Monthly Archives: September 2017

September 1, 2017

By David Snowball

Dear friends,

Our thoughts and prayers go out to the people in Houston and the surrounding Gulf Coast. The receding flood waters end one phase of the disaster and exposes the next.

Several mutual fund families have headquarters, or significant presence, in the Houston area. Those include Ascendant, Bridgeway, Crossmark Global (formerly Capstone), Invesco, Kerns Capital, Salient, Sarofim and USCA. (The MFO Premium mutual fund screener allows you screen funds based on their headquarters city; that originally flowed from research that shows the fund managers who live and work near each other seem to inadvertently share investing ideas and errors.)

Of those, only Bridgeway and Salient used their websites to speak directly to the effects of Hurricane Harvey, their own status and the ways in which we might help. Both firms stressed that their first priority was to the safety of their employees; both had reopened their offices by August 30 but were still counseling employees to place safety first. Both said that their business continuity plans were allowing them to continue operations, largely uninterrupted. David Rentfrow, a managing director at Crossmark, says his firm plans to reopen Tuesday, September 5:

We have kept the office closed to encourage employees to get out and volunteer. We can’t be actively serving our community if we are sitting behind our desks, and candidly, supporting those in need is much more important right now.  This is part of our firm’s culture. We’ve identified Convoy of Hope and West Houston Assistance Ministries as charitable organizations to consider.

Morningstar reports that, generally, Houston area firms are “soldiering through the storm.” And both offered a list of ways that you can help. Both groups urged you to consider providing support through the Houston Mayor’s Relief Fund and the Houston Food Bank. They offered several different possibilities beyond those two, with Salient providing a word of explanation on each group’s mission.

The hyperlinks above will take you to their hurricane updates and recommendations.

For now, we’d suggest four appropriate actions:

  1. Give now.

I just did, to the Animal Defense League of Texas and the Houston Food Bank. Both are well-rated by Charity Navigator, are recommendation by Bridgeway and/or Salient, and match my own sense of where I might make a difference. Don’t wait to find the perfect charity or the perfect time or a worthy contribution. Do good now. That said …

  1. Give cautiously.

The infuriating reality is that scam aid organizations always spring up in the wake of great tragedy.  Crowd-funding sites, such as GoFundMe, are particularly hard to vet. Even the iconic American Red Cross has been rocked by journalistic and congressional criticism of its huge overhead expenses, emphasis on public relations and poor responses in other hurricane relief. The Consumer Union offers some cautions but also offers links and recommendations for those who want to act thoughtfully.

  1. Give again at year’s end.

The pattern is painful: disaster strikes, money and attention pour in, the immediate crisis abates, we move on … and a region is left with few resources as they begin the long slog to rebuild homes, re-open schools and find meaningful employment for folks who always lived with limited financial resources.

I’ve added a reminder in my phone’s calendar to check in again at Thanksgiving with the ADL, the Food Bank and Donor’s Choose (a classroom support organization). You might do likewise, while the thought is at the top of your mind.

  1. Put aside “the big picture” discussion for a bit, and focus on doing actual good for actual people.

There are really important questions that these events raise, about urban development, climate change, the federal response and so on. Those are, I think, questions for another day.

The immenseness of the challenge residents face in overcoming the storm and re-assembling good lives for themselves, their families and their communities needs to be matched by the strength and unity of our own response to the disaster. We need to act together to make a difference.

It’s something we’re surprisingly good at. Alexis de Tocqueville, the first great European observer of American culture, wrote in 1835 about a peculiarly American virtue.

The political associations that exist in the United States form only a detail in the midst of the immense picture that the sum of associations presents there.

Americans of all ages, all conditions, all minds constantly unite. Not only do they have commercial and industrial associations in which all take part, but they also have a thousand other kinds: religious, moral, grave, futile, very general and very particular, immense and very small; Americans use associations to give fêtes, to found seminaries, to build inns, to raise churches, to distribute books, to send missionaries to the antipodes; in this manner they create hospitals, prisons, schools. Finally, if it is a question of bringing to light a truth or developing a sentiment with the support of a great example, they associate.

As soon as several of the inhabitants of the United States have conceived a sentiment or an idea that they want to produce in the world, they seek each other out; and when they have found each other, they unite. From then on, they are no longer isolated men, but a power one sees from afar, whose actions serve as an example; a power that speaks, and to which one listens.

Tony Ledergerber, one of the Bridgeway folks, echoes Tocqueville:

It has been absolutely devastating to many parts of the Houston area.  So many people are struggling.  Having said that, the show of support from people on the ground and from folks like you has been amazing!  In my neighborhood the sense of community has always been fairly strong.  When the storm hit, our boundaries of community quickly expanded to all of Houston.  As the nation responded and friends from all over started asking how to help, our sense of community has become the entire country.  It’s a good feeling.

It is, indeed.

“The Dow closed the day down by 1,245 points.”

That’s nice, dear. Would you pass the baked squash, please?

The Dow is going to drop by over a thousand points. That’s not a prediction of some imminent disaster; it’s just a report of a statistical near-certainty. We have already had fourteen days with percentage declines large enough to equate to drop of more than 1,000 points with the Dow at 22,000. Eleven of those 1,000 point days have occurred since the year 2000.

Date One day loss, in percentage Today that would be a loss on the Dow of …
1987-10-19 – 22.61 4840
2008-10-15 −7.87 1731
2008-12-01 −7.70 1694
2008-10-09 −7.33 1612
1997-10-27 −7.18 1580
2001-09-17 −7.13 1569
2008-09-29 −6.98 1536
1998-08-31 −6.37 1401
2008-10-22 −5.69 1252
2000-04-14 −5.66 1245
2011-08-08 −5.55 1221
2008-10-07 −5.11 1124
2008-11-05 −5.05 1111
2011-08-10 -4.62 1016

We’re certainly not the first to point this out. Dan Wiener (whose name I finally spelled correctly, sorry about the persistent “ei” goofs, Dan) wrote to his readers in August, “At last night’s close, a mere 5% correction for the Dow would see the index drop no fewer than 1,101 points! … Are you prepared for this, because a 10% correction would be totally normal in the course of market events?”

Mr. Wiener’s suspicion is that folks are not prepared, both because large round numbers are intrinsically scary (there are 25,000,000 tons of spiders on earth! Watch out for the creepy gifs if you click that link.) and because the extended market calm has anesthetized us. Mr. Wiener’s notes

So far [through early August]  2017, we’ve only seen 8 days when the Dow swung 200 points or more intraday. Last year, when the Dow was much lower, there were 70 days when we saw 200-point or better intraday swings and 106 such days in 2015.

One statistically stunning representation comes from the one-year Martin ratios for the fund universe. Martin ratios, which are a key metric in the MFO rating system, measures a fund’s risk-return balance. Martin ratios differ from the more-famous Sharpe ratio because Sharpe uses volatility as its risk measure (so it doesn’t matter to Sharpe, from a risk perspective, whether a fund has lots of sharp up-spikes or lots of sharp down-spikes). Martin uses drawdown volatility in its risk calculation, which normally makes it much more sensitive to the kind of risk the matters to us: the risk that our fund will drop sharply. If there’s no drawdown to measure, an incredibly rare state, Martin ratios soar.

As of July 30, there are 18 equity funds, mostly global and international, with a one-year Martin ratio of infinity, like Dodge & Cox Global DODWX, T Rowe Price Frontier PRFFX, and Oakmark International OAKIX. They are infinite because there was simply no drawdown for twelve consective months … zero! Historically, the average Martin ratio for the S&P500 is 0.4. For the past 12 months, the average Martin ratio is 29.

Add two calendar issues to the equation:

  1. September is the worst month for the stock market, historically. That doesn’t say anything about this particular September, except “don’t be surprised.”
  2. We are approaching the 10th anniversary of the last market peak. Stock markets began “topping” just about ten years ago, just ahead of the stunning declines that commenced in October 2007 and continued for 18 months. One likely effect is that 10-year returns are going to look suddenly worse as the last months of the old bull market are replaced by the first months of the new bear market.

You cannot reliably avoid a market crash. You can prudently prepare for it.

