Monthly Archives: May 2017

May 1, 2017

By David Snowball

Dear friends,

The theory says that our academic year ends in two weeks. As I gazed this morning across rows of slightly-stunned faces, I realized that the college’s schedule and the students’ don’t always align.

With the weather turning toward summer, the lawn calling and the campus in bloom, I’m intensely sympathetic.

That having been said, just a little more of their attention would be so helpful.

Time to put on your big-boy pants and check your investments

Sorry, I don’t have a really gender-neutral alternatives to “big-boy pants.”

In all likelihood, you might expect to experience considerable ugliness in financial markets in the months ahead. That’s not a timing call, it’s a statement of the obvious.

What’s behind it?

The bull market in stocks is now the longest in U.S. history. The second- and third-longest bull markets ended (1929, 2000) in horrendous routs.

Market valuations, by any reasonable measure, are very extended. There are a million ways to calculate valuations and estimates of “fair value.” None of them say “cheap!” Almost all point to a market that’s at the top of its normal valuation range; by some measures, at the 99th percentile for its valuations.

The economy has not generated substantial earnings growth and the Congress does not seem poised to act constructively (or at all) to encourage it. At the same time, inflation (the PCE index) rose at its fastest rate since 2011.

The generally-pessimistic institutional investor Grantham, Mayo, van Otterloo (GMO) publishes monthly estimations of likely market returns over the next 5-7 years. It doesn’t involve a crystal ball, it simply assumes that the market returns to historically normal values; it’s a measure of what would happen to your portfolio if, by the end of 5-7 years,  profits, price-to-earnings ratios and inflation returned to rates that are normal by historical standards.

So, in inflation-adjusted terms, they estimate that high-quality U.S. stocks will earn zero and emerging markets stocks will earn a bit. Former Vanguard CEO Jack Bogle is more generous, by far, and estimates that you might be able to make 4%.  As we noted last month, there are two ways to get there: with a bang, or with a whimper.

Jason Zweig, one of the sharpest of all the folks writing about finance, wrote an entirely fascinating and horrifying column in late April, “Whatever You Do, Don’t Read This Column” (4/30/2017). His most startling finding is that rich investors now expect to make more than ever before. Jason attributes it to faith in “an investing tooth fairy.”

Here’s our suggestion: check now to see if you’re ready for either possibility. GMO’s Ben Inker stated the obvious in the firm’s most recent quarterly letter (1Q2017): “It is impossible to determine if you are taking an appropriate amount of risk without understanding what the downside is for your portfolio, which means you simply have to do the exercise of understanding what can go wrong.”

One quick-and easy way to answer the “how bad could it get?” question is to look at your funds’ maximum drawdown; that is, the biggest loss they’ve suffered during the current market cycle.

Multiply the size of the loss by the weight of that fund in your portfolio. As an illustration, I’ve done the calculation for my non-retirement portfolio for you. I used the MFO Premium fund screener to isolate the maximum drawdown for each fund during the current market cycle which began in October, 2007.

Here are the funds that were actually around for the entire cycle:

Fund MaxDD Portfolio Weight Portfolio Impact
FPA Crescent 29% 17% 4.9
T Rowe Price Spectrum Income 14 10 1.4
Artisan International Value 47 10 4.7
Mathews Asian Growth & Income 38 6 2.3
Intrepid Endurance 19 12 2.3

Those funds represent 55% of my entire portfolio. If they repeat their maximum drawdown, they’ll cost my portfolio about 16% of its total value.

What about newer funds? That’s a little tougher. None of them have been around long enough to experience a major drawdown event, so I had to estimate. Once again, I used the screener. First, I found average maximum drawdown by fund category since October, 2007. Second, I adjusted this average by the ratio of each fund’s volatility to average volatility since fund inception. (For this exercise, I used standard deviation as the volatility metric.) You’ll notice in the table below that I tend to invest in funds that experience lower volatility than their category peers.

Fund Category Average MaxDD Volatility Ratio Estimated
Portfolio Weight Portfolio Impact
Seafarer Overseas Growth & Income Emerging Markets 63 0.84 53 12 6.4
RiverPark Strategic Income Flexible Portfolio 36 0.35 13 8 1.0
RiverPark Short-Term High Yield High Yield 30 0.10 3 8 0.2
Matthews Asia Strategic Income Emerging Mrkts Hard Currency Debt 27 0.73 20 6 1.2
Grandeur Peak Global Microcap Global Small-/Mid-Cap 56 0.85 47 6 2.8
Grandeur Peak Global Reach Global Small-/Mid-Cap 56 0.87 49 5 2.5
          45 14

If you do that, you end up with a loss of about 30% in my portfolio, despite its cautious allocation. Currently, my allocation is just about 50/50% equity/fixed income, placing my overall portfolio in Lipper’s “Mixed Asset Moderate Allocation” category:

… a mix of between 40%-60% equity securities, with the remainder invested in bonds, cash, and cash equivalents.

The average maximum drawdown for funds in this category during the last bear market was -35%. If we look at the recovery times for my funds (that is, how long it took them to regain their previous peaks), there’s a good chance that I’d be in the red for three years or more.

Is that really a “loss”? Dan Wiener of Independent Adviser for Vanguard Investors and I had a short chat about it. Dan thinks you would merely have a smaller long term gain, rather than a loss.

Hi, David. You write that “there’s a good chance that I’d be in the red for three years or more.” That’s absolutely false unless you assume you bought all your funds on the day before the market starting going down. And that’s the kind of thinking that scares the bejeesus out of investors.  If I invest $100 and it goes to $150 and then it drops 33% and I’m back to $100 I’m actually NOT in the red. I’m flat.

Dan’s argument centers on how you think about the cost-basis of your investments. If over the years I’d invested $20,000, it grew to $50,000 then a tantrum in the market reduced it to $33,000, how should I think about my position? Have I made 65% or lost 33%?

Dan’s sensible observation is that investors should think about all they’ve gained (from their initial value) over the years. My sense is that they would think about all they’ve lost (from their peak value). If you’ve got “dry powder” at hand and Dan’s steely nerve, you’d be better off. Sadly, few do.

So here’s the question: if I lost about one-third of my lifetime savings, what would I do? Could I ignore the loss, or would I react unwisely to it? Remember, at the point that I’d lost 30% of my total nest egg, I’d have no assurance that the losses would ever end (the early 1930s crash dropped the market by 90%).

If you don’t know how bad the loss in your portfolio could be, find out now! That’s the cheapest and best advice you’ll get in a year. You can’t plan without knowing, and you can’t react intelligently without planning.

We have faith in you, and we’ll help as much as we can. But you really need to start checking now, before the market scares you into doing something spectacularly unwise.

Thanks, as ever

Mutual Fund Observer celebrates its sixth anniversary with this issue. Hooray for us! Our official launch was May 1, 2011. Since then, we’ve enjoyed, and are grateful for, your company month after month. By happy coincidence, we celebrated the arrival of our one millionth reader sometime during the month of April.

Yay for us, and thanks to you for joining us.

Thanks, in particular, to James, Sunil, Kirk, Kate and Donald, and to our four regular subscribers, Greg, Deb, Brian and Jonathan. We couldn’t do it without you.

If you’re grateful for the absence of ads or fees and would like to help support the Observer, there are two popular options. Simply make a tax-deductible contribution by check or through PayPal to the Observer. Folks contributing $100 or more in a year receive access to MFO Premium, the site that houses our custom fund screener and the data behind our stories.

Many fund profiles (Moerus, Centerstone, Matthews and maybe more!) are on their way in June, as is my attempt to answer the question, “what’s your beef for ETFs?”

Until then,

Morningstar Investment Conference 2017: Six smart guys

By David Snowball

I’ll tell you about the six smart guys. They represent a bit over half of the interviews and discussions I participated in during Morningstar’s annual Fest at the McCormick. My normal schedule mixed one-on-one interactions with sitting in on panels and keynote presentations; the changing emphasis of the conference, rather away from hearing from mutual fund managers and strategists, and toward the business concerns of the advisors, led me to focus exclusively on talking with interesting folks.

Many of these interviews will serve as the seedbeds for upcoming fund profiles. In particular, we hope to celebrate the one-year anniversaries of Moerus Worldwide Value (MOWNX), Centerstone Investors (CETAX) and Matthews Asia Credit Opportunities (MRCDX) with full write-ups in the near future. Stay tuned!

Satya Patel: The jumbo shrimp problem all over again

Satya Patel co-manages, with Teresa Kong, Matthews Asia Credit Opportunities Fund (MCRDX). The fund passed its first anniversary on April 29, 2017. The fund’s objective is total return. Over its first full year of operation, it pretty much squashed its “world bond” peer group which is not a particularly representative bunch. By way of illustration, 50% of the fund’s assets are invested in three countries: Singapore, Sri Lanka and Vietnam. For the average world bond fund those same countries occupy 0.50% of assets.

As we noted in our April 2016 Launch Alert, the fund

“invests primarily in dollar-denominated Asian credit securities. The fund’s managers want their returns driven by security selection rather than the vagaries of the international currency market. And so “credit” excludes all local currency bonds. At least 80% of the portfolio will be invested in traditional sorts of credit securities – mostly “sub-investment grade securities” – while up to 20% might be placed in convertibles or hybrid securities.”

We noted four facts that stand out about the fund: the managers are really good; the fund’s targets are reasonable and clearly expressed; their opportunity set is substantial and attractive; and the fund’s returns are independent of the Fed.

