Monthly Archives: August 2019

Briefly Noted

By David Snowball


Three advisers are vying for this month’s “they’re doing what? Did I read this right?” award for moves where we were, literally, reading the filings aloud, slowly, to be sure we weren’t missing something.

Nominee #1 BlackRock

BlackRock Focus Growth (MAFOX) will undergo “a reorganization with another BlackRock-advised fund” in the fourth quarter of 2019. In the reorganization, the $1 billion, five-star BlackRock Large Cap Focus Growth (MALHX) “will be reorganized into” the $200 million, four star Focus Growth fund. Okay, though on face weird: the smaller, weaker fund “acquires” the bigger, stronger one. And, immediately thereafter, the surviving fund adopts the name of the deceased one: BlackRock Large Cap Focus Growth. Wouldn’t that cause BlackRock to lose the five-star record? Why not simply merge Focus Growth into Large Cap Focus Growth if, in the end, you wanted a fund named Large Cap Focus Growth?

Nominee #2: Eaton Vance

August 9, 2019: The Board of Trustees of Eaton Vance Mutual Funds Trust, on behalf of Eaton Vance Global Bond Fund (EGBIX), has approved the liquidation of the Fund, which is expected to take place on or about September 9, 2019. So Eaton Vance gets out of the global bond business after only nine months in the global bond business.

For a month.

Effective October 14, 2019, Eaton Vance Diversified Currency Income Fund (EAIIX) will change its name to Eaton Vance Global Bond Fund, at which point it will commit to investing in … well, global bonds.

Nominee #3 Guggenheim

On November 11, 2019, Guggenheim Mid Cap Value Institutional Fund (SVUIX) will (1) become Guggenheim SMid Cap Value Institutional Fund and (2) immediately merge into Guggenheim Mid Cap Value (SEVAX), Institutional share class (SVUIX) which itself changes its name to Guggenheim SMid Cap Value that same day. So, for a period of time so short that it exists only in quantum physics, holders of MCVI become holders of SCVI before becoming holders of MCV(I) which might or might not have completed the metamorphosis into SCV(I).

To be clear, these moves are perfectly legal and probably make perfect sense to those who came up with the idea – they’re simply perplexing to us mere mortals.

Briefly Noted . . .


Aberdeen Emerging Markets Fund (GEGAX) has reopened. Morningstar rather likes the fund, but less so now (Bronze) than before some management and strategy turmoil (Silver).

American Beacon Stephens Small Cap Growth Fund (STSGX) has reduced its expense ratio by a bit. Investor shares, for example, just dropped 7 bps. Why 7? Not sure, but that might move it from Morningstar’s “high” to “above average” expense band. Woohoo!

AMG Managers CenterSquare Real Estate Fund, AMG Managers Amundi Short Duration Government Fund, AMG Managers Fairpointe Mid Cap Fund and AMG Managers Montag & Caldwell Growth Fund (MCGFX) have all posted expense reductions. MCGFX has reduced its expense ratio from 1.17% to 0.92%. Nice gesture. The fact that Ron Canarkis left in January 2019 after a quarter century as manager requires a bit on introspection on the part of prospective investors.

Effective September 1, 2019, AQR Style Premia Alternative Fund (QSPIX) and AQR Style Premia Alternative LV Fund (QSLNX) are no longer closed to new investors.

Effective immediately, the minimum initial investment amount for Cove Street Capital Small Cap Value Fund (CSCAX) has been lowered from $10,000 to $2,500. Exceptionally solid early in the decade, respectable in its second half, high sustainability score, high active share, low vol.

Crawford Dividend Opportunity (CDOFX) is a five-star small cap fund with below-average expense ratio. On September 1, the cap on their expenses fell another 6 points to 99 bps for the no-load shares. As with Cove Street, there’s a lot to like here: high sustainability score, very high active share, much higher-than-average quality portfolio for a small cap fund, and admirably low risk scores.

Effective October 31, 2019, the 2% redemption fee on Federated International Small-Mid Company Fund (ISCAX) will be eliminated. Redemption fees generally function to discourage “hot money” traders. It appears the fund has seen net inflows in six months over the past six years, which implies that hasn’t really been an issue.

The $37 billion, five-star Vanguard Dividend Growth Fund (VDIGX) is now open to all new investors.

The minimum investment amount required to open and maintain a fund account for Vanguard Market Neutral Fund (VMNFX) will be reduced from $250,000 to $50,000 on or about November 4, 2019.

CLOSINGS (and related inconveniences)

The $10 billion Invesco High Yield Municipal Fund (ACTHX) will close to new investors on September 6, 2019.


On or about November 15, 2019 Aberdeen Global Unconstrained Fixed Income Fund (CUGAX, formerly Aberdeen Global Fixed Income) will be rechristened Aberdeen Global Absolute Return Strategies Fund with attendant shifts in the investment strategy.

Balter European L/S Small Cap Fund (BESRX) is slated to become F/m Investments European L/S Small Cap Fund. The adviser changes from Balter to F/m, but the sub-adviser (i.e., the manager) remains the same.

Effective November 27, 2019, Federated Mortgage Fund (FGFSX) becomes Federated Select Total Return Bond Fund. The name change is accompanied by a 16 bps drop in the expense ratio and a broader portfolio; mortgage-backed securities drop to about 50% of the portfolio from its primary component.

Effective on or about November 8, 2019, the Hartford Environmental Opportunities Fund (HEOMX) will be renamed as the Hartford Climate Opportunities Fund.

M.D. Sass Short Term U.S. Government Agency Income Fund (MDSHX) becomes the Integrity Short Term Government Fund sometime in the near future. Likewise M.D. Sass Equity Income Plus Fund (MDEPX) will become Integrity Dividend Harvest Fund.

Effective January 1, 2020, T. Rowe Price Personal Strategy Income Fund (PRSIX) will be renamed T. Rowe Price Spectrum Conservative Allocation Fund, while Personal Strategy Growth (TRSGX) becomes Spectrum Moderate Growth Allocation and Personal Strategy Balanced (TRPBX) is rechristened Spectrum Moderate Allocation.


AGF Global Equity Fund (AGXIX) will be liquidated on September 19, 2019.

AlphaOne NextGen Technology Fund (AONAX) sort of becomes a LastGen fund on September 30, 2019.

AlphaOne Small Cap Opportunities Fund (AOMAX) preceded it, having been liquidated on August 30, 2019.

Alpha Risk Tactical Rotation Fund was liquidated on August 23, 2019.

American Independence Global Tactical Allocation Fund (AARMX) will liquidate on September 12, 2019. That follows the earlier decision of the fund’s investment adviser, Manifold Partners, to withdraw from managing the portfolio. The board of trustees likely noticed two facts: that (1) it’s a four star fund with (2) no assets. Removing the managers who generated the performance left them with just the “no assets” part, and so …

BlackRock Energy & Resources Portfolio (SSGRX) will merge into BlackRock All-Cap Energy & Resources Portfolio (BACAX) at some point in the first quarter of 2020. Both funds are under $100 million AUM and the All-Cap fund has a better track record and slightly lower expenses.

On December 13, 2019, BNY Mellon Growth & Income Fund (DGRIX) will merge into Nationwide Dynamic U.S. Growth Fund (NMFAX). At the same time, BNY Mellon Disciplined Stock Fund (DDSTX) will be consumed by a newly-launched Nationwide Mellon Disciplined Value Fund.

City National Rochdale High Yield Bond Fund (CHBAX) will be liquidated on or about September 30, 2019

CrossingBridge Long/Short Credit Fund (CLCAX), formerly Collins Long/Short Credit, will be liquidated on September 6, 2019. The adviser explained that while the fund was still profitable, it had minimal upside and wasn’t delivering the downside protection now that it excelled at in the 2008 meltdown. The closure leaves Cohanzick, the manager, with three funds: ultra-short (RPHIX), short (CBIDX) and not-necessarily-so-short (RSIVX).

The Board of Trustees of the StrongVest ETF Trust authorized an orderly liquidation of the CWA Income ETF (CWAI), September 12, 2019. I appreciate the orderliness, though “StrongVest” sounds a lot like a character out of Lord of the Rings.

Destra Wolverine Dynamic Asset Fund (DWAAX) will perish heroically on September 15, 2019 after a climactic struggle with Sabretooth and a mediocre performance record that failed to inspire a fraction of the devotion that Wolverine himself did.

Goldman Sachs Absolute Return Multi-Asset Fund (GARDX) – having lost money in two of the four years of its existence, which is hardly in the spirit of “absolute return” – will be liquidated on October 15, 2019.

Harbor Funds’ Board of Trustees has determined to liquidate and dissolve the Harbor Real Return Fund (HARRX) and Harbor Target Retirement 2015 Fund (HARGX). The liquidations are expected to occur on October 30, 2019.

The one-star, $128 million Hartford International Small Company Fund (HNSAX) is merging into the unrated, $44 million Hartford Global Impact Fund (HGXAX) on or about November 22, 2019.

At the recommendation of Meritage Capital, the fund’s adviser, Insignia Macro Fund (IGMLX) will be liquidated on September 9, 2019. The fund misplaced this year’s boisterous market; its -4% return trails its peer group by 14% after leading them by 9% last year.

iShares 10+ Year Investment Grade Corporate Bond ETF (LLQD), iShares 5-10 Year Investment Grade Corporate Bond ETF (MLQD), iShares Adaptive Currency Hedged MSCI Eurozone ETF (DEZU), iShares Adaptive Currency Hedged MSCI Japan ETF (DEWJ) and iShares Edge MSCI Min Vol Asia ex Japan ETF (AXJV) were all liquidated on August 26, 2019.

Manning & Napier Equity Income (MNESX), Income (MSMSX) and International (EXITX) will all be liquidated on November 20, 2019. Very different paths to the same grave: Equity Income is relatively good (top third over five years) but unpopular, Income is great (top 10% over five years) but unpopular, and International … well, sort of earned its EXIT ticker symbol but was relatively popular ($318 million) nonetheless.

RiverFront Asset Allocation Income & Growth (RLIIX) and RiverFront Asset Allocation Growth (RMGAX) will merge into RiverFront Asset Allocation Moderate (RMIAX) and RiverFront Asset Allocation Growth & Income (RCCAX), respectively, on or about September 9, 2019.

