plan to launch any ETFs?

QEG is an active manager and Vanguard currently only offers index-based ETFs in the United States. While Vanguard has filed to offer exemptive relief to offer actively managed ETFs, that relief has yet to be granted and we can’t discuss or speculate on future products.

That said, Vanguard launched a suite of four actively managed factor ETFs in Europe and Canada at the end of 2015 and in March 2016, respectively. We manage those portfolios.

Capital Gains Distributions – Not Looking Too Spooky

By Editor

Halloween is the time of year to start thinking about the impact of capital gains distributions from your mutual funds and ETFs. At, we’ve spent the last month updating our site and building our Free and Pro databases. We’ve already made two passes through over 250 fund firm websites looking for 2016 distribution estimates.

As I think about how this year compares to previous years, I have a house full of high schoolers dressed up for a Halloween party. Some of their costumes match my initial comments for the year:

  • Einstein – Educate yourself. Misunderstanding the impact of capital gains distributions can cost hundreds or thousands of dollars in extra taxes. The Articles section of the CGV website has several short pieces that explain beginner distribution concepts as well as more advanced tax saving strategies.
  • Wonder Woman – Heroic firms have already posted 2016 estimates. Investor friendly firms make their shareholders’ lives easier by posting capital gains information (estimated amounts and distribution dates) early. We’ve already found this information for nearly 90 firms. We will continue to cycle through mutual fund firms and post estimates as they become available.
  • Chihuahua – Our doghouse will probably be smaller than usual. Our annual “In the Doghouse” list compiles funds with estimated distributions over 20% of NAV. At this time last season, we already found 28 funds with these huge distributions. This year, we have only eight. It’s early in the year so the list will continue to grow.
  • Ostrich – Do not bury your head in the sand. While I’m expecting this to be a less dramatic season for capital gains distributions, ignoring them is not a good plan. We’ve already found over 60 funds that are expecting distributions in the 10-20% range and we’ve seen countless distributions in the 5-10% range. Planning around (even small) distributions still makes good sense.

If you are not aware, the MFO Discussion board has an impressive list of links of capital gains estimates. Between that posting and CapGainsValet, you should be able to get through the remainder of the year without any surprise scares.


Mark Wilson, APA, CFP®
Chief Valet, CapGainsValet

Counting on the winners

By David Snowball

There’s a good chance that the next five years will be far more challenging for investors than the past five. It’s rare that a market delivers returns (12% annual returns) greater than its volatility (11% standard deviation). We’ve had five years of extraordinary monetary policy; if the next five years look more ordinary (say, 10 year rates back to their normal 3-4% range), there’s likely to be a “repricing” of assets, possibly dramatic, surely erratic. GMO’s asset class projections, which simply assume a return to normal levels of profits and earnings, say that almost all asset classes are set for negative real returns.

For folks looking for managers well-equipped to handle hostile markets, we used the fund screener at MFO Premium to identify the 25 domestic stock funds that posted the strongest risk-adjusted returns during the global market crisis of 2007-09 (the screener identifies that as Down Market Cycle 5).

Why the focus on risk-adjusted returns? Isn’t it all about beating the market? Well, no. The price of some returns is simply too high to bear. You might earn an 8% return over four years by gaining 2% annually or you might earn 10% by losing 30% in Year One, making 50% in Year Two, losing 30% again, then making 50% again. No rational person would choose Option 2 and if you’d inadvertently stumbled into it, you’d be unlikely to remain. That sort of performance is reflected in David Iben’s Kopernik Global All-Cap Fund (KGGAX ). Mr. Iben is a famously talented, aggressive investor who gained renown as manager of Nuveen Tradewinds Value Opportunities (NVOAX). He left Tradewinds to found Kopernik and his flagship fund has posted market beating returns since inception. Here’s a picture of what that looks like:

kggax performance chartThat trough in March 2016 represents a 40% loss for Mr. Iben’s investors, about four times what his peers suffered. His fund is up about 80% since then. That’s great. It’s also not worth it. You’d have been much better off with the mediocre little orange line funds that now trail Kopernik. By looking at risk-adjusted returns rather than raw market beating power, we’re trying to find funds you can actually live with.

Our next question was, how did they hold up during the subsequent bull market (called Up Market Cycle 5).

The results are laid out below. For the sake of simplicity, we consistently color-code “the best” results in blue. Those represent results in the top 20%. Green are still above average, yellow is average, orange and red are below. You’ll notice that “1” is sometimes blue and other times “5” is blue. Simple explanation: low risk (“1” on the risk scale) is good and high return (“5” on the return scale) is good.

I’ve simplified the screener’s output to look at just three variables: pure risk, which is measured by a fund’s downside deviation, pure return, measured by its annual percentage return, and then risk-adjusted returns measured by its Sharpe ratio. The premium screener adds a bunch of other risk and risk-return metrics, but these are a good start.

Ideally, you’d look for funds that were blue (best) and green (second best) across the board. Three qualify

Brown Capital Management Small Company (BCSIX), which is closed to new investors.

Eaton Vance Atlanta Capital SMID-Cap (EISMX), which is closed to new investors.

Yacktman Focused (YAFFX), a freakishly excellent fund whose namesake manager, Donald Yacktman, retired on May 1, 2016. His son and long-time co-manager, Stephen, remains. Whether Stephen can match his father’s performance remains to be seen.

Why so few winners (three of 25?). Part of the answer is column 5, pure returns during the bull market. In seven cases, funds posted strong risk-adjusted returns while posting average to weak raw returns. That is, these funds went up a little less than the market but exposed you to a lot less risk. They are:

Champlain Small Company (CIPSX), which is closed to new investors.

Copley (COPLX), which has been run by Irving Levine since 1978. He came to investment management after a 20 year career that started, in 1946, in handbag manufacturing. Ed would really want to sit down as a quiet club with this guy.

FMI Common Stock (FMIMX), an exceptionally solid fund from a family of exceptionally solid funds.

Hancock Horizon Burkenroad Small Cap (HHBUX), a $700 million small-core fund that’s completely off my radar, in part because it’s larger than we normally target but also because the “Hancock” name threw me off. It looks like an interesting little fund complex headquartered in New Orleans.

Intrepid Disciplined Value (ICMCX), a sort of all-cap version of Intrepid Endurance which, like Endurance, is willing to hold cash when opportunities are scarce. It’s about 50% cash at the moment.

