Monthly Archives: May 2018

May 1, 2018

By David Snowball

Dear friends,

If you’re ever had cause to poke around MFO, perhaps “About Us” or “Support Us,” you’ll have spotted the younger me and the younger version of my son, Will. We were poking around England seven years ago, around the time we launched MFO, and we wanted to give folks a peek at the people behind the text.

I note, with pride and trepidation, that seven years have now passed. The 12,000 folks who joined us that first month have grown to 28,000 this past month, and 1,298,128 readers, interlocutors and passersby since launch.

You sort of look like this:

And Will? Will sort of looks like this:

I’m pleased and terrified to note that Will has accepted an offer of admission from the University of St. Thomas, in St. Paul. Apparently my son’s going to be a “Tommie” soon, and a data analyst. It’s an expensive proposition, no question, and something of a stretch for the family. And yet we believe, in Will, in the power of great teachers and small schools, in the future that we can yet shape together. The Lebanese-American poet Kahlil Gibran once wrote:

You are the bows from which your children
as living arrows are sent forth.
The archer sees the mark upon the path of the infinite, 
and He bends you with His might 
that His arrows may go swift and far.
Let your bending in the archer’s hand be for gladness;
For even as He loves the arrow that flies, 
so He loves also the bow that is stable.

(On Children, 1923)

Come summer, I will launch my arrow northward and report, with delight, from time to time, upon its arc.

On the limits of happiness

As happy as I am to write about funds for you, I’m not a tenth so happy as this woman is with her Fidelity investments.

Yuhh … it’s only coincidental that I’ve begun the process of moving the Fidelity portion of my 403(b) retirement account to T. Rowe Price.  I noted in my portfolio review that Augustana has frozen our access to Price and Fidelity, and substituted a small array of carefully chosen active and passive funds. It seems silly to maintain two locked sets of funds, so I resolved to transfer one to the other. Price seems to have a stronger, healthier culture, I respect their brains and their thoughtful communication with investors, and I agree with their firm-wide approach to investing. The move is a bit complicated, but it will be good to have it done.

I shudder to imagine that young woman’s expression should she choose to come along, so I think she’s safest staying with the Johnsons.

Thanks

To you all, for sharing these first seven years of MFO with us. When we launched, the average lifespan of a boutique website was barely seven weeks.

To Ed, Chip and Charles, who’ve contributed more than you could ever know. They’re amazing and I’m amazed by their support and friendship.

To the folks on MFO’s Discussion Board, which would be award-winning if only there were awards for such things. Their daily banter, always interesting and frequently good-spirited, is daily reading for me. Thanks, pointedly, to Ted the Linkster and the shadowy The Shadow, who always gets there before me.

And to Kirk, as well as our stalwart subscribers Greg, Brian, and Deb. We thank you!

The summer brings interesting stuff. Ed is off in Paris and Sam Lee is patrolling the streets of Seoul, but both will be soon back. Charles has been revamping the MFO Premium site, for the better, and has profiles coming on two funds. And Morningstar is coming in June. We’ll be there, and we’d be delighted to spend a bit of time with you while we’re at it. Just let us know.

As ever,

Rolling Down the Appian Way

By Edward A. Studzinski

“To succeed in the world, it is not enough to be stupid, you must also be well-mannered.”

Voltaire

There is a show on Showtime cable that purports to give a pretty good reading of the world of hedge funds and their masters, called “Billions.” It is now into its third season. A scene in the third episode of this season resonated with me regarding some of the issues and problems that active managers face today. The main character, Bobby Axelrod of Axe Capital, has surrendered his rights to trade as a hedge fund manager/chief investment officer in return for having his personal capital unfrozen and thus accessible. His successor as Chief Investment Officer at the firm, Taylor Mason, has begun a search to find some quantitative managers that can be brought into the firm, hoping they will be additive to the investment process and performance. The interviewing process for “quants” sends the traditional qualitative analysts into a panic, as they all think there will be mass firings as they are replaced by computer algorithms. One of them goes in to confront Taylor about the reason for bringing in quants. His question to Taylor is – why can’t things stay as they are, as it is what brought us this far? Taylor responds by asking the analyst if he is familiar with the high school football team whose coach never let them punt on fourth down. The analyst says yes, the coach figured out that statistically the team had a better chance of winning if they used all four downs for offense. Taylor says yes, but the coach also wanted to win more championships. The analyst then gets it, that it is all about the firm’s “edge.” Taylor then explains that they had their edge when there was “dumb” capital in the marketplace. But, and this is critical, they have lost that edge. Taylor then says that all the dumb capital has been sucked out of the marketplace by the trillions of dollars that have gone into ETF’s (exchange-traded funds). What is left in the marketplace – aggressive firms with killer instincts and research, just like themselves. The reason to hire quants is to regain the edge. And even with lots of quants already out competing against them, Axe Capital has the resources to find better ones to get the edge back.

I think the above explains why the active managers are now finding it so hard to compete against each other, and why on balance the index funds (and ETFs) are outperforming. Quite simply, much if not quite all the naïve or dumb capital has left the market and gone to passive vehicles. The competitive world has become much harder. One of the first things that I do when evaluating investment firms is to look at the composition of their portfolios, rather than their marketing brochures. In portfolio construction, mutual funds suffer an important structural limitation when compared to the hedge fund counterparts. Hedge funds are permitted to commingle uncorrelated assets; for example, a fund might own both equity shares and an office park. (Those interested in an illustration might look at the current asset allocation of RIT Capital Partners. The RIT is Rothschild Investment Trust, founded by the 4th Baron Rothschild.) And one of the things I have noticed over the years is that the investment strategies of many firms have shape-shifted. Value portfolios look like growth portfolios and vice versa. How many value funds now own Amazon, Google (in its current iteration), or Baidu? And how many growth firms own MasterCard and JP Morgan Chase?

To a large extent it all comes down to asset growth and how you manage it. Do you shut a fund and cap a firm’s business at a certain level of assets? If you are privately-owned as a partnership, you can and often do. If you are part of a large financial conglomerate, then the mantra becomes asset growth, given the huge cash flow that investment firms can and do generate. That is, money for the parent and money for the senior investment personnel, which buys a lot of Italian sports cars and yacht-like power boats with which to cruise Lake Michigan. And you spend a lot of time worrying about whether the state you are living in will try to impose an exit tax before you relocate to a low-tax jurisdiction like Florida. Which brings us back to the question of how you sustain the “edge” in performance when you and your competitors are all looking at the largest 200 securities in market capitalization, because a $20B or $40B fund needs investments that “move the needle” to generate outperformance relative to a benchmark. And that is where the quantitative research comes in as either the foundation for or overlay to other research.

In that regard, I tip my hat to Joel Greenblatt, who saw that the world was changing and has evolved his thinking (and continued to own and control his own firm rather than selling out) with his Gotham Funds.  Vanguard of course, in typical Vanguard fashion, set up its own quantitative group to complement their edge in selecting managers and applying low fees to boot. Other names that come to mind that you would put into the same category of thinking ahead and thinking outside the box – Clifford Asness, Rich Pzena at Pzena Asset Management, and Steve Galbraith when he was at Maverick Capital. And you have the polymaths like Joel Tillinghast and Warren Buffett, who are in effect their own quants. And then you have the outside the box thinkers like Bill Miller who I used to run into regularly at the annual symposia sponsored by CS First Boston at the Santa Fe Institute in New Mexico.  SFI looked at applying things at a level beyond quantitative analysis, much like three-dimensional chess from Star Trek (for those interested in a book on that process, I commend a book called The Predictors: How a Band of Maverick Physicists Used Chaos Theory to Trade Their Way to a Fortune on Wall Street by Thomas A. Bass).

And finally, I must compliment and express my appreciation to an extraordinarily intellectually curious individual and one of the great investment thinkers of our time. This gentleman was always looking for the better mousetrap to enhance investment thinking, the investment process and methodologies, Michael Mauboussin, formerly of CS First Boston and now at BlueMoutain Capital Management, and the current chairman of the Board of Trustees at the Santa Fe Institute.

So yes, it is all about finding the edge and holding on to it. And if you are a value investor, the edge can be the portfolio of ten stocks or less that you watch carefully, like a hawk (or Philip Fisher) and know more about than anything else, in an obsessive-compulsive way. That is not well-suited to running however mega-billion portfolios, which is why I submit, we see so many funds running into brick walls these days, with their managers’ attentions often focused elsewhere. You can evolve, as Joel Greenblatt has. Or, you are a firm that hopes nobody notices that you are underinvesting in your infrastructure while you are maximizing profit margins. You do this by capping the investment in the quality of personnel or tools as you are no longer able to use soft-dollars to pay for things you should be paying for. But remember, the dumb capital has for the most part left the house. And the survivors will keep reinvesting and reinventing themselves to get and keep the edge.

New York AG forces fund companies out of the indexing closet

By David Snowball

(with special thanks to rforno of MFO’s Discussion Board for the title)

The New York State Attorney General’s office has weighed-in on behalf of investors, and active share. Active share is a measure of the extent of the difference between what’s in fund’s portfolio and what’s in the fund’s benchmark index. If your fund holds all the same stocks in all the same percentage as its benchmark, then its active share is zero. A zero active share is good if you’ve bought – and are being charged for – an index fund. A zero active share is bad is you were sold – and are being charged for – something masquerading as an active fund.

The difference in risks and return between a fund and its benchmark are created by the active part of the fund’s portfolio. A fund that differs in composition only a tiny bit from its benchmark will likely differ in risk or return by only a tiny bit. If you’re paying substantially more for an active fund than you’d be charged for a passive one, they you have reason to expect a substantial difference from the benchmark with the prospect for substantially lower risks or higher returns.

Sadly, many funds – called “closet index funds” – charge for active management then produce index-like portfolios. In March 2018, nearly a year after alerting funds that they were under investigation for misbranding themselves, Britain’s Financial Conduct Authority forced a number of British investment firms to pay their investor £34 million for marketing 64 large funds as “active” when they were closet indexers.

What’s the chance that your fund is a closet index? Large funds are, on whole, less active than small funds and the industry is increasingly dominated by large funds; in consequence, the percentage of industry assets held by closet indexers has grown steadily and is now a third or more of industry assets (Jeffrey Moeller, Closet Indexing and the Concept of Active Share, 2013). Research by Matos, Cremers,  Ferreira Starks, published in 2016, sorts through 24,000 funds worldwide, and estimates that about 20% are closet indexes (Indexing and Active Fund Management: International Evidence; a readable report about the research, Active Vs. Passive Funds: The Mutual Fund Shell Game, was published in 2017). That research uses an active share cut-off of 60% to distinguish active funds from closet indexers.

