Monthly Archives: December 2016

December 1, 2016

By David Snowball

What a busy month.

On Monday, November 21, four U.S. stock indexes all reached all-time highs: the S&P 500, Dow, Russell 2000 and Nasdaq; it might be that the S&P Midcap 400 did the same, but that’s less clear to me. That feat was last accomplished on December 31, 1999. The coincidence led Chip, our estimable tech director, to launch into a spirited rendition of Prince’s “1999”:

I was dreamin’ when I wrote this
Forgive me if it goes astray
But when I woke up this mornin’
Could of sworn it was judgment day

The sky was all purple
There were people runnin’ everywhere
Tryin’ to run from the destruction
You know I didn’t even care

‘Cause they say two thousand zero zero
Party over, oops out of time
So tonight I’m gonna party like it’s 1999

I was dreamin’ when I wrote this
So sue me if I go too fast
But life is just a party
And parties weren’t meant to last

For the stock market, of course, the party that reached its zenith on December 31, 1999, ended three months later with the first of two calamitous crashes (2000-02 and 2007-09). Roughly 4400 trading days passed between those two occurrences; roughly 60 trading days between the 1999 peak and the 2000 crash.  Such huge gaps are not unusual. Steven Russolillo, writing for The Wall Street Journal, looked at what happened after the Dow after reached 100, 1000 and 10,000.

The Dow first hit 100 in 1906 but it wasn’t until the mid-1920s before it convincingly traded higher than that level. And it permanently broke above it in 1942. The same held true for Dow 1000. The blue-chip average first reached that mark intraday in 1966 but didn’t close above it until November 1972. And it wasn’t until 1982 that the Dow finally traded above 1000 for good, 16 years after initially breaching that mark. Dow 10000 was similar … the Dow finally crossed back above and held 10000, 11 years after initially hitting it. (“The Pitfalls of Hitting Dow Milestones,” 11/28/2016).

Of course, there are serious differences between now and then. Back then, an untested Republican was about to succeed a popular but controversial Democrat in the White House, stocks were finishing the longest bull market in history, investors were blindly pouring money into untested innovations, valuations were crazy (though not uniformly so) and the world was about to turn hostile. In contrast, today’s bull market is only the second longest in history. See?

Markets go up.  Markets go down.  Life goes on.  I’m not particularly crazed by the latest ride. The good folks at Tweedy, Browne offered sensible advice in their latest semi-annual report:

From time to time people ask us what they should do (we are flattered they should ask) and our general response is not unique. First, you are in a 10,000-meter race; don’t measure your progress by each 100-meter lap. Second, remember what you are investing for – it should extend your time horizon, which is a good thing to do. Third, don’t carry too much debt – if you don’t owe anybody anything, they can’t tell you what to do. Fourth, keep several years of living expenses in the bank. While it won’t earn much today, it will help keep you calm if there is a financial storm. Fifth, as Stuart Alsop once said in so many words, when you open the paper, turn to the sports page first; then, go to the news – it will help you emotionally, and controlling your emotions is an important part of this game. And finally, and perhaps somewhat self-serving, try to understand how the person you have entrusted some of your money to makes decisions. It should help you make sense of the world when it is seemingly making no sense and help you make an informed decision.

Admittedly, I’m not sure about the Alsop attribution; the observation, “I always turn to the sports pages first, which records people’s accomplishments. The front page has nothing but man’s failures,” is more-famously attributed to former chief justice Earl Warren. That said, their advice is sound: don’t borrow more you can’t repay, don’t invest money you can’t afford to lose, don’t let the noise – in the media or in the markets – deafen you to all the quiet, loving voices in your world.

For me, that means spending the first weekend of December with my son, incorporating that basin of rum-soaked dried fruit into a dozen remarkably good homemade fruitcakes. (No, no freakish fluorescent chunks of anything go into my food.)

A Republic, if you can keep it.

Dr. James McHenry, one of Maryland’s delegates to the Constitutional Convention of 1787, reports on an exchange at the convention’s close, between an anxious citizen and Benjamin Franklin.

A lady asked Dr. Franklin, “Well, Doctor, what have we got a republic or a monarchy?”

“A republic,” replied the Doctor, “if you can keep it.” 

A republic was the antithesis of both monarchy and democracy; it was a commonwealth bound by law, not subject to “the passions of the multitude, or, no less correctly, according to the vices and ambitions of their leaders.” Our Constitution does not even contain the word “democracy” but instead enshrines “a republican form of government.”

A republic, if we can keep it.

Can we? So far, through 229 years of national history, we’ve managed. We managed despite leaders who were variously scandalous and scandalously incompetent. We’ve managed to elect, then survive, presidents who’ve included “a hideous hermaphroditical character” (J. Adams), “a total imbecile … as brainless as his saddle” (Grant), “that pimp [in] the White House …a man sunk so low we can hardly hate” (Pierce), “filthy story-teller, Ignoramus, Despot, Old scoundrel, perjurer, liar, robber, thief, swindler, braggart, tyrant, buffoon, fiend, usurper, butcher, monster, land-pirate, a long, lean, lank, lantern-jawed, high-cheeked-boned, spavined, rail-splitting stallion” (Lincoln), and “a besotted tyrant and moral leper” (Cleveland).

As I look at the antics surrounding our most recent election, three things occur to me.

  1. People don’t change. By and large, the people whose writing was unencumbered by reality before the election continue in the same vein afterward. The fact that their October pronouncements were not just wrong, but were wrong because of the narrow insistence on seeing their world as the world, have continued pronouncing with undiminished vigor and unexpanded perspective. Likewise, the strutting buffoons seem no less buffoonish. On whole, I wouldn’t let either set of them color your view of the future.
  2. Laws haven’t changed. The executive branch isn’t the government and it doesn’t make the laws; it may propose change, Congress acts (or doesn’t) and then the executive executes (or doesn’t). The president’s autonomy is considerable, but not monarchical. So far, neither law nor regulation has changed and we don’t know what changes will eventually come. The current rally, based on the premise that Mr. Trump will unleash a trillion dollars of new economic activity, seems premature. Likewise, the equally-current despair.
  3. It would be prudent to treat Mr. Trump as a “normal” president. Neither those who passionately support Mr. Trump’s agenda (to the extent it’s known) nor those who passionately oppose it, are well-served by fostering or focusing on the circus or the theatre that seems to envelope him. Focusing on the circus perpetuates the circus. Chip shared a particularly thoughtful article by a Luigi Zingales, a University of Chicago professor who reflected on his country’s experience with Silvio Berlusconi, a business magnate and three-time prime minister whose sexual predation (as prime minister he hosted “bunga bunga” parties) and braggadocio make Mr. Trump look modest.

    Only two men in Italy have won an electoral competition against Mr. Berlusconi: Romano Prodi and the current prime minister, Matteo Renzi (albeit only in a 2014 European election). Both of them treated Mr. Berlusconi as an ordinary opponent. They focused on the issues, not on his character. In different ways, both of them are seen as outsiders, not as members of what in Italy is defined as the political caste.

    The Democratic Party should learn this lesson. It should not do as the Republicans did after President Obama was elected. Their preconceived opposition to any of his initiatives poisoned the Washington well … it will add credibility to the Democratic opposition if it tries to find the points in common, not just differences.

    And an opposition focused on personality would crown Mr. Trump as the people’s leader of the fight against the Washington caste. It would also weaken the opposition voice on the issues, where it is important to conduct a battle of principles.

In short, we are a nation of laws. You need to actively support laws which do good and the candidates who pursue them and you need to actively oppose laws which do bad.

The most fascinating scholarly work around the election came from Allan Lichtman, a senior historian at American University. He studied the outcomes of every presidential election from 1860 – 1980 and propounded a system for predicting the outcome of presidential elections. At base, there are 13 statements (“Real per-capita economic growth during the term equals or exceeds mean growth during the previous two terms”); if, at the time of the election, six or more of those statements are perceived to be false, the party in power loses. The system he constructed after 1980 has now correctly predicted the outcomes of every presidential election from 1984 – 2016. It also implies a roadmap for the 2020 contest.


Celebrating the Season of Light

The darkest days of the year are upon us. It’s dark when I leave for the college and dark when I return. So it is for all of us. You’d be forgiven for imagining that the darkness of the days would seep into our hearts, leaving us alone, sad and timid in the mid-winter.

And yet it is not so. Every culture and every religion, across millennia, has found occasion to defy the darkness and celebrate community in its midst. The twinkling lights on a Christmas tree, the growing light of a menorah, the flicker of a Kwanzaa candelabrum, the roar in a yuletide hearth all speak to the same impulse: seek the light, seek each other, rejoice in each other’s company, give gifts, give thanks (and party like it’s 1999).

My colleagues and I are deeply thankful for your presence, your good humor, your suggestions and your support. It makes it all worthwhile.

Thanks, as always, to the folks who use of Amazon link for some of their online shopping, holiday or otherwise. It’s not a huge amount, but it keeps the lights on! We’re able to earn back about 6-7% on your purchases, without costing you anything. If you’ve used it, thanks! If not, please do try it. Thanks, especially, to the folks who’ve chosen to make a tax-deductible contribution to the Observer:

  • Our stalwart subscribers, Deb, Greg and Jonathan
  • Those, like Joseph, who’ve chosen to send checks or make donations through PayPal
  • The dozen or so folks who’ve already committed to a second year of MFO Premium

Wishing you great joy,



Behind Door Number Two Is?

By Edward A. Studzinski


“I and my public understand each other very well: it does not hear what I say, and I don’t say what it wants to hear.”

Karl Kraus

I recently had occasion to read proxy materials for San Juan Basin Royalty Trust. The issue involved an attempt to remove the current trustee, Compass Bank, the successor to TexasBank, which had been acquired by Compass, with Southwest Bank. The story is a recurring one in banking – a smaller local institution gets gobbled up by a larger institution, which pays a price which is usually justified by the “synergies” and “cost savings” that will occur as the expenses for operating the business will be deployed over a larger platform. Translated, “we will eliminate as many older, expensive employees as we can, since banking is basically a commodity business, where the lowest cost provider wins.” The same rationale is often applied to various lines of business. If it is a business that the acquiring bank is in, it will be folded into the existing model. If it is not, then they will try and apply their model to it to make it meet their profitability metrics. The problem with that is that some businesses require specialty knowledge.