Intrepid Endurance (ICMAX), which we’ve profiled and in which I invest. Endurance tends to invest in small cap value stocks and is one of the few funds still willing to hold cash, 70% currently, when opportunities are scarce.

Symons Value (SAVIX), a nominally institutional LCV fund with the same manager since inception and a $5,000 investment minimum. (The guy earned a B.A. in three years from Williams College and started off as a financial software developer. Cool!) It has earned a Great Owl Fund designation for top-tier risk-adjusted returns in every trailing measurement period.

The handful of funds that have posted disappointing results in both absolute and risk adjusted returns seem to fall into three camps: funds whose lead managers left five or six years ago (Westwood’s founding managers, headlined by Susan Byrne, had all departed around 2011; likewise, the managers for Invesco Exchange and Needham Aggressive left in 2010), freaks (well, Nysa) and the Royce funds (the whole complex suffered for overexpansion in the 2000s and seem to be staggering about a bit as they contemplate life after its founding generation of managers).

Bottom line: approach Yacktman cautiously (they have a new fund, Yacktman Fully Invested, about to launch) and the other six open candidates with curiosity and interest. If you meet Mr. Levine, pass along our respects and admiration. If you like funds in the SoGen / First Eagle tradition, be sure to check out Centerstone Investors (CETAX), run by First Eagle’s former lead manager, Abhay Despande.

Fund name
(Great Owls)
indicates a closed fund

Category Down Market Cycle – October 07 – February 09 Up Market Cycle – March 09 – present
Pure risk Pure return Risk-adjusted returns Pure risk Pure return Risk-adjusted returns
DS Deviation APR Sharpe DS Deviation APR Sharpe
Artisan Mid Cap Value ARTQX * MCV 2 5 5 1 2 3
Brown Capital Management Small Company BCSIX * SCG 1 5 5 2 5 5
Buffalo Small Cap BUFSX SCG 1 5 5 4 1 1
Capital Management Small-Cap CMSSX SCC 2 5 5 2 1 2
Champlain Small Company  CIPSX * SCC 1 5 5 1 3 5
Copley  COPLX MultiV 2 5 5 1 1 5
Eaton Vance Atlanta Capital SMID-Cap  EISMX * MCG 1 5 5 1 5 5
First Eagle Fund of America FEAFX MultiC 1 5 5 3 1 3
FMI Common Stock  FMIMX SCC 1 5 5 1 3 5
Hancock Horizon Burkenroad Small Cap  HHBUX SCC 1 5 5 2 3 4
Heartland Value Plus  HRVIX * SCV 1 5 5 4 1 1
Intrepid Disciplined Value ICMCX MCV 1 5 5 1 1 4
Intrepid Endurance ICMAX SCV 1 5 5 1 1 5
Invesco Exchange ACEHX * LCV 2 5 5 3 1 2
Needham Aggressive Growth  NEAGX MCG 1 5 5 4 2 1
Needham Small Cap Growth NESGX SCC 1 5 5 3 1 1
Nysa  NYSAX SCG 1 5 5 5 1 1
Perkins Small Cap Value JSIVX SCC 1 5 5 1 2 5
Royce Premier  RYPRX SCC 1 5 5 3 1 1
Royce Small-Cap Leaders RYOHX SCC 2 5 5 4 1 1
Royce Special Equity RYSEX SCV 1 5 5 1 1 2
Symons Value SAVIX MultiV 1 5 5 1 1 4
Westwood SMidCap WHGMX MCC 1 5 5 3 2 2
William Blair Small Cap Value WBVDX SCC 2 5 5 2 3 3
Yacktman Focused YAFFX LCC 2 5 5 1 5 5


Elevator Talk: Don Porter, DGHM MicroCap Value (DGMMX/DGMIX)

By David Snowball

Since the number of funds we can cover in-depth is smaller than the number of funds worthy of in-depth coverage, we’ve decided to offer one or two managers each month the opportunity to make a 200 or 300 word pitch to you. That’s about the number of words a slightly-manic elevator companion could share in a minute and a half. In each case, I’ve promised to offer a quick capsule of the fund and a link back to the fund’s site. Other than that, they’ve got 200 words and precisely as much of your time and attention as you’re willing to share. These aren’t endorsements; they’re opportunities to learn more.

Donald Porter leads the team which manages the DGHM MicroCap Value strategy. donald-porterThe strategy has been in place since 1991 and three of the current managers have been around that entire time. The nine members of the team have an average experience of 27 years, at DGHM and prior. The common experience working together as a team at DGHM is 17 years.

Academic research consistently identifies two things that “work” in investing. Small works and value works. By “works,” I mean that value investments outperform growth investments over long time periods, and have done so consistently for nearly a century. Similarly, investments in very small companies outperform investments in large companies over long time periods, and have done so consistently for nearly a century. Investments in very small, very cheap companies have the greatest potential of all.

There are structural and psychological reasons for that. Investors do not want to own more than 5% of a company’s stock; otherwise they’re classified as “control persons” and their lives get complicated. For a manager with, say, $10 billion in assets, a $12 million investment in a $250 million stock isn’t worth considering. Likewise, index designers want to feature the most liquid companies in their target universe so they can license them to large investors. Microcap indexes tend to be skewed in favor of stocks interesting to large investors; at the same time, the average microcap stock is covered by just two analysts, with a quarter covered by none. As a result, the price of a firm’s stock can often diverge dramatically from the value of the underlying business.

Value stocks, likewise, engender less coverage and less passion than do growth stocks. It’s easy to brag to your friends about your early move on Facebook or Google; you get blank stares or pitying expressions if you mention your Chicago Bridge & Iron stock. People get excited about famous growth stocks and bid them up; they get despondent on anonymous value stocks and bid them down.

DGHM illustrates the inevitable result of systemic mispricing in their white paper on microcap investing.

micro-value-beatsThe fact that tiny stocks are so fundamentally out-of-step with mainstream stocks also means that they can be used to hedge a portfolio. Research by Ariel Investments shows that over a 25 year period, a standard 60/40 portfolio with no microcaps earned 7.7% with a standard deviation of 13.3%. If you were to split the stock investment half and half between microcaps and S&P 500 stocks, returns rise to 10.6% annually while volatility falls to 9%. Right: adding an uncorrelated, volatile asset class to a standard portfolio increased returns by 38% and reduced volatility by 40%.

