Monthly Archives: February 2019

February 1, 2019

By David Snowball

Dear friends,

Please join me in bidding a fond adieu to January. It was a month in which our increasingly unstable global climate manifested itself in record-breaking cold and snow. Davenport, Iowa, my adopted hometown, saw the lowest temperature (-33, six degrees colder than the old record) and coldest wind chill readings (-54) in its recorded history. Despite having no precipitation in the first eleven days of January, it still managed 30.2” of snow by month’s end, the most since record-keeping began in 1884. Local drivers responded predictably.

picture of car upside down in the snow

That was all enriched by an electrical fire in Old Main, my campus home, a flu outbreak and five days of school (mall, bank, postal service … ) closures.

I suppose I could make a joke about the market heating up …

  January 2019
Russell 2000 11.3%
S&P MidCap 400 10.5
NYSE 8.1
S&P 500 8.0
DJIA 7.3

but won’t.

The collective suspicion of the folks behind MFO is that, January notwithstanding, we face the prospect of serious and repeated challenges in the next couple years. While it would be nice to believe that the Christmas Eve sell-out represented the end of a rough stretch, there’s little reason to believe that’s true. Valuations remain stretched, the sugar buzz from the tax cuts have worn off while the prospects of trillion dollar annual deficits (and half trillion dollar annual interest charges) are beginning to sink in and investors are beginning to suspect that there are better games in town than ours.

The collective philosophy of the folks behind MFO is that it’s better to plan than panic. And so we’re using this happy pause in the action to begin offering resources that might help your planning. Those include thoughtful big picture advice from both Ed Studzinski and Bob Cochran, Charles’s primer on how to better use the MFO Premium screener to identify bear-resistant investments, my close look at which long-short funds seem positioned to best weather turbulent conditions, Dennis Baran’s profile of Marshfield Concentrated Opportunity, a long-only fund that’s weathered the storm, plus my introductions of Ladder Select Bond and FPA Flexible Income. It’s all designed to remind you that there are meaningful options available beyond the realm of domestic large-cap indexes and bond aggregates.

So, with just the briefest of thanks to you, to Greg, Deb, William and George, to Thomas Killian and the folks in the Bay Area, to the managers who reason with us, to the spouses who sustain us, and the 31,000 folks who read us, we’ll let you get to it.

Wishing you the warmth of good friends and good drink,

david's signature

Problems, What Problems?

By Edward A. Studzinski

“Life is a predicament which precedes death.”

  Henry James

After a year in which most investors saw unrealized losses in their fund investments due to a very volatile December, probably half of those unrealized losses have been made up through the end of January 2019. This reinforces again the value of being a long-term investor, when you are comfortable with the investment philosophy, strategy, and personnel implementing same at a fund.

But do you really know what is being done to execute investment strategy at your chosen fund or firm on a daily basis? I still remember hearing the story, which I hope was apocryphal, of the co-manager who was allegedly having a contretemps with one of his co-managers. Rather than endure the stress caused by meetings with the other co-manager to review investments and make portfolio decisions, he allegedly gave a list of equities he either wanted to buy or add to in his portion of the fund’s assets to his administrative assistant. He then told that person to just pick something on the list to buy for the fund when there was cash available to do it.

David Snowball had mentioned to me earlier in the month that there had been a perception amongst some of our readers that the fund managers of the world spent every waking moment sitting at their desks, staring at the portfolio and their Bloomberg terminals to try and come up with an enhancement to the investments that would improve performance. Nothing could be further from the truth, which is probably a good thing.

My experience has been that pretty much once you have created the portfolio and gotten it fully invested, less is more. Tinkering around the edges, at least for me, has generally resulted in a decrement to performance rather than an improvement. Which is not to say that in a period like December, when the market is effectively collapsing, you should not use the opportunity presented, as it was on December 24th to add to positions you really like. When the price declines are substantial, you have to be prepared and willing to act to add to positions. On occasion, you may even act to upgrade the portfolio when a security you have wanted to own finally becomes available at the bargain price you have wanted to pay for it, representing a real margin of safety. I recognize that it takes discipline and a strong stomach to do that, which is an argument in favor of active management.

Quo Vadis, Interest Rates

Fiscal Year Projected interest payments, billions
2013 $221
2018 $310
2023 $619
2028 $761

The Federal Reserve did an about face this week on interest rates, electing to keep them steady rather than continue to raise them. The three or four rate increases we were anticipating this year will apparently not happen. We may, at best, see two. Neither Washington nor Wall Street had particularly liked interest rate increases. They have tended to exacerbate increased volatility in the markets. The increases in rates also made it clear, if they continued, that we would not be able to fund repayment of our debt as it matured. The increased interest rates would become a big drag on the Federal budget, while crowding out the availability of capital to other parts of the economy.

Was it a political decision to not raise rates this week? Of course. Likewise it was a political decision to keep them artificially depressed during the eight years of the Obama Presidency. As we watched the impact of the governmental shut-down this January on government workers, the question I kept asking myself was, what happened to the middle class in this country? Federal government jobs used to be considered good, stable, and relatively above-average paying jobs, the bedrock of the middle class. And yet we saw people who apparently live from paycheck to paycheck, and are barely able to stay even, let alone get ahead. The last month should have made it apparent to all but those living on Mars that there has been a hollowing out in our society.

Those who have access to an on-demand feature on their cable network who did not see it should pull up the January 26, 2019 edition of Saturday Night Live, and watch Kate McKinnon’s satire of Commerce Secretary Wilbur Ross (Secretary Ross arrives at the 2:28 mark) and his “let them get loans” speech. The sad part about it was that it probably should not be considered a satire, as it pretty much represented a point of view had by Mr. Ross.

One rationale expressed by the Fed for keeping rates stable was that there are few if any signs of inflation in this country. My own application of the potato chip test would lead me to disagree. You used to be able to buy a one pound bag of potato chips for less than a dollar. Now, you are getting a ten ounce bag for somewhere between three and four dollars a bag. Those of you who do the grocery shopping will see similar examples of package shrinkage with price increases all throughout the exercise of a weekly shopping trip. My final comment in this regard will be that the only way for us to deal with the mountain of government debt at this point will be to inflate our way out of it. Think about your investments from that perspective.

Investing 2019

So, what to do, what to do for this year going forward. First, equities over bonds. If you need fixed income, think stability. You can get 3% certificates of deposit for periods under two years currently. And if you want bonds, stay with maturities under three years. For those wanting income, dividend paying stocks are probably the way to go, especially since the dividends can increase. Given a choice between an equivalent yielding bond fund, and an equivalent yielding dividend paying stock, the stock should usually win all other things being equal (especially considering the risk of default or bankruptcy). Look at some of the variations in real estate available. I am not a fan of real estate investment trusts usually, as the managements tend to raise capital by issuing shares to buy more properties at peak real estate prices, thus diluting their investors. But there are exceptions to every generalization. And finally, when you are giving your moneys to managers, if you are using active managers, make sure they really are active rather than buy and hold closet indexers. Above all, put together a strategy and stick to it. And don’t panic, especially when you see everyone else panicking.

The long and short of a defensive fund

By David Snowball

People bandy about the phrase “long/short fund” as if it had meaning. It does not. It is, instead, a catch-all term  that includes funds with very different objectives and very different strategies, including some funds that do no shorting at all. Some short individual stocks, some short groups of stocks through ETFs and others short entire markets. Some are market-neutral, some are permanently defensive, some switch between defense and offense, others are always playing offense.

A 2013 analysis of all funds listed as “long/short”  in Morningstar’s database by Long Short Advisors found “just 25 funds that are ‘real’ long/short equity funds that invest in individual stocks on both the long and short side of the portfolios and 12 strategies that only short using ETFs rather than individual stocks … The remaining funds are mix of totally miscategorized funds (multi-alternative, balanced, arbitrage, market neutral, global macro, etc.), quant funds and long/short sector funds that cannot be compared to broad market long/short funds.”

You can measure the jumble by looking at the correlations between the funds. If all long/short funds were doing roughly comparable things, you’d see consistently high correlations between members of the group. Instead, if you look at all long-short funds with at least a billion in assets, correlations range from negative 14 to positive 89. Twenty-three of 28 correlations are below 80, 14 of 28 are below 50. Similarly, if we look at the 10 funds with the highest annual returns over the past five years, the range is 42-87. Heck, a bunch of these funds have near-perfect correlations with the S&P 500 while others capture more than 100% of the S&P 500’s downside.

That’s not bad.  It does, however, mean that the phrase “maybe I should consider a long/short fund” is incoherent.

That said, it is possible for individual long-short funds to make sense and to make a difference.

In particular, long/short strategies have the potential to buffer your portfolio in volatile markets where sharp downside movements are as likely as anything else. To help identify funds worth closer consideration, we started with a simple hurdle:

The fund had to outperform a simple 60/40 index in the Q4 downturn. Since “adding bonds” is a cheap, effective and time-tested strategy for dampening volatility, any alternative should be at least as effective. VBINX dropped 8.1% in the quarter, so we start with funds that did better.

There are 148 long-short equity funds in Lipper’s database. Sixty-two funds, 42.5% of the universe, met that requirement. Only one fund designated a Great Owl failed the test: Gotham Enhanced 500 (GENFX). All other Great Owls in the long/short group passed: Gotham Absolute 500 (GFIVX), JP Morgan Hedged Equity (JEHQX), PIMCO RAE Worldwide Long/Short Plus (PWLIX), Catalyst/Millburn Hedge Strategy (MBXIX), Hundredfold Select Alternative (SFHYX), MFS Managed Wealth (MNWIX), and Nuance Concentrated Value Long-Short (NCLSX).

The second hurdle is also simple: the funds had to have positive returns in the long-term. Why, after all, buy a fund that shines in one bad stretch but, otherwise, fails you year and year? That eliminated a dozen funds, including several of the top performers in the turbulent final quarter of 2018.

Below are all of the long-short funds that made it over our two hurdles: better than 60/40 in the short-run and better than zero in the long run. We’ve broken them into four groups for you:

Tier one: funds that made money in the short-term and in the long-term. Three. Huzzah!

Tier two: funds that were much better than 60/40 in the short-term (though that still meant losing some in Q4) and positive in the long-term. Seven.

Tier three: funds that were somewhat better than 60/40 in the short term and positive in the long-term. Twenty-three.

Promising newcomers: funds that are one-to-three years old which were better than 60/40 in the short term and positive since inception.

Only five of the 148 long/short funds tracked by Lipper were positive in both the short- and longer-term, three older funds and two newbies. Those funds are highlighted in green. We’ll provide a capsule of each after the data tables.

Some of these funds have very high investment minimums (Glenmede and Gotham, for example). Some of them are not “true” long-short funds but pursue other hedging strategies (FundX Tactical and Bridgeway Managed Volatility are examples).  They share just three characteristics (in the Lipper peer group, Q4 performance, three-year performance) so you’d need to consider each separately on its merits.