Such appears to be the case with the issues raised in this proxy fight. Most unusual I thought was the letter enclosed with the proxy materials from Lee Ann Anderson, who had been with TexasBank and Compass Bank, and resigned to join Southwest Bank. She has been involved in oil and gas royalty trust administration (and the oil and gas business) for more than twenty years. Let me quote from some of the comments made in that letter.

“When I resigned, Compass Bank gave “X” a “field promotion” to Vice President and Senior Trust Officer, an office I spent 15-20 years to earn, after only eighteen months of experience as an oil and gas manager with Compass Bank. “X’s” background before joining Compass Bank in 2014 was in land title examination, not oil and gas accounting or operations. In “X’s” deposition relating to the pending Burlington litigation in January 2016, he admitted under oath that he had no experience in the administration of royalty trusts, no experience with SEC filings, and very little experience with oil and gas other than relating to title work. Prior to assuming full responsibility of the Trust, he spent only four days of training with me for background on the Trust’s administration and history. He had very little acquaintance with trusts involving oil and gas assets prior to February 2014, and none of these were publicly traded.”

Now, if you thought that was insufficient to raise questions, let me quote from one more following paragraph in the letter:

“We believe that Compass Bank’s reference to individuals with 25 years of experience with the Trust is misleading. The only remaining employee of Compass Bank with any long-term experience working on the Trust, while a capable clerical assistant, has never acted in a managerial role or had any responsibility for discretionary decision-making for the Trust.”

So, what if anything does this have to do with mutual funds? These kinds of issues can’t occur with mutual funds, a highly regulated business, often run by Chartered Financial Analysts who have a code of ethics that they should be adhering to in carrying out their responsibilities. Well, dear reader, I have a surprise for you. Given that greed and the dictates of the marketing department often hold sway, misstatements concerning the experience and backgrounds of portfolio managers and analysts happen more often than one would like. And absent depositions under oath, one usually doesn’t know that as an individual investor getting ready to make an investment decision.

Christmas List Book Review

James Cloonan, who founded the American Association of Individual Investors, has a new book out called Investing at Level 3, which I commend to all of you. One of his comments with which I, a value investor, agree is that “unnecessary fear of volatility results in investors throwing away returns to offset risk that doesn’t really exist for the long-term investor” which he labels “ghost risk.” Volatility in the marketplace, whether for the indices or for individual securities, often presents the long-term investor with the tremendous opportunity for returns. But if you think mutual funds are the solution, Cloonan goes on to describe a multitude of problems with mutual funds, including poor performance: high fees and loads; and lack of truly independent directors. We have touched on these before, but Cloonan points out that as to the directors or trustees of a fund, the investment advisory firm (a) chooses the independent directors; (b) determines the remuneration and expense policy for the independent directors; and (c) can terminate directors. I suggest you all take time to read the prospectus and Statement of Additional Information and familiarize yourself with biographies and compensation.

They won’t say what you really would like to see – “Z is a retired blah-blah in need of additional compensation to support his life style in retirement and a long-time friend of Q, the director of investment research for the firm.” Reality, especially in the mutual fund business, is not really like the Citicorp commercial extolling the virtues of what life would be like if people really said what they meant.

In any event, read the book. It raises a lot of questions that people should work through as they try and determine how to design and implement their own investment programs, especially as pertains to retirement.

The Endowment Guru

My favorite financial writer for the New York Times, Gretchen Morgenson, on November 6th did a long piece about David Swensen, the legendary endowment manager for Yale University. Swensen has also written some books, one about investing for endowments, and one for individuals. As he wrote the one for individuals, he discovered that he couldn’t tell them to do what he did in allocating to various pools of assets, as individuals could not access the same managers he could, and at the same prices. So, for the average investor he is pretty much a proponent of low-cost index funds.

The article is interesting because it fleshes out some things that would not be apparent otherwise. The Yale Endowment Investment Department has a weekly meeting to debate investment ideas, and real debate is what is called for. In retrospect, I can tell you that you often can’t tell when the culture at a firm changes, and real intellectual debate is replaced by a form of pandering. It is telling for instance that in evaluating outside managers, Swensen’s group will not focus on the historic track record of the managers in question, but rather, how good they might be going forward.

In the article, Swensen indicates a willingness to stick with managers, notwithstanding relatively short-term market swings in volatility and thus market value. As he puts it, “Who cares about the trailing numbers if the fundamentals of the portfolio are good?” Well, if you are an asset-gatherer, you do worry about the trailing numbers, because rather than flowing in, the assets will flow out as most consultants and individual investors don’t have that long-term time horizon. Swensen does not like the asset gatherers, who have built large investment funds by attracting many individual investors. “More assets produce more fees, but they force managers to add more positions, not just Grade A ideas,” says Swensen. Former employees at the Yale Endowment have said that one of the most important things they learned in evaluating managers is finding out how well they know their portfolio. If the manager has to bring in an analyst to explain the investment, or refer to a summary sheet, that is probably not someone you want to entrust with your money. Again, read the full article, which is in the Business Section of the November 6, 2016 Sunday New York Times.

So, this month, as we look toward year-end, I encourage many of you to do some of the reading I have suggested as you consider how to allocate your investment portfolios for the future, relative to your goals and objectives, and respective ages. Obviously, at this point predicting taxes for the future is a fool’s errand. Try and determine whether you have placed some or all of your money with asset-gathering organizations, for it is a certainty that those organizations place your investment returns as secondary to the profits of the business that they are running. Apply the same advice to your own portfolios in terms of evaluating what you own. If you can’t remember why you did it, or need someone else to explain it to you, it is probably not what you should be doing. Above all, focus on the long-term.

Happy Holidays!

Trump, Bonds, and Inflation

By Leigh Walzer

(Making Your Portfolio Great Again)

The election 3 weeks ago ushered in a new investment paradigm.  To Make America Great Again, President-elect Trump is committed to lower taxes, run large deficits, and spent trillions on infrastructure. Trump is no friend of the bond market, and judging by the steep decline in bond prices over the following week, the feeling is mutual. Bondholders took note when Mr. Trump bragged on CNBC back in May that he had a lot of experience negotiating with bondholders which he could bring to bear in addressing the government’s debts.  But they were probably more spooked by the subsequent clarification that the government would never default because it could print money at will.

We have no crystal ball on whether Trump will follow through on his spending plans or if the Republican Congress will restrain him. Dennis Gartman predicts Trump will “Out-Keynes Keynes”. Judging by the tepid growth rate, the US and world economy still have plenty of slack. But even a dovish Fed seems to recognize now the risk barometer is tipping toward inflation.

A few days before the election, a prescient money manager from the rust belt asked me how to best protect clients from inflation.   Treasury Inflation Protected Securities (TIPS) didn’t meet his needs because his clients didn’t want to completely forego equity-like returns. He considered some fund products which coupled fixed income or equity strategies with derivatives intended to protect against inflation. But he wasn’t sure they justified their expenses.

Inflation Risk and TIPS

If a portfolio earns 4% when inflation is running 5%, the client’s purchasing power declines by 1%. But we view “Inflation Risk” based on what the portfolio should have been earning.  One benchmark is the return available had the client allocated 100% to TIPS. So if TIPS are yielding CPI + 1%, we would deem the shortfall as 2%.

TIPS are pricing future inflation of 1.86% at this writing up from a trough of 1.2% and 1.71% before the election. (Exhibit I) If a client is inflation averse, TIPS may deserve an allocation

10 year breakeven inflation rate

This is not to suggest TIPS bonds are the “gold standard “of inflation protection. TIPS are backed by a government promise to pay a fixed rate which increases with the Consumer Price Index (CPI). There is good reason to question the value of CPI as an inflation measure. The government has made profound changes over time in the computation of CPI and, as Forbes Magazine notes, has incentives to continue to do so

Other than relying on TIPS, how can an investor reduce his inflation risk?  Many investors turn to commodities or gold as an inflation hedge. But these save havens historically offer much lower yield.  Are they worthwhile? Are there better inflation hedges? To bring some insight to the question we crunch some numbers using the Trapezoid database.  Trapezoid attributes performance and skill of mutual fund managers using data which goes back to 1995.  Qualified MFO readers can demo the capabilities at  The methodology behind the skill ratings is explained here.

The data we use for this article covers the period 11/1/01 to 10/31/16. So we can speak to what worked over the past generation. As the motor of slowing inflation goes into reverse, there is no guarantee patterns will hold. Trumpian inflation may work through the demand side while our recent historical experience is linked to declining input costs.

Inflation Sensitivity: How much is enough

The key to protecting a portfolio from inflation is acquiring assets with Inflation Sensitivity (“IS”). Exhibit II lays out the IS of some of the major fund categories.  For those with a penchant for matters mathematical, we compute IS by defining an inflation index based on the difference in price movement in a basket of Real Return funds against a basket of bond funds with comparable durations. We then use regressions to determine how much each category moved in inflationary periods.  An IS of 1.0 means the investment responds to inflation about the same as a typical Real Return fund.

Inflation Sensitivity by Investment Category

Exhibit II: Inflation Sensitivity by Investment Category

Some investment categories move nearly 2.5% for a 1% move in our inflation index. This includes Gold Mining Equities (GOLDEQ), Energy Equities (ENERGYEQ), and Canadian funds. Others like traditional bond funds move not at all with inflation. The S&P500 has an IS of 1.44.

How much Inflation Sensitivity a Client Portfolio needs is a matter of debate. An IS of 1 is sufficient to match CPI.  This is a good start, but most MFO readers probably agree it is not sufficient.

A number of academic studies suggest that even the S&P500 tends not to keep up with inflation. Why isn’t the S&P500 a more effective hedge? The most common explanation is that rising inflation leads to falling consumer demand. Accelerating inflation probably also puts pressure on corporate profit margins. If these studies are correct, inflation-averse investors should target an IS of at least 1.5x. In other words, a portfolio with IS of less than 1.5x has inflation risk.

Inflation Fighting Strategies

We observe that the IS of most investment categories is closely tied to their Beta. This means the easiest way to reduce inflation risk is to amp up your Beta. (Beta is a measure of systemic risk. For this article, Beta is the expected percentage change in the portfolio when the S&P500 moves 1%)

If a client is willing to stay fully invested in the S&P500, he can get an IS of 1.45x which will nearly hedge inflation. Clients who are targeting IS higher than 1.45 or who aren’t willing to be fully invested must either tolerate inflation risk or acquire more IS.