Saving “the active share story without a title”

Sometimes I need … hmm, a little help from my friends. (Mm, I get by with a little help from my friends.) This was one of those times. Interesting story, exhausted author, no clue about what to use for a title. In draft, it remained “the active share story without a title.”

Enter the folks on the MFO Discussion Board. I posted a précis of the story and asked for help finding a title. Ultimately, I asked Chip to review the offerings and she picked rforno’s “New York AG forces fund companies out of the indexing closet,” which struck her as eye-catching and just a little edgy.

We’d like to recognize the runner-up, VintageFreak’s “Get Active, I Say!” Honorable mention is given to Lewis Braham’s “Time to Share that Active Share Data” (though she thought just “Time to Share that Active Share” might have been sharper), David Moran’s “Using the Active Voice” (the editor in him keeps escaping) and Maurice’s “Are Individual Investors Like Mushrooms In The Dark?” (just a touch too allusive). Ted made her chuckle, but might have been a little too edgy. Bee, like me, was feeling sensible and descriptive while Chip was looking for a bit of play.

Thanks to you all, and not just for this one helpful outburst. You make a difference!

The problem is that it’s damnably difficult to find out if you’re one of the people paying for one thing and getting another. Very few large fund companies have been willing to easily disclose that data.

The New York Attorney General’s action might be changing that. In April the office published Mutual Fund Fees and Active Share. The study surveys the expenses and active shares of 2700 mutual funds.

The Attorney General has three major findings.

  1. Active share is relevant.
    Rather than reviewing the debate on the relevance of active share to a fund’s performance, the AG simply noted that fund firms use this data themselves in determining who to hire and fire and in assessing the performance of their funds.

  2. Active share and fund expenses are weakly correlated.
    It would be nice if paying more guaranteed that you got more active management. It doesn’t. Advisers charge whatever they can get you to pay (it’s the nature of capitalism), so you see bunches of closet index funds (the dots below the 60% line, as a rough illustration) charging high fees.

  3. Fund firms don’t disclosure active share to peons.
    Of 14 major firms surveyed, only one – Fidelity – makes active share information routinely available to retail investors while all 14 use it with their institutional investors. Even with Fidelity, the number is isolated and buried. Here’s their profile of Fidelity Growth Company, you’ll find active share in the right hand column just below “asset allocation.”

    Independent fund firms, such as Artisan, Touchstone and about 80% of the funds we cover, do routinely and prominently share that information.

Responding to the Attorney General’s pressure, the fund advisors have agreed to publish active share information quarterly.

Following NYOAG’s investigation, 13 of the 14 mutual fund firms surveyed agreed to publish the Active Share metric for their actively managed equity funds available to U.S. investors. The 14th firm surveyed by NYOAG – Fidelity Management & Research Company – was already publishing Active Share for its relevant funds. As a result of these actions by some of the largest mutual fund firms in the United States, all investors will now have access to additional important information about more than 400 actively managed funds.

The firms that have agreed to post Active Share information for their relevant funds on their websites on a quarterly basis are:

  • AllianceBernstein
  • BlackRock
  • Dreyfus
  • Capital Group Companies, Inc. (American Funds)
  • Columbia
  • Eaton Vance
  • Goldman Sachs
  • JP Morgan Chase
  • OppenheimerFunds
  • Nuveen
  • Rowe Price
  • USAA and
  • Vanguard.

The industry’s trade group, the Investment Company Institute, promptly did what you’d expect: they denounced both state interference and the importance of relevant information for investors.

“We strongly believe state authorities should not arrogate to themselves the authority to impose inconsistent disclosure requirements,” Paul Schott Stevens, ICI’s president and chief executive, said in an e-mailed statement. “‘Active share’ is not relevant for many funds or investors.” (Rachel Evans, Picking a Mutual Fund Just Got Easier, Thanks to N.Y. Regulator, Bloomberg, 4/6/2018)

Neither the Attorney General nor Ms. Evans points investors to ActiveShare.Info, but they should. The active share site provides slightly out-of-date active share information for most domestic equity funds. The “slightly out of date” shouldn’t particularly bother you because active share tends to be stable; closet indexers tend to remain closet indexes while highly independent managers tend to remain highly independent. Here, as an illustration, is five years’ worth of data for FPA Capital.

Likewise for Fidelity Growth Company (FCGSX), which Fido reports as having an active share of 54%.

The problem with active share is that calculations are pretty much limited to pure equity funds; the data doesn’t seem to exist for multi-asset and income funds.

Bottom Line: Being active is not the same thing as being good. A manager who wanders off and buys Venezuelan cryptocurrencies and pink-sheet stocks is being active, and actively stupid. That said, managers who are simultaneously active, patient and focused tend to outperform others (Cremers, Active Share and the Three Pillars of Active Management: Skill, Conviction and Opportunity, 2017). Managers who are inactive and expensive represent about the worst possible deal for investors. You owe it to yourself, if nothing else, to find out whether your fate is tethered to such a creature.

 

 

Premium Site Update – Much Expanded Data Feed

By Charles Boccadoro

“I’ve come loaded with statistics, for I’ve noticed that a man can’t prove anything without statistics.”

                                                                                              Mark Twain

We launched our premium site in November 2015. Its origin stems from our desire to identify funds that minimized downside performance across full market cycles, using metrics and evaluation periods not readily available on other sites at that time. Parameters of interest included maximum drawdown (MAXDD), Ulcer Index, Martin Ratio, and Recovery Time.

The internal search tool site we developed supported custom requests from David and Ed, and it quickly grew to include other metrics and unique ratings, like the legacy Three Alarm Funds and Fund Family Scorecard. We thought such tools might be of interest to individual investors and financial advisers, as well as provide thanks to contributors of the MFO non-profit. So, MFO Premium was launched.

The site has continued to evolve with the help of several betas testers (thank you teapot and openice) and from the positive feedback and customized format requests from our subscribers.

New Data Feed

The big news this month is we have reached an agreement with the good folks at Thomson Reuters (thank you Joy and John) to get access to the Thomson Reuters Lipper Global Data Feed (LGDF).

In addition to the 8100 US mutual funds and 2200 ETFs for which we currently maintain ratings, the new feed will include more than 600 Closed End Funds (CEFs) and 2200 Insurance Products. It will also include several new parameters that will enable enhanced screening and calculation of unique metrics. The new parameters include holdings data, specifically top ten portfolio positions in equities, fixed income, country, and industry.

Other new parameters include fund benchmarks that, along with our access to full holdings data, will enable the calculation of alpha, tracking error, information ratio, and active share … the latter is something only the folks at AlphaArchitect gave us access to for ETFs.

We will continue to have monthly data back to January 1960, as applicable, all share classes, numerous key indexes, and expanded portfolio metrics, like pay-out ratio, debt/equity, price to sales, price to cash, and a managed volatility attribute. Oh, and a nifty link to the fund advisor’s website.

Updated Site Organization and Features

In anticipation of the new feed, we reorganized and updated features on the premium site:

  • Our main tool MultiSearch now groups input and output parameters by Basic Info, Period Metrics & Ratings, Rolling Averages, Composite Period Ratings, MFO Designations, Portfolio Info, and Purchase Info, plus a “Summary Info” group of more popular metrics.
  • Added “Group” and “Column” options on MultiSearch results page, which enables showing or hiding various metrics by group (eg., “Period Metrics”) or individually.
  • Redesigned Commentary page using WordPress to better match format and features of our main This update also enables posting of subscriber comments, guest article submission, and site feedback. (I’m hopeful here is where David will start drafting his “Little Book of Mutual Fund Investing.”)
  • Added new Portfolios page, enabling users to save up to 10 WatchLists of 25 Symbols from MultiSearch.
  • Added sliding displays to make appearance more compact, especially move text to background, added header definition pop-ups on hover in MultiSearch screener, and enabled a column reorder feature.

Upcoming Improvements

A few key additions are inbound shortly…

The first is adding Upside Capture, Downside Capture, and Capture Ratio to the correlation metrics, which we discussed previously in “Against The Herd.” They will be available across all 21 evaluation periods on the site, including lifetime and market cycles, and versus S&P 500, US Aggregate Bond, US 60/40 Balanced, and World minus US indexes.

Did you know…?  Since the start of the current market cycle in November 2007 through March 2018 that both the S&P 500 and US Aggregate Bond indexes have been positive 82 months and negative 43 months.

The second feature is ability to assign holding allocations to the saved portfolios (watchlists), enabling all risk and performance metrics to be quantified at the portfolio level.

The third is expanding the ability to screen on Rolling Averages, first introduced in “Rolling Averages, Finally!” for any evaluation period, not just lifetime.

Finally, greatly expanded evaluation periods to include 1, 2, 3, 6, 9, 10-month (and YTD) periods; 1, 2, 3, 5, 7, 10, 12, 15, 20, 25, 30, 40, 50-year periods; lifetime (back to January 1960); and the current five up, down, and full-market cycles, again since January 1960.

Our last webinar (charts, recording) was January and we will plan the next one at mid-year mark to demonstrate all the new features. If you can’t wait that long, please drop us a note ([email protected]) and we will promptly set up a time to call or web conference.

The Morningstar Minute

By David Snowball

Morningstar’s plan to roll out their own family of mutual funds, for use with their managed portfolio service, is becoming more concrete. In an April 23, 2018 filing with the SEC, Morningstar notes that they’re in “the quiet period” required by the SEC; nonetheless their filing says a lot.

Morningstar will offer nine funds to their Morningstar Managed Portfolio clients. That’s a booming niche for them:

… for the full year ended Dec. 31, 2017 … Assets under management and advisement in Managed Portfolios increased 31.8% to $39.8 billion. (Morningstar, Inc. Reports Fourth-Quarter, Full-Year 2017 Financial Results, 2/20/2018)

In each case, Morningstar will select the manager or managers responsible for selecting the fund’s securities: “the portfolios will invest in Morningstar Funds which, in turn, will invest their assets in individual stocks, bonds, and other securities that have been selected by third-party managers.”

