Monthly Archives: December 2018

December 1, 2018

By David Snowball

Dear friends,

Winter is coming.

I’m so thankful.

Traditionally, year’s end has been a slower time. The growing season has ended, and both the farm fields and the sports fields lie mostly empty in this part of the country. Going out at night is just a touch less attractive when “night” settled in at about 4:30. New projects and wild ambitions are set aside for the new year. Traditionally, it’s a season for festivals and celebrations, only occasionally draped in religious garb. In the northern hemisphere, every religion and every culture seems to have reached the same conclusion: it’s cold, it’s dark, it’s time to get together!

Too, it’s time to reflect on the year just past and all the things we have to be thankful for. (Yes, I was awake pretty much all year in 2018, but that doesn’t change my sense of gratitude for all the good the year bequeathed.)

snow covered road through the forest

What do I have to be grateful for?

  1. The elections are over. You know, we could pretty much stop right there.

    I’m grateful for the tens of millions of American voters who spoke their minds, and for the millions who changed their minds.

    We have recently become convinced that America is divided between The Forces of Light (that would be “you”) and The Forces of Darkness (that would be “them”). We characterize The Forces of Darkness as self-blinded, uncaring ideologues desperate to retreat into some fantasy past.

    And then, oops. They screwed up the easy, apocalyptic story by changing their votes. Some millions of our fellow citizens who voted for one sort of change in 2016 appear to have reflected on how the changes were playing out, and voted for a correction. That’s reflected in the fact that Democrat candidates outpolled their Republican counterparts by 9,000,000 votes in November, in part driven by the votes of folks derided as RINOs. In short, they acted reasonably. They might act differently again in two years. The reassuring key is that our fellow citizens are not slaves of their social media feeds; they’re folks who think, and act, in pursuit of what they understand to be the common good.

    For that, we should all be grateful.

  2. The market is cratering. Then not. Then it is and/or might be.

    As we’ve been reminding you for a couple years, the valuations in the stock market are detached from any reasonable grounding. Against all reason, markets have kept rising, leading investors to thoughtlessly pour money into market cap weighted stock index funds (at their core, momentum plays) and indebtedness weighted bond index funds (which automatically allocate to the most indebted issuer in a universe, not to the most creditable ones).

    The inevitable price of ridiculously high starting valuations is years, and perhaps a decade or more, of negligible returns. As recently as last month, GMO’s forecast was for negative real returns across most asset classes for the next five to seven years.

    Turbulence provides opportunities, both for individual investors to spend some time at year end thinking a bit about how they want to build and balance their portfolios, but also for professional investors to finally profit from some reasonably priced investments.

    It is possible that this is the prelude to a financial apocalypse fed by political obstinacy, policy misjudgments and bad luck (see Barbara Tuchman’s The March of Folly: From Troy to Vietnam (1985), a chronicle of governmental “woodenheadedness” for details) but it feels like an entirely necessary slap upside the head. We will work with you to get through it.

  3. It’s easy to get smarter. It’s also easier to get dumber, but that’s a matter of choice.

    PEARLS BEFORE SWINE © Stephan Pastis. Reprinted by permission of ANDREWS MCMEEL SYNDICATION. All rights reserved.

    I’m endlessly amazed by the quality of work done by NPR and American Public Media, both on-air and through easily accessible podcasts. I listen to both daily, usually podcasts that I download to my phone and listen to as I walk. I would commend, especially, the Marketplace franchise to folks. Here’s how they describe themselves:

    “Marketplace is on a mission to raise the economic intelligence of the country. Its core programs — Marketplace, Marketplace Morning Report and Marketplace Tech — are broadcast on more than 800 public radio stations nationwide and heard by 14.6 million listeners every week. Marketplace podcasts including Make Me Smart with Kai and Molly, The Uncertain Hour and Corner Office can be found at or on your favorite podcast app.”

    Make Me Smart is a particular delight. The hosts have one central issue each week (“the curse of bigness” recently) surrounded by the sort of amiable give-and-take that you’d associate with really smart people who very much enjoy one another’s company. It’s definitely not an “eat your broccoli” (much less “eat your danged Brussels Sprouts”) sort of experience.

  4. The FAANGs have lost a trillion dollars. In what, six weeks?

    I rather worry that we’ve allowed a few corporations to accumulate unprecedented power over us. Admittedly, John D. Rockefeller had a net worth (in 2018 dollars) of a quarter trillion (untaxed) dollars and his Standard Oil Company controlled roughly 90% of the US energy market. The difference between him and the new monopolists is that they control our personal information as well as our wallets. (See, e.g., the easy What Does Google Know About You? Infographic for a peek.)

    Mark Zuckerberg and Facebook are ham-handed in their manipulations, with the multi-billionaire Zuckerberg thinking he’s “all that and a bag of chips.” He brooks neither self-doubt nor opposition. It calls to mind a long ago science fiction novel, Kornbluth and Pohl’s The Space Merchants (1953). It’s about a vastly overcrowded world in which huge corporations have supplanted governments and nations exist only to help support those corporations. Two snippets have stuck with me over many years. One might be Mr. Zuckerberg’s mantra:

    “Mitch, you’re a youngster, only star class a short time. But you’ve got power. Five words from you, and in a matter of weeks or months half a million consumers will find their lives compleatly changed. That’s power, Mitch, absolute power. And you know the old saying. Power ennobles. Absolute power ennobles absolutely.”

    And the other might speak to his future:

    “He spoke of the trouble with the Senator from Du Pont Chemicals with his forty-five votes, and of an easy triumph over the Senator from Nash-Kelvinator with his six.”

    Where is Nash-Kelvinator, you might ask? Largely chewed up, along with virtually all of the original Dow stocks and all of the grand monopolies of a century ago. While capitalism will, eventually, eat Amazon and Facebook both, they have the potential for great mischief ere that happens. Tim Wu lays out the case for government intervention against modern monopolies, much as it intervened to break up Standard Oil, in his new book The Curse of Bigness (2018).

    I am, on whole, glad that the FAANGs have been a bit defanged and that questions about the legitimacy and consequences of their power are at least getting more of an airing than before.

  5. We had George Herbert Walker Bush. Mr. Bush was the last American president who neither loathed his opponents, nor was loathed by them.

    Mr. Bush came from a patrician strain of Republicanism that believed America thrived on respect and service to others, not on self-aggrandizement and self-service. As with my dad and millions of others, his first act of public service was as a soldier in World War Two (dad was a submariner, Mr. Bush an airman) and, like dad, he devoted a portion of the rest of his life to public service: congressman, UN ambassador, head of the RNC, quasi-ambassador to China, director of central intelligence, director of the Council on Foreign Relations, vice-president, president, philanthropist.  

    He frequently liked his political opponents because he realized that, disagreements aside, he and they were devoting their lives to the same end. I’ve always been struck by a statement he made in one of the 1988 presidential debates against Massachusetts governor Michael Dukakis. The two men disagreed on the era’s most incendiary question, abortion. Here’s how Mr. Bush framed his beliefs and their disagreement:

    “I think human life is very, very precious. And, look, this hasn’t been an easy decision for me to make. I know others disagree with it. But when I was in that little church across the river from Washington and saw our grandchild christened in our faith, I was very pleased indeed that the mother had not aborted that child, and put the child up for adoption (his son, Marvin Bush, and his wife, Margaret Conway, adopted two children). And so I just feel this is where I’m coming from. And it is personal. And I don’t assail him on that issue, or others on that issue. But that’s the way I, George Bush, feel about it.”

    None of that serves to gloss over the fact that Mr. Bush did a bunch of dumb things, that he may have opened the door to a divisive role for religion in politics or that his behavior toward women was sometimes reprehensible.

    He was a deeply flawed human being who never doubted his homeland and never wavered in his commitment to make it “a kinder, gentler nation.”

  6. I’ve got friends. Admittedly, rather more in low places than high, but that’s okay.

    David Brooks, a perennially anguished conservative-with-a-conscience, wrote a thoughtful piece in the New York Times entitled, “It’s Not the Economy, Stupid” (11/29/2018). Mr. Brooks asked a reasonable question, if we’re enjoying “one of the best economies of our lifetime,” why are Americans so glum? He allows that the usual suspects (student loan debt, unstable employment and Donald Trump) might account for some of the angst but, he argues, the greater part is

    “the crisis of connection. People, especially in the middle- and working-class slices of society, are less likely to volunteer in their community, less likely to go to church, less likely to know their neighbors, less likely to be married than they were at any time over the past several decades.”

    Driven by the effects of drug abuse and suicides, life expectancy in the US has fallen for a third consecutive year; the last time that happened, 1915-18, a world war and global flu pandemic killed 800,000 Americans. It is, he concluded, “a straight-up social catastrophe” that neither liberals nor conservatives grasp or address.

    Scholars have been raging about this problem for more than a generation, mostly famously in Robert Putnam’s Bowling Alone (2000, with the book just expanding his 1995 essay). And yet it is a curiously self-inflicted malady.

    Against that trend, I find myself with an embarrassment of riches. That is, in many ways, the result of a choice and of investments we’ve made. Chip and I each work with amazing people, but we also work hard to attract and support amazing people. We shared a joyful evening with some of my international students at Halloween and will open our house to one of hers for a couple weeks in February.

    Isolation is, for many of us, a choice. We choose screen time, we choose “me time,” we find reasons not to reach out.

    I pray you choose otherwise. I have. It’s an enormous, life-sustaining pain in the butt.

Among those friends are the many people who make MFO possible. While Charles, Chip and Ed are the most visible and central players. Less visible, but no less meaningful are the contributions of the estimable Bob Cochran, Dennis Baran, and The (crepuscular) Shadow.

We have also linked this part of our lives with tens of thousands of you. It was your letters, long ago, that convinced us to launch MFO as FundAlarm reached its last chapter. It’s your notes, in email and sometimes on Twitter, that monthly help allay self-doubt and answer the question, “is this still worth doing? Are we making a difference?”

A new adventure!

The folks at Fund Intelligence reached out in November to ask if I’d serve as a judge in their annual fund industry awards. Combining, as I do, amiability and cluelessness, I said “yes.”

I signed, and will certainly respect, a confidentiality / non-disclosure agreement concerning the individual submissions. Nonetheless, it seems like an interesting opportunity and a potentially rich learning experience. I’ll share what I can, as I can.