DGHM has been investing in this space for 25 years, albeit mostly through non-public vehicles. The available data suggests that they’ve done well:

  • From inception to 9/30/2016, the DGHM MicroCap Value account composite is up 14.3% annually, the Russell 2000 Value index is up just 11%.
  • On the past 15 years, the DGHM composite is up 11% while the newer Russell Microcap Value index gained 9.6%
  • Since 1993, the Russell 2000 Value has lost money in eight calendar years; in those eight years, the Russell’s average decline was 9.1% while the corresponding DGHM drop was 5.6%. In two of the eight years, DGHM even rose when the index fell.

Here are Mr. Porter’s 283 words on why you should add his newly-public manifestation of the strategy to your due-diligence list:

dghm-logoDGHM was started in 1982, and we were a pioneer in the micro cap market. What we love about micro cap stocks is that they are underfollowed by Wall Street, misunderstood and represent an opportunity for everyday investors that the largest institutions cannot access due to their scale. The lack of attention paid to them adds to their attractiveness in our eyes. It’s a market that you don’t want to own in a basket – there are about 3000 microcap companies, and yet that’s just 3% of the market’s total capitalization. Many of these companies you would not want to own! 

To get through that large universe of stocks, we rely on our team of 9 “sector specialists”, or PM’s that focus on individual industries. That’s a big difference about DGHM – no corner office PM expected to know it all.  Based upon a quantitative analysis we segment the market into quartiles of attractiveness, considering valuation, profitability, and returns on capital.  Among those companies in the top quartile of scorers, we will select about 65 or so stocks. So, in essence, we are making bets on 1 out of every 46 stocks in the market, more or less. After the quantitative review, we want to know what’s special about this small company, how repeatable is their financial performance, how capable and effective is the management team, and what catalysts might lift the company higher out of its value priced doldrums. That’s the fundamental piece of what we do, and requires a lot of direct interaction with the company’s senior management.

Ultimately, our investors own a diversified portfolio of companies that aren’t exactly name brands, but they have attractive free cash flows and are solid businesses. 

DGHM MicroCap Value has a $2500 minimum initial investment for its Investor class and $100,000 for Institutional. Expenses are capped at 1.50% on the investor shares and 1.19% for institutional shares, with a 1.0% redemption fee on shares sold within 60 days. The microcap strategy has about $120 million in assets, of which about $20 million is in the fund. Here’s DGHM’s fund homepage. It’s pretty thin on content though there’s rather more elaboration on the DGHM page and also links to their white paper on microcap investing, podcasts, media interviews and so on.

Update: RiverNorth Marketplace Lending Corporation (RMPLX) webcast

By David Snowball

In October, we offered a Launch Alert for RiverNorth’s latest fund, RMPLX. It’s a closed-end interval fund which offers institutional investors access to the quickly evolving marketplace lending sphere. The fund has a million dollar minimum initial investment and, structurally, has some similarities to a hedge fund.

In mid-November, RiverNorth will host a webcast helping investors understand the potential risks, returns and distinctive characteristics of this slice of the market. They’ve done good work with their webcasts before, so folks with the interest and wherewithal might want to join in.

Here are the details shared by RiverNorth:

Webcast Title: Incorporating Marketplace Lending Into an Institutional Portfolio

Thursday, November 17, 2016

3:15pm CT

Register for the webcast at

Hosted by Ron Suber and Philip Bartow

  • Prosper Marketplace President Ron Suber will present an overview of the marketplace lending (“MPL”) industry and provide his perspective on the future of the MPL space.
  • Philip Bartow, Portfolio Manager of RiverNorth’s marketplace lending strategies, will discuss the primary investment characteristics of the MPL asset class and the opportunity for incorporating it into a portfolio.
  • Philip will also provide an overview of RiverNorth Marketplace Lending Corporation (RMPLX)which launched September 2016.
  • Q&A will follow the main discussion.

Questions can be submitted during the call via the webcast portal. Limited lines will be available for dial-in at 877.407.1869

Update: Litman Gregory Alternative Strategies Fund (MASNX) call

By David Snowball

In a February 2012 Wall Street Journal piece, I nominated MASNX as one of the three most-promising new funds released in 2011.  In normal times, investors might be looking at a moderate stock/bond hybrid for the core of their portfolio.  In extraordinary times, there was a strong argument for looking here as they consider the central building blocks for their strategy. Our profile of the fund that year argued

these really do represent the “A” team in the “alternatives without idiocy” space.  That is, these folks pursue sensible, comprehensible strategies that have worked over time.  Many of their competitors in the “multi-alternative” category pursue bizarre and opaque strategies (“hedge fund index replicant” strategies using derivatives) where the managers mostly say “trust us” and “pay us.”  On whole, this collection is far more reassuring.

Five years on, the fund’s performance has borne us out.

  Annual Ret. MaxDD Recvry mo StdDev DSDev Ulcer Index BMDEV %/yr Sharpe Ratio Sortino Ratio Martin Ratio
Litman Gregory Masters Alt Strategies 5.2% -5.4% 14 3.3% 1.7% 1.5 1.1 1.54 2.95 3.42
Alternative Multi-Strategy Peer Group 3.5 -7.1 18 4.7 2.8 2.6 1.8 0.69 1.23 1.64

Here’s the quick translation. From inception through September 2016, MASNX incurs less risk than its Lipper peers (maximum drawdown is smaller, standard deviation and downside deviation is lower, performance in sharply falling periods is stronger and its Ulcer Index is lower), produces greater returns (measured by its annualized returns) and has a far better risk-adjusted return profile (reflected in the Sharpe, Sortino and Martin ratios).

The Observer designates MASNX as a Great Owl Fund for superior risk-adjusted performance in all trailing measurement periods.

In an invitation to a conference call with Jeff Gundlach, Litman writes:

Now, after reaching the five-year mark, we are proud to be the sole five-star, analyst recommended fund in the Morningstar multi-alternative category, and with the highest risk-adjusted return.

Which they supplement with a nice infographic:

MASFX infographic

Interested parties have been invited to join the Litman Gregory folks on November 10 at 1:00 p.m. Pacific for the Alternative Strategies Fund 5-Year Webinar with DoubleLine’s Jeffrey Gundlach. If you click the link, you’ll be taken to a registration page so you can get an access code. If you’d like to read more before committing, check out their Q&A page.