Since most clients are willing to endure only so much systemic risk in their portfolio, we focus on the question of how to get the most IS per unit of Beta. Exhibit III is one attempt to address this question. For our major investment categories, we normalize both Return and IS for the impact of Beta.

The vertical axis here is Normalized Inflation Sensitivity (NIS) NIS measures whether investments provided high IS relative to their Beta. You can think of this as the distance between the point in Exhibit II and the trendline. Real Return (RR) provides an IS of 1 with almost no beta. Gold provided (over the past 15 years) a little more IS with a modest amount of beta. Mining stocks (gold and precious metal equities)  provided the highest IS relative to beta,

The horizontal axis reflects whether these categories offered good investment returns over the past 15 years, once again normalized for the amount of systemic risk. 

Normalized Inflation Sensitivity vs Normalized Return by Investment Category

Exhibit III: Normalized Inflation Sensitivity vs Normalized Return by Investment Category

What Works, What Doesn’t

Investments in the Pacific region had good Normalized Return with positive NIS. Investments in the consumer sector also did well, but NIS was negative. Commodities for the most part offered positive NIS but Normalized Returns were negative.

Infrastructure and real estate were helpful from an inflation perspective and didn’t seem to cost investors at all. Directionally, allocating more to foreign stocks and small cap also helped.  Growth might work slightly better than value.

Make Your Portfolio Great Again(#MYPGA)

Let’s illustrate how these principles can be put to work. An investment portfolio is currently allocated 80% to Equities (using an S&P 500 Index) and 20% to intermediate bonds. This portfolio has an IS of only 1.15, enough to keep pace with CPI but probably not enough to match “true” inflation.

Exhibit IV illustrates how a portfolio can be tailored to fight inflation. Although the fixed income allocation falls, the Beta is unchanged at .8. However, the IS increases from 1.15 to 1.51. Over the past 15 years, the Alternative portfolio yielded 18 basis points less.  Commodities has not been the best inflation hedge over the past decade, but we still think it merits an allocation, particularly for inflation-averse clients.

Exhibit IV illustrates how a portfolio can be tailored to fight inflation. Although the fixed income allocation falls, the Beta is unchanged at .8. However, the IS increases from 1.15 to 1.51. Over the past 15 years, the Alternative portfolio yielded 18 basis points less.  Commodities has not been the best inflation hedge over the past decade, but we still think it merits an allocation, particularly for inflation-averse clients.

Inflation-Fighting Funds

For investors allocating within an investment category, the same principles apply.  For example, within the small cap fund universe Inflation Sensitivity has a wide dispersion – and a strong correlation to Beta.


Are there actively managed funds which are good inflation fighters?

We applied the same criteria to search the Trapezoid database for individual funds with positive NIS and good Normalized Returns.

Not surprisingly, Gold and Precious Metal Equity Funds are well represented in that list. Several regional or country funds made the list including funds from Canada, Hong Kong, and (yes) Indonesia. Our list also turned up several commodity funds.  The commodity funds with highest IS were utilizing high leverage (explicit or implicit) and produced volatile returns. Goldman Sachs Commodities Strategies Fund has an IS of 2.7, meaning it is 50% more potent as an inflation hedge compared with the average fund in the category.

Exhibit VI lists three equity managers. These funds fare well in inflationary periods with positive NIS and good historic Normalized Returns. They also satisfy our traditional criteria, meaning expected skill over the next 12 months is justifies expense ratio with 60% confidence. Exhibit VII shows cumulative return since 2008 for these funds was much better than a common benchmark.

Exhibit VI: Selected Equity Funds with High IS

    SYM AUM EXP Stars Beta IS
Pear Tree Polaris Foreign Value Small-Cap Fund Foreign SMID Value QUSIX 532 1.30% 4 0.7x 2.45
Schwab Fundamental International Small-Cap Company index Foreign SMID Blend SFILX, FNDC 1116 0.49% 4 0.9x 2.34
Towle Deep Value Fund Small Blend TDVFX 134 1.20% 3 1.1x 2.95

Interestingly, all three funds focus on small caps. Pear Tree Polaris Foreign Value Small-Cap Fund (QUSIX) and Towle Deep Value Fund (TDVFX) were profiled recently by Professor Snowball.  Towle Deep Value Fund has been around just give years; we note Morningstar initially gave them 5 stars, dropped them to 2, and then raised them back to 3 stars. Despite a high expense ratio, their strong performance seems to justify a higher rating.   Polaris holds many volatile positions, including some microcaps, but they diversify their portfolio effectively. Schwab Fundamental International Small-Cap Company Index Fund (SFILX) is managed quantitatively by Research Associates. The domestic small cap sector has rallied since the election but the foreign small caps have not.


There are many good Real Return funds to choose from. (There are also quite a few which seem very overpriced.) One of the good funds is PIMCO 15+ Year US TIPS Index ETF. (LTPZ) This fund has an IS 1.6x the category average. So a 7.5% allocation will arguably produce the same result as a 12% allocation to the average Real Return fund. The expense ratio is a moderate 20 basis points

Bottom Line

Inflation has the potential to be a portfolio wrecker. Advisers may want to consider Real Return funds, commodities, energy and mining stocks, infrastructure, and real estate. Investors should also consider taking more systemic risk and maintaining higher overseas weighting, especially resource-intensive economies like Canada.  But Exhibit IV indicates the IS can be boosted significantly without a major reallocation. We identify several small-cap funds with excellent track records who score well as inflation fighters.

A Low Cost Alternative To One USAA Managed Portfolio

By Charles Boccadoro

USAA was founded in San Antonio, Texas, when 25 Army officers decided to insure each other’s automobiles. The year was 1922. Its original name: United States Army Automobile Association. Today, USAA stands for United Services Automobile Association – a Fortune 500 diversified financial services organization that caters to US military personnel and families. It has more than 11 million members. Its chairman is retired General Lester Lyles. Why choose to invest with USAA? “Military Values: Our disciplined approach stems from our military values of service, loyalty, honesty and integrity.”


One of its products is the USAA Managed Portfolios (aka UMP), which I learned about after a friend recently emailed, asking “Please take a look at my portfolio and possibly give me suggestions ….” As usual and sight unseen, I offered:

  • Take advantage of any employer 401(k) plan to maximum extent possible, especially if they offer matching funds. At minimum, invest enough to maximize company match.
  • If you’ve maxed out your 401(k) yearly contribution, you may still be able to invest more in an individual retirement account (IRA), so max that out too.
  • You can easily open an IRA at places like Schwab, Fidelity, or Vanguard … probably even your bank or credit union. Most will offer different types of investments.
  • On which investments you choose, it depends first and foremost on your risk tolerance. After that, on your investment timeline. Typical 401(k) plans will offer a variety of mutual funds. Your IRAs may allow broader options. In any case, look for low expenses, transparency, and shareholder friendliness.

My friend quickly responded:

  • My employer offers no 401(k) plan.
  • I already max out my IRA yearly but would like to invest more.
  • I’m a long term investor and hardly ever look at my statements.
  • My Traditional IRA is at USAA … one of the good guys.
  • I signed up for their Moderately Aggressive fund … a mix between aggressive growth (65%), bond (33%) and cash (2%).

He sent me a link to USAA Mutual Funds, as well as his latest statement. In fact, my friend was not invested in one fund but an actively managed portfolio of funds, specifically a USAA Managed Portfolio (UMP) with a Moderately Aggressive risk allocation comprising funds available to USAA members across the mutual fund marketplace.

A closer look (see table below) shows his portfolio comprises 19 mutual funds, including three emerging market funds, three international funds, two large cap funds, three alternative funds, and seven fixed income funds.


The statement shows “TOTAL ACCOUNT FEES” for the month in dollars, not percentage, and did not reflect the fees of the underlining funds. Researching the UMP option, one finds the Wrap Fee Brochure, which specifies the 1.1% annual expense ratio (ER), after waivers. The brochure further explains the UMP product: “… a traditional managed account platform that offers model portfolios that may be comprised of mutual funds, money market funds, and/or ETFs …”

My friend provided limited back statements so it is hard to assess his UMP performance against benchmarks. USAA does provide quarterly commentaries on the UMP performance, but they seem top-level with expressions like “The UMP portfolios in general made a strong showing versus their benchmarks in the third quarter.”

I scratch my head though at the wisdom of holding 19 mutual funds, several in similar asset classes, charging a combined total of 1.8% per year, nominally. While it’s hard to say whether one fund or portfolio will outperform another over any given period, the portfolio charging higher fees will certainly face a greater headwind.

At 1.8% per year, the UMP portfolio results in a deduction in performance of significant levels over the long term (as is depicted below for an illustrative zero return portfolio), which must be overcome by manager skill if the investor is to come close to achieving benchmark performance. In this example, over 10 years, fees amount to nearly 20% of the retirement account and more than 40% over 20 years.


Curious, I called USAA to inquire about the benefits of a UMP account versus say one of the USAA Target Allocation funds, like USAA Target Retirement 2030 Fund (URTRX) or USAA Cornerstone Moderately Aggressive Fund (USCRX).

UMP is for people who “don’t have the time, desire or expertise to manage their portfolio,” an eager USAA representative explained. When I asked about some of the advantages, he added that UMP adjusts to market environment and has lower institutional class fees on underlying funds not available to individual investors. The problem is … so do funds like URTRX! When I complained about paying a 1.1% UMP wrap advisory-fee, he answered “You get what you pay for …”

When it comes to investing, the opposite is nearer to the truth: The less you pay, the more you get.

Wanting to offer my friend an alternative approach, I examined the many no load/no transaction fee funds available to USAA members. The goal: a simplified portfolio of 2 or 3 funds he could maintain with similar risk allocation but much lower fees.

To USAA’s credit, they offer a wide variety of interesting fund houses, including Artisan, AQR, T R Price, Fidelity, PIMCO, FMI, River North, Riverpark, Northern Trust, Leuthold, Guinness Atkinson, Oakmark, Oberweis, Osterweis, James, Intrepid, Matthews, Parnassus, and Greenspring.

I settled on a three fund portfolio, ironically with two fund-of-funds but with very low wrap fees: Fidelity Four-in-One Index Fund (FFNOX), Fidelity Total Bond Fund (FTBFX), and Northern Trust Global Tactical Asset Allocation Fund (BBALX) … split 50/25/25. FTBFX and BBALX are actively managed.