The Twitter thing

As those of you on Twitter might have noticed, I am not a master of social media. I sat with Daisy Maxey of The Wall Street Journal once, listening to Jack Bogle speak. Daisy’s Twitter output in 45 minutes modestly exceeded my lifetime total on MFO’s behalf.

Nonetheless, we recognize that social media has a potentially useful role to play in connecting with underserved populations. Young folks, who have the irreproducible advantage of a time horizon measured in multiple decades, tend to be uncertain and poorly connected to traditional sources of advice. They also tend to use social media rather more than their elders.

picture of "tweet" buttonIn hopes of better serving such groups, we’ve added a little “Tweet this” button to the end of each story. If you’re engaged on social media and it strikes you that some particular story might have merit for the folks who follow you, please consider pushing the button. It can’t hurt and might, we hope, help someone who would otherwise remain adrift. Thanks!

Matching grant / challenge grant offer.

The only two sources of support for MFO were Amazon, under a partnership they subsequently terminated, and reader contributions. Last December, in response to Amazon’s decision, three readers collectively offered up a matching grant: for every dollar donated in December 2017, they would match contributions on a 1:1 basis up to a total of $2,000. Within 48 hours, you folks responded with $7,000 in contributions, which was sort of stunning.

We were offered a similar, though modestly smaller matching grant this year: two members have offered, between them, to match dollar-for-dollar the first $1000 we receive in December 2018.

If it’s in your budget and in your best interest, we’d encourage you to make a tax-deductible year-end contribution to MFO. Contributions of $100 or more get you a year’s access to MFO Premium, home of the unique fund screener that we’ve built for folks who want information – sophisticated risk measures, rolling returns, correlations between funds – that are normally unavailable to regular folks. Whether you choose to give $1 or $10,000, we’re grateful and we’ll keep digging on your behalf.

Some folks have chosen to use our PayPal link to create regular monthly contributions, which we find almost freakishly cool. Thanks, as ever, to Deb and Greg, whose continued monthly support makes us smile. We’re so pleased that Brian, George, David, William and Doug have chosen to follow Deb and Greg’s lead in setting up recurring monthly contributions to MFO. Thanks, too, to Katrina, Doug, and Anne for your kind contributions in November.

Our challenges are great. We can face them better together. We are glad that you’re here. We hope you like the issue and hope, even more, to see you again in the New Year.

david's signature

Living a Rewarding Retirement

By Robert Cochran

“Some people make more than a career out of their work. They make a difference.”

It’s been more than a year since I retired from my position as Portfolio Manager and Chief Compliance Officer with PDS Planning in Columbus, Ohio. One of the many retirement cards I received from clients and colleagues contained the above quote. We never talked specifically about “making a difference” while I was working. However, as I look back over 30-plus years, we certainly did make a difference for many, many individuals and families who entrusted us with their dreams.

People can choose to make a difference in any work, and I hope all who read this post will think of ways they can do just that. I volunteer for a local food pantry, and I see the folks who work there making a big difference in the lives of those who need help. A good friend of mine has been a volunteer at the local Ronald McDonald House for years, and there is no question she has made a difference in the lives of thousands of children and their families. Think of the hundreds of local artists and musicians whose work makes a huge difference in the quality of life here in Central Ohio. They make a difference.

Those of us who are retired actually get to choose where we want to make a difference. There are hundreds of places that desperately need help: Meals On Wheels, hospitals, youth groups, after-school programs, food and family services organizations, animal shelters, arts organizations, Special Olympics, and many more. The opportunities are endless. We can make a difference in the lives of many people, and the only cost to us is our time, of which most retirees have a lot.

Former colleagues and clients ask me what I miss about working, if anything? For sure, I don’t miss getting up at 5 AM and in the office around 6, spending hours each week dealing with federal securities compliance issues, nor listening to corporate representatives talk about the latest investment idea we should implement. One thing I DO miss is the daily interaction with the fantastic staff at our firm. I hope I shared my gratitude and admiration with them while I was still working, but the fact that everything is humming along just fine without me gives me even greater satisfaction. These are smart, caring, committed people.

Perhaps the working aspect I miss the least is the need to stay focused on what is happening with the investment world on a daily basis. This was important because many clients focus on it, so we had to stay alert, too. Since retiring, I do not check my investment values much at all. Over a thirty-year investment career I saw hundreds of market declines, economic recessions, political turbulence, interest rate changes, and much lousy reporting by the broadcast business media. Making long-term investment decisions on these gyrations is almost always folly.

Here are some important general lessons learned. 1) Find a mix of investments that allow you to sleep at night and not be worried about market fluctuations. 2) Put money aside every paycheck in your 401k or other retirement plan, and don’t borrow from it to pay for children’s college or weddings or taxes or for vacations. 3) Try to pay off credit card debt in full each month. 4) Pay off your mortgage prior to retirement. 5) Be sure you have health care power-of-attorney and durable power-of-attorney documents that are valid and be sure your will and/or trust documents reflect your current wishes. 6) Don’t be afraid to pay a qualified individual to help you set realistic goals, help you stay on track, and be there for you, through good times and bad. They just might “make a difference”.

Emerging markets value: a rare ray of sunshine from GMO’s strategists

By David Snowball

GMO monthly issues their “7‐Year Asset Class Real Return Forecasts” for 10 – and, beginning this month, 11 – asset classes. Their method is fairly simple: assume that things – P/E ratio, profit margin, sales growth and dividend yield – will revert to “normal” over the next 5-7 years and sketch the line from here to there. The “real” part is that you deduct the effect of inflation from the resulting “nominal” returns.

Several scholars have examined their predictive validity and found it to be pretty robust. One, examining projections from 2000-2010 then comparing them with Vanguard index funds concluded:

The correlation between the GMO predicted returns and the Vanguard realized returns for equities, bonds, and all assets taken together are 0.954, 0.959 and 0.677 respectively. (Tower, 2010)

Others found that even when the absolute values are off (i.e., GMO was too pessimistic during the frothier parts of bull markets), the relative values are right: GMO’s top-ranked asset class tends to outperform its second-ranked class, and so on. Ben Inker, their chief strategist, claimed a 94.5% accuracy (2012).

As recently as September, the real return projections were negative for every asset class except cash. They were least negative about the emerging markets. The newest projection, released on November 21, begins to factor-in the effect of the recent market turbulence. 

chart of GMO real return projections

Bad news: cash remains the most promising US asset class, with US equities in the red over the next 5-7 years and US fixed income breaking even. 

Good news: there is one asset class now poised for historically exceptional returns, emerging market value equity. GMO projects a 7.7% annualized real return for EM value, well above the historic 6.5% real return in the US stock market. Emerging equity, as a whole, is the second-highest asset class (4.4% real) and emerging debt (2.8%) is third. The one caveat: these asset class return projections are not risk-adjusted; that is, there’s no suggestion about how much volatility you’ll need to accept in return for your hoped-for 7.7% real.

Robert Arnott and the folks at Research Affiliates reach the same, broad conclusion: over the coming decade, emerging markets are priced to offer dramatically higher returns than the US and developed international markets, though at the price of dramatically higher volatility as well.

scatter plot chart of projected returns and volatility

By their calculation, EM returns will be 35 times greater than US returns (7.5% versus 0.25%) though volatility will be about 50% higher (SD of 21.9% versus 14.2%).

Traditionally value investing in the emerging markets has been painful and, mostly, unprofitable. Folks on MFO’s discussion board shared a thoughtful skepticism about their experience with EM investing and the future of EM value investing.

Nonetheless, managers at Seafarer and elsewhere argue that structural changes in the emerging markets – largely marked by local investor activism – have fundamentally changed that equation and that long-ignored value plays offer … well, exceptional value. Ben Inker, the head of GMO’s asset allocation team, pretty much pounded the table on the subject:

Emerging equities are more volatile than developed market equities. This owes little to the volatility of emerging stock markets in local terms and much more to the strong positive correlation between their local stock markets and movements in their currencies. The spring of 2018 was a classic example of this, with US dollar strength driving significant emerging weakness. Emerging markets do exhibit momentum, so it would not be odd for the weakness to persist for another quarter, although after transaction costs the momentum effect is probably not capturable. Our analysis of the underlying fundamentals for emerging markets, on the other hand, gives us confidence that the assumptions behind our forecasts are sound and emerging value stocks represent the most attractive asset we can find by a large margin, and in the longer term we believe valuation is much more predictive of returns for emerging than momentum is. Our models do not take into account the potential effects of a trade war, but while a trade war is presumably a negative for emerging assets, it should arguably be at least as negative for US assets and seems unlikely to change much about the relative attractiveness of emerging markets in global portfolios.

As a result, there are relatively few EM value funds though their ranks are growing. As a starter set for folks interesting in pulling together a due diligence list, below are the top 10 EM value funds based on 2018 YTD performance. We defined “EM value” as funds falling in Morningstar’s EM category whose equity style box is “value.”

  YTD return YTD rank 3-year return 3-year rank
T. Rowe Price Emerging Markets Value -6.75 6 10.52 10
Schwab Fundamental Emerging Markets Large Company Index ETF -6.79 6 13.53 2
ICON Emerging Markets -6.18 5 4.65 80
Dreyfus Strategic Beta Emerging Markets -8.33 10 10.28 11
DFA Emerging Markets Value -10.06 17 11.43 5
SA Emerging Markets Value -10.28 19 9.96 13
State Street Disciplined Emerging Markets -9.76 15 3.96 87
Pear Tree PanAgora Emerging Markets -13.23 48 3.67 90
Rational Risk Managed Emerging -11.69 29 4.39 82
Seafarer Overseas Value -12.58 40

All data current as of 11/29/2018

While MSCI publishes the MSCI Emerging Markets Value Index, they report “there are no active ETFs associated with this index.”