  1. Know your portfolio’s downside risk. Earlier this year we offered a fairly simple method for calculating how much you might lose in a bear market. In the case of my portfolio, which is always about 25% US equity, 25% international equity, 25% fixed-income and 25% cash equivalents, it might expect to lose 23%. (I made a math error in the original article, which made the loss look larger.) At base, multiply your fund’s maximum drawdown percentage over the current market cycle (we calculate that for all funds at MFO Premium) by their weight in your portfolio. If your portfolio is equally weighted between two funds, one with a 50% maximum drawdown and one with a 30% maximum drawdown, you shouldn’t be surprised if your portfolio suffers a 40% loss. You might also use the guide provided in our follow-up piece How Bad Can It Get?
  2. Do not put more money at risk than you can afford to lose. Absent the presence of unicorns and magic wands, it’s very hard to come up with a scenario where US stocks and bonds are going to make much money for the next five years. Everything’s expensive and overpaying now is the surest predictor of poor returns ahead. Charles Stein and John Gittelsohn did a really nice job for Bloomberg (Pimco and T. Rowe Price Warn Investors It’s Time to Reduce Risk, 8/9/2017) of compiling the recommendations of some of the world’s top investment advisers. PIMCO, T. Rowe Price, DoubleLine and BlackRock all share the same message: “it’s time to take some money off the table.”

Our advice doesn’t change: plan thoughtfully for the inevitable hard times, knowing that they will come but not knowing when, then be sure to make enough baked squash to share. It’s an autumn tradition and a reminder that sharing with others is the heart of the good life!

Thanks upon thanks!

We noted, last month, that we could use your help in extending the reach of the Observer. We continue to benefit from the company of 30,000 readers each month, but only about 1% of those folks are involved with the tools and screeners at MFO Premium and we’re not sure that we’re reaching many of the folks who might most benefit. A number of professionals responded with offers of assistance and intriguing ideas. I’d like to thank, especially, Hedda Nadler, Graham Thomas, Barry Portugal, Diane Hettwer and others for spending time talking and thinking with us. As the start-of-year craziness at the college recedes, we’ll try to move forward with some of the ideas.

We also offered folks to meet with Charles to learn more about MFO, the MFO Premium screeners and his careful and rigorous approach to portfolios. We’re pleased that dozens of people joined in one of his web-based discussions (I hate the word “webinar”). We’re delighted to let you know that you still have an opportunity to learn from him. He’s attending the Morningstar ETF Conference on our behalf and he’s willing to host another online exchange with readers as we integrate even more tools to the site. If you’re interested in either opportunity, drop Charles a note and let him know.

Finally, thanks to the folks who provide financial support for our remarkably low-key operations; We’re looking at you, Brian, Deb, and Greg!

As ever,


Ruminations at Summer’s End

By Edward A. Studzinski

Silence is the most perfect expression of scorn.

                                 George Bernard Shaw

Book Review

David Snowball recently asked if I would have any interest in reading Joel Tillinghast’s (Fidelity Low-Priced Stock Fund) new book entitled Big Money Thinks Small. While I am usually reluctant to read what often end up being collections of anecdotes about how smart someone was, the fact that it had been published by Columbia Business School Publishing overcame my initial reluctance. Much to my surprise, I enjoyed the book immensely, and found it to be a very thoughtful work. Let me first say that I do not know Mr. Tillinghast, other than by reputation. However, I have served on committees with people who do know Mr. Tillinghast and have worked with him. They are uniform in their praise of him both as an investor and as an individual. He is a true polymath with almost total recall. And unlike many who content themselves with a formulaic approach to investing, e.g. mean reversion, he seeks to understand the quality of a business, the numbers supporting the business, and the character, intelligence, and integrity of management. Two chapters in particular I would recommend to all are “Gamblers, Speculators, and Investors” and the last chapter entitled “Two Paradigms” which speaks of the convergence of the philosophies of John Bogle and Warren Buffett. Given my view that the investment management business, especially at the top, is increasingly populated by narcissistic sociopaths, it is refreshing to find someone like Joel Tillinghast who is thought of as a genuinely nice man who happens to be an outstanding investor. I highly recommend the book.

Meltdown of the Managers

As August ended, we had the juxtaposition of two events in Chicago. One was the announced closing of Holland Capital Management by year-end, an investment firm with a long history and still $2.5B of assets under management. The second was the story that ran in Bloomberg News this week quoting John Rogers of Ariel Capital Management as saying that in response to pressure from his fund trustees, the fees on several of the firm’s mutual funds would be reduced. The trustees wanted the fees to be at the industry average or lower for the fund category. Rogers indicated that the fee cuts were critical in an environment where institutional clients were moving their assets to either passive indexed products or exchange traded funds.

We have spoken a lot in the past about fees, perhaps ad nauseam. The response we have seen to the fee pressure, from a number of firms such as Fidelity, has been to hatchet costs so as to maintain profit margins on the investment products. A side issue is that over the years, there have been a lot of hidden levers providing an additional kick to the profit margins. Research for years could be purchased with commission dollars, known as soft dollars. And before that, many firms had their own brokerage operations where they were running trades, representing that they were meeting their fiduciary responsibilities for best execution, but in reality, juicing up their own profits. It was not unusual, as a fiscal year drew to a close, to see a chief executive officer in the trading room, flogging the traders to run more business through the owned brokerage operation before fiscal year-end. Those practices have been regulated away. And now of course, we have the unbundling of commissions and research, with brokerage firms charging hard dollars for their research (we will leave aside for the moment the question of whether institutional research is worth anything these days, recognizing that the sell side firms have gone through their own cost-cutting exercises, getting rid of years of institutional memories in their analyst resources to replace them with kids with computers and spreadsheets). All that notwithstanding, the money management business is still a very good business, perhaps almost as good as the tobacco or spirits businesses in terms of margins. It begs the question though as to whether like tobacco, the 1940’s Act mutual fund is outdated AND harmful to the user. I suspect my colleague Charles might say it is, and the exchange-traded fund is the better next generational product. I don’t know myself. I think there are interesting questions and arguments on both sides.

What I do know is that, whether we are talking about money management firms in Boston, Chicago, or New York, I hear a lot about toxic working environments, where analysts and portfolio managers spend much of their time at work being afraid and worrying about internal politics. One marketing executive I spoke to talked about the annual review process where she related the constant fee pressure from the clients (as John Rogers has now publicly confirmed), only to be told that the responsibility of the marketer was to bring in the assets regardless of the environment. So while I am a fan of active management and think it will have its day, unfortunately I think too many active managers are faced with the job security question which requires them to be fully invested to the last penny. And woe unto them if they question the valuation of the investments they are putting client money into (at the same time as they are restricting their own equity investments).

Regenerative Virginity

When you look at the groupings of mutual fund trustees, you find a category of insider trustees (connected to the management firm) and another category of outside independent trustees. One of the most magical processes is that by which an insider management trustee becomes independent under the rules, merely with the passage of time, to wit, three years. Think of it – you have an insider who was a senior executive at the parent fund company, where he has made millions of dollars for himself. He has acquired many of the firms under the umbrella of the parent company, so he knows a lot about valuing fund companies and the vagaries of dealing with investment personnel. He knows how profitable the business is, and how long the payback on the original purchase prices of firms tends to have been. He has set up share plans, which provide for the transfer of equity interests from senior personnel to junior personnel through the repatriation of share units at retirement. He is aware of the compensation processes and abilities of all of the key personnel at the fund company whose funds of which he is now a trustee. After three years, he gets to be declared an independent trustee and say that he knows nothing about the business at any level. For that he gets paid hundreds of thousands of dollars a year, paid for by the shareholders of the funds. Is this a great country or what?

On another note, no wonder that Brian Winterflood, who founded Winterflood Securities in London, feels that most “managers just want your money upfront for a fee.” And he would say that many managers at this juncture are overhyped investors whose results don’t justify the fees being charged.

To circle back to Mr. Tillinghast, more often than not, under the pressure of keeping assets, we are increasingly finding money management firms committing other people’s money on the basis of sloppy research, which leads to “reckless speculation” and “risky investments.”

Historically Low Volatility

By Charles Boccadoro

“Experts often possess more data than judgment.”

Colin Powell

The S&P 500 closed August yesterday with an annualized standard deviation below 6%. Typically, since about 1940, which marked the end of The Great Depression, annualized standard deviation runs between 13 and 14%. It was the second consecutive month to break the 6% threshold; in fact, only five times has volatility remained this low for consecutive months: 1964, 1993, 1995, 2006 and 2017.

Another depiction highlighting just how infrequent these low volatility periods have been is presented in the following histogram, which shows percent occurrence (or frequency) of this volatility measure. The occurrence of S&P 500 annualized standard deviation below 6% is 2.7%, or just 25 times out of the 921 rolling 12 month periods analyzed. That is substantially less than high volatility occurrences of say above 24%, which investors experienced circa 1974, 1987, and 2008.