Funds in Registration

By David Snowball

Twenty new no-load retail funds are slated to go live by year’s end; most will first trade on December 30 so they’ll first able to report full-year results for 2017. The most immediately intriguing are Rajiv Jain’s new GQG Partners Emerging Markets Equity Fund and Osterweis Total Return., though Polen International Growth Fund has some pretty solid lineage, too. Read on!

ACR International Quality Return Fund

ACR International Quality Return Fund will seek is “to protect capital from permanent impairment while providing an absolute return above the Fund’s cost of capital and a relative return above the Fund’s benchmark over a full market cycle.” After such a build-up, it’s a letdown to report that it appears just to be a global stock fund. It will hold about 20 names, expects to keep less than a third in emerging markets and might hold some cash. Not much stands out there. The fund will be managed by Willem Schilpzand, Nicholas Tompras, and Tim Piechowski of Alpine Capital Research. The opening expense ratio is 1.25%. The minimum initial investment is $10,000.

Alambic Mid Cap Growth Plus Fund

Alambic Mid Cap Growth Plus Fund will seek long-term capital appreciation. The plan is to use a model that weighs quality, valuation, investor behavior and momentum characteristics to select a growth-y portfolio. It’s not immediately clear what qualifies as the “plus” signaled in the fund’s name. Maybe the behavioral screens? They launched a small-growth fund at the end of 2015 and it’s been undistinguished so far.The fund will be managed by Albert Richards, PhD, and Brian Thompson. The opening expense ratio is not yet available. The minimum initial investment is $50,000.

Alambic Mid Cap Value Plus Fund

Alambic Mid Cap Value Plus Fund will seeklong-term capital appreciation. The plan is to use a model that weighs quality, valuation, investor behavior and momentum characteristics to select a growth-y portfolio. It’s not immediately clear what qualifies as the “plus” signaled in the fund’s name. Maybe the behavioral screens? They launched a small-value fund at the end of 2015 and it’s been exceptional solid so far. The fund will be managed by Albert Richards, PhD, and Brian Thompson. The opening expense ratio is not yet available. The minimum initial investment is $50,000.

Altegris Trend Strategy Fund

Altegris Trend Strategy Fund will seek . The plan is to “deliver absolute returns for the Fund through a range of quantitative algorithms designed to exploit directional trends in global financial markets.” At base, just another managed futures fund. The fund will be managed by Matthew Osborne and Lara Magnusen. The team’s other managed futures fund is underwater since inception (2010) and noticeably trails its woeful peer group.The opening expense ratio is not yet public. The minimum initial investment is $2,500.

AMG Yacktman Fully Invested Fund

AMG Yacktman Fully Invested Fund will seek to generate equity-like rates of return over a full market cycle while managing the level of risk. The plan is to invest in 15-45 stocks and to stay 95% invested while maintaining the right to shift to a temporary defensive position. The managers are looking for a combination of good businesses, good management and low valuations.The fund will be managed by Stephen Yacktman and Jason Subotky. The opening expense ratio is 1.25%. The minimum initial investment is $2,000.

AmericaFirst Large Cap Share Buyback Fund

AmericaFirst Large Cap Share Buyback Fund will seek growth of capital. The plan is to buy large-cap stocks from firms that have had share repurchases in the past 12 months. The portfolio is rebalanced every four months, though it’s not clear what it’s rebalanced to achieve. The fund will be managed by Rick Gonsalves. The opening expense ratio is undisclosed but likely to be unpalatable since the management fee alone is 1.25% and the low-load U-shares have a 1% 12(b)1 fee. The minimum initial investment is $1,000 for “U” shares.

Driehaus Multi-Asset Growth Economies Fund

Driehaus Multi-Asset Growth Economies Fund will seek to maximize total return. The plan is to opportunistically invest across a variety of asset classes in “growth economies.”  The implication is that those are emerging markets but that there will likely be some exposure to mature and frontier economies as well. The fund will be managed by four person team. The opening expense ratio is undisclosed. The minimum initial investment is $10,000.

GQG Partners Emerging Markets Equity Fund

GQG Partners Emerging Markets Equity Fund  will seek long-term capital appreciation. The plan is “to capture market upside while limiting downside risk through full market cycles by combining a rigorous screening process with fundamental analyses to seek to identify and invest in companies that … are reasonably priced, and have strong fundamental business characteristics, sustainable earnings growth and the ability to outperform peers over a full market cycle and sustain the value of their securities in a market downturn.” The fund will be managed by Rajiv Jain who built his reputation by running the $8.4 billion Virtus Emerging Markets Opportunities Fund (HEMZX), which he quit in spring. The opening expense ratio is 1.33% for Investor shares. The minimum initial investment is $2,500.

Ivy International Small Cap Fund

Ivy International Small Cap Fund will seek capital growth and appreciation. I hesitate to mention that those are the same thing. The plan is to maintain a diversified portfolio of growth and value small-cap stocks located outside the US and Canada. The fund will be managed by Martin Fahey and Bryan Mattei. The opening expense ratio is 1.45% for “A” shares, which will also carry 5.75%. The minimum initial investment is $750 for “A” shares.

Lazard Real Assets Portfolio

Lazard Real Assets Portfolio will seek total return. The plan is to invest in things that can endure inflation, including natural resources, real estate, equipment and industrials, infrastructure and commodities, “other assets that the Investment Manager expects may perform well during periods of high inflation” and inflation-indexed securities. That “other” category may explain why tech stocks are included on the list.The fund will be managed by Jai Jacob and Stephen Marra. The opening expense ratio has not yet been disclosed. The minimum initial investment is $2,500.

Osterweis Total Return Fund

Osterweis Total Return Fund will seek “to preserve capital and attain long-term total returns through a combination of current income and moderate capital appreciation.” The plan is to build a global portfolio of investment-grade bonds; up to 20% might be high-yield and up to 20% might be non-U.S. The fund will be managed by Eddy Vataru and Scott Ulaszek. The opening expense ratio is 0.76%. The minimum initial investment is $5,000.

Pax Core Bond Fund

Pax Core Bond Fund will seek income and conservation of principal . The plan is to build an investment-grade bond portfolio with a strong ESG screen. The fund will be managed by Anthony Trzcinka. The opening expense ratio is 0.72%. The minimum initial investment is $1,000.