Beyond dedicated EM funds, some domestic value investors who have the freedom to invest globally have begun adding EM value stocks to their portfolios. David Hobbs, president of The Cook & Bynum Fund (COBYX) writes that “we are finding the opportunity set outside of the US (and particularly in emerging markets) much more interesting these days.” Their most recent shareholder letter reflects their judgment that the stocks of some good non-US firms are now so beaten down that they have been able to put a meaningful portion of fund’s cash to work this year:

Since their peaks on January 26, 2018 through late October, the MSCI ACWI excluding the U.S. is down 18%, and the MSCI Emerging Markets Index is down 25%…When political and macroeconomic risks in these countries emerge – say the election of a socialist-leaning leader or weakness in the prices of a country’s primary exports – capital will flow out of these markets, oftentimes chaotically. We like and carefully look for indiscriminate selling where speculators dump stakes in good businesses for non-fundamental reasons. Our efforts to buy undervalued businesses are easier when fear pervades, and international markets are increasingly riddled with trepidation. Indeed, we were able to build a position in a new investment and increase the size of our existing holdings in several existing holdings during the last six months.

Bottom line:  the whole EM apple cart might well be upset if the rising conflicts between the US and China are not successfully managed. Speaking to the Bloomberg New Economy Forum, former Treasury Secretary Henry Paulson described that conflict as “a systemic risk of monumental proportions” and warns of “a long winter in US-China relations” (WSJ, 11/8/2018). One EM manager, speaking off the record, worries that conflict between the US and China, stoked by dysfunctional jingoism and risk of escalating reciprocal retaliation, might eventually make the emerging markets uninvestable.

If you believe that both sides will somehow muddle through again, it would be prudent to begin now to deepen your understanding of what appears to be your best hope for reasonable returns in the decade ahead.

Rolling Out The New Data

By Charles Boccadoro

“The only thing that makes life possible is permanent,

intolerable uncertainty; not knowing what comes next.”

Ursula K. Le Guin

Our big MFO Premium upgrade, as described in last month’s commentary, went live on 9 November. Most obvious are the expanded evaluation periods, which include year-to-date (YTD) and latest month performance metrics. In the days ahead, subscribers will see many new parameters from our expanded database, as was evidenced today with the rolled-out of an Interval Funds screening flag in the MultiSearch tool.

The folks at Gaia Capital requested we add the screen for this new type of mutual fund. Per Lipper, Interval Funds are a hybrid mutual fund structure that falls between an open-end and a closed-end fund. They allow investors to purchase shares daily, but permit funds to set longer intervals between redemptions. (See Morningstar’s article “Are Interval Funds the Next Big Thing?”)

As of month ending October, there are 44 such funds in our database. The top 10 by assets under management (AUM) are listed below in a table of YTD performance, which has been strong generally, as evidenced by the five Great Owl funds. Even stronger performance can be found in some of the smaller interval funds, like FS Global Credit Opportunities Fund-D (BX) and Legg Mason’s Western Asset Middle Market Income (XWMFX).

In a follow-up to David’s “Who Won In October?” piece, the new past month evaluation screen allows us to easily see exactly who won and lost in October. The table below, for example, presents the worst five performing US Equity funds, showing drops of 16, 18, and 23%, including the closed stalwart Brown Capital Management Small Company (BCSIX). Ouch!

That said, analyzing period returns (via the Analyze button) for these same five funds reaffirms David’s reluctance to whine too much over October’s pullback, as most still offer healthy gains YTD and over the past year, as evidenced here:

The trend though is clearly negative, or as being tweeted about lately, “Momentum is broken.”

Meanwhile, Emerging Markets, China, India are among the worst performing categories this year, continuing 9 months of drawdown, much worse the S&P 500 despite the rough October …

And reversing last year’s short lived come-back …

As we continue to roll-out our much expanded database from Lipper’s Global Data Feed, there’s never been a better time to take advantage of the MFO Premium site.

Coal in Your Stocking

By Edward A. Studzinski

Snow on the pines

Thus breaks the power

That splits mountains.

Otaka Gengo Tadeo (one of the forty-seven samurai).

Year-end Musings

So, another month of volatility come and gone. I think back to about this time almost a year ago, when one of my dinner companions at an event in New York was Byron Wien. Byron had just released his famous annual predictions, one of which was that the market would correct towards the fall, but then rally back to a new high by year-end. It will be interesting to see how that plays out, across the capitalizations of equities (micro, small, mid, large, and mega) as well as across other asset classes (bonds, cash, and real estate to name a few). As my former partner Clyde McGregor recently opined to me, there have not been any safe places to hide.

Over the next few weeks, we will be seeing the capital gains and income distributions from many funds, unless like so many precious metals or natural resources funds, they still have large tax-loss carry forwards to offset distributions. Thus, investors holding mutual funds in taxable accounts, rather than in retirement or other tax-exempt situations, will find themselves with a distribution from a fund’s net asset value. They will have to pay taxes on those distributions. And that is on top of showing perhaps a negative ten or fifteen per cent return on the share price of the fund since the first of the year. What to do, what to do? If they are under water with regards to the basis in the fund, they can certainly liquidate the fund to take a loss and offset the distribution gains from the fund. But that only works if they have a basis loss to take. Many, if they have held the funds for some years, will still have a gain on their original investment cost. If they sell the fund for another gain it only exacerbates the problem.

In that vein, as accountants meet with individuals for their year-end tax planning, and to make sure that the client’s estimated tax payments are where they need to be, they will be delivering a lot of bad news. This will be especially true in states with high personal income tax rates and high property tax rates, with those deductions capped at $10,000. Many will find themselves needing to raise cash to pay taxes. Last month I advanced the argument that increasingly I thought mutual funds should be owned only in tax-free accounts. This also ends up being another argument for the tax-efficiency of equity index funds in taxable accounts, since the distributions as a per cent of a fund’s net asset value are generally less than 2%. In many actively-managed balanced and equity funds, the distributions as a per cent of a fund’s net asset value run the gamut from five per cent to as high as eighteen per cent, at least of the funds I have seen. Those numbers will not be insignificant to individual investors.

Two for Me, One for You

Another cultural shock for me that is ongoing is to observe how firms treat not just their investors but their own employees in a year like this one. One surprise, which I think reflects the combination of performance issues and continual fee pressure from passive and exchange-traded products, has been to look at the number of firms, like long-term value firm Chieftain Capital, that are shutting down. Some of that is a function of not being able to sustain a founder’s culture. Some of it is a function of the owners having decided that they have about sucked the golden goose dry, that is, pure greed.

It will be interesting to see how many firms, notwithstanding how poorly their investors have done this year, will pay huge bonuses to the already highly-compensated employees. Some firms historically have been quite willing to eliminate the 401 (k) match for the non-professional staff while still paying the highly-compensated bonuses. This reminds me of a discussion I had recently with a former official in a prior administration about TARP money. That person had indicated that they expected the large banks and financial institutions to do the “right thing” and pump the money into the economy and NOT pay the executives huge bonuses. Instead the financial institutions sat on the money. They started down the path of paying out huge bonuses, until they were told they could not. That caused all kinds of wailing and gnashing of teeth – “we won’t be able to recruit and retain the right kind of people.” It was of course exactly those “right kind of people” that put us into the mess we were in in 2008. And one suspects that it is those same “right kind of people” at the private equity firms, hedge funds, and asset management firms that are again going to drop us into the toilet. But I digress. As you are looking at your year-end investment statements, try and figure out how you will feel if notwithstanding your pain, your fund manager has felt no pain.


I have been a paying subscriber for many years now to Grant’s Interest Rate Observer, especially for its somewhat irreverent and contrarian views. In the November 30th issue, there is a reference to an academic article, that article being one that I suggest all of you should read. The article is entitled “Stock Market Charts You Never Saw” and it is by Edward F. McQuarrie, Professor Emeritus at the Leavey School of Business, Santa Clara University. Most of us, when looking at the long-term results of the asset classes of stocks, bonds, and cash, use as a reference the Ibbotson tables and numbers, which start at the end of 1925 and run up to the present. On that basis, one usually concludes that stocks for the long-run provide superior returns over time, and a 60/40 stock/bond allocation smooths out the peaks and valleys nicely for such things as pension accounts, continuing that allocation through the payout period of the pension. McQuarrie and the current issue of Grant’s raise questions about whether this time, it is different, given the effects of Quantitative Easing and other such niceties. McQuarrie raises the question of whether we are under-rating the risk of equities and not paying enough attention to bonds.

McQuarrie’s point, and why I commend his monograph to you – it all depends on the period you are looking at. Remember also the effects of inflation and stock dividends over time. And the charts he has put together looks at many different periods rather than just starting at the beginning of 1926. I will let you draw your own conclusions, but it is a piece that I strongly suggest should be part of your year-end investment reading and planning.

Of Centaurs and unicorns

By David Snowball

Zeke Ashton never met Brenda Barnes, so far as I can tell. That’s too bad. He had, sometime this fall, his Brenda Barnes Moment. I think he would have enjoyed talking with her about it.

Brenda Barnes was many things but, for the purpose of our story, she was one of the most powerful business leaders in America. She became COO of Pepsi-Cola in 1993 then president and CEO in 1996. Later, as president of Sara Lee, Forbes ranked her as the 8th most powerful woman in the world, just ahead of Oprah Winfrey (2005). That same year, Fortune ranked her third.

But Brenda was not just the sum of her corporate accomplishments. She was a good and thoughtful person, complex, acute and still charitable. She was a spouse, a mother of three, an active mentor to young women and a respected voice in a dozen communities. She was also an Augustana alumna, guide and colleague.

Her professional career saw two pinnacles: she was one of the more powerful women in the middle 1990s and one of its most powerful a decade later. And in between those two, she walked away. At age 43, Brenda resigned from her post at Pepsi, then she and husband Randy packed up the family, sold the Connecticut estate and moved back to her home state, Illinois. Brenda was loath to let life be entirely consumed, as it was in the 1990s, by an endless series of 14-hour workdays. Her argument was simple: “It’s not that my children needed me. It’s that I needed them. If I didn’t spend more time now, I would not have that opportunity.” Two years into her sabbatical, she reported “I’ve had no boredom. Not a minute. Not a nanosecond.”

Brenda always understood that “to get to the highest levels, you have to commit your life, which was not the right choice right now. But I would never rule out going back.” She joined carefully selected boards of directors (“I wanted to go where I could learn something, and where I felt my skills would be an asset. You don’t want to just sit there. You want to be valuable. Otherwise, why waste the time?”) and eventually returned to a second, higher pinnacle as CEO of Sara Lee. In 2010, while lifting weights in a gym, Brenda suffered a massive stroke, was placed in a coma, then spent years ferociously rehabilitating herself. In 2013 she received the State of Illinois’ highest recognition, the Lincoln Laureate award.