Tier One: Positive in both Q4 and 2016-18
Symbol Name Q4 2018 3 year returns ER%/yr AUM$M
NCLSX Nuance Concentrated Value Long-Short 8 6.6 2.59 26.8
TACTX FundX Tactical Upgrader 4.1 7.8 1.73 58.1
BDMIX BlackRock Global Long/Short Equity 1.3 2.4 1.64 633
Tier Two: Lost less than half of a balanced portfolio in Q4 and positive for 2016-18
Symbol Name Q4 2018 3 year returns ER%/yr AUM$M
DIVA AGFiQ Hedged Dividend Income -1.2 6.3 0.75 3.5
JOEQX JPMorgan Opportunistic Equity Long/Short -3.4 4.5 2.2 272
PMHIX PIMCO EqS Long/Short -3.3 4.0 2.05 458
JDIEX Saratoga James Alpha Managed Risk Domestic Equity -3.3 3.5 2.22 20.7
DAMDX Dunham Monthly Distribution -1.9 2.7 2.94 254
MNWIX MFS Managed Wealth -1.5 2.6 1.18 31.5
ATQIX Arbitrage Tactical Equity -2.9 1.8 2.17 2.4
Tier Three: Lost less than a balanced portfolio in Q4 and positive for 2016-18
Symbol Name Q4 2018 3 year returns ER%/yr AUM$M
MEQFX AMG FQ Long-Short Equity -6.6 11.1 0.76 95.2
MBXIX Catalyst/Millburn Hedge Strategy -4.7 9.6 2 4,113
GTRFX Gotham Total Return -7.4 9.2 3.51 29.2
PWLIX PIMCO RAE Worldwide Long/Short PLUS -5.4 8.4 1.23 1,559
GFIVX Gotham Absolute 500 -5.8 7.7 3.2 14
JHEQX JPMorgan Hedged Equity -5.4 7.0 0.6 3,434
LSOFX LS Opportunity -7.7 6.0 2.97 59.4
SFHYX Hundredfold Select Alternative -4.5 4.9 2.84 50.6
ACDJX American Century Alternatives Disciplined Long Short -6.5 4.8 2.39 46.6
BGIQX BMO Global Long/Short Equity -8 4.4 1.41 7.2
QLS IQ Hedge Long/Short Tracker ETF -7.7 3.6 1.04 3.9
PLHZX PGIM QMA Long-Short Equity -7 3.6 2.01 482
MAIPX MAI Managed Volatility -8 3.5 1.03 127
ARLSX AMG River Road Long-Short -4.4 2.6 3.65 25.3
SAOAX Guggenheim Alpha Opportunity -4.5 2.5 1.97 131
CPIEX Counterpoint Tactical Equity -7 2.2 3.11 30.8
BRBPX Bridgeway Managed Volatility -7.4 2.1 0.95 30
GTAPX Glenmede Quantitative US Long/Short Equity Portfolio -7.9 1.9 2.42 311
JSFDX John Hancock Seaport Long/Short -7.4 1.9 1.69 667
SNAAX SEI Long/Short Alternative -7.3 1.9 1.44 31.4
FVALX Forester Value -2.9 1.9 1.27 20.5
HDG ProShares Hedge Replication ETF -5 1.1 0.95 37.8
BGLSX Boston Partners Global Long/Short -7.7 0.0 2.64 873
Promising possibilities: Good (better than balanced in Q4 and positive lifetime-to-date) young (more than one year, less than three) long/short funds 
Symbol Name Q4 2019 Since inception ER%/yr AUM$M
GDLFX Gotham Defensive Long 500 -7.9 11.5 3.8 11.1
GHPLX Gotham Hedged Plus -7 8.1 3.1 2.8
BIVIX Balter Invenomic 1.7 7.8 2.63 93.2
GACFX Gotham Absolute 500 Core -6.2 7.8 2.15 2.4
GCHDX Gotham Hedged Core -7.5 7.8 1.4 2.4
ATESX Anchor Tactical Equity Strategies -5.2 5.9 2.32 158
CPLIX Calamos Phineus Long/Short -4 5.3 2.54 1,139
BUIGX CBOE Vest S&P 500 Buffer Strategy -7.8 4.9 0.95 41.4
GDLIX Gotham Defensive Long -7.6 4.8 3.62 2.2
DFND Reality Shares DIVCON Dividend Defender ETF -6 4.5 1.38 4.7
EIVPX Parametric Volatility Risk Premium – Defensive -7.9 2.7 0.55 376
SHLDX USCA Premium Buy-Write -5.6 2.0 1.18 20.5
GARD Reality Shares DIVCON Dividend Guard ETF -7.6 1.6 1.41 12.6
VCRSX Voya CBRE Long/Short -4.6 1.1 2.35 44.8
GSSFX Gotham Short Strategies 11.5 0.5 1.35 2.2
HMXIX AlphaCentric Hedged Market Opportunity 1.9 0.2 2.47 8.3

Quick profiles of the five funds that were positive in both the short- and long-term

Nuance Concentrated Value Long-Short (NCLIX/NCLSX) invests in the stock of 15-35 companies that it deems to be industry leaders with strong and stable competitive positions. It then shorts the stock of up to 50 large companies with “more commoditized or structurally challenged competitive positions.” Up to 25% of the portfolio might be invested overseas.

Its managers remain pretty skeptical of the US market’s valuations. They write, “as of 12/31/18, the median company in the proprietary Nuance long universe, which consists of approximately 250 companies we view as industry leaders, was trading at around a 15% premium to what the Investment Team would consider to be fair value. Said another way, the universe appeared to be 15% over-valued on average, per our internal estimates. In addition, according to our company-by-company valuation work, this same universe had roughly 60% downside potential.” In response, the fund is just 6% net long; over the past couple years it has ranged from 23% net short to just 7% net long.

It has an R2 of just 13 against its peer group.

Morningstar rates this as a four-star fund. MFO has designated it as a Great Owl fund, which means that its risk-adjusted returns have been in the top 20% of its peer group. By any reasonable risk-sensitive measure, Nuance is a top-ten performer in its fund Lipper peer group.

Performance: 12th of 102 funds
Drawdown: 7th
Ulcer Index: 14th
Sharpe ratio: 11th
Martin ratio: 9th
Downside deviation: 11th
Bear-month deviation: 9th

The fund launched in December 2015.It’s drawn $26 million since then. Expenses are 2.84% and the minimum initial investment is $2,500. It made 5% in 2018.

FundX Tactical Upgrader (TACTX) is not a true long-short fund. Like all of the FundX offerings, it is a fund-of-funds that attempts to hold funds which are “in sync with current market leadership.”  Then separately, the manager may deploy a number of options to  buffer its stock market exposure: “raising cash, selling covered call or put options and/or buying put options or put spreads or call options or call spreads.”

Over the past three years, TACTX has performed reasonably well. Compared to all of the funds in its peer group, its three-year record:

Performance: 8th of 102 funds
Drawdown: 14th
Ulcer Index: 10th
Sharpe ratio: 4th
Martin ratio: 3rd
Downside deviation: 16th
Bear-month deviation: 19th

The fund had the misfortune of launching (and crashing) in the midst of the 2007-09 market crisis, which badly skews the “since inception” numbers. If we look at the 10-year picture, which mostly erases the effects of the financial crisis, you get a picture of a fund with slightly lower than average returns but noticeably lower than average risk. In particular, it has made money every year since launch and was up 7.5% in 2018

  Annual return MAX drawdown Recvry months Std dev Downside dev Sharpe ratio
FundX Tactical Upgrader 5.2 -9.3 12 7.8 4.9 0.61
Long/Short Equity Average 5.8 -18.9 25 10.1 6.4 0.52
S&P 500 Index 13.1 -18.1 4 13.6 8.5 0.94

The fund launched in February, 2008. It’s drawn $72 million since then. Expenses are 1.73% and the minimum initial investment is $1,000.

BlackRock Global Long/Short Equity (BDMAX) is best considered a market-neutral fund; that is, it tries to hedge out all market effects all of the time. That necessarily limits both upside and downside, since the decision to dodge headwinds also means that you can’t benefit from (more frequent) tailwinds.  The fund’s distinctive strategy is its reliance on Big Data. Perhaps BIG DATA!!

Their description is “The team’s powerful data capabilities help seek non-obvious opportunities others may miss.” Morningstar, which gives it a Bronze rating but only three-stars, explains it this way:

Management systematically ranks a universe of approximately 2,500 developed-markets stocks using a combination of traditional and nontraditional metrics …nontraditional metrics, which are often based on advanced computer techniques [include looking] at third-party data on online sales to get a sense of consumer sentiment in various markets.

The team tracks 50 different metrics and has invested a lot to continually deepen their data analytic capabilities. One measure of their success is its nearly complete independence from the stock market: since inception, the R-squared (that is, measured correlation) with the stock market is just 0.04. They show almost identical independence from their peer group, with an R-squared of just 0.05.

Over the past three years, BDMAX has performed reasonably well. The fund makes about 2.5 – 4% per year. Because it has no correlation to its nominal peer group, it’s not much worth reporting its rankings within the group. In broad terms, it has had double-digit returns in two years but also negative returns in two years. Over the past five years it has returned about 1.5% annually, better than cash not trailing ultra-short bonds. In 2018, it was up 1.8%. The numbers since inception, which includes its great performance in 2013, are stronger (4.2% annually) but nothing to make my heart go pitter-pat. If the fund had evidence of consistent 4% returns and rare years in the red, it would be noticeably more compelling. Morningstar praises the team for continually revising and strengthening their data analytic regime, which might suggest a brighter future. We just haven’t seen it proven consistently.

The fund launched in December, 2012 .It’s drawn $640 million since then. Expenses are 1.89% and the minimum initial investment is $1,000. “A” shares carry a 5.25% sales load, though its available no-load and NTF through some brokerages.

Balter Invenomic (BIVIX) is a strictly quantitative fund. The managers stay as far as humanly possible from the polished, sweet-tongued executives of the firms they might invest in. Instead, they generate a four page statistical profile of every stock in which they might invest. Currently, they have about 150 long and 150 short positions, which means that no one position has much potential to damage them.

Invenomic’s key differentiator, from the lead manager’s perspective, is a successful short book. Manager Ali Motamed argues that most long/short managers fail on the short side. They maintain too few shorts, they put too much money into each, they maintain a large short book when market conditions don’t warrant it and they view themselves as on a crusade against the management teams. Each of those mistakes limits the power of the short portfolio to generate alpha rather than just limiting beta; that is, Mr. Motamed thinks a good short portfolio should make money rather than just hedge volatility. They target “story stocks,” firms with deteriorating fundamentals and firms artificially buoyed by one-time windfalls that investors are treating as structural advantages. Depending on market conditions, as little as 10% of the portfolio or as much as 75% of it might be in the short book.

It is a fund about which Morningstar is uniformly negative.

I guess I mostly disagree. While the expenses are high, they’ve gotten a lot right. Since inception their beta (0.15)  is far lower than the stock market’s, their Sharpe ratio (a measure of risk-adjusted returns) is far higher, they made solid money is 2018 (up 3.5%, 780 bps better than the market and 970 better than their peers) and a lot in January 2019 (up 6.8% in 30 days). BIVIX has higher Sharpe and Sortino ratios than any fund in the Morningstar Long-Short Equity category since inception (06/19/17) through 12/31/18. It’s an intriguing fund run by a manager with first-rate experience as one of the Boston Partners.

The fund launched in June, 2017. It’s drawn $117 million since then. Expenses are 2.93% and the minimum initial investment is $5,000.  