The highlights of our conversation:

  • The fund is plagued by the “jumbo shrimp” problem. Investors immediately think “safety” when they think about fixed income investments and “risk” when they think about Asian investments. As a result, investors seem blinded to the reality that Asian fixed income investments can be both more rewarding and less volatile than their American counterparts.
  • If you’re willing to look at a U.S. high yield bond fund, you should look here first. Asian high-yield and credit opportunity investments have a long track record and, in particular, a long record of offering higher returns with lower volatility than US high-yield. The same thing is true of EM bonds; the Asian products simply and consistently outperform the global EM bond markets.
  • They’re not concerned about asset levels. Ms. Kong at one point observed that “we might be five years early in launching this fund, but that’s not a problem for us.” Mr. Patel concurred, observing that when investors finally come to value Asian fixed income opportunities, they’ll be there with a tested product and a clear track record.

Abhay Deshpande: Look West, young man.

Also East. But especially West. Especially if Europe is in that direction.

Abhay Deshpande manages Centerstone Investors (CETAX) and Centerstone International after seven years at the helm of First Eagle Global, Overseas and U.S. Value. The funds passed their first anniversary on May 3, 2016. The fund essentially matched the performance of its “world allocation” peer group and of its progenitor, First Eagle Global (SGENX).

As Mr. Deshpande noted for our June 1, 2016 Launch Alert,

“we hope to address a significant need for investment strategies that effectively seek to manage risk and utilize active reserve management in an effort to preserve value for investors,” says Mr. Deshpande. “It’s our intention to manage Centerstone’s multi-asset strategies in such a way that they can serve as core holdings for patient investors concerned with managing risk.”

The highlights of our conversation:

  • The fund’s high cash stake – around 20% – reflects the stretched valuations in the American market. While Mr. Deshpande does not believe that U.S. stocks are in a bubble, their valuation work suggests the market is richly valued. After eight years, “to expect a lot more from this market is to expect another bubble.” While there still are cheap stocks in the U.S. market, most of them “deserve to be cheap.”
  • Even “domestic” investors need to move overseas. Both U.S. and non-U.S. stocks tend to have extended periods, say 5-7 years, of market leadership. There is “a large and widening valuation gap” between U.S. and European stocks. That gap is likely to grow since U.S. firms have already surpassed their 2007 earnings peak; European firms are still 25% below peak earnings, as that earnings gap closes, European stocks will become even better-priced.
  • Across it all, the fund is managed to protect investors’ capital. Their investment process begins with an assessment of a firm’s risk to invested capital; if they can’t accurately assess the risk, they conclude that the stock isn’t worth owning at any price. If they can assess the risk, they’ll consider buying only at a price that embodies a sufficient margin of safety. They simply don’t feel compelled to be invested just for the sake of being invested.

Jon Angrist: ROME may fall, ROTA won’t

Jon Angrist manages three Cognios Fund. Their flagship is Cognios Market Neutral Large Cap (COGMX). Its two new siblings are Cognios Large Cap Value (COGLX) and Cognios Large Cap Growth (COGGX), which broadly represent the long portions of the flagship portfolios. Both launched in October, 2016.

As we noted in our June 1, 2015 Elevator Talk with Jon,

Cognios argues that most market-neutral managers misconstruct their portfolios. Most managers simply balance their short and long books: if 5% gets invested in an attractively valued car company then another 5% is devoted to shorting an unattractively valued car company. The problem is that an over-priced company might well be more volatile than an underpriced one, which means that the portfolio ceases to be market-neutral. The twist at Cognios, then, is to use quant tools to construct an attractive large cap portfolio while changing the relative sizes of the long and short books to neutralize beta. Cognios Market Neutral Large Cap describes itself as providing a “beta-adjusted market neutral” portfolio.

The highlights of our conversation:

  • ROME, which identifies “cheap” stocks, may lag the market for extended periods. ROTA, which identifies high quality ones, rarely does. (Reference profile.) Over the past 15 years, there have been only two extended periods in which “trash” beat quality. 2003 was the first such period, and 2016, beginning at mid-year, was the second. Such inversions are typically much shorter – maybe six months, maybe 15, but rarely more – than the market’s periodic preference for pricey stocks over cheap ones.
  • It pays to play the percentages. The “high quality – cheap” strategy doesn’t win all the time, nor does it even win in all the trailing time periods but it does win with considerable consistency. If you look at rolling three-year periods (not 2001-03 then 2004-06 but 01/2001-12/2003, 02/2001 – 01/2004, 03/2001 – 02/2004 and so on) you end up winning 60-80% of the time.
  • Market-neutral is most attractive when other assets are least attractive. “Advisors tell me,” Mr. Angrist says, “that they can’t afford to put any more of their clients’ assets into equities but they’re scared to death of the bond market right now. That’s when the ‘pure alpha’ potential of a market-neutral strategy makes the most sense.

Amit Wadhwaney: The amiable “Dr. No.”

Amit Wadhwaney manages Moerus Worldwide Value Fund (MOWNX/MOWIX), which launched on May 31, 2016. The name suggests two of its attributes (global + value). It also tends to be concentrated and rather more focused on absolute value than relative value. That is, they’d much rather hold cash than force themselves into buying “the best of a bad lot.” They’d prefer to buy-and-hold and, if a good holding’s price falls, to buy some more. The fund’s current small- to mid-cap orientation is not intrinsic, it’s just where they’re finding value now. Mr. Wadhwaney managed Third Avenue International Value (TVIVX) from the start of 2002 to the middle of June, 2014. During that time he substantially outperformed his benchmark, turning an initial investment of $10,000 into $31,600 while the international benchmark index would have risen to $26,200.

In our Launch Alert for Moerus Worldwide Value, we noted:

Mr. Wadhwaney chose the Latin word “moerus” because it embodies his investing approach. The moerus was a city’s defensive walls, protection against risks both known and unanticipated. In describing his portfolio, Mr. Wadhwaney reports that “we seek to populate our portfolios with companies that have a ‘Moerus’—the strength, staying power and wherewithal—to withstand a variety of risks.” His mentor, Marty Whitman, employed a similar approach.

The portfolio is built from the bottom up and will generally hold 25-40 names, including firms in the U.S. and the emerging markets. The target is undervalued stocks of firms that have “solid balance sheets, high quality business models and shareholder-friendly management teams.”

Over its first 11 months of existence, MOWIX gained 21.6% (despite a 23% cash position) while its peers rose by just 14.3%.

Our conversation focused mostly around the fund’s emergence and the dramatis personae surrounding it, a chunk of which was both fascinating and off-the-record. (Sorry.) For the record, Mr. Wadhwaney did note that many of the names in the portfolio were companies that he’d been tracking for 5-8 years, but which had never been cheap enough to warrant buying. His preference, he noted, is for “absurdly cheap” equities when he can get them, and cash when he can’t. The Moerus investment team is small (analysts John Mauro and Michael Campagna were present at the creation), but growing (Ian Lapey joined last year) and well-integrated (all of the principles have years of experience working together at Third Avenue Value). Mr. Wadhwaney celebrates in particular Mr. Lapey’s “similar but very different eyes” as an investor. As an illustration, Mr. Lapey was given time before he joined the firm to review the fund’s holdings. At a meeting with the team, he expressed deep reservations about half the portfolio and grudging acceptance of the other half.

Mr. Wadhwaney claims that his basic approach is to look for reasons to reject an investment idea, not to accept it. As to the reference in the title of this piece, he shared the story of a year-end video in which one of his Third Avenue associates, improbably donning a blonde wig to impersonate Mr. Wadhwaney, went through a series of corporate analyses, rejecting each, to the refrain “Amit says ‘no!’”

David Marcus: The “Yeah, But” Syndrome

David Marcus manages Evermore Global Value (EVGBX), a fund whose special-situations emphasis mirrors his training with Michael Price and the folks at the Mutual Series funds. Mr. Marcus’s career has at least three phases: the early years developing the art of investing in companies whose situations were too complicated, too special, for ordinary investors to pursue, the middle years as the private investment manager for a rich Swedish family, and this latest period which allows him to pursue his passions on behalf of his own investors. I’ve been speaking with Mr. Marcus on and off for four years now and he’s consistently among the most engaging and thoughtful people I’ve met.

In our 2014 profile of Evermore Global, written at a time when the fund had one star from Morningstar rather than the five it has now, observes:

The discipline that Max Heine taught to Michael Price, that Michael Price (who consulted on the launch of this fund) taught to David Marcus, and that David Marcus is teaching to his analysts, is highly-specialized, rarely practiced and – over long cycles – very profitable. Mr. Marcus, who has been described as the best and brightest of Price’s protégés, has attracted serious money from professional investors. That suggests that looking beyond the stars might well be in order here.

The highlights of our conversation:

  • Europe continues to drive the portfolio for now. Nearly 70% of his investments are in Europe, which continues to import lots of U.S.-style activism that has the potential to unlock the value in ossified corporations.
  • Asia is rising fast as an area of interest. Asian governments, Japan in particular, have been making a series of legal and regulatory reforms that reward responsible corporate behavior. Some corporations, such as Panasonic, have accepted the challenge, trimmed dead-end divisions and focused on areas where they have strong competitive advantages. Very few managers have yet followed, but the process of change is evident especially in smaller-cap companies. It will only take a handful of brave managers to produce enough change for the fund to benefit handsomely from it. Mr. Marcus, who enjoys baseball metaphors, believes “we’re still in the pregame warmups” for Asia but in the middle innings in Europe.
  • Exposure to the US market is at historic lows as prices continue to rise and the opportunity set continues to fall. “Look at my cash position,” he notes. “That’s the money that we would have put into the U.S. if opportunities were available.”
  • He has challenged his team and himself to think more broadly about the risks in their portfolio. He’s interested in sussing out two sorts of risk in particular: those poses by disruptive change and those operating at one remove. The first set of risks is pretty straightforward: from drones and augmented reality to 3D printers large enough to print a small house, new technologies are being commercialized at an astounding rate. What effect might such rapid changes have in the next three years to, say, Bollore SA’s freight-forwarding business or to Codere’s profits from gaming and amusement parks? The second set of risks is those faced not by the company in which you invest, but in the companies with whom your portfolio companies compete and cooperate. The fact that your company doesn’t do much business with China is cold comfort if all of its three major suppliers

His particular passion is for rooting out the “yeah, but …” syndrome. “Yeah, but” occurs when an investor becomes too vested in an investment idea and begins making excuses when the original rationale for owning a firm begins to implode.