A November SEC filing offered the first public word of what turned out to be Zeke Ashton’s Brenda Barnes Moment: “Centaur Capital Partners LP … has notified the Board that it intends to resign, and the Board, after careful consideration, determined that it was in the best interest of the Fund and its shareholders to appoint DCM as the new investment advisor to the Fund. It is expected that the Interim Advisory Agreement will become effective on or about November 15, 2018. DCM intends to manage the Fund using the current investment objective and strategies.”

The story: Centaur Total Return (formerly Tilson Dividend TILDX) is a remarkably good little fund. All-weather, great returns over time, absolute value orientation. It’s been managed since inception by Zeke Ashton, who wants to have a fully-invested equity portfolio but who has kept 40-60% in cash since the market became richly valued. It’s made 12% annually over the decade because his stock picks perform really well; last year he had a 13.5% return sitting on 50% cash, which means his stocks returned about 27%. We’ve profiled it several times. 

Nonetheless, money has been walking out the door at about a million a month. My rough estimate is that he’s seen outflows in, say, 70 of the past 72 months. The fund is down to $25 million, mostly friends and family now.

The easy assumption, which I erroneously made in first writing about his decision, is that Mr. Ashton concluded that the fund was not financially sustainable and that he couldn’t justify sticking with it.

I was wrong.

I had a wide-ranging conversation with Mr. Ashton at the end of November, 2018.

This was not really a business or investing decision, though both played a role. Centaur, with both a hedge fund and a mutual fund, is a family business run by a husband-wife team. That certainly makes us different from the usual hedge fund boutique and, I’d guess, from the usual small mutual fund, too.

Running a special kind of fund has been a dream of mine, and it’s nearly all-consuming. I felt like I had identified the core problem with mutual funds and investing in general; the problem is sometimes fees and performance, but it is primarily that investors behave poorly. We too often make bad decisions in response to dramatic but short-term developments. I wanted to create a vehicle that could provide a similar ride to the fully-invested indices without the risk or volatility. By giving my investors a smoother ride, I was kind of hoping that people would settle in for the long-term.

By and large, relative to the exposure that we take and relative to the market cycle, I think we did that.

That’s been my dream, but pursuing it has come with real costs. It takes so much effort that you can hardly imagine it. We work virtually every weekend and every night, and we’ve had no vacation in six years. That was my choice and it reflects my style, but I’ve become uncomfortable with the cost. Our parents are getting older, and need us more than before. That’s made me realize, the stock market is always going to be there but the people you love won’t always be.

It’s a good time for us to step away. We have decided to close our hedge fund and return capital to investors. We’ll have time for each other and for family. I think of it as a sabbatical from the business, not necessarily the end of our time in it.

I have great peace of mind about it all: we were on a worthwhile mission, and it was a worthwhile use of a third of my life.

Bottom line: The Board has decided to keep Centaur Total Return open with a new manager. They selected Vijay Chopra of DCM Advisors. I know next-to-nothing about him but here’s his bio from his Linked In profile:

Global equity portfolio manager managing global, international and emerging market portfolios utilizing a quantitative investment framework. Global equity strategy has an annualized alpha of over 200bp over the last eight years. The investment process combines a disciplined top-down global country-allocation strategy with a bottom-up quantitative stock-selection strategy to provide two complementary sources of alpha. Global macro-economic, valuation, growth and momentum indicators are used within a multi-factor framework to evaluate country attractiveness, and determine risk-managed country allocation.

He’s doubtless a good guy. I reached out, via Linked In, to Mr. Chopra but he has not chosen to respond. There is a strategy description on the DCM Mutual Funds website, for those interested. As a practical matter, Centaur remains in name only. We don’t know its future directions or prospects, both of which might conceivably be bright. Given that ignorance, we have removed our earlier profiles of Centaur and recommend that investors approach it as they would an entirely new fund.

We wish Mr. Ashton well. He’s done an exceptional job for his investors and surely has earned some time with family and with life. He might, in the fullness of time, choose to return. We would welcome that development and will remain watchful on your behalf.

Post script:  Brenda Czajka Barnes (November 11, 1953 – January 17, 2017)

Brenda’s reflections on the life’s evanescence and its preciousness were prescient. A second stroke ended her life two years ago, at age 63. In a 2013 interview at the Lincoln Academy, Brenda recognized the fragility of it all:

I tell people you have to really value life and view it with a positive attitude, because you never know when it could go away, or how quickly it could go away. It’s the old adage of living each day to the fullest. In the flick of a moment, everything changed for me. Everything.

I think, sometimes, about Amos Tversky whose early work with Dan Kahneman laid the groundwork for behavioral economics. Not long before his death from cancer, at age 59, Dr. Tversky reflected on life. “Life is a book,” he wrote. “The fact that it was a short book doesn’t mean it wasn’t a good book. It was a very good book.”

Brenda wrote a very good book, indeed.

Your 2019 funds watchlist: Draft #1

By David Snowball

It is exceedingly unlikely that your best options in the year and years ahead are going to look much like the winners of the past two years. That reflects, in part, the market’s unresolved turmoil and, in part, the fact that the market has been unmoored from reality of late. Commentators fear that “the sugar rush” provided by the Republicans’ indiscriminate tax cut will, at best, fade and, at worst, be followed by a “sugar crash” as the consequences of trillion dollar annual deficits, rising interest costs and global instability begin to hit home.

A quick snip from my most recent newsfeed:

Is Another Market Crash Coming?

The Latest Stock Market Crash Signal Is Blaring Out of Texas

A Market Crash Is Inevitable — Here’s What to Do

The stock market is flashing some terrifying parallels to the tech …

GOLDMAN SACHS: Hedge funds have plunged into a ‘vicious …

Is There A Possibility Of Another Stock Market Crash?

The stock market looks like it’s past the point of no return — and not …

Bitcoin Crash Escalates, Equity Crash Developing

Those are from halfway credible publications, not “head for the bunker” crazies!

And despite that, the market is still having 3.5% up days and has its share of “up 24% in 12 month” cheerleaders who might, for all I know, be right

We’ve been tracking funds whose strengths might serve you in markets that are greatly different from those we’ve lately seen. In advance of a series of 2019 profiles, we wanted to share the names of four funds that warrant a place on your year-end due diligence list.

The Fund for Uncertain Markets: Northern Global Tactical Asset Allocation (BBALX)

The ideal fund for uncertain times is not “conservative.” For uncertain times, you benefit from “a vigilant agnostic.” By that I mean a fund whose risk exposure can change as conditions evolve. Northern Global Tactic Asset Allocation qualifies.

Northern Trust Asset Management is institutionally averse to traders, speculators, flavors-of-the-month and trendy marketing. Northern Global Tactical Asset Allocation (BBALX) embodies the market assessment of Northern’s investment policy committee.

BBALX has an exceptionally solid core. It has a strategic asset allocation that’s more diversified than most, with structured exposure to global real estate, commodities and infrastructure as well as global equities and fixed income. It implements that allocation plan primarily through its FlexShare smart beta ETFs and iShares ETFs. The FlexShare ETFs are designed with strategic “tilts” in their asset class exposure: they “tilt” toward quality, dividends, value and size. Those tilts are all structural bets in the direction of factors which tend to outperform over the long term.

Northern can then apply a tactical overlay. If its calculation is that the market is favorable to a “risk-on” strategy, it can tactically increase its exposure to risk assets to gain a modest advantage over static portfolios.

I had a long talk in November with manager Jim McDonald, who is also the Chief Investment Strategist for Northern Trust. For the first time since the strategy’s inception, the tactical positioning is zero. That is, uncertainty in the market is so high that it’s prudent to neither embrace nor avoid risk. They’re a tiny bit heavy on corporates and a tiny bit light on TIPs. The most notable overweight in the portfolio is in high yield bonds: “our overweight is considerable, we view [HY] as a risk asset, and it is the least risky of our risk assets.” The net effect is being risk-neutral until they have a better view.

The most notable risk they see is that the fed will overshoot on interest rates, which is a “material risk” but not an element of their current base case. That is, they’re watching, they’ve wouldn’t be surprised, they’re ready to act … but haven’t yet.

On whole, the fund is performed admirablely across markets. The fund’s “tactical” mandate was first introduced ten years ago. Since that time, it’s delivered respectable returns with particular strength in managing failing markets.

Cum. return Annual return Max drawdown Recovery Std dev Downside dev Bear mkt dev Sharpe Ratio Sortino Ratio Martin Ratio
BBALX 101 7.2 -11.2 10 mos. 8.5 5.2 4.6 0.81 1.33 2.42
Lipper Flexible Portfolio 115 7.7 -14.7 15 10.1 6.2 5.5 0.76 1.27 2.05

Administrative details for Northern Global Tactical Asset Allocation

Symbol / Class Expense ratio, after waivers Minimum initial investment
BBALX 0.63% $2,500

The fund is managed by Robert P. Browne, James D. McDonald, and Daniel J. Phillips. As of July 31, 2018, Robert Browne had over $1 million invested in the fund, James McDonald between $500,001 and $1 million, and Mr. Phillips had no investment in the fund.

Northern Global Tactical Asset Allocation website.

The Fund for Nearly-Normal Markets: RiverPark Long/Short Opportunity (RLSFX / RLSIX)

RiverPark Long/Short Opportunity is designed to crush things in normal markets. RiverPark started with the recognition that some industries are in terminal decline because of enduring, secular changes in society. By identifying what the most important enduring changes were, the managers thought they might have a template for identifying industries likely to rise over the coming decades and those most likely to decline. The word “decade” here is important: the managers are not trying to identify relatively short-term “macro” events (e.g., the failure of the next G20 summit) that might boost or depress stocks over the next six to 18 months. Their hope is to identify factors which are going to lift up or grind down entire industries, year after year, for as far as the eye could see. They normally hold 40-60 long positions in stocks with “above-average growth prospects” and 40-75 short positions in stocks representing firms with challenged business models operating in declining industries. They would typically be 50-60% net long.

Unlike many long/short funds, the strategy here is to always play offense. Their short book doesn’t function as a “hedge” for their long book, it’s designed to make money all on its own. The strength of the fund has been masked by the fact that we have not been in a “normal” market for a long time. Relaxed lending standards and near-zero interest rates have allowed a lot of zombie firms to shuffle along far longer than you’d imagine; as credit tightens and interest rates rise, a lot of these firms will lose their lifelines and their (borrowed) leases on life. If that plays out, RiverPark is ready.