Such low volatility can skew fund performance ratings based on risk adjusted returns, like Sharpe ratio, which is defined as excess return divided by standard deviation. When the denominator approaches zero, Sharpe values explode (the mathematical term is “behaves hyperbolically”) and small differences can drive big changes in ratings. Morningstar avoids this situation with their “expected utility theory” ratings methodology, as we described previously in Morningstar’s Risk Adjusted Return Measure. The downside in its approach is the methodology generally penalizes funds with high volatility more so than it rewards funds with low volatility.

The current low volatility environment has had an even greater impact on downside volatility measures, like downside deviation, maximum drawdown, and ulcer index. (For definitions, please reference: A Look at Risk Adjusted Returns.)

Month ending August 2017, the S&P 500’s downside deviation dropped below 2% for the second consecutive month. The last time we experienced multiple months below 2% were in 1959, 1964 and 1996.

Investors became extremely sensitive to measures like maximum drawdown after experiencing massive retractions in 2002 and 2009, which resulted in many monthly retirement statements showing 50% or less life savings than just a couple years earlier. Maximum drawdown levels today? Once again, they are historically low based on 12-month evaluation periods, month ending August, across 77 years, from September 1939 through August 2017.

The current 12-month value is just -1.8%. Only five times does this metric get above -2% (zero being highest possible … no drawdown): 1955, 1959, 1964, 1985 and 2017. It’s never repeated the following year.

The Land of the Investment Dervishes

By David Snowball

America’s best-selling poet is a Muslim theologian who died 750 years ago. Jalal ad-Din Muhammad Rumi (alternately, Mevlana Jalaluddin Rumi) is not only namesake to Beyonce’s new child, but also founder of Sufism, a branch of Islam. Sufism is both mystical and ecstatic. Rumi was given to a whirling dance that reflects the boundless joy and energy that overwhelms a believer; it helped believers express and achieve ecstasy, was codified by his son and practiced by dervishes, literally “poor monks.” They became famous as whirling dervishes, who spun with an almost unhuman grace, energy and tenacity.

I thought of them as I read of Turner Investment Partners recent announcement of the closure of their last three actively-managed mutual funds. Turner was founded in 1990 was renowned for their aggressive style of growth investing, primarily in smaller U.S. firms. But those haven’t been the only arrows in the Turner quiver. Here’s a quick quiz: which of the following is a fund that Turner hadn’t already launched and liquidated?

  • Turner Core Growth 130/30: 130/30 funds were all the rage in the mid2000s despite being a dumb idea. Turner closed theirs in 2008.
  • Turner Global TMT: only half-credit here. Global TMT was one of Turner’s hedge funds. It builds on the tradition of Turner Wireless & Comm which dropped 81% in its last year of existence, 2001, and was merged into their B2B internet fund. Remember those?
  • Turner Market Neutral: nope, they ran a decent market neutral fund through 2014 but drew only $3 million in assets.
  • Turner Shariah-compliant Growth: ding, ding, ding! Two outside investors, including “His Excellency Abdul Jabbar Al Sayegh of Abu Dhabi, Chairman and Chief Executive of Al Sayegh Brothers Group of Companies,” praised Turner’s global growth strategy for both its high quality and compatibility with a Sharia-compliant portfolio, but the firm never launched a fund dedicated to the strategy.
  • Turner Core High Quality Fixed Income Fund: nope, they had a series of sub-advised conservative fixed-income funds, including this one and several short-term bond funds, around the turn of the century.

Turner was founded at a time when a number of very smart, very ambitious managers all looked to become The Next Ned Johnson. Dick Strong aspired to the role. Tom Marsico, Bill Nasgovitz, Jim Oberweis and Garrett van Wagoner likely did.

And, most plausibly, so did Rob Turner. You get a sense of Turner’s drive and ambition not by looking at the funds they’re liquidating, but at all of the Turner funds that have preceded them. After a long slog through the SEC Edgar database, I think this is a nearly-comprehensive roster.

Turner All Cap Growth Fund

Turner B2b-Ecommerce Fund

Turner Concentrated Growth Fund

Turner Core Growth 130/30 Fund

Turner Core High Quality Fixed Income Fund

Turner Emerging Growth Fund

Turner Emerging Markets Fund

Turner Future Financial Services

Turner Global Opportunities Fund

Turner Global Top 40 Fund

Turner International Growth Fund

Turner Large Cap Growth Fund

Turner Large Growth Fund

Turner Market Neutral Fund

Turner Medical Sciences Long/Short

Turner Micro Cap Growth Fund

Turner Midcap Equity Fund

Turner Midcap Growth Fund

Turner New Enterprise Fund

Turner Quantitative Broad Market Equity Fund

Turner Quantitative Large Cap Value Fund

Turner Short Duration Government Funds: – Three Year Portfolio

Turner Short Duration Government Funds: – One Year Portfolio

Turner Small Cap Equity Fund

Turner Small Cap Growth Fund

Turner Spectrum Fund

Turner Strategic Growth Fund

Turner Tax Managed Us Equity

Turner Technology Fund

Turner Titan Fund

Turner Titan Long/Short

Turner Top 20 Fund

Turner Ultra Large Cap Fund

And now, we turn turn turn to the next Turner: in the past 10 years, Turner lost 99% of its assets under management (“Two Fallen Fund Firms Merge,” Barron’s); dozens of funds have come and gone; active funds are out, ETFs are in; “quantitative” is out, “multifactor” is in. They added European funds and Middle Eastern investors, filed for an IPO, withdrew the filing for the IPO, cut bonuses, sued departed employees, merged with one firm and acquired two more.

Turner acquired Elkhorn Capital Group in August, 2017. Elkhorn’s founder drove a major move into ETFs at his previous employer, the Invesco Powershares, but has had minimal market success with Elkhorn’s ETFs. Elkhorn gives Turner quick entre into ETFs, Turner gives Elkhorn is brand name and marketing muscle. “Turner was introduced to us as they were going through a metamorphosis,” according to Elkhorn’s Ben Fulton.

It will be fascinating and instructive. Joseph Schumpeter celebrated capital’s “gale of creative destruction,” it’s penchant for blowing away what used to work in order to clear space for what might work next. It’s clear that Turner’s previous reinventions availed little; perhaps this one will finally give the industry an example of their future.

Or, perhaps, the whirling dancers will finally fall. Stay tuned.

Centerstone Investors (CETAX/CENTX), September 2017

By David Snowball

Objective and strategy

Investors Fund seeks long-term growth by investing, primarily, in an all-cap global equity value portfolio though there’s no formal limit on its ability to hold fixed-income securities, including private placements. The manager’s value discipline leads him to higher-quality firms whose stocks are selling at a discount to his assessment of their intrinsic value. As the stresses on the firm rise, so does the size of the discount he demands. The goal is to also invest with a margin of safety, which might also lead the fund to hold substantial amounts of cash when attractive and attractively-priced opportunities are not available. As of June 30, 2017, cash and cash surrogates comprise 26% of the portfolio. The manager expects to keep at least 15% of the portfolio in international stocks and typically 30% there; currently it’s 45%. Up to 20% of the portfolio may be invested in high-yield bonds and up to 10% in precious metals. Currently those comprise 1.5% and 3% of the portfolio, respectively. The manager can hedge his currency exposure but is not required to do so; currently, about 20% of currency exposure is hedged.


Centerstone Investors Trust, which is headquartered in New York. Centerstone advises only the two Centerstone funds (Investor and International). That’s reasonably distinctive but most advisers divide their time and attention between public vehicles and private accounts. As of June 30, 2017, they had approximately $220 million assets under management.


Abhay Deshpande. Mr. Deshpande is Centerstone’s founder & CIO. He is best known for his work at First Eagle Investment Management, where he helped successfully manage most of $100 billion. He joined First Eagle in 2000, first as an analyst, then as a manager for private accounts and finally as manager on a number of high-profile funds. From September 2007 through October 2014, his charges included First Eagle Global, First Eagle Overseas and First Eagle US Value. Prior to First Eagle, he worked as a research analyst with Harris Associates, adviser to the Oakmark Finds, and as a Morningstar fund analyst. He is supported by a three person analyst team.

Strategy capacity and closure

Mr. Desphande estimates total firm capacity of less than $10 billion, but that’s not isolated to one particular strategy.