We bought this dog because they were going to spin off their buggy whip division in a separate firm, eliminating a major drain on earnings. Instead, they’ve decided to pour more money into it.

Yeah, but … we couldn’t have foreseen the new Bluetooth-enabled buggy whips which will allow users to link it directly to their wifi-enabled beer kegs!

Thirty seconds after you resort to “but,” Mr. Marcus concludes, it’s time to sell. As a service to all of the folks at Evermore, we’d like to introduce them to Daan Roosegaarde, the Danish creature of the “yes, but…” chair. As a time-saving convenience, and to save Mr. Marcus’s voice, the chair simply delivers a (mild, so far) electric shock whenever it hears the phrase “yes, but.”

You’re welcome.

Abhi Patwardhan: 32 and counting!

Abhi Patwardhan co-manages FPA New Income (FPNIX) with Tom Atteberrry, who’s been on the job since 2004. It seems likely that, as part of a larger generational change, Mr. Padwardhan might become lead manager of the $5 billion fund in the not-too-distant future.

FPNIX is a bit outside our normal coverage universe, but I enjoyed the opportunity to share a hallway conversation and a bit of time over a small group dinner with Mr. Patwardhan. He comes across as a very impressive young man, sharp, thoughtful and full of detail about his fund’s holdings and their profiles. I learned, for example, rather a lot about Aviation Equipment Trust Certificates and the special joy of buying busted certificates at 28 cents on the dollar with an effective yield of 9.5%. Really, it was cool.

The fund has two objectives: post a positive return every single year (currently the streak is at 33 years, ever since FPA took over management) and to produce returns 100 bps above inflation every year (which, in recent years, has been harder for them to achieve). Given the fund’s (and FPA’s) focus on absolute returns and protecting investors’ capital, it’s not surprising that they’ve been stress-testing every portfolio holding by stimulating its returns assuming a 100 basis point rise in interest rates over the next year. Anyone who doesn’t have a positive return over that period has been shown the exit.

In general, the managers are skeptical about the state of the bond market which has led them to hold rather more cash than normal and to maintain rather shorter durations than is typical. On whole, I came away thinking that the fund was good and in good hands.

Ken Gallaway: As with judo, it’s all about leverage

I spoke briefly with Mr. Gallaway who heads Morningstar’s global manager research effort. His perception is that Morningstar was Balkanized, possessing lots of operating units with lots of autonomy and rather less coordination (“synergy” in the world of business buzz) than ideal. He’s been on-the-job for 12 months, and much of the focus has been on integrating resources worldwide so that insights or innovations in, for example, the US market get disseminated to the teams in Australia or the U.K. One example of that is the global roll-out of their “Mind the Gap” studies, which look at the losses that investors inflict upon themselves through poor timing and poor decision-making. The calculations are made by looking at detailed fund flow data alongside fund performance data; at base, it asks whether (and under what conditions and to what extent) investors buy high and sell low. They’re not available quite yet.

Scout Funds: “Nah to the ah to the, no, no, no”

On April 20, 2017, UMB announced that it signed an agreement to sell Scout Investments and Reams Asset Management for approximately $172 million in cash to Carillon Tower Adviser, a wholly owned subsidiary of Raymond James. The sale will be completed by year’s end. In announcing its 2016 creation, James described Carillon as “new company to provide transparency and create efficiencies among its asset management firms.”

UMB’s public rationale for the move was that asset management has “limited connectivity with our relationship-based banking model,” and was a sort of distraction from it.

With interest in the sale expressed on our discussion board and representatives from both Scout and Carillon at Morningside, I thought I’d try to learn a bit more about the sale, its rationale and implications.

The Carillon rep was vague, but pleasant. Raymond James had mostly helped with financial support in “the early days,” which seemed an odd for a firm less than two years old. The goal was “to round out our suite of offerings,” which also include the Eagle Asset Management funds. It seemed likely that the products would be rebranded and, on the critical question of fees and expenses, “that it makes sense there would be a unified structure for them.” One possibility is that Eagle would become a no-load family, the other is that Scout would gain (anachronistic) sales loads. No word on when further details would be shared.

When I tried asking folks with the Scout Funds about it, they began channeling their inner Megan Trainor:

I think it’s so cute and I think it’s so sweet
How you let your friends encourage you to try and talk to me
But let me stop you there, oh, before you speak
Nah to the ah to the, no, no, no
My name is no, my sign is no, my number is no
You need to let it go, you need to let it go
Need to let it go.

In an almost cartoonish style, the Scout representative repeated the phrase “no comment on that” five times in two minutes, despite some of the questions bearing on stuff that’s already in the public record.

There are many ways to say “no.” Heck, there was even a collection, The Rhetoric of No (1970), in which famous speeches were organized around the kind of “no” they reflected: the emphatic no, the reflection no and so on. The way we say “no,” indeed the way we say anything, reveals a lot about our view of ourselves and of those around us. Morningstar’s Nadine Youssef did a really nice job, in another conversation, of turning aside queries about  Morningstar’s impending lineup of mutual funds; her tone was “I wish we could share more information, but really we legally can’t, and so no.” The Scout representative’s message was more “go away, little man, you’re not getting the time of day out of me.”

The Fifty Year Reich

By Edward A. Studzinski


“It is dangerous to be sincere unless you are also stupid.”

  George Bernard Shaw

Some thirty-odd years after its founding, the transformation of Morningstar is complete. From a firm that got its start providing tools and research to assist the individual investor, we now see a firm that exists to offer tools, support, and research to financial advisors or intermediaries. To a large extent, that evolution was necessary given the changes in the marketplace for mutual funds, as well as the changes in the regulatory environment. And once Morningstar became a public company, it would have been incumbent upon its employees and management to focus on maximizing the profitability of the corporation and the returns to shareholders. Credit is due them for effecting that transformation in a fairly transparent and top-shelf manner.

I mention all of this as this past week saw three days of the annual Morningstar conference in Chicago, moved up from its historic June date to now coming in April, also highlighting a shift in priorities. My colleague Charles will perhaps say more on this, but one of the more interesting presentations was a speech by John Bogle, of Vanguard fame, about the state of the mutual fund world today (especially as Vanguard continues to grow exponentially). Apparently one of Mr. Bogle’s comments was that the absentee owner fund complexes should focus on running a “cash cow” model to maximize their own returns in the business. Indeed that appears to be what we are seeing executed as a strategy in four or five firms in Chicago, struggling to counter the effects of asset outflows to passive vehicles. Expenses are cut and reinvestment in the business is curtailed, often in ways that are not readily apparent to outsiders or, for that matter, the absent parent and/or fund trustees.

We have for instance, heard a story about one large institutional firm that now allegedly executes most of its equity trades through “dark pools” rather than the 40-50% often referenced as a high-water benchmark at other institutions. This lack of transparency makes it difficult to gauge whether best execution is being obtained for the firm’s clients, whether they be individuals or funds. It also begs the question of whether the appearance of a conflict of interest should be sufficient to keep funds from putting all of their trading through those vehicles, since they may end up with the brokerage firm’s proprietary traders taking advantage of them (and they will never know it).

What’s New and Not

David will have a number of fund manager interviews in this issue, hoping to find the un-discovered gem. Myself, I have pretty much soured on those avenues proving to be fruitful. There is a wonderful book I would recommend called Concentrated Investing by Allen Benello, Michael Van Biema, and Tobias Carlisle. The premise of the book and most of the people profiled in it (none of whom were or are mutual fund managers, so crocodile tears from my former colleagues) is their belief that concentration (fewer than 20 stocks and low turnover) is the way to add value (the positive alpha) differentiated from the market averages. Alternatively, the average investor, such as my friends Mr. and Mrs. Moon Pies and Cola, is better off to be invested in lowest-cost index funds such as those offered by Vanguard. And the investment should be in index funds rather than Exchange Traded Funds. Even though the ETF’s may be cheaper in terms of fees, there will be a temptation to trade in and out of them. As Warren Buffett put it, “By periodically investing in an index fund, for example, the know-nothing investor can actually out-perform most investment professionals.”

The second point the book makes is the advantage of permanent capital. Given that there are few long-term investors out there, especially in the retail marketplace, permanent capital is a key differentiator. Or as Kristian Siem put it, “ … the fund management business, by nature, is short term. Financial investors come in and out. They can push a button any day and get out.” That is the advantage that the Buffetts, Mungers, and Simpsons of the world have. They have permanent capital that is not subject to being withdrawn, forcing liquidations of investments at exactly the wrong time. The 1940 Act mutual fund, of infinite duration and daily liquidity, is not a permanent capital vehicle. The only way you might approximate it with a mutual fund is with a fund that is closed to new investors, or alternatively, where most of those invested are not able to withdraw easily (and one example of this would be Longleaf Partners Fund employees, who are not permitted any other investments but their own funds, and who are the largest investors in their own funds).

The Thousand Year Storm

One of the reasons I am beating a number of horses into the ground is that I feel that ETF’s in both fixed income and equities present a degree of systemic market risk of a type that we have not seen before. They are in effect a new form of leverage. There will come a point where there is an event. I don’t know when or what will trigger it, but it will cause many investors to panic and attempt to liquidate. They will try to get through a door that will slam shut in their faces, with permanent loss of capital.

The first quarter 2017 Market Commentary from Horizon Kinetics makes the point in its usual elegant fashion. If you look at the p/e ratio of the S&P 500 using prices relative to the average earnings of the prior five or ten years (for smoothing), the S&P 500 now trades at 29X earnings, a valuation level higher than all but two over the past 130 odd years. Another point made is that the return of the S&P 500 index over the last ten years may have averaged 7% a year, but the average investor’s return per dollar invested was less than 4%. That follows the tendency of people to put money into the market and funds (as the proxy) when the market is rising. They take it out when the market declines.