The two Fidelity funds receive Morningstar’s Gold Rating based on comparative Process, Parent, Performance, People, and Price. The latter BBALX was positively profiled by David last year.

Morningstar’s Portfolio Manager Tool indicates the USAA UMP allocation appears slightly defensive currently with a 60/40 tilt, as seen below. The Low Cost Alternative provides a very similar allocation.


Two even simpler alternatives would be a 50/50 split between FFNOX and BBALX, making the allocation somewhat more aggressive with a 70/30 stock/bond split, or a 50/50 split between FFNOX and FTBFX, making the allocation somewhat more conservative with a 40/60 stock/bond split. Both would also provide substantial fee reduction.

As for performance against the current USAA UMP portfolio? Some of its underlying funds only have a two year track record. That said, any of these low cost alternatives make “strong showings” (aka beat) the managed portfolio over the past 1 and 2 year periods. They crush the Target Risk USAA Cornerstone Moderately Aggressive Fund (USCRX), which carries a hefty 1.13% annual fee, over the past 1, 3, 5, and 10 year periods.

I recommended my friend call USAA soonest to reassign his current IRA away from UMP to a low cost alternative and redirect future contributions accordingly. I further recommended he open a regular non-tax deferred account for additional savings, while encouraging his employer to consider establishing something like a Simple IRA. (When I mentioned his situation to my local Fidelity representative, she offered to help his firm set it up.)

The three coolest studies of 2016

By David Snowball

There are scholars whose entire lives are consumed by the need to study mutual funds. Not “study” in the carefree way I do or the deeply-tainted way that marketing-driven organizations do, but “study” with considerable rigor, sophisticated tools and a willingness to struggle with complexity.

While much of the content of these studies is inaccessible to most of us,


their conclusions are often provocative, important and ignored. Why ignored? Because folks from large, asset-obsessed organizations don’t want to talk about it and journalists, who mostly need 500 catchy words by this afternoon, can’t talk about it.

Fortunately, the Observer can. Here are three findings, with links back to the originals, that you really need to now about.

Small funds are better than big funds

Javier Vidal-García , “Short-Term Performance and Mutual Fund Size” (June 28, 2016)

What he did: This is scary. Vidal-Garcia and his team looked at the daily returns for 16,000 active equity funds spread across 35 countries over a 25 year span. He wanted to look at the relation between short-term mutual fund performance and fund size around the world.

What he found: “[S]mall funds outperform large funds.” Fund size is negatively related to net returns and to alpha, or returns in excess of a risk-free benchmark. He also found “evidence of a negative fund effect on stock picking ability, which indicates that the smallest funds have superior stock picking skills compared to bigger funds.” That’s true even allowing for the greatest expenses that small funds necessarily bear: “our study suggest that small funds exist and might have great opportunities to prosper. While small funds are not as competitive in terms of expenses as the big funds, they can compensate this disadvantage offering larger average returns.”

What can you do with this? You need to become a bit more independent and a bit more assertive. The research substantiates MFO’s basic claim: your best hope of finding excellent managers who are driven by the desire for excellent performance is to look at small, independent funds. This means giving up the single-minded obsession with expense ratios (sometimes the money is well-spent) and the single-minded obsession with “market-beating returns” (which are bad, bad, bad if the market is in one of its periodic manic fits). It also means finding managers who understand their capacity constraints and have firm, public plans to close the fund to new investors before it’s too late.

Diverse management teams outperform all others

Kian Tan and Anindya Sen, “Do Educational Quality and the Diversity of Managers Matter for the Performance of Team-Managed Funds?” (April 19, 2016)

What they did: Tan and Sen looked at the composition of 3288 mutual fund management teams during the period from 1994 to 2013, which gave them data from both exceptional bull and bear markets. They looked at two elements of each manager’s educational background: the quality of their graduate training and the diversity of their fields of study.

What they found: Tan and Sen found find that the proportion of team members from top MBA programs and the diversity of educational fields within the team have a significant positive effect on fund performance. In particular, strong, diverse teams have greater alpha. A more interesting finding is that, over the long term, diversity of perspectives seems to be more important than high-quality degrees. They conclude, “Our findings also add to the growing body of literature showing a significant positive correlation between informational diversity of teams and performance.” Sadly, they also note that investors haven’t figured this out so that more diverse, higher-quality teams don’t draw more money than other teams do.

You might also enjoy Dr. Tan’s research on Superstar Fund Managers (August 2016) which finds that winning a Morningstar Manager of the Year award drives down subsequent performance because performance-chasing investors flood the winners’ funds, effectively hamstringing them.

What can you do with this? Look for teams with a difference. Engineers, physicists, philosophers and physicians have all become top tier fund managers. Given a choice, choose a team where some members are male and some female, some American and some not, some finance geeks and others … well, other kinds of geeks. And if a liberal arts education is lurking in their background, all the better.

ETFs are bad for your health

Utpal Bhattacharya , Benjamin Loos, Steffen Meyer and  Andreas Hackethal, “Abusing ETFs” (July, 2016)

What they did: Bhattacharya and associates was able to identify and track the behavior of nearly 8000 German investors who had reasonably large portfolios. They looked at two questions: (1) did portfolios with substantial ETF exposure outperform those without and (2) did individual investors’ performance improve once they started adding ETFs to their portfolios.

What they found: It’s pretty stark. “[N]o groups of investors benefit by using ETFs.” They found that timing and trading decisions offered by ETFs drove down a portfolio’s returns (technically, its contingent alpha). It appears that ETFs dropped portfolio returns by 1.1% annually even when they accounted for only a small portion of an investor’s portfolio. At base, investors preferred niche ETFs to broadly-based ones, ETFs encourage trading (that’s the “T” in the name) and most individual damage their portfolios whenever they start trading.

What can you do with this? Do not buy ETFs. If you like low-cost, low-turnover passive investing, buy a broadly-diversified, low-cost, low-turnover index fund. Then leave it alone. Don’t look. Get on with your life. The less you play with it, the better you (and it) are.

Tributary Small Company (FOSCX), December 2016

By David Snowball

Objective and strategy

The fund pursues long-term capital appreciation. They invest in a portfolio of 60-70 small-cap stocks, mostly domiciled in the U.S. Their fundamental approach is value-oriented and broadly diversified across economic sectors. In general, each position in the portfolio starts out about equally weighted; 50 of the 65 current holdings are each between 1-2% of the portfolio. They hold minimal cash, currently about 4%. Portfolio turnover is in the range of 25-35%, far below the small cap average.  


Tributary Capital Management, LLC, formed in May 2010, is an Omaha-based SEC Registered Investment Adviser providing asset management services to individuals, institutions and investment companies. They have an interesting and instructive corporate history. They began as the First Omaha Funds in 1992 and were a service of the trust department of the First National Bank of Omaha. In 1999 they began national distribution of the funds and, in 2001, rebranded as First Focus; all of which was admirable and none of which was sufficient to make them economically viable. Money was flowing out.

In 2010, they got serious about reformation. They had four strategies:

  • Rebrand the complex as Tributary
  • Close any fund that didn’t have a sustainable value proposition
  • Improve the national distribution channels
  • Improve the remaining offerings and work on a national level to secure distribution agreements

They closed three funds, rebranded themselves as “a boutique equity firm offering small, large and all capitalization strategies with a particular focus on small capitalization” and offered good products at reasonable prices. All of the Tributary funds are solid, some are exceptional. The firm has $1.2 billion in assets under management, up more than $300 million since the reformation, and advises six mutual funds.


Mark Wynegar and Michael Johnson. Mr. Wynegar leads the Value Equity Team, manages the Small Company Value Strategy and is responsible for $475 million in assets outside of the fund. He joined Tributary’s predecessor in 1999 and has been managing this fund since then. Mr. Johnson is one of the small cap value managers with special responsibility for the technology and telecommunication sectors. Mike has 22 years of industry experience and joined Tributary Capital Management’s predecessor, First Investment Group in March 2005 and began managing this fund in 2007. Before that he worked for 11 years at Principal Global Investors in Des Moines.

Management’s stake in the fund

Mr. Wynegar has invested between $50,000-100,000 of his own money in the fund; Mr. Johnson has between $100,000-500,000. One of the fund’s three independent directors has invested in the fund; indeed, only one of the three has any investment in any of the Tributary funds.

Opening date

June 10, 1996.

Minimum investment


Expense ratio

1.18% on assets of $702 million, as of July 2023.


The most distinctive element of the Observer’s fund analysis is the Great Owl designation, which is awarded only to those funds which has delivered top quintile risk-adjusted returns, based on Martin Ratio, in its category for evaluation periods of 3, 5, 10, and 20 years. The Martin Ratio is a more risk-sensitive form of the well-known Sharpe Ratio, both of which ask “are you getting well-paid for the risks you’re subject to?” In the case of Tributary, it has risk-adjusted returns in the top 20% of small-core funds for the past three, five, ten and twenty year periods. It is one of only three funds that have a performance record that long and that strong; Neuberger Berman Genesis (NBGNX) and Hartford Schroders US Small Cap Opportunities Fund (SCUIX) are the other two.

Overall, there are only nine small cap Great Owl funds that have been around since the start of the current market cycle and which are open to new investors. Almost all, except Tributary, are household names, at least in the investment community. They are:

Brown Advisory Small-Cap Growth (BIASX)

Champlain Small Company (CIPSX)

Fidelity Advisor Small Cap Value (FCVIX)

Hartford Schroders US Small Cap Opportunities (SCUIX)

Neuberger Berman Genesis (NBGNX)

Queens Road Small Cap Value (QRSVX)

T Rowe Price QM US Small-Cap Growth Equity (PRDSX)

Tributary Small Company (FOSCX)

Vanguard Tax-Managed Small-Cap (VTMSX)

Using the MFO Premium screener, we assessed the performance of the best-of-class funds over the course of a full market cycle; that is, we looked at their returns, their risks and standard measures of the risk-return trade-off over the period from October 2007 to the present.

  Returns MAXDD Recvry mo Standard dev Downside dev Ulcer Index Bear market dev Sharpe Ratio Sortino Ratio Martin Ratio
Tributary Small Company Fund 9.1 -44.5 30 15.8 10.6 9.7 9.6 0.44 0.65 0.71
Small-Cap Core Average 8.9 -52.5 51 18.6 12.8 14.8 11.6 0.37 0.54 0.50
Rank among the nine Great Owls 2nd 3rd 2nd 5th 5th 2nd 5th 3rd 2nd 1st

How do you read that? Compared to the average small cap core fund, Tributary Small Company has provided higher returns, substantially smaller risks, substantially shorter down periods and substantially better risk-adjusted returns.