Pax ESG Beta Dividend Fund

Pax ESG Beta Dividend Fund will seek total return, with a secondary concern for preserving capital. The plan is to buy large cap stocks with “stronger ESG scores , higher dividends and higher quality investment fundamentals .” The fund will be managed by a Pax team. The opening expense ratio is 0.90%. The minimum initial investment is $1,000.

Pax Large Cap Fund

Pax Large Cap Fund will seek long-term capital appreciation. The plan is to use a bottom-up approach to construct an ESG-screened portfolio whose companies fall within the range of those in the S&P 500. The fund may invest up to 25% of its portfolio directly in international stocks or up to 45% indirectly through ADRs. The fund will be managed by Chris Brown. The opening expense ratio is 0.95%. The minimum initial investment is $1,000.

Polen International Growth Fund

Polen International Growth Fund will seek long-term growth of capital. The plan is to invest in approximately 25 to 35 large cap stocks in both developed and emerging markets. They target firms with a sustainable competitive advantage. The fund will be managed by Todd Morris. Mr. Morris has been a research analyst at Polen since 2011 and was a U.S. Navy officer. The opening expense ratio is 1.35%. The minimum initial investment is $3,000.

Reinhart Focus PMV Fund

Reinhart Focus PMV Fund will seek long-term capital appreciation. The plan is to buy small- and mid-cap stocks selling at a discount of at least 30% to the private market value (the PMV of the name). It’s a bottom-up, one good stock at a time, sort of operation.The fund will be managed by Matthew Martinek. The opening expense ratio is 1.35%. The minimum initial investment is $5,000.

Thornburg Long/Short Equity Fund

Thornburg Long/Short Equity Fund will seek long-term capital appreciation. The plan is to invest in companies from the three categories with cute names (“Growth Industry Leaders”) and short stocks from firms in the three categories with sad names (“Cycle Victims”).  This is a converted hedge fund that returned an average of 7% per year since February, 2008.The fund will be managed by Connor Browne, who ran the hedge fund. The opening expense ratio is 3.42%. The minimum initial investment is confusing, involving amount from $2,500 to $2,500,000. The lower-expense share classes are targeted to “financial intermediaries” in wrap or fee-based advisory programs.

Taylor Frigon Core Growth Fund

Taylor Frigon Core Growth Fund will seek long-term capital growth. The plan is to do conventional and unremarkable stuff involving good management, strong industries, solid financials with a soupçon of paradigm shifts and disruptive change. The fund will be managed by Gerard J. Frigon. The opening expense ratio is 1.45%. The minimum initial investment is $5,000.

Tortoise Select Income Bond Fund

Tortoise Select Income Bond Fund will seek high level of total return with an emphasis on current income. The plan is invest broadly in the fixed income space within a series of constraints: up to 35% high-yield, 20% preferred securities, 30% in non-dollar-denominated securities and 15% illiquid. The fund will be managed by N. Graham Allen, Bradley Beman, Edward Bradford, Jeffrey Brothers, Gregory Haendel and Zelda Marzec, all from Tortoise Credit Strategies. The opening expense ratio has not been released. The minimum initial investment is $2,500.

USA Mutuals/Carbon Beach Deep Value Fund

USA Mutuals/Carbon Beach Deep Value Fund will seek long-term capital appreciation. The plan is to invest, long and short, in a portfolio of companies “undergoing transformative corporate events, including announced mergers and acquisitions, spin-offs and split-offs, financial or strategic restructurings, management changes and other catalysts.” The fund will be managed by Tobias Carlisle and Mr. Colin Macintosh of Carbon Beach Asset Management. Carbon Beach appears to be a couple bright guys in Santa Monica, CA, managing about $3.75 million. It’s possible that the money is their own, since they check the “zero clients” box on their latest Form Adv. The opening expense ratio has not been revealed. The minimum initial investment is $2,000.

Westcore Municipal Opportunities Fund

Westcore Municipal Opportunities Fund will seek tax-free income. The plan is to buy-and-hold a portfolio of muni bonds, up to 30% of which might be high-yield. They can also use derivatives and ETFs, if need be. The fund will be managed by Kenneth Harris and Nick Foley of Denver Investments. The opening expense ratio has not been disclosed. The minimum initial investment is $2,500 .

As you might know, I have a deep and abiding skepticism about ETFs. Some analysts focus on a structure that allows for disastrous variance from their benchmarks during crises; in the “flash crash,” some ETFs briefly dropped 40% while their underlying indices merely wiggled. Our concern is simpler and rarely addressed: the central justification for exchange-traded funds is that you can trade them, simply and often. For many of us, it’s an irresistible temptation. And, as it turns out, trading is disastrous for our portfolios. It’s bad for professionals and disastrous for the rest of us.

For those of you who would rather lose money, the ETF industry offers up additional options in the weeks ahead:

  • Affinity Global Franchise ETF
  • Alps/Dorsey Wright Sector Momentum ETF
  • Anfield Capital Diversified Liquid Alternatives ETF
  • EquityCompass Equity Risk Manager ETF (active)
  • EquityCompass Tactical Equity Risk Manager ETF (active)
  • Formula Folios Income ETF
  • Formula Folios Hedged Growth ETF (active)
  • IQ U.S. High Yield Low Volatility ETF (HYLV)
  • Legg Mason Global Infrastructure ETF
  • Virtus Enhanced Gold ETF (VEG)
  • Virtus Enhanced Short U.S. Equity ETF (VESH)
  • WisdomTree ICBCCS S&P China 500 ETF

Manager changes

By Chip

Among the dozens of manager changes this month, one stands out. Greg McCrickard’s long career at a T. Rowe Price manager has drawn to a close, though he’ll remain a while longer as a mentor of the firm’s young analysts.  McCrickard managed T. Rowe Price Small-Cap Stock Fund  OTCFX for 24 years. He’s succeeded by Frank Alonso who became McCrickard’s associate portfolio manager in 2013 and who did a nice job Price US small cap fund that’s only available to foreign investors. In general, Price handles these transitions better than anyone.

Because bond fund managers, traditionally, had made relatively modest impacts of their funds’ absolute returns, Manager Changes typically highlights changes in equity and hybrid funds.