Over the past five years, the fund has performed as you might predict: it has generated both higher returns and higher volatility than its timid peers. As volatility has returned and the credit cycle began to turn, the fund has begun to shine. Here are the one-year metrics for the fund, reflecting a positive asymmetry between returns and risks in a normalizing market.

Annual return Max drawdown Recovery Std dev Downside dev Bear mkt dev Sharpe Ratio Sortino Ratio Martin Ratio
RLSFX 1.9% -7.7 2 mos. 12.9 9.3 8.8 0.01 0.02 0.05
Lipper Long Short 0.9 -7.0 6 mos 8.8 6.9 6.3 -0.13 -0.02 0.03

The fund’s performance has been particularly strong in 2018, where its 2.4% return (through 11/30) leads its average peer by an astounding 4.25%, placing it in the top quarter of all long-short funds.

Administrative details for RiverPark Long/Short Opportunity.

Symbol / Class Expense ratio, after waivers Minimum initial investment
RLSFX (Retail Class) 2.00% after waivers $1,000
RLSIX (Institutional Class) 1.79% after waivers $100,000

Mitch Rubin has over $1 million invested in the fund.

Long/Short Opportunity website.

The Fund for the Next Market: JOHCM Global Income Builder (JOFIX / JOBIX)

This is a multi-asset fund but it is largely unconstrained: it targets US and international income-producing securities including common stock, high-yield and investment grade debt, preferred shares and convertibles, and a variety of hedges including gold, precious metals, currency forward contracts, and inflation-linked vehicles. Income-oriented yet wary of today’s low yields, interested in capital growth yet skeptical of overpriced assets, determined to minimize the risk of permanent loss of capital but agnostic about which asset classes are best suited to do that. It intends to pursue a sort of absolute value discipline, whose core tenet is that the best way to make money long term is first and foremost not to lose it. As a result, the managers intend to only buy assets which provide a sufficient margin of safety.

The advantage they hold over other absolute value investors is that cash is not their only refuge; being a multi-asset fund, they can, as their Team Head observes, “still provide clients with the service of income even while risk assets are not particularly attractively priced.”

The fund is new but the team is experienced and, in particular, highly experienced at managing this strategy. Team Head Giorgio Caputo and Robert Hordon co-managed First Eagle Global Income Builder (FEBIX) from inception through July 19 and October 20, 2016, respectively. Both served as analysts on First Eagle’s Global Value Team which oversees First Eagle Global (SGENX) and both had the opportunity to work with renowned investor Jean-Marie Eveillard. Under their watch, FEBIX earned a four-star rating from Morningstar.

Morningstar reports that the fund has lost 2.75% in 2018, through November 30. That places them in the top 20% of all world allocation funds.

Administrative details for JOHCM Global Income Builder.

Symbol / Class Expense ratio, after waivers Minimum initial investment
JOFIX (I Class) 0.99 No minimum
JOBIX (Institutional Class) 0.89 $1,000,000

Access has been steadily broadening and the fund is now available through Schwab, Fidelity/NFS, Ameritrade, Stifel, Oppenheimer & Co., LPL Financial, JP Morgan and Morgan Stanley, as well through direct purchase via the JOHCM website.

Messrs. Caputo and Hordon have each invested $1,000,000 or more in the fund, Ms. Topcuoglu has invested between $100,000 – 500,000.

The fund’s website required a few extra clicks to reach and is, as yet, thin on content.

The Fund for a Bond Bear Market: RiverPark Floating Rate CMBS (RCRFX / RCRIX)

Many investors believe that we have reached the end of a three-decade bull market in bonds, and that a long, grinding bond bear market (yes, there are such things) might be underway. The fact that the market is unhappy does not materially change investors’ needs for income, especially in retirement. RiverPark Floating Rate offers a fascinating alternative to traditional fixed-income funds.

In general, the manager invests in high-quality commercial real estate debt which includes commercial mortgage backed securities (the “CMBS” in the fund’s name), commercial real estates secured bank loans, mezzanine loans and collateralized debt and loan obligations. The key is that the debt is all backed, directly or indirectly, by real estate assets. The primary attractiveness of the fund is its success in very steadily generating income. In its 24 months as a closed-end fund, the fund has never had a losing month while its benchmark Bloomberg Barclays U.S. Investment-Grade CMBS Index and the Bloomberg Barclays U.S. Aggregate Bond Index both lost money on 11 occasions. While the fund’s monthly returns are modest (6-75 basis points monthly since October 2016, the steady compounding and lack of negative months has given the fund is substantial performance edge: it has averaged 4.44% annually over the period while both the CMBS and Aggregate Bond indexes are in the red.

Three other factors make the fund particularly attractive for income-seeking investors:

It targets only high-quality investments. The manager targets securities back by high quality real estate and sponsored by blue-chip firms such as Vornado and Blackstone. From among those securities, they target ones with strong credit metrics and attractive yields.

It provides income independent of the traditional fixed-income market. Because the real estate market has different fundamental drivers than does the bond market and because most of the portfolio investments are floating rate with yields that reset monthly as interest rates rise, RiverPark believes the fund will allow investors to decrease their exposure to the risk of rising interest rates in their fixed income portfolios. MFO calculated the correlations between RiverPark and the aggregate bond market at only 0.30.

It has a highly experienced manager. The fund is managed by Edward L. Shugrue who has more than 30 years of commercial real estate investing experience, beginning with Bear Stearns & Co. in 1988 and including a stint as CFO for Sam Zell’s Capital Trust. He has, over the years, traded rather more than $30 billion in CMBS.

Morningstar reports that the fund has earned 3.2% in 2018, through November 30. That beats their Morningstar peer group by a full 5.0%.

Administrative details for RiverPark Floating Rate CMBS.

Symbol / Class Expense ratio, after waivers Minimum initial investment
RCRFX (Retail Class) 1.25% $1,000
RCRIX (Institutional Class) 1.00% $50,000

Edward L. Shugrue III has invested substantially more than $1,000,000 in his fund. The fund’s website is attractive, but content is growing at a modest rate.

Funds in Registration

By David Snowball

Before funds can be offered to the public, they’ve got to be submitted to the SEC which has 70 days to review the application. In general, advisers try to launch just before years end because that allows them to have clean “year to date” and calendar year results to share. That means that funds hopeful of launching by December 30th needed to be filed by October 15th. Since few firms are interested in launching funds in late January or early February, this month’s filings are not-surprisingly thin. On face, the most promising is likely an actively-managed ETF from a team with a strong track record in funds: Virtus Seix Senior Loan ETF.

AB Multi-Manager Select 2060 Fund

AB Multi-Manager Select 2060 Fund will seek highest total return over time consistent with its asset mix. It’s a long-dated fund-of-funds which will be managed by Morningstar Investment Management. The same team runs all of the AB target date funds which are, on whole, very strong performers. Its opening expense ratio will likely be 0.66% or 0.83%, depending on which share class you access, and the minimum initial investment will be $2,500.

ARK Fintech Innovation ETF

ARK Fintech Innovation ETF (ARKF), an actively-managed ETF, seeks long-term growth of capital. The plan is to build an all-cap portfolio of fintech innovation companies. Here’s the universe: firms “focused on and expected to benefit from the shifting of the financial sector and economic transactions to technology infrastructure platforms, and technological intermediaries. FinTech Innovation Companies may also develop, use or rely on innovative payment platforms and methodologies, point of sale providers, transactional innovations, business analytics, fraud reduction, frictionless funding platforms, peer-to-peer lending, blockchain technologies, intermediary exchanges, asset allocation technology, mobile payments, and risk pricing and pooling aggregators.” The fund will be managed by Catherine D. Wood of ARK Investment Management. Its opening expense ratio is 0.75%.

Collective Wisdom Fund

Collective Wisdom Fund will seek long term growth of capital. The plan is to buy 40-100 common stocks “based primarily on patterns found in the Vestly data, coupled with more conventional quantitative and fundamental data analytic models utilized for risk management purposes.” Vestly is “a fun and free stock trading game where you compete for over $200000 in cash and prizes.” Here’s the celebration from one Vestly investor:

Quote from Vestly winner

Two other funds that began with a similar premise, StockJungle Community Intelligence Fund and Marketocracy Masters 100 Fund, were both highlighted in Morningstar’s 2009 article, “Dumb and Dumber: The Worst Fund Launches of the 2000s.” The fund will be managed by Ronald S. Rosenberg and Michael Suen on Intelligration, LLC. My guess is that the managers would point out that they have much more sophisticated data analytics than did their extinct predecessors. Its opening expense ratio is 1.20%, and the minimum initial investment has not yet been disclosed.

Gotham ESG Large Value Fund

Gotham ESG Large Value Fund will seek long-term capital appreciation. The plan is to employ “a systematic, bottom-up, valuation approach based on the Adviser’s proprietary analytical framework to identify those companies meeting the ESG criteria that appear to be undervalued on both an absolute and relative basis.” The fund will be managed by Joel Greenblatt and Robert Goldstein. Gotham has been aggressively expanding its footprint: it has just three funds with a five year record, seven funds with a three year record but 20 funds with a one-year record. This will be fund #22 for them. It’s hard to speculate about how much faith to have in Mr. Greenblatt’s system: the five-year records are mediocre, the one-year records are splendid, so …. ? Its opening expense ratio is 0.75%, and the minimum initial investment will be $100,000. Retail access is possible through some of the fund supermarkets, but shares are generally tough to get without paying an additional layer of fees.

Navigator Ultra Short Bond Fund

Navigator Ultra Short Bond Fund will seek current income consistent with the preservation of capital. The plan is to invest, primarily, various types of short duration, investment grade debt. The average duration will be under one year. The managers might also purchase or write credit default swaps and credit default swap indexes. The fund will be managed by Jonathan Fiebach and Robert S. Bennett, Jr., both of Clark Capital Management Group. Its opening expense ratio is 0.75% with a nominal front load of 3.75%, and the minimum initial investment will be $5,000.