The managers for the new funds are listed separately in the new prospectus. We originally reported that the manager names were not public. We were wrong and we regret it. Thanks to Sarah Wirth, who handles media relations with Morningstar, for helping straighten that out. Here’s the short roster with just the names of the advisory firms.

US Equity ClearBridge Diamond Hill Levin Capital Strategies MFS Wasatch Advisors Westwood
International Equity Harding Loevner Harris Associates Lazard T. Rowe Price
Global Income Schafer Cullen Capital Management
Total Return Bond BlackRock Western Asset Management
Municipal Bond T. Rowe Price Wells Capital Management
Defensive Bond FPA
Multisector Bond Franklin  Advisers Loomis Sayles TCW
Unconstrained Allocation Brandywine Lazard
Alternatives SSI Water Island

We also know that some of the current managers will not be investing on Morningstar’s behalf in the future.

Some of the managers whose mutual funds are currently used in your managed portfolios were not named as subadvisers to Morningstar Funds. Why?

Although the trust will provide a discussion of the factors the trustees considered in approving the subadvisers in a future shareholder report, we won’t otherwise comment on why we selected or rejected individual managers. 

One possibility is that Morningstar saw virtue in streamlining the management structure, another is that some of the managers declined the opportunity to take a pay cut (Morningstar estimates they’ll be able to lower fund expenses by 20% using the new funds, presumably some of that attributable to lower management fees) to continuing working on Morningstar’s behalf, but that’s not documented.

The most curious question and answer in their FAQ involves their decision not to make their funds available to the public.

Why aren’t you making Morningstar Funds available directly to the investing public?

Our focus is on delivering cost savings to clients in our Morningstar Managed Portfolios. The impetus for launching the Morningstar Funds is to lower the overall fees that these clients pay. Thus, the funds are intended to be used exclusively in the portfolios we offer these clients, not as standalone offerings. We don’t currently have plans to make the funds available to the general investing public.

The answer feels, at the very least, incomplete. If the goal is “delivering cost savings” to their current investors, they could achieve the goal more easily by including more (outside) investors. Other possible, though unconfirmed, explanations might be (1) they don’t want to directly challenge Vanguard, T. Rowe Price and others who themselves support Morningstar and (2) they might anticipate problems attracting top-tier “third party managers” if the Morningstar products threaten to cannibalize those managers’ business.

The comparable question about offering Morningstar Funds to non-U.S. investors adds in interesting gloss.

Does Morningstar Investment Management plan to offer Morningstar Funds to investors outside the U.S.?

We don’t currently have plans to do so but are continuously evaluating ways we can bring low-cost options to our managed portfolios globally. Morningstar Investment Management Australia already offers multimanager funds.

Most of the Morningstar Australia retail funds seem to be objective-focused (Morningstar High Growth) and high-performing (High Growth is five stars in each measurement period), though it’s impossible to make a confident assessment of the fund without understanding its competition.

Bottom Line: I hope the Morningstar funds do brilliantly well. They represent an interesting experiment and the financial security of a lot of people rest on them. They seem thoughtfully designed and their emphasis on cost minimization likely serves their investors’ interests. Nonetheless, the “sleeves for star managers” strategy is hard, as illustrated by the manager turnover at, and occasional liquidations of, the Litman Gregory Masters funds.  The “masters” at their Smaller Companies fund, for instance, tend to fall from favor pretty quickly; the fund has had 20 masters since launch in 2003, with some teams out within three years.

Living a Rewarding Retirement : Settling into Retirement, May, 2018

By Robert Cochran

There have been many changes for me since August 31, 2017.  On that day, I officially retired as partner and Chief Compliance Officer of PDS Planning, Inc. in Columbus.  Having worked for a total of almost 50 years (five of those while I was in college), there was more than a bit of trepidation as I neared retirement.  Would I really fill my time?  Would I find myself longing to be at work again, missing the daily interactions with colleagues and meetings with clients? Would I be able to sit back and not be on top of the financial markets?  These were just a few of the thoughts running through my 67 year-old brain as I cleaned out my desk and office.

Notice that I did include the future of the company I helped build in my concerns.  Its success was a foregone conclusion, with second and third-generation owners already continuing the commitment to exceptional service established at the beginning. Multi-generations of clients shared our values of hard work, responsibility, kindness, and joy. It was not a drudge to come to work early in the morning with that kind of atmosphere. I knew PDS would thrive without me, as much as that caused my ego a bit of chagrin.

The first three months of retirement were taken up by a lot of travel, which allowed me to think about something besides being retired from my long career.  A river cruise in Portugal, visiting friends in Tucson, a visit with my brother in Florida, and a surprise trip for my wife to New York City in early December kept me occupied.  (An aside…if you haven’t been to NYC during the holiday season, it really is wonderful.) Then there was the cleaning out and redecorating of my home office – my goodness, I had accumulated stuff.  Add my continuing and growing work time as a musician, time with friends, and other projects, and I was indeed filling my time.

I had expected to work one or two days a week, perhaps at a local wine shop.  Fortunately I do not have to work (and I realize many retirees do not have this option).  I am still waiting for a part-time, day-time option.  In the meantime, I have been able to increase my volunteer work with a local food pantry, collecting meat donations from Kroger and delivering 200-400 pounds of meat to the pantry each week. And I remain on the board of trustees for the Columbus Symphony Orchestra.

My wife and I recently joined a health club no more than one minute from our home.  Run by one of the area’s largest healthcare corporations, it has marvelous facilities and more options than we can possibly explore.  Some former clients are also members. The annual cost is an investment in our health, somewhat neglected over the last few years.  I still have some weight to lose, but I am determined to live as long a life as I am able.

With spring finally coming after a very long, cold, and dreary winter here in Ohio, I am eager to be outside, preparing our gardens and yard for summer.  As some readers already know, my wife and I have a national display garden for the American Daylily Society, with thousands of blooms during peak visitor season in late June through early August.  That means lots of intense, almost-daily exercise – hauling heavy bags of mulch and compost, moving huge ceramic container pots, digging and dividing plants, mowing, trimming, stooping, kneeling, sweating – it is hard but very fulfilling work.

One confession is that I have spent very little time thus far on the MFO Discussion Board, and I have rarely looked at the value of my portfolio. I hope to contribute more to the Discussion Board, but I doubt I will increase the time spent watching my investments. My allocation has remained the same despite the ups and downs of the last seven months. I open my Schwab statements each month and find the value is almost unchanged since the end of 2017. I will rely on the investment team at PDS to notify me of any real concerns. In the meantime, I have found being disconnected from the daily thrashings of the financial world reduces my stress levels considerably. I still wonder why so many retirees who have investment portfolios spend so many anxious hours worrying, especially those individuals who do not need to take distributions. As I suggested for years, find an allocation that lets you sleep at night, and back away. So far, at least, I have been able to do that.

Perhaps the biggest change personally has been my sleep pattern. I used to get up around 5 AM and was in the office shortly after 6 each morning. I cannot tell you how much sleep I got the first few months of retirement. Retired friends told me I would find out how physically and mentally tired I really was, and they were right.

These musings are not meant to be a prescribed retirement life for others. Everyone brings different lifestyle decisions, financial security, personal health status, and time constraints into their retirement reality. This is simply how my life has evolved in recent months. No doubt there will be changes, probably some significant changes. When I decided on a retirement date last spring, it seemed a long ways off. But as most retirees have found, time does indeed seem to move faster the older we get. Fortunately, planning for my retirement (including writing about my thoughts, expectations, and plans) was a wise decision. It forced me to consider many aspects of retirement life. Financially, the biggest relief is not having a mortgage payment. This single-biggest expense for most people is not a factor for us, and I am really glad we made the decision to convert to a 15-year mortgage years ago. As I wrote in my blogs last year, the timing seemed right. It was.

There have been some surprising aspects of retirement, too, and I will comment on those in future articles. 

It’s going to get worse before it gets better

By David Snowball

Not the stock market. I have no earthly clue about what it’s going to do, when, or why. I mean the headlines.

On April 24, the Dow dropped by 425 points. That’s 1.7%, which isn’t large and isn’t saying “the market” dropped by 1.7%. The Dow is a narrow and quirky construct. The broader market is reflected in the performance of the Vanguard Total Stock Market Index Fund (VTSMX), which declined by 1.2%.

On whole, I would prefer that my portfolio not decline. It did decline that day, by 0.41%. In reaction to the drop, Chip and I had a nice dinner (she provided the wine, I roasted a chicken with some root vegetables) and read for a while.

People whose job it is to scare the bejeebers out of you, though, couldn’t take the evening off. Here’s a quick synopsis of stories that crossed my desk in the past 24 hours:

Here’s where the markets stand after Tuesday’s beating (TheStreet) – 1.2%. Not a “beating.” I would allow you “a kerfuffle.”

Can’t blame 3% yield for this stock rout (Bloomberg) – I wasn’t blamed anyone. And it wasn’t a “rout,” either.

Stocks try to rebound following Tuesday’s plunge (Fox News) – 1.2%. No, not a “plunge.” Keep your rhetorical powder dry, dude. I sat through a day in which the Dow dropped twenty-times that much; what are you going to use for descriptors in a real decline if you use up all your terror-words on market stumbles?

America’s confidence in the stock market is crumbling (CNN Money) – my confidence remains unshaken; I’m very confident that, over short periods, the stock market moves with the predictability and speed of an armed lunatic

Yet another ‘outside day’ in stocks is an ominous sign (MarketWatch)

and

Financial markets are at an inflection point (Seeking Alpha) – my general view is that this sort of thing is just marketing talk; “trust me, I see that shadow of the iron cordon is soon to pass over the shire.”

S&P 500’s last line of defense holds firm (Bloomberg) – “last line of defense”? It’s not a war, it’s attention-deficient traders passing slips of paper back and forth as fast as they can.

 ‘Just around the bend.’ This is when the stock market will crash according to 5 famous investors (Money) – David Stockman, who isn’t typically described as a ‘famous investor,’ thinks there’s “a doozy just around the corner.”

The Dow rose modestly on April 25 and 26 and, suddenly, all of these headlines disappeared, replaced by knowing talk about earnings that are (or aren’t) “baked in” to equity prices, a trillion dollars in buybacks and dividends, and the unbearable attractiveness of gold. (Ed Studzinksi reported, back in March, that wine has been a vastly better investment than gold. Charles raised a glass of an approachable and unprepossessing Central Coast vintage in affirmation.)