This disparity in returns between indices and real investors is of course not limited to index funds. The same applies to people committing funds to actively managed funds on the basis of returns that look backwards. There is always the hot money tendency, to put money into the top-performing fund. This is regardless of the fact that those returns look back, and are not predictive of the future. How many of you think going forward returns will equal or surpass the historic returns? Realistically, people should be pulling money out of the best performing investments, and putting it into the underperforming ones, that is, rebalancing their asset allocations.

Horizon Kinetics raises two more compelling points. The iShares S&P 500 Value ETF has 353 holdings. The iShares S&P 500 Growth ETC has 321 names in it. Does one need a Solomon to divide the S&P 500 by price to book value and still end up with 674 S&P issues? Sadly, two things become apparent. One, style drift, a no-no for active managers, appears to be permissible in ETF’s. Two, it really all comes back to AUM and competitive pricing in the ETF world (and who really can beat Vanguard’s pricing). If an index product is a commodity product, it is all a matter of price. And how does an advisor make money on a nearly zero-fee product? It cannot be done. Mr. Bogle proposed a solution to the above problem. Financial advisors, rather than charging fees tied to assets under management, should charge hourly rates for time and services performed, as do attorneys and accountants. Good luck with that.

Observations from Morningstar Conference – Chicago 2017

By Charles Boccadoro

Morningstar held its annual investment conference in its headquartered city of Chicago last week. That’s a couple months earlier than typical, perhaps to give it some distance from September’s ETF conference. Pink and purple tulips lined Michigan Avenue and Millennial Park. April showers abounded. The Intelligentsia coffee bar at 53 West Jackson Blvd each morning never smelled better.

In the opening keynote, Morningstar’s 42 year old CEO Kunal Kapoor, a 20-year veteran of the firm and graduate from University of Chicago, stated “It’s never been a better time to be an investor …”

He was alluding to the diversity of investment products, migration to lower fees, and proliferation of financial technology tools. Indeed, he highlighted the recent acquisition of Pitchbook, which expands Morningstar’s financial database to the ever growing private equity sector, improved fixed income statistics, as well as the new “Best Interest Scorecard,” which helps quantify and document portfolio construction in anticipation of DOL’s Conflict of Interest Rule.

In a later session, entitled “Industry Disruption,” Reformed Broker Josh Brown quipped: “Not to dampen the mood here, but I don’t think it’s the best time for investors … It’s the best time for people in this room, perhaps, the financial advisors, but not the investors.”

Attendance this year: 2,197, including 1,313 registered attendees (mostly advisors), 756 exhibitors, 175 exhibitor booths, and 45 speakers.

When Josh made his comment, he might just as well have stated “It’s the best time to be Morningstar…” Its sales and display booths occupied the entire center section of the vast exhibit hall at McCormick Place.

Morningstar’s stated mission is to create great products that help investors reach their financial goals, but its portfolio of products is directed at advisors, asset managers, retirement plan providers and sponsors, private equity and institutional investors, and finally individual investors. As described here, its goal is to “Widen our economic moat, increase our intrinsic value,” making money through licenses and subscriptions, asset-based fees, and transaction-based fees. As David reported last month, Morningstar has filed for nine self-branded mutual funds.

The company incorporated in 1984 and started trading publicly in 2005. Since going public, MORN has returned 11.9% annually versus 8.3% for S&P500, but it’s trailed the market by 27% during the last one and three year periods and 44% over the last five years; in fact, it still trades below its 2007 peak.

Its founder and chairman, Joe Mansueto, retains 24.0 million shares, or 56%, currently valued at $1.8 billion. While his annual salary is a nominal $105,000, he was gifted 182,668 shares in December 2016, or $13 million, and similar amounts in 2015, 2014, and 2013. Morningstar also pays a 1.25% dividend, which earns him another $22 million annually.

During the same session, Josh railed on how many “bad choices” are available to investors. Given “way too many choices” these days, he often sees his role as a “client’s bouncer.”

Answering why the financial industry is not very well regarded by the public, Morningstar’s Don Philips lamented that the industry does tend to make things more complex than it needs to be. The irony, of course, is that the more complex investing appears, the more the need for financial advisors and thus for Morningstar to help point the way. “Fintech was supposed to be the answer” to address the popularity issue. Today, only 50% of those eligible invest their retirement plans. He adds: “Our community serves rich white males very well.”

Vanguard’s founder and inventor of the first index fund, John Bogle, presented a video highlighting how the industry has failed to share economies of scale. Basically, he shows mutual fund industry revenue growing 5600 fold (14% per year!) since 1951, but on aggregate assets held, investors pay a comparable level of fees.

Bogle is particularly skeptical of publicly traded mutual fund houses, as John Rekenthaler reports, and of the asset-based fee model for financial advisors. Mr. Bogle believes, advisors should be paid hourly like accountants and lawyers.

And what about reducing the complexity of investing? During his question and answer session, he reiterated his belief that a simple balance portfolio, somewhere between 50/50% and 70/30% stocks/bonds, represents a perfectly satisfactory approach for most investors.

Lunchtime keynote speaker, best-selling author Michael Lewis, believes the cause of poor behavior often lies in the incentive structure, as detailed in Flash Boys and The Big Short. For example, if bonuses are based on amount of assets under management, then fund houses will encourage employees to accumulate assets. He shared that he renegotiated his own contract to eliminate the traditional book advance, opting instead to take a greater direct stake in a book’s success or failure. “It makes me a better writer.”

(His insight here reminded me of Noam Chomsky’s recent documentary, entitled “Requiem for the American Dream.”)

As for his next book? He’s hoping it will not be about finances, since that would mean something else has gone very wrong, yet again. He seemed to tip his hand that it could be about the recent election, more specifically, the unprecedented hand-off, or lack of hand-off, with the incoming Trump administration. He described how the Obama administration had followed the George W. Bush administration’s model in preparing incoming briefings for the transition teams, only with the Trump team “nobody showed up.” He cautions that the lack of experienced leadership tasked with running the enormously complex federal government has never been greater.

Mr. Lewis spent many hours getting to know the office of the president, as depicted in Vanity Fair’s article Obama’s Way. He lamented about not yet publishing the material he has gathered on How To Be President. (“You have one hour to live,” he prodded the former president, “tell me what I need to know to do this job …”) He envisions a short book or manual. “Not that Trump would read it,” Mr. Lewis acknowledged, “but maybe someone would read it to him, like someone from Fox News.”

Morningstar’s Paul Ellenbogen demonstrated the “Best Interest Scorecard,” which should be released soon on Morningstar Direct and Morningstar Office. It incorporates past performance, fund quality, fees, risk tolerance, and investment timeline. For fund quality, the tool relies on Morningstar’s qualitative medal system. For those funds not covered by Morningstar analysts (most funds actually), they have developed a so-called quantitative quality rating, trying to assess characteristics like process, people and parent from collected databases.

Morningstar’s behavioral economist Sarah Newcomb shared her recent study, entitled When More Is Less – Rethinking Financial Health. Her conclusions:

  • Time is money – The further ahead a person thinks in time and the clearer their picture of the future, the better their behavior in terms of cash, credit, and savings management.
  • Power is happiness – Across all income levels, people who believe they create their own financial destiny experience, on average, have more positive emotions with respect to money than their peers who believe they do not have power in their financial lives.

In the session entitled “Straight Talk About Strategic Beta,” two of the most thoughtful fund managers today, Wes Gray of Alpha Architect and Patrick O’Shaughnessy of O’Shaughnessy Asset Management, reinforced their shared belief in evidence-based investing.

“Gather data and find what has historically worked, with some predictive power,” says Patrick. His book Millennial Money – How Young Investors Can Build A Fortune  advocates investing in quality global stocks, starting at youngest age possible and throughout your lifetime. He, like Meb Faber, recently launched a well received podcast series, entitled “Invest with the Best,” which can be followed at his website The Investor’s Field Guide.

Wes warns that funds often try to reap benefits of academic research by putting factors, like value, in title. “You gotta look at what it’s called versus what it does.” He explains that most fund managers want to gather assets, so they build portfolios like “value light,” otherwise folks get scared out. Unfortunately, such funds are little more than closet indexers with a higher expense ratio.

His new Active Share Visualizer helps point the spotlight on closet indexers. He added a couple of other warnings: 1) I’ve never seen a bad backtest, and 2) it has to hurt to pay off. His fourth and latest book is Quantitative Momentum: A Practitioner’s Guide to Building a Momentum-Based Stock Selection System.

Bottom-line: Both Patrick and Wes believe that quantitative and systematic rules-based investing is better than ad-hoc.

Finally, in the session called “Absolute Return Funds: Absolute Fabulous or Absolute Rubbish,” Marta Norton, of Morningstar’s managed portfolio group, made the only sense on the panel when describing how her fund gets built: “Start with maximum drawdown acceptable and let everything else fall out.” In her case, the MAXDD is -12%, which then translates to an expected return of cash plus 2 – 3%, and an equity beta of 0.3 or less.

I walked out of the conference after this last session with a few misgivings. Despite being highly impressed with Marta, it felt a little awkward to have a Morningstar moderator interviewing a Morningstar fund manager along with managers from competing fund houses. Such situations conceivably create the appearance of conflict of interest.

In other words and in all things, Morningstar should heed the lesson of Caesar’s wife … to be above the suspicion of impropriety.

Here’s a link to Morningstar’s coverage of the conference.