Pear Tree PNC International Small Cap Fund

Pear Tree PNC International Small Cap Fund will seek long-term capital appreciation. The plan is to use uses “proprietary quantitative investment technology, combined with traditional, value-based, fundamental research, to identify potential investments” There’s a top-down industry- and country-selection element to the process, plus the prospect of using options. The fund will be managed by Martin C. Schulz and Calvin Y. Zhang of PNC Capital Advisers. Messrs. Schulz and Zhang also manage a portion of the portfolio for the four-star PNC International Equity Fund (PMIEX).Its opening expense ratio is 1.82%, and the minimum initial investment for Ordinary Shares (raising the prospect this might be an Ordinary Fund) will be $2,500. We quickly scanned the expense ratios of other international small cap blend funds. There is only, other than for the archaic “C” shares on a dozen funds, only one fund with a higher expense ratio.

Virtus Seix Senior Loan ETF

Virtus Seix Senior Loan ETF (SEIX), an actively-managed ETF, seeks to provide a high level of current income. The plan is to invest in a combination of first- and second-lien senior floating rate loans. They can also pick up some junior loans, junk bonds and asset-backed securities. The fund will be managed by George Goudelias and Vincent Flanagan of Seix Investment Advisors. The team also runs the four-star Virtus Seix Floating Rate High Income Fund (SAMBX). Its opening expense ratio has not been disclosed.

Provident Trust Strategy Fund (PROVX), December 2018

By Dennis Baran

Objective and strategy

PROVX seeks long-term growth of capital. As a concentrated, non-diversified, bottom-up, multi-cap core growth equity fund, it aims to exceed the S&P 500 Index over full investment cycles, which are typically five to seven calendar years in length and contain both a 30% advance and a 20% decline.

The managers generally prefer to invest in large and medium capitalization stocks (namely, companies with at least $2 billion in market cap) but may also invest a portion in small capitalization companies.

Provident has the flexibility to move much of the portfolio to cash and/or high quality bonds during periods of extreme stock market risk.


Provident Trust Company, Waukesha, WI was founded in 1998 by J. Scott Harkness, now a co-manager of the fund. The firm also manages an equity strategy, a balanced strategy, and a fixed income strategy, and  provides integrated financial forecasting besides trust services. The firm employs 14 and had about $3.6 billion in assets under management, as of September 30, 2018.


J. Scott Harkness, CFA, and Michael A. Schelbe, CFA, JD, MS.

Mr. Harkness is Provident Trust’s, CEO and founder. Prior to founding Provident, Mr. Harkness was Chairman and CIO of Firstar Investment Research and Management Company and, earlier still Senior Vice President and CIO for Firstar Bank Madison where he managed the Firstar Special Growth Fund and the Firstar Special Equity Growth Funds. He has 40 years of investment experience.

Mr. Schelble is President, COO, and Director of Provident Trust Company, and has been since its inception in 1998. Like Mr. Harkness, his earlier career was with FIRMCO and Firstar. He has 25 years of investment experience.

Both have managed the fund since 2002.

Strategy capacity and closure

The strategy used in PROVX is also used in a series of separately-managed accounts. Overall, the strategy has a capacity limit of about $10 billion. The fund currently holds under $200 million and the managers are responsible for under $3 billion overall.

Active share

91.5% as of September 30, 2018

Active share measures the degree to which a fund’s portfolio differs from the holdings of its benchmark portfolio, in this case, the S&P 500. The fund’s active share shows a very high level of independence from its benchmark.

Management’s stake in the fund

Mr. Harkness and Mr. Schelbe have each invested more than $1,000,000 in the fund. As of January 31, 2018, three of the four directors also have substantial personal investments: two have over $100,000 invested and the third falls between $50,000-100,000.

Opening date

Technically December 30, 1986 but, as a practical matter, September 9, 2002. The earlier date is the opening, but Provident Trust did not take responsibility for its management and strategy until 2002. That means that the fund’s 15 year record is rather more relevant and any “since inception” data.

Minimum investment


Expense ratio

0.93%, on assets of $192 million, as of July 2023.


The Provident Trust managers exhibit uncommon skill at executing a straightforward discipline. The portfolio is highly concentrated with just 15 names, virtually all in the domestic large- to mega-cap space. Primarily bottom-up investors, the managers look for good quality growth stocks which might be signaled by improving revenue and earnings growth, increasing margins, significant stock ownership by management and improving price-to-earnings ratios.

They make some consideration of macro factors, such as inflation and interest rates, then buy and hold for the long term. Morningstar reports on average turnover rate of 2%, compared to 55% for their peers. The advisers long-term calculation is that turnover averaged 17.0% over the past 10 years.

Provident Trust Company began sub-advising the fund on September 9, 2002 and became the primary advisor role on August 31, 2012. Here’s how the fund has performed since Provident came onboard in 2002:

Month Ended: 10/31/2018 PROVX S&P 500 Index
3 year annualized 11.94% 11.52%
5 year annualized 11.86 11.34
10 year annualized 11.90 13.24
Since managing, 9/9/02 9.87 9.25

Source: Provident Trust, 10/31/18

That’s pretty compelling.

Investors remember that this period includes the 2007-09 financial crisis. What they may not know is that in 2008, the fund lost 21.0% compared to the S&P 500’s 37.0% decline. That ranked the fund in the 1st percentile.

While paralyzed investors and central banks struggled, the fund held between 61% in cash and fixed income instruments at the end of ’08 and 70% at the market bottom in March ’09. That positioning dramatically reduced the fund’s losses compared to the market, while giving it ample “dry powder” for the gains that followed.

What’s the lesson here?

The managers (1) place a premium on keeping shareholders through bad times so that they can participate in good times and (2) provide an example of a flexible strategy that preserves assets during the most difficult market environment during the last 50 years at that time.

But how has it performed to date?

During Provident’s tenure as portfolio manager to September 30, 2018, PROVX gained +389% cumulatively with a 79.8% average month-end allocation to equities vs. +348% for the always fully invested S&P 500.

During Provident’s tenure as portfolio manager and ending September 30, 2018, PROVX’s equity allocation ranged from 29.8% to 97.1%.

During the current full market cycle (11/2007 through 10/2018), it’s exceeded the S&P 500 by 0.9% and its large cap growth peers by 4.3%.

During the current full market cycle, its maximum drawdown was -28.4% with a recovery of 28 months compared to the S&P 500 at -50.9% with a recovery of 52 months.

The managers have explained their historical allocations to hold cash and short-term securities as part of their decision to invest defensively and prudently. Those decisions have affected their shorter-term performance for both better or worse.

It is predictable, and admirable, that the fund outperformed the market during the 2007-09 crash, declining at about half the rate of the S&P 500. It’s more surprising, and more admirable, that the fund managed to outperform the market over the five years beginning in 2003 and ending in March 2008. That is, the fund’s performance in the frothy markets preceding the crash were solid and its performance during the crash was decisive.

Here’s a look at the Upside & Downside Capture ratios, first from Morningstar.

Bottom Line

Provident wants to be your manager. Singular. As in, “the only guys you need.” Failing that, they’d like to be your core holding. We believe that they have made a strong argument, over 15 years and several market cycles, to be precisely that.

Their aim is to provide risk-conscious management in pursuing of a sustainable investment; that is, one you can live with for the long term. One measure of their success comes from Morningstar’s calculation of the fund’s “investor returns.” Investor returns are a proxy for what the average fund investors has earned in a period, which is often dramatically different from what the fund has produced. The reason is simple: high volatility funds produce poor behavior on the part of investors, who rush for the doors during inevitable swoons and rush toward the entrances after dramatic rises. As a result, investor returns are lower than the fund returns.

For Provident? 15 year fund returns: 9.48%. 15 year investor returns: 9.54%. Far more than with their peers, investors have stuck with the fund and benefited from it.

The managers, likewise. The managers have both committed over a million of their own money to the fund. That represents one-hundred percent of the portfolio managers’ retirement assets.

To their credit, some folks at MFO – for example, our publisher who referenced it positively in his August 2018 “Briefly Noted” — wondered why it hasn’t been profiled. Others at MFO own it, have owned it, contributed discussion, or asked MFO to write about it.

Two factors help explain why so few others have embraced the fund.

  1. Seventy-five percent of their SA clients are HNW individuals, and the next highest non-HNW individuals. They offer the fund for those who wish to invest in their strategy but who may not meet their minimum investment threshold and who desire a daily valued product.
  2. Provident engages in very limited marketing efforts, primarily relying upon word of mouth. Because their strategy is unique, they tend to target a specific type of client, and so broad or generalized marketing efforts tend not to be fruitful.

Their investors tend to be sticky, long-term shareholders. But overall other investors have given them time and opportunities but not their attention.

The skill of the current managers shouldn’t be ignored, most especially in these uncertain times. Provident is an excellent option for a long-term core holding when confronted by fears of uncertainty and surprise.

The fund can underperform in rapidly rising markets but historically outperforms in declining markets. In the end, it’s how much investors keep of what they’ve earned, something this team has done for investors consistently.

Allied on their side are managers who have patiently and successfully navigated markets of all types as stewards of shareholders’ capital – and of their own.

Fund website


Investors preferring concise, straightforward, factual reports, no fluff or stylish circumlocutions will appreciate the site. It includes all relevant documents and is distinctive by the firm’s intent to have shareholder letters only one page long.


Dennis Baran: I’ve invested in the fund since August 2018, made additional buys, and will be adding more.

Manager changes, November 2018

By Chip

In the course of a normal month we’ll highlight 60-70 manager changes in equity and allocation funds. We mostly skip bond funds because, frankly, it’s a danged rare fixed income team that’s materially affected by the departure of a single individual. In a really quiet month, 40 funds and ETFs saw partial or complete team changes.

By far the most consequential was the announced departure of Zeke Ashton from Centaur Total Return (TILDX), a fund that he’s managed with discipline, style and success since its inception. The folks at Intrepid Capital continue thinning their management team. We reported Jayme Wiggins departure from Intrepid Endurance and Select last month, Jason Lazarus departs Capital and Income this month.  Intrepid remains among the few firms maintaining an absolute value discipline in both equity and fixed-income investing; if the opportunities are not compelling, they will not invest just for the sake of investing. That helps their long-term investors a lot, even as it hurts their business. By way of disclosure, Intrepid Endurance remains as a valued part of my personal portfolio.