Gotham Short Strategies (GSSFX) made a big pile of money (11.5%) in the fourth quarter of gotham funds logo2018 which pushed its lifetime annual rate of return to 0.5%.  Morningstar categorizes it as a bear market fund, which is much more accurate than Lipper’s assignment to the long-short equity group. I’ve included it here just as a gesture of transparency: it technically passed the screens, so you deserve to know about it. The other thing to know is that it, like all of its black-box siblings at Gotham, requires a minimum initial investment of $250,000.

Bottom line: both Nuance Concentrated Value Long-Short and Balter Invenomics warrant serious attention from investors looking to buffer part of their portfolio from the storm. They’re very different funds and both expensive by traditional standards, but both offer the prospect of dealing both with volatile markets and those which are hostile to traditional 60/40 balanced funds.

Nota bene: three of the four long-short funds we’ve profiled over the years – LS Opportunity, AMG RiverRoad Long-Short and Bridgeway Managed Volatility – passed our short-term / long-term screen and each ended up in Tier Three. All of them warrant close attention and we’ve linked, in the tables above, to our profiles of them. LS Opportunity, which has returned about 5.5% annually since launch might command the most attention.  The only fund not passing the screen – RiverPark Long/Short Opportunity (RLSFX) – is a more aggressive fund that uses its short book as an offensive weapon rather than a defensive shield. As such, it’s not terribly surprising that it faltered in Q4 (down 12.5%). That said, it has top tier returns over the past quarter, year, three years and five years.

Using MFO’s Bear Market Rating To Help Contain Portfolio Drawdown

By Charles Boccadoro

“Never risk what you have and need

for what we don’t have and don’t need.”

Warren Buffett

December reminded us of how quickly the music can stop. The SP500 fell 9% turning a modest annual gain into a loss. Those hugging the S&P were the lucky ones.

Touchstone Small Company (SAGWX) was off 13.4%. Invesco S&P SmallCap Health Care ETF (PSCH) was off 16.1%. Both are dual MFO Great Owl and Honor Roll funds, which means they have a track record of top quintile risk adjusted and absolute return versus peers.

Other notables: Parnassus Endeavor (PARWX) off 13.8%, Hotchkis & Wiley Mid-Cap Value (HWMIX) off 15.2%, and Miller Opportunity (LMOPX) off 18.7%.

We first introduced Bear Market Rating in the April 2015 commentary with “Identifying Bear Market Resistant Funds During Good Times.” The Bear Rating represents decile ranking (1 to 10 where 1 is most bear market resistant fund) of funds in a given category, based on bear market deviation (BMDEV). The deviation indicates typical percentage decline based only on a fund’s performance during bear market months, which Morningstar defines as a 3% drop for equity funds.

A look at the funds listed above on the MFO Premium site shows all but SAGWX have elevated Bear Market Ratings based on the last five years of the current bull market, which started in March of 2009 or 118 months ago … even if we shift the evaluation period to November before December’s decline. So, none really, except perhaps SAGWX, would have given past indications that they can resist drawdown when the overall market drops. Most in fact are experiencing their worst drawdowns in 5 years, through December anyway.

Going forward, we thought it be interesting to pull-up which funds appear to be the most resistant to future market pull-backs, based strictly on past performance during bear market months, again over the last five years of the current bull market.

Screening for Large-Cap, Mid-Cap, Small-Cap and Multi-Cap US Equity Lipper categories within the Mutual Fund and ETF universe, the table below lists the top ten by annualized return. Most are MFO Great Owls and Honor Roll funds. Invesco S&P MidCap Low Vol ETF, Akre Focus (AKREX) and AQR Large Cap Defensive Style (AUEIX) have among the lowest bear market deviations BMDEVs while still sporting strong absolute returns.

If December’s drawdown caused you more discomfort than you like or expected, as it did for me in January 2016 and all of us in 2008, than MFO’s Bear Market Rating and its attendant deviation BMDEV would seem like good metrics to help select funds that mitigate drawdown of your portfolio.

Living a Rewarding Retirement: The Importance of Time

By Robert Cochran

It’s minus 3 degrees this morning, with a thick blanket of snow on the ground, and winds are making it feel like 20 below.  There is little compelling reason for this retired guy to hustle around and get outdoors, so it’s as good a time as any to think about the so-called market meltdown of 2018 and offer some perspective on what is really important for individual investors to consider.

A quick look at my Schwab accounts tells me that since January 1, 2018, through January 18 of this year (12 ½ months), my total portfolio value is down 1.31%.  As I have mentioned before, I rarely look at these values, so I was actually surprised the return has been that good.  One would think last year was a disaster, given the massively negative press over the last many months. Yes, the year-end numbers were down more than today’s, but a loss of less than 6% over 12 months doesn’t get me excited at all.  In fact, that is the same return as the average 50%-70% Allocation Fund, and my allocation is more aggressive.

During my 30-plus years as an investment advisor, I was witness to numerous bull and bear markets, market crashes, market meltdowns, interest rate swings, recessions, wild one-day roller coaster rides, domestic and international political disasters, and more economic forecasts of doom and gloom than I can possibly recount. When we also consider the current state of affairs in Washington (and that’s really hard to avoid), it’s no wonder folks, especially retirees, are a bit nervous about their investments. This morning’s paper says that a majority of economists believe we will have a recession in 2020.  Am I going to make changes based on that? Of course not.  I seem to remember a quote from a while back, saying “Economists have predicted 12 of the last three recessions.”

Broadcast business media have discovered a gold mine of advertising resulting from scaring people on a daily basis.  I suggest a simple solution: don’t watch or listen to this drivel.  Few are real journalists, and even fewer have financial education and experience.  Those that offer alternative viewpoints may be ridiculed or even blackballed from future appearances.  Remember, the goal of these programs is to sell advertising, not to provide unbiased commentary.  Fortunately some investors rely on a competent, fee-only advisor to keep them from self-immolation!

Through all of the above, the most important factors in the overall success or failure of investment goals have been time and timing.  It’s important to remember that folks who are investors, and not traders, are not concerned about time and timing.  While working, they continue to add to their retirement accounts through good times and bad.  Investors look at the big picture and do not try to pick a time to exit or enter the stock markets like traders.  Investors set an overall portfolio allocation that allows them to sleep at night. Traders do not. Traders are constantly tweaking this or that holding. Investors are not. Investors understand there will be some tough times as well as some great times.  (Since 1980, the average intra-year decline of the S&P 500 has been nearly 14%, yet annual returns have been positive in 29 of those 39 years.) Traders will attempt to time these declines.

Some retirees are fortunate to not need income from their investment portfolios.  This allows them to be more aggressive with allocations, if they are comfortable with that.  Those that need portfolio income should set aside about 5 years of that income in cash, CDs, or short-term bonds.  This may avoid having to sell stocks during a down market.  Numerous studies suggest that a sensible annual withdrawal rate is 4-5% of the portfolio’s value.  Some investors are able and willing to reduce income needs following a down-market year.  Some might consider delaying retirement to avoid starting regular portfolio withdrawals during a down market.

Perhaps the reason some retirees fixate on portfolio valuation is because of time…they have too much time on their hands.  For those who fall into this situation, I would suggest reading my prior commentary: Living a Rewarding Retirement – Make a Difference. 

Investors who enter retirement with no mortgage or credit card debt are in a much better situation than those whose monthly cash flow necessitates these big payments.  That is why I have been a strong advocate of paying off debt prior to retirement.  It makes a huge difference and reduces potential pressure for portfolio income.  I can speak to this personally.  It really works.

There is yet to be anyone who can accurately predict what the markets will do on a regular basis.  Predicting what will happen each day is nearly impossible, but economists and other self-anointed experts want us to buy into their yearly predictions.  Understand this, and you will come a long ways toward shutting out some noise.  Volatility appears to be with us for now.  This is something many investors had forgotten during the past five years, and it adds to heightened anxiety.  But consider this: despite all the wild swings in the markets, there was no meltdown in the last 12 months.  It’s another year, the economy remains fairly strong, employment numbers are still very good, and inflation remains very low.

If all the noise is keeping you awake at night, if you are afraid to open your monthly account statements, or if you spend more than five minutes each day fussing over your investments, the solution is clear: reset your portfolio allocation to achieve a lower risk profile. Perhaps you should have zero dollars in stocks. Yes, your potential returns may be lower, but your potential drawdown should be correspondingly lower.  If you don’t know how to accomplish this, find a good fee-only advisor who can assist.  As the saying goes, “Set it and forget it.”  And also consider the impact mutual fund fees can have on your portfolio, especially if we continue to see single-digit returns.  As investors, we can’t control the markets, but we can make decisions on portfolio risk and portfolio expenses.

So, tune out the broadcast-business programming, get an allocation you can live with, and spend your free time making a difference for others.  This last, by itself, can help to reduce retiree angst.


Grandeur Peak reopening: the limited time offer

By David Snowball

On January 14, 2019, Grandeur Peak announced the partial reopening of four of their funds: Global Opportunities, International Opportunities, Global Reach and Emerging Markets Opportunities funds. The first three had been hard closed, while the last had been soft-closed. Under the terms of the reopening, the funds are open to additional purchases by existing shareholders but also to new shareholders willing to purchase the funds directly from Grandeur Peak Funds at  Financial advisors and retirement plans with clients in one of these funds will be able to continue investing in the fund for both existing as well as new clients.

Long-term investors should take this opportunity seriously.

“The soft re‐opening is likely to be for a limited time … we remain committed to keeping assets tightly limited … but the time frame will depend on where the market goes and the level of additional investments received.”

For those unfamiliar with the firm, Grandeur Peak was started by a small group of Wasatch Funds professionals who left to launch a boutique dedicated to global small- and micro-cap investing. It is a challenging universe which few managers enter, which large investment firms avoid because the strategies are so tightly capacity constrained, and which ETF sponsors avoid because of technical issues (for example, trading volume) in some foreign markets make it impossible to construct a scalable index.

Grandeur Peak quickly distinguished itself for its discipline, exceptional performance and remarkably healthy culture. Part of that discipline was to know, even before they were launched, how many funds the firm would have and at what level of assets each fund would close. Each of the first four funds closed fairly quickly and Global Micro-cap closed on the day it launched. Only the two Stalwarts funds, originally offered out of respect for financial advisors who needed continued access and populated with “alumni” stocks from the other funds, remained open to new investors. It was unclear that any of the funds would ever become available to the general public again.

All of that changed with the brutal international sell-off that began in 2018. International stocks fell harder and faster than US stocks, emerging markets fell harder and faster than developed markets, small caps fell harder and faster than large, and emerging markets micro-caps … well, don’t ask.

In almost all instances, the Grandeur Peak funds fell farther, sometimes substantially farther than their peers. Below we report the relative performance of each Grandeur Peak fund against its Lipper peer group. In each case, the performance is annualized; for example, over the past five years, Emerging Markets Opportunities – the first fund in the table – has averaged 1.8% more per year than its peers over the past five years but 4.9% less per year over the past two.