The four-star SEI Long/Short Alternative Fund (SNAAX) will, in recognition of “low asset levels due to limited distribution and [the prospect] that there was no expectation of significant future asset growth,” be liquidated on September 27, 2019.

Stone Ridge U.S. Small Cap Variance Risk Premium Fund (VRSMX) and Stone Ridge International Developed Markets Variance Risk Premium Fund (VRMFX) will both be merged into Stone Ridge U.S. Large Cap Variance Risk Premium Fund (VRLIX) on or about October 28, 2019.

STAAR Disciplined Strategies Fund (SITAX, formerly STAAR Alternative Categories Fund), STAAR General Bond Fund (SITGX), STAAR International Fund (Ticker: SITIX), STAAR Dynamic Capital Fund (SITLX, formerly STAAR Larger Company Stock Fund), STAAR Short Term Bond Fund (SITBX) and STAAR Adaptive Discovery Fund (SITSX, formerly STAAR Smaller Company Stock Fund) will all become “formerly funds” on September 24, 2019.

T. Rowe Price has an odd step-up that is not unusual for the industry: it will offer the same strategy as both a pure institutional fund and a retail fund with institutional share class. In November 2019, they’re unwinding some of the silliness by moving shareholders from a liquidating institutional fund into institutional shares of the fund’s retail version.

Liquidating Institutional Funds Acquiring Retail Funds Expected Closing Date
T. Rowe Price Institutional U.S. Structured Research Fund T. Rowe Price U.S. Equity Research Fund (prior to July 1, 2019, named the T. Rowe Price Capital Opportunity Fund) November 25, 2019
T. Rowe Price Institutional Global Focused Growth Equity Fund T. Rowe Price Global Stock Fund November 25, 2019
T. Rowe Price Institutional Global Growth Equity Fund T. Rowe Price Global Growth Stock Fund November 18, 2019

Each reorganization is expected to be consummated on or about the date indicated. WBI is doing a two-step with four of their ETFs. Step 1 is merging, Step 2 is renaming the merged entity. In each case, the “1000,” which referred to the Russell 1000 Value benchmark is being replaced with “3000,” as in Russell 3000 Value. Herewith, what you’ll need to know as of October 25, 2019:

Acquired Fund Acquiring Fund (New Name) Acquiring Fund (Current Name)
WBI BullBear Rising Income 2000 ETF (WBIA) WBI BullBear Rising Income 3000 ETF (WBIE) WBI BullBear Rising Income 1000 ETF
WBI BullBear Value 2000 ETF (WBIB) WBI BullBear Value 3000 ETF (WBIF) WBI BullBear Value 1000 ETF
WBI BullBear Yield 2000 ETF (WBIC) WBI BullBear Yield 3000 ETF (WBIG) WBI BullBear Yield 1000 ETF
WBI BullBear Quality 2000 ETF (WBID) WBI BullBear Quality 3000 ETF (WBIL) WBI BullBear Quality 1000 ETF

Westwood SMidCap Plus Fund (WHGPX) will be liquidated on September 30, 2019.


August 1, 2019

By David Snowball

Dear friends,

Welcome to our annual summer seersucker edition of Mutual Fund Observer! Lots of folks are on vacation – we got nearly 200 “I’m on vacation! Huzzah!” auto-replies to our monthly announcement – and lots of folks are coping with unprecedented heat. The triple digit temps that toasted about two-thirds of the US in mid-July are being repeated across Europe now.

American cities are poorly prepared for heat waves; European cities are far more poorly constructed for them since their summer highs used to be 10-20 degrees cooler than what’s typical in the US.

A “heat dome” over the glaciers in Greenland, which translates to highs in the 50s Fahrenheit, has dumped 180 gigatons (i.e., billion tons) of water to the oceans since July 1, about three times the norm.

Axios, a pretty solid New Media news site, published two articles recently: one on how climate change is already affecting our day-to-day lives (and portfolios) and a second on the Fed Reserve’s decision to hold its first-ever research conference on the “implications for monetary and prudential policy of climate change and its consequences.” November, 2019.

If you like your news coverage short, solid and focused, you might enjoy Axios; it’s their stock in trade.

Locally, the almost frenetic pace of building at Augustana is finally slowing and we have a few blessed weeks before the new school year picks up.  

It will be our first year operating on a semester system after at least 60 years using 10-week terms. The tumult should be fascinating. We’ve also enrolled our largest-ever cohort of international students, somewhere over 100 of our 700 incoming students. I have to admit that I’m absolutely stunned by their bravery: most of these students are coming to what is, to them, an utterly alien culture, in the middle of nearly nowhere, eight thousand miles from home with, in many cases, no prospect of seeing their families again for 10 – 20 months. Meanwhile many of the local high school grads (or, more likely, their parents) find the idea of going to school in Chicago – 150 miles east – incomprehensible.

I like the international kids. I’m looking forward to meeting a new cohort of them. I’ll let you know how it goes.

And so our summer issue, as ever, offers a bit of a breather on the investing front.

Farewell to Deb Walters

With heavy heart, I’m passing along word of the passing of Deb Walters a/k/a Slick. She’d had a long fight against multiple cancers, with good stretches and bad. Her executor, Bill Armstrong, reports that “she went peacefully and she was reasonably comfortable.”

Deb has been a constant champion of MFO, even as the events in her life made her less visible here. She was the first person to become an ongoing subscriber to MFO with a generous monthly contribution, she conceived of using year-end challenge grants to motivate support, she herself pledged two of those challenges, and she was working hard to help me find a path toward financial sustainability for MFO. Quite beyond that, she was calm and sharp, both cheerful and a cheerleader on particularly gray days.

Her interest in MFO reflected both her interest in investing (she was an active member of the AAII and met her late husband, Richard Armstrong, through that shared interest) and in helping non-profit organizations serve their communities. Before retirement she worked full-time for the YWCA and founded a transitional home for female veterans, was on the board of Albuquerque’s Domestic Violence Resource Center, served as Development Director at First Nations and was a charter member of Albuquerque Community Foundation’s Social Giving Club. She laughed freely, and raised basset hounds.

While comfort in her passing is hard to find, just now, I’ll close with the words of the poet Jane Kenyon.

Let the light of late afternoon
shine through chinks in the barn, moving
up the bales as the sun moves down.

Let the cricket take up chafing
as a woman takes up her needles
and her yarn. Let evening come.

Let dew collect on the hoe abandoned
in long grass. Let the stars appear
and the moon disclose her silver horn.

Let the fox go back to its sandy den.
Let the wind die down. Let the shed
go black inside. Let evening come.

To the bottle in the ditch, to the scoop
in the oats, to air in the lung
let evening come.

Let it come, as it will, and don’t
be afraid. God does not leave us
comfortless, so let evening come.

Debbie H. Walters, age 68, rejoined her husband, Richard Armstrong on Tuesday, July 9, 2019. Her life is being celebrated in Albuquerque in mid-August.

Jason Zweig: bidding farewell to one friend, sharing others

On July 19, Jason Zweig shared news of the passing of the person behind the @Nonrelatedsense account; out of respect for the family’s wishes, Mr. Z. declines to share the writer’s identity.  In a spectacularly rich essay, Zweig describes his departed correspondent this way:

NRS tweeted more than 117,000 times—an inimitable mix of investing insights, snarky quips, nature photographs and cocktail recipes. He exchanged what had to be thousands of direct messages with dozens, perhaps hundreds, of people who sought his opinions. (I was among them.)

NRS was blunt, cynical, often profane, but seldom cruel—even though he saw clearly that the business model of many financial companies is to pile up mountains of fees from a blizzard of flim-flam and gibberish. A financial adviser obsessed with mutual funds and income-oriented investments, he could smell baloney in a single sniff—and as soon as he detected it, he mocked it.

At the same time, his tweets and messages were infused with skeptical wisdom and profound uncertainty about how much anyone can ever know (“your confidence in this thesis is far too high to be credible”).

“He remains,” Jason notes, “a model of how financial Twitter can educate investors.” In NRS’s memory, he offers six lists of Tweeters worth following. The first two:

For advice on what to read and how to think about financial decisions: @MorganHousel, @abnormalreturns, @farnamstreet, @mjmauboussin, @EconTalker, @dollarsanddata, @pcordway, @ritholtz, @AnnieDuke, @RPSeawright, @jposhaughnessy, @patrick_oshag, @BrentBeshore, @trengriffin, @RyanKruegerROI, @daniel_egan, @brianportnoy, @laurenfosternyc, @OS_Mitchell, @mikedariano.

For discussions on how to allocate assets and which investing strategies are likely to work or fail: @EconomPic, @Jesse_Livermore, @CliffordAsness, @enterprising, @syouth1, @demonetizedblog, @modestproposal1, @awealthofcs, @alphaarchitect, @choffstein, @MebFaber, @lhamtil, @bpsandpieces, @ROIChristie, @AlbertBridgeCap, @svrnco, @millerak42, @RyanPKirlin, @RA_Insights.

(Our WordPress software really didn’t want us to make these twitter links easily clickable. You’ll have to copy and paste the twitter handles to follow these accounts.)

Blessings to all with a passion for sharing, a sense of humility and thoughts worth sharing. They’re a rare bunch and deserve affirmation.

Things I learned en route to looking up other things

The word “restaurant” derives from the word, “restore.” The word is first assigned, in 1507, to “a restorative beverage.” By most reckonings, the first true restaurant (as distinguished from a tavern that served a bit of food, or wayside inn) was in France. All agreement, thereafter, ends. Most French culinary historians claim the first restaurant was opened by a chef named Boulanger (“baker”) in 1765, of whom colorful stories abound; an English historian politely points out that there’s not a shred of evidence that any such person existed. The first American restaurant was chef Jean Baptiste Gilbert Julien’s Restorator which opened in 1793 near Boston.

The profession “restaurateur,” is the Anglicized version of the French “restorer” which answers my long-time curiosity about why there’s no “N” in the word.

Chef Julien, by the way, lends his name to the technique of slicing vegetables into long, thin strips and to a very good summer soup of clear broth and julienned summer vegetables.

I owe the title of this section to Sydney Harris (1917 – 1986), a Chicago columnist and author who occasionally used this title at the head of an essay of interesting miscellany. As a young reader, I loved those columns. Harris was, in the way of all great Chicago columnists, spectacularly blunt. Fifty years ago, July 21, 1969, he wrote:

One of the most ignorant and hateful statements that a person can make is “If you don’t like it here, why don’t you leave?”

