February 2018 IssueLong scroll reading

Briefly Noted

By David Snowball

Updates (and notes from careful readers)

Several MLP funds – including Center Coast MLP Focus Fund (CCCAX) and Global X MLP ETF (MLPA) – have announced that the recent tax law changes affects them. They’re treated as “a regular corporation” for the purpose of tax law, which means that the statutory tax rate that affects them has dropped from 35% to 21%. It is not yet clear that the rate change will have any appreciable effect on shareholders or the funds’ returns because of the complexity of calculating corporate taxes, then or now.

FPA U.S. Value Fund (FPPFX) has affirmed the proposition that “it is non-diversified” but simultaneously eliminated the provision that “[t]he portfolio may be moderately concentrated, typically 20-50 positions.”

One of our readers, Shawn McFarlane, was struck by evidence of a backlash against Vanguard within the financial services industry. “I thought I would share some interesting information. At least three large financial services firms are adding servicing fees to (or dropping) Vanguard funds” from their platforms. The story Shawn is referring to ran in the Wall Street Journal (which has a paywall) and was lightly excerpted at a site called Dealbreaker (which, understandably but regrettably, has a bunch of intrusive ads). The short version is that Fidelity, TDAmeritrade and Morgan Stanley are making access to Vanguard products either more difficult or more expensive. Vanguard took in $180 billion in new money in 2017, more than four times more than second place finisher Fidelity. The impositions aren’t going to stop the flows to Vanguard, but at least allow the others to make a bit of money off them.

Kirk Taylor shared a recent SEC filing in which the advisers to the four-star, $1.2 billion Semper MBS Total Return Fund (SEMPX) proposed “an increase in the Fund’s contractual advisory fee,” initially of 15 bps from 0.45% to 0.60%. (Remember, the advisory fee is just the adviser’s take, it’s not the complete set of expenses.) To compensate investors, they also propose adding “breakpoints” in which the fee declines as assets grow. Sadly, the lowest-possible level of the new fees is still higher than the current fee. The current fee is 45 basis points. The new fee starts at 60 basis points, drops to 55 bps for assets over the $1.5 billion threshold and 50 bps for assets over a $2.5 billion threshold. They’re also raising the cap for the overall expense limitation. By Semper’s estimate, retail shareholders will see their expenses rise from 1.00% now to 1.08%. The adviser is silent, at least in the filings, on what benefit investors receive in exchange for their higher expenses. Kirk’s note, “what a load of crap,” suggests that the benefits of the fee increase are not universally appreciated by shareholders.

Victory Capital Holdings has filed for an IPO. They’re a relatively acquisitive bunch, having purchased Munder, CEMP and RS Investments in the past few years. As of September 30, 2017, the firm “had $517.7 million aggregate principal amount of outstanding term loans under our existing senior credit agreement.” I think the translation is “had $517 million in debt.” Part of that debt, surely came from buying other fund firms but they also “incurred $125.0 million of this debt in February 2017 to pay a special dividend to our stockholders.” (That has the feeling of borrowing money to buy gifts for other people.) The purpose of the IPO is to allow them to repay a portion of that debt. Sadly, researchers suggest that Victory’s shareholders are not likely to see a benefit from the move. Michael Berkowitz’s 2003 study, “Ownership, risk and performance of mutual fund management companies,” concludes:

… publicly-traded management companies invest in riskier assets and charge higher management fees relative to the funds managed by private management companies. At the same time, however, the risk-adjusted returns of the mutual funds managed by publicly-traded management companies do not appear to outperform those of the mutual funds managed by private management companies.

Briefly Noted . . .


The minimum initial investment for the Alambic funds – Alambic Mid Cap Growth Plus (ALMGX), Alambic Mid Cap Value Plus (ALMVX), Alambic Small Cap Growth Plus (ALGSX), Alambic Small Cap Value Plus (ALAMX) – has been reduced from $50,000 to $5,000. Should you care? Maybe. While the funds have just $7 million between them, Alambic manages nearly a billion overall. Their average account is around $100 million, which means this isn’t a small potatoes operation. All of the funds have beaten their peers since inception, while none of them have high volatility. The Mid Cap Growth Fund, in particular, has posted substantially higher-than-average returns with substantially lower-than-average volatility since inception. They hold a large number of positions, seeking small gains from “behavioral biases and informational asymmetries create small, predictable deviations in individual stock prices from fair value.” The founders are Citigroup / Salomon Brothers alumni and the organization, overall, is a collection of geeks. The 10 core staff includes:

A PhD in Chemical Engineering from MIT who also has an MBA and a CFA
Another PhD in Chemical Engineering from MIT who has a CAIA
An R&D engineer with a BS in Chemical Engineering from Iowa State (go Cyclones!)
An M.S. in Chemical Engineering from Illinois who also has an MBA and a CFA
An M.S. in Ocean Engineering from MIT (really, what else would you expect of their head marketer?)
And MS in Mechanical Science & Engineering from Illinois
An MS in Mechanical Engineering for Purdue plus
A J.D., an undefined B.A. from Johns Hopkins and a classical pianist

If you understand “thinking differently” to be a virtue, this has the prospect of being a saintly team. More to the point, founder Albert Richards was head of European equities for Citigroup for 12 years.