I don’t blame writers for writing, nor headline writers for writing headlines. It’s how they feed their families. That does not change the fact that it’s hysterical, misleading and driven by the simple need to make you look. (The absence of links to any of those articles is intentional.) Even in the best of times, financial journalists were derided as purveyors of financial pornography, writing salacious tales of the acts of prostitutes.

That world where the beautiful and wondrous act of romance and procreation is to reduced to one pitiful act. A sham ritual in which the customer’s appetite for lies is equaled by the prostitute’s willingness to tell those lies in whatever detail he is ready to pay for. The tones of lies are vulgar facts. But they are not noble sounds.

Stanley Crouch, “Premature Autopsies” from The Majesty of the Blues (1989)

This, sadly, is not the best of times.

What’s a body to do? Our suggestion is, protect yourself.

Protect yourself from the noise. If you use social media, remember to use it for socializing. It’s a great way to keep up with friends from high school; a wretched way to make sense of the worlds of politics and finance. If you don’t use social media, good but don’t get all self-righteous or people will mistake you for a Prius owner. Support good journalism. It’s out there. In print and online, The Wall Street Journal and the Financial Times are consistently first-rate and consistently sober. In audio, there are few better sources than Marketplace which works hard to make things sensible and not scary. Planet Money, from NPR, is solid and informative (Chip and I were just discussing their piece on “brushing,” a scam by which online sellers generate the illusion of good reviews) though less extensive. Both are available, free, as podcasts.

Unless you’re in the financial services industry, you don’t need a daily dose of noise. Keep informed, keep calm and keep centered on what actually brings you joy.

Protect yourself from the market.  More correctly, “protect yourself from your own reactions to the market.” At some point, perhaps sooner than later, the market is going to do something really horrifying. At some other point, perhaps sooner than later, the market is going to do something really horrifying and extended. It happens.

You’re got four options. Pick the one that works for you.

  1. Completely ignore it all. Period. Chuck Jaffe once shared the finding that the best-performing brokerage accounts are those that have been forgotten or belong to the dead. MFO noted that one of the best performing funds in history, Voya Corporate Leaders (LEXCX), is a ghost ship that has sailed without a manager or a change of portfolio since 1933. If you’re in your 30s or 40s, do ye likewise: set up a sensible investment portfolio, fund it automatically each month, and give it nary a thought.
  2. Do something simple. Simply put, hold a part of your portfolio in cash instead of in risk assets. While you can actively manage your portfolio (that is, fund a strategic cash alternative such as RPHYX or ZEOIX until the equity prices are amazingly cheap), most of us shouldn’t because (a) we’re amateurs and (b) it requires paying a lot of attention to the market. A better move is to entrust part of your portfolio to absolute value managers who will hold cash when stocks are expensive and move in when to stock when stocks are bloodied and everyone else is running away. Trust the folks at FPA, Intrepid, River Road or a fund like Centaur Total Return (TILDX) or Pinnacle Value (PVFIX). The upside of “simple” is that it’s a cheap and reliable strategy. The downside is that it is a pure beta strategy; it reduces volatility but does not add to short-term returns.
  3. Do something complicated. Find a good long-short, market-neutral or event-arbitrage manager to handle part of your portfolio. Most of the funds in these categories are overpriced, complicated messes. Still, there are some gems. We’re written about RiverPark Long-Short Opportunity (RLSFX), LS Opportunity (LSOFX), and AMG River Road Long-Short (ARLSX). We’ll soon write about Camelot Event-Arbitrage née Pennsylvania Avenue Event-Arbitrage and might soon profile 361 Global Long/Short Equity (AGAQX). The upside of “complicated” is that it adds alpha; that is, these guys are trying to drive returns up. The downside is that it tends to be expensive and, like equity, works in fits and starts.
  4. Wait until the moment comes, then panic and ruin both your finances and your health. It’s a surprisingly common strategy, though one that continues to mystify me.

Bottom line: the mere fact that it’s not the best of times does not mean you’re powerless. It means that circumstances seem to be conspiring against you. It happens. Fortunately, you’re strong. Stronger than you’ll admit. And we’re here. We’ll help.

Some people might ask, “What is this man doing talking about nobility? Doesn’t he know that this is a dragon-spawned and blood-encrusted century? Doesn’t he know that the dragon breath of our time is breathing down the neck of the year 2000? Doesn’t he know that this is the era of flash and cash?” … But I will answer them also by saying that nobility is always born somewhere out there in the world, and when you live in a democratic nation you have to face the mysterious fact that nobility has no permanent address, you have to face the fact that nobody has nobility’s private phone number. Nobility is not listed in the phone book. Nobility is not listed in the society column, nobility shows up where it feels like showing up, and where it feels like showing up might be just about anywhere. If it could rise like a mighty light from among the human livestock of the plantation, you know it can come from anywhere it wants to. You see, nobility is listed though. Yes, it is listed. Nobility lists itself in the human spirit, and its purpose is to enlist the ears of the listeners in the bittersweet song of spiritual concerns.

Stanley Crouch, “Premature Autopsies” from The Majesty of the Blues (1989)

Prospector Opportunity (POPFX)

By David Snowball

Objective and strategy

The Opportunity Fund seeks capital appreciation. They apply a value-oriented discipline to micro-, small- and mid-cap stocks in the US and other developed markets. In general, the managers look for companies with long, consistent, predictable track records of free cash flow yield generation and healthy organic growth. They identify undervalued securities by starting with balance sheet strength but they also consider qualitative factors (e.g., quality of the management) and the presence of a catalyst (e.g., sale of underperforming assets).

The Investment Manager believes that risk can be managed through a careful selection process that focuses on the relationship between the actual market price of a security and the intrinsic value of which the security represents an interest.

Adviser

Prospector Partners, which is headquartered in Guilford, CT, was founded in 1997 by John D. Gillespie. Prospector defines itself as a value investor with a distinctive emphasis on investing from a credit perspective. They manage institutional private funds and separate accounts, along with the Prospector funds. Prospector manages about $730 million of which $145 million is in the Prospector funds.

Managers

John D. Gillespie, Kevin O’Brien, and Jason Kish. Mr. Gillespie is one of Prospector Funds founders and its president. He has managed the fund since its inception. From 1986-1997, Mr. Gillespie was with T. Rowe Price where, among other things, he managed the Growth Stock Fund and New Age Media Fund (originally a closed-end fund that morphed into Media & Telecommunications, now called Communications & Technology Fund). He’s also serves on the Board of Trustees for Bates College, an alma mater. Mr. O’Brien has been a portfolio manager at Prospector since 2003 and has helped manage this fund since inception. Before joining Prospector he spent seven years with Neuberger Berman, rising from analyst to managing director, and several years with White Mountains Advisors. He earned the Chartered Financial Analyst designation in 1995. Mr. Kish joined the fund in 2013, but has been with the firm for 20 years. He’s a graduate of Providence College, received his Certified Public Accountant designation in 2000 and his Chartered Financial Analyst designation in 2004. The CFA designation is a significant predictor of manager performance. The team also manages Prospector Capital Appreciation (PCAFX) and is supported by four analysts.

Strategy capacity and closure

There’s no hard and fast number. The fund holds substantial positions in micro-, small- and mid-cap stocks; assets need to remain small enough that the fund can both benefit from a micro-cap stock and exit from the stock without disrupting markets. Under current (May 2018) conditions, Prospector estimates they could manage “a billion plus.” Since they’re “more interested in our reputation than in asset gathering,” they’ll close the strategy when conditions warrant.

Management’s stake in the fund

Messrs. Gillespie and O’Brien each have invested over $1 million in the fund, Mr. Kish has more than $300,000. In total Mr. Gillespie, owns 12.11% of the Capital Appreciation Fund.

Every member of the Board of Directors has invested in both Prospector funds. Despite receiving modest compensation, three of the four independent members report investments in the highest SEC reporting band: $100,000+. The four independent director has between $10,000 – 50,000 in each fund; given his age (78) and the funds’ equity exposure, that strikes us as a very substantial vote of confidence. While many people understand the importance of “skin in the game” by managers, fewer know that research gives Board ownership substantial weight; funds with high Board ownership tend to take fewer outsized risks and tend to produce steadier returns than other funds. Prospector’s level of ownership is in the industry’s top tier.

Opening date

September 28, 2007

Minimum investment

$10,000

Expense ratio

1.31%, after waivers, on assets of $117 million.

Comments

All funds lose sometime. I love funds that lose at the right time.

The table below shows the absolute and relative returns of Prospector Opportunity in each of the past 10 years. Here’s one reading: Opportunity has trailed its peers half of the time, which suggests that it’s merely average. But looking carefully at when it trailed them is much more important than simply noting that it trailed them.

  08 09 10 11 12 13 14 15 16 17
Absolute -19% 26 17 -0.2 15 27 7 1 21 10
Relative rank 2%ile 86 88 17 65 93 72 5 26 81

Look at the “bad” years first. So Prospector trailed more than 80% of its peers in four of the last ten years, and it returned an average of 20% in each of those years. Prospector beat more than 80% of its peers three times (2008, 2011 and 2015) and it returned an average of -6% in each of those years.

So the bad years were good, and the good years were bad? What’s up with that?

What’s up is that Prospector specializes in not losing its investors’ money. That means surrendering part of the gains that might make when the market is “frothy” in exchange for protecting the gain they did make when the market turns ugly. That occurs because, they note, “Prospector approaches value investing from a credit perspective.” That is, they look at many of the same factors that a bond investor might, starting with the balance sheet because it’s “harder [for management] to manipulate” than measures like “earnings” are. Rather than starting by asking “how much could we make if everything goes right,” they start with “how much could we lose if everything goes wrong?” That accounts for their more muted returns in frothy markets where, almost by definition, lots could go wrong.

Peter Perugini, Prospector’s CFO, argues that the key measure we need to look at is upside/downside capture. “It’s the old saying, rule #1 is ‘don’t lose money’ and rule #2 is ‘don’t forget rule #1.’ At Prospector, the plan is to string together a series of positive returns, sometimes modest, and at the same time doing our best to avoid large losses.”