Planning a Rewarding Retirement, Part 4

By Robert Cochran

Planning for Future Health Care Expenses, 

The fourth in a series of articles

My original intent was to retire when I turned 70. However, as I noted in Part 2 of this series, the realization that “it’s time” bumped up my retirement to this fall, when I turn 67. Thus the mental switch was flipped. Then the “Can I afford to retire?” review and decision was made. In my last blog (#3), I was able to determine the anticipated timing and amount of distributions from my retirement plan account. Now I come to health care – what might future costs be, how to survive the gauntlet of Medicare, Medicare Supplement Insurance, Prescription Drug Insurance, and other pieces of this constantly changing puzzle.

The changes since the Affordable Care Act was implemented are too many to list here. With a new administration intent on “repeal & replace”, there is no doubt more changes are coming. For higher earners, a repeal of the ACA Medicare surtax could mean a significant savings in the cost of Medicare. Bottom line: most everything is likely to change, so be flexible.

For a number of years, I have recommended clients reaching age 65 work with a person who specializes in Medicare, Medicare Supplement, Prescription Drug, and other areas of health insurance. For an annual fee, she gathers personal information, including health status and current prescription drugs, then finds the insurance companies and plans that best match each person for the lowest cost. But just as important, she helps complete enrollment and claim forms and helps resolve all medical claims issues.

For my wife and me, doing this was a no brainer. We have worked with her for two years, and we both had changes to our Supplement and Prescription Drug plan in our second year. We would not have done nearly as well left to our own devices. For us, it is money well spent. Since she does not sell anything but her services, if we decide to move to another state, we can continue to work with her. She can work with people in any state.

It is important to know that when you turn 65, you must enroll in Medicare. There is a seven-month window beginning three months before the month you turn 65. To avoid a potential gap in coverage, it is important to know that Medicare benefits begin the month following the month you enroll. The official U.S. government site ( is quite good and full of information. It details what services Parts A and B cover, as well as what Medicare does not cover. For people who work past age 65 and work for a small company (fewer than 20 employees), you should know that Medicare will be your primary insurer, with your company plan (if there is one) as secondary. For larger companies (20 or more employees), your group coverage is the primary insurance, while Medicare is secondary. If you miscommunicate this to health care providers, it could cost you denials for claims. Trust me on this. Part B enrollment can be delayed if you are still covered by a health plan with an employer that has more than 20 workers.

If you work for an employer with fewer than 20 employees, your employer may opt out of providing you with primary coverage when you turn 65. In that case, you must sign up for Medicare as your primary insurance. You’ll also want to ask your employer what happens to any coverage for your dependents — spouse or children. 

It may not be cost effective for people to pay for both Medicare and their group plan, since the cost of Medicare (A & B, plus supplemental insurance, plus prescription drug coverage) could be less than a group plan. But you (or the insurance specialist you hire) should run the numbers. I dropped my expensive small company group plan because of the small number of enrollees and my age.

You should know that Medicare Parts A & B do not cover most dental care, as well as eye exams and prescription eyewear or contact lenses. I have had many clients and their spouses get a lot done while they were still on their company eye and dental plans. My wife and I are already scheduling appointments prior to my retirement. I am fortunate that my company plan allows us to remain in the dental and vision options on a stand-alone basis.

Medicare also does not pay for long-term care (also called custodial care). We purchased insurance for this a number of years ago. It is a traditional policy, and we elected a daily benefit that will pay approximately one-half of the expected costs. Our thought is that our sources of income will continue, allowing us to make up the difference from cash flow. We don’t know what the future of this insurance is, and the current premiums are not inexpensive. Products are coming and going at a fairly rapid pace. We hope our decision will allow us to tackle these expenses, if they occur, and still be able to realize our designated charitable gifts when we pass. Yes, it is a crap shoot. But we will probably never collect on our homeowner’s insurance, either.

In summary, health insurance costs will go up. There is no doubt about that. I would suggest having a separate expense item for health care expenses in your retirement cash flow projection, and use a significantly higher inflation factor than the CPI. And consider the services of a health care insurance specialist (not an insurance agent), who can sort through the maze of options and find the best option for your unique situation. I would be glad to provide a referral to a specialist if you contact me.

RiverPark Short Term High Yield Fund (RPHYX/RPHIX), May 2017

By David Snowball

This is an update of a profile first published in July 2011.


The fund seeks high current income and capital appreciation consistent with the preservation of capital, and is looking for yields that are better than those available via traditional money market funds. They invest primarily in high yield bonds with an effective maturity of less than three years but can also have money in short term debt, preferred stock, convertible bonds, and fixed- or floating-rate bank loans. 


RiverPark Advisers. Executives from Baron Asset Management, including president Morty Schaja, formed RiverPark in July 2009. RiverPark oversees the eight RiverPark funds, a number of which are designed to bring an affordable version of successful hedge fund strategies to “the mass affluent.” A legally separate entity, RiverPark Capital Management, runs separate accounts and partnerships. 


David Sherman, founder and owner of Cohanzick Management of Pleasantville, NY. Cohanzick manages separate accounts and partnerships including Cohanzick Nexus, LP. The firm has more than $1.8 billion in assets under management. Since 1997, Cohanzick has managed accounts for a variety of clients using substantially the same process that they use with this fund. Before founding Cohanzick, Mr. Sherman worked for Leucadia National Corporation and its subsidiaries. From 1992 – 1996, he oversaw Leucadia’s insurance companies’ investment portfolios. All told, he has over 25 years of experience investing in high yield and distressed securities. He’s assisted by six other investment professionals.

Management’s Stake in the Fund

Mr. Sherman and the Cohanzick entities have invested over $5 million in the fund. The fund’s directors and officers have invested in excess of $2 million in the fund.

Opening date

September 30, 2010.

Minimum investment

$1,000, though the fund is only available for purchase by existing shareholders or through direct purchases from RiverPark.

Expense ratio

1.17% (0.90% for the institutional class) after waivers on $790 million in assets, as of July 2023. 


We have written extensively, in 2011 and 2012, about the portfolio strategy behind RiverPark Short-Term High Yield. We were impressed and, eventually, so too were other investors. As a result, the fund, which has a distinctly capacity-constrained strategy, closed to new investors in 2013. In 2017, the managers reached agreement with large investors to transfer over $100 million into a slightly-different strategy managed by Cohanzick, which gave them room to re-open the fund. The reopening occurred on April 17, 2017, is limited to individuals willing to invest directly through RiverPark, and it is not likely to remain reopen for all that long.

We believe you should act now to determine whether the fund is appropriate to your investment needs. Rather than recap the entire strategy (see our original profile for that information), we will offer six quick observations.

The strategy is designed to generate 200-400 bps more than a one-year US Treasury. That implies returns clustered in the range of 3.05 – 4.05% annually. Actual returns have been between 3.0 – 4.5% in five of the fund’s six full calendar years.

The strategy focuses on a unique set of orphan securities, exceedingly short-term (think 30-90 day maturity) securities for which there are few other buyers. A hallmark investment class is redeemed debt, or called bonds. A firm or government might have issued a high yielding ten-year bond. Now, after seven years, they’d like to buy those bonds back in order to escape the high interest payments they’ve had to make. That’s “calling” the bond, but the issuer must wait 30 days between announcing the call and actually buying back the bonds. High yield bond managers then have to decide whether to hold the bond for those last 30 days and receive one last payout, or sell their shares and redeploy the money. Most  prefer the latter course and therefore these bonds have few available buyers: a handful of hedge funds and RiverPark. If Cohanzick’s research convinces them that the entity making the call will be able to survive for another 30 days, they can afford to negotiate purchase of the bond, hold it for a month, redeem it, and buy another. The effect is that the fund has junk bond like yields with negligible share price volatility. Redeemed debt, which represents over 40% of the portfolio, is one of five sorts of investments Mr. Sherman pursues.

The strategy is exceedingly conservative. Mr. Sherman has always stressed the “sleep well at night” aspect of the portfolio; indeed, if he were to be hit by a bus (which, frankly, is unlikely in his corporate hometown, Pleasantville NY), 53% of the portfolio would simply rollover to cash in the following 30 days, 65% would go to cash within 90 days and more than 80% would be there within six months. The fund’s maximum one-month drawdown has been 0.55% (one-tenth of what its benchmark suffered), its worst quarter was a loss of 0.29% and its worst year saw a gain of 1.22%.

The fund has grown increasingly conservative since the election. Mr. Sherman’s latest shareholder letter notes:

Over the last twelve months, the strong performance of the equity and corporate bond markets has reflected either investors’ increased appetite to take on risk or their misperception that risk has diminished … We think this misguided complacency underestimates the potential for future volatility. The “Trump Rally”, fueled by pro-business optimism, has caused the U.S. stock market to break out to all-time highs since November. In addition, high yield credit spreads have narrowed … This complacency sets the stage for sharp “knee-jerk” reactions in the markets when the unexpected happens. Call us skeptical.

That skepticism has led to a more conservative positioning, with over half the portfolio scheduled to rollover to cash within 30%.

The fund has an amazing risk-return profile. Morningstar rates it as a one-star fund because they are (inappropriately) benchmarking it against a high-yield peer group that has little in common with the fund or its strategy. Here’s a quick recap of findings that give you a better sense of its profile. RPHYX has the highest five-year Sharpe ratio (4.53, per Lipper) of any mutual fund or ETF in existence. No other conventional fund or ETF is even above 4. It has a beta of 0.14 against its benchmark BofA Merrill Lynch 0-3 Year U.S. High Yield Index, Excluding Financials index and it has a negative downside capture ratio. That is, when its benchmark falls, the fund tends to rise. In the months when the index falls, RiverPark averages a gain of 0.03%.

Bottom Line

We repeat our original conclusion from 2011: “this strikes us as a fascinating fund.  It is, in the mutual fund world, utterly unique. It has competitive advantages (including “first mover” status) that later entrants won’t easily match. And it makes sense. That’s a rare and wonderful combination. Conservative investors – folks saving up for a house or girding for upcoming tuition payments – need to put this on their short list of best cash management options.” Mr. Sherman even makes a special offer for the intrigued: “Feel free to call me or Morty Schaja at RiverPark should you wish to discuss the matter further.” Several of our readers have done just that and have reported that they were speaking to RiverPark’s CEO within a minute of calling.