Sadly, none of that saves them from inept web maintenance. When you try to reach their homepage, you’re greeted with the warning:

Jacob Small Cap Growth Fund (JSIGX) and Jacob Micro Cap Growth Fund (JMIGX) have reduced their minimum subsequent investment from $1,000 to $100. Given that these are institutional funds with $1 million minimums, one wonders how many of their investors were strapped for the extra $900 to add to the fund?

CLOSINGS (and related inconveniences)

Convergence Core Plus (MARVX) and Convergence Opportunities (CIPVX) have both chosen to “permanently close” the Investment Class shares of their fund, effectively immediately. The funds are perfectly respectable, if a bit expensive, and their Institutional share class carries a relatively modest $15,000 minimum.

Oakmark International (OAKIX) has closed to new investors “and most third-party intermediaries” effective January 26, 2018.


Collins Long/Short Credit Fund (CLCAX) has been adopted by CrossingBridge Advisors, LLC and rebranded as CrossingBridge Long/Short Credit Fund. The fund will operate, for the next 150 days, under an interim advisory agreement (largely impenetrable, though available for lawyers and other masochists). CrossingBridge is a $300 million affiliate of David Sherman’s $1.6 billion Cohanzick Management firm.

FPA U.S. Value Fund (FPPFX) has affirmed the proposition that “it is non-diversified” but simultaneously eliminated the provision that “[t]he portfolio may be moderately concentrated, typically 20-50 positions.”

In late January, the name “Columbia European Equity Fund” was replaced with “Columbia Contrarian Europe Fund.”

In October 2017, we ridiculed the decision to rebrand Lebenthal Lisanti Small Cap Growth Fund as Dinosaur Lisanti Small Cap Growth Fund (ASCGX). Morningstar’s Jeff Ptak wrote to let us know that Dinosaur Financial Group Holdings had taken a stake in Lebenthal Lisanti. The name still comes across as (a) stupid and (b) unexplained. That probably requires us to now celebrate the second name change in four months. The Dinosaur is extinct and the fund is now Lisanti Small Cap Growth Fund (ASCGX).The fund’s manager, Mary Lisanti, is a well-known and well-regarded figure renowned for her long-ago work at the Strong Funds. Sadly, her fund remains tiny, expensive and undistinguished.

As of February 1, 2018 Navian Waycross Long/Short Equity Fund became Waycross Long/Short Equity Fund (WAYEX). The Navian name was short-lived. The fund’s February 2017 annual report mentions “The Fund name was changed during the period to reflect Waycross Partners’ recent partnership with Navian Capital, LLC. Navian Capital is a broker/dealer based in Cincinnati, Ohio. The Navian partnership provides our firm with marketing, operational, and compliance support.”

The Board of Directors of the Prudential Funds approved replacing “Prudential” with “PGIM” in each Fund’s name with the exception of the Prudential Day One funds.  Beyond that Prudential Jennison Emerging Markets Equity Fund will change its name to PGIM Jennison Emerging Markets Equity Opportunities Fund and Prudential QMA Strategic Value Fund will become PGIM QMA Large-Cap Value Fund.

Putnam Multi-Cap Value Fund (PMVAX) is becoming Putnam Sustainable Future Fund with the addition of “sustainability criteria” to its investment strategies. The fund picked up a new manager at the very end of December and its portfolio already receives an above-average sustainability grade from Morningstar, so this isn’t a major change.


Berwyn Fund (BERWX) is being merged into Chartwell Small Cap Value Fund (CWSVX) in the second quarter of 2018. Over the past five years, Chartwell has modestly outperformed its peer group and has substantially outperformed Berwyn with lower volatility than either. It also offers lower expenses, by a bit, than Berwyn.

Capital Management Mid-Cap Fund (CMCIX) is seeking shareholder approval to merge into Wellington Shields All-Cap Fund (WSCMX), effective March 30, 2018. If the change occurs, the goal will switch from “long-term capital appreciation” to just “capital appreciation” and the strategies will include investing in stocks of all caps. Not to be critical of the move, but WSCMX is a one-star, $10 million fund that’s been around less than four years. It’s combined market-like volatility and far below market returns. CMCIX is twice the size, has a 23 year record and is a stronger performer. CMCIX is midcap, WSCMX is large growth. Hmmm … our recommendation to CMCIX investors would be to move to PowerShares S&P MidCap Low Volatility ETF (WMLV) or Hartford Schroeders Small/Mid Cap Opportunities (SMDIX), either of which is cheaper, better and offers the mid-cap focus folks were originally seeking.

The entire Castlemaine fund family (you did know there was a Castlemaine fund family, right?) – Castlemaine Emerging Markets Opportunities (CNEMX), Castlemaine Event Driven (CNEVX), Castlemaine Long/Short (CNLSX), Castlemaine Market Neutral (CNMNX) and Castlemaine Multi-Strategy (CNMSX) – has closed and liquidated on January 31, 2018 after very short notice. The funds launched in January 2016 and had barely $7 million between them. The market neutral fund was exceptional, the others … meh.