Ticker Fund Out with the old In with the new Dt
GDAMX AlphaCore Absolute Fund Gladys Chow and Jerry Miccolis are no longer listed as portfolio managers for the fund. Jonathan Belanger and Richard Pfister will manage the fund. 10/16
ANFLX Angel Oak Flexible Income Fund No one, but . . . Navid Abghari and Johannes Palsson have joined Brad Friedlander, Sam Dunlap, Clayton Triick and Sreeniwas Prabhu on the management team. 10/16
ANGLX Angel Oak Multi-Strategy Income Fund No one, but . . . Navid Abghari and Johannes Palsson have joined Brad Friedlander, Ashish Negandhi, Berkin Kologlu, Sam Dunlap and Sreeniwas Prabhu on the management team. 10/16
AEOAX Ashmore Emerging Markets Equity Opportunities Fund Felicia Morrow is no longer listed as a portfolio manager for the fund. The team of Ricardo Xavier, Herbert Saller, Robin Forrest, Jan Dehn, Mark Coombs and Fernando Assad will now manage the fund. 10/16
BGMAX BMO Mid-Cap Growth Patrick Gundlach and Kenneth Salmon will no longer serve as portfolio managers for the fund. David Corris and Thomas Lettenberger have assumed management of the fund. 10/16
BAMCX BMO Mid-Cap Value Fund Matthew Fahey, Brian Janowski and Gregory Dirkse are no longer listed as portfolio managers for the fund. David Corris and Thomas Lettenberger have assumed management of the fund. 10/16
MSGIX BMO Small-Cap Growth Fund Patrick Gundlach and Kenneth Salmon will no longer serve as portfolio managers for the fund. David Corris and Thomas Lettenberger have assumed management of the fund. 10/16
BACVX BMO Small-Cap Value Matthew Fahey, Brian Janowski and Gregory Dirkse are no longer listed as portfolio managers for the fund. David Corris and Thomas Lettenberger have assumed management of the fund. 10/16
BATCX BMO TCH Core Plus Bond Fund Alan Habacht will retire at the end of the year. William Canida, Scott M. Kimball, Daniela Mardarovici, Frank Reda, and Janelle Woodward will continue to manage the fund. 10/16
BATIX BMO TCH Corporate Income Fund Alan Habacht will retire at the end of the year. William Canida, Scott M. Kimball, Daniela Mardarovici, Frank Reda, and Janelle Woodward will continue to manage the fund. 10/16
BAMEX BMO TCH Emerging Markets Bond Fund Alan Habacht will retire at the end of the year. William Canida, Scott M. Kimball, Daniela Mardarovici, Frank Reda, and Janelle Woodward will continue to manage the fund. 10/16
CGAEX Calvert Global Energy Solutions Fund Colm O’Connor and Treasa Ni Chonghaile are no longer listed as portfolio managers for the fund. The team of Lise Bernhard, Jade Huang, Christopher Madden, Dale Stout and Laurie Webster take over management of the fund. 10/16
CGDAX Credit Suisse Global Sustainable Dividend Equity Fund Adam Steffanus and Michael Valentinas are out. They’ve been replaced by Christian Stauss and Heather Kidde. 10/16
DHDAX Destra Dividend Total Return Fund Miller-Howard Investments will no longer subadvise the fund. John Cusick, Michael Roomberg, John Leslie, Lowell Miller, Bryan Spratt and Roger Young are no longer listed as portfolio managers for the fund. William Garvey, C. Craig O’Neil and Alexander Oxenham will now manage the fund. 10/16
SCGSX Deutsche Capital Growth Fund Thomas Hynes, Owen Fitzpatrick and Brendan O’Neill are no longer listed as portfolio managers for the fund. Sebastion Werner will manage the fund. 10/16
FEAAX Fidelity Advisor Emerging Asia Fund No one, but … John Dance has joined Colin Chickles in managing the fund. 10/16
FAGAX Fidelity Advisor Growth Opportunities Fund Steven Wymer will no longer serve as a portfolio manager for the fund. Kyle Weaver will carry on as sole portfolio manager for the fund. 10/16
FCVSX Fidelity Convertible Securities Fund Thomas Soviero is no longer listed as a portfolio manager for the fund. Adam Kramer will now manage the fund. 10/16
FSEAX Fidelity Emerging Asia Fund No one, but … John Dance has joined Colin Chickles in managing the fund. 10/16
FLVCX Fidelity Leveraged Company Stock Fund Thomas Soviero is no longer listed as a portfolio manager for the fund. Mark Notkin will manage the fund. 10/16
FSHOX Fidelity Select Construction and Housing Portfolio Holger Boerner is no longer listed as a portfolio manager for the fund. Neil Nabar will manage the fund. 10/16
FSRPX Fidelity Select Retailing Portfolio No one, but . . . Nicola Stafford joins Deena Friedman in managing the fund. 10/16
FSLSX Fidelity Value Strategies Fund Thomas Soviero is no longer listed as a portfolio manager for the fund. Matthew Friedman will manage the fund. 10/16
IVTAX Ivy Managed International Opportunities Fund F. Chase Brundage and Cynthia Prince-Fox are no longer listed as portfolio managers for the fund. John Maxwell and Aaron Young will now manage the fund. 10/16
SWOIX Laudus International MarketMasters Fund Robert Taylor will no longer serve as a portfolio manager for the fund. The other 13 managers remain. 10/16
MILIX Miles Capital Alternatives Advantage Fund Allen Goody will no longer serve as a portfolio manager for the fund. Steve Stotts will continue as the sole portfolio manager of the fund. 10/16
DBBEX Miller/Howard Drill Bit to Burner Tip Fund Roger Young has retired and will no longer serve as a portfolio manager for the fund. Bryan Spratt, Michael Roomberg, John Leslie, John Cusick and Lowell Miller remain on the management team. 10/16
MHIEX Miller/Howard Income-Equity Fund Roger Young has retired and will no longer serve as a portfolio manager for the fund. Bryan Spratt, Michael Roomberg, John Leslie, John Cusick and Lowell Miller remain on the management team. 10/16