Ticker Fund Out with the old In with the new Dt
ALNNX AC Alternatives Income Fund No one, but . . . Marathon Asset Management, L.P. has been added as an underlying subadvisor. 11/18
GNXAX AlphaCentric Global Innovations Fund No one, but . . . Contego Capital Group has been added as a subadvisor to the fund. 11/18
TILDX Centaur Total Return Zeke Ashton will no longer serve as a portfolio manager for the fund. Dr. Vijay Chopra and Gregory Serbe will now manage the fund. 11/18
DFBAX Delaware Foundation Moderate Allocation Fund, to be renamed as Delaware Strategic Allocation Fund, effective January 25, 2019. No one, but . . . Macquarie Investment Management Austria Kapitalanlage AG will become a subadvisor to the fund. 11/18
DBOAX Dreyfus Balanced Opportunity Fund Keith Stransky is no longer listed as a portfolio manager for the fund. Torrey Zaches and Vassilis join James Lydotes, Andrew Leger, Mark Bogar, George DeFina, John Bailer, David Bowser, and Brian Ferguson on the management team. 11/18
FBTAX Fidelity Advisor Biotechnology Fund Rajiv Kaul no longer serves as lead portfolio manager of Fidelity Advisor Biotechnology Fund. Eirene Kontopoulos, who joined the team in July, will now manage the fund. 11/18
FCLAX  Fidelity Advisor Industrials Fund Tobias Welo is expected to leave the fund on December 31, 2018. Janet Glazer joins Tobias Welo and will continue to manage the fund upon his departure. 11/18
FHIFX Fidelity Focused High Income Fund Matthew Conti is retiring at the end of December. Alexandre Karam has joined the management team. He and Michael Weaver will continue to manage the fund after Mr. Conti’s retirement. 11/18
SPHIX Fidelity High Income Fund No one, but . . . Alexandre Karam joins Michael Weaver in managing the fund. 11/18
FCYIX Fidelity Select Industrials Sector Tobias Welo is expected to leave the fund on December 31, 2018. Janet Glazer joins Tobias Welo and will continue to manage the fund upon his departure. 11/18
FIUSX First Investors Opportunity Fund No one, but . . . Tom Alonso joins Steven Hill in managing the fund. 11/18
ICMBX Intrepid Capital Fund Jason Lazarus no longer serves as part of the investment team of the fund. Mark Travis will continue to manage the fund. 11/18
ICMUX Intrepid Income Fund Jason Lazarus no longer serves as the portfolio manager of the fund. Mark Travis and Ben Franklin have assumed co-lead responsibility for the day-to-day management of the fund. 11/18
TGRAX Invesco Pacific Growth Fund Effective December 28, 2018, Paul Chan will no longer serve as a portfolio manager for the fund. William Yuen joined Daiji Ozawa on the management team in October 2018. 11/18
JHAAX John Hancock Global Absolute Return Strategies Fund Guy Stern intends to retire from the fund in 2019. His successor has not yet been named. 11/18
MGGAX Mirova Global Green Bond Fund Christopher Wigley will no longer serve as a portfolio manager for the fund. Marc Briand and Charles Portier will remain as co-portfolio managers of the fund. 11/18
NWHVX Nationwide Geneva Mid Cap Growth Fund Amy Croen will no longer serve as a portfolio manager for the fund. William A. Priebe, William Scott Priebe, and José Muñoz will continue to manage the fund. 11/18
NWHZX Nationwide Geneva Small Cap Growth Fund Amy Croen will no longer serve as a portfolio manager for the fund. William A. Priebe, William Scott Priebe, and José Muñoz will continue to manage the fund. 11/18
NWGYX Nationwide Ziegler Equity Income Fund Mikhail Alkhazov will no longer serve as a portfolio manager for the fund. Gary Hurlbut joins Donald Nexbitt in managing the fund. 11/18
Various Natixis Sustainable Future Target Date Funds Suzanne Senellart is no longer listed as a portfolio manager for the fund. Amber Fairbanks joins the other dozen managers of the fund. 11/18
QFFOX Pear Tree Panagora Emerging Markets Fund Panagora Asset Management will no longer subadvise the fund. Axiom International Investors, LLC. will now subadvise the fund. 11/18
TCLCX TIAA-CREF Large-Cap Value Fund Athanasios (Tom) Kolefas will no longer serve as a portfolio manager for the fund. Charles Carr joins Richard Cutler on the management team. 11/18
TCMVX TIAA-CREF Mid-Cap Value Fund Athanasios (Tom) Kolefas will no longer serve as a portfolio manager for the fund. Richard Cutler will continue to manage the fund. 11/18
FFSAX Touchstone Flexible Income Fund ClearArc Capital Inc. will no longer subadvise the fund. Therefore, Peter Kwiatkowski, Mitchell Stapley, David Withrow and John Cassidy are out. Bramshill Investments, LLC will subadvise the fund, with Art DeGaetano, Derek Pines, Michael Hirschfield, and Paul van Lingen on the management team. 11/18
VMVFX Vanguard Global Minimum Volatility Fund Fei Xu and Anatoly Shtekhman are no longer listed as portfolio managers for the fund. Antonio Picca now manages the fund. 11/18
VFLQ Vanguard U.S. Liquidity Factor ETF Liqian Ren is no longer listed as a portfolio manager for the fund. Antonio Picca now manages the fund. 11/18
VFMV Vanguard U.S. Minimum Volatility ETF Liqian Ren is no longer listed as a portfolio manager for the fund. Antonio Picca now manages the fund. 11/18
VFMO Vanguard U.S. Momentum Factor ETF Liqian Ren is no longer listed as a portfolio manager for the fund. Antonio Picca now manages the fund. 11/18
VFMF Vanguard U.S. Multifactor ETF Shares Liqian Ren is no longer listed as a portfolio manager for the fund. Antonio Picca now manages the fund. 11/18
VFQY Vanguard U.S. Quality Factor ETF Liqian Ren is no longer listed as a portfolio manager for the fund. Antonio Picca now manages the fund. 11/18
VFVA Vanguard U.S. Value Factor ETF Liqian Ren is no longer listed as a portfolio manager for the fund. Antonio Picca now manages the fund. 11/18
IAGEX Voya Global Equity Dividend Fund Moudy El Khodr and Nicolas Simar are no longer listed as portfolio managers for the fund. Pieter Schop joins Bruno Springael in managing the fund. 11/18
IIRFX Voya Russia Fund Ivo Luiten will no longer serve as a portfolio manager for the fund. Renat Nadyukov continues to manage the fund. 11/18
WCGNX William Blair Mid Cap Growth Fund David Ricci is no longer listed as a portfolio manager for the fund. Robert Lanphier and Daniel Crowe will continue to manage the fund. 11/18

Briefly Noted

By David Snowball


In the three months from September through November, 2018, Morningstar registered 199 new funds. As it turns out, 190 of the 199 are additional share classes for existing funds. Think of share classes as marketing games: The American Funds, for example offer 17 share classes with, literally 17 different expense ratios ranging from 0.20% (529F shares) to 1.80% (529C shares). At base, the adviser creates new share classes as they cut distribution deals with various new constituencies.

Only nine, none of which I find compelling, were actually new funds.

Briefly Noted . . .

In October 2016, Analytic Investors, LLC, sub-advisor to the Touchstone Dynamic Equity Fund, was acquired by Wells Capital Management and became a subsidiary. In November 2018, Wells dissolved the subsidiary so that the Touchstone sub-adviser is now called Wells Capital.

On October 18, 2018, Massachusetts Mutual Life Insurance Company, an indirect corporate parent of OppenheimerFunds, announced that Invesco will acquire OppenheimerFunds in the second quarter of 2019.

On November 6, 2018, United Services Automobile Association (a/k/a USAA) announced that the USAA funds would be acquired by Victory Capital during the second quarter of 2019. No word on what effect, if any, that will have on USAA’s distinctive focus on members of the US military, veterans and the families.

Highland Global Allocation Fund (HCOAX) is slated to become a closed-end fund sometime late in December. That’s an incredibly rare conversion. I was intrigued by the verbiage around the change, which I’ve never encountered before: “shareholders of the Fund approved proposals to redomicile the Fund into a standalone trust (the “Redomiciliation”).”

In a spectacularly odd development, a billion dollar, five-star ETF is at risk of being delisted. In early November, Invesco S&P 500 Minimum Variance ETF (SPMV) reported that “The staff of the Listing Qualifications Department of Cboe BZX Exchange recently [us] that the Fund does not appear to be in compliance with the continued listing standards of the Exchange, which require, among other things, that a listed security maintain at least 50 shareholders for at least 30 or more consecutive trading days following its initial year of trading on the Exchange. Therefore, in accordance with its procedures, the Exchange may affix a “below compliance” indicator to the Fund’s ticker symbol on the consolidated tape.” They have 180 days to get it fixed.

Polaris Global Value Fund (PGVFX) recently added the ability to write put options, in addition to its long-time ability to purchase puts. Our colleague Ed Studzinski genially disapproves, noting that “complex strategies always look like a good idea until you actually try to use them.”


As of December 3, 2018, AC Alternatives Market Neutral Value Fund will be open to all investors.

On January 28, 2019, the “A” share class of EAS Crow Point Alternatives Fund (EASAX) will be re-designated as Investor Class shares, at which point it will become a no-load fund. The archaic “C” share class will disappear then.

Artisan International Small Cap (ARTJX) has reduced fees on its Investor share class from 1.57% down to 1.37%.

The Franklin Small Cap Growth Fund is currently closed to new investors, except for certain types of investors. Effective April 28, 2017, the Fund re-opened Class R6 shares to new investors who are eligible to purchase Class R6 shares. Effective January 17, 2019, all share classes of the Fund will be re-opened to new investors. 

Effective November 19, 2018, Seafarer Overseas Growth & Income Fund’s Institutional Class (SIGIX) is available for purchase by all investors. That reflects their desire “to restore the balance between subscription and redemption activity.” The Investor share class remains pretty much closed to new investors, though it remains open to existing investors. Mr. Foster notes that some distributors are misreporting the change by claiming that the Investor Class is open. It is not.

This is a significant opportunity for the average investor: the fund’s Institutional Class shares, which CEO Andrew Foster prefers to think of as the Universal Class, is available for direct purchase from Seafarer with a $1,500 minimum initial investment if you’re willing to set up an automatic investing plan at $100 or more a month. Which you should since the discipline imposed by an automatic investing plan is invaluable in maintaining your commitment, especially to a volatile asset class.