Even compared to the Great Owl cohort, the top nine out of 300 small cap funds, Tributary rests in the top tier. It is at or above the group mean in every category and finishes in the top three on seven of 10 measures. And it’s also one of the group’s three smallest and most nimble funds.

Based on data as of 6/30/2016, Morningstar, aiming for the same goal of rewarding funds for their risk-adjusted performance, gave FOSCX a five-star 3-year rating, four-star 5-year rating, five-star 10-year rating and a five-star rating overall.

What might explain the fund’s consistent strength?

The managers are intent and value-conscious. This is, and has been, their only charge. They attempt to identify resilient small companies whose stock is mispriced. Among the factors they look at are “price-to-earnings ratio, balance sheet strength, cash flow, capital usage efficiency, management style and adaptability, market share, product lines and pricing flexibility, distribution systems, and use of technology to improve productivity and quality.” It’s a good “we own the business, not just the pieces of stock” mindset.

They take diversification seriously. They’ve spread their investments across all sectors and rarely overweight any sector by more than a couple points; currently, the only substantial overweight is in industrials. Likewise, they’ve spread their investments evenly across their portfolio; their largest position consumes2.4 % of assets and their smallest position sits at 0.8 % with the vast majority roughly evenly weighted at between 1-2% of the portfolio. They hold some fairly growth-y names, but about as many value stocks.

They are patient with their stocks. The fund’s turnover is about half the average.

They are patient with themselves. The management team is stable, with the guys working on the fund for 11 and 17 years.

Bottom Line

Some funds are intriguing because of their innovative approaches, distinctive portfolios or high-profile managers. Others simply get the job done, quietly and well, year after year. You might think of them as the “blocking and tackling” funds. If you’re looking for a fund comparable to the now closed Mairs & Power Small Cap (MSCFX) this might be it. Both are four- or five-star Great Owl funds, both are low-profile, low turnover, low stress, broadly diversified, and quintessentially Midwestern.

Tributary Small Company is one of the best small cap funds available to you. It likely deserves your attention.

Fund website

Tributary Small Company Fund. Don’t get your hopes up, these folks really aren’t much into communication.

What Are You Thankful For?

By Mark Wilson

What Are You Thankful For?

Thanksgiving is my favorite holiday.  We get four days off, gather with our family and friends, and prepare and eat (hopefully) good food.  All of this without the extra “stresses” of the 4th of July or (at our house) Christmas.

Once everyone is seated around the dining room table, we wait for my father-in-law to ask the question “Can we go around the table and each share what we are thankful for?”  This is a longstanding tradition and another reason why I enjoy the holiday.  It’s great to hear answers ranging from “our family’s health” and “Uncle Russ has joined us” to “cranberry sauce!” and “the turkey is not a charred mess.”

Well, I must have been thinking too much about the CapGainsValet, because here’s how I answered the question this year:

“I’m thankful for:

  • A smaller Doghouse List. CapGainsValet has been running for the last three years, so we can start to make distribution comparisons.  This year we are definitely seeing fewer of the massive (20%+ of NAV) distributions. 
    Funds on the Doghouse List over the three years
  • Fewer distributions higher than 10%. While 20%+ distributions are truly painful, distributions in the 10% to 20% range also increase our tax bills.  Although many planned for another large year for capital gains distributions, I’m guessing this year will be one of the most tax-efficient years we’ve had in a long time. 
    funds with distributions higher than 10% over the last three years
  • Asset Location. When building out an investment portfolio, we think not only about what goes in the portfolio, but also where those assets should go.  Having the “right” holdings in tax-deferred and tax-free accounts makes capital gains distribution season less worrisome.  Owning active equity managers, alternative funds and many bond funds in taxable accounts creates unnecessary tax drag and reduces long-term after-tax wealth.  (Michael Kitces has excellent tips on asset location – and many other topics – at 

(realizing my wife and kids were rolling their eyes…)

  • Oh – and, I’m thankful for my lovely wife, my amazing children and the fact that we all recognize we should be thankful!”

I hope you all had a great Thanksgiving.

Mark Wilson, APA, CFP®
Chief Valet

Elevator Talk: Colin Symons, Symons Value (SAVIX)

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 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.

Colin Symons manages SAVIX and has managed it since the fund launched in 2006. He joined Symons Capital, the advisor, in 1997.   He seems to be a serial over-achiever. Mr. Symons graduated from Williams College, arguably the best liberal arts college in America, in only three years. He started his career as a software developer, working with and writing code for both the IRS and major financial services firms such as Chase Manhattan Bank. He eventually earned recognition as a Microsoft Certified Solution Developer, a globally recognized designation. His interests grew beyond financial software into financials; he learned security analysis and earned his CFA. At Symons Capital he manages $378 million in their Value, Small Cap Value and Concentrated Small Cap Value strategies. Symons itself manages about a half billion dollars in client assets.

Symons Value came to our attention preparing the article, “Counting on the Winners” (November, 2016). In it we looked for equity funds that managed exceptionally strong risk-adjusted returns in both the market panic (2007-09) and in the subsequent bull market (2009-present). Of the 3000 funds we screened, SAVIX was one of ten stand-outs. It had sterling performance in the crisis then subsequently posted respectable absolute returns with exceptionally low volatility. The table below reflects the fund’s performance over the course of the current bull market cycle.


Annual returns

Maximum drawdown

Downside deviation

Bear market deviation

Sharpe ratio

Symons Value






Lipper peer group






Here’s the translation: during the bull market begun in March 2009, SAVIX has returned about 69% as much as its average peer but it’s worst drawdown was only 42% as great, its downside volatility is 58% as great and its losses in bear market months is 46% as great. In short, you would have received 70% of the gain with only 50% of the pain. That’s a pleasantly asymmetrical risk-return ratio.

It has earned the Observer’s “Great Owl Fund” designation for top-tier risk-adjusted returns in every trailing measurement period since inception.

We asked Mr. Symons about the fund’s very consistent strength. Here are Colin’s 200 words on why you should add SAVIX to your due-diligence list:

We think of ourselves as risk managers, guys who limit volatility in the near-term in order to produce the strongest returns in the long-term. Generally the goal is to get there, but to sort of get there safely. While we’re fairly risk-averse we’re also perfectly happy taking intelligent risks, but still protecting against the downside. In gaming terms, we’re not going to put it all on black. It’s how I manage my own money and it works.

There are four pillars of investing: macro, fundamental, technical, sentiment. Our special strength is understanding the significance of macro-level events on the likely performance of individual securities. The macro side stuff tends to focus on growth prospects. The question we look at is, is it likely to get better or to get worse? The US is a pretty developed country with a rich set of data available.  We look at the prospects for the economy and various sectors, then adjust. If things are slowing, we might move to consumer staples and utilities; if it’s accelerating, we would turn to cyclicals. Beyond that, fundamentals are fundamentals. Graham and Dodd stuff. We’re good at it but it’s not a real differentiator. Sentiment and technicals can move the picture, but they don’t really contribute much to it.

That focus on the macro helps explain our ability to manage volatility. If growth is slowing, we may run from financials or maybe retail. Most of Wall Street isn’t willing to do that. The questions are always the same, what’s the upside from here and how well do we know the risks?

Symons Value has a $5000 minimum initial investment which is reduced to $2500 for IRAs and other types of tax-advantaged accounts. Expenses are capped at 1.21% through May, 2018. The fund has about gathered about $92 million in assets.  Here’s the fund’s homepage. As is so often the case, there’s rather more sophisticated information available on the advisor’s site. The key is to remember that the separate account information might help inform your understanding of the fund but can’t substitute for a careful analysis of the fund literature itself.

Prelaunch Alert: Laura Geritz, Grandeur Peak and the Rondure Funds

By David Snowball

When Laura Geritz left Wasatch Advisors in June after a decade with the firm, there was a clear and understandable sense of loss. Ms. Geritz had three public charges:

Wasatch International Opportunities (WAIOX), : a $635 million international small-growth fund. It’s got a five-star rating from Morningstar. Over the past five years, it’s posted higher returns with lower volatility than its Lipper peer group. The estimable Lewis Braham reports:

Geritz replaced long-term International Opportunities manager Blake Walker, who left to run Grandeur Peak International Opportunities (GPIOX) in October 2011. Since then, the two funds have been neck and neck—Grandeur Peak produced a cumulative 94% return to Wasatch’s 90% but Wasatch had less volatility—and both have crushed their peers’ average of 55%. Neither Geritz nor Walker was the only one responsible for that outcome. (“Should You Follow a Star Money Manager?” Barron’s, 9/10/2016)

Wasatch Frontier Emerging Small Countries (WAFMX), from 2012. It’s a fund with a distinctive focus on “frontier markets and small emerging market countries.” Its 6.1% annual return has beaten its Lipper peer group by 570 basis points/year since inception; another way of saying the same thing is that WAFMX had returns 15-times greater than its peers’. By all of our measures, it was (and is) substantially less risky than they are.

Wasatch Emerging Markets Small Cap (WAEMX), from 2009. The contrast here is even sharper. Since inception, this fund has earned 3.0% annually which seems modest until you realize that the average emerging markets fund has lost 2.2% annually in the same period.

In short, she’s been doing a really good job and it wasn’t at all clear why she left or where she’d head.

We now know. Ms. Geritz left, at least in part, because “desire to do her own thing, build her own firm and be her own boss,” according to Grandeur Peak president Eric Huefner. That’s much the same motivation that led Robert Gardiner and some of his associates to leave Wasatch and found Grandeur Peak five years ago.

That’s the “why?” The “where” is Rondure Global Advisors. Rondure is a new firm that she’s launching in collaboration with Grandeur Peak. It is, for now, a one-person operation with Ms. Geritz spending a chunk of her time bouncing ideas around with the Grandeur Peak analysts.  While she does that and does portfolio planning, Mr. Huefner is working to prepare prospectuses for two Rondure funds. One will focus on developed markets, the other on developing markets. It’s likely that the funds will be in registration by the end of 2016 and will be available for purchase by late winter, 2017.