But most people who want to change conditions do like it here: they love it here. They love it so much they cannot stand to see it suffer from its imperfections, and want it to live up to its ideals. It is the people who placidly accept the corruptions and perversions and inequities in our society who do not love America; they love their status, security and special privilege.

Not surprisingly, he ended up on President Nixon’s vaunted “enemies list.”

Thanks, as always …

To Deb.

If you’re in the habit of offering thoughts on non-profit finances and would consider thinking in Deb’s stead, please feel free to contact me. If you’ve been meaning to help support MFO’s mission and Deb’s passing gives you occasion to act on that impulse, just click on the PayPal link over there – in the right hand column – or on the “support us” link at the top of this page.

As ever,

david's signature

Mauritius Madness

By David Snowball

The word of the week is “Mauritius.”

For those of us who dozed through World Geography we’ve highlighted the country in question.

Google kindly offers the following snapshot: “Mauritius, an Indian Ocean island nation, is known for its beaches, lagoons and reefs. The mountainous interior includes Black River Gorges National Park, with rainforests, waterfalls, hiking trails and wildlife like the flying fox.”

The Mauritian flying fox (Pteropus niger). It’s actually a bat with a 2.5 foot wingspan.

And it’s soon-to-be known for its tax-dodging multinational investment funds.

Mauritius Leaks

In what are surely unrelated events, on July 23, 2019, the International Consortium of Investigative Journalists released a report, based on 200,000 pages of leaked documents from the Mauritius office of the Bermuda-based offshore law firm Conyers Dill & Pearman. The report was headlined: Treasure Island: Leak Reveals How Mauritius Siphons Tax From Poor Nations to Benefit Elites. Bob Geldof, of Live Aid famine-relief fame, appears to be the poster child in these stories for rich guys sucking every penny they can get out of poor countries; his investment fund, 8 Miles, long ago incorporated in the small island nation in order to dodge taxes. The report describes the deal this way:

The island, which sells itself as a “gateway” for corporations to the developing world, has two main selling points: bargain-basement tax rates and, crucially, a battery of “tax treaties” with 46 mostly poorer countries. Pushed by Western financial institutions in the 1990s, the treaties have proved a boon for Western corporations, their legal and financial advisers, and Mauritius itself — and a disaster for most of the countries that are its treaty partners.

“What Mauritius is providing is not a gateway but a getaway car for unscrupulous corporations dodging their tax obligations,” said Alvin Mosioma, executive director of the nonprofit Tax Justice Network Africa.

Geldof’s investment fund is among “hundreds of companies named in the Mauritius Leaks.” The consensus about their activities is  captured by Max de Haldevang, a former Reuters reporter who covers accounting shenanigans for Quartz, a global business news organization that originated as an offshoot of The Atlantic:

The documents had one overarching theme: Big Western multinationals reaping as much profit as possible from India and Africa, then depriving their governments of tax revenue through extraordinary accounting contortions.

The sums involved are colossal. Back in 2013, America’s biggest venture capital firm, Sequoia Capital, boasted it had routed $1.2 billion into Indian startups via the tiny island, which offers an effective 3% tax rate for foreign multinationals. It’s unclear how much tax Sequoia avoided, but the files show it taking “pretty aggressive”—and head-spinningly complex—measures stretching all the way to Singapore.

Such machinations lose poorer countries up to $100 billion per year—or around 6% of Subsaharan Africa’s GDP. (“Accounting Contortions: The Mauritius Leaks show the West profiting from poor nations while depriving them of tax revenue,” July 27, 2019)

Invesco exits

One day later, on July 24, 2019, Invesco India ETF (PIN) filed the following notice with the SEC on

On July 19, 2019, the board of directors of Invesco Mauritius, the wholly owned subsidiary of the Fund organized in the Republic of Mauritius (the “Subsidiary”) through which the Fund previously obtained exposure to Indian equity securities, voted to liquidate and wind up the Subsidiary.

Mauritius lives under the hood of India ETFs

Invesco might be ahead of the curve in distancing itself from this particular swamp, albeit after having benefited from it for some time. We used the MFO Premium fund screener to sort India funds and ETFs by AUM. Here’s a rundown of the ten largest.

Name Symbol Exposure to Mauritius
BlackRock iShares MSCI India ETF INDA Yes. “The Fund carries out its investment strategies by investing substantially all of its assets through a wholly-owned subsidiary in the Republic of Mauritius.”
Matthews India MINDX No!
WisdomTree India Earnings EPI Yes. “The Fund seeks to gain exposure to Indian equity securities, in whole or in part, through investments in a subsidiary organized in the Republic of Mauritius, the WisdomTree India Investment Portfolio, Inc.”
BlackRock iShares India 50 ETF INDY Yes. Same provision as INDA.
BlackRock iShares MSCI India Small-Cap ETF SMIN Yes. Same “substantially all” provision as INDA.
Wasatch Emerging India WAINX No!
Eaton Vance Greater India EGIIX No!
Invesco India ETF PIN Historically yes, but not any more.
VanEck Vectors India Small-Cap Index ETF SCIF Yes. “The Fund currently intends to achieve its investment objective by investing substantially all of its assets in the Subsidiary, a wholly-owned subsidiary located in the Republic of Mauritius.” Van Eck also provides an extensive discussion of what it means, and takes, to be operating from Mauritius.
Columbia India Consumer ETF INCO Yes. “Columbia India Consumer ETF (INCO) may conduct investment activities in India through a Subsidiary, which is a wholly owned subsidiary of the Fund. The Subsidiary has elected to be treated as a disregarded entity for United States federal income tax purposes. A disregarded entity is a separate legal entity that is treated as part of its owner for such tax purposes. As a tax resident of Mauritius, the Subsidiary has historically obtained benefits under the tax treaty between Mauritius and India.”
Franklin India Growth FINGX Yes. Franklin India Growth Fund “currently intends to invest primarily in the securities of Indian companies by investing in shares of a wholly-owned, collective investment vehicle, registered with and regulated by the Mauritius Financial Services Commission.” That said, the fund is scheduled to liquidate in September, 2019.
ALPS/Kotak India Growth I INDAX Yes. “The Fund may invest in the equity securities of Indian companies by investing in shares of a wholly owned, collective investment vehicle (the “Portfolio”), registered with and regulated by the Mauritius Financial Services Commission.”

In summary, all of the largest ETFs use – or have used – a Mauritius subsidiary while only one of the four largest mutual funds do.

This strategy manifests itself in other ways. Predictably, private partnerships such as Pegasus Capital Advisors, Sequoia Capital, a VC fund, Nalanda India Equity Fund Ltd, and Greenland Global Fund II, L.P. all utilized the strategy.

A quick search of July 2019 SEC filings shows iShares providing their trustees a compensation bump in order to cover Mauritian taxes : “Each Independent Trustee that served as a director of subsidiaries of the Exchange-Traded Fund Complex is paid an additional annual retainer of $10,000 (plus an additional $1,765 paid annually to compensate for taxes due in the Republic of Mauritius in connection with such Trustee’s service on the boards of certain Mauritius-based subsidiaries).”

Similarly, it seems to creep into the strategies offered to high net worth individuals. Goldman Sachs has a service for private clients built around the GS Momentum Builder® Multi-Asset 5S ER Index. They report that one of the underlying ETFs “invests all of its assets that are invested in India in a wholly owned subsidiary located in the Republic of Mauritius.”

Bottom Line

To be clear, the activities of these firms appear to be legal, if rapacious. The conscientious attempt to dodge taxes and deepen the poverty of many through exploiting treaties that benefit wealthy corporations and the self-serving politicians that cozen up to them has, at least, an acrid moral flavor. In an era where the most powerful investment trend targets socially responsible and/or sustainable and/or ESG funds – those which, on principle, try to avoid screwing people on their way to profit – the use of these subsidiaries feels, at best, like a relic  and, as worst, like an ongoing repudiation of firm’s increasingly pious public stances.

Not every India fund relies on this tax dodge. Kudos, in particular, to Matthews India (MINDX, four stars from Morningstar), Wasatch Emerging India (WAINX, five stars) and Eaton Vance Greater Index (EGIIX, four stars) for strong performance and first-rate stewardship.

Funds for Muslim investors

By David Snowball

One of the charms of our country is all of the stuff we don’t ask. Our federal census does not, and has not since the 1950s (quick thanks to David Moran for his insight into census history), asked people about their religious preference or practices. That’s good because it’s none of the guvmint’s damned business. It’s also bad because religion is an important element of our individual and collective culture; in the absence of official estimations, a host of (sometimes laughably inept) unofficial calculations substitute.

The Pew Research Center (2018) estimates that there are “3.45 million Muslims of all ages living in the U.S. in 2017, and that Muslims made up about 1.1% of the total U.S. population.” Pew is both professional and cautious, and their explanation of their methodology struck me as clear and reasonable so I’m willing to take it as a decent ballpark estimate.

Faithful Muslim investors are constrained to follow sharia law in selecting their investments. While the term “sharia” immediately triggers negative associations in most Americans’ minds – black burkas, oppression, extremism and all that – as an investing discipline its remarkably sensible and benign:

  • Avoid investing in morally offensive activities, including businesses that sell porn, violent video games, alcohol and so on.
  • Avoid gambling with your money, which means no short-selling, no high-turnover strategies and no weird derivatives
  • Avoid usury, which means you can’t loan money and charge people interest on it
  • Avoid deeply indebted, economically suspect companies, which led Enron and WorldCom to get booted from sharia-compliant indexes long before they could hurt investors.

As a philosophical matter, it’s simple and straightforward.  Khalique Zahir, a plastic surgeon from McLean, Va. Describes it as “Basically just safe, intelligent investing. With halal investing, you’re investing in a company that has at least 50 percent of its value in hard cash. It’s not in some hypothetical dot-com kind of thought processes. It doesn’t matter if you’re Muslim or non-Muslim — you just don’t like to lose your capital.” (Retirement Savings, the Muslim Way, New York Times, 6/30/2017) Conservative ESG investors, regardless of issues of religion, would generally feel at home.