While Mr. Foster is uncommonly optimistic about the near-term, say one- to three-year, prospects of emerging markets as an asset class, his decision to reopen the fund isn’t a market timing call; he’s not saying “now’s the time to invest in the emerging markets!” Instead, it reflects the fact that the fund has additional capacity, in part because of net outflows and in part because Seafarer’s new management strategy (which we discussed in September) has boosted capacity by a bit.

Morningstar has reaffirmed its Silver analytic rating, as well as all of its “pillar” ratings. With relatively low expenses, no 12(b)1 fee, no soft commissions, no minimum, this is about as close to a “clean” share class as you could wish.

Vanguard has dropped the investment minimums for its low-cost Admiral Shares effective immediately, to $3,000 for 38 index funds. That’s down from the previous minimum investment of $10,000.

Vanguard also filed to launch Admiral shares for Vanguard FTSE Social Index Fund, Vanguard FTSE All-World ex-US Small Cap Index Fund, Vanguard High Dividend Yield Index Fund, Vanguard Long-Term Bond Index Fund, and Vanguard Total World Stock Index Fund. The new shares are expected to be available in the first quarter of 2019.

CLOSINGS (and related inconveniences)

The “N” share class for Miles Capital Alternatives Advantage Fund (MILNX) has been closed.

Effective December 5, 2018, the Wasatch Core Growth Fund (WGROX) will be closed to new investors except purchases directly from Wasatch Funds, existing shareholders purchasing through intermediaries, and current and future shareholders purchasing through financial advisors and retirement plans with an established position in the Fund.


On or about February 1, 2019 AllianzGI Real Estate Debt Fund (AREPX) will be renamed AllianzGI Floating Rate Note Fund.

American Beacon SGA Global Growth Fund (SGAAX) will be adopted by Virtus to become Virtus SGA Global Growth Fund.

Effective on or about January 1, 2019, the Consulting Group Capital Markets Funds will become the Morgan Stanley Pathway Funds. This is being described as “an exciting new development” because the new name “aligns with the broader vision at Morgan Stanley Wealth Management of helping clients to navigate a path to financial goals.” Ummm … if that’s enough to excite these folks, wait until January 1 when they discover the year has a whole new number!!!!!

On or around January 16, 2019 Global X Next Emerging & Frontier ETF (EMFM) becomes Global X MSCI Next Emerging & Frontier ETF, at which point it moves from tracking the Solactive Next Emerging & Frontier Index to the MSCI Select Emerging and Frontier Markets Access Index. At the same time, Global X China Consumer ETF (CHIQ) will be renamed Global X MSCI China Consumer Discretionary ETF

James Biblically Responsible Investment ETF (JBRI) has been renamed James Purpose Based Investment ETF (JPBI). The index it tracks underwent a parallel renaming.

Salt truBetaTM High Exposure ETF (SLT) has been renamed Salt High truBetaTM US Market ETF. Save me.

After just the smallest of portfolio tweaks, the Yorktown Capital Income Fund (APIGX) – a mediocre global large cap equity fund – will become the Yorktown Ultra Short Term Bond Fund.


Thanks to the Shadow!

Alphacore Statistical Arbitrage Fund (STTKX) was scheduled to be liquidated on November 29, 2018.

On November 8, 2018, the Fund filed a supplement to its registration statement indicating that the Fund would be liquidated on November 29, 2018 (the “Liquidation Supplement”). Following the filing of the Liquidation Supplement, the Fund’s Adviser was able to identify an alternative approach for the implementation of the Fund’s market neutral strategy that would allow the Fund to continue operations. At the Adviser’s request, the Trust’s Board of Trustees evaluated the Adviser’s request and determined that the Fund should not be liquidated as scheduled.

Accordingly, the Fund will not be liquidated as previously indicated in the supplement dated November 8, 2018.

But …. “The Board of Trustees will fully evaluate the proposed changes to the Fund’s strategy at a meeting of the Board on December 12, 2018.” Up until then, it’s a money market fund.

American Beacon Numeric Integrated Alpha Fund (NAIPX) will liquidate and terminate on or about December 10, 2018.

Barings Emerging Markets Local Currency Debt Fund was liquidated on November 29, 2018.

Catalyst Macro Strategy Fund (MCXAX) disappears on December 28, 2018.

Cavalier Dynamic Growth Fund (CDGAX), which has had 13 managers and several different strategies over time, is expected to cease operations, liquidate its assets, and distribute the liquidation proceeds to shareholders of record on December 28, 2018.

Chilton Strategic European Equities Fund (CHEUX) is expected to cease operations and liquidate on or prior to December 31, 2018.

ClearBridge Energy MLP & Infrastructure Fund (LCPAX) will cease operations on or about February 15, 2019. Downside: the fund has lost money since inception, down about 14% from its opening day. Upside: that’s still far better than its peers.

Columbia Global Bond Fund (IGBFX) will be liquidated on or about January 18, 2019. It’s spent most of its life in the basement.

Eaton Vance Commodity Strategy Fund (EACSX) will cease strategizing on or about February 14, 2019.

Fieldstone Merlin Dynamic Large-Cap Growth ETF (FMDG) will liquidate on December 13, 2018. The fund’s manager is a PhD-holding clinical psychologist. I hope he’s able to have a long, calm talk with himself over the liquidation.

Intrepid Select Fund (ICMTX), a young four-star fund that’s handily beaten its peers since inception, will be reorganized into the Intrepid Disciplined Value Fund (ICMCX), an older, less distinguished two-star fund, on or about January 25, 2019.

On November 1, 2018, shareholders of the Ivy Funds agreed to a set of fund mergers. Four days later, the deal was done

Target Fund Acquiring Fund
Ivy Global Income Allocation Ivy Asset Strategy
Ivy Tax-Managed Equity Ivy Large Cap Growth
Ivy LaSalle Global Risk-Managed Real Estate Ivy LaSalle Global Real Estate
Ivy Micro Cap Growth Ivy Small Cap Growth
Ivy European Opportunities Ivy International Core Equity

The Jamestown Tax Exempt Virginia Fund JTEVX) has closed and will liquidate around January 11, 2019. Ironically, the death of the Tax Exempt Fund is a taxable event.

Lazard Global Realty Equity Portfolio (LITOX) won’t be around to see the New Year. December 31, 2018 will be its last day. On the upside: no hangover risk.

On November 15, 2018, the Loomis Sayles Core Disciplined Alpha Bond Fund was liquidated. An SEC filing helpfully notes, “The Fund no longer exists.” Got it.

LM Capital Opportunistic Bond Fund (LMCAX) is expected to cease operations and liquidate on or about December 31, 2018.

Lord Abbett Calibrated Large Cap Value Fund will be merged into Lord Abbett Fundamental Equity Fund (LDFVX), but not until they’ve secured shareholder approval. Figure it for the first quarter of 2019.

Piedmont Select Equity Fund (PSVFX) has closed and intends to discontinue its operations on or about December 20, 2018.

PIMCO REALPATH Income Fund, 2020, 2025, 2030, 2035, 2040, 2045, 2050 and 2055 Funds will be liquidated on or about February 22, 2019. John Rekenthaler, the last of the great Big Picture guys, dissected the death of the RealPath funds. He points to three factors: active management (and its expenses) aren’t popular and especially aren’t popular in the target-date space, it’s hard for any fund to break into the target-date niche which is largely filled by giants like Vanguard and Fidelity and any fund with “real” in its name basically is designed to thrive in a high-inflation environment. That’s a condition not seen in almost 30 years.

Quantx Risk Managed Real Return ETF and (QXRR) and Quantx Risk Managed Multi-Asset Income ETF (QXMI) were the object of “an orderly liquidation” on November 29, 2018. Very British upper crust of them to make sure that even their deaths were in good and proper form.

The REX VolMAXX™ Short VIX Futures Strategy ETF Fund (VMIM) ceased having one of the industry’s longer and sillier names around about November 29, 2018.

The Royce Fund’s Board of Trustees approved a plan of liquidation for Royce International Discovery Fund (ROIMX) to be effective on December 28, 2018. We’ve noted before that Royce launched a boatload of suspiciously similar funds after being acquired by Legg Mason, a number of which they’ve been forced to liquidate in recent years. ROIMX, with $6 million in assets and a two-star rating, is just the latest.

Rule One Fund will not commence operations and its shares are no longer offered through this Prospectus and SAI. Effective November 5, 2018, the Rule One Fund ceased to be a series of the Northern Lights Fund Trust IV.

Select Value Real Estate Securities Fund (SVREX) liquidated on November 16, 2018, about four days after the Board decided to pull the plug on the fund.

SFG Futures Strategy Fund (EFSNX) “discontinued its operation” on November 29, 2018.

UTC North American Fund (UTCNX) will liquidate on Thursday, December 20, 2018, “or at such other time as may be authorized by the Directors.” It has a terrible long-term record (think: trails 99%) and got a new management team this year, sadly too late to save the fund.

Effective November 14, 2018, Virtus Conservative Allocation Strategy Fund and Virtus Growth Allocation Strategy Fund were both liquidated on November 14, 2018.

Virtus DFA 2025 Target Date Retirement Income Fund (VDAAX) and Virtus DFA 2055 Target Date Retirement Income Fund (VTRAX) have closed to new investors and will liquidate around December 20, 2018. Both are tiny fly speck funds, with under $4 million combined. That said, it strikes me as passably odd that (1) these are the only two target-date funds in Virtus’ entire lineup and (2) you have a “retirement income” fund (mission: “manage income uncertainty in preparation for retirement”) for people who won’t retire for … uh, 37 years.

Finally, Virtus Strategic Allocation Fund (PHBLX – the ticker is a fossil from the days this was the Phoenix Balanced fund) will be merged into Virtus Tactical Allocation Fund (NAINX – a remnant of its origins as a National Fund, predecessor to Phoenix) on or about January 25, 2019. It’s probably a troubled sign that Virtus has chosen to bury the record of a $400 million fund into a much smaller fund that has trailed more than three-quarters of its peers over the long term.

P.S., I spent time down a rabbit hole with this one, since Morningstar assigns two names to the fund – Virtus Balanced and Virtus SA – while Virtus seems not even to list it on their website.