NHFIX Northern High-Yield Fixed Income No one, but . . . Richard Inzunza is joined by Bradley Camden and Eric Williams in managing the fund. 10/16
OWLCX Old Westbury Large Cap Core Fund, soon to be Old Westbury All Cap Core Fund. As part of the change in strategy, Alexander Lloyd will no longer serve as a portfolio manager for the fund. John Christie will be joined by Jeffrey Rutledge, John Hall and Michael Morrisroe. 10/16
OWSMX Old Westbury Small & Mid Cap Fund, soon to be Old Westbury Small & Mid Cap Strategies Fund As part of the change, as of the end of the year, John Hall and Michael Morrisroe will no longer serve as portfolio managers for the fund. Edward Aw, who just became a manager in June 2016, is joined by Nancy Sheft and Holly MacDonald to form the new management team. 10/16
OPTFX Oppenheimer Capital Appreciation Fund Michael Kotlarz will no longer serve as a portfolio manager for the fund. Paul Larson is now managing the fund. 10/16
OARDX Oppenheimer Rising Dividends Fund Joseph Higgins and Neil McCarthy are no longer listed as portfolio managers for the fund. Manind Govil will manage the fund. 10/16
OALVX Optimum Large Cap Value Fund As part of the change in subadvisors, Randell Cain will no longer serve as a portfolio manager for the fund. Paul Roukis and Christopher Kaufman join Steven Gorham and Nevin Chitkara in managing the fund. 10/16
PEVAX PACE Small/Medium Co Value Equity Investments Wells Capital Management will no longer subadvise the fund. Samir Sikka is no longer listed as a portfolio manager for the fund. Sapience Investments is a new subadvisor to the fund. Jack Murphy joins the management team. 10/16
PGIAX Putnam Global Industrial Fund Ferat Ongoren is no longer listed as a portfolio manager for the fund. Daniel Schiff will now manage the fund. 10/16
PGIAX Putnam Global Industrials Fund Ferat Ongoren is no longer listed as a portfolio manager for the fund. Daniel Schiff will now manage the fund. 10/16
PPGAX Putnam Global Sector Fund Ferat Ongoren is no longer listed as a portfolio manager for the fund. Daniel Schiff joins Sheba Alexander, Isabel Buccellati, Jacquelyne Cavanaugh, Kelsey Chen, Aaron Cooper, Samuel Cox, Neil Desai, Christopher Eitzmann, Vivek Gandhi, Ryan Kauppila, Greg Kelly, David Morgan, Walter Scully and Di Yao on the management team. 10/16
RIMEX Rainier Large Cap Equity Fund Mark Dawson is resigning, effective immediately. Mark Broughton and Stacie Cowell will join Michael Emery in managing the fund. 10/16
RIMMX Rainier Mid Cap Equity Fund James Margard is retiring at the end of the year and resigning as portfolio manager immediately. Andrea Durbin is no longer listed as a portfolio manager for the fund, but no reason is given. Michael Emery joins Stacie Cowell and Mark Broughton in managing the fund. 10/16
RIMSX Rainier Small/Mid Cap Equity Fund James Margard is retiring at the end of the year and resigning as portfolio manager immediately. Andrea Durbin is no longer listed as a portfolio manager for the fund, but no reason is given. Michael Emery joins Stacie Cowell and Mark Broughton in managing the fund. 10/16
RBTRX RBC BlueBay Diversified Credit Fund Anthony Robertson will no longer serve as a portfolio manager for the fund. Justin Jewell and Thomas Kreuzer join Mark Dowding, David Dowsett, Polina Kurdyavko, Michael Reed and Nick Shearn on the management team. 10/16
RCFIX Rockefeller Core Taxable Bond Fund Mark Iannarelli has resigned and is no longer listed as a portfolio manager for the fund. Jimmy Chang and Andrew Kello will now manage the fund. 10/16
RCTEX Rockefeller Intermediate Tax Exempt National Bond Fund Mark Iannarelli has resigned and is no longer listed as a portfolio manager for the fund. Jimmy Chang and Andrew Kello will now manage the fund. 10/16
RCNYX Rockefeller Intermediate Tax Exempt New York Bond Fund Mark Iannarelli has resigned and is no longer listed as a portfolio manager for the fund. Jimmy Chang and Andrew Kello will now manage the fund. 10/16
SFHIX Shenkman Floating Rate High Income Fund No one, but . . . Justin Slatky joined Mark Shenkman, David Lerner and Jeffrey Gallow in managing the fund. 10/16
SCFAX Shenkman Short Duration High Income Fund No one, but . . . Justin Slatky joined Mark Shenkman, Neil Weschler and Nicholas Sarchese in managing the fund. 10/16
TRSSX T. Rowe Price Institutional Small-Cap Stock Fund Gregory McCrickard is no longer listed as a portfolio manager for the fund. Frank Alonso is now managing the fund. 10/16
OTCFX T. Rowe Price Small-Cap Stock Fund Gregory McCrickard is no longer listed as a portfolio manager for the fund. It’s a major change, long in the planning. Frank Alonso is now managing the fund. 10/16
BCIIX The Brown Capital Management International Equity Fund Martin Steinik will no longer serve as a portfolio manager for the fund. Maurice Haywood and Duncan Evered will carry on. 10/16
BCSVX The Brown Capital Management International Small Company Fund Martin Steinik will no longer serve as a portfolio manager for the fund. Maurice Haywood and Duncan Evered will carry on. 10/16
TNRIX TIAA-CREF Global Natural Resources Fund Navaneel Ray is no longer listed as a portfolio manager for the fund. Jeff Bellman and Dhaval Patel will now run the fund. 10/16
IIVAX Transamerica Small/Mid Cap Value No one, but . . . Thompson, Siegel & Walmsley, LLC will be added as a subadvisor on December 5th. 10/16
USAWX USAA World Growth Fund No one, but . . . David Mannheim and Roger Morley are joined by Ryan McAllister on the management team. 10/16
WBELX William Blair Emerging Markets Leaders Fund No one, but . . . Todd McClone and Jeffrey Urbina are joined by John Murphy on the management team. 10/16