As a practical matter, it’s really complicated. What do you do with a company that’s 98% to the good, 2% to the bad? What happens if the ratio is 90/10? How do you harness the good part of lending – providing capital to towns, colleges or businesses – without running afoul of rules that forbid predatory activity?

In the US, the investment industry has largely catered to the needs of high net worth investors. There are a bunch of sharia-compliant separately managed accounts to accommodate the needs of your average neurosurgeon or successful entrepreneur.

For normal folks, though, the options have been incredibly slim. If you go to Morningstar’s UK website and enter “sharia” or “Islamic” in the search bar, you’ll find 13 funds and 10 ETFs available to European investors. In the US, the same search – until recently – returned zero and zero.

While options for American retail investors interested in a sharia-compliant investment vehicles are limited, the roster has slowly expanded and has always included some exceptionally strong choices. The most prominent family of sharia-compliant funds are the Amana Funds, run by the same advisor who provides the Sextant and Saturna funds. The newest entrant is the only ETF available to American Muslim investors, Wahed FTSE USA Shariah ETF (HLAL) which launched on July 15, 2019.

Two things strike me as I review these funds:

  1. Their ratings – star and otherwise – are not particularly reliable. Morningstar and Lipper have to put these funds in some peer group, but having a fund which doesn’t invest in bonds placed in a short-term bond group, is inherently suspect. Likewise, an equity fund that structurally avoids the most speculative parts of the market is going to look weak during periods of froth and high valuations.
  2. Their investors tend to be abnormally loyal. While investors have fled in droves from active income and equity funds, the flows into Islamic funds have typically been somewhere between steadily positive to just slightly negative. The ban on “speculation” means that investors want managers who buy-and-hold and are, themselves, held to a similar standard. That discipline is good for investors and advisors alike.

Nine funds for Muslim (and other risk conscious ESG) investors

Amana Growth (AMAGX): the oldest, largest and best equity option available. The general constraints we outlined above translated to a portfolio that has no basic materials, real estate, telecom, energy, or utilities (because they typically are high debt companies), a lot of technology stocks, and a bias toward quality. As part of the “don’t speculate” restriction, the fund went into the 2008 market collapse holding 30% cash which helped a lot. The only red flag: long-time manager Nick Kaiser is 70 and has been slowly handing responsibility over to a new generation. Whether they meet his high standard is yet to be seen. Four-star rating from Morningstar, a “Bronze” analyst rating, $2.2 billion in assets, $250 minimum initial investment.

Amana Developing World (AMDWX): launched in September 2009, we were really enthused about it as an option for cautious investors interested in tapping into the emerging markets. Good news: it’s by far the least volatile emerging markets equity fund in existence. Bad news: it’s made no money for its investors over the decade; annual returns have averaged just 0.1%. Why? First, it often holds five times as much cash as its peers. Second, it’s forbidden from investing in the financial sector, the largest sector in the EM indexes. One star from Morningstar, a “Neutral” analyst rating, $33 million in assets.

Amana Participation (AMAPX): launched in September 2015, AMAPX tries to generate non-equity income through investing in sukuk. Sukuk are bond-like structures which don’t run afoul of the “no interest!” stricture; globally, there’s a $250 billion industry. Since sukuk are only used in Islamic finance, it functions something like a short-duration emerging market bond fund. Since inception it has returned an average of 2.2% annually with low volatility, a standard deviation of 1.7%. One star from Morningstar, a “Neutral” analyst rating, $85 million in assets.

Amana Income (AMANX):  launched in August 1986, AMANX invests in large, steady, dividend-paying companies. Lipper categorizes it as an “equity income” fund, which seems fair. It has the same manager and most of the same strictures as Amana Growth. In the short term, it tends to have just slightly higher or just slightly lower returns and volatility than its peers; over the long term (for periods ranging from full market cycles to 10- and 20-year windows), it tends to handsomely outperform by blunting the effects of sustained bear markets. Two stars from Morningstar as a “large blend” fund, a “Bronze” analyst rating, $1.4 billion in assets.

Arabesque Systematic USA Institutional (ASUIX): launched in May 2017, this is a quant fund – that is, one whose portfolio choices are driven by machine intelligence – that invests in ESG-stocks and cash. The goal is decent returns with below benchmark risks; one explicit sub-goal is “to limit maximum drawdowns to less than 25%.” It has a strong record over its first couple years: up 9.6% annually against 1.5% for its Lipper peer group. It won’t receive its first Morningstar star rating until June 2020, a “Neutral” analyst rating, $41 million in assets. The major downside is a $50,000 minimum initial investment.

Azzad Ethical (ADJEX): launched in December 2000, the managers describe it as an “enhanced index fund that invests in mid-sized growth stocks.” It’s sub-advised by Ziegler Capital Management of Chicago. The fund tends to trail its peers by a point or two (for example, it’s returned 13.5% a year over the past decade while its peers clocked in at 14.8%) but also tends to have noticeably lower volatility. Two stars from Morningstar as a “mid growth” fund, a “negative” analyst rating, $92 million in assets, $1,000 minimum initial investment.

Azzad Wise Capital (WISEX): launched in May 2010, it describes itself as “the first halal, socially responsible fixed income fund in the United States” and is managed by Federated Investment Management, a huge firm based in Pittsburgh. (Huzzah!)  The fund has averaged 2.0% a year with a standard deviation of 1.7%, which is quite low. Three stars from Morningstar as a short-term bond fund, a “neutral” analyst rating, $143 million in assets and a $4,000 minimum initial investment.

Iman K (IMANX): launched in June 2000, Iman invests primarily in large US stocks with predictable overweights in technology and healthcare and no exposure to utilities or financials. It has been modestly outperforming its peers over the past 1-, 3- and 5-year periods after having modestly underperformed them in the past 10-year and since inception timeframes. High active share and a surprisingly high portfolio turnover (72%). Three stars from Morningstar as a large-growth fund, a “neutral” analyst rating, $125 million in assets and a $250 minimum initial investment.

Wahed FTSE USA Shariah ETF (HLAL): launched in July 2019, HLAL is a passive ETF which will track the FTSE USA Shariah Index. The index has a noticeable overweight in oil & gas, as well as the predictable overweight in tech and healthcare. The expense ratio is a perfectly reasonable 0.5%.

Steven and Sisyphus

By David Snowball

Active management, as a discipline, is hard.

Active management, as a sustainable business, is harder.

Active management, as a sustainable business run by an independent investment boutique, no matter how skilled, is crazy hard, getting crazier and getting harder.

When, on top of all that, it feels like a megalithic corporation has it out for you, you’d surely feel like it’s time to surrender and put Sisyphus on the management team.

Remember Sisyphus? Woven into the Iliad and the Odyssey but brought to life for many college-educated folks of a certain generation by Albert Camus, The Myth of Sisyphus (1942). King of Corinth. By all accounts, pretty much a bastard. But, also, by all accounts, the smartest and trickiest guy ever. Got a reputation for being able to trick the gods of Olympus. That was jolly in the short term, hellacious in the long term (by which I mean “for all eternity”). Zeus sentenced him to an eternity in Hades, with the sole hope that if he could roll a boulder to the top of a hill, he could get out. Or not: enchanted boulder that always slipped from his grasp a foot from the top and rolled all the way back down.

Steven Vanelli, manager of KL Allocation (GAVIX), suspects that that’s where he’s at.

We profiled his fund in 2014, when it was called GaveKal Knowledge Leaders Fund (GAVAX/GAVIX). We described it as “a very solid, mildly-mannered portfolio” but “not a fund for investors seeking unwaveringly high exposure to the global equities market. Its cautious, nearly absolute-return, approach has led many advisors to slot it in as part of their “nontraditional/liquid alts” allocation.” In March 2015, the fund was renamed GaveKal Knowledge Leaders Allocation Fund, then GaveKal KL Allocation and finally (May 2017) KL Allocation Fund.

On July 30, 2019, he published a short white paper entitled, Are There Inefficiencies in Mutual Fund Ratings?  (2019). The teaser text for the piece was clear:

Morningstar wiped GAVIX’s first five years of history from the star-ratings system and called it a “significant restructure” in 2015. We believe this action may be misleading investors about the fund’s history. Our appeal to correct it was declined. We believe it’s time to provide investors with a fuller performance and asset allocation history.

The short version of the argument is that by calculating only the last 36 months of performance and excluding the 70 months before that, Morningstar creates a short-sighted and unfairly negative capsule of the fund’s performance.

Here’s the current Morningstar snippet:

The good news is encapsulated in the designation Bronzewhere “Bronze” signals “above average prospects” and “Q” means the judgment was made by Morningstar’s artificial intelligence program. Most of the pillars are positive, which helps explain the medal.

The bad news is the one-star rating, which is driven by the fund’s performance since January 2015.

The three-year return is, effectively, dead last in its category but the five-year number is substantially above average. Mr. V. notes:

Using third-party data pulled from Morningstar Direct, of which we are subscribers, Morningstar ranks the fund’s total return in the top 19th percentile of 381 peer funds in the World Allocation Category, as of 6/30/19.

Looking at Morningstar’s report on risk-adjusted total return, the KL Allocation Fund appreciated at a 2.57% annualized rate over the last five years. According to Morningstar, this puts the fund in the top 15th percentile among 381 peers in the Morningstar World Allocation category, as of 6/30/19.

Using five-year data, KL is in the top 5-15% for alpha generation, beta, upside/downside capture differential and Sharpe ratio. The three-year data is far bleaker.

Mr. Vannelli doesn’t dispute the shorter-term stats; he just argues that it’s malpractice to direct investors’ attention to the short term when data for the same strategy for the longer-term is relevant and readily available.

And there’s the rub: is it the same strategy?

On face, the fund documents suggest a substantial repositioning at the start of 2015. Here’s the prospectus language before 2015 and since.

Pre-2015: GaveKal Knowledge Leaders Fund (GAVIX), January 1, 2015 prospectus:

The investment objectives of the GaveKal Knowledge Leaders Fund are to seek long-term growth of capital and to exceed the performance of the MSCI World Index.

Principal Investment Strategies

Under normal market conditions, the Fund invests primarily in common stock of companies of any size located throughout the world, including the United States. … The Fund also may invest in exchange-traded funds (“ETFs”). ETFs are investment companies that invest in portfolios of securities designed to track particular market segments or indices and whose shares are bought and sold on securities exchanges. The Fund invests primarily in companies included in the MSCI World Index.