Financial disclosure: Several of us have invested in that fund in our personal portfolios, in my case since 2011, though the Observer has no financial stake in the fund or relationship with RiverPark. That commitment, made after I read an awful lot and interviewed Mr. Sherman, might well color my assessment. Caveat emptor.

Fund website

RiverPark Short Term High Yield

Elevator Talk: Adam Strauss, Appleseed Fund (APPLX/APPIX)

By David Snowball

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

Adam Strauss is, along with his brother Joshua, one of the three managers of Appleseed Fund. Both joined the firm in 2004 after careers outside the financial services sector. The third manager, Bill Pekin, has been with Pekin Singer Strauss since 2001; before that he had stints at Credit Suisse in Chicago and at Donaldson, Lufkin & Jenrette in New York. In 2015, the SEC concluded that the firm had under-resourced its compliance efforts between 2009 and 2011; in consequence, the firm and two of its principals were fined and censured, and the firm was directed to clean up its compliance program. Long before the SEC finding, the firm worked to substantially upgrade its compliance efforts. In total, the firm manages about $830 million in assets.

The idea of a go-anywhere value fund is exceedingly attractive. Over any given period, the most attractive opportunities might be here or there, large or small, low-div or high-div, developed or emerging. And, over long periods, buying low is always more profitable than buying high. The problem is that most go-anywhere value managers won’t and aren’t. That is, they won’t go anywhere and they aren’t value investors. Most remain attached to large stocks in the US with a bit in Europe, and most insist on remaining fully invested no matter how few really compelling opportunities (sometimes called “fat pitches”) the market offered. Indeed, with the stock market hovering near record valuations in the latter days of history’s longest bull market, fewer than two dozen managers appear to be holding significant amounts of dry powder.

Appleseed is one of them. The fund holds a substantial amount of gold (“a hedge in the event of a currency crisis” but also an inflation hedge and a diversifier) and cash, five times more small cap exposure than its peers, and a third more emerging markets exposure (data as of 3/31/17). With 21 positions overall, it’s far more concentrated than its peers and it imposes an ESG screen that eliminates, among other things, banks that are “too big to fail.” It has a low-beta portfolio which has substantially outperformed its Lipper peer group over the full market cycle, but has lagged them over the past 3- and 5-year periods as market valuations continue to climb (and most managers continue to play along with a market in which they have no confidence). Morningstar’s judgment is about right, “Appleseed is tough to classify, but it has plenty to offer the right kind of investor.”

Here are Mr. Strauss’s 200 (well, okay, 252) words on why Appleseed warrants your consideration.

I know it sounds odd, but, when we launched Appleseed Fund in 2006, we rarely used mutual funds.  We believed at the time that there was no good reason for most mutual funds to exist over the long-term given the fees charged and the closet indexing strategies they pursued.  We expected the market for funds to eventually be dominated by low-cost index funds along with a few active managers who were unafraid to express a strong set of investment opinions.

We resolved for Appleseed Fund to be one of those few and, in particular, one of those few who also took value investing seriously.

Our goal is to provide our shareholders with an attractive risk-adjusted rate of return. We seek to invest in quality companies which are significantly undervalued, wherever we can find them. We don’t pay attention to our benchmark index, and we don’t focus on relative return, although we expect our investment process to lead to outperformance over a full market cycle. Because of our high-conviction, index-ignorant approach, Appleseed’s tracking error and active share are both high.

As a result, we manage, in my opinion, a distinctive and truly active go-anywhere value fund. While we were 100% invested in equities at the bottom of the market in 2009 and benefited greatly coming out of the crisis, we’ve been around 60% invested in equities during the past five years. Today, most of our exposure is outside the US, because that’s where we are finding investments with a sufficient margin of safety.

The minimum initial purchase for Investor shares is $2,500, and those shares carry a 1.14% expense ratio. Entry to the Institutional shares requires $100,000, though waivers are a possibility, and those shares carry an expense ratio of 0.95%. To their ongoing credit, the managers have reduced those fees several times.

The fund’s website is Appleseed Fund, though additional detail is available through the advisor’s Pekin Singer Strauss site.

Launch Alert: Rondure Overseas Fund and Rondure New World Fund

By David Snowball

On May 1, 2017, Rondure Global Advisors, headquartered in Salt Lake City and one of the nation’s few woman-owned fund advisers, launched Rondure New World Fund (RNWIX/RNWOX) and Rondure Overseas Fund (ROSIX/ROSOX ). Rondure Global operates in partnership with Grandeur Peak Global, which offers back office and trading support, as well as the opportunity for collegial investment discussions. Rondure’s founder, CEO and lead portfolio manager is Laura Geritz, who describes this partnership as “one of our key competitive advantages” since it will give her the opportunity, rare for a manager launching a new firm, to focus on investment rather than management.

Both funds will follow the same investment discipline. The Overseas Fund will target firms which have “a majority of their assets or revenues attributable to developed countries outside the United States.” New World will invest in firms which “typically have exposure to emerging or frontier markets.”

What do you need to know?

The strategy is thoughtful and tested.

The shortest version of the strategy is that Ms. Geritz seeks “great companies at good prices and good companies at great prices.” Finding them requires her to operate without regard to what her benchmark looks like or what her peers are doing.

She offered, in 2013, a short and useful description of her target: “We focus on high-quality companies, companies with great cash flow statements, great balance sheets, and that can do well in any cycle. And then we marry that with analysis of the country and the particular risk we’re taking in that country.”

This is, she reports, what she’s been doing for a decade.

As for the process at Rondure, it is not new; it is the same one I learned almost two decades ago from my original mentors at American Century and that was enhanced and practiced for years during my long tenure at Wasatch Advisors. I have now covered all asset classes from mega cap to microcap, US to international, emerging to frontier. I’ve worked consistently using one approach to all these asset classes—a focus on bottom up, deep due diligence investing with the goal of selecting the highest quality companies at reasonable prices—a margin of safety. The process is the same across strategies and has been followed by the entire team. At Rondure, we will invest in these same core companies.

The manager is richly experienced and widely respected.

Most investors will know Ms. Geritz from her previous stint with Wasatch Advisors, also of Salt Lake City. She joined Wasatch in 2006 as a senior equity analyst. Her talent and dedication were recognized by her assignment as lead portfolio manager for the Wasatch Frontier Emerging Small Countries Fund (2012 – 2016), co- then lead manager of Wasatch International Opportunities (WAIOX, 2011-2016) and co-manager for Wasatch Emerging Markets Small Cap Fund (2009-2015). Before Wasatch, she worked as a senior analyst on Mellon’s US small- and micro-cap funds and as an analyst for global, US mid-cap and US large-cap stocks at American Century. She earned an M.A. in East Asian Languages and Culture, has lived in Japan and is fluent in Japanese.

Those working with Ms. Geritz, and those following her career, tend to speak in superlatives. Tim Maverick, a Wall Street Daily analyst, judged her a “superb fund manager” who had provided “years of excellent guidance” to her portfolios (2016). The CFA Society of North Carolina (2017) positioned her as one of “four brilliant and tenured emerging markets fund managers” who they invited to speak to their members.  A year ahead featuring her on their cover as one of the small coterie of active managers who “earn their keep” (4/8/2013), Barron’s magazine (2014) placed her on their panel of “four emerging-market managers, each with a long history of investing in Asia” who helped them assess the “risks, trends, and opportunities” in the region. Morningstar asked her to speak with them, mostly on issues of risk management in volatile markets, in 2013, 2014 and again in 2015.

The fact that Grandeur Peak, a firm with vast respect in the investor community, has chosen to partner with Ms. Geritz, is a quintessential “actions speaking louder than words,” endorsement.

The “I” class shares of the fund carry 1.10% expense ratio, with a $2,000 minimum initial purchase. “Investor” shares have the same minimum but carry a 12(b)1 fee of 0.25%.

The fund’s website is thoughtful and offers rich content, especially given its recent birth. As you’re pondering your interest in the funds, you really need to read Ms. Geritz’s letter to her investors. It’s intelligent, heartfelt, reassuring and literate. Of her modest beginnings in the industry, she writes:

I started in this industry as a client relation’s representative. I have and never will forget my time on the phones dialoguing with all levels of clients. The lesson is and always will be that this is not our/my money, it’s yours. It is your dreams and goals we need to deliver. You deserve the utmost transparency from us. It is our goal to provide this. Our beliefs are simple. We are here for you not for us.

Funds in registration, May 2017

By David Snowball

A couple of this month’s nominally “new” funds are actually repackaged versions of existing products.  Congress Small Cap Growth Fund is just the reorganized version of Century Small Cap Select Fund (CSMVX), a two-star small cap growth fund with a 17-year record. Long-time manager Alexander Thorndike gains a co-manager, Gregg O’Keefe. Similarly, Oak Ridge Global Resources & Infrastructure Fund is a new name for Ridgeworth Capital Innovations Global Resources and Infrastructure Fund (INNAX), a solid but tiny fund. Sadly, that might be the most interesting stuff going on this month.

AAMA Equity Fund (AMFEX)

AAMA Equity Fund will seek to generate long term capital appreciation. The plan is to work from the top down: they first rank the relative attractiveness of economic sectors to create a sector weighting in the portfolio, then rank firms in the sector for investment attractiveness. They then use a combination of equities (which can go beyond common stock) and ETFs to construct the portfolio. The fund will be managed by Robert Baker and Philip Voelker, both of Advanced Asset Management Advisors which has about $800 million in assets. The initial expense ratio is 0.97%, and the minimum initial investment will be $10,000.