Despite that caution, they are dedicated stock investors because stocks – carefully chosen – still outperform bonds in the long-run. Their 2017 Annual Report admits

In our estimation equity valuations remain at historically extended levels, in the tenth decile on trailing operating earnings. We feel we are in the later stages of a bull market, although nothing is certain. Equities look most reasonable when comparing earnings yield to Treasury and even corporate bond yields. In any case, the values inherent in your portfolio should attract acquirers and other investors over time. Meanwhile, we believe equities are a superior asset allocation alternative to bonds over the longer term.

That philosophy reflects an approach similar to T. Rowe Price’s, and the results for Prospector have been outstanding. MFO does not measure success in terms of returns, but only in terms of risk-adjusted returns. Because Prospector invests in stocks of all market caps, and stocks that are characterized as both “growth” and “value,” it gets classified as a mid-cap blend fund (Morningstar) or a mid-cap core fund (Lipper). While not all mid-cap core/blend funds have a go-anywhere portfolio, many such as Prospector do, which makes them particular apt core holdings.

Using the MFO Premium screener, we searched for the mid-cap core funds which have sustained the most attractive risk-return profile over the course of the entire market cycle (roughly October 2007 – now). Here are the top ten funds among the 86 mid-cap cores operating since October 2007. Here we’ve sorted it by Sharpe ratio, the most widely followed measure of risk-adjusted performance. Prospector is ranked #1 of 86 mid-cap core funds based on Sharpe ratio.

How do you read this table? The funds are dark blue are designated by MFO as “Great Owl” funds; they have delivered top quintile risk-adjusted returns, based on Martin Ratio, in its category for evaluation periods of 3, 5, 10, and 20 years, as applicable. The requirement to excel in every trailing period is our attempt to measure consistency as well as excellence.

Prospector has returned 8.9% annually, 1.8% greater than its average peer.

Prospector is ranked #1 out of 86 funds based on its minimum three-year rolling return; this metric asks, if you held a fund for 36 months, what’s the worst case for returns? In Prospector’s case, the worst 36 month period saw annualized returns of 2.9%. Some of its larger, more famous peers posted losses of 26.6% using the same measure. Only one other fund was in the black for a rolling three-year average; 84 of 86 funds in the group would have been underwater.

Prospector is ranked #1 funds based on its maximum drawdown; which measures the magnitude of a fund’s worst decline in the period.

Prospector is ranked #1 based on standard deviation.

Prospector is ranked #1 based on downside deviation, which looks at the volatility of a fund’s downward movements – which investors find important – whereas standard deviation penalizes a fund for both upward spikes and downward ones.

Prospector is ranked #1 based on bear market deviation, which looks at how a fund does in months with substantial stock market declines.

Prospector is ranked #1 based on Sortino ratio, a more-conservative variation of the Sharpe ratio.

Prospector is ranked #1 based on Martin ratio, our most-conservative risk-return metric.

Prospector is ranked #1 based on Ulcer Index, our most whimsically named metric, which factors together how far a fund drops and how long it stays down.

Even if we triple the number of funds in the comparison group by adding Lipper’s multi-cap core group, Prospector is ranked #1, 2 or 3 in virtually every measure of risk-adjusted performance: three-year rolling average, maximum drawdown, downside deviation, bear market deviation, Sharpe, Sortino and Martin ratios, and Ulcer Index.

Bottom Line

Prospector is #1. Will it ever be so? No, of course not. They trailed their peers in 2009-10 and again in 2012-14, and they’ll doubtless do so again. But they rewarded their investors handsomely in both of the “laggard” periods, while ferociously protecting them when (in 2008, for example) markets were at their worst. Prospector is not designed for eye-popping returns, and doesn’t deliver them. It’s designed to capture as much of the market’s upside as it reasonably can, without compromising its ability to preserve capital when things turn.  If you are concerned that such a turn lies in our future, you would be well-served to learn about Prospector now.

Fund website

Prospector Opportunity

Funds in Registration

By David Snowball

Proposed new funds and ETFs have to be submitted for review by the Securities and Exchange Commission, which has 75 days to raise any concerns. During those 75 days, the so-called “quiet period,” advisors are forbidden from discussing the fund in registration. Advisors hoping for a fund launch by New Years have their funds in registration by October; those seeking a mid-year launch get the papers filed in April. A lot of the filings were rushed and incomplete. That said, the BBH and Metropolitan West income funds are apt to be entirely reasonable additions; for income-seeking investors, they bear investigation.

AINN Fund 

AINN Fund will seek capital gains. In favorable markets, they’ll invest long in equity ETFs. In unfavorable markets, they’ll switch to cash and inverse ETFs. The fund will be managed by Kevin M. Carrasco and Mustan Sakarwala. The initial expense ratio will be 2.05%, and the minimum initial investment is $5,000 for retirement accounts and $25,000 for regular accounts.

ALPS/Smith Total Return Bond Fund

ALPS/Smith Total Return Bond Fund will seek maximum total return, consistent with preservation of capital. The plan is to invest in bonds, and potentially quite a wide array (corporate, convertible, asset-backed, government, zero-coupon) of them. Up to 35% of the portfolio might be in high-yield bonds. The fund will be managed by Gibson Smith. The initial expense ratio has not been disclosed, and the minimum initial investment is $2,500, reduced to $500 for tax-advantaged accounts.

Barings Global Emerging Markets Equity Fund

Barings Global Emerging Markets Equity Fund will seek long-term capital growth. The plan is to invest in emerging markets-like stocks; that is, stocks (or stock-linked derivatives) of companies domiciled in, carrying out business from or having “significant assets or interests in” one or more emerging markets. About the oddest proviso is the promise that the fund “invests at least 40% of its net assets in securities of non-U.S. issuers.” Ummm … emerging Cleveland, anyone? The fund will be managed by William Palmer and Michael Levy of Barings LLC. The team has managed a comparable product in Europe, the BIIL UCITS Fund, that has significantly trailed its benchmark over the past 10 years and since inception in 1992, has modestly trailed its benchmark over the past five years and has outperformed its benchmark for the past one year. The initial expense ratio for “A” shares will be 1.45%, and the minimum initial investment is $1,000.

BBH Income Fund 

BBH Income Fund will seek maximum total return, with an emphasis on current income, consistent with preservation of capital and prudent investment management. The plan is to invest in a well-diversified portfolio of fixed income instruments, including floating or variable rate debt instruments. The Fund intends to invest only in debt instruments which are performing, durable, and available at an attractive valuation. The fund will be managed by Andrew P. Hofer and Neil Hohmann. The separate account composite for the strategy has a 10-year return of 4.8% annually, against 4.0% for its benchmark index. The initial expense ratio has not been disclosed, and the minimum initial investment for “N” shares is $5,000.

Cargile Fund

Cargile Fund will seek long-term capital appreciation. The plan is to invest in equity and bond ETFs, including leveraged ETFs, using a mathematical trend-analyzing model that adjusts the portfolio daily. The fund will be managed by Mickey Cargile. The initial expense ratio will be 1.78%, and the minimum initial investment is $5,000.

ClearShares Ultra-Short Maturity ETF

ClearShares Ultra-Short Maturity ETF, an actively-managed ETF, will seek current income. The plan is to buy “epurchase agreements collateralized by U.S. government securities and, to a lesser extent, directly in individual fixed income instruments.” The fund will be managed by ark N. Hong, CFA (Managing Director), Jonathan M. Chesshire (Managing Director), Eric J. Blasberg and Kevin M. O’Connor of ClearShares LLC. Being an ETF, there is no minimum initial purchase requirement. The initial expense ratio will be 0.30%.

Eagle Rock Floating Rate Fund

Eagle Rock Floating Rate Fund will seek high a level of current income as is consistent with capital preservation. The plan is to invest in U.S. dollar denominated floating rate secured loans and other floating rate debt instruments. The prospectus helpfully notes that these are considered “speculative investments.” The fund will be managed by Tom Wojczak. The initial expense ratio will be 1.44%, and the minimum initial investment is $1,000.

Frontier MFG Low Carbon Global Fund 

Frontier MFG Low Carbon Global Fund will seek attractive risk-adjusted returns over the medium- to long-term within a low carbon framework, while reducing the risk of permanent capital loss. They’ll target 20-50 stocks with the prospect of a currency hedge. My greatest annoyance here is that this same fund existed as part of a different series trust, and was liquidated on April 28, 2018, only to be reborn on two months later. It looks like the predecessor fund (ticker MGYGX) never even launched. The fund will be managed by Domenico Giuliano. The initial expense ratio will be 0.95% for service class shares, and the minimum initial investment is $10,000.

Gabelli Pet Parent Fund

Gabelli Pet Parent Fund, an actively-managed ETF, will seek capital appreciation. And yes, literally, pets and their “parents.” The plan is to invest in “the pet industry.” Sorry, I refuse to say anything more about the strategy. The fund will be managed by Daniel M. Miller, Executive Vice President of Marketing for Gabelli and manager of the one-star Gabelli Focus Five Fund. The initial expense ratio will be 0.90%.

James Alpha Structured Credit Value Portfolio

James Alpha Structured Credit Value Portfolio will seek a high level of risk-adjusted current income and capital appreciation. The plan is to invest in structured credit securities such as CMBS, ABS, CMOs, CLOs, CBOs, CDOs, stripped RMBS and inverse floaters. Which is to say, I have no clue.The fund will be managed by Jay Menozzi and Boris Peresechensky. The initial expense has not been announced, and the minimum initial investment is $2,500.

Metropolitan West Corporate Bond Fund

Metropolitan West Corporate Bond Fund will seek to maximize long-term total return. The plan is to invest in a diversified portfolio of corporate debt instruments of varying maturities issued by U.S. and foreign corporations domiciled in developed market and emerging market countries, with the potential for some government debt, CDOs, asset-backed debt and other spices tossed in. The fund will be managed by Tad Rivelle, Bryan T. Whalen, and Jerry Cudzil . The initial expense ratio has not been disclosed, and the minimum initial investment for “M” shares is $5,000, reduced to $1,000 for tax-advantaged accounts.

Metropolitan West Investment Grade Credit Fund

Metropolitan West Investment Grade Credit Fund will seek to maximize long-term total return. The plan is to allocate investments across a range of fixed income sectors with a focus on investment-grade securities. “Satisfying the Fund’s objective,” they note, “would require it to achieve positive total returns over a full market cycle.” A note in passing: that’s a ridiculously low bar to be set for a really strong team. There are 139 investment grade debt funds that have been around for the current market cycle which began in October 2007. Every one of them has achieved “positive total returns” for that period. The fund will be managed by Tad Rivelle (famous guy), Laird Landmann, Stephen M. Kane and Bryan T. Whalen. The initial expense ratio has not been disclosed, and the minimum initial investment for “M” shares is $5,000, reduced to $1,000 for tax-advantaged accounts.