  Q4 1 year 2 year 3 year 5 year Since inception
Open to existing fund shareholders and new direct shareholders:            
Emerging Markets Opportunities (GPEIX/GPEOX) -0.8 -4.7 -4.9 -4.0 1.8 1.8
Global Opportunities (GPGIX/GPGOX) 0.0 -4.3 1.0 -0.5 1.7 2.9
Global Reach (GPRIX/GPROX) 0.5 -1.9 1.7 0.3 2.6 2.4
International Opportunities (GPIIX/GPIOX) 0.0 -3.2 -0.1 1.0 1.5 3.1
Remains open to new and existing shareholders (no change in status):            
International Stalwarts (GISYX/GISOX) 0.1 0.9 1.8 3.0 n/a 3.7
Global Stalwarts (GGSYX/GGSOX) 0.2 -1.2 2.4 0.9 n/a 1.9
Remains hard closed (no change in status)            
Global Micro Cap (GPMCX) 2.1 -4.0 0.6 0.2 n/a 1.4

Why the sudden decline?  Grandeur Peak founder Robert Gardiner wrote a remarkably long, thoughtful Letter to Investors about the firm’s recent performance travails as well as a series of remarkably satisfying developments at the concern. Concerning the former issue, he wrote:

Beyond being in an out-of-favor segment of the market, we have faced two additional major headwinds. First, a weighting headwind with our significant overweight to Emerging Markets across all portfolios and our underweight to the US market in our global portfolios – this has been a seven-year headwind for us, but particularly strong in 2018. Second, a style headwind, as momentum investing has significantly outpaced value investing this year.

Over coffee once, our friend and colleague Sam Lee, president of SVRN Asset Management, suggested that Grandeur Peak embodies “the Platonic ideal” of a fund company. That is, anything that they could do right, they did. In January 2019, he reflected a bit on the causes of the recent slippage and a potential response.

My main thought: One of the biggest and most persistent detractors of Grandeur Peaks’ performance has been an overweight to EM/foreign relative to U.S. for their global funds. This is arguably an unforced error as the relative performance of US v foreign stock has historically exhibited a lot of trendiness. GP managed to overcome that drag with heroic stock-selection skills. If you dislike GP’s persistent foreign bias, you can neutralize it yourself by overweighting US stocks in your portfolio.

The question is, what should an investor do? Mr. Gardiner answered that from the perspective of the insiders who have personally invested millions in the Grandeur Peak funds: there’s blood in the streets, buy!

Investors are clearly fearful of Emerging Markets right now, and our current opinion of value-oriented, international small-cap companies is that they are highly attractive.

We view selloffs like this as not only an opportunity to buy our favorite companies at better valuations in the portfolios, but also a chance to invest more of our firm’s balance sheet, and our personal assets, in the Grandeur Peak Funds. The firm has recently added to its position, and we will likely continue to increase our investment if the market goes farther south. Individually, and as a firm, we are heavily invested in our own funds because we are confident in our potential to succeed over the long run.

The Grandeur Peak strategy is founded on the observation that the most compelling values, if not the most stable returns, are found in the tiniest niches: small and microcap value stocks, often in frontier and emerging markets. The fact of volatility goes with the territory.

Bottom line: The Grandeur Peak folks are not committing to keeping the funds open long and they have a tradition of closing on quite short notice. We view this as a limited time opportunity to explore the possibility of working with the most successful investors in a hard-to-access niche. It would be prudent for folks interested in moving parts of their portfolios away from developed market, large cap stocks which might be entering a multi-year swoon, to reach out to Grandeur Peak and take time to better understand the opportunity while it is still available.

MFO has profiled five Grandeur Peak funds. Links to each of those are available on our fund index page.

By way of full disclosure, I hold three Grandeur Peak funds in my personal portfolio. Those are Emerging Market Opportunities, Global Reach and Global Micro-cap. My style is to set my investments on auto-pilot, so I have been making small, consistent investments in the funds whenever possible and will continue to do so. David

As the world turns, Rondure Global gains

By David Snowball

 We’ve reported on the serious performance challenges faced by Grandeur Peak through much of 2018 and their subsequent decision to reopen four funds, three of which had been hard-closed; that is, unavailable even to existing shareholders.

But what about Rondure?

Rondure Global Advisors is newer investment adviser which is Grandeur Peak’s partner. Rondure, like Grandeur Peak, was launched by an alumna of the Wasatch Funds, Laura Geritz. As a practical matter, Ms. Geritz and the Grandeur Peak folks agreed that there was much to be gained through a partnership which provided for some sharing of resources and ideas.

Rondure launched two funds in May, 2017. Rondure New World Fund (RNWOX/RNWIX) invests primarily in emerging markets. Ms. Geritz has invested a far higher percentage of her portfolio in smaller stocks (47% in small- to mid-caps) than has her average peer (17%).  Rondure Overseas Fund (ROSOX/ROSIX) invests in developed international markets, with a substantial current overweight in Japan. As with New World, Overseas has a far higher percentage of its portion invested in smaller stocks (53% in mid- to micro-caps) than has her average peer (19%).  In both funds, Ms. Geritz looks for “Quality Compounders,” those with “the best metrics and best brands.”

MFO detailed Ms. Geritz performance and her funds’ discipline in a May 2017 Launch Alert, which might be worth reading if you’re unfamiliar with the family.

In a recent letter to her investors, Ms. Geritz describes both Rondure’s corporate culture and its investing mantra. As to the firm,

Our philosophy is simple. If you hire bright, driven, creative people, you embrace a time tested, patient process of investing in Quality Compounders with a balance sheet margin of safety at the right price, we believe you can do well over the long term.

As to investing, and her current suspicion that significant imbalances remain,

This changes nothing in our investment process. We screen, we travel, we invest when we see great compounders that we think will deliver an absolute return in the long run, and we don’t invest when we don’t see opportunity. Risk to us, like all the great investors mentioned above, is permanent loss of capital.

Her funds have a modest cash stake (4-5% at last report) and a diversified portfolio (80-100 stocks, with the majority weighted at around 1.3-1.5% of assets).  Overseas has drawn $24 million in assets while New World holds $114 million, driven in part by her outstanding performance in a similar product at Wasatch and in part by her outstanding performance with these funds.

Below we report the relative performance of each Rondure fund against its Lipper peer group. In each case, the performance is annualized; for example, since inception, New World has averaged 2.4% more per year and its Q4 2018 performance had been extended over an entire year, it would have outpaced its peers by 12.0%.

  Q4 2018 Since inception
Rondure New World (RNWOX/RNWIX) 12.0 4.9 2.4
Rondure Overseas (ROSOX/ROSIX) 3.8 4.4 4.1

Which is to say, both Rondure funds are solidly outperforming their peers with, so far as we can discern, no excess risk.

Bottom line: Rondure is off to a solid start, which should surprise no one and please many. Both funds are in the black (through 1/30/2019) since launch, they’ve seen modest inflows and the Rondure team is maturing nicely. They very much warrant your attention.

Launch Alert: FPA Flexible Income Fund (FPFIX)

By David Snowball

On December 31, 2018, FPA launched FPA Flexible Income Fund (FPFIX). The fund seeks to provide long-term total return, which includes income and capital appreciation, while considering capital preservation. This marks FPA’s first new bond fund since becoming adviser to FPA New Income (FPNIX) in 1984. Morningstar celebrates New Income for “a strong management, process, and risk/reward profile and has been a safe haven from losses and bond-market excess.” FPA hopes to leverage those virtues by applying them to a fund that has permission, but not the obligation, to follow a modestly more aggressive path.

FPA tends to be the home of absolute value investors. They are people who invest in securities that offer compelling risk-adjusted profiles; the mere fact that some security is “the best of a bad lot” does not, for them, warrant interest. That means that they’re often out-of-step with their nominal peers, that they have a tradition of holding cash when cash is the most prudent option, and that they dislike losing (your) money a lot more than they like making it. FPA New Income is the most conservative expression of that philosophy. Its goal is to provide a positive return in any given 12 month period. The data at MFO Premium shows that, over the past 20 years, the worst 12-month stretch for New Income saw a drawdown of just 0.3% and an average of +3.9%.

Ryan Leggio, one of FPA’s Partners and “a senior product specialist,” notes the problem with that goal: “If you believe that we do a good job at New Income, then we don’t have a 

photo of Thomas Atteberry

Thomas Atteberry

solution for a long-term fixed-income investor who isn’t concerned about losing money over a 12 month period.” There’s something like $6 billion in New Income, at least a chunk of which would be more-appropriately invested in a strategy with a longer horizon. Indeed, the flexible income strategy was seeded by a long-time investor in New Income for whom FPA subsequently created a separate account.

FPA partners Thomas Atteberry and Abhijeet (Abhi) Patwardhan manage both funds with the same investment philosophy, process and team. Morningstar describes Mr. Atteberry as “among the industry’s best” and Mr. Patwardhan as his successor. The managers, and other FPA professionals, are heavily invested in the strategy.

photo of Abhijeet (Abhi) Patwardhan

Abhijeet (Abhi) Patwardhan

Including analysts, there are seven people in the team supporting the two funds.

The managers will have the freedom to invest a greater portion of the portfolio in high-yield securities (75%, rather than the 25% cap for New Income) and will target generating positive returns over a 36-month period (rather than the 12-month target for New Income). That having been said, they will not compromise their absolute value orientation or engage in the fruitless game of chasing yield. Mr. Leggio notes that the fund “may look very much like New Income for three to five years in a row if there are no compelling opportunities; this will not always be a riskier portfolio, we only take risk when we’re paid for it.”

Over the long-term, FPA hopes this strategy will beat inflation by 200 bps. The volatility would normally be higher than New Income’s but lower than a short-term high yield bond index. By way of illustration, Mr. Leggio notes that “in 2015-16, the short-term high yield index (1-5 year) saw a drawdown of 10%, New Income drew down 1%, and the credit-sensitive bonds in New Income – which would be more prominent in Flexible Income – were down a little over 3% before fees.”

This is a capacity-constrained strategy. FPA estimates that they can manage, given current conditions and constraints, about $12 billion between the two iterations of their strategy. Currently they have about $7 billion invested.

The fund carries a $100,000 minimum initial investment and expenses of 0.39% (after waivers for 2019). The fund is available for purchase through 10 brokerages, including major platforms such as Fidelity and TD Ameritrade. There is no guarantee that a lower investment minimum option will be available, but it wouldn’t be surprising either.

Bottom Line: Fixed income investors need to take this opportunity seriously. Headwinds are rising in the bond markets, and pursuing respectable returns with muted risks will require discipline, flexibility and experience in weathering the storm. Mr. Atteberry brings that to the table; he and his co-managers have produced some of the industry’s highest Sharpe ratios over the years. While FPA doesn’t seek to maximize short-term returns, they do have an exceptional record of getting it consistently right for their investors.

Marshfield Concentrated Opportunity (MRFOX), February 2019

By Dennis Baran

Objective and strategy

MRFOX seeks capital preservation and long-term growth of principal while targeting a pattern of performance that’s at variance with the market, different from it in as many ways as possible, and adds value on a risk-adjusted basis. The managers’ goal of avoiding the “closet index” trap while laying the groundwork for superior performance means

  • owning a thoughtful concentration of approximately 20 stocks
  • holding cash between of 0-25 percent while awaiting well-priced opportunities
  • steering clear of generic “consensus” stocks and
  • being freed from sector and market capitalization constraints


Marshfield Associates, Inc., a value equity manager, was organized in 1989 to provide investment advisory services for institutional and private investors. It is based in Washington, D.C. and has 19 employees.