Management’s stake in the fund

Mr. Desphande has invested more than $1 million in each of the Centerstone funds. As of July 15, 2017, the trustees and officers, as a group, beneficially owned 8.0% of the Investors Fund’s outstanding shares and Mr. Deshpande, personally, owned 7.8%. All three of Centerstone’s independent directors have substantial investments in the fund, which is both rare and important.

Opening date

May 3, 2016.

Minimum investment

The minimum initial investment for Class A shares, Class C shares and Class I shares is $2,500, $2,500 and $100,000, respectively ($1,000, $1,000 and $100,000 for IRAs and other retirement plans, respectively).

Expense ratio

1.41% for “A” shares and 1.16% for “I” shares on assets of $194.1 million. 


Centerstone Investors first thirteen months of operation were perfectly respectable. Here’s the snapshot for the period from June 2016 through July 2017.

  Annual return Max drawdown Recovery, in months Standard deviation Downside deviation Ulcer Index Sharpe ratio
CENTX 11.0 -2.6 4 4.1 1.9 0.9 2.57
Flexible portfolio peers 10.6 -2.7 5 4.8 2.3 1.0 2.21

You could summarize that chart with the phrase, “modestly higher returns, modestly lower volatility, perfectly respectable profile.” Mr. Deshpande’s own summary (6/302017) was “respectable absolute returns while holding up reasonably well in those admittedly few moments of market weakness.”

“It’s our intention,” says Mr. Deshpande, “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 core of that risk management strategy is the pursuit of a margin of safety, which is manifested both in his demand that a stock’s discount to intrinsic value be more than proportionate to its potential challenges and in his willingness to hold a lot of cash in the absence of compelling opportunities in the market. His current 25% cash stake and substantial underweight of US equities speaks to his sense of a market that needs to be approached with special care.

You might reasonably ask yourself, “How did ‘respectable’ turn into $175 million in inflows during a time when almost every other active manager saw money flowing out?”

The short answer is that sophisticated investors have come to have faith in manager Abhay Desphande and his absolute value discipline. Mr. Deshpande worked on the singularly-splendid First Eagle Global (SGENX) fund for 14 years, the last six of them as co-manager. He spent a chunk of that time working alongside the fund’s legendary manager, Jean-Marie Eveillard and eventually oversaw “the vast majority” of First Eagle’s $100 billion. SGENX has a five star rating from Morningstar but was downgraded from Silver to Bronze as a result of Mr. Deshpande’s departure. Given that he is applying the same discipline here as he did there, the faith of investors is understandable.

The only troubling aspect of the fund is its archaic share class structure. “C” shares were a bad idea from inception, now they’re a bad idea and a fossil. Load-waived versions of the “A” shares do not seem widely available; presumably smaller advisors need to seek out waivers for the fund’s institutional minimum. There’s neither Investor nor Advisor share classes. For no clear reason, Scottrade offers CENTX, the institutional shares, for just $100 while Schwab has the same shares for $100,000. That’s potentially significant, not just for the hassle is represents, but also because it raises the possibility of a business model not as expertly crafted as the firm’s investment model.

Bottom Line

We are, Mr. Deshpande notes, “business analysts, not equity analysts” and “investors,” not speculators. That speaks to an important orientation: a focus on the real economy and the real companies that comprise it, not just on the vagaries of tradable paper. It’s reflected in Mr. Deshpande’s calm and studied demeanor and in his fund’s patient insistence on real value rather than relative value. Those elements explain both his long-term success and the hard-earned faith of his investors. If, as an investor, you prefer substance and constancy over flash and show, you would be well-advised to place Centerstone Investors on your due diligence list.

Fund website

Centerstone Investors

Launch Alert: Driehaus Small Cap Growth (DVSMX)

By David Snowball

On August 21, 2017, Driehaus Capital launched Driehaus Small Cap Growth (DVSMX/DNSMX). There’s reason to pay attention.

The fund will target U.S. small cap (sub $6 billion market cap) growth stocks. The “name rule” obliges them to keep at least 80% in small caps; they allow that the other 20% might be in international stocks that trade on U.S. exchanges or larger cap equities. As is common with Driehaus, it’s a growth-centered fund likely with a fairly high portfolio turnover rate.

They’re attempting to find “fundamentally strong companies,” which obliges them to evaluate the company’s competitive position, industry dynamics, potential growth catalysts and its financial strength. They also account for comparative stock valuations and external factors (behavioral and macro-economic) likely to impact the firm’s stock price.

Driehaus Small Cap Growth Fund was created by the merger the Driehaus Institutional Small Cap, L.P., Driehaus Small Cap Investors, L.P., Driehaus Institutional Small Cap Recovery Fund, L.P. and Driehaus Small Cap Recovery Fund, L.P., which were managed by the same investment team using about the same strategy. Like the new fund, the limited partnerships were just some of the vehicles for the strategy. Overall, Driehaus manages more than $200 million in the small group growth strategy. The record of that strategy composite, the combined performance of all of the vehicles following it, points to a couple conclusions.

First, the strategy has been successful.

Second, the strategy has been independent. The three-year active share calculation against the Russell 2000 Growth Index is 85.42. As I scan the active share graph from 2008-2015, it appears that active share is never below 80, which indicates a high degree of independence from its benchmark.

The strategy has volatility that’s modestly higher than its benchmarks (beta of 1.05) but returns with was substantially higher (alpha of 3.22), which means it’s got a strong risk-return profile. Driehaus’s analysis of rolling five-year returns shows that the outperformance is “fairly consistent throughout the strategy’s history.” While the strategy is not the fund per se, the strategy’s performance should give you a good insight into what the fund brings to the table.

The fund is managed by Jeffrey James and Michael Buck. Mr. James is the portfolio manager for the Micro Cap Growth, Small Cap Growth and Small/Mid Cap Growth strategies. He began his career with Lehman Brothers, had a six year stint at the Federal Reserve Bank of Chicago and joined Driehaus in 1997. Mr. Buck, the assistant portfolio manager, is also a senior micro- and small-cap analyst with responsibility for the consumer discretionary, consumer staples and financials sectors. The portfolio team includes six analysts and a dedicated risk manager.

The fund begins life with about $37 million in assets, of which $36 million are in the institutional shares. The minimum initial investment in the Investor share class is $10,000, Institutional is $500,000.  The opening expense ratios are 1.20% and 0.95%, respectively.

The Driehaus Small Cap Growth homepage is, as yet, thin on content but it does offer the essential information. Readers interested in understanding the underlying strategy will find a lot of useful information linked to the Driehaus Small Cap Growth strategy page.

Funds in Registration

By David Snowball

Wow. Finally, a lot of intriguing new investment opportunities. David Sherman, whose RiverPark Short-Term High Yield (RPHYX) fund has both a one-star rating and the universe’s best Sharpe ratio (by a lot) over the past five years, is launching a CrossingBridge Low Duration. Polen Capital, which runs three splendid funds – large growth, global and international – is adding a small cap offering. Thrivent, which has very solid, low-profile funds, offers up a no-load, no-minimum international fund with 0.09% expenses. And Mark Wynegar, whose Tributary Small Company Fund (FOSCX) has a great record for low risk, low turnover, low drama performance, adds a small-to-midcap fund to his portfolio.

And, oh yeah, you can also track price changes in bitcoin now without actually buying a bitcoin.

CrossingBridge Low Duration High Yield Fund

CrossingBridge Low Duration High Yield Fund will seek high current income and capital appreciation consistent with the preservation of capital. The plan is to invest in corporate bonds, zero-coupon bonds, commercial paper, ETNs, distressed debt securities, bank loan assignments, private placements, mortgage- and asset-backed securities, government bonds, and corporate bank loans. They’ll target a duration of three years or less, depending on conditions. They can invest, without limit, in 144A private placements. The fund will be managed by David K. Sherman, President of CrossingBridge Advisors, and Michael DeKler. That’s the same winsome David K. Sherman who serves as president of Cohanzick and manages two very fine fixed-income funds for RiverPark. Investor shares, with an initial expense ratio of 1.75% and $2500 minimum are authorized by the prospectus but will not be immediately available. Institutional shares will carry a 1.47% e.r. and $250,000 minimum.

CrossingBridge Tactical Credit Fund

CrossingBridge Tactical Credit Fund will seek absolute total returns over a complete market cycle. The plan is to invest long and short in a global fixed-income portfolio. The fund will be subadvised by Pinebank Asset Management, with day-to-day management by Oren M. Cohen. Mr. Cohen is also a principal at, and portfolio manager for, Cohanzick. Investor shares, with an initial expense ratio of 1.27% and $2500 minimum are authorized by the prospectus but will not be immediately available. Institutional shares will carry a 0.99% e.r. and $250,000 minimum.

