Two notable updates from the folks at Zeo.
Our 2014 profile of Zeo Strategic Income celebrated their “extraordinarily thoughtful relationship between manager and investor. Both their business and investment models are working. Current investors – about a 50/50 mix of advisors and family offices – are both adding to their positions and helping to bring new investors to the fund, both of which are powerful endorsements. Modestly affluent folks who are looking to both finish ahead of inflation and sleep at night should likely make the effort to reach out and learn more.”
In the succeeding years, the fund has steadily earned 2.0 – 4.0% annually and assets have flowed steadily in. Like RiverPark Short Term High Yield (RPHIX), Zeo’s accomplishments are masked by Morningstar’s classification of it as a high-yield bond fund. In reality, it’s far milder and more reliable than they.
Two updates. The fund is changing its name to Zeo Short Duration Income Fund which is both simple and a good reflection of the nature of the beast. The change should be effective on July 1, 2018, following SEC review. More importantly, the advisor is reducing their management fee by 25%, from 1.0% to 0.75% in reflection of rising assets and their desire to do right for their investors.
Charles has been meeting with, talking with and thinking about Zeo a fair amount this spring. We’ll publish his new profile of Zeo in either June or July.
Briefly Noted …
Morningstar reports that, in the aggregate, fund fees fell about 8% in 2017. That’s fueled by a combination of the migration to passive products and fee reductions in active ones (Investors see largest ever decline in fund fees, 4/26/2018).
Henry Hu, of the University of Texas, says what many of us suspect to be true: ETFs are a ticking time bomb for the financial markets. Despite the fact that seven of the 10 most actively traded securities in the US are ETFs, “the US has neither a dedicated system of regulation nor even a workable, comprehensive legal definition of what constitutes an ETF.” He’s concerned, particularly, with the financial engineering that goes on behind the scenes to set an ETF’s price second-by-second.
The integrity of an ETF’s price is only as good as the models and contracts that link everything together, which are collectively known as the “arbitrage mechanism”.
In times of stress, this mechanism has sometimes failed dramatically. On February 5 2018, the shares of an arcane, “inverse volatility” ETF closed at a price roughly 18 times greater than the collective value of its underlying holdings. Large, plain vanilla ETFs have not proved immune to the same issue. Immediately after New York’s 9:30am market opening on August 24 2015, the share price of the US’s second-largest ETF — one that tracks the S&P 500 — lost 20% of its value, even though the index only fell about 5 per cent. (“The $5tn ETF market balances precariously on outdated rules,” FT.com, 4/23/2018 – I’m not attempting to provide a link since FT content lives safely behind a wall, though sometimes it works simply to enter the article title in the Google)
SMALL WINS FOR INVESTORS
As of May 21, 2018, American Century Equity Income Fund (TWEIX) will be open to all investors.
Driehaus Capital Management is going to lower the management fee (i.e., their cut) on Driehaus International Small Cap Growth Fund (DRIOX) from 1.50% to 1.0%, effective July 1, 2018. Fee reductions are so common now, and frequently so minor, that we don’t even bother to report them. In this case, the magnitude of the change warrants a bit of notice.
Effective May 17, 2018, PNC Small Cap Fund (PPCAX) shares will be available for purchase by new investors
CLOSINGS (and related inconveniences)
T Rowe Price International Discovery Fund (PRIDX) closed to new investors on April 2, 2018. Typical of T. Rowe, they did not telegraph the impending change. Folks locked out of PRIDX but looking for international small cap exposure might look at Harding Loevner International Small Companies (HLMSX), which has a high 10-year correlation with PRIDX (0.97) and almost identical returns with just slightly-higher volatility. It’s intriguing to see that Morningstar’s new quantitative rating – meant to replicate their forward-looking analyst ratings – classifies this as a Gold fund. More venturesome souls might look to Laura Geritz’s young Rondure Overseas Fund (ROSOX). While the fund is new, Ms. Geritz has a distinguished record as a manager for Wasatch Funds.
OLD WINE, NEW BOTTLES
Cavalier Multi Strategist Fund (ACXAX, formerly, Catalyst/Auctos Multi-Strategy Fund) has been rechristened as Cavalier Multi Strategy Fund. That’s the sort of name change – Strategy to Strategist to Strategy – that leads to the warnings about desperate marketing maneuvers not being a good sign.
Effective April 13, 2018, Change Finance Diversified Impact U.S. Large Cap Fossil Fuel Free ETF (CHGX) was renamed Change Finance U.S. Large Cap Fossil Fuel Free ETF. They’ve dropped the word “Diversified” but the filing makes no change in the investment strategy to suggest that it’s going to be any more or less diversified than before.
Effective April 5, 2018, the Board of Trustees of Absolute Shares Trust decided to do something about the famously opaque names of the ETFs (WBI Tactical LCGD? Really?)
|Ticker||Current Name||New Name|
|WBIA||WBI Tactical SMGD Shares||WBI BullBear Rising Income 2000 ETF|
|WBIB||WBI Tactical SMV Shares||WBI BullBear Value 2000 ETF|
|WBIC||WBI Tactical SMY Shares||WBI BullBear Yield 2000 ETF|
|WBID||WBI Tactical SMQ Shares||WBI BullBear Quality 2000 ETF|
|WBIE||WBI Tactical LCGD Shares||WBI BullBear Rising Income 1000 ETF|
|WBIF||WBI Tactical LCV Shares||WBI BullBear Value 1000 ETF|
|WBIG||WBI Tactical LCY Shares||WBI BullBear Yield 1000 ETF|
|WBIH||WBI Tactical High Income Shares||WBI BullBear Global High Income ETF|
|WBII||WBI Tactical Income Shares||WBI BullBear Global Income ETF|
|WBIL||WBI Tactical LCQ Shares||WBI BullBear Quality 1000 ETF|
|WBIR||WBI Tactical Rotation Shares||WBI BullBear Global Rotation ETF|
On April 20, 2018, John Hancock Seaport Fund became John Hancock Seaport Long/Short Fund (JSFBX).