The managers’ aim is to “build wealth” while minimizing risk of sizeable loss by

  • Investing in companies in attractively structured industries with enduring competitive advantages that are difficult to duplicate and a strong and appropriate corporate culture.
  • Insisting on a margin of safety between price paid and a conservative estimate of what their research indicates a company is worth.

Marshfield also advises three SMAs: Equity (1989); Balanced (Private 1993 / Institutional 1989); Fixed (1999) and other assets (Friends and Family, $83.5M). Total firm AUM is $2.29B as of December 31, 2018.


Elise Hoffmann and Chris Niemczewski. Ms. Hoffmann joined Marshfield in 1995 and became a principal in 1997. Prior to Marshfield, she worked for Rep. Ed Markey, serving seven years as Counsel to the U.S. House of Representatives’ Committee on Energy & Commerce, Subcommittee on Telecommunications and Finance, where she was responsible for developing securities legislation. Before that, she practiced law at Steptoe & Johnson in Washington, D.C. She has 23 years of investment experience.

Mr. Niemczewski is managing principal and founder of the Adviser. While in graduate school at Columbia, Mr. Niemczewski studied the Graham and Dodd school of security analysis and investing, an approach that has influenced his 41 years in the investment field. From 1981 to 1989, he was President of Justin Asset Management.

Elise Hoffmann and Chris Niemczewski are married to each another.

Principal Chad Goldberg and three research analysts assist them.

Strategy capacity and closure

Tentatively about $1B.

They continue to monitor carefully their AUM growth rate, its effect on their ability to trade stocks, and will certainly close the fund at some point. With a lot of their own money in the fund, they know that growing the fund indefinitely will inevitably lead to underperformance.

Active share

Marshfield doesn’t calculate it; however, they reference 96% vs. SPY at Bloomberg.

Because the managers are sector agnostic, their industry concentration routinely looks very different from the S&P 500 Index. Of the 11 S&P 500 sectors, the fund invests in five, and that’s only if you include the 1% in health care at year end.

Management’s stake in the fund

As of August 31, 2018, Elise Hoffmann and Chris Niemczewski own over $1M of the fund.

As of December 31, 2017 none of the four trustees own shares of the fund.

Opening date

December 28, 2015.

Minimum investment

Regular $10,000; IRA $1,000

The fund is available for purchase through 2 brokerages. It’s available from RBC Wealth Management.

They’ve initiated a process to add another distribution platform by mid-year but don’t look for it at wire houses.

Controlling distribution has allowed them to educate potential investors about their philosophy and discipline, what their pattern of performance looks like as a result, and to limit hot money coming in as it did when their Core Equity SMA decisively outperformed the market during big sell-offs.

Expense ratio

1.11% on assets of $25.95M on December 31, 2018


The managers make very clear their aversion to following the crowd, closet indexing, and owning popular stocks. They don’t care a fig about what other investors do, what stocks comprise the S&P 500, or what industry or sector a company is in as long as they like it.

That often leads to looking at industries the market hates.

Their goal is to invest in good, resilient companies at bargain prices and to own them until high price or a degradation in quality dictates their sale.

Owning the S&P500 can’t produce a result different from the market in terms of performance or principal preservation, nor does owning every sector.

The managers cite Benjamin Graham’s strong view about market sentiment:

It’s dangerous to give too much meaning to its movements especially during steep selloffs when emotional investing gathers momentum simply from the decline itself.

So a clear analysis of the greater story — determining those elements of truth which the market might be overly responding to — needs to be examined and understood in proportion to the actual risks that they pose. The goal of these managers is to identify those elements.

It’s hard for a company to get into the Marshfield portfolio.

It must be in an industry that allows it to earn high ROE over time through a differentiated strategy or strong barriers to entry; it must have a functional, resilient corporate culture; and its stock must trade at a price that allows for things to go wrong.

A differentiated strategy means using a company’s competitive advantages independent of what the competition is doing. (That’s not the same as not caring about competition.) They like companies that show a willingness to go against the flow while simultaneously demonstrating a definite awareness of existing or potential threats to their business.

They want to own companies with loyalty to the organization — not to top management –plus integrity, courage, and resolve. Also, there’s no app for old-fashioned human attributes like drive, hard work, and judgment in companies they own.

Buying at a discount allows for making good decisions while under stress. Unless their fundamental investment thesis changes, the managers are eager to invest even during chaotic external events.

Those factors tend to protect capital and lessen risk.

But what does being different from the market actually mean? Will it make you better or not?

They admit that being different means that one may outperform or underperform the market from non-mainstream, anti-crowd, and other decisions they make. It may not add value and even increase risk.

That means being different in ways that are rationally and prudently related to their goals:

  • Buying greater value from a shopping list of good companies when the market’s gotten the price wrong on the downside, e.g., inadequate valuation is likely to yield better results than the market.
  • Holding cash when the market is “high,” something the market never does. Cash isn’t a tactical decision. It’s a result of the managers’ company and market valuation and independent of its buys and sells.

As of December 31, 2018, 16.2% of the fund is in cash. Cash hasn’t reduced performance: It’s reduced risk, protected principal, and bought undervalued stocks when the crowd is running for the exits.

These are seriously independent investors. They are …

  • Buying singular, crowd-averse, lone wolf companies as mentioned earlier (company quality, resilience, good price, and friendly shareholder orientation.)
  • Having a concentrated, non-consensus portfolio of undervalued companies correctly sized by position and number that allow for outperformance over time – companies the market isn’t celebrating by popping corks.
  • Loving it when a company refuses to provide guidance or doesn’t have earnings calls. These companies are independent, concerned with delivering what their customers want, resilient, and better at executing their strategy during risk-on times.
  • Refusing to ignore fundamentals and buy all the stocks that best meet the “cheap price, low expectations” criteria. The managers limit themselves to companies they understand and meet the “good company, good business” test – not company trash.
  • Not being stubborn, inflexible, or resistant. The managers want to be rewarded for what they own using a process without major changes during the last 30 years.

It sticks to its discipline in any market environment:

  • Understanding what’s real and what’s a Goldilocks story
  • Acting with composure to exploit the misjudgments of the crowd
  • Being patient until their buy or sell price has been reached

This goal won’t change. Process and discipline are why investors invest in the fund with its serious commitment to preserve capital and generate risk-adjusted returns.

The strategy demands patience and a high tolerance for discomfort. It also requires more than just intellectual capability from the managers:

It requires the emotional fortitude to withstand intense pressure to conform.

The six principals who own Marshfield have an average tenure of 23 years and eat their own cooking with meaningful amounts of the managers’ own net worth committed to the fund.

Their holding periods are generally 6-7 years on average and typically have a series of cyclical stories built into the portfolio.

This results in a portfolio likely to be favored in some economic circumstances but not others so that periodic shocks are not equally borne by every holding.

Their independent decisions in theory could result in a portfolio overly bound to a particular economic environment or to the success of a particular industry or sector. In practice, however, that has rarely if ever proved to be the case.

The managers state, “We are skeptical, trained to air potential risks, identify our own biases, and eager to understand the truth, whether that leads to buying a stock or consigning it to the scrapheap.”

All of which has translated to exceptional performance over time.

Performance vs. the S&P 500 as December 31, 2018:

The fund finished 2018 up 1.9%, which places it in the top 15% of its peer group. During the year’s turbulent closing quarter it places in the 1st percentile. Since inception, the fund has earned 13.8% annually while the S&P 500 booked 9.2% and its average Lipper peer returned only 6.8%. To be clear: that’s a two-to-one advantage over the crowd.

Not surprisingly, it’s 5-star at Morningstar and an MFO Great Owl. Somewhat surprisingly, Morningstar’s machine-learning model is negative almost across-the-board.

The fund is managed according to the same philosophy, process, discipline, and objectives as its SMA Core Equity product, which allows us to get a sense of the strategy’s long-term performance. Since 1989, that APR is 10.61% vs. the S&P 500 9.27%. That’s net of fees with an ER of 1.25%, higher than the fund. In 2008, its net return was -16.45% vs. the S&P 500’s -36.99%.

Here’s the fund’s lifetime (three-year) metrics from the 31 multi-cap core funds with the highest APR/YR. as of December 31, 2018.

APR Sharpe ratio Martin ratio Sortino ratio Maximum drawdown Ulcer index Bear market rating
S&P 500 -13.5%

Since inception, the fund has captured 108% of the S&P 500’s upside but only 74.2% of its downside, an entirely admirable asymmetry.

Bottom Line

They buy resilient companies run by people who understand that the world is always an unpredictable and dangerous place. That way, when things go wrong, which they inevitably do, they’ll tend to own the survivors, who can often benefit from the chaos.

With applicable, practical, built-in ideas pragmatically woven in its portfolio that provide strength to succeed in favorable markets and limit losses in unfavorable ones, the fund deserves serious consideration from investors

Fund website

MRFOX  It’s informative and conceptual.

Marshfield asked for its ticker symbol. They liked the imagery of a fox lying in wait and then pouncing on its prey. It symbolizes holding cash and being patient to buy good companies at discounted prices.

Here’s the managers’ Market Commentary for December 2018.

(Full Disclosure: MRFOX is in my portfolio. Dennis)

Elevator Talk: Craig Sedmak and Tom Harney, Ladder Select Bond Fund (LSBIX)

By David Snowball

Since the number of funds we can cover in-depth is smaller than the number of funds worthy of in-depth coverage, we’ve decided to offer one or two managers each month the opportunity to make a 300 word pitch to you. That’s about the number of words a slightly-manic elevator companion could share in a minute and a half. In each case, I’ve promised to offer a quick capsule of the fund and a link back to the fund’s site. Other than that, they’ve got a few hundred words and precisely as much of your time and attention as you’re willing to share. These aren’t endorsements; they’re opportunities to learn more. 

The right answer to almost all investing questions over the past generation has been “buy a cheap and simple 60/40 balanced fund and don’t look back.” The cheapest and simplest option has been 60% large cap US stocks through an S&P 500 index and 40% investment grade US bonds through a Barclays Aggregate US Bond index.

The question isn’t “did it work?” (It did.) The question is, “what happens when it stops working?” That question is not hypothetical, such portfolios lost about 3% in 2018. A more venturesome 60/40 blend which incorporated an all-world index would have lost 5.5%. The greater problem is that generation-long tailwinds, such as broad tax cuts and consistently low and falling interest rates, are turning to headwinds. The consequence is that such portfolios are positioned for negligible real returns through the middle of the next decade. In early 2019, the Boston-based institutional investment and research firm GMO concluded:

For the classic 60% stock/40% bond portfolio, unfortunately, things do not look as rosy, as neither US equities nor government bonds look priced to deliver returns meaningfully in excess of inflation. The classic 60/40 portfolio is therefore priced to return a paltry +0.7% real (over the next 5-7 years) due to its large weight in those two areas.

That reflects projected negative real returns for both US large cap stocks and US investment grade bonds. “Fortunately,” they conclude, “it is certainly pretty easy today to come up with a portfolio where good requires  a much less impressive economic balancing act.”