Harbor High-Yield Opportunities Fund

Harbor High-Yield Opportunities Fund will seek total return. The plan is to buy junk bonds issued by high-quality corporations. The selection process is risk-sensitive, credit-sensitive, rigorous and comprehensive, with a dash of “flexible and opportunistic.” The fund will be managed by John A. Fekete of Crescent Capital Group who, the prospectus helpfully informs us, “began his career in 19XX at Philadelphia-based CoreStates Bank.” What a coincidence! I began my career at Augustana College in 19XX, too! The initial expense ratio is 1.10% for Investor shares and 0.66% for Retirement shares. The minimum initial investment will be$2,500.

JOHCM Global Income Builder Fund

JOHCM Global Income Builder Fund will seek a level of current income that is consistent with the preservation and long-term growth of capital in inflation-adjusted terms. The plan is to build a flexible, global, multi-asset portfolio. The portfolio manager hasn’t been named. The initial expense ratio is 0.89% for Institutional shares whose minimum initial investment will be $1,000,000. I mention the fund for two reasons: (1) JOHCM does good work and (2) two other share classes, with higher expenses and presumably lower minimums, are authorized by the portfolio even though they might not be initially offered.

PhaseCapital Dynamic Multi-Asset Growth Fund

PhaseCapital Dynamic Multi-Asset Growth Fund will seek long-term capital growth. The plan is to manage a global, unconstrained, multi-asset portfolio guided by “a disciplined, risk-based tactical risk management allocation methodology.” I guess I’m reassured that their risk management allocation methodology is risk-based. The fund will be managed by Michael DePalma and Michael Ning of PhaseCapital LP. The initial expense ratio hasn’t been disclosed and the minimum initial investment will be $1,000.

Polen U.S. Small Company Growth Fund

Polen U.S. Small Company Growth Fund will seek long-term growth of capital. The plan is to identify high quality small companies (“consistent and sustainable high return on capital, vibrant earnings growth, robust free cash flow generation, strong balance sheets and competent and shareholder-oriented management teams”) then buy their stock. The fund will be non-diversified. The fund will be managed by Tucker Walsh, the Head of the Small Company Growth Team at Polen. The initial expense ratio is 1.50% and the minimum initial investment will be $3,000, reduced to $2,000 for IRAs and accounts established with an AIP.

REX Bitcoin Strategy Fund

REX Bitcoin Strategy Fund will seek provide investors with long exposure to the price movements of bitcoin. The plan is “to directly or indirectly in an actively managed portfolio of financial instruments providing long exposure to movements in the value of bitcoin, together with an actively managed portfolio of fixed income instruments.” (sigh) The fund will be managed by Denise M. Krisko of Vident Investment Advisory. Neither the initial expense ratio nor the minimum initial investment have been disclosed.

Thrivent Core International Equity Fund

Thrivent Core International Equity Fund will seek long-term capital appreciation. The plan is to invest, primarily, in international mid- to large-cap stocks. The fund will be managed by Noah J. Monsen, and Brian W. Bomgren of Thrivent Financial. The initial expense ratio is 0.09% and the minimum initial investment will be $50.

Tributary Small /Mid Cap Fund

Tributary Small /Mid Cap Fund will seek long-term capital appreciation. The plan is to ask you to trust the managers; the disclosed strategy is to buy small- and mid-cap stocks that are selling for less than what they’re worth. The fund will be managed by Mark Wynegar and Donald Radtke. Mr. Wynegar also co-manages the very fine Tributary Small Company fund. In our profile, we described it as a fund “that gets the job done, quietly and well, year after year.” For the “Institutional” shares, the initial expense ratio is 1.24% and the minimum initial investment will be $1,000. Why call retail class “institutional”?  My recollection is that it’s a corporate legacy: they had another “institutional” fund and found cause to reduce its minimum is $1,000. Now, by default, the $1,000 share class is “Institutional” and the $5 million share class is “Institutional Plus.”

VanEck Morningstar Wide Moat Fund

VanEck Morningstar Wide Moat Fund will seek track the Morningstar Wide Moat Index. Van Eck already runs an ETF (MOAT) that tracks the same index. The fund will be managed by Peter Liao. The initial expense ratio has not been disclosed (the ETF’s is 0.49%) and the minimum initial investment will be set by the intermediary rather than the adviser.

WCM Alternatives: Credit Event Fund

WCM Alternatives: Credit Event Fund will seek attractive risk-adjusted returns, through a combination of current income and capital growth, independent of market cycles. The plan is to build a fixed-income portfolio around “special situations” securities: capital structure arbitrage, merger and acquisitions, spin-offs, credit restructurings, IPOs of debt, re-financings, debt maturities, asset monetizations, and other restructurings. The fund will be managed by Roy Behren, Michael Shannon, and Steven Tan of Westchester Capital Management. The initial expense ratio hasn’t been disclosed and the minimum initial investment for “Investor” shares will be $1,000.

Manager changes, August 2017

By Chip

This month saw partial or complete manager changes at 57 funds. The most consequential occurred at American Beacon Holland Large Cap Growth Fund, following the decision by Holland Capital Management to close after a long and honorable run. That team’s departure occasions a change in the fund’s strategy as well as in its management.

As to the other 56 funds … meh. In the case of Cornerstone Advisors Global Public Equity, which saw the departure of one of 47 managers from one of 14 sub-advisers, the change doesn’t even rise to the level of “meh.” (Nice fund, though.)