Metropolitan West Flexible Income Fund

Metropolitan West Flexible Income Fund will seek a high level of current income with a secondary objective of long-term capital appreciation. The plan is to a range of global investment opportunities related to credit, currencies and interest rates. The fund will be managed by Tad Rivelle (famous guy), Laird Landmann, Stephen M. Kane and Bryan T. Whalen. The initial expense ratio has not been disclosed, and the minimum initial investment for “M” shares is $5,000, reduced to $1,000 for tax-advantaged accounts.

Opus Small Cap Value Plus ETF

Opus Small Cap Value Plus, an actively-managed ETF, will seek capital appreciation. The plan is to construct a portfolio of 80-120 small- to mid-cap stocks with three characteristics: higher quality, higher growth firms whose stocks sell at lower valuations (measured by p/e and dividend yield). The expected turnover rate is 50%/year. The fund will be managed by Len Haussler and Adam Eagleston of Opus Capital Management. The duo run the same strategy in separate accounts, those have an annual return of 13.7% (compared to the Russell 2000 Value’s 9.8%) from 7/31/2013 – 12/31/2017. Being an ETF, there is no minimum initial purchase requirement. The initial expense ratio has not been disclosed.

Opus International Small/Mid Cap ETF

Opus International Small/Mid Cap, an actively-managed ETF, will seek capital appreciation. The plan is to construct a portfolio of 30-50 small- to mid-cap stocks with three characteristics: higher quality, higher growth firms whose stocks sell at lower valuations (measured by p/e and dividend yield). The expected turnover rate is 50%/year. The fund will be managed by Len Haussler and Adam Eagleston of Opus Capital Management. The duo run the same strategy in separate accounts, those have an annual return of 32.7% (compared to the MSCI ACWI ex-USA Small Cap Index’s 31.7%) from 12/31/2016 – 12/31/2017. Being an ETF, there is no minimum initial purchase requirement. The initial expense ratio has not been disclosed.

Pax Global Opportunities Fund

Pax Global Opportunities Fund will seek long term growth of capital by investing in companies benefiting from the transition to a more sustainable global economy. Nominally, it will be an all-cap portfolio. The fund will be managed by Kirsteen Morrison and David Winborne of Impax Asset Management. The initial expense ratio will be 1.23%, and the minimum initial investment is $1,000.

Pzena International Small Cap Value Fund 

Pzena International Small Cap Value Fund will seek long-term capital appreciation. The plan is to pursue “a classic value strategy” in pursuit of 40-90 international small cap (up to $8.3 billion) stocks. The fund will be managed by Matthew J. Ring and Allison Fisch. There’s a separate accounts composite with a record too short to be meaningful. The initial expense ratio will be 1.53%, and the minimum initial investment is $5,000, reduced to $1,000 for tax-advantaged accounts.

WisdomTree Global Multifactor Fund 

WisdomTree Global Multifactor Fund, an actively-managed ETF, will seek capital appreciation. The plan is to use a computer model to find global “securities that exhibit certain characteristics … indicative of positive future returns.” The fund will be managed by someone, but they’re not saying who. Being an ETF, there is no minimum initial purchase requirement. The initial expense ratio has not been disclosed.

WisdomTree International Multifactor Fund

WisdomTree Global Multifactor Fund, an actively-managed ETF, will seek capital appreciation. The plan is to use a computer model to find international “securities that exhibit certain characteristics … indicative of positive future returns.” The fund will be managed by someone, but they’re not saying who. Being an ETF, there is no minimum initial purchase requirement. The initial expense ratio has not been disclosed.

WisdomTree Emerging Markets Multifactor Fund

WisdomTree Emerging Markets Multifactor Fund, an actively-managed ETF, will seek capital appreciation. The plan is to use a computer model to find EM “securities that exhibit certain characteristics … indicative of positive future returns.” The fund will be managed by someone, but they’re not saying who. Being an ETF, there is no minimum initial purchase requirement. The initial expense ratio has not been disclosed.

Manager changes

By Chip

There are an exceptional number of manager changes this month, our partial recounting here finds 72 funds with changed teams. The tally is partial because we tend to exclude vanilla bond funds and index funds from the tally, since the managers in such funds make relatively modest differences in the funds’ performance.

Two departures seem worth note. Anthony Cragg is stepping down from Wells Fargo Asia Fund Fund (WFAAX) after a quarter century at the helm. He began with the fund in 1993 when it was still Strong Asia Pacific. Over the course of his career with the fund, he would have turned an initial $10,000 investment to $35,000 while an investment in his average peer would have grown to $27,500. It’s a difference worth noting. Ron Kaliebe will step aside from management of Mairs & Power Balanced (MAPOX) in a year. Mr. Kaliebe will have had a 13 year run which pales in comparison to his predecessor, William Frels, who kept his hand on the tiller for 22 years. It’s the nature of Mairs & Power that they make these transitions quietly and successfully. Morningstar rightly celebrates “the stability and veteran leadership of this fund’s management team.”