Which brings us to Ladder Capital Asset Management and the search for income-oriented investments whose success is not tied to interest rate cycles or the movement of broad bond indexes. We first encountered Ladder, and their Ladder Select Bond Fund (LSBIX), in doing research on outstanding funds that will turn three years old – and hence earn their first ratings from firms such as Morningstar and Lipper – in the year ahead.  We wrote,

Other funds that caught our eye

Ladder Select Bond Fund (LSBIX), which has a Sharpe ratio that’s laughably higher than any other core bond fund, 2.27 against runner-up Invesco Total Return ETF at 1.03. The parent company, Ladder Capital Corp, is an institutional real estate investor with $6 billion in AUM and LSBIX is an institutional fund with a $100,000 minimum. Like the three funds with the highest Sharpe ratios, this Fund invests in the world of real estate securities. Ladder describes themselves as “inherently conservative … favoring strong downside protected positions with attractive credit metrics.”

In the succeeding weeks, we had the opportunity to learn more about commercial real estate as an asset class and about Ladder Capital Asset Management, adviser to the Fund.

Ladder Select Bond embodies “a senior secured CRE (commercial real estate investment) strategy.” That translates to investing principally in a combination of investment grade commercial mortgage-backed securities and CRE debt. The sectors represented include office, multifamily, industrial, retail and hospitality property. “The Fund,” they note, “has the flexibility to actively manage duration and interest rate risk depending on market conditions.”

There are three arguments for including a slice of commercial real estate investments in your portfolio.

  1. CRE returns have been attractive.

    “Average 20-year returns in the commercial real estate slightly outperform the S&P 500 Index, running at around 9.5%” (Maverick, 2019). Much of that return comes in the form of income generated from lease payments and passed along to investors. Ladder Select Bond’s SEC yield is 3.73%, 55 bps above the total bond market index’s. By Ladder’s calculation, the average annual excess yield of CMBS Bonds rated BBB- over Corporate Bonds rated BBB (5-Year Average through 9/30/2017) is 271 bps.

  2. CRE offers an inflation hedge.

    That strength derives from two sources. Rising inflation often signals a strengthening economy, which is good for real estate demand. In addition, the ability to raise rents over time allows returns to pace inflation.

  3. CRE returns are largely independent of either stock or bond market returns.

    At base, CRE returns are driven by two factors: (1) can you lease your property at an attractive rate and (2) can your tenants continue making their lease payments? Neither of those factors are primary drivers for stocks or government bonds and, conversely, the factors driving stocks and bonds (interest rates, EPS growth, investor lunacy) are not keys in real estate.

    Here are two snapshots of that independence. First, the correlation since inception between Ladder Select Bond Fund and the Vanguard index funds representing other major asset classes.

      Asset class Correlation with LSBIX
    Vanguard Total Bond Market Index VBTIX Investment grade bonds -0.15
    Vanguard Total Stock Market Index VTSMX US stocks 0.61
    Vanguard Total International Stock Index VGTSX International stocks 0.36
    Vanguard Emerging Markets Stock Index VEIEX EM stocks 0.28
    Vanguard Real Estate VGSIX Real estate 0.43

    The second is the correlation between Ladder Select Bond Fund and the other real estate and core bond funds with the highest two-year Sharpe ratios, which is the longest comparison period available since the Fund had a 25 month record as of 12/31/18. 

      Category Correlation with LSBIX
    PREDEX PREDX Real Estate -0.18
    Bluerock Total Income+ Real Estate TIPRX Real Estate 0.45
    Versus Capital Multi-Manager Real Estate Income VCMIX Real Estate 0.41
    Griffin Institutional Access Real Estate GIREX Real Estate 0.32
    Principal Real Estate Income PGZ Real Estate 0.62
    River Canyon Total Return Bond RCTIX Core Bond 0.39
    Invesco Total Return Bond ETF GTO Core Bond 0.10
    Putnam Income PINCX Core Bond -0.07

Summary version: virtual no correlation to the core bond funds (0.14), a negative correlation to the total bond universe and a low correlation to equities and other real estate income funds (0.45).

Academic researchers looking at the role of commercial real estate in a multi-asset portfolio have found that over five-year periods there’s always a gain from an allocation to real estate, more commonly in the form of volatility reduction than higher total returns, with some evidence that most portfolios would benefit from a 10-20% weighting in real estate.

The asset class, then, is interesting.

Ladder Capital, likewise. Ladder Capital Corp is a REIT with about $6 billion in total assets. It launched in 2008 and became an NYSE-listed stock (LADR) in 2014. It’s one of the largest non-bank commercial mortgage originators in the country and has made over $35 billion in CRE investments to date including about $10 billion in CMBS. Ladder Capital Asset Management serves as the Fund’s adviser.

The short-term performance of the young Ladder Fund reflects the longer-term performance of Ladder’s strategy for its own account adapted to the mutual fund world. Here are the Fund’s metrics from launch through 12/30/2018:

  APR MAXDD Recvry STDEV DSDEV Ulcer BMDEV Sharpe Sortino Martin
Fund Name %/yr % mo %/yr %/yr Index %/yr Ratio Ratio Ratio
Ladder Select Bond 2.1 -0.5 1+ 0.7 0.5 0.1 0.0 1.06 1.38 7.06
Core Bond Average 1.6 -2.6 14 2.2 1.6 1.3 0.8 0.10 0.15 0.29
Bloomberg Barclays U.S. Aggregate Bond TR 1.8 -2.5 16+ 2.4 1.7 1.2 0.9 0.16 0.22 0.31

Here’s how to read that. Since inception, the Fund has returned 2.1% a year while its average peer has risen 1.6%. Ladder’s investors have experienced surprisingly low volatility in the same stretch. The Fund’s maximum drawdown, standard deviation, downside deviation (which measures just “bad” volatility), Ulcer Index (which factors in both the length and severity of drawdowns) and bear month deviation (which looks at volatility during months when the stock market is falling) are much lower than you’d expect. All three standard measures of risk-adjusted returns (the Sharpe, Sortino and Martin Ratios) are vastly more positive for LSBIX than for its peers.

We asked managers Craig Sedmak and Tom Harney if they’d share their reflections on what makes the Fund distinctive. Here are their 300 words of insight:

Tom: Ladder Capital Corp is  a publicly-traded company with high insider ownership, around 12% or $250 million or so of  our own money which means we have very strong alignment of interests with our investors. Because we lend and invest strictly in the CRE market, we understand CMBS bonds and the properties that secure them rather well since commercial real estate is our sole focus..

What you most need to know about the strategy is that we’re inherently conservative investors. This is not a “get rich” strategy; it’s intended to be more of a  “stay rich” strategy. We tend to invest in very senior notes, highly liquid, diversified and with hard asset support.  We have about $6 billion in assets at Ladder and our funding has historically come from high net worth individuals, pension funds, registered investment advisors, and sovereign wealth funds. We decided to add a mutual fund as another way of accessing our expertise, without leverage and with daily liquidity which makes it more broadly available to investors. We think we can produce, and we think we have the record to prove, relatively safe, decent yields across market cycles.

Craig: One challenge in talking about the Fund is that there are no directly comparable peer groups to work with. Folks like DoubleLine have significant CRE investments, but they tend to be inside another wrapper that invests in other things.    As discussed, the Fund invests primarily in CRE debt and CMBS. While macro-economic events may drive the asset class, given our highly focused approach, we understand the asset class and its drivers, and we’re willing to give up current income to protect principal knowing that we’ll get more opportunities soon enough. So as conditions change, the composition of the portfolio and its hedges can change dynamically to best position the fund to achieve its dual mandate of generating income and preserving capital. Probably the single greatest risk over time is duration. We can hedge interest rate risks over time with futures and we’ve built in a lot of floating rate securities.

Tom: Typical fixed income portfolios are dominated by unsecured corporate bonds and treasuries.  We believe having a reasonable allocation to senior secured assets principally supported by first mortgages on a diverse pool of hard assets is a good thing.  The complementary nature of this strategy has been recognized by insurance companies and pension funds for a long time.  We created LSBIX for investors who want to make this highly-targeted allocation for themselves with an experienced manager in this specialized field providing daily liquidity.   That’s the way we’ve invested for our clients and for ourselves.

Ladder Select Bond (LSBIX) generally has a $100,000 minimum initial investment but Ladder can waive that minimum. The fund is available for purchase through 2 brokerages, including major platforms such as TD Ameritrade  . At the latter, the published minimum initial investment is $2,500. The Fund charges 0.95%. The Fund’s homepage is reasonably rich with direct and linked information. Probably the most useful piece is the Executive Summary, which offers a readable walk-through the fund’s approach and management. Their News page also offers a Commercial Real Estate Debt Primer, but it’s rather cluttered with slightly-outdated charts that only a finance guy would love. I’d start with the other.

Funds in registration

By David Snowball

Just a handful of new funds were registered with the SEC this month, perhaps in response to the disruption caused by the government shutdown which affected the SEC. In any case, we’ve chosen to highlight just two funds from that list; both are guided by first-rate managers whose long careers and other funds should engender considerable interest and respect.

GQG Partners Global Quality Equity Fund

GQG Partners Global Quality Equity Fund will seek long-term capital appreciation. The plan is to build a non-diversified, global growth stock portfolio. They hope to create a portfolio which will “capture market upside while limiting downside risk through a full market cycle.” In general, they favor the stock of firms which are reasonably priced, and have strong fundamental business characteristics, sustainable and durable earnings growth and the ability to outperform peers over a full market cycle and sustain the value of their securities in a market downturn. That all is reflected in the advisor’s name: GQG stands for “global quality growth.” The fund will be managed by Rajiv Jain. Mr. Jain’s reputation is such that the firm’s emerging market fund quickly drew $1 billion in assets, though its better-performing US fund has just $11 million after its first four months. Curious. He is, in any case, an exceptional investor once responsible for $50 billion in global growth stocks. The expense ratio for Investor shares is 1.00% after waivers and the minimum initial investment is $2500. Institutional shares will charge 0.75% and require $500,000 to enter.

Zeo Sustainable Credit Fund

Zeo Sustainable Credit Fund will seek “risk-adjusted total returns consisting of income and moderate capital appreciation.” In truth, I’m not quite sure what goal statements like that actually mean. They intend to own a portfolio consisting primarily of carefully selected fixed-income securities issued by companies who are leaders amongst their peers in key areas of sustainable business practices. They’ll manage interest risk rate by managing the portfolio’s duration. The “credit” of “sustainable credit” points to high-yield securities whose risk lies primarily in the creditworthiness of the issuer rather than in changing interest rates. The fund will be managed by Venkatesh Reddy, founder of Zeo Capital Advisors and manager of Zeo Short Duration Income (ZEOIX). ZEOIX is an exceptional fund that’s been badly miscategorized by Morningstar. It’s tagged as a “high yield bond” fund, which implies equity-like risks and returns. It seeks neither. Zeo is an exceptionally stable, single digits performer with a negative downside capture ratio (that is, it tends to rise even when the bond market falls) against the Barclays US Aggregrate Bond index. It is a Great Owl fund and the subject of a recent profile. The expense ratio for the new fund is 1.25% and the minimum initial investment is $5000.