Castlemaine, by the way, is a town in Victoria, Australia, near the university where the funds’ manager earned a master’s degree in astronomy.

CM Advisors Fund (CMAFX) is slated to merge into CM Advisors Small Cap Value Fund (CMOVX ), pending shareholder approval. By Morningstar’s calculation, they’re both small cap value funds which have trailed 98-100% of their peers over the past 5-10 years.

FMC Strategic Value Fund (FMSVX) will liquidate on February 16, 2018.

Thank to Ted, our discussion board’s indefatigable Linkster, for the note that IndexIQ, a subsidiary of New York Life Investment Management, has announced it will be closing three of its 24 ETFs in March. They are IQ Canada Small Cap ETF (CNDA), IQ Global Oil Small Cap ETF (IOIL) and IQ Australia Small Cap ETF (KROO).

How Linkster-ish is Ted? As of 1/31/2018, he had initiated 19,497 discussion threads at MFO alone and surely tens of thousands more at our predecessor, FundAlarm.

Innovator McKinley Income Fund (IMIFX) will liquidate at the close of business on February 22, 2018. IMIFX is a sort of equity-income fund whose high expenses (2.7%) ate just about half of the income it generated (5.4%) leaving precious little for growth. The fund returned about 2.5% annually since inception.

iShares iBonds March 2018 Term Corporate ETF (IBDB) liquidates on April 2, 2018, which is not an entirely surprising development given the fund’s name and objective.

John Hancock continues to struggle to get enough shareholders today to merge John Hancock Small Company Fund (JCSAX) into John Hancock Small Cap Core Fund (JCCAX). They adjourned the January 26 meeting without resolution, will try again on February 16 and hope to merge the funds by March 9, 2018. The merger would be a win for JCSAX investors.

(Just a moment while I suppress the urge to roll my eyes.) (Okay, I’m better now.) In a surprising development, the LocalShares Board of Directors has voted to liquidate the Nashville Area ETF (NASH). Apparently the opportunity to invest in Cracker Barrel Old Country Store and private prison operator CoreCivic was not sufficient draw to compensate for earning 4.6% while your peers were making 9.8%.

The entire Pacific Financial family of funds – Pacific Financial Core Equity Fund (PFLQX), Tactical (PFTLX), Explorer (PFLPX), Faith & Values Based Moderate (FVMLX), International (PFLIX), Dynamic Allocation (PFLDX), Strategic Conservative (PFLSX), and Flexible Growth & Income (PFLFX) – liquidated on January 30, 2018. I feel badly for them, but the reality is that every one of their funds trailed their Lipper peer groups in every trailing period (1, 3, and 5 years and since inception) I checked.

Major kudos to The Shadow for this one: buried deep in an SEC filing for the Quaker Funds is a provocative note about Quaker Event Arbitrage Fund (QEAAX, QEACX, QEAIX).

Subject to further approvals, it is anticipated that shareholders of the Quaker Event Arbitrage Fund will be asked to approve the reorganization of the Fund into another fund family at a separate special meeting expected to be held in the second quarter of 2018. If the Reorganization is approved, Camelot and the named portfolio managers will continue to manage the Fund. The Fund’s investment objectives, principal investment strategies and investment policies remain unchanged…

I’m intrigued because Quaker Event Arbitrage started life as the no-load Pennsylvania Avenue EventDriven Fund (then PAEDX, a ticker subsequently seized by another fund), managed by Thomas Kirchner who remains co-manager on the Quaker fund. PAEDX was a solid, distinctive fund run by Mr. Kirchner out of his home (I think he was in the kitchen the long-ago afternoon I called him). Solid performance coupled with the utter inability to draw investor attention led to his partnership with Quaker. The fund still has only $22 million in assets, which might explain the implied plan to depart.

SMI Bond Fund (SMIUX) will liquidate on February 7, 2018. The “SMI” is “Sound Mind Investing.”

Effective January 19, 2018, Virtus Contrarian Value merged into Virtus Ceredex Mid-Cap Value Equity Fund (SAMVX). Morningstar’s system continues to think of the surviving fund as “Ridgeworth Ceredex Mid-Cap Value Equity,” which means trying to search “Virtus Ceredex” leads to

That’s right. Bad request! Bad, bad request!

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About David Snowball

David Snowball, PhD (Massachusetts). Cofounder, lead writer. David is a Professor of Communication Studies at Augustana College, Rock Island, Illinois, a nationally-recognized college of the liberal arts and sciences, founded in 1860. For a quarter century, David competed in academic debate and coached college debate teams to over 1500 individual victories and 50 tournament championships. When he retired from that research-intensive endeavor, his interest turned to researching fund investing and fund communication strategies. He served as the closing moderator of Brill’s Mutual Funds Interactive (a Forbes “Best of the Web” site), was the Senior Fund Analyst at FundAlarm and author of over 120 fund profiles. David lives in Davenport, Iowa, and spends an amazing amount of time ferrying his son, Will, to baseball tryouts, baseball lessons, baseball practices, baseball games … and social gatherings with young ladies who seem unnervingly interested in him.