AAMA Income Fund

AAMA Income Fund will seek current income with a secondary objective of preservation of capital. The plan is to invest in a diverse set of income-producing securities, allocated among a range of sectors based on credit spreads and market volatility. The fund will be managed by Robert Baker and Philip Voelker, both of Advanced Asset Management Advisors which has about $800 million in assets. The initial expense ratio is 0.71%, and the minimum initial investment will be $10,000.

AllianzGI Real Estate Debt Fund

AllianzGI Real Estate Debt Fund will seek total return in excess of traditional, shorter-duration fixed income products while managing portfolio risk. The plan is to invest primarily in a variety of shorter-duration real estate-related debt instruments, mostly North American and European commercial mortgage-backed securities. About 50% of the portfolio will be designated as “core” and the core will hold short-duration CMBS. The other 50% is “opportunistic” and can target other real-estate related assets plus some non-real estate securities. The fund will be managed by Malie Conway and Jonathan Yip, two fairly senior folks at Allianz. The initial expense ratio has not been released, and the minimum initial investment will be $1 million but it appears that, for example, Schwab or Scottrade will have to have a million invested. Those brokerages are then free to set their own investor minimums.

BNP Paribas AM U.S. Inflation-Linked Bond Fund

BNP Paribas AM U.S. Inflation-Linked Bond Fund will seek to outperform an inflation-linked bond index by investing in inflation-linked bonds. (Really.) The plan is to mostly buy TIPS, with the possibility of also owning “other varieties” of fixed-income securities. The fund will be managed by Cedric Scholtes, Jenny Yiu, and Ashay Khandelwal of Fischer Francis Trees & Watts, a global fixed-income manager with about $42 billion in assets. The initial expense ratio is 0.65%, and the minimum initial investment for the “retail” shares will be $2,500. “Investor” shares are $100,000 which sort of hints at the price tag of “Institutional” ones.

Manager changes, April 2017

By Chip

Each month, many funds under partial or complete changes in their management teams. Most are inconsequential, because they involve marginal changes in teams or the substitution of one inoffensive MBA-holder for another. 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.

Out of this month’s 40 tracked changes, the switch to AMG Managers Fairpointe Focused Equity Fund – which places star manager Thyra Zerhusen solely in charge of a struggling small fund – is interesting and the announcement that Salim Hart and Sam Chamovitz are the managers of Fidelity Low-Priced Stock Fund was briefly terrifying (the announcement did not make clear that Mr. Tillinghast remained). Jamie Harmon, has, however, actually departed.

Ticker Fund Out with the old In with the new Dt
ADVWX Advisory Research Global Value Fund Hyung Kim will no longer serve as a portfolio manager of the fund. James Langer, Marco Priani, Drew Edwards, Matthew Swaim and Bruce Zessar will continue to serve as portfolio managers. 4/17
LPEFX ALPS/Red Rocks Listed Private Equity Fund Adam Goldman and Mark Sunderhuse have provided notice of their resignations effective at the completion of a transition period, which is anticipated to be completed by no later than June 30, 2017. Kirk McCown, Andrew Drummond and Wyck Brown, have joined the portfolio management team. 4/17
AFFEX AMG Managers Fairpointe Focused Equity Fund Effective immediately, Robert Burnstine no longer serves as a portfolio manager of the fund. Thyra Zerhusen continues to serve as the portfolio manager primarily responsible for the day-to-day management of the fund 4/17
ANHAX Angel Oak High Yield Opportunities Fund James Hentges no longer serves as a portfolio manager for the fund. Berkin Kologlu, “Sreeni” Prabhu, Johannes Palsson, Navid Abghari and Matthew Kennedy will continue to manage the fund. 4/17
MDDCX BlackRock Emerging Markets Fund Luiz Soares is no longer listed as a portfolio manager for the fund. Andrew Swan and Gordon Fraser have taken over management of the fund. 4/17
MBGRX BlackRock Natural Resources Robert Shearer is no longer listed as a portfolio manager for the fund. Alastair Bishop, Thomas Holl and Skye MacPherson will now manage the fund. 4/17
CPRFX Camelot Premium Return Sarah Berndt is no longer a portfolio manager of the fund. Darren Munn will continue to manage the fund. 4/17
DHROX Diamond Hill Research Opportunities Fund Tod Schneider is no longer listed as a portfolio manager for the fund. The other twenty managers remain. 4/17
DAMDX Dunham Monthly Distribution Fund Roy Behren is no longer listed as a portfolio manager for the fund. David Baker is now managing the fund. 4/17
ETGIX Eaton Vance Greater India Fund Prashant Khemka will no longer serve as a portfolio manager for the fund. Kevin Ohn has assumed the management responsibility for the fund. 4/17
FVOAX Federated Managed Volatility Fund Michael Dieschbourg will no longer serve as a portfolio manager for the fund. Todd Abraham, Linda Bakhshian, Jerome Conner, Mark Durbiano, James Gordon, Damian McIntyre and John Nichol will continue to manage the fund. 4/17
FMCDX Fidelity Advisor Stock Selector Mid Cap Fund No one, but . . . Robert Stansky joins the management team of John Mirshekari, Christopher Lin, Edward Yoon, Samuel Wald, Pierre Sorel, Douglas Simmons, Gordon Scott and Shadman Riaz. 4/17
FGBFX Fidelity Global Bond Fund, which will become Fidelity Global Credit Fund as of June 1, 2017 Jeffrey Moore and Constantine Petrov will no longer serve as portfolio managesr for the fund. Curt Hollingsworth and Michael Foggin will be joined by Matthew Bartlett and Andrew Lewis on the management team. 4/17
FLPSX  Fidelity Low-Priced Stock Fund James Harmon is no longer listed as a portfolio manager for the fund. Salim Hart and Sam Chamovitz join the team of Morgen Peck, Shadman Riaz, John Mirshekari, Katherine Buck, Justin Bennett, and Joel Tillinghast, in managing the fund. 4/17
GNFIX Geneva Advisors International Growth Fund Reiner Triltsch will no longer serve as a portfolio manager for the fund. Daniel Delany and Matthew Sherer will continue to manage the fund. 4/17
ICMBX Intrepid Capital Fund Gregory Estes will no longer serve as a portfolio manager for the fund. Mark Travis continues to lead Jason Lazarus and Jayme Wiggins in managing the fund. 4/17
ICMCX Intrepid Disciplined Value Fund Gregory Estes will no longer serve as a portfolio manager for the fund. Mark Travis returns to manage the fund. 4/17
ICMCX Intrepid Disciplined Value Fund Gregory Estes will no longer serve as a portfolio manager for the fund. Mark Travis will continue to manage the fund. 4/17
ICMTX Intrepid Select Fund Gregory Estes will no longer serve as a portfolio manager for the fund. Jayme Wiggins will continue to manage the fund. 4/17
AWSAX Invesco Global Core Equity Fund Brian Nelson is no longer listed as a portfolio manager for the fund. Jeffrey Everett joins Erik Esselink in managing the fund. 4/17
LSCAX Loomis Sayles Dividend Income Fund Adam Liebhoff is no longer listed as a portfolio manager for the fund. Arthur Barry continues to manage the fund. 4/17
LSVRX Loomis Sayles Value Fund Adam Liebhoff will no longer serve as a co-portfolio manager of the fund. Arthur Barry will remain as portfolio manager of the fund. 4/17
MSEAX MainStay International Equity Fund Eve Glatt will no longer serve as a portfolio manager for the fund. Edward Ramos and Carlos Garcia-Tunon will continue to manage the fund. 4/17
EXOSX Manning & Napier Overseas Series Ajay Sadarangani has resigned. The other dozen managers remain. 4/17
FLRAX Nuveen Large Cap Select Fund Anthony Burger is no longer listed as a portfolio manager for the fund. Evan Staples joins David Chalupnik in managing the fund. 4/17
FSCAX Nuveen Small Cap Value Fund No one, but . . . Karen Bowie is joined by David Johnson and Andrew Rem on the management team. 4/17
PCOAX Putnam Capital Opportunities Fund Pam Gao is no longer listed as a portfolio manager for the fund. Samuel Cox, Josh Fillman, Kathryn Lakin, Elizabeth McGuire and William Rives will now manage the fund. 4/17
RTLAX Russell Investments Tax-Managed U.S. Large Cap Fund David Hintz will no longer serve as a portfolio manager for the fund. James Barber and Kevin Divney will now manage the fund. 4/17
REASX Russell Investments U.S. Core Equity Fund David Hintz will no longer serve as a portfolio manager for the fund. James Barber and Kevin Divney will now manage the fund. 4/17
RSGIX Russell Investments U.S. Dynamic Equity Fund David Hintz will no longer serve as a portfolio manager for the fund. James Barber and Kevin Divney will now manage the fund. 4/17
RSESX Russell Investments U.S. Strategic Equity Fund David Hintz will no longer serve as a portfolio manager for the fund. James Barber and Kevin Divney will now manage the fund. 4/17
RLCSX Russell Investments US Large Cap Equity Fund David Hintz will no longer serve as a portfolio manager for the fund. James Barber and Kevin Divney will now manage the fund. 4/17
RTDYX Russell Select U.S. Equity Fund David Hintz will no longer serve as a portfolio manager for the fund. James Barber and Kevin Divney will now manage the fund. 4/17
SFENX Schwab Fundamental Emerging Markets Large Company Index Fund Ferian Juwono and Agnes Hong are no longer listed as portfolio managers for the fund. Christopher Bliss, Chuck Craig, Jane Qin, and David Rios will now manage the fund. 4/17
SFREX Schwab Fundamental Global Real Estate Index Fund Ferian Juwono and Agnes Hong are no longer listed as portfolio managers for the fund. Christopher Bliss, Chuck Craig, Jane Qin, and David Rios will now manage the fund. 4/17
SWISX  Schwab International Index Fund Ferian Juwono and Agnes Hong are no longer listed as portfolio managers for the fund. Christopher Bliss, Chuck Craig, Jane Qin, and David Rios will now manage the fund. 4/17
TEEMX Templeton Institutional Fund Emerging Markets Series Allan Lam, Mark Mobius, Tom Wu, and Dennis Lim are no longer listed as portfolio managers for the fund. Chetan Sehgal will now manage the fund. 4/17
TDMIX Transamerica Developing Markets Equity Fund John Paul Lech is no longer listed as a portfolio manager for the fund. Justin Leverenz will continue to manage the fund. 4/17
VCIGX VALIC Company I Dividend Value Fund Effective immediately, David Cassesse will no longer manage the fund. In addition, effective August 31, 2017, Robert Shearer will step down from his management duties. In August, David Zhao and Franco Tapia will join Tony DeSpirito in managing the BlackRock sleave of the fund. 4/17
WALTX Wells Fargo Alternative Strategies Fund Aaron Zimmerman and Soon Pho are no longer listed as portfolio managers for the fund. Raj Iver joins the other 14 managers of the fund. 4/17

Briefly Noted . . .