Ticker Fund Out with the old In with the new Dt
REPOX AAAMCO Ultrashort Financing Fund Robert McDonough will no longer serve as a portfolio manager for the fund. The fund is not even three months old. Sean Kelleher and Yung Lim will continue to manage the fund. 8/17
GOPAX Aberdeen China Opportunities Fund Frank Tian is no longer listed as a portfolio manager for the fund. Hugh Young, Nicholas Yeo, Flavia Cheong, Kathy Xu, and Nicholas Chui will continue to manage the fund. 8/17
ACDJX AC Alternatives Disciplined Long Short Fund No one, but . . . Tsuyoshi Ozaki has joined Yulin Long in managing the fund. 8/17
ACOIX AC ONE China Fund Institutional Class Wonmyoung Lee is no longer serving as a portfolio manager of the fund. Woon Sang Baik, Patrick Pascal, Frederick Ruopp, Sr., and Frederick Ruopp, Jr. will continute to manage the fund. 8/17
ABFAX American Beacon Balanced Fund Effective February 28, 2018, John Williams will retire from his position as a portfolio manager. The rest of the extensive team remains. 8/17
LHGFX American Beacon Holland Large Cap Growth Fund, which will renamed as the American Beacon HSMP Quality Growth Fund As a result of the closing of Holland Capital, Monica Walker and Carl Bhathena are out. Harry Segalas will manage the renamed fund. 8/17
ABMAX American Beacon Mid-Cap Value Fund Eli Rabinowich will no longer serve as a portfolio manager for the fund. Ben Silver will join Richard Pzena and John Flynn in managing the fund. 8/17
ADSIX American Century Disciplined Growth Fund Lynette Pang has not managed the fund since May. Tsuyoshi Ozaki has joined Yulin Long in managing the fund. 8/17
MECIX AMG Managers Cadence Emerging Companies Fund Stephen Demirjian will no longer serve as a portfolio manager for the fund. Robert Fitzpatrick, Michael Skillman, and Robert Ginsberg will continue to manage the fund. 8/17
MCMAX AMG Managers Cadence Mid Cap Fund Stephen Demirjian will no longer serve as a portfolio manager for the fund. Robert Fitzpatrick, Michael Skillman, and Robert Ginsberg will continue to manage the fund. 8/17
BDFFX Baron Discovery Fund Cliff Greenberg, who used to be listed as the “portfolio manager advisor,” will no longer serve in that role. Laird Bieger and Randolph Gwirtzman will continue to manage the fund. 8/17
BGCAX BlackRock Global Long/Short Credit Fund Michael Phelps announced his plans to leave BlackRock, Inc. on December 31, 2017. Jose Aguilar, Stephen Gough and Carly Wilson have been added as portfolio managers of the fund, joining Mssr. Phelps and Joshua Tarnow. 8/17
CCBAX City National Rochdale Corporate Bond Fund Effective immediately, William Miller is no longer a portfolio manager of the fund David Krouth will continue to manage the fund. 8/17
RIMOX City National Rochdale Fixed Income Opportunities Fund Effective immediately, William Miller is no longer a portfolio manager of the fund The other 14, or so, managers remain. 8/17
RIMCX City National Rochdale Intermediate Fixed Income Fund Effective immediately, William Miller is no longer a portfolio manager of the fund David Krouth will continue to manage the fund. 8/17
CAGLX Cornerstone Advisors Global Public Equity Fund Mark Wilkerson no longer serves as a portfolio manager of the fund. The other 46(!!!!) managers remain. They are joined by Justin Kass. 8/17
CAIOX Cornerstone Advisors Income Opportunities Fund Mark Wilkerson no longer serves as a portfolio manager of the fund. The other 10 managers remain. They are joined by Justin Kass. 8/17
CAALX Cornerstone Advisors Public Alternatives Fund Mark Wilkerson no longer serves as a portfolio manager of the fund. The other 17 managers remain. They are joined by Justin Kass. 8/17
CAREX Cornerstone Advisors Real Assets Fund Mark Wilkerson no longer serves as a portfolio manager of the fund. The other 8 managers remain. They are joined by Justin Kass. 8/17
DFDSX DF Dent Small Cap Growth Fund Austin Root is no longer a portfolio manager of the fund.  Matthew Dent and Gary Wu will continue to manage the fund. 8/17
FCNIX Fidelity Advisor Consumer Discretionary Fund Peter Dixon no longer serves as manager of the fund. Katherine Shaw has taken over management of the fund. 8/17
FDYIX Fidelity Advisor Global Strategies Fund Chris Sharpe will no longer serve as a portfolio manager for the fund. Geoffrey Stein will now manage the fund. 8/17
FBALX Fidelity Balanced Fund Peter Dixon no longer serves as co-manager of the fund. The rest of the team remains. 8/17
FCUTX Fidelity Flex Small Cap Fund Eirene Kontopoulos, Morgen Peck, and Shadman Riaz no longer serve as co-managers of the fund, after less than six months of service. Clint Lawrence joins Richard Thompson and Patrick Venanzi on the management team. 8/17
FIGFX Fidelity International Growth Fund No one. But, current manager Jed Weiss is on a leave of absence. Vincent Montemaggiore will serve as an interim portfolio manager during Mssr. Weiss’ leave. 8/17
FSCOX Fidelity International Small Cap Opportunities Fund No one. But, current manager Jed Weiss is on a leave of absence. Patrick Buchanan and Patrick Drouot have been named interim co-managers of the fund. 8/17
FSCPX Fidelity Select Consumer Discretionary Sector Peter Dixon no longer serves as portfolio manager of the fund. Katherine Shaw has taken over management of the fund. 8/17
FDLSX Fidelity Select Leisure Portfolio No one, but . . . Becky Painter has joined Katherine Shaw in managing the fund. 8/17
FTIEX Fidelity Total International Equity Fund No one. But, current manager Jed Weiss is on a leave of absence. Vincent Montemaggiore will serve as an interim co-portfolio manager during Mssr. Weiss’ leave, joining Alexander Zavratsky and Sammy Simnegar. 8/17
FPPTX FPA Capital Fund Dennis Bryan is out after 10 years.  Effective October 1, 2017, Arik Ahitov will be the sole portfolio manager of the fund. 8/17
HVOAX Hartford Value Opportunities David Palmer and James Mordy will no longer serve as portfolio managers for the fund. The fund’s new portfolio manager will be Matthew  Baker 8/17
IAUTX Invesco Dividend Income Fund No one, but . . . Meggan Walsh and Robert Botard have been joined by Kristina Bradshaw and Christopher McMeans on the management team. 8/17
JXBAX JPMorgan Access Balanced Fund Stephanie Sigler Gdula will be on leave from her portfolio management duties until January 2018. The remaining members of the team will manage the fund in Ms. Sigler Gdula’s absence. 8/17
JSGAX JPMorgan Access Growth Fund Stephanie Sigler Gdula will be on leave from her portfolio management duties until January 2018. The remaining members of the team will manage the fund in Ms. Sigler Gdula’s absence. 8/17
JFUAX JPMorgan Global Unconstrained Equity Fund Timothy Woodhouse will no longer serve as a portfolio manager for the fund. Alexander Stanic joins Sam Witherow in managing the fund. 8/17
OEIAX JPMorgan International Research Enhanced Equity Fund No one, at the moment. James Cook, who previously served as portfolio manager from September ’14 to March ’17, has returned to manage the fund with Demetris Georghiou and Piera Elisa Grassi. 8/17
LGCAX Lord Abbett Global Core Equity Fund Didier Rosenfeld and Frederick Ruvkun who’d co-managed the fund since its launch all the way back in January 2017, have moved on. Yarek Aranowicz will manage the fund. 8/17
LMGAX Lord Abbett Growth Opportunities Fund Anthony Hipple will no longer serve as a portfolio manager for the fund. David Linsen, who stepped in as an interim manager (for seven days!) will also no longer serve. Jeffrey Rabinowitz will now manage the fund. 8/17
LICAX Lord Abbett International Core Equity Fund Didier Rosenfeld and Frederick Ruvkun who’d co-managed the fund since March 2016, have moved on. Todd Jacobson will manage the fund. 8/17
LYRHX Lyrical US Hedged Value Fund Caroline Ritter and David Roeske will no longer serve as portfolio managers for the fund. Andrew Wellington will now manage the fund. 8/17
LYRIX Lyrical US Value Equity Fund Caroline Ritter and David Roeske will no longer serve as portfolio managers for the fund. Andrew Wellington will now manage the fund. 8/17
EPSIX MainStay Epoch Global Equity Yield Fund Effective October 31, 2017, Eric Sappenfield will no longer serve as a portfolio manager of the fund. Michael Welhoelter, William Priest, Kera Van Valen, and John M. Tobin will continue to serve as portfolio managers of the fund. 8/17
EPLIX MainStay Epoch U.S. Equity Yield Fund Effective October 31, 2017, Eric Sappenfield will no longer serve as a portfolio manager of the fund. Michael Welhoelter, William Priest, Kera Van Valen, and John M. Tobin will continue to serve as portfolio managers of the fund. 8/17
MTRAX MainStay Income Builder Fund Effective October 31, 2017, Eric Sappenfield will no longer serve as a portfolio manager of the fund. Michael Welhoelter, William Priest, Kera Van Valen, and John M. Tobin will continue to serve as portfolio managers of the fund. Dan Roberts, Michael Kimble, and LouisCohen will also continue to serve as portfolio managers for the portion of the Fund subadvised by MacKay Shields LLC. 8/17
LSEIX Persimmon Long/Short Fund Ward Davis and Brian Agnew are no longer listed as portfolio managers for the fund. Joshua Bennett, Daniel Brazeau, H. George Dai, Gregory Horn, Matthew Shefler, Arthur Holly, Ken Cavazzi, and Timothy Melly will now manage the fund. 8/17
PGSAX PIMCO Global Advantage Strategy Bond Fund Lupin Rahman is no longer listed as a portfolio manager for the fund. Andrew Balls and Sachin Gupta are joined by Pramol Dhawan in managing the fund. 8/17
POGAX Putnam Growth Opportunities Fund No one, but . . . Richard Bodzy joined Robert Brookby as an assistant portfolio manager. 8/17
PNOPX Putnam Multi-Cap Growth Fund No one, but . . . Richard Bodzy joined Robert Brookby as an assistant portfolio manager. 8/17
EUGIX Shelton Capital Management European Growth & Income Fund Stephen Rogers is no longer listed as a portfolio manager for the fund. Matthias Knerr and Andrew Manton will now manage the fund. 8/17
SIVIX State Street Institutional Small-Cap Equity Fund Effective immediately, Mike Cervi will no longer serve as a portfolio manager for the fund. Dennis Santos joins Robert Anslow, Scott Brayman, Michael Cook, Frank Latuda, David Wiederecht and Marc Shapiro in managing the fund. 8/17
DVIBX Transamerica Partners Balanced Matthew Buchanan is no longer listed as a portfolio manager for the fund. Sivakumar Rajan joins Brian Westhoff, Doug Weih, Bradley Doyle, and Tyler Knight on the management team. 8/17
USAUX USAA Aggressive Growth Fund Justin Kelly, Paul Marrkand, and Patrick Burton are out. John Jares, Craig Behnke, and John Toohey are in. 8/17
VINEX Vanguard International Explorer Fund No one, but . . . Magnus Larsson joins Matthew Dobbs and Simon Thomas in managing the fund. 8/17
VAESX Virtus KAR Emerging Markets Small-Cap Fund Hyung Kim is no longer listed as a portfolio manager for the fund. Craig Thrasher will continue to manage the fund. 8/17
VISAX Virtus KAR International Small-Cap Fund Craig Stone will no longer serve as a portfolio manager for the fund. Craig Thrasher will continue to manage the fund. 8/17
WGROX Wasatch Core Growth Fund No one, but . . . Michael Valentine joins J.B. Taylor and Paul Lambert in managing the fund. 8/17
WAAEX Wasatch Small Cap Growth Fund No one, but . . . Ryan Snow and Kenneth Korngeibel join Jeff Cardon and JB Taylor on the management team. 8/17


Briefly Noted

By David Snowball


PIMCO fee roulette. PIMCO is changing the advisory fees on a bunch of their funds, some up, some down, and some both. Here’s the snapshot:

PIMCO All Asset Fund (PASAX), management fees go up 0.05% for D shares.