Starting with 2015: GaveKal Knowledge Leaders Allocation Fund (GAVIX), January 30, 2015 prospectus

The investment objective of the GaveKal Knowledge Leaders Allocation Fund is to seek long-term capital appreciation with an emphasis on capital preservation.

Principal Investment Strategies

The Fund invests primarily in equity securities, fixed income securities and exchange-traded funds. Using a tactical allocation strategy focused on companies with significant intangible capital, or “Knowledge Leaders,” the Fund’s advisor shifts the Fund’s allocation among asset types, equity sectors and geographies to pursue the Fund’s objective. This flexibility is key to the Fund’s investment strategy. The proportion the Fund invests in each asset type at any given time depends on the Fund advisor’s analysis of market factors, including economic growth, inflation, credit spreads and relative valuations.

The Fund invests primarily in equity securities of companies included in the MSCI All Country World Index. …The Fund also invests in fixed income securities and in ETFs, including fixed income, money market and alternative ETFs that invest in government, municipal and mortgage-related fixed income securities, and related investments.

The folks at Morningstar, understandably, read those as fundamental changes in strategy:

During our investigation of the strategy change, we reviewed the fund literature. The name change accompanied with the investment strategy language in the prospectus led us to assign a significant restructure tag upon the change to prospectus. This decision was reviewed by senior members of both our methodology and manager research teams.

Mr. Vannelli argues that the 2015 language did not reflect a change in investment behavior, it simply clarified what the fund had been doing all along.

The team did not make an “abrupt” portfolio shift, in our opinion. We did not sell most of the fund’s holdings or have any new holdings that were of “substantially different character than the old holdings.” There was no change in the fund’s legal structure. In short, there was no significant restructuring event in our view, as the holdings breakdown below shows. Furthermore, portfolio holdings suggest the fund has been an allocation fund from its inception.  (emphasis in the original)

He offers this snapshot of the portfolio’s asset allocation before and after the prospectus change:

He laments “questionable and arbitrary categorizations, measurements and data methodologies from the largest provider of mutual fund data for investors.” Morningstar argues that they’re doing their honest best:

Successful appeals are not uncommon; the recent average of successful appeals is approximately 70%. Successful appeals are of a mixed variety; common themes are: the appeal notifies Morningstar of strategy investment changes, which Morningstar substantiates generally through two portfolio disclosures; the appeal elucidates a strategy that may not be born out adequately by Morningstar’s holdings-based statistical calculation (particularly for alternative strategies); and funds that share attributes with multiple categories and request a review to see which is their best peer-group.

Bottom Line

GAVIX’s current one-star rating is driven by two factors: (1) it’s based on only three years’ worth of data and (2) one of those three years – 2018 – was the worst in the fund’s history. Long-term investors, as is their wont, reacted to short-term adversity by fleeing.

In both the short and long term, the fund has stayed true to its concern for capital preservation. Because the fund screener at MFO Premium is far more flexible than what’s usually available to individual investors, we were able to generate the relevant performance of GAVIX against its Lipper “flexible portfolio” peers for nine different time windows. We’ve shaded a cell green whenever GAVIX outperformed its peers and red (well, pink) whenever it underperformed them.

  Annual Return (return) Standard deviation (risk) Sharpe Ratio (risk-adjusted return)
Since inception 6.9% 7.1 9.0
Past 8 years 7.0 7.4 0.87
Past 7 years 6.4 7.3 0.78
Past 6 years 5.4 7.5 0.62
Past 5 years 4.1 7.4 0.43
May 2015, Lipper category changed from “Global Growth” to “Flexible Portfolio”
Past 4 years 3.6 7.8 0.33
Past 3 years 2.4 7.3 0.13
Past 2 years 2.7 7.9 0.12
Past 1 year -0.2 7.9 -0.3

All data is from the Lipper Global Data Feed, as of 6/30/2019

In most trailing periods, GAVIX had a lower volatility portfolio than its peers; even when it had above-average volatility, the difference was minor. The key driver is falling returns: the portfolio is now just  10% US equities and 28% international equities, roughly half its historic weighting. With the US equity market up 21% YTD (through 7/29/2019), against international equities up 13% and bonds up 6%, the fund’s 10% gain is reasonable, understandable … any still behind 70% of its Morningstar peers.

Should you look beyond the one-star rating? Hell, yeah. Even Morningstar, with its forward-looking Bronze designation, does. The “flexible portfolio” or “world allocation” business is harder than most, because you’ve got to both get your asset allocation right and get security selection right, and then survive being benchmarked against a bunch of funds that have nothing in common except for a refusal to color within the lines. That requires substantially more research and better understanding of what the manager is doing – and why – than a simple star or pile of stars can capture.

If you’re going to go there, read carefully and focus on whether the manager is doing what you hired them to do, not on an external snapshot.


By Edward A. Studzinski

“Dogs look up to you, cats look down on you.  Give me a pig.  He just looks you in the eye and treats you as an equal.”

                    Winston S. Churchill

I thought I might follow David’s call for a high summer issue that offers our readers “a bit of a breather.” After due consideration, I decided to write a bit about candy and common sense, wine and changing tastes, and the struggle of value investors to deal with changing tastes, changing markets and the Fab Four Five!

Taste Matters

In 2018, Nestlé exited their North American confectionery business. Some twenty well-known brands, such as Baby Ruth, Butterfinger, Crunch, and Raisinets, were purchased by Ferrara Candy, a subsidiary of Ferraro Group, an Italian company that is privately held (and thus not subject to earnings pressures from impatient shareholders). For some years Nestlé had under-invested in the brands, choosing to focus more on what it called its “nutraceuticals” approach, healthy formulations for healthy eating. This approach drove both an acquisition policy as well as reformulations of product lines. Unfortunately, this didn’t always result in products that would appeal to consumers in terms of taste. With Nestlé’s eye on healthy eating, they lost focus on what drove consumer interest in candy (and whether this was by design or neglect I will leave to some historian down the road to figure out).

Ferrara has taken a somewhat different approach. The first brand to receive attention was Crunch, which got an extensive advertising campaign, the first in a decade. The campaign caused what had been flat sales to grow 4%. Butterfinger came next, with a tripling of the advertising budget, a reformulation that used higher quality raw materials, and improved packaging to preserve freshness.

In a recent four-week period, Butterfinger sales were up almost 18%.

I asked a friend who had been one of the better European-based consumer branded food analysts to explain Nestlé’s failure here. She said some of it had to do with a shift in corporate policy goals in terms of what businesses they really wanted to be in. Some of it was a portfolio review, coupled with an acknowledgement of what had been some truly horrendous acquisitions over the years. But most of it had to do with the fact that Ferrara was just a better fit, as a company whose focus was on quality ingredients that produced a product that tasted good and that the consumer liked. Put simply, Ferrara makes things that consumers like because they taste good.

The lesson here is a simple one, especially as many reformulations have taken place in consumer branded food products in recent years. Forget about the laboratory tests and marketing surveys to try and explain why sales are flat to down. Buy the product yourself and take it home to see whether you think it tastes good, and whether your family members think it tastes good. Common sense does work.

Vineyards and Wineries for Sale

An assumption by spirits companies has been that wine consumption will be on an upward sloping growth path for the foreseeable future. Sadly, that is not the case. The Weekend Financial Times in its 27 July/28 July issue made an interesting point when talking about real estate in Napa and Sonoma Counties in California. The Millennials are not that interested in wine. Citing the Wine Intelligence US Landscapes 2019 report, there are apparently three million fewer wine drinkers between the ages of 21 and 35 than there were in 2015. What are they drinking? Mixed drinks and/or artisanal beers. The patience to do tastings to figure out what you like is not there. This will have implications for a number of the spirits companies that still have major wine operations, or those companies that are primarily wine producers. Wine making is a capital-intensive business that has a lot of moving pieces, as well as a number of things that can go wrong before you can actually bring product to market, including disease, weather, failed crops, pestilence, and sometimes, just bad luck. These trends were confirmed in a recent interview in the Weekend Wall Street Journal on July 20-21, 2019 with Rob McMillan, an executive vice president and founder of Silicon Valley Bank’s wine division. He indicated that his survey showed the dominant consumers of fine wine to be the baby boomers, who want to hear about how the wine was produced. And, they want to meet the Wine Whisperer who spoke to the grapes. The Millennials are avoiding wine because of price – it costs more than either beer or spirits. Unless that can change, the wine industry down the way will hit a brick wall. 

Where Are All the Value Investors?

I received an email recently from a fund manager who is a value investor. The last several years have been rather daunting for those who call themselves such. In many respects, it brings back memories of the 2000-2001 tech bubble, when value investors were totally out of synch with the markets, and ridiculed big time by both investors and market commentators. In any event, this manager would put himself into the category of being a catalyst-driven value manager, one who focuses on how value will be realized by the shareholder. Events might include asset sales, reinvesting in neglected businesses (a la the Nestlé North American candy brands), new management, shareholder activists rattling the cages. All of these result in event-driven situations causing change. Now what I learned that I had not known was that a number of value shops have shuttered this year. This gentleman was expecting more to follow, especially given the pressures from the shift to passive. He especially felt that the value investment firms who fell into the category of return to the mean investors were most at risk.

Return to the mean as a value strategy can be attractive from a profit-margins of the business point of view. One identifies, usually by various screening methodologies (or just reading the weekly Value Line) those securities that, based on some measure of statistical cheapness, are worthy of further examination. You can make do with a pool of analysts who are relatively inexpensive compared to hiring those with extensive industry experience (those who know when they are being lied to by either managements or the financials vis a vis what the business should produce). Often the hope is that the market at some point identifies your group of below the mean businesses as too cheap. There then is a mad dash to buy them, pushing them all up, in effect a rising tide floating the boats. 