What’s up with “Rondure”? If you’re asking, “why choose the name ‘rondure’?” the answer is sort of playful. “Rondure” is French for “round,” as in “the globe.” Since she’s a global investor, that worked. And her father was an English lit professor with a passion for Shakespeare, whose Sonnet 21 speaks of:

Making a couplement of proud compare,
With sun and moon, with earth and sea’s rich gems,
With April’s first-born flowers, and all things rare
That heaven’s air in this huge rondure hems.

Too, it sort of rhymes with “Grandeur,” which is also French. And a bunch of other names were already taken.

A more serious question is “why start Rondure rather than simply join Grandeur”?  I put that question to Mr. Huefner. Rondure will have its own research team and client managers, with Grandeur Peak providing the back-office (and moral) support. His explanation seemed to point in two directions: (1) Ms. Geritz really wants to run her own firm and (2) both teams might be stronger if she operates in cooperation with, but independent of, Grandeur Peak.

Here’s his explanation:

Laura is definitely somebody we’ve thought very highly of. She was a great partner when we were all at Wasatch and one of the most prolific travelers out there. We were visiting companies like crazy – 1800 touches/year across our team – and she was doing the same. When she decided to leave Wasatch, we were excited to have the conversation.

Her approach is globally-focused, deep due-diligence; she’s more all-cap, core, really high-quality. She’s not looking for 15% annual growth in her firms the way we do; she’s much more about consistent compounders. She also works further up the market cap scale than we do; her focus is much more mid-, large- and mega-cap than ours.  That makes her a little tangential to what we’re doing. She’s also better at macro-level things than we are. She has more insight, for example, into the macro environment in Japan and its impact on individual firms. We love the idea of overlaying her knowledge, expertise and passion. Every day someone comes in to bounce an idea off her. Our contrasting perspectives are, I think, helping us both.

It’s an intriguing, and promising, development. We’ll follow up for you as soon as her funds go into registration.

Launch Alert: T. Rowe Price Total Return (PTTFX)

By David Snowball

It’s no secret that the consuming passion of fixed income investors is “the search for yield.” The Financial Times offered a nice snapshot of the problem; here is the income available (the yield) from the super-safe benchmark 10-year Treasury bonds:

10 year Treasury bond yield

That’s a picture of a bull market in bonds: as investors are willing to pay more for a bond, the yield they earn from it falls. That relentless move from 16% down to 2% understates the global challenge where there are about $9 trillion in investment-grade bonds that generate a negative yield (“fixed negative-income funds”?)

A painfully common response has been for investors to swallow hard and buy higher-risk assets for what was supposed to be the lower-risk portion of their portfolios. As part of the Financial Times Investing 2.0: Unlocking Yield special report, David Oakley notes:

Pension funds and insurance companies have increasingly embraced riskier assets in their hunt for higher returns over the past five years. Alternative assets such as property, infrastructure, private equity and hedge funds have been bought up by institutional investors in a world where yields on safer government bonds have hit rock bottom.

Total assets managed by the 100 largest alternative investment managers rose to $3.6tn this year … as these assets have become more embedded in the portfolios of pension funds and insurance groups…

The OECD, the Paris-based group of mostly rich nations, warned last year that pension funds and insurance companies faced a growing threat of insolvency because of their increased allocations to riskier assets. (11/28/2016)

T. Rowe Price has launched the T. Rowe Price Total Return Fund in response to exactly that set of pressures. Unlike most funds with the “total return” moniker, it’s a purely fixed income fund investing in a diversified portfolio of U.S. government bonds, corporate bonds, bank loans and various types of mortgage-backed and asset-backed securities. The fund’s exposure to corporate bonds is capped at 35% and foreign currency exposure is capped at 20%. Unlikely many panicked professional investors, it’s targeting the investment grade universe rather than taking ill-defined risks on alternatives, private placements and similarly shady ventures.

It is designed “to address the challenges of the current market environment, including low interest rates, potential for volatility, stretched valuations and impaired market liquidity.” The fund will primarily invest in intermediate-term bonds and will employ a U.S.-focused, multi-sector approach. Manager Andy McCormick claims to be pursuing “the characteristics of a high-grade bond portfolio – diversification of risk away from stocks and steady cash flow from the fund’s holdings.”

The fund is co-managed by Andy McCormick, head of the U.S. taxable bond team and manager of the four-star T. Rowe Price GNMA Fund (PRGMX) and Chris Brown who seems mostly to have managed money on Price’s behalf for private and international investors.

Bottom line: it’s definitely worth a look. T. Rowe Price is far more professional, risk-conscious and trend-avoidant than its peers. Its multi-sector income funds (Credit Opportunities, Global Multi-sector Bond, Personal Strategy: Income, Spectrum Income) are generally exceedingly well-built and are consistently strong performers. Folks equally anxious about low-yields and the unintended consequences of chasing higher yields should put Price Total Return on their watch list.

The fund launched on October 31, 2016. The minimum initial investment for Investor shares is $2500 and the initial expense ratio after waivers is .57%, which is well below the category average of 0.79%. There’s a bit more detail at the fund’s homepage.

Funds in registration

By David Snowball

You know it’s a bad month for fund registrations when the most interesting thing out there is a bad idea: The ETF Market ETF (TETF). If you’ve ever thought to yourself, “there’s nothing I want more than to be trapped investing in a very limited universe of companies, almost none of whom have enduring competitive advantages,” you can now not only invest there, you can day trade if you want. (sigh) Otherwise, year-end is a slow time in the fund launch world.

American Beacon Alpha Quant Core Fund

American Beacon Alpha Quant Core Fund will seek long-term capital appreciation. The managers will use “a proprietary fundamentally-based, systematic process” and/or “a proprietary methodology” since select a portfolio of mid- to large-cap stocks that qualify either as “high quality” or “value.” The fund will be managed by Massimo Santicchia and Katherine Gallagher of Alpha Quant Advisors. The initial expense ratio will be1.18% for Investor shares. The minimum initial investment will be $2500.

American Beacon ARK Disruptive Innovation Fund

American Beacon ARK Disruptive Innovation Fund will seek long-term growth of capital. The plan is to invest in the stocks of domestic and foreign disruptive innovation companies. Apparently disruption will center on four areas: genomics, next gen internet, fintech and industrial innovation (which might involve Our Robot Overlords).The fund will be managed by Catherine D. Wood, CIO of ARK Investment Management. The initial expense ratio will be1.38%. The minimum initial investment will be $2500.

Della Parola Risk Optimized Equity Fund

Della Parola Risk Optimized Equity Fund will seek long-term growth of capital. The plan is to invest in S&P 500 stocks but build the portfolio through overlays for “beta optimization, sector rotation and security selection to constituents of the S&P 500 Index.” The fund will be managed by David A. Mascio, Hong Miao, and Kenton Zumwalt of Della Parola CM. The initial expense ratio hasn’t been released, though the fact of a 2.5% sales load has. The minimum initial investment will be $1,000.

Manager changes

By Chip

Manager changes come in three varieties: the utterly inconsequential, the individually significant and the broadly worrisome. Inconsequential changes, the vast majority of them, represent the normal tweaking of management teams or the comings-and-goings of competent but undistinguished professionals. Individually significant changes are ones where the manager made a real difference to a fund’s success, and where his or her departure might well disrupt the fund’s prospects. The dismissal of Wellington Management from Voya International Core, for example, substantially changes the fund’s profile and diminishes its short-term attractiveness. Broadly worrisome changes occur when principled managers with distinguished long-term records are dismissed because they’re “out of step” with the market. Quite frequently at the tops of frothy markets, value managers find their services no longer required. GMO famously lost 40% of its assets just before the crash of 2000 vindicated what they’d been doing. This month, the removal of Osterweis Capital Management from Clearwater Core Equity Fund has that sort of feel. Osterweis is famously independent, generally successful and often-enough out of step with relentlessly optimistic markets. Their departure might be more significant as a market indicator than as an indicator of Clearwater’s immediate prospects.