Briefly Noted . . .

By David Snowball

Herewith are notes about the month’s announced changes in the fund industry: closings, openings, name changes, liquidations and more.

Thanks, as ever, to the anonymous and indefatigable Shadow for his yeoman’s work in keeping me, and the members of MFO’s discussion board, current on a swarm of comings and goings.

On October 3, 2016, Henderson Group PLC merged with Janus Capital Group, nominally “a merger of equals.” The Henderson funds will be reorganized into Janus funds, to the extent possible. Details are still pending.

David Iben’s Kopernik funds are inching up their allowable emerging and frontier markets exposure by 5%.


The minimum additional investment for a bunch of AMG funds is declining from $1,000 to $100. The initial investment requirement remains unchanged. As a practical matter, that means that institutional shareholders have the same requirement as retail ones.

Eaton Vance has acquired Calvert Investment Management and the Calvert funds, retained the current managers, and cut expenses by between 2-20 basis points on six of the Calvert funds. They are Global Energy, Equity, Small Cap, High Yield Bond, Emerging Market Equity and Ultra-short Income.

Invesco Select Companies Fund reopened to all investors on October 17, 2016.

Effective November 28, 2016, the minimum investment for the O’Shaughnessy Funds Institutional share class will decrease from $1 million to $10,000 for all new accounts.

CLOSINGS (and related inconveniences)

Didn’t spot any this month. Will keep an eye out.


Effective December 29, 2016, the Advantus Short Duration Bond Fund (ABSNX) will be renamed the Advantus Strategic Credit Income Fund and the Fund’s current investment objective and principal investment strategies will be replaced in their entirety

On November 16, the BlackRock Funds II will undergo a name change and rebranding. The BlackRock LifePath Active Retirement Fund is renamed BlackRock LifePath Smart Beta Retirement Fund.

GMO Debt Opportunities Fund VI (GMODX) is becoming GMO Opportunistic Income Fund. The change allows them to find “income” in places other than “debt.” It’s a $1.5 billion fund with a $750 million minimum initial investment. Any guesses out there about the maximum number of shareholders in this fund?

The Motley Fools appear poised to sell their fund business to RBB Fund. Shareholders have been asked to approve the sale of Motley Fool Independence (FOOLX), Great America (TMFGX) and Epic Voyage (TMFEX) to RBB. Based on the Fools’ assurance that “each New Fund will have the same name, share classes, investment objective, investment strategies, investment risks, investment limitations, investment adviser, and portfolio managers” as its predecessor, they will.

Wasn’t it George Carlin who wondered what would happen if a thief stole all of your stuff, then replaced it with identical pieces?

In a peculiar move, Old Westbury Large Cap Core Fund (OWLCX) is being rechristened Old Westbury All Cap Core Fund, with a concomitant loss of the “invest in large caps” restriction. That’s not the peculiar part. The peculiar part is the corresponding decision to terminate the fee waiver currently on the Fund and increasing the advisory fee for the Fund. They’ll tack on 5 basis points which will contribute about $65,000/year to revenues. The fund has $1.3 billion in assets and a lackluster record; I’d almost imagine increasing fees after they’ve earned them.

On December 30, 2016, Old Westbury Small & Mid Cap Fund (OWSMX) becomes Old Westbury Small & Mid Cap Strategies Fund. That change will cost John Hall and Michael Morrisroe their jobs as managers.

Effective December 31, 2016, the WST Asset Manager – U.S. Equity Fund (WESTX) will change its name to WSTCM Sector Select Risk-Managed Fund and remove the following principal investment policy:  the fund normally “80% … in equity securities of U.S. companies while a combination of Fixed Income Investments and/or Gold Investments will typically comprise less than 12% of the value of the Fund’s net assets.” No idea of why.

At the same time, WST Asset Manager – U.S. Bond Fund (WAMBX) will change its name to WSTCM Credit Select Risk-Managed Fund and will drop the “at least 80% in bonds” restriction.

Westcore Select Fund (WTSLX) “will be reposition[ed] at the end of 2016. This decision follows the announcement that the Fund’s portfolio manager, Craig W. Juran, CFA, intends to retire from the firm.” Part of its new position will be reflected in a new name, Westcore Small-Cap Growth Fund II. At the same time, and for the same reason, Westcore Growth Fund (WTEIX) becomes Westcore Large-Cap Dividend Fund and Westcore MIDCO Growth Fund (WTMGX) becomes Westcore Mid-Cap Value Dividend Fund II.


The AdvisorShares YieldPro ETF (YPRO) disappeared on Halloween. Spoooooky.

BearlyBullish Fund (BRBLX) will cease being bearish or bullish, barely or otherwise, on November 4, 2016.

On November 30, the Bushido Capital Long/Short Fund (BCLSX) will liquidate. It’s The Code of the Warrior: trail your peers and your index, charge a lot, draw negligible assets, fall on your sword.

Centre Global Ex-U.S. Select Equity Fund liquidated on October 7, 2016, which was only two days after the Board voted for the termination.

The shareholders of First Trust Dividend and Income Fund (FAV), a closed-end fund, approved FAV’s merger with and into FTHI First Trust High Income ETF (FTHI).

Galapagos Partners Select Fund (GPSIX) falls victim to Darwinian forces on November 10, 2016. The fund suffered from volatility, weak performance and negligible assets.

On December 19, the Goldman Sachs Multi-Asset Real Return Fund and Goldman Sachs Dynamic Commodity Strategy Fund will both terminate and liquidate.

On December 21, the iShares iBonds Dec 2016 Term Corporate ETF (IBDF) will, understandably enough, vanish.

The Oaktree Emerging Markets Equity Fund (OEEIX) was liquidated on October 26, 2016.

On October 31, RiverNorth Equity Opportunity Fund (RNEOX) was closed down.

On December 20, the Financial Services Select Sector SPDR ETF (XLFS) will liquidate because Standard & Poor’s has decided they’ll no longer maintain the index on which the fund is based.

Other dying spiders include the SPDR MSCI International Real Estate Currency Hedged ETF, the SPDR MSCI Mexico StrategicFactors ETF, the SPDR MSCI South Korea StrategicFactors ETF and the SPDR MSCI Taiwan StrategicFactors ETF, none of which will see Thanksgiving this year

On November 18, the Stewart Capital Mid Cap Fund (SCMFX), a victim of five fat years followed by five lean years, will liquidate.

On November 4, the TrimTabs International Free-Cash-Flow ETF (FCFI) will freely flow away.

On December 14, the State Street Clarion Global Infrastructure & MLP Fund (SSISX) will terminate and liquidate. That’s one of those sad instances where a fund with a long record as a private partnership converted to a ’40 Act fund, performed well and still couldn’t make it.

The Victory Select Fund (VFSAX) admitted defeat on October 28, 2016.

On December 16, four Victory CEMP volatility-weighted index funds will all close.

Ziegler FAMCO Covered Call Fund (CACLX) was liquidated on October 30, 2016, after less than one year of operation.