It could happen. But for those with patience, I refer you to Horizon Kinetics’ excellent Q2 Market Commentary. They point out that of the S&P 500’s annualized 10 year return of 14.7% to 6/30/2019, 10% of it came from just five companies – Microsoft, Apple, Amazon, Facebook, and Google. The question they raise is, how much more can the internet grow before saturation is reached and growth rates slow (which means share prices must fall)? The last point I will leave you with, but encourage you to read the entire piece, is that the way indices such as the S&P 500 are constructed leads to them ultimately becoming undiversified. This is because a tiny number of firms become quite successful and dominate their respective index. The under diversification becomes even more of a problem when you account for the misclassification of companies into different industries. After adjustments, they are often very correlated. Indeed, by Horizon’s estimate, the Internet Beneficiary weighting of the S&P 500 is 31.63%.

So, understand that what you see, or what you think you see, in terms of index diversification, is often not the case. After adjustments, your sector weightings can be quite concentrated. The solution – as said in the past – look for truly uncorrelated businesses. And, try to know what degree of risk you really want to take.

How Well Do MFO Great Owls Perform?

By Charles Boccadoro

“Okay … you smoke Hoyo de Monterreys. You’re a scotch man, single malt, not because it’s trendy
but because you’ve been doing it for forty years, and you stay with what works.
You have two great loves in your life, your horses and this company.
You wept openly the day the Dow hit ten thousand …”

Jack Campbell to Peter Lassiter in the 2000 film “The Family Man”

MFO first introduced its rating system in the June 2013 commentary. That’s also when the first “Great Owl” designations were assigned to 48 funds. Great Owl (aka GO) funds have consistently delivered top quintile risk adjusted returns (based on Martin Ratio) in their categories for evaluation periods 3 years and longer. The most senior are 20-year GOs. These select funds have received an MFO Rating 5 (top quintile) for evaluation periods of 3, 5, 10, and 20 years.

We’ve had some methodology and database changes since 2013. We now use Lipper categorization versus Morningstar. We now exclude any load in our ratings. And, we now also require lifetime ratings to be 5 for funds less than 20 years old to make the GO designation.

All that said, we’ve promised to check-in periodically on our GOs.

But there’s more motivation here …

Recently, Jason Zweig published a WSJ piece entitled: What You Gain—And Lose—When You Lock Money Up For The Long Run. And, concurrently, in NYT, Jeff Sommer published: Investors Are Usually Wrong. I’m One of Them.

The amount of conflicting financial advice each of us are bombarded with never ceases to give me pause.

Jason mentions Meb Faber’s refreshing podcasts, which I listen to often. His guests are on opposite sides of the spectrum from month to month, if not week to week.

“How can you not invest in the future of America?,” one guest will ask whole heartedly. While the next will state “US markets are all over-priced by every historical measure.” And, each provides passionate and convincing arguments.

Others argue for buy-and-hold strategies, while just as many others argue for trend following. Both camps devoted to their positions. 

My colleague David Snowball offer’s one way of dealing with the conflict. Basically, nobody wants their funds (or the advice they follow) to suck. Other than that, perhaps it’s all good enough over the long run.

So, David is constantly asking himself: Do the recommendations given, implicitly or not, by us or others, suck?

Some of our readers devotedly follow our Great Owls, so we’re sensitive to how they perform.

Here’s a look back at the past 6 years on those original GOs and I’m happy to report that, with rare exception, they do not suck … just the opposite. (A handful were closed/merged.)

Sorted by risk (or volatility) over past 6 years through June 2019, here’s risk and return performance for the funds in the lowest MFO Risk quintiles … very conservative and conservative:

I think Vanguard Wellesley Income (VWINX) must be one of greatest funds of our generation. It’s returned nearly 7% annualized during the past 6 years. (Its lifetime performance is eye-watering.) Who would not take that in this risk category … during a period of a near-zero interest rate Fed policy?

Of the 23 lower-risk original GO funds, only one ended up in the cellar of both absolute and risk adjust returns: SEI Pennsylvania Municipal Bond (SEPAX). (The actual share class in 2013 was SEIPX, since shuttered.)

Granted, only 5 of these funds remain GOs … but that’s not the point.

In nearly every case, investors would have done well to own any of these funds since 2013.

OK, now for the more interesting MFO Risk quintiles … moderate, aggressive, and very aggressive:

Extraordinary, really.

Vanguard Wellington (VWELX), T Rowe Price Capital Allocation (PRWCX), Yacktman (YACKX), and Mairs and Power Balanced (MAPOX) all delivered very strong returns in the six years since being designated 20-year GOs, ranging from 8-12% annualized return in our moderate risk group. It may be easy to say well, of course, ex-post. But not back in 2013.

Nearly all the aggressive funds performed well, including (not so aggressive) Madison Dividend Income (BHBFX) and Vanguard Equity Income (VEIPX), returning 11% annualized! While T Rowe Price’s New Horizons (PRNHX) and Small Cap Stock (OTCFX) produced exceptional returns.

Higher volatility Brown Capital Management Small Cap (BCSIX) well outperformed its peers. And Oakmark International (OAKIX) bested rivals in the tough international sector.

Of the 21 higher risk GOs, two seriously disappointed: James Balanced Golden Rainbow (GLRBX), which we positively profiled in 2015, and the once-legendary Sequoia (SEQUX). Neither lost money but both well under-performed versus their category peers.

The latter David has reported on here and here  … it basically comes down to the fund’s excessive allocation to Valeant Pharmaceuticals.

The former, well. Perhaps it can be attributed to the passing, sadly, of its quant founder earlier this year Dr. Frank E. James, who was 83 at the time we profiled and no longer actively managed the fund. Perhaps its due to James’ stronger shift to “biblically responsible” investment. But, whatever the culprit, the fund has disappointed. Its strategy historically follows a near 50/50 stock/bond allocation. These past 6 years SP500/USBOND would have earned 8.1% annualized. GLRBX has earned just 3.4%. Bad on us.

Which brings-up a whole other topic of good people managing funds with good strategies (research based, transparent, methodical, low fees), yet somehow delivering subpar performance to investors. How is that possible? Somehow though it is … and, we should better confront it.

In the meantime, it’s encouraging to see how well our MFO Great Owls have performed over time.

Do you know who your Great Owls are?

This beautiful image is entitled “Great Owl,” by New Zealand artist Paige Williams.

Overachieving defenders: Your late-cycle shopping list

By David Snowball

Investors are pulled by three competing forces just now.

Force One: The market is going to crash soon enough.

Longest bull market in US history. Valuations, based on 10-year CAPE or Shiller average, have only been higher twice in market history: 1929 and 2000. Record earnings, which make stocks look cheaper, are starting to wobble. Economic policy is being made by tweet by a guy still in his jammies. Trade war. Brexit. $1,200,000,000,000 federal budget deficit this year.

Force Two: There still could be a heck of a party before that happens.

The Fed just cut interest rates for the first time in 3,878 days; rate cuts during past expansions have triggered six month market gains of 11% or so, which would be on top of the 20% YTD gain we’ve already booked.

To be clear: I am not predicting a melt-up and I’m not celebrating what appears to be the Fed’s craven response to political pressures. I’m just trying to fairly reflect factors that seem to be on investors’ minds.

BTW: Our current budget deficit is $1.2 trillion/year. A decade hence, government and private economists estimate that the federal government will be paying $1 trillion/year in debt payments.

Force Three: Investors love them their ETFs!

Fund flows, market dominance, active funds are dinosaurs. Got it.

Here’s the one thing you need to understand: market-weighted indexes work only when the market is rising. If the market falls, you’re toast; first, because you’re developed an almost-religious belief in them and, second, because they fail when you need them most.

We used the MFO Premium screener to look at the performance of all equity and balanced funds and ETFs during the 2007-2009 market decline. Of the 100 investment vehicles with the highest Sharpe ratio, none were ETFs and none were passive funds. Of the 200 best performers, only four were ETFs. Five of the 10 worst performers, by contrast, were passive.

Finding funds to balance your competing desires

MFO maintains two separate ratings systems for mutual funds.

Our main designation is for the Great Owl funds, designated GO in our screener. Here’s the definition: “A fund that has delivered top quintile risk-adjusted returns, based on Martin Ratio, in its category for evaluation periods of 3, 5, 10, and 20 years, as applicable. An MFO 10-year Great Owl (GO) fund, for example, has delivered top quintile risk-adjusted returns for evaluation periods of 3, 5, and 10 years.” The key to understanding the Great Owls is that they are consistently excellent judged by a very conservative risk-return metric.  That means you get a lot of return for the risk you’re exposed to, which doesn’t automatically mean you’re getting a lot of return period.

Our second designation was inherited from our predecessor, FundAlarm. From 1996 on, FundAlarm famously tracked “Alarming” and “Most Alarming” funds based on how consistently miserable their trailing returns were but FundAlarm also maintained an Honor Roll of funds (HR in the screener). Honor Roll funds have returns in the top quintile of their categories in the past 1, 3, and 5 years. That is, Honor Roll funds have consistently high absolute returns, a judgment made without regard to the level of risk they expose their investors to.

In the late parts of a cycle, investors who are unwilling to downshift their asset allocation to include more cash (“dry powder” for use in an eventual fire sale) might want to consider funds that are both Great Owls and Honor Roll members. The following funds:

  • Invest in US stocks or a stock/bond blend
  • Have been around for 12 years or more
  • Have consistently excellent long-term risk-adjusted returns (i.e., are Great Owls)
  • Have consistently excellent short- and mid-term absolute returns (i.e., are Honor Rollees)
  • Are available to retail investors (i.e., have minimums of no more, and generally much less, than $10,000)

As a comparison, we’ve included both Vanguard STAR, a fund of actively managed funds with a 60/40 allocation, and Vanguard Total Stock Market, an ultra-cheap option for getting a bit of everything.

There are 1944 funds and ETFs that have been around for the full market cycle and invest either in US stocks or in a stock/bond blend. Only 13 of those funds – 0.06% – have earned a place on the list below.

The Thirteen Overachieving Defenders

Of the funds listed, Franklin Convertible Securities FundVirtus KAR Small-Cap Core, Virtus KAR Small-Cap Growth, T. Rowe Price New Horizons and T. Rowe Price Capital Appreciation are closed to new investors. Of them, only New Horizons has seen sustained outflows (which might presage re-opening) but New Horizons lost its long-time manager in March, 2019. Other than for investigating the new Virtus KAR Small-Mid Cap Core Fund (VKSAX), the prospect of backdoors and re-openings both seem limited.

Many thanks to MFO reader John Hawrylak, another Western Pennsylvanian, for catching the fact that so many of the best funds are still closed and recommending that we flag them!