By David Snowball

On April 20, 2017, UMB announced that it signed an agreement to sell Scout Investments and Reams Asset Management to Carillon Tower Adviser, a wholly owned subsidiary of Raymond James. In announcing its 2016 creation, James described Carillon as “new company to provide transparency and create efficiencies among its asset management firms.” As I note in our story on the Morningstar interviews, Carillon wasn’t particularly transparent and the guy representing Scout was curt to the point of being rude.

Sentinel Asset Management has agreed to sell its mutual funds to Touchstone. Details aren’t yet available.

The previously announced plan to organize Highland Opportunistic Credit Fund (HNRAX) into NexPoint Opportunistic Credit Fund has been scrapped for opaque reasons.


B. Riley Diversified Equity Fund (BRDR/BRDZX) will no longer impose investment minimums and minimum subsequent investments for purchases of the fund.

Effective May 1, 2017, the Board of Trustees reduced the investment advisory fee payable by the Gotham Total Return Fund (GTRFX) to Gotham Asset Management from 2.00% to 1.00%. That’s modestly less-impressive than it seems since an existing agreement limited the fee to 0.0%. Gotham estimates that the fund costs 5.07% to run but charges only the 3.52% attributable to the funds it invests in or shorts.

Jackson Square All-Cap Growth Fund, Jackson Square Global Growth Fund, Jackson Square Large-Cap Growth Fund, Jackson Square Select 20 Growth Fund and Jackson Square SMID-Cap Growth Fund have reduced their minimum initial investment for Institutional Class shares to $100,000. Woo-hoo!

Pear Tree Polaris Foreign Value Small Cap (QUSOX) has lowered its e.r. by 13 bps. It’s now capped at 1.43%. The fund remains a top-tier performer over all trailing periods and now has about a half billion in assets.

RiverPark High Yield Short Term Fund (RPHYX/RPHYX) has reopened to new investors who are willing to invest directly through RiverPark. It’s an outstanding cash-management fund with the highest 5-year Sharpe ratio of any fund in existence. We’ve published an updated profile of the fund in this month’s issue.

All classes of the Touchstone Sands Capital Select Growth Fund (TSNAX) have re-opened to investments by new and existing investors. Assets are down by about 75% from its peak in 2013 when all share classes and its separate accounts were closed to all investors. The fund is very concentrated and very aggressive, which has been working poorly for the past three to five years. Morningstar continues to express their confidence in the managers and have assigned it a “Bronze” rating.

CLOSINGS (and related inconveniences)

AQR will soft close two more funds in June. The roster of their closed offerings will be: 

Closed Fund Closing Date
AQR Diversified Arbitrage Fund June 29, 2012
AQR Multi-Strategy Alternative Fund September 30, 2013
AQR Style Premia Alternative Fund March 31, 2016
AQR Style Premia Alternative LV Fund March 31, 2016
AQR Long-Short Equity Fund (QLENX) June 30, 2017
AQR Equity Market Neutral Fund (QMMNX) June 30, 2017

Both of the new closures are excellent funds with $1 million minimums.

Harding, Loevner Emerging Markets Portfolio (HLEMX) closed to new investors on April 10, 2017.

Motley fool has decided to eliminate the institutional share class of Motley Fool Emerging Markets Fund (TMFEX and, oddly, FOEIX). The fund is tiny and, to be kind, “not stellar.”


361 Global Counter-Trend Fund (AGFQX) has been rechristened as 361 Global Managed Futures Strategy Fund.

American Beacon ARK Disruptive Innovation Fund has changed to American Beacon ARK Transformational Innovation Fund.

Century Small Cap Select Fund (CSMVX), a two-star small cap growth fund with a 17-year record is being reorganized as Congress Small Cap Growth Fund. The fund gains a co-manager, Gregg O’Keefe.

Effective June 1, 2017, Fidelity Global Bond Fund (FGBFX) will be renamed Fidelity Global Credit Fund. It will also get some (much-needed) fresh blood on the management team.

Goldman Sachs Fixed Income Macro Strategies Fund (GMMAX) is being rechristened as Goldman Sachs Strategic Macro Fund with a really substantial reduction in the fund’s management fee from 1.50% to 0.95%. Over the past three years the fund has trailed its peers by over 300 bps, so reducing the management fee by 55 bps is at least a start.

Goldman Sachs Growth and Income Fund (GSGRX) becomes Goldman Sachs Equity Income Fund on or about June 20, 2017.

Oak Ridge Global Resources & Infrastructure Fund is a new name for Ridgeworth Capital Innovations Global Resources and Infrastructure Fund (INNAX), a solid but tiny fund.

Rainier International Discovery Fund (RISAX) is getting adopted by Manning & Napier sometime in the fall of 2017. I’m guessing that the name will change and hoping that the sales load will evaporate; it is, otherwise, an entirely solid small fund.


Absolute Credit Opportunities Fund (AOFOX) will liquidate on May 26, 2017.

Facing “limited prospects for meaningful growth,” ATAC Beta Rotation Fund (BROTX) will liquidate on May 26, 2017. It’s a large cap with $4 million in assets, 1700% turnover and a record of substantial underperformance, which might well contribute to the aforementioned prospects.

Because Cloud Capital Strategic All Cap Fund (CCILX) “is economically feasible to continue managing the Fund because of the Fund’s small size and the difficulty encountered in attracting and maintaining assets,” it will liquidate at the end of May, 2017.

CMG Global Macro Strategy Fund (PEGAX) will redeem all outstanding shares on May 26, 2017.

Crow Point Global Dividend Plus Fund liquidated on April 17, 2017 on rather short notice.

On April 11, 2017, the DFA Board announced that DFA International Value Portfolio IV would, “based upon information provided by Dimensional Fund Advisors,” be liquidated the next day. Unless the information provided involved an Ebola outbreak, the haste seems curious.

Shareholders will meet in September to consider (and approve) the merger of Federated Prudent DollarBear Fund (PSAFX, formerly the Federated Prudent Global Income Fund and still more formerly David Tice’s Prudent Global Income Fund) into Federated Global Total Return Bond Fund (FTIIX). The move makes relatively little sense beyond the fact that the funds share a management team; FTIIX is small and a serious underperformer with a mission pretty much unrelated to PSAFX’s.

Goldman Sachs Focused Growth Fund (GFGAX) will merge into the Goldman Sachs Concentrated Growth Fund (GCGAX) during July 2017.

The Board of Trustees of Northern Lights Fund Trust (the “Board”) has determined based on the recommendation of the Fund’s Adviser that with respect to the GMG Defensive Beta Fund (the “Fund”), a series of the Northern Lights Fund Trust, that it is in the best interests of the Fund and its shareholders that the Fund cease operations. The Board has determined to close the Fund and redeem all outstanding shares on May 26, 2017.

Green Square Equity Income Fund was liquidated on April 13, 2017.

HSBC Emerging Markets Local Debt Fund has merged with and into the HSBC Emerging Markets Debt Fund (HCGAX). 

Kalmar “Growth-with-Value” Small Cap Fund (KGSCX) will cease its business, liquidate its assets and distribute liquidation proceeds on or about June 23, 2017.

Lord Abbett Value Opportunities (LVOAX) will be liquidated and dissolved by June 30, 2017.

“The liquidation of Nuveen Gresham Long/Short Commodity Strategy Fund is complete,” just in case you wondered. I’m sure there’s a legal reason for the fund adviser to announce the post-mortem, but I’m not sure what it is.

In more-timely news, Nuveen Core Dividend Fund (NCDAX) will merge into Nuveen Large Cap Value Fund (NNGAX), but not until July.  At a yet-to-be-determined date, Nuveen Large Cap Growth Opportunities Fund (FRGWX) will merge into Nuveen Large Cap Growth Fund (NLAGX). In a unilateral move, Nuveen Symphony Dynamic Equity Fund will be liquidated on or near June 22, 2017.

Oak Ridge Global Equity Fund (ORGEX) was liquidated on April 28, 2017.

State Street/Ramius Managed Futures Strategy Fund (RTSRX/RTSIX) liquidated on   April 28, 2017. 

Tortoise North American Energy Independence Fund (TNPTX) will merge into the Tortoise Select Opportunity Fund (TOPTX) on or about June 19, 2017.

Victory NewBridge Global Equity Fund (VPEGX) will liquidate on June 16, 2017.

Virtus Strategic Income Fund (VASBX) will liquidate on May 10, 2017. It’s a perfectly respectable fund that’s been around just shy of three years but that hasn’t drawn enough assets to remain viable.

Westwood Global Dividend Fund (WWGDX) will cease operations and liquidate on or about May 19, 2017.

William Blair Mid Cap Value Fund (WMVNX) will liquidate on or about June 15, 2017. It’s another case where being “good enough” is simply not good enough anymore; it’s a $3 million fund with a perfectly middling record, which won’t be enough to make it a $4 million fund much less a sustainable one.