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
ALATX AB Multi-Manager Alternative Strategies Fund As of the end of the year, CQS, LLC will no longer subadvise the fund. The other subadvisors will remain. 11/16
AABSX AllianzGI Best Styles Emerging Markets Equity Fund No one, but . . . Rohit Ramesh has joined Michael Heldmann in managing the fund. 11/16
AOMAX AlphaOne Small Cap Opportunities Fund Steven Dray is no longer listed as a portfolio manager for the fund. Christopher Crooks and Daniel Goldfarb will continue to manage the fund. 11/16
TWBIX American Century Balanced Fund No one, but . . . Steven Rossi joins Claudia Musat, G. David MacEwen, Robert Gahagan and Brian Howell in managing the fund 11/16
ACPQX American Century Core Equity Plus Fund No one, but . . . Steven Rossi joins Claudia Musat and Scott Wittman in managing the fund 11/16
BEQAX American Century Equity Growth No one, but . . . Steven Rossi joins Claudia Musat in managing the fund 11/16
EFEAX Ashmore Emerging Markets Frontier Equity Fund Bryan D’Aguiar will no longer serve as a portfolio manager for the fund. Felicia Morrow and Andy Brudenell will continue managing the fund. 11/16
BXMDX Blackstone Alternative Multi-Strategy Fund Rail-Splitter Management, LLC will no longer serve as a subadvisor to the fund. The other subadvisors will remain. 11/16
QWVPX Clearwater Core Equity Fund Osterweis has been terminated as a subadvisor to the fund. Given their contrarian philosophy, their dismissal might be a bad sign for the future. The other subadvisors will remain. 11/16
SUWAX Deutsche Core Equity Fund Owen Fitzpatrick, Thomas Hynes and Brendan O’Neill are no longer listed as portfolio managers for the fund. Pankaj Bhatnagar will continue to manage the fund and is joined by Arno Puskar and Di Kumble. 11/16
DRFMX Dreyfus Emerging Markets Fund Gaurav Patankar is no longer listed as a portfolio manager for the fund. Warren Skillman will continue to manage the fund. 11/16
DTMAX Dreyfus Total Emerging Markets Fund Gaurav Patankar is no longer listed as a portfolio manager for the fund. Sean Fitzgibbon, Federico Zamora and Josephine Shea will continue to manage the fund. 11/16
ELASX Emerald Small Cap Value Fund No one, but . . . Richard Giesen and Ori Elan are joined by Steven Russell on the management team. 11/16
EPIAX Epiphany FFV Strategic Income Fund No one, but . . . Daniel Mulvey has been added as a portfolio manager, joining J. Joseph Veranth and Robert Leuty 11/16
FSEAX Fidelity Emerging Asia Colin Chickles will retire at the end of December. John Dance will continue to manage the fund. 11/16
FGLAX Fidelity Global Balanced Fund John Lo, Maria Nikishkova, and Andy Weir no longer serve as co-managers of the fund. Most of the “A” team, Geoff Stein, John Dance, Stephen Dufour, Stefan Lindblad and David Simner will continue to manage the fund. 11/16
FMSLX FMC Select Fund Michael Kelter steps aside after one year Timothy Muccia will continue to manage the fund. 11/16
ITHAX Hartford Capital Appreciation Fund Frank Catrickes will no longer serve as a portfolio manager for the fund. Saul Pannell, Kent Stahl and Gregg Thomas will continue to manage the fund. 11/16
HCTAX Hartford Global Capital Appreciation Fund Frank Catrickes will no longer serve as a portfolio manager for the fund. Michael Carmen, Nicolas Choumenkovitch, David Palmer, Saul Pannell, Kent Stahl and Gregg Thomas will continue to manage the fund. 11/16
JSFBX John Hancock Seaport Fund Michael Carmen will no longer serve as a portfolio manager for the fund. Nicholas Adams, Steven Angeli, John Averill, Robert Deresiewicz, Bruce Glazer, Andrew Heiskell, Mark Lynch, Kirk Mayer, Keith White, Jennifer Berg, Ann Gallo and Jean Hynes will continue to manage the fund. 11/16
Various Nationwide Destination 2010 Fund, Nationwide Destination 2050 Fund, Nationwide Destination 2015 Fund, Nationwide Destination 2055 Fund, Nationwide Destination 2020 Fund, Nationwide Destination 2060 Fund, Nationwide Destination 2025 Fund, Nationwide Investor Destinations Aggressive Fund, Nationwide Destination 2030 Fund, Nationwide Investor Destinations Moderately Aggressive Fund, Nationwide Destination 2035 Fund, Nationwide Investor Destinations Moderate Fund, Nationwide Destination 2040 Fund, Nationwide Investor Destinations Moderately Conservative Fund, Nationwide Destination 2045 Fund, Nationwide Investor Destinations Conservative Fund Benjamin Richer is no longer listed as a portfolio manager for the funds Christopher C. Graham, who has no investment in any of his 16 funds, remains. 11/16
NCLEX Nicholas Limited Edition No one, but . . . Neal Dihora has joined David Nicholas in managing the fund. 11/16
FFEIX Nuveen Dividend Value Fund Effective immediately, Cori B. Johnson is no longer a portfolio manager for the fund. David Chalupnik and Derek Sadowsky will continue to serve as portfolio managers for the fund. 11/16
FRMPX Nuveen Small Cap Growth Opportunities Fund Effective immediately, Robert McDougall is no longer a portfolio manager for the fund. Jon Loth will serve as the sole portfolio manager for the fund. 11/16
FRGWX Nuveen Large Cap Growth Opportunities Fund Effective immediately, Scott Mullinix is no longer a portfolio manager for the fund. David Chalupnik and Harold Goldstein will continue to serve as portfolio managers for the fund. 11/16
FRSLX Nuveen Mid Cap Growth Opportunities Fund Effective immediately, Scott Mullinix is no longer a portfolio manager for the fund. James Diedrich and Harold Goldstein will continue to serve as portfolio managers for  the fund. 11/16
NMKAX Nuveen Multi-Asset Income Fund Effective immediately, Cori B. Johnson is no longer a portfolio manager for the fund. Her tenure with the fund, which launched in September, was only six weeks. The other ten managers continue to manage the fund. 11/16
NMXAX Nuveen Multi-Asset Income Tax-Aware Fund Effective immediately, Cori B. Johnson is no longer a portfolio manager for the fund. The other eight managers continue to manage the fund. 11/16
OHYIX Oaktree High Yield Bond Fund Shannon Ward no longer serves as co-portfolio manager for the fund Sheldon Stone, David Rosenberg and James Turner will continue to serve as the co-portfolio managers. 11/16
MMSCX Praxis Small Cap Fund, which will become the Praxis Small Cap Index Fund on January 1st. Luther King Capital Management will no longer subadvise the fund. Therefore, J. Luther King and Steven Purvis will no longer serve as portfolio managers for the fund. Everence Capital Management will assume the responsibility of day-to-day management, with Dale Snyder listed as portfolio manager. 11/16
PGEAX Putnam Global Energy Fund Greg Kelly will no longer serve as a portfolio manager for the fund. Ryan Kauppila will now manage the fund. 11/16
PPGAX Putnam Global Sector Fund Class Greg Kelly and Kelsey Chen are no longer listed as portfolio managers for the fund. Michael Maguire joins the extensive management team of Sheba Alexander, Isabel Buccellati, Jacquelyne Cavanaugh, Kelsey Chen, Aaron Cooper, Samuel Cox, Neil Desai, Christopher Eitzmann, Vivek Gandhi, Ryan Kauppila, David Morgan, Daniel Schiff, Walter Scully, and Di Yao. 11/16
SLSAX Sterling Capital Long/Short Equity Fund Effective immediately, Russell Lucas will no longer serve as a portfolio manager of the fund. Michael Gregory, Ashton Lee, Derek Pilecki, L. Joshua Wein, James Willis, Charles Frumberg, Brian Agnew and Ward Davis will continue to manage the fund. 11/16
FNAPX Strategic Advisers Small-Mid Cap Multi-Manager Fund D. Kevin McCreesh and Ronald Mushock are no longer listed as portfolio managers for the fund. Menno Vermeulen, Greg Sleight, Puneet Mansharamani, Josef Lakonishok and Guy Lakonishok join Don San Jose, Brian Schaub, Chad Meade, George McCabe, David Daglio and Barry Golden. 11/16
SDRIX Swan Defined Risk No one, but . . . Robert Swan has joined Randy Swan in managing the fund. 11/16
USHYX USAA High Income Fund R. Matthew Freund is no longer a portfolio manager for the fund. Julianne Bass will be joined by John Spear and Kurt Daum in managing the fund. 11/16
USAIX USAA Income Fund R. Matthew Freund is no longer a portfolio manager for the fund. Julianne Bass and Brian Smith will be joined by John Spear and Kurt Daum in managing the fund. 11/16
USIBX USAA Intermediate-Term Bond Fund R. Matthew Freund is no longer a portfolio manager for the fund. Julianne Bass and Brian Smith will be joined by John Spear and Kurt Daum in managing the fund. 11/16
USSBX USAA Short-Term Bond Fund R. Matthew Freund is no longer a portfolio manager for the fund. Julianne Bass and Brian Smith will be joined by John Spear and Kurt Daum in managing the fund. 11/16
IAGEX Voya Global Equity Dividend Fund Kris Hermie will no longer manage the Fund. Nicolas Simar and Bruno Springael will continue to manage the fund. 11/16
IICWX Voya International Core Wellington Management Company will no longer a sub-advise the fund, effective January 20th. PanAgora Asset Management and Voya Investment Management will be the new subadvisors. 11/16
WLCAX Wells Fargo Large Company Value Fund Phocas Financial Corporation will no longer subadvise the fund, effective February 1st. Stephen Block and William Schaff will no longer manage the fund. Analytic Investors, LLC will take over as subadvisor with Dennis Bein, Harindra de Silva and Ryan Brown listed as portfolio managers. 11/16
GVIEX Wilmington Multi-Manager International Fund The Board is making changes to subadvisors and investment strategies. As a result the entire management team has been removed. The new management team is Yoshihide Itagaki, Matthias Born, Toby Hudson, Boris Jurczyk, Toshinori Kobayashi, Caroline Moleux, Kay Möller, Michael Nuske, Thorsten Winkelmann and Isabelle de Gavoty. 11/16
WGERX Winton Global Equity Portfolio Matthew Beddall no longer serves as portfolio manager for the fund. David Harding continues to manage the fund. 11/16

Briefly noted

By David Snowball

In a peculiarly peculiar move, Praxis Small Cap (MMSCX) is becoming Praxis Small Cap Index Fund. Praxis might, charitably, be described as “bad” (its five-year record trails its peers by 600 basis points annually) and “expensive” (1.68% with a 5.25% sales load). In an attempt to be less “bad,” they’re giving up active management but remaining expensive (1.13% with a 5.25% sales load). Here’s advice to prospective providers of index funds: if you can’t make it cheap, you’re going to lose. Praxis is attempting to dodge that ugly truth by being not-quite-an-index funds: its benchmark is the S&P SmallCap 600 but “the Fund seeks to avoid companies that are deemed inconsistent with the stewardship investing core values. In addition, the Adviser uses optimization techniques to select securities according to their contribution to the Fund’s overall objective and to seek to replicate the characteristics of the index.” So it’s an optimized sub-set of the index minus firms that are poor stewards.”

Apparently passive investing isn’t going to go away

Joseph Finora, a media relations guy, wrote and politely asked if I’d share the following thunderbolt with you: “According to a new survey by The MFEA (Mutual Fund Education Alliance) in conjunction with Casey Quirk by Deloitte, a leading strategy consultant to the global asset management industry, many fund industry leaders expect the trend toward passive investment management to continue or even accelerate.”

At the beginning of my Research Methods class, I explain that sometimes you hear someone earnestly announce their research findings and the only think you can think is “well, duh.” My recommendation to my students is, don’t do research that makes your listeners roll their eyes and go “well, duh.”

Moerus gets the old gang back together

Ian Lapey, former manager of Third Avenue Value Fund (TAVFX), has agreed to join the team at Moerus Capital as a Partner and Research Analyst. He’ll help “identify, research and invest in attractive, long-term, deep value opportunities worldwide.” I asked Moerus’s founder and former Third Avenue International Value (TAVIX) manager Amit Wadhwaney, whether Mr. Lapey will have a particular niche or specialty within the firm.

We will all be, as we have always been, generalists striving to opportunistically identify investments that meet our investment criteria. That said, each person comes with different backgrounds, life experiences, intellectual baggage, so to speak which allows them to “see” opportunities (and importantly, risks) where another might not.  Building an organization with such cognitive diversity has always been our goal. Not only do we hold Ian’s analytic acumen in high regard, we particularly value having him as a colleague for the very different insights that he brings to our investment analysis and security selection process, while hewing to the same investment methodology that we all grew up with.