  Lipper Category Annual return vs peers Max drawdown Std deviation Sharpe Ratio
Janus Henderson Balanced JABAX Moderate Allocation 7.5 +2.8 -21.5 9.1 0.76
T Rowe Price Capital Appreciation PRWCX Growth Allocation 8.9 +3.8 -36.5 11.4 0.73
T Rowe Price New Horizons PRNHX Mid-Cap Growth 13.5 +5.6 -49.9 18.3 0.71
Parnassus Core Equity PRBLX Equity Income 9.8 +3.5 -35.6 13.4 0.69
AMG Yacktman Focused YAFFX Large-Cap Value 10.8 +5.0 -38.3 14.9 0.69
LKCM Balanced LKBAX Growth Allocation 7.2 +2.1 -27.5 10 0.67
Jensen Quality Growth JENSX Large-Cap Core 9.2 +2.1 -41.1 13.8 0.63
Touchstone Balanced SEBLX Growth Allocation 6.4 +1.3 -33.3 10.1 0.58
Columbia Dividend Income GSFTX Equity Income 8 +1.7 -43.3 13.1 0.57
FAM Dividend Focus FAMEX Equity Income 8.8 +2.4 -46.2 15 0.54
Franklin Convertible Securities FISCX Convertibles 7.8 +2.0 -43.3 13.6 0.53
Vanguard STAR VGSTX   6.1 +0.9 -35.6 10.7 0.51
DF Dent Premier Growth DFDPX Multi-Cap Growth 9.2 +1.0 -54.5 17.8 0.48
Vanguard Total Stock Market VTSMX   7.9 +1.4 -50.9 15.7 0.47
MFS Aggressive Growth Allocation MAAGX Aggressive Growth Alloc. 5.9 +1.3 -51.6 15.6 0.34

MFO Premium search: Sub-type = US equity or mixed asset, Great Owl = yes, Honor Roll = yes, Period = Full Cycle 5 (2007-present), Minimum purchase < $10,000. Data current as of 6/30/2019. Sorted by Sharpe ratio.

Here’s a one-time special offer: if you’d like more detail on any of the Defensive Overachievers, drop us a note and let us know. If any fund interests more than two readers, we’ll produce a full profile of the fund for you!

But wait, there’s more! We’ll happily share word of, and thoughts behind, your nomination of the fund with next month’s readers. It’s like being famous without the hassle of paparazzi!

Bright guys saying dumb things

By David Snowball

I’m inured to stupid stories (“12% annual returns from a three-stock portfolio allow smart investors to retire at age 24 with $12 million!”) originating from “financial journalists” that no one has ever heard of. Those folks exist because the news hole has become a black hole.

The “news hole” is the amount of space, in a newspaper or magazine, or time, in a news broadcast, available for the news of the day. It used to be a constraining factor: if you only have 23 minutes (or 400 column inches) a day available, you had to make editorial judgments about what was important, true and timely.

police surround a brick buildingThe launch of CNN changed all that. CNN needed to fill 24 hours a day with “news.” That forced a change from “sifting the wheat from the chaff” to “scrounging around for anything we can put on camera.” The iconic story for them is the coverage of a hostage-taking: a camera points resolutely at the front of a building (where there’s nothing to be seen) while a reporter resolutely tells us “we’re heard nothing from the police on-scene” … for three hours at a stretch.

With The Internet representing a virtually infinite news hole, we need a virtually infinite amount of stuff to occupy it each day. And still I’m surprised when “A” list folks get caught up in the “write something, quick!” imperative.

Ken Fisher: Everyone’s scared, and everyone knows that’s the best time to buy!

usa today headlineMr. Fisher is rich, famous and nearly ubiquitous. He also likely holds a Guinness world record for number of appearances in pop-up ads. But this advice (Special to the USA Today, July 7, 2019) is freakish. Here’s his thesis: all bad news is priced into the market and we’re already at maximum pessimism, so any development short of an apocalypse will be a relief and the markets will skyrocket.

Quoth Fisher: “Warren Buffett famously preached: Be fearful when others are greedy – and greedy when others are fearful.”

Ummm … Mr. Buffett is sitting on $112 billion in cash, 34% of his investment portfolio. On July 9, two days after Mr. Fisher’s piece, the ratio between the Wilshire 5000 and US GDP, which Mr. Buffett described as “probably the best single measure of where valuations stand at any given moment,” reached 146.1% which implied an annual market return of  -2.2% (Warren Buffett’s market indicator exceeds 145%, GuruFocus).

My best understanding of Mr. Buffett’s adage is this: you can make money when other people panic and get stupid, so long as you do neither of those things. While I’m confident that investors will oblige Mr. Buffett eventually, a market at historic highs seems hardly the time to plunge in.

Mark Hulbert: if you’re not in the top 25% year after year, you’re dirt.

Mr. Hulbert, long-time publisher of the Hulbert Financial Digest, reads, digests and explains more financial research than just about anybody. Smart guy, independent thinker.

football player runningAnd still we get this freakish fetish about judging investments by whether they finish in the top XX% for XX consecutive years. There is no stupider or more destructive obsession in the investing world than this: so how often does your guy beat the market? This is the fantasy football version of investing: we win not by winning but by adding together a bunch of random, unconnected data points and declaring the person with the biggest piles o’ points won.

Earth to Investors: Fantasy Football is Fantasy. It’s not a model for managing your money. In personal finance, you win if and only if the sum of your resources is equal to or greater than the sum of your needs.

If you beat the market 10 years in a row and the sum of your resources is less than the sum of your needs, you lose.

If you trail the market 10 years in a row and the sum of your resources is greater than the sum of your needs, you win.

Our guess is that winning requires investments that you understand and can stick with in the long term, ideally calibrated to a calculation of your long term needs. In my case, for example, I win if my retirement portfolio returns 6% per year. If my 6% returns “trail the market,” I still win. If I “beat the market” but make less than 6%, I lose.

Back to Mr. Hulbert:

S&P Dow Jones Indices is out with its latest “Persistence Scorecard” on mutual fund performance, and its findings are just as depressing as they always have been.

That’s because, as has been the case with every other of those reports over the years, almost no top-performing actively managed mutual funds are able to repeat their winning ways from year to year.

The results certainly are devastating. (Opinion: This statistically inferior strategy can make investors more money over the long haul, MarketWatch, July 22, 2019)

He is, in particular, concerned about the inability of actively-managed funds be to in the top 25% of their peer group year after year. “On the assumption of pure randomness, you’d expect 6.25% of the original group of funds to be in the top quartile for three straight years. The actual percentage: 0.9%.” Here’s the accompanying graphic:

chart showing fund performanceUmmm …. Two problems. First, this is meaningless data driven by the aforementioned stupid and destructive obsession.

Second, by this metric, passive index funds are four times worse than active mutual funds!  0.9% of active funds pass Mr. Hulbert’s three-year test … but only 0.2% of passive funds do. Using the Morningstar fund screener, we first identified all passive domestic equity funds that existed in 2016 and calculated what percentage finished in the top quartile of their peer groups that year: 104 of 406 funds, 25.6% of the total. We then asked what percentage repeated that achievement in 2017 (3 funds, 0.7%) and what percentage managed three consecutive years (1 fund, 0.2%).

Period Expected value Actual value Percentage
2016 102 funds, or 25% 104 25.6%
2016-2017 26 – 6% 3 0.7
2016-2018 6 – 1.25% 1 0.2

This ineluctably leads us to one of two conclusions: (1) index funds suck! or (2) this metric sucks!

Your choice.

Mr. Hulbert redeems himself in the article’s second half when he warns that all of the gains made during a market’s upcycle can be undone if you panic and get stupid (get the discussion above) when the market begins to fall, as it will.

A statistically inferior strategy can nevertheless make you more money, provided you’re willing to follow it over the long haul. And I mean the long haul. Through thick and thin. Not bailing out in the middle of a bear market.

Engage in honest self-reflection on what your tolerance level is for bear-market losses. If you truly are able to tolerate being invested in an index fund during a major bear market, then by all means go with it.

But if you don’t have that tolerance level—and there is no shame in realizing that you don’t—then find a mutual fund or adviser with which you can live through that bear market.

He is, as so often is true, very right about that.

Bottom Line

Having a strategy that’s well thought out and that you can stick with, in good markets and bad, is your best hope for winning. “Beating the market” is irrelevant, at best. “Timing the market” is suicidal, at best. Our argument has always been: start with an asset allocation that gives you about the returns you need with risks you can tolerate (in my case, 50% stocks in my non-retirement portfolio, 65% in retirement), pick a small group of investment vehicles that you’ve taken the time to understand, fund the plan, get on with life.

This month’s feature, Defensive Overachievers, highlights the 13 funds that have managed both risk-conscious excellence and total return excellence over the 12 years of the current market cycle. They’re a good starting point for many.

Launch Alert: Vanguard Global ESG Select Stock Fund

By David Snowball

On May 21, 2019, Vanguard launched its Global ESG Select Stock Fund (VEIGX/VESGX). The fund is subadvised by Wellington Management. It is Vanguard’s fourth socially-screened product after FTSE Social Index (VFTSX), ESG U.S. Stock ETF (ESGV) and ESG International Stock ETF (VSGX). Vanguard funds sponge up money pretty promptly: Social Index, launched in 2000, has $5.6 billion but the domestic and international ETFs are under a year old and have gathered $570 million and $380 million, respectively. Morningstar likes them all.

Matthew Brancato of Vanguard claims the fund “is taking a distinctive approach to ESG investing, seeking long-term outperformance through the selection of companies that integrate leading ESG practices into their corporate strategies.” Two distinctions suggest themselves:

  1. it’s going to be a concentrated portfolio. The target is “approximately 40 global companies that it believes demonstrate exemplary long-standing ESG practices and have strong business fundamentals and management teams.” Morningstar’s Jonathan Hale suggests that the fund will be “a virtual clone” of Wellington Global Stewards, a fund for European investors which launched in January 2019 with the same two managers and which holds 38 stocks.
  2. the managers are responsible for improving governance in the firms represented in the portfolio. The managers “will be responsible for governance activities for the fund. This will enable [them] to fully integrate proxy voting and company engagements into the fund’s investment strategy.” One of the managers has already said, “We intend to own these companies long-term and engage with company management and boards on their business strategies and ESG practices.”