Manager changes, January 2019

By Chip

There were four notable stories among the 62 sets of manager changes this month. First, the estimable Jenny Jones has announced her plans to retire from Schroder Investment Management where she’s successfully shepherded small cap portfolios for 17 years. That run capped a distinguished 38 year investing career; her departure has led Morningstar to place her funds’ Silver rating “under review.” That’s a normal and healthy development. We wish her great joy in life’s next adventure. Second, Mark Oelschlager is departing Oak Associates on short notice after a stint as co-CIO and portfolio manager. He’s also the son of the firm’s founder, lead manager and CIO, James Oelschlager. The younger Mr. Oelschlager once seemed poised to be the firm’s next leader; now he’s “pursuing other opportunities.” The response when I reached out to the firm was … uh, terse. That seems odd and potentially troubling, given the younger Mr. O’s preference for a more risk-conscious style than his senior’s. Third, Mark Vaselkiv is stepping away from managing T. Rowe Price’s high-yield funds. In general, Price manages these transitions exceptionally well. Finally, Kenneth Abrams, a Stanford grad but distinguished (opinionated, vocal) member of Augustana’s Board of Trustees, “will transition away” from managing Vanguard Explorer but will continue to focus on other strategies he currently manages.

Ticker Fund Out with the old In with the new Dt
SPEYX American Beacon Sound Point Enhanced Income Fund No one, but . . . Joe  Xu joins Stephen Ketchum, Rick Richert, and Garrick Stannard in managing the fund. 1/19
ARTQX Artisan Mid Cap Value Fund No one, but . . . Craig Inman joins Thomas Reynolds, Daniel Kane, and James Kieffer in managing the fund. 1/19
ARTLX Artisan Value Fund No one, but . . . Craig Inman joins Thomas Reynolds, Daniel Kane, and James Kieffer in managing the fund. 1/19
BCSAX BlackRock Commodity Strategies Skye MacPherson is no longer listed as a portfolio manager for the fund. Rob Shimell, Alastair Bishop, Hannah Gray, and Elliott Char will continue to manage the fund. 1/19
BEMAX Brandes Emerging Markets Value Fund Douglas Edman has retired from Brandes Investment Partners and will no longer serve as portfolio manager of the fund. Christopher Garrett, Louis Lau, Gerardo Zamorano, and Mauricio Abadia will continue to manage the fund. 1/19
BGOAX Brandes Global Opportunities Value Fund Douglas Edman and Ralph Birchmeier have retired from Brandes Investment Partners and will no longer serve as portfolio managers of the fund. Michael Hutchens, Kenneth Little, and Gerardo Zamorano will continue to manage the fund. 1/19
BISAX Brandes International Small Cap Equity Fund Ralph Birchmeier has retired from Brandes Investment Partners and will no longer serve as portfolio manager of the fund. Yingbin Chen, Mark Costa, and Luiz Sauerbronn will continue to manage the fund. 1/19
CGGAX Catalyst/Groesbeck Growth of Income Fund, which will become the Catalyst Growth of Income Fund Groesbeck Investment Management will no longer sub-advise the fund. Robert Groesbeck and Robert Dainesi will no longer serve as portfolio managers for the fund. David Miller and Charles Ashley will now manage the fund. 1/19
IRFAX Cohen & Steers International Realty Fund Luke Sullivan will no longer serve as a portfolio manager to the fund. Jon Cheigh, William Leung and Rogier Quirijns will continue to serve as portfolio managers of the fund. 1/19
NGCAX Columbia Greater China Fund Jasmine Huang, portfolio manager of the fund, is on a medical leave of absence from Columbia Management Investment Advisers, LLC, and a timetable for her return is not set. Effective immediately, Dara White is named as the fund’s co-portfolio manager. 1/19
PAPEX Cushing MLP Infrastructure Fund Elizabeth Toudouze will no longer serve as a portfolio manager for the fund. N. Paul Euseppi joins John Musgrave and Jerry Swank in managing the fund. 1/19
DTCAX Dreyfus Sustainable U.S. Equity Fund John Gilmore is no longer listed as a portfolio manager for the fund. Raj Shant has joined Jeff Monroe in managing the fund. 1/19
DAX Global X DAX Germany ETF Jonathan Molchan is no longer listed as a portfolio manager for the fund. Chang Kim, James Ong, and Nam To will continue to manage the fund. 1/19
QYLD Global X NASDAQ 100 Covered Call ETF Jonathan Molchan is no longer listed as a portfolio manager for the fund. Chang Kim, James Ong, and Nam To will continue to manage the fund. 1/19
HSPX Global X S&P 500 Covered Call ETF Jonathan Molchan is no longer listed as a portfolio manager for the fund. Chang Kim, James Ong, and Nam To will continue to manage the fund. 1/19
GSAUX Goldman Sachs Long Short Credit Strategies Fund Effective March 4, 2019, Brendan McGovern will no longer serve as a portfolio manager for the fund. Ashish Shah will join Salvatore Lentini in managing the fund. 1/19
HRRRX Harbor Real Return Fund Jeremie Banet no longer serves as a portfolio manager for the fund. Stephen Rodosky joins Mihir Worah in managing the fund. 1/19
SCUIX Hartford Schroders US Small Cap Opportunities Fund Jenny Jones has announced her plan to retire from Schroder Investment Management North America Inc. later this year. Accordingly, effective April 1, 2019, Ms. Jones will no longer serve as a portfolio manager to the fund. Robert Kaynor will continue to manage the fund. 1/19
SMDVX Hartford Schroders Us Small/Mid Cap Opportunities Fund Jenny Jones has announced her plan to retire from Schroder Investment Management North America Inc. later this year. Accordingly, effective April 1, 2019, Ms. Jones will no longer serve as a portfolio manager to the fund. Robert Kaynor will continue to manage the fund. 1/19
HOVLX Homestead Value Fund No one, but . . . James Polk joins Prabha Carpenter in managing the fund. 1/19
JSSSX Jackson Square All-Cap Growth Fund Greg Heywood is no longer serving as a manager of the fund. Greg Chory, William Montana, and Brian Tolles join Christopher Bonavico, Kenneth Broad, Christopher Ericksen, Ian Ferry, Patrick Fortier, Daniel Prislin, and Jeffrey Van Harte on the management team. 1/19
JSPUX Jackson Square Global Growth Fund Greg Heywood is no longer serving as a manager of the fund. Brian Tolles joins Patrick Fortier and Christopher Bonavico in managing the fund. 1/19
DPLGX Jackson Square Large-Cap Growth Fund No one, but . . . William Montana joins Christopher Bonavico, Christopher Ericksen, Daniel Prislin, and Jeffrey Van Harte on the management team. 1/19
DPCEX Jackson Square Select 20 Growth Fund No one, but . . . Greg Chory joins Christopher Bonavico, Kenneth Broad, Daniel Prislin, and Jeffrey Van Harte on the management team. 1/19
DCGTX Jackson Square SMID-Cap Growth Fund No one, but . . . Ian Ferry joins Christopher Bonavico and Kenneth Broad in managing the fund. 1/19
JGBAX Janus Henderson Global Bond Fund Ryan Myerberg will no longer serve as a portfolio manager for the fund. Christopher Diaz is joined by Andrew Mulliner on the management team. 1/19
JGFOX John Hancock Global Focused Strategies Fund Neil Richardson no longer serves as a portfolio manager of the fund. David Sol continues to serve as portfolio manager of the fund. 1/19
JIRRX John Hancock Real Return Bond Fund Effective immediately, Jeremie Banet is no longer a portfolio manager on the fund. Steve Rodosky joins Mirhir Worah in managing the fund. 1/19
JPGB JPMorgan Global Bond Opportunities Nicholas Gartside has resigned from J.P. Morgan Investment Management Inc. and will no longer serve as a portfolio manager for the fund. Robert Michele and Iain Stealey will continue to manage the fund. 1/19
LOGSX Live Oak Health Sciences Fund Mark Oelschlager is no longer listed as a portfolio manager for the fund. James Oelschlager and Robert Stimpson will serve as the co-lead portfolio managers responsible for the day-to-day investment activities of the fund. 1/19
LLGLX Longleaf Partners Global Fund No one, but . . . Ross Glotzbach joins G. Staley Cates and O. Mason Hawkins on the management team. 1/19
MPOAX MainStay Epoch U.S. Small Cap Fund Michael Caputo will no longer serve as a portfolio manager of the fund. Migene Kim and Mona Patni will continue to manage the fund. 1/19
MCSMX Matthews China Small Companies Fund Kenichi Amaki is no longer listed as a portfolio manager for the fund. Tiffany Hsiao will continue to manage the fund. 1/19
MJFOX Matthews Japan Fund Kenichi Amaki is no longer listed as a portfolio manager for the fund. Shuntaro Takeuchi joins Taizo Ishida on the management team. 1/19
DPIEX Mondrian International Equity Fund Effective February 28, 2019, Melissa J.A. Platt will no longer serve as a portfolio manager for the fund. Elizabeth Desmond and Melissa Platt will continue to manage the fund. 1/19
NHFIX Northern High Yield Fixed Income Fund Richard J. Inzunza is no longer a portfolio manager of the fund. Bradley Camden and Eric Williams will continue to manage the fund. 1/19
OWACX Old Westbury All Cap Core Fund John Hall and Jeffrey Rutledge will no longer serve as portfolio managers of the fund. John Christie and Michael Morrisroe will continue to serve as portfolio managers of the fund. 1/19
OWLSX Old Westbury Large Cap Strategies Fund Michael Crawford and John  Christie will no longer serve as portfolio managers of the fund. John Hall joins Jeffrey Rutledge, Nancy Sheft, Holly MacDonald, Edward Aw, Craig Shaw, Richard Schmidt, Scott Crawshaw, Pradipta Chakrabortty, T. Perry Williams, Sunil Thakor, and David Levanson on the management team. 1/19
OWSMX Old Westbury Small & Mid Cap Strategies Fund John Hall will no longer serve as portfolio manager of the portion of the fund. The other 18 managers remain. 1/19
EAEMX Parametric Emerging Markets Fund Timothy Atwill is no longer listed as a portfolio manager for the fund. Jennifer Sireklove  and Paul Bouchey join Thomas Seto on the management team. 1/19
EAISX Parametric International Equity Fund Timothy Atwill is no longer listed as a portfolio manager for the fund. Jennifer Sireklove  joins Paul Bouchey and Thomas Seto on the management team. 1/19
EITEX Parametric Tax-Managed Emerging Markets Fund Timothy Atwill is no longer listed as a portfolio manager for the fund. Jennifer Sireklove  and Paul Bouchey join Thomas Seto on the management team. 1/19
PGMAX PIMCO Global Multi-Asset Fund No one, but . . . Erin Browne joins Geraldine Sundstrom and Mihir Worah in managing the fund. 1/19
PFANX PIMCO Preferred and Capital Securities Fund Yuri Garbuzov is no longer listed as a portfolio manager for the fund. Philippe Bodereau will continue to manage the fund. 1/19
Various PIMCO REALPATH Blend Income Fund, PIMCO REALPATH Blend 2020 Fund, PIMCO REALPATH Blend 2025 Fund, PIMCO REALPATH Blend 2030 Fund, PIMCO REALPATH Blend 2035 Fund, PIMCO REALPATH Blend 2040 Fund, PIMCO REALPATH Blend 2045 Fund, PIMCO REALPATH Blend 2050 Fund and PIMCO REALPATH Blend 2055 Fund No one, but . . . Erin Browne joins Rahul Devgon, Graham Rennison, and Mihir Worah in managing the fund. 1/19
POGSX Pin Oak Equity Fund Mark Oelschlager is no longer listed as a portfolio manager for the fund. James Oelschlager and Robert Stimpson will serve as the co-lead portfolio managers responsible for the day-to-day investment activities of the fund. 1/19
XUSA QuantX Dynamic Beta US Equity ETF David Varadi no longer serves as a portfolio manager of the fund. Keys Tinney remains the portfolio manager of the fund. 1/19
QXGG QuantX Risk Managed Growth ETF David Varadi no longer serves as a portfolio manager of the fund. Keys Tinney remains the portfolio manager of the fund. 1/19
QXTR QuantX Risk Managed Multi-Asset Total Return ETF David Varadi no longer serves as a portfolio manager of the fund. Keys Tinney remains the portfolio manager of the fund. 1/19
ROGSX Red Oak Technology Select Fund Mark Oelschlager is no longer listed as a portfolio manager for the fund. James Oelschlager and Robert Stimpson will serve as the co-lead portfolio managers responsible for the day-to-day investment activities of the fund. 1/19
SHPAX Saratoga Advantage Health & Biotechnology Portfolio Mark Oelschlager is no longer listed as a portfolio manager for the fund. Robert Stimpson will now manage the fund. 1/19
SPMAX Saratoga Advantage Mid Capitalization Portfolio Scott Weber is no longer listed as a portfolio manager for the fund. Chad Fargason, Christopher Wallis, and Dennis Alff will continue to manage the fund. 1/19
STPAX Saratoga Advantage Technology & Communications Portfolio Mark Oelschlager is no longer listed as a portfolio manager for the fund. Robert Stimpson will now manage the fund. 1/19
HSCSX Small-Company Stock Fund No one, but . . . James Polk joins Prabha Carpenter in managing the fund. 1/19
FPCIX Strategic Advisers Core Income Fund Gregory Pappas no longer serves as co-manager of the fund. Jeffrey Moore, James Herbst, Stewart Wong, Franco Catagliuolo, Michael Plage, Sean Corcoran, and Jonathan Duggan will continue to manage the fund. 1/19
RPIHX T. Rowe Price Global High Income Fund Effective January 1, 2020, Mark Vaselkiv will step down from his responsibilities as the fund’s co-portfolio manager. Michael Connelly and Samy Muaddi will join Michael Della Vedova as the fund’s co-portfolio managers. 1/19
  T. Rowe Price High Yield Fund Effective January 1, 2020, Mark Vaselkiv will step down from his responsibilities as the fund’s co-portfolio manager. Rodney Rayburn has joined Mark Vaselkiv as the fund’s co-portfolio manager, and will continue to manage the fund upons Mr. Vaselkiv’s departure. 1/19
VEXPX Vanguard Explorer Fund Kenneth Abrams will no longer serve as a portfolio manager for the fund. The other ten managers will remain. 1/19
VNSAX Vaughan Nelson Select Fund Dennis Alff and Chad Fargason will no longer serve as portfolio managers for the fund. Chris Wallis and Scott Weber will continue to manage the fund. 1/19
NEFJX Vaughan Nelson Small Cap Value Fund Scott Weber, Dennis Alff and Chad Fargason will no longer serve as portfolio managers for the fund. Stephen David joins Christopher Wallis in managing the fund. 1/19
VNVNX Vaughan Nelson Value Opportunity Fund Scott Weber will no longer serve as a portfolio manager for the fund. Dennis Alff, Chad Fargason and Chris Wallis will continue to manage the fund. 1/19
WOGSX White Oak Select Growth Fund Mark Oelschlager is no longer listed as a portfolio manager for the fund. James Oelschlager and Robert Stimpson will serve as the co-lead portfolio managers responsible for the day-to-day investment activities of the fund. 1/19