Effective April 19, 2018, Leader Short-Term Bond Fund (LCCMX) became Leader Short Duration Bond Fund.
PowerShares no more: On April 19, 2018, the Board of Trustees of PowerShares Exchange-Traded Fund Trust approved changing the names of all of their funds to replace “PowerShares” with “Invesco.” Those changes are effective on or about June 4, 2018. A small sample of the name changes will give you the flavor of the thing:
|Ticker||Current Name||New Name|
|PPA||PowerShares Aerospace & Defense Portfolio||Invesco Aerospace & Defense ETF|
|PKW||PowerShares BuyBack Achievers™ Portfolio||Invesco BuyBack Achievers™ ETF|
|PDBC||PowerShares Optimum Yield Diversified Commodity Strategy No K-1Portfolio||Invesco Optimum Yield Diversified Commodity Strategy No K-1ETF|
|QQQ||PowerShares QQQ Shares||Invesco QQQ Shares|
Also effective on or about June 4, 2018, the BLDRS ETFs, also a part of Invesco, begin incorporate Invesco into their funds’ names.
|Ticker||Current Name||New Name|
|ADRA||BLDRS Asia 50 ADR Index Fund||Invesco BLDRS Asia 50 ADR Index Fund|
|ADRD||BLDRS Developed Markets 100 ADR Index Fund||Invesco BLDRS Developed Markets 100 ADR Index Fund|
|ADRE||BLDRS Emerging Markets 50 ADR Index Fund||Invesco BLDRS Emerging Markets 50 ADR Index Fund|
|ADRU||BLDRS Europe Select ADR Index Fund||Invesco BLDRS Europe Select ADR Index Fund|
OFF TO THE DUSTBIN OF HISTORY
On May 18, 2018, AllianzGI Global Fundamental Strategy Fund (AZDAX) will be liquidated and dissolved. This is the prototypical “sounded like a good idea at the time.” The fund’s goal is to provide positive real returns across the course of an entire market cycle by investing, long or short, directly or derivatively, in equities or debt, anywhere. Benchmarked against Lipper’s Absolute Return category, the fund performed brilliantly: 50% higher than average returns and 50% lower risk. Against Morningstar’s World Allocation benchmark, the fund’s returns lagged dramatically and the market failed to provide the crisis that might have vindicated the strategy.
ALPS│Alerian MLP Infrastructure Index Fund (ALERX) liquidated, after mid-month notice, on April 30, 2018.
American Independence Carret Core Plus Fund (IBFSX) and American Independence Hillcrest Small Cap Value Fund (HLCAX) closed on April 30 and will liquidate on May 31, 2018. The Hillcrest fund has performed poorly, but was given fewer than three years of life. The Carret fund has been around since 1997 but was undistinguished: not notably bad, not notably good, just … there.
AMG Chicago Equity Partners Small Cap Value Fund (CESIX) will liquidate on May 18, 2018. It’s a perfectly nice fund – average returns, average risk, average market cap – with under a million in assets.
Bridgeway Small-Cap Momentum Fund (BRSMX) has closed and will be liquidated on or about May 14, 2018.
Credit Suisse Commodity ACCESS Strategy Fund (CRCAX) closed on April 4, 2018 and will liquidate on May 31, 2018.
Janus Henderson SG Global Quality Income ETF (SGQI) will liquidate on or about May 23, 2018. Hint: that means “on.”
JPMorgan Tax Aware Income Opportunities Fund (JTAAX) will merge into JPMorgan Tax Free Bond Fund (PMBAX) on May 4, 2018. Perhaps because lawyers are lawyers, JPMorgan’s announcement of that fact took 248 rambling words.
Nuveen Symphony Low Volatility Equity Fund (NOPAX) is merging into Nuveen Santa Barbara Dividend Growth Fund (NSBAX). NOPAX is, by a margin, the stronger performer but had a tiny fraction of NSBAX’s assets.
Port Street Institutional Opportunities Fund (PSOFX) will be liquidated on or around May 25, 2018.
TCW High Dividend Equities Long/Short Fund (TFENX) liquidated on April 25, 2018 on rather short notice. Some combination of $1 million in assets, 3.2% expenses and cratering performance was fatal.
Pending shareholder approval, USAA First Start Growth Fund (UFSGFX) will merge into the USAA Cornerstone Moderately Aggressive Fund (USCRX) on June 15, 2018.
Winton Diversified Opportunities Fund, a closed-end interval fund, will liquidate on May 25, 2018.
Wright Selected Blue Chip Equities Fund (WSBEX), Wright Major Blue Chip Equities Fund (WQCEX), Wright International Blue Chip Equities Fund (WIBCX) and Wright Current Income Fund (WCIFX) liquidated on April 30, 2018.