Ticker Fund Out with the old In with the new Dt
APGAX AB Large Cap Growth Fund Karen Sesin is no longer listed as a portfolio manager for the fund. Vinay Thapar joins Frank Caruso and John Fogarty in managing the fund. 5/18
CABDX AB Relative Value Fund No one, but . . . Vinay Thapar and John Fogarty join Fran Caruso on the management team. 5/18
CHUSX Alger Global Growth Fund Pedro Marcal and Deborah Velez Medencia are no longer listed as portfolio managers for the fund. Gregory Jones and Pragna Shere will now manage the fund. 5/18
AFGPX Alger International Growth Fund Class B Pedro Marcal is no longer listed as a portfolio manager for the fund. Gregory Jones and Pragna Shere will now manage the fund. 5/18
ALMMX AllianzGI Emerging Markets Small-Cap Fund Jie Wei will no longer serve as a portfolio manager for the fund. Kunal Ghosh and Lu Yu will continue to manage the fund. 5/18
ACTIX American Century Capital Value Brendan Healy will no longer serve as a portfolio manager for the fund. Philip Sundell joins Brian Woglom on the management team. 5/18
ALVIX American Century Large Company Value Brendan Healy will no longer serve as a portfolio manager for the fund. Phillip Davidson joins Brian Woglom on the management team. 5/18
MMCFX AMG Managers Emerging Opportunities Fund Effective immediately, Arthur Weise no longer serves as a portfolio manager for the portion of the fund managed by Lord, Abbett & Co. LLC F. Thomas O’Halloran and Matthew DeCicco are designated as portfolio managers for the portion of the fund managed by Lord Abbett. The rest of the management team remains. 5/18
MGSEX AMG Managers Special Equity Fund Effective immediately, Arthur Weise no longer serves as a portfolio manager for the portion of the fund managed by Lord, Abbett & Co. LLC Matthew DeCicco is designated as a portfolio manager for the portion of the fund managed by Lord Abbett. The rest of the management team remains. 5/18
ARDEX AMG River Road Dividend All Cap Value Fund No one, but . . . Andrew McIntosh joins Henry Sanders, James Shircliff, and Thomas Forsha on the management team. 5/18
ADVTX AMG River Road Dividend All Cap Value Fund II No one, but . . . Andrew McIntosh joins Henry Sanders, James Shircliff, and Thomas Forsha on the management team. 5/18
SYAMX AMG Systematic Mid Cap Value Fund No one, but . . . Aman Patel joins Ronald Mushock and D. Kevin McCreesh on the management team. 5/18
AZEIX AQR Emerging Defensive Style Fund Mr. Hoon Kim will no longer serve as a portfolio manager. Michele Aghassi, Andrea Frazzini, and Jacques Friedman will continue to manage the fund. 5/18
QERIX AQR Emerging Relaxed Constraint Equity Fund Mr. Hoon Kim will no longer serve as a portfolio manager. Michele Aghassi, Andrea Frazzini, and Jacques Friedman will continue to manage the fund. 5/18
ANDNX AQR International Defensive Style Fund Mr. Hoon Kim will no longer serve as a portfolio manager. Michele Aghassi, Andrea Frazzini, and Jacques Friedman will continue to manage the fund. 5/18
QIRNX AQR International Relaxed Constraint Equity Fund Mr. Hoon Kim will no longer serve as a portfolio manager. Michele Aghassi, Andrea Frazzini, and Jacques Friedman will continue to manage the fund. 5/18
AUEIX AQR Large Cap Defensive Style Fund Mr. Hoon Kim will no longer serve as a portfolio manager. Michele Aghassi, Andrea Frazzini, and Jacques Friedman will continue to manage the fund. 5/18
QLRIX AQR Large Cap Relaxed Constraint Equity Fund Mr. Hoon Kim will no longer serve as a portfolio manager. Michele Aghassi, Andrea Frazzini, and Jacques Friedman will continue to manage the fund. 5/18
QLENX AQR Long-Short Equity Fund Mr. Hoon Kim will no longer serve as a portfolio manager. Michele Aghassi, Andrea Frazzini, and Jacques Friedman will continue to manage the fund. 5/18
QSRIX AQR Small Cap Relaxed Constraint Equity Fund Mr. Hoon Kim will no longer serve as a portfolio manager. Michele Aghassi, Andrea Frazzini, and Jacques Friedman will continue to manage the fund. 5/18
BXEAX Barings Emerging Markets Debt Blended Total Return Fund Novruz Bashirov will no longer serve as a portfolio manager for the fund. Ricardo Adrogué, Cem Karacadag, and Brigitte Posch will continue to manage the fund. 5/18
BICHX BlackRock Emerging Markets Dividend Fund Alethea Leung is no longer listed as a portfolio manager for the fund. Stephen Andrews and Emily Fletcher will continue to manage the fund. 5/18
MFOMX BNY Mellon Focused Equity Opportunities Fund Irene O’Neill is no longer listed as a portfolio manager for the fund. Thomas Lee and Donald Sauber will now manage the fund. 5/18
ETDFX Carillon Cougar Tactical Allocation Fund No one, but . . . Abdullah Sheikh joins James Breech in managing the fund. 5/18
CRCBX Carillon Reams Core Bond Fund No one, but . . . Jason Hoyer joins Clark Holland, Stephen Vincent, Todd Thompson, Thomas Fink, and Mark Egan on the management team. 5/18
SCPDX Carillon Reams Core Plus Bond Fund No one, but . . . Jason Hoyer joins Clark Holland, Stephen Vincent, Todd Thompson, Thomas Fink, and Mark Egan on the management team. 5/18
SUBDX Carillon Reams Unconstrained Bond Fund No one, but . . . Jason Hoyer joins Clark Holland, Stephen Vincent, Todd Thompson, Thomas Fink, and Mark Egan on the management team. 5/18
CADYX Cavalier Dynamic Growth Fund Justin Lent will no longer serve as a portfolio manager for the fund and StratFi, LLC will no longer sub-advise the fund. Scott Wetherington will continue to manage the fund. 5/18
CAHIX Cavalier Hedged High Income Fund Gavan Duemke and Sean Wright will no longer serve as portfolio managers for the fund. Carden Capital, LLC will no longer subadvise the fund. Sott Wetherinton will continue to manage the fund. 5/18
CMSYX Cavalier Multi Strategy Fund, formerly Cavalier Multi Strategist Fund Gavan Duemke, Sean Wright, and Henry Ma will no longer serve as portfolio managers for the fund. Carden Capital, LLC and Julex Capital Management, LLC will no longer subadvise the fund. Scott Wetherington, Lee Albert Calfo, and Brian Shevland will continue to manage the fund. 5/18
RIMOX City National Rochdale Fixed Income Opportunities Fund No one, but . . . Matthew Peron joins the management team. 5/18
CRMEX CRM All Cap Value Fund Jeffrey Reich will no longer serve as a portfolio manager for the fund. Robert Maina and Jay Abramson will continue to manage the fund. 5/18
CRMSX CRM Small Cap Value Fund No one, but . . . Bernard Frojmovich joins Brian Harvey in managing the fund. 5/18
SGSCX Deutsche Global Small Cap Fund Joseph Axtell will no longer serve as a portfolio manager for the fund. Peter Barsa now manages the fund. 5/18
DNLDX Dreyfus Active MidCap Fund Ronald Gala will no longer serve as a portfolio manager for the fund. C. Wesley Boggs, William Cazalet, Peter Goslin, and Syen Zamil will continue to manage the fund. 5/18
DBEAX Dreyfus Diversified Emerging Markets Fund Ronald Gala will no longer serve as a portfolio manager for the fund. Michelle Chan, C. Wesley Boggs, William Cazalet, Julianne McHugh, Peter Goslin, Elizabeth Slover, and Syen Zamil will continue to manage the fund. 5/18
DQIAX Dreyfus Equity Income Fund Ronald Gala will no longer serve as a portfolio manager for the fund. C. Wesley Boggs, William Cazalet, Peter Goslin, and Syen Zamil will continue to manage the fund. 5/18
DOFAX Dreyfus Strategic Beta Emerging Markets Equity Fund Ronald Gala will no longer serve as a portfolio manager for the fund. C. Wesley Boggs, William Cazalet, Peter Goslin, and Syen Zamil will continue to manage the fund. 5/18
DPSAX Dreyfus Structured Midcap Fund Ronald Gala will no longer serve as a portfolio manager for the fund. C. Wesley Boggs, William Cazalet, Peter Goslin, and Syen Zamil will continue to manage the fund. 5/18
Various Fidelity Advisor Asset Manager Funds and Fidelity Asset Manager Funds No one, but . . . Avishek Hazrachoudhury has joined Geoff Stein in managing the funds. 5/18
FMFIX Free Market Fixed Income Fund Kenneth Gatliff is no longer listed as a portfolio manager for the fund. Sean Babin joins Mark Matson and Steven Miller in managing the funds. 5/18
FMNEX Free Market International Equity Fund Kenneth Gatliff is no longer listed as a portfolio manager for the fund. Sean Babin joins Mark Matson and Steven Miller in managing the funds. 5/18
FMUEX Free Market U.S. Equity Fund Kenneth Gatliff is no longer listed as a portfolio manager for the fund. Sean Babin joins Mark Matson and Steven Miller in managing the funds. 5/18
SFAFX Goldman Sachs Strategic Factor Allocation Fund Amna Qaiser will no longer serve as a portfolio manager for the fund. Christian Morgenstern and Nishank Modi will continue to manage the fund. 5/18
MXIGX Great-West MFS International Growth Fund Filipe Benzinho and Daniel Ling are no longer listed as portfolio managers for the fund. Shane Duffy, Donald Huber, Thomas Murray, and John Remmert will now manage the fund. 5/18
SGBVX Hartford Schroders Global Strategic Bond Fund Thomas Sartain will no longer serve as a portfolio manager for the fund. Robert Jolly and Paul Grainger will continue to manage the fund. 5/18
IQHOX IQ Hedge Multi-Strategy Plus Fund Effective April 30, 2018, Paul Fusaro will no longer serve as a portfolio manager for the fund. James Harrison will join Greg Barrato on the management team. 5/18
IBNAX Ivy Balanced Fund Rick Perry is no longer listed as a portfolio manager for the fund. Susan Regan and Mark Beischel join Matthew Hekman on the management team. 5/18
IBJAX Ivy Bond Fund Rick Perry is no longer listed as a portfolio manager for the fund. Susan Regan joins Mark Beischel in managing the fund. 5/18
ICKAX Ivy Crossover Credit Fund Rick Perry is no longer listed as a portfolio manager for the fund. Susan Regan joins Mark Beischel in managing the fund. 5/18
IVFGC Ivy Focused Growth NextShares Daniel Becker is no longer listed as a portfolio manager for the fund. Bradely Kapmeyer will continue to manage the fund. 5/18
IGJAX Ivy Government Securities Fund Rick Perry is no longer listed as a portfolio manager for the fund. Susan Regan is joined by Mark Beischel in managing the fund. 5/18
WLGAX Ivy Large Cap Growth Fund Daniel Becker is no longer listed as a portfolio manager for the fund. Bradely Kapmeyer will continue to manage the fund. 5/18
JTCAX John Hancock Technical Opportunities Fund Effective June 29, 2018, Frank Teixeira will no longer serve as a portfolio manager for the fund. David Lundgren will continue to manage the fund. 5/18
MAWNX MainStay Epoch U.S. All Cap Fund No one, but . . . Justin Howell joins David Pearl, William Priest and Michael Welhoelter on the management team. 5/18
MAPOX Mairs & Power Balanced Fund Ronald Kaliebe will retire at the end of June, 2019. As part of a succession plan, Kevin Early has been named lead portfolio manager and Robert Thompson has joined the team, in advance of Mssr. Kaliebe’s departure. 5/18
MGFAX MassMutual Premier Global Fund Rajeev Bhaman has announced his intention to retire as of March 31, 2019. There’s nearly a year to plan. John Delano will continue to manage the fund. 5/18
MEFAX MassMutual Select Mid Cap Growth Fund Stephen Knightly is expected to retire as of December 31, 2019. Brian Berguis and Christopher Scarpa will continue to manage the fund. 5/18
OHYDX Oaktree High Yield Bond Fund James Turner will no longer serve as a portfolio manager for the fund. Madelaine Jones joins Sheldon Stone and David Rosenberg in managing the fund. 5/18
OPPAX Oppenheimer Global Fund Rajeev Bhaman has announced his intention to retire as of March 31, 2019. John Delano will continue to manage the fund. 5/18
PMDEX PMC Diversified Equity Fund Effective May 25, 2018, Mark Donovan, David Pyle, Francis Morris, Michael Morris, Christopher Adams, Donald Padilla, David Reidinger, Ronald Gala, William Cazalet, Michael Kaminski, William Booth, Glen Petraglia, Lilian Quah, and William Priest will no longer serve as a portfolio managers for the fund. The fund will eliminate its “manager of managers” investment strategy and terminate agreements with it’s subadvisors. Janis Zvingelis and Brandon Thomas will continue to manage the fund. 5/18
PQCMX Prudential Commodity Strategies Fund Adam De Chiara is no longer listed as a portfolio manager for the fund. Marco Aiolfi and Yesim Tokat-Acikel will now manage the fund. 5/18
HGSAX Rational Risk Managed Emerging Markets Fund Edward Baker, Mathias Wikberg and Walid Khalfallah will no longer serve as a portfolio managers for the fund. The Cambridge Strategy Limited will no longer subadvise the fund. Barrow, Hanley, Mewhinney & Strauss, LLC will now subadvise the funds, with Rondolph Wrighton, Jr., Josh Ayers and Sherry Zang on the management team. 5/18
FSIEX Touchstone International Value Fund David Hodges is no longer listed as a portfolio manager for the fund. T.J. Carter and Charles Radtke join Randolph Wrighton in managing the fund. 5/18
BNAAX UBS Dynamic Alpha Fund Nathan Shetty will no longer serve as a portfolio manager for the fund. Alan Zlater joins José Ignacio Andrés on the management team. 5/18
UTBAX UBS Total Return Bond Fund No one, but . . . Jeffrey Haleen and Branimir Petranovic will join Scott Dolan and Craig Ellinger on the management team. 5/18
PWTAX UBS U.S. Allocation Fund Nathan Shetty will no longer serve as a portfolio manager for the fund. Alan Zlater joins Paul Lang on the management team. 5/18
UNAVX USA Mutuals Navigator Fund No one, but . . . Jordan Waldrep joins Steven Goldman in managing the fund. 5/18
IEOSX Voya Large-Cap Growth Fund Christopher Corapi will no longer serve as a portfolio manager for the fund. Jeffrey Bianchi and Michael Pytosh will continue to manage the fund. 5/18
WFAAX Wells Fargo Asia Pacific Fund Anthony Cragg will retire on September 1, 2018, but will step down from the fund after June 15th. Elaine Tse joins Alison Shimada in managing the fund. 5/18
EMGAX Wells Fargo Emerging Markets Equity Income Fund Anthony Cragg will retire on September 1, 2018, but will step down from the fund after June 15th. Elaine Tse joins Alison Shimada in managing the fund. 5/18
WFSAX Wells Fargo Small Company Growth Fund James Ross will take a leave of absence. William Grierson, Daniel Hagen, and Paul von Kuster will continue to manage the fund. 5/18

Briefly Noted . . .

By David Snowball

Update

Two notable updates from the folks at Zeo.