Briefly Noted

By David Snowball


Effective January 1, 2019, Castle Financial & Retirement Planning Associates discontinued its voluntary fee waiver for All-Terrain Opportunity (TERIX) and will not seek reimbursement of any fees it voluntarily waived.

Welcome back to our readers employed by the Securities and Exchange Commission! The whole “shut the government down” thing struck me as unproductive lunacy and ended up with a number of our readers (most visibly the SEC folks) furloughed.

Briefly Noted . . .

Thanks, as ever, to The Shadow for his tireless review of thousands of SEC filings monthly. For all my care in reviewing that same database, I’m forever amazed by the amount that he finds (and shares) that slips past me.


Baird Funds announced recent fee reductions for four of their funds. Chautauqua International Growth Fund (CCWIX/CCWSX)  will change from 0.95% to 0.80% for the institutional share class and from 1.20% to 1.05% for the investor share class. Chautauqua Global Growth Fund (CCGIX/CCGSX) will go from 0.95% to 0.80% for the institutional share class and from 1.20% to 1.05% for the investor share class. Baird Small/Mid Cap Value Fund (BMVIX/BMVSX) drops from 0.95% to 0.85% for the institutional share class and from 1.20% to 1.10% for the investor share class. And, more modestly, Baird SmallCap Value Fund (BSVIX/BSVSX) will change from 1.00% to 0.95% for the institutional share class and from 1.25% to 1.20% for the investor share class.

Effective at the start of business on January 10, 2019, the First Eagle Overseas Fund (SGOVX) again began accepting new investors “without special restriction.”

Grandeur Peak Global Opportunities Fund, Grandeur Peak International Opportunities Fund, and Grandeur Peak Global Reach Fund will re-open to existing shareholders and to new shareholders who purchase directly from Grandeur Peak Funds.  Check out our separate story on the openings.

Invesco Developing Markets Fund (GTDDX) to reopen to new investors at the end of February. (Why wait?) Morningstar laments its “recent dismal performance” (2018 didn’t go well) while remaining hopeful and affirming its Bronze rating.

Longleaf Partners Fund (LLPFX) is open to new investors.

CLOSINGS (and related inconveniences)

Effective January 28, 2019, Clarkston Select Fund (CIDDX) closed to investment by new and existing shareholders ahead of a merge with Clarkston Fund (CILGX ).


At the end of February, Ashmore Emerging Markets Corporate Debt Fund will be renamed Ashmore Emerging Markets Corporate Income Fund.

Cedar Ridge Unconstrained Credit Fund (CRUPX) has become a Shelton Capital Fund, though I know not which quite yet.

On January 16, 2019, Timpani Capital Management entered into a purchase agreement with Calamos Advisors under which Calamos will acquire Timpani, As a result Frontier Timpani Small Cap Growth Fund (FTSCX) will get a new moniker soon.

Caldwell & Orkin Market Opportunity Fund (COAGX) has become Caldwell & Orkin – Gator Capital Long/Short Fund. They have announced changes to the fund’s investment strategy and I wish them well. Here’s the fund’s performance since the Gator managers joined in 2017:

chart for coagx

The Nushares, which always sounded like a knock-off shoe brand, are no more. Nu officially admits to being Nuveen:

Current Fund Name New Fund Name
Nushares ESG Large-Cap Growth ETF Nuveen ESG Large-Cap Growth ETF
Nushares ESG Large-Cap Value ETF Nuveen ESG Large-Cap Value ETF
Nushares ESG Mid-Cap Growth ETF Nuveen ESG Mid-Cap Growth ETF
Nushares ESG Mid-Cap Value ETF Nuveen ESG Mid-Cap Value ETF
Nushares ESG Small-Cap ETF Nuveen ESG Small-Cap ETF

On January 18, 2019, the Tocqueville International Value Fund (TIVFX) became the American Beacon Tocqueville International Value Fund.  

On (or about) March 28, 2019, two WisdomTree ETFs shift from passive to active. WisdomTree Dynamic Currency Hedged Europe Equity Fund (DDEZ) will become WisdomTree Europe Multifactor Fund (EUMF) and WisdomTree Dynamic Currency Hedged Japan Equity Fund (DDJP) becomes WisdomTree Japan Multifactor Fund (JAMF). The only substance that Wisdom Tree owns up to is that the new funds will use “a model-based approach.”


Aberdeen Asia Bond Fund (AEEAX) will be liquidated on or about February 21, 2019.

Brown Advisory-WMC Japan Alpha Opportunities Fund (BIAJX) will be liquidated on February 22, 2019.

Effective immediately, Cincinnati Asset Management Funds Broad Market Strategic Income Fund (CAMBX) has terminated the public offering of its shares and will discontinue its operations effective February 25, 2019. 

Cornerstone Advisors Public Alternatives Fund, Cornerstone Advisors Real Assets Fund and Cornerstone Advisors Income Opportunities Fund all joined the heavenly choir on January 31, 2019.

On January 28, 2019, the Board of Directors of TD Asset Management approved the liquidation of each of the Epoch U.S. Small-Mid Cap Equity Fund and TD Global Low Volatility Equity Fund, both in mid-March, 2019.

Hatteras Alpha Hedged Strategies Fund is slated to merge with and into STAAR Disciplined Strategies Fund (SITAX, formerly STAAR Alternative Categories Fund) on or about March 25, 2019.

Highmore Managed Volatility Fund (HMVZX) was liquidated on January 31, 2019.

Hodges Pure Contrarian Fund (HDPCX) will reach its contrarian conclusion on February 28, 2019.

James Purpose Based Investment ETF (JPBI) will liquidate on February 7, 2019. Lost its sense of purpose, perhaps?

Leland Currency Strategy Fund (GHCAX) will liquidate on February 25, 2019. Morningstar’s John Rekenthaler recently nominated multi-currency funds as one of the five worst “liquid alts” options, mostly because their returns have not been much better than cash.

Neuberger Berman Long Short Credit Fund (NLNAX) “will cease its investment operations, liquidate its assets and make a liquidating distribution, if applicable, to be on or about February 27, 2019 .” Very thorough of them.

Neuberger Berman Core Plus Fund (NCPAX) will be dispatched similarly on February 27.

On or about February 22, 2019, Perritt Low Priced Stock Fund (PLOWX) will be reorganized into the Perritt MicroCap Opportunities Fund (PRCGX). It find it curious that the board of directors was “pleased to announce” the demise of a tiny, underperforming fund except in an “out of its misery” way.

ProSports Sponsors ETF(FANZ) liquidated on January 17, 2019. In general, I think all of these freakish little niche funds – the investing equivalent of the cheaply made, here-for-a-season “fast fashion” clothes – improve the world with their passing. Fortunately, the market arranges that with some frequency.

Putnam Europe Equity Fund (PEUGX) will merge into Putnam Europe Equity Fund on or about May 20, 2019.

REX BKCM ETF (BKC) is expected to cease operations and liquidate on or about February 7, 2019

Royce Special Equity Multi-Cap Fund (RSEMX) will liquidate on February 25, 2019. The official word is “The Fund is being liquidated primarily because it has not maintained assets at a sufficient level for it to be viable.”

Satuit Capital U.S. Emerging Companies Fund (SATMX), once a tiny titan in the microcap space, liquidated on January 21, 2019.

Effective January 1, 2019, the Thomson Horstmann & Bryant MicroCap Fund (THBVX) changed to the THB Asset Management MicroCap Fund.

On December 21, 2018, the board of trustees for Vanguard Convertible Securities Fund (VCVSX) approved a proposal to dissolve and liquidate the Fund on or about March 19, 2019. It was a Bronze-rated fund with Oaktree at the helm and a billion in assets. Clearly too little for Vanguard to tolerate.

Volshares Large Cap ETF (VSL) liquidated immediately after the close of business on January 30, 2019. No Happy Hour for them, eh?