PIMCO All Asset All Authority Fund (PAUAX) up 0.05% for D shares

PIMCO Total Return Fund (PTTAX) up 0.05% for D shares, down 0.05% for A shares.

PIMCO Unconstrained Bond Fund (PUBAX), down 0.11% for all asset classes.

PIMCO Income Fund (PIMIX) up 0.05% for Institutional, P, Administrative, A, C and R shares of the Fund and by 0.11% for D shares.

PIMCO Emerging Markets Corporate Bond Fund (PECZX), down by 0.05%

PIMCO Emerging Markets Full Spectrum Bond Fund (PFSIX), down by 0.05%.

I assume that net expenses will follow the advisory fee changes, since nothing in the filings said otherwise.

Briefly Noted . . .

Holland Capital Management is closing its doors. The firm, one of the industry’s few African American-owned and female-owned advisers, is winding down its affairs over the next six weeks. Holland Capital bears the name of Lou Holland, who co-founded the firm with Monica Walker in 1971 and led it until 2008. He retired after receiving an Alzheimer’s diagnosis, and succumbed to effects of the disease in March, 2016. Readers of a certain age will remember Mr. Holland for the two decades he spent as a regular on Louis Rukeyser’s Wall $treet Week. He was a quiet, plain-spoken, very smart guy.

The firm still manages $2.5 billion in assets, with just $95 million left in their flagship mutual fund, now called American Beacon Holland Large Cap Growth Fund (LHGFX), though its ticker reminds you that it was Lou Holland’s Growth Fund. In the years following Mr. Holland’s retirement, the fund continued to post entirely respectable returns, more than respectable if you take its risk-sensitivity into account.

My impression is that the fund simply saw the writing on the wall; small boutique managers are at a serious and worsening disadvantage when it comes to marketing their services. The unending bull market, which has convinced many institutional investment committees that “risk” is a largely outdated and overblown concern, compounds that challenge.


The advisers for Alambic Small Growth Plus Fund (ALGSX) have lowered the fund’s capped expense ratio from 1.20% to 0.95%. Alambic is a tiny, new microcap fund with really solid returns; it’s up about 30% since launch while its small-growth peers are up about 23%. I mention them not just because they’ve reduced their fees by a quarter, but also to highlight the cost that the managers of such funds bear. At its current size, Alambic costs nearly 9% per year to run. The managers charge one-tenth of that amount and write checks out of their own accounts to cover the rest.

American Beacon Holland Large Cap Growth Fund (LHGFX) is becoming American Beacon HSMP Quality Growth Fund, subsequent to which American Beacon will lower the fund’s sub-advisory fee.

Ariel Investments might be thinking about maybe beginning to roll back the fees it charges its investors, somewhat. According to a report at Bloomberg, founder John Rogers, is acceding to demands from his board to lower fees. He evinces no enthusiasm for the prospect and discussed neither magnitude nor timing.

Effective September 1, 2017, Causeway Capital Management lowered the management fee for Causeway Global Absolute Return (CGAVX) from 1.50% to 1.10%. The fund’s goal is “long-term growth of capital with low or no correlation to the MSCI World Index,” and Morningstar categorizes it as a market neutral fund. The fund has not achieved its first objective; over the past five years it has lost 0.39% annually, per Morningstar, 8/30/17) while its peer group has gained a largely-irrelevant 0.79%.

It has overachieved on the second objective. The fund actually sports a negative three- and five-year correlation with the ACI exUS global index. I’m not sure that a lower management fee will address the fund’s central challenge, but it’s certainly a good faith gesture.

Needham Growth (NEEGX), Needham Aggressive Growth (NEAGX) and Needham Small Cap Growth (NESGX) have all shed their redemption fees, as of August 25, 2017.

Effective August 25, 2017, the minimum initial investment for Class I shares of the RBC Diversified Credit (RBTRX), Global Opportunities (RGOIX), International Opportunities (RIOIX) and Small Cap Value (RSVIX) funds were lowered from $250,000 to $100,000.

Toreador International Fund (TMRFX) has converted its “C” class shares into “Investor” shares. “C” shares are a relic of the days when the primary challenge to funds with front-end sales loads was the rising tide of no-load mutual funds. In an attempt to have their cake and eat it too, fund companies began offering “C” shares which had no sales load but carried exorbitant expense ratios. I’m glad to see them go.

Effective September 11, 2017, Victory RS Small Cap Growth Fund (RSEGX) will reopen to all investors.

Wells Fargo Emerging Growth Fund (WEMAX) reopened to new investors in mid-August. Our database shows 127 small-growth funds that have been around for the entire market cycle; of those, Wells notched the 100th highest Sharpe ratio. I’d probably look at the 99 higher-rated funds first.

CLOSINGS (and related inconveniences)

Effective September 29, 2017, the Nationwide Small Company Growth Fund (NWSAX) will close to new investors. The fund carries a five-star rating but has only $217 million in assets.

Effective at the close of business, Friday, September 29, 2017, T. Rowe Price Global Technology Fund (PRGTX) will be closed to new investors and new accounts. Ummm … $5.3 billion in assets, top 1% returns over the past 3-, 5- and 10-year periods. It’s an MFO “Great Owl” fund, which means it has outperformed the vast majority of its peers in every trailing measurement period back to 2000. To be clear: it’s outperformed in rising markets, in falling markets, and across the entire market cycle.

Effective at the close of business on September 29, 2017, the TIAA-CREF Small-Cap Equity Fund (TCSEX) will close to new investors. It’s a fine fund (0.70% expenses, $2,500 minimum, stable management, good downside record), but there’s no real case for rushing in to it. Traditionally it has run a little ahead of its pack then, after four years ago, the lead began to widen. Much of its current three- and five-year performance advantage seem attributable to Q4/2016, when it rose by about 10% and its peers rose 3%.


On Halloween, 2017, the BlackRock Pacific Fund (MDPCX) will become Blackrock Asian Dragon. Not to cause unnecessary worry for the managers, but the adviser will make “certain changes to the Fund’s portfolio management team.” At the same time, BlackRock Global SmallCap Fund (MDGCX) becomes BlackRock Advantage Global Fund. And, again, certain changes are coming to the management team. Yup, there gonna be certain changes ‘round here.

Catalyst Intelligent Alternative Fund (ATRAX) becomes Catalyst Systematic Alpha Fund on November 1, 2017.

In one of the year’s oddest transformations, on September 15, 2017, Cavalier Dividend Income Fund (CDVDX) will become (wait for it!) the Nebraska Fund.

Morningstar, in one of a series of increasingly troubling glitches, apparently changed the fund’s name and ticker weeks before the change legally occurred, immediately and substituted a new name and ticker symbol, NEBIX. Any attempt to search “Cavalier Dividend Income” at Morningstar leads you to the warning, “The request could not be satisfied. Bad request.” (Indeed. Bad request. Bad, bad request!) If you Google the name, you can find the fund’s ticker. Enter the symbol in Morningstar’s search and you go to “page isn’t working” before it resolves to the Nebraska Fund.

And the Nebraska Fund? It will “invest primarily in common stocks of publicly-traded companies that either are domiciled in Nebraska or that have a significant local interest in Nebraska.”

Why? Oh, why not? It’s a fund with under $2 million in assets that’s recently appointed its 10th manager in five years. We wish them good luck finding a successful niche.

On September 17, 2017 Century Shares Trust (CENSX) and Century Small Cap Select Fund (CSMVX) will become Congress Large Cap Growth Fund and Congress Small Cap Growth Fund, respectively.