Our 2014 profile of Zeo Strategic Income celebrated their “extraordinarily thoughtful relationship between manager and investor. Both their business and investment models are working. Current investors – about a 50/50 mix of advisors and family offices – are both adding to their positions and helping to bring new investors to the fund, both of which are powerful endorsements. Modestly affluent folks who are looking to both finish ahead of inflation and sleep at night should likely make the effort to reach out and learn more.”

In the succeeding years, the fund has steadily earned 2.0 – 4.0% annually and assets have flowed steadily in. Like RiverPark Short Term High Yield (RPHIX), Zeo’s accomplishments are masked by Morningstar’s classification of it as a high-yield bond fund. In reality, it’s far milder and more reliable than they.

Two updates. The fund is changing its name to Zeo Short Duration Income Fund which is both simple and a good reflection of the nature of the beast. The change should be effective on July 1, 2018, following SEC review. More importantly, the advisor is reducing their management fee by 25%, from 1.0% to 0.75% in reflection of rising assets and their desire to do right for their investors.

Charles has been meeting with, talking with and thinking about Zeo a fair amount this spring. We’ll publish his new profile of Zeo in either June or July.

Briefly Noted …

Morningstar reports that, in the aggregate, fund fees fell about 8% in 2017. That’s fueled by a combination of the migration to passive products and fee reductions in active ones (Investors see largest ever decline in fund fees, 4/26/2018).

Henry Hu, of the University of Texas, says what many of us suspect to be true: ETFs are a ticking time bomb for the financial markets. Despite the fact that seven of the 10 most actively traded securities in the US are ETFs, “the US has neither a dedicated system of regulation nor even a workable, comprehensive legal definition of what constitutes an ETF.” He’s concerned, particularly, with the financial engineering that goes on behind the scenes to set an ETF’s price second-by-second.

The integrity of an ETF’s price is only as good as the models and contracts that link everything together, which are collectively known as the “arbitrage mechanism”.

In times of stress, this mechanism has sometimes failed dramatically. On February 5 2018, the shares of an arcane, “inverse volatility” ETF closed at a price roughly 18 times greater than the collective value of its underlying holdings. Large, plain vanilla ETFs have not proved immune to the same issue. Immediately after New York’s 9:30am market opening on August 24 2015, the share price of the US’s second-largest ETF — one that tracks the S&P 500 — lost 20% of its value, even though the index only fell about 5 per cent. (“The $5tn ETF market balances precariously on outdated rules,” FT.com, 4/23/2018 – I’m not attempting to provide a link since FT content lives safely behind a wall, though sometimes it works simply to enter the article title in the Google)

SMALL WINS FOR INVESTORS

As of May 21, 2018, American Century Equity Income Fund (TWEIX) will be open to all investors.

Driehaus Capital Management is going to lower the management fee (i.e., their cut) on Driehaus International Small Cap Growth Fund (DRIOX) from 1.50% to 1.0%, effective July 1, 2018. Fee reductions are so common now, and frequently so minor, that we don’t even bother to report them. In this case, the magnitude of the change warrants a bit of notice.

Effective May 17, 2018, PNC Small Cap Fund (PPCAX) shares will be available for purchase by new investors

CLOSINGS (and related inconveniences)

T Rowe Price International Discovery Fund (PRIDX) closed to new investors on April 2, 2018. Typical of T. Rowe, they did not telegraph the impending change. Folks locked out of PRIDX but looking for international small cap exposure might look at Harding Loevner International Small Companies (HLMSX), which has a high 10-year correlation with PRIDX (0.97) and almost identical returns with just slightly-higher volatility. It’s intriguing to see that Morningstar’s new quantitative rating – meant to replicate their forward-looking analyst ratings – classifies this as a Gold fund. More venturesome souls might look to Laura Geritz’s young Rondure Overseas Fund (ROSOX). While the fund is new, Ms. Geritz has a distinguished record as a manager for Wasatch Funds.

OLD WINE, NEW BOTTLES

Cavalier Multi Strategist Fund (ACXAX, formerly, Catalyst/Auctos Multi-Strategy Fund) has been rechristened as Cavalier Multi Strategy Fund. That’s the sort of name change – Strategy to Strategist to Strategy – that leads to the warnings about desperate marketing maneuvers not being a good sign.

Effective April 13, 2018, Change Finance Diversified Impact U.S. Large Cap Fossil Fuel Free ETF (CHGX) was renamed Change Finance U.S. Large Cap Fossil Fuel Free ETF. They’ve dropped the word “Diversified” but the filing makes no change in the investment strategy to suggest that it’s going to be any more or less diversified than before.

Effective April 5, 2018, the Board of Trustees of Absolute Shares Trust decided to do something about the famously opaque names of the ETFs (WBI Tactical LCGD? Really?)

Ticker Current Name New Name
WBIA WBI Tactical SMGD Shares WBI BullBear Rising Income 2000 ETF
WBIB WBI Tactical SMV Shares WBI BullBear Value 2000 ETF
WBIC WBI Tactical SMY Shares WBI BullBear Yield 2000 ETF
WBID WBI Tactical SMQ Shares WBI BullBear Quality 2000 ETF
WBIE WBI Tactical LCGD Shares WBI BullBear Rising Income 1000 ETF
WBIF WBI Tactical LCV Shares WBI BullBear Value 1000 ETF
WBIG WBI Tactical LCY Shares WBI BullBear Yield 1000 ETF
WBIH WBI Tactical High Income Shares WBI BullBear Global High Income ETF
WBII WBI Tactical Income Shares WBI BullBear Global Income ETF
WBIL WBI Tactical LCQ Shares WBI BullBear Quality 1000 ETF
WBIR WBI Tactical Rotation Shares WBI BullBear Global Rotation ETF

On April 20, 2018, John Hancock Seaport Fund became John Hancock Seaport Long/Short Fund (JSFBX).

Effective April 19, 2018, Leader Short-Term Bond Fund (LCCMX) became Leader Short Duration Bond Fund.

Powering down

PowerShares no more: On April 19, 2018, the Board of Trustees of PowerShares Exchange-Traded Fund Trust approved changing the names of all of their funds to replace “PowerShares” with “Invesco.” Those changes are effective on or about June 4, 2018. A small sample of the name changes will give you the flavor of the thing:

Ticker Current Name New Name
PPA PowerShares Aerospace & Defense Portfolio Invesco Aerospace & Defense ETF
PKW PowerShares BuyBack Achievers™ Portfolio Invesco BuyBack Achievers™ ETF
PDBC PowerShares Optimum Yield Diversified Commodity Strategy No K-1Portfolio Invesco Optimum Yield Diversified Commodity Strategy No K-1ETF
QQQ PowerShares QQQ Shares Invesco QQQ Shares

Also effective on or about June 4, 2018, the BLDRS ETFs, also a part of Invesco, begin incorporate Invesco into their funds’ names. 

Ticker Current Name New Name
ADRA BLDRS Asia 50 ADR Index Fund Invesco BLDRS Asia 50 ADR Index Fund
ADRD BLDRS Developed Markets 100 ADR Index Fund Invesco BLDRS Developed Markets 100 ADR Index Fund
ADRE BLDRS Emerging Markets 50 ADR Index Fund Invesco BLDRS Emerging Markets 50 ADR Index Fund
ADRU BLDRS Europe Select ADR Index Fund Invesco BLDRS Europe Select ADR Index Fund

OFF TO THE DUSTBIN OF HISTORY

On May 18, 2018, AllianzGI Global Fundamental Strategy Fund (AZDAX) will be liquidated and dissolved. This is the prototypical “sounded like a good idea at the time.” The fund’s goal is to provide positive real returns across the course of an entire market cycle by investing, long or short, directly or derivatively, in equities or debt, anywhere. Benchmarked against Lipper’s Absolute Return category, the fund performed brilliantly: 50% higher than average returns and 50% lower risk. Against Morningstar’s World Allocation benchmark, the fund’s returns lagged dramatically and the market failed to provide the crisis that might have vindicated the strategy.

ALPS│Alerian MLP Infrastructure Index Fund (ALERX) liquidated, after mid-month notice, on April 30, 2018.

American Independence Carret Core Plus Fund (IBFSX) and American Independence Hillcrest Small Cap Value Fund (HLCAX) closed on April 30 and will liquidate on May 31, 2018. The Hillcrest fund has performed poorly, but was given fewer than three years of life. The Carret fund has been around since 1997 but was undistinguished: not notably bad, not notably good, just … there.

AMG Chicago Equity Partners Small Cap Value Fund (CESIX) will liquidate on May 18, 2018. It’s a perfectly nice fund – average returns, average risk, average market cap – with under a million in assets.

Bridgeway Small-Cap Momentum Fund (BRSMX) has closed and will be liquidated on or about May 14, 2018.

Credit Suisse Commodity ACCESS Strategy Fund (CRCAX) closed on April 4, 2018 and will liquidate on May 31, 2018.

Janus Henderson SG Global Quality Income ETF (SGQI) will liquidate on or about May 23, 2018. Hint: that means “on.”

JPMorgan Tax Aware Income Opportunities Fund (JTAAX) will merge into JPMorgan Tax Free Bond Fund (PMBAX) on May 4, 2018. Perhaps because lawyers are lawyers, JPMorgan’s announcement of that fact took 248 rambling words.

Nuveen Symphony Low Volatility Equity Fund (NOPAX) is merging into Nuveen Santa Barbara Dividend Growth Fund (NSBAX). NOPAX is, by a margin, the stronger performer but had a tiny fraction of NSBAX’s assets.

Port Street Institutional Opportunities Fund (PSOFX) will be liquidated on or around May 25, 2018.

TCW High Dividend Equities Long/Short Fund (TFENX) liquidated on April 25, 2018 on rather short notice. Some combination of $1 million in assets, 3.2% expenses and cratering performance was fatal.

Pending shareholder approval, USAA First Start Growth Fund (UFSGFX) will merge into the USAA Cornerstone Moderately Aggressive Fund (USCRX) on June 15, 2018.

Winton Diversified Opportunities Fund, a closed-end interval fund, will liquidate on May 25, 2018.

Wright Selected Blue Chip Equities Fund (WSBEX), Wright Major Blue Chip Equities Fund (WQCEX), Wright International Blue Chip Equities Fund (WIBCX) and Wright Current Income Fund (WCIFX) liquidated on April 30, 2018.