March 2018 IssueLong scroll reading

Funds in Registration

By David Snowball

The SEC requires advisers to give them 75 days to review and comment upon any proposed new fund offering. During those 75 days, the advisers aren’t permitted to say anything about the funds except “please refer to our public filing with the SEC.” At peak times of the year, there might be a couple dozen no-load retail funds and active ETFs in registration. This month the offerings are few but intriguing: a health sector fund from Baron, Matisse Capital’s second fund targeting discounted CEFs, the re-emergence of a successful Scout manager at Oberweis and an intriguing (but unexplained) active ETF that’s 90% stocks and 60% bonds, sort of.

Baron Health Care Fund

Baron Health Care Fund will seek capital appreciation. The plan is to invest in the stocks of health care industry firms which have significant growth opportunities, sustainable competitive advantages, exceptional management, and attractive valuations. The fund will be managed by Neal Kaufman, an research analyst at Baron. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $2,000, reduced to $500 for accounts established with an automatic investment plan.

Matisse Discounted Bond CEF Strategy

Matisse Discounted Bond CEF Strategy will seek total return with an emphasis on providing current income. The plan is to buy closed-end funds (CEFs) which invest primarily in bonds; pay regular periodic cash distributions; and trade at substantial discounts relative to the underlying net asset values. As with the other Matisse fund and RiverNorth Core, the plan is to start with the returns generated by the underlying funds then to add an arbitrage component. The arbitrage occurs when a CEF is selling at an unsustainable discount to the value of the assets it holds. The managers might buy those assets when they’re selling for eighty cents on the dollar in anticipation that they’ll eventually revert to par. The fund will be managed by Bryn Torkelson and Eric Boughton of Matisse Capital. Its opening expense ratio has not been set, and the minimum initial investment will be $1,000.

Oberweis Emerging Markets Fund

Oberweis Emerging Markets Fund will seek to maximize long-term capital appreciation. The plan is to buy small- and mid-cap growth stocks of firms whose stock trades on an emerging markets exchange or whose revenues of predominantly linked to emerging markets. The fund will be managed by Mark Weber. Before joining Oberweis in 2018, Mr. Weber managed Scout Emerging Markets Fund (SEMFX) and served as a Senior International Analyst with Scout Investments. Its opening expense ratio is 1.75%, and the minimum initial investment will be $1,000, reduced to $100 for those establishing an automatic investment plan.

Peritus High Yield ETF

Peritus High Yield ETF, an actively-managed ETF, will seek high current income with a secondary goal of capital appreciation. The plan is to bring a deep value contrarian approach to the credit markets, focusing on absolute value and buying high yield bonds at a discount to fair value on the secondary markets. This fund is a reorganized version of AdvisorShares Peritus High Yield ETF (HYLD), which Morningstar rates as a one-star fund. The fund will be managed by Tim Gramatovich, Ron Heller, and Dave Flaherty, all of Peritus I Asset Management. Its opening expense ratio is 1.25%.

Sirios Long/Short Fund

Sirios Long/Short Fund will seek long-term capital appreciation. The plan seems pretty standard: invest long in good stocks and short either derivatives or the securities of firms in deteriorating conditions. Non-diversified, mostly mid- to large-cap, potentially global with a net long exposure of 0-90%. The fund will be managed by John F. Brennan, Jr., who co-founded Sirios in 1999. Prior to that, he was a portfolio manager and senior vice president for MFS Investment Management. Its opening expense ratio for Retail shares is 1.65% after waivers, and the minimum initial investment will be $2,500.

USCF Commodity Strategy ETF

USCF Commodity Strategy ETF, an actively-managed ETF, seeks long-term total return. The plan is to gain exposure to the commodities market by investing in a wholly-owned subsidiary based in the Cayman Islands. The subsidiary works to maintain exposure to the SummerHaven Dynamic Commodity Index Total Return Index. That index is based on the notion that commodities with low inventories tend to outperform commodities with high inventories, and that priced-based measures can be used to help assess the current state of commodity inventories. Everything that follows sounds, to the layperson, like yada yada yada. The short version is that there are 27 commodity futures available and they will, in any given months, have some exposure to the niftiest 14 of them. The fund will be managed by Andrew F Ngim and Ray W. Allen of SummerHaven Investment Management. Its opening expense ratio has not been set.

WisdomTree 90/60 U.S. Balanced Fund

WisdomTree 90/60 U.S. Balanced Fund, an actively-managed ETF, seeks total return. The plan is to invest 90% of its assets in a market cap-weighted basket of US large cap stocks and 10% in cash which will serve as collateral for U.S. Treasury futures contracts. The notional exposure to the aggregate U.S. Treasury futures contracts’ positions will represent approximately 60% of the Fund’s net assets and will maintain an intermediate duration. The fund’s management team has not yet been named and its opening expense ratio has not yet been set.

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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.