Shareholders of Cozad Small Cap Value Fund (COZAD) has been asked to approve reorganization of their fund into Oberweis Small-Cap Value Fund, likely during the fourth quarter of this year. The fund started life, in 2010, as a hedge fund and, in 2014, before a load-bearing mutual fund. This transaction, if approved, will turn it into a no-load mutual fund.

On or around October 23, 2017, Eaton Vance Short Duration Real Return Fund (EARRX) will rechristened Eaton Vance Short Duration Inflation-Protected Income Fund.

Around November 1, 2017, the Hartford Value Opportunities Fund (HVOAX) will be reborn as Hartford Quality Value Fund. In the process it will acquire a new name, new mandate and new management team; shareholders will acquire a new tax bill as the managers liquidate the old portfolio and build the new.

Horizon Spin-off and Corporate Restructuring Fund (LSHAX) has closed temporarily. The fund is metamorphosing into Kinetics Spin-Off and Corporate Restructuring Fund. Around September 18, 2017, a beautiful new butterfly will emerge from its chrysalis.

Effective November 1, 2017, JPMorgan Disciplined Equity Fund (JUEAX) becomes JPMorgan U.S. Research Enhanced Equity Fund.

The Rainier International Discovery Fund (RISAX) has been adopted by the Manning & Napier funds. From a shareholder’s perspective, nothing is changing except, perhaps, the address for correspondence. The fund is managed by Henrik Strabo, who began his fund career managing American Century International Discovery in 1994.

On or about October 27, 2017, UBS U.S. Large Cap Equity Fund (BNEQX) switches to UBS U.S. Sustainable Equity Fund because the advisor believes the new strategy will provide the Fund with a stronger market appeal than the Fund’s current strategy, differentiate the Fund from other passive and generic active large cap core products, and will be beneficial for current shareholders and future clients.”

As of November 9, 2017, Fidelity Core Dividend ETF (FDVV) will be renamed Fidelity High Dividend ETF.

On October 16, 2017, the Waddell & Reed funds become, en masse, Ivy funds. Here are the new names:

Equity Funds    
Waddell & Reed Advisors Core Investment Fund   Ivy Core Equity Fund
Waddell & Reed Advisors Dividend Opportunities Fund   Ivy Dividend Opportunities
Waddell & Reed Advisors Energy Fund   Ivy Energy Fund
Waddell & Reed Advisors Tax-Managed Equity Fund   Ivy Tax-Managed Equity Fund
Waddell & Reed Advisors Value Fund   Ivy Value Fund
Fixed Income Funds    
Waddell & Reed Advisors Bond Fund   Ivy Bond Fund
Waddell & Reed Advisors Global Bond Fund   Ivy Global Bond Fund
Waddell & Reed Advisors Government Securities Fund   Ivy Government Securities
Waddell & Reed Advisors Municipal Bond Fund   Ivy Municipal Bond Fund


On September 28, 2017, AllianzGI Global Megatrends Fund, AllianzGI NFJ Global Dividend Value Fund and AllianzGI Multi-Asset Real Return Fund will be liquidated and dissolved.

Cavanal Hill Multi Cap Equity Income Fund (APEQX) will liquidate on October 10, 2017. For reasons unclear to me, the board also voted to change its tax year end date from August 31 to July 31.

Delaware Asia Select Fund (DMAAX) will disappear in mid-October, 2017.

ETFMG ETFx HealthTech ETF (IMED, formerly the PureFunds ETFx HealthTech ETF) is now formerly ETFMG ETFx HealthTech ETF, having dissolved on August 31, 2017.

Frontier Netols Small Cap Value Fund (FNVSX) will merge into Frontier Phocas Small Cap Value Fund (FPVSX) on or about October 27, 2017.

Grant Park Managed Futures Strategy Fund (GPFAX) has closed to new investors and will merge into Grant Park Multi Alternative Strategies Fund (GPAAX) on or about September 22, 2017.

The Guggenheim Large Cap Optimized Diversification ETF (OPD) is teetering at the threshold between “irrelevant fund” and “former fund” (technically, it’s in “a liminal state”). The NYSE has notified the Trust that they’re in violation of Rule 5.5(g)(2)(a)(1) of NYSE Arca Equities, Inc. At base, fewer than 50 people are invested in the fund and they’re scrambling to outline a plan which will increase the number of shareholders. Ummm … you have a million in assets, virtually no shareholders and poor performance. I’d declare victory and shut off the lights.

On August 2, 2017, the Board of approved a Plan of Liquidation for the Hartford Schroders Income Builder Fund (SARVX), effective October 20, 2017.

Effective as of August 25, 2017, the Hays Tactical Multi-Asset Fund (HAZNX) closed, in anticipation of being liquidated on September 29, 2017.

The Health and Fitness ETF (FITS), a Janus fund, launched in June 2016, was a dumb idea, accumulated under $3 million in assets, accomplished little and will liquidate on October 2, 2017. The Obesity ETF (SLIM), launched the same day, was a dumb idea, has accumulated under $3 million in assets, and has returned10% since inception while its health care peers have returned 19%. The star of the show is The Organics ETF (ORG) which has ballooned to $9 million in assets and is modestly outperforming its benchmark. All three appear on the latest ETF Deathwatch.

Horizons USA Managed Risk ETF (USMR) manages its final risk on September 13, 2017.

JPMORGAN Ohio Municipal Bond Fund (ONOHX) will liquidate on December 8, 2017. Yes, I know, not even people in the Buckeye State really care.

Of greater import, JPMorgan is shutting down five of their international funds. JPMorgan International Opportunities Fund (JIOAX) and JPMorgan Latin America Fund (JLTAX) go first, on October 13, 2017 then JPMorgan China Region Fund (JCHAX), JPMorgan Emerging Markets Equity Income Fund (JEMEX) and the JPMorgan International Discovery Fund (DSCAX) follow a week later. International Opportunities is inexplicable, at least at first glance. The fund has $3 billion in assets and a decent track record. Advisors are rarely willing to let that much money go out the door, but the SEC filing gives no explanation.

The Marketocracy Funds has decided to shut down (technically “liquidate, dissolve and terminate the legal existence of”) The Marketocracy Masters 100 Fund (MOFQX). We’ve written about the fund in the past, an interesting but unsuccessful attempt to build a crowd-sourced portfolio by investing in the stocks that occur in the best 100 investor fantasy portfolios. The LDT will occur in mid-September.

The Osterweis Institutional Equity Fund (OSTEX) “has been operating at a low asset size for some time. Given recent redemptions, Osterweis Capital Management … has recommended, and the Board of Trustees has approved, the liquidation and termination of the Fund on September 7, 2017.” The fund ends its run with well under $1 million in assets.

The RBC funds have initiated a widespread liquidation. On September 28, 2017, RBC Mid Cap Value Fund (RBMAX), RBC BlueBay Absolute Return Fund (RABAX), RBC BlueBay Emerging Market Corporate Bond Fund (RECAX), RBC BlueBay Global Convertible Bond Fund (RGCBX) and RBC BlueBay Emerging Market Unconstrained Fixed Income Fund (RUFIX) all vanish. The Shadow, who tracks launches and liquidations for MFO’s discussion board, adds this note about the firm’s history.

They purchased and owned what was at one time the Babson Funds which later became the Tamarack Funds. I had both the Babson Enterprise (TETSX) and the Babson Shadow Stock Fund later known as the Microcap Value Fund (TMVSX). Lance James was the manager of the Enterprise Fund.

As part of an old and oft-repeated tale, Turner Midcap Growth Fund (TMGFX), Turner Small Cap Growth Fund (TSCEX) and Turner Titan Long/Short Fund (TSPCX) have all closed and will all liquidate on September 8, 2017. Turner issues one distinctive warning about the liquidations: “Each Fund may distribute a portion of its assets in cash pro rata to shareholders to avoid being subject to federal income or excise taxes.”

Value Line Defensive Strategies Fund (VLDSX) will liquidate on September 30, 2017.

Virtus Contrarian Value Fund (FMIVX) is set to merge into Virtus Ceredex Mid-Cap Value Equity Fund (SAMVX), formerly Ridgeworth Ceredex, sometime in the fourth quarter of 2017.

Wakefield Managed Futures Strategy Fund (WKFAX) settles in for The Big Sleep on September 15, 2017.

Wells Fargo Global Long-Short Fund (WGLAX) has closed and will liquidate on October 27, 2017. The fund was a little more volatile than its peers with about the same returns. Few investors seemed compelled by the combination.