Mr. Lapey served Third Avenue for 13 years; previously he’d been at First Boston and Salomon Brothers. His M.B.A is  from the Stern School of Business at New York University and his B.A. is from Williams College, arguable the best liberal arts college in America. If you’re interested in why that might be important, consider reading the research of investment team diversity in this month’s story, “The Three Coolest Studies of 2016.”

Closings and other inconveniences

JPMorgan Small Cap Equity Fund (VSEAX) will close to new investors on December 30, 2016.

Principal Small-MidCap Dividend Income Fund (PMDAX) closed to new investors on December 1, 2016.

Small Wins for Investors


Effective November 21, 2016, Artisan Mid Cap Value Fund (ARTQX) re-opened to new investors. Morningstar puckishly notes “investors have fled Artisan Mid Cap Value in droves lately,” likely because the fund trails 90% of its peers over the past 3- and 5-year periods though it’s had a fine 2016. The fund peaked at $10 billion, troughed at $3.4 billion and currently sits at $4.0 billion.

The Buffalo Funds have eliminated the 2% redemption fee on shares of the Buffalo Discovery Fund, Buffalo Dividend Focus Fund, Buffalo Flexible Income Fund, Buffalo Growth Fund, Buffalo International Fund, Buffalo Large Cap Fund and Buffalo Mid Cap Fund

Effective December 1, 2016, Salient Adaptive Income is dropping its e.r. from 0.89% to 0.51%. The three other share classes see comparable reductions. The one-star Salient EM Infrastructure Fund (KGIAX) and Salient EM Corporate Debt Fund (FFXRX) are likewise trimming fees. Sadly, both of the newly-economical EM funds are also slated for liquidation.

Effective November 1, 2016 Walthausen Select Value Fund (WSVRX) has permanently lowered its investment management fee from 1.0% down to 0.9%.

Old Wine, New Bottles

Effective December 30, Alger Green Fund (SPEGX) will expand its strategy from requiring companies pass an environmental screen to passing social and governance screens as well. At that point the fund’s name will change to Alger Responsible Investing Fund. The fund’s 10-year returns rank it 36th of the 56 “socially conscious” funds in Morningstar’s database. It’s not clear that expanding the number of screens will materially improve that standing.

Effective December 29, 2016, Federated MDT Mid Cap Growth Strategies Fund (FGSAX) will change its name to Federated MDT Mid Cap Growth Fund. Apparently “strategies” are out this year. The fund’s done reasonably well since bringing in new managers at the start of 2013.

Vivaldi Orinda Macro Opportunities Fund (OMOAX) will soon become Vivaldi Multi-Strategy Fund, at which point RiverNorth Capital Management will become a second sub-advisor to the fund.

Voya International Core Fund (IICWX), a four-star, $300 million fund, will under some modest tweaking by the end of January. The fund will change its name (to Voya Multi-manager International Factors, which sort of cries out “trendy!”), entire management team (from Wellington to PanAgora and Voya), investment strategy and expenses. Otherwise, same old, same old.

Waycross Long/Short Equity Fund (WAYEX) has become Navian Waycross Long/Short Equity Fund. The role of Navian is to help market Waycross, so there’s no change in management or expenses. Small fund, high expenses, undistinguished record, all of which complicates the marketing mandate.

Off to the Dustbin of History

Aberdeen Global Natural Resources Fund (GGNAX) has merged into Aberdeen Global Equity Fund (GLLAX); the merger occurred just before Thanksgiving.

Altegris Equity Long Short Fund (ELSNX) and Altegris Fixed Income Long Short Fund (FXDNX) will both be liquidated on December 29, 2016.

Artisan Global Small Cap Fund (ARTWX) will liquidate on January 20, 2017. The fund is led by Mark Yockey and Charles-Henri Hamker. It’s drawn $67 million in assets and has trailed 99% of its peers pretty consistently. The announcement of the liquidation was brief, lacking even the usual boilerplate about acting “in the best interest of the fund and shareholders.” We know that the managers have attributed recent underperformance to “exposure to recently unloved areas” of the market and that the fund has trailed all three of its Yockey-led siblings. This is the second liquidation in Artisan’s history, though the first was just six months ago.

The two-year old Natixis ASG Global Macro Fund (GMFAX) will liquidate on December 21, 2016. The decision might have been influenced by its performance chart:


BlackRock Macro Themes Fund (BTHAX) will be “liquidated completely” on December 23, 2016. Yet again, the picture says a lot:


Catalyst/Lyons Hedged Premium Return Fund (CLPAX) will survive Christmas, barely, but won’t live to see the New Year. December 29, 2016. Unlike the two preceding funds, this one at least has an eye-catching performance chart:


That little performance slump you see between March 2015 and February 2016 cost investors about 23%. Fortunately, three of the fund’s four managers put none of their money at risk in it so they weren’t directly harmed by the loss. All three of these funds were dedicated to downside protection and all three were appropriately punished by investors for their failure to come close.

Centre Multi-Asset Real Return Fund (DHMRX) will liquidate and terminate on or about December 12, 2016. The fund sports expenses of 2.1%, which partly explain its three-year returns of (0.44%). In the same filing, the Centre board reminds us that the Centre Global ex-U.S. Equity Fund has been liquidated.

Copeland International Small Cap Dividend Growth Fund (ISDGX) liquidated, on short notice, at the end of November, 2016. The fund was less than a year old at the time of death. While, admittedly, it sucked, I would be disinclined to trust any advisor whose idea of a long-term commitment to a strategy is eight months.

Credit Suisse Global Sustainable Dividend Equity Fund (CGDAX) is subject to “Liquidation, Dissolution and Termination,” making December 15, 2016, a spectacularly busy day. The fund lasted 18 months and had a respectable record but no assets.

CWC Small Cap Aggressive Value Fund (CWCRX) will be noticeably less aggressive after December 21, 2016. The five-year-old fund made about 2% a year, one-quarter as much as its average peer with substantially higher risk.

The Board of Trustees of EnTrustPermal Alternative Select Fund (PASEX) has determined that it is in the best interests of the fund and its shareholders to terminate the fund. The fund is expected to cease operations on or about February 3, 2017. PASEX is a Legg Mason fund with all the baggage that entails: high expenses, poor performance.

Foundry Micro Cap Value Fund (FMCIX) has closed in anticipation of liquidation on or about December 19, 2016. Shares of the Fund are no longer available for purchase. The fund, led by the team that led Touchstone Small Cap Growth for eight years, has had stellar performance for the past year (up nearly 25%, top 3% of its group), but never found traction in the market. It neatly illustrates the challenge of running a small fund: the actual operating expenses were 6.75% and the advisor absorbed two-thirds of those expenses but the result e.r. – 1.75% – was still unpalatable.

Frost Kempner Treasury and Income Fund (FIKTX) will disappear on December 30, 2016 after having managed the unusual feat of trailing 100% of its peers over the past five years.

Henderson International Select Equity Fund (HSQAX) and Henderson Unconstrained Bond Fund (HUNAX) will be liquidated on or about December 29, 2016. Henderson recently underwent a “marriage of equals” with Janus. At the very least, the Henderson and Janus (JUCAX) unconstrained bond funds are equally … uhh, modest in their excellence.

On November 10, 2016, the Loomis Sayles Emerging Markets Opportunities Fund was liquidated.  The Board helpfully explains: “The Fund no longer exists, and as a result, shares of the Fund are no longer available for purchase or exchange.”

Madison Hansberger International Growth Fund (HITGX) liquidates on December 15, 2016. The fund trailed it peers by about 100 basis points a year for the past 3, 5 and 10 year periods but at least had modest volatility.

The $300 million MainStay High Yield Opportunities Fund (MYHAX) expects to merge into the much stronger, much larger MainStay High Yield Corporate Bond Fund (MHCAX) on February 17, 2017.

Manning & Napier Tax Managed Series (EXTAX) will liquidate by February 1, 2017. The 15-year-old fund performed flawlessly over its first decade and reasonably over the past five years (it trailed its peer group by 200 bps but was tax-efficient and made about 11.5% a year), but that was not a compelling profile so …

Nuveen Tactical Market Opportunities Fund (NTMAX), Nuveen Global Total Return Bond Fund (NGTAX) and Nuveen Symphony Dynamic Credit Fund (NQLAX) will all be liquidated after the close of business on or near January 24, 2017. No real losses there.

The $1.5 billion Oppenheimer Equity Fund (OEQAX) will reorganize with and into the $7 billion Oppenheimer Main Street Fund (MSIGX), assuming shareholders (sheep) approve. The merger will occur March 17, 2017. Main Street, led by a former RS team, has substantially and consistently outperformed its smaller sibling. The merger is interesting mostly because Oppenheimer Equity has been around for 65 years and it’s rare to see such a fund disappear.

Pax Sustainable Managers Capital Appreciation Fund (PGPAX) and Pax Sustainable Managers Total Return Fund (PWMAX) have proven to be unsustainable will be liquidated on February 15, 2017.

Salient sort of cleans house from its merger with Forward Funds: on or around February 28, 2017, Salient EM Dividend Signal (PGERX), High Yield (AHBIX), EM Corporate Debt Fund (FFXRX) all step into The Great Beyond. They will be preceded in death by Salient Investment Grade (AITIX), Frontier Strategy (FRONX) and Commodity Long/Short Strategy (FCOMX) funds, all of which escape the holiday shopping madness by disappearing on December 12, 2016.

Schroder Emerging Markets Multi-Cap Equity Fund (SMENX) will liquidate on December 20, 2016. It’s not a terrible fund, just mediocre and unable to attract assets.

Seeyond Multi-Asset Allocation Fund (SAFAX) liquidates on December 19, 2016. Seeyond is a French firm quite proud of their “elaborate proprietary models” and willingness to challenge financial theory. Sadly, none of that translated into the ability to make money; the fund is down about 10% since its launch two years ago.

Stadion Defensive International Fund (STOAX) vanishes on December 30, 2016, having lost about 14% since inception.

Vanguard Structured Broad Market Fund (VSBMX) and Vanguard Structured Large-Cap Equity Fund (VSLIX). Vanguard lives on a different world than the rest of us. VSBMX drew $200 million, earned five stars from Morningstar and had top 1% returns over the past five years. For most firms, that wouldn’t be a death sentence. The comparable stats for VSLIX: $100 million, five stars, top 3%.