The managers in question are Mark D. Mandel and Yolanda Courtines. Mr. Mandel has a B.A. from Bates College and an M.B.A. from Dartmouth. He joined Wellington in 1994 as a global analyst and rose to become director of global industry research. Ms. Courtines has a B.A. from Tulane and an M.B.A. from Columbia. She is based in London, a member of the investment stewardship committee and has been working at Wellington for 12 years. Both have earned the CFA charterholder designation, which is a major accomplishment for any investor, and both claim to have worked in the investment industry since the mid-1990s. That said, their portfolio management experience begins in January 2019. Wellington Management has an extensive and active commitment to ESG investing in general, and toward climate change issues in particular. They manage $350 billion for Vanguard, and do it well.

One of Vanguard’s most prominent commentators, Daniel Wiener of The Independent Advisor for Vanguard Investors, is just a bit skeptical of the move toward ESG funds in general. He writes in an email to subscribers,

ESG, ESG, ESG. Good grief. This shiny new toy is everyone’s favorite, or so it seems. To feed the beast I took a look at ESG U.S. Stock ETF and various other Vanguard ESG products. As one expert I read recently said about inclusion in the various ESG indexes, in many cases, ESG scoring by index providers come down to the ability of a company to fill out ESG forms. Sheesh.

He’s a bit more skeptical about Vanguard’s move in this direction:

One longtime Vanguard investor says it’s a marketing move. “Just the way Vanguard jumped on the factor-investing train last year, they’ve jumped whole-hog into the ESG marketplace. This is all about marketing,” says Dan Wiener, editor of the Independent Adviser for Vanguard Investors newsletter and chairman of Adviser Investments, a wealth management firm with $5 billion in assets. “It’s a very different thing than what Jack Bogle used to do. He was not driven by the same kind of marketing incentives that Vanguard is driven by today.” (Vanguard’s New ESG Fund: 40 Stocks And A Marketing Plan, Forbes, 03/07/2019)

The minimum initial investment is $3,000 for Investor shares and $50,000 for Admiral shares. The Investor shares carry an e.r. of 0.55%, while the Admiral shares come in at 0.45%. The average actively-managed ESG fund, per Morningstar, charges 0.74%. The fund has just under $60 million in assets. Its homepage already has substantial portfolio detail.

Funds in Registration

By David Snowball

The Securities and Exchange Commission, by law, gets between 60 and 75 days to review proposed new funds before they can be offered for sale to the public. Each month, Funds in Registration gives you a peek into the new product pipeline. Most funds currently in registration will become available by mid-October.

Eighteen new funds, available just in time for Halloween! Spoooky!

Most of the buzz surrounds the new line of Avantis active ETFs. Avantis is the product of a collaboration between American Century Investments and long-time Dimensional Fund Advisor (DFA) managers. DFA probably invented the notion of factor-tilted or enhanced indexes. The DFA funds are designed to exploit the minor inefficiencies in mostly efficient markets, and they’re not easy to get into. They’re only sold through advisors and, in particular, through advisors vetted and trained by DFA to use “the system” properly. Investment News describes them this way:

The theme across all the funds, which Mr. Repetto [Eduardo, Avantis CIO] described as “passive-active,” is that they apply quantitative analysis to identify specific value opportunities inside broad market indexes. From there, the strategy weighs the benefit of any potential trade against the cost of making that trade.

“We’re not tracking an index; every day we make investment decisions,” Mr. Repetto said. “Keeping turnover low by comparing the benefits of the trade to the cost of the trade is absolute common sense.”

Positives, beyond that, are that there’s an active-ETF version of Leuthold’s very solid Leuthold Core Investment Fund (LCORX), a new Vanguard core international fund with two accomplished Wellington Capital Management managers, an international SMid-cap fund from the managers of a five-star international small cap fund and an interesting conversion of a hedge fund that outperformed its benchmark by 5:1 over a decade.

On the downside, there’s one fund with a curious cluelessness about it, several with prospectuses that sort of babble and a couple where there’s just too little information to have any sense of their quality.

Avantis Emerging Markets Equity ETF

Avantis Emerging Markets Equity ETF (AVEM), an active ETF, will seek long term capital appreciation. The plan is to assemble an all-cap portfolio of emerging markets stocks with “higher returns relative to other securities” buy pursuing incorporating small cap and valuation tilts into the portfolio. “When buying or selling a security, the portfolio managers may consider the trade-off between expected returns of the security and implementation or tax costs of the trade in an attempt to gain trading efficiencies, avoid unnecessary risk, and enhance fund performance.” Neither the managers nor the expense ratio is given in the current version of the prospectus. The other Avantis ETFs, with parallel disciplines and similar holes in the prospectus are:

  • S. Equity ETF
  • S. Small Cap Value ETF
  • International Equity ETF
  • International Small Cap Value ETF

They will also be available at institutional mutual funds with $3-5 million minimums.

Calvert Emerging Markets Advancement Fund

Calvert Emerging Markets Advancement Fund will seek total return. The plan is poorly articulated, frankly. Step One is to find countries whose policies are increasingly pro-corporate. Step Two is to select securities. “Security selection within each country will be based on the constituents of the [Calvert EM] Index. The Fund generally intends to hold Index constituents, located in countries selected for investment, in scale to match the proportional security weight of such constituent within the Index.” Not clear how that’s not just an index-lite, but okay. The index excludes certain bad attributes (e.g., being in Burma) and will “exclude companies that exhibit high ESG risk due to severe ESG controversies.” Finally, they promise to engage with corporations and government officials to encourage goodness. The fund will be managed by Marshall Stocker, Ph.D., Jade Huang, and Christopher Madden. Its opening expense ratio is 1.20% of “A” shares, and the minimum initial investment will be $1000.

Clifford Capital Focused Small Cap Value Fund

Clifford Capital Focused Small Cap Value Fund will seek long-term capital appreciation. The plan is to build a portfolio of 25-35 stocks, split between “core value” and “deep value” sleeves. The fund will be managed by Ryan P. Batchelor. Mr. Batchelor founded the advisor, served as an equity analyst at Wells Capital Management, and as an equity strategist and analyst with Morningstar. Its opening expense ratio is [XXX], really, and the minimum initial investment will be $2,500.

Cornerstone Capital Access Impact Fund

Cornerstone Capital Access Impact Fund will seek long-term capital appreciation. The plan is to hire a bunch of outside managers, each with their own successful take on ESG investing. They are, as yet, unnamed. The fund will be managed by Jennifer Leonard and Erika Karp who, presumably, will select and oversee the subadvisors. Its opening expense ratio is 1.35%, and the minimum initial investment will be $1,000.

Fidelity International Bond Index Fund

Fidelity International Bond Index Fund will seek high level of current income. The plan is to sample and/or leverage and/or hedge components of the Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Diversified Index (USD Hedged). It seems curiously active for an index fund. The fund will be managed by a Fidelity team. Its opening expense ratio is 0.13%, and there is no minimum initial investment. It’s a Fidelity marketing thing.

Hussman Strategic Allocation Fund

Hussman Strategic Allocation Fund (HSAFX) will seek total return through a combination of income and capital appreciation. The plan is to invest in just the right mix of stocks, bonds and cash. The fund will be managed by John P. Hussman. Dr. Hussman is a wonderfully sensible sounding guy who probably doesn’t need to be opening another fund; his firm has lost three-quarters of its assets this decade, his funds have one- and two-star ratings, and his flagship Strategic Growth Fund has lost an average of 7.4% annually for the decade. On whole, we’d be far more enthused about getting the existing funds right than adding new ones. Its opening expense ratio is 1.27%, and the minimum initial investment will be $1,000.

Innovator PTAM Core Bond ETF

Innovator PTAM Core Bond ETF, an actively managed ETF, seeks to maximize total return through income and capital appreciation. The plan is to buy asset-backed and mortgage-backed securities, including sub-prime and Alt-A, or “near sub-prime” loans. The fund will be managed by G. Michael Plaiss and Anthony J. Harris of PT Asset Management. Its opening expense ratio is 0. __%. (I shrug.)

Innovator PTAM MBS ETF

Innovator PTAM MBS ETF, an actively managed ETF, seeks maximize total return through income and capital appreciation. The plan is to invest in mortgage-backed securities, including sub-prime and Alt-A, or “near sub-prime” loans. The fund will be managed by G. Michael Plaiss and Anthony J. Harris of PT Asset Management. Its opening expense ratio is 0. __%.

Leuthold Core ETF

Leuthold Core ETF, an actively managed ETF, seeks capital appreciation and income (or “total return”). It will be an ETF-of-ETFs, active and passive, which collectively serve to implement Leuthold’s asset allocation. Equity exposure will range between 30-70% and might include domestic, developed international, emerging and frontier exposure. The fund will be managed by Douglas R. Ramsey, Scott D. Opsal, and Chun Wang. Ramsey and Wang also serve on the management team for their flagship Leuthold Core Investment Fund. Its opening expense ratio is 0.98% which is noticeably less than its sibling.

Rational Special Situations Income Fund

Rational Special Situations Income Fund will seek total return consisting of capital appreciation and income. This is a converted hedge fund, ESM Fund I, L.P., which made about 16% a year for the past decade. The plan is to build a portfolio around agency and non-agency residential and commercial mortgage-backed securities, with a focus on non-agency residential mortgage-backed securities. The fund will be managed by Eric S. Meyer and William R. Van de Water who ran the hedge fund. Its opening expense ratio is 2.00% , and the minimum initial investment will be $1,000.

Smart Transportation ETF

Smart Transportation ETF (MOTO), an actively managed ETF, seeks long-term capital appreciation. The plan is to create an equity portfolio focused on domestic or foreign companies that are involved in the development and production of products or services for smart transportation products and systems, including autonomous and/or electric vehicles and smart transportation networks. The fund will be managed by Will Riley and Jonathan Waghorn of Penserra Capital Management. Its opening expense ratio is 0.68%.

Vanguard International Core Stock Fund

Vanguard International Core Stock Fund will seek long-term capital appreciation. The plan is to buy “stocks of companies located outside the United States that its advisor believes offer a good balance between reasonable valuations and attractive growth prospects relative to their peers,” including those in emerging markets. The fund will be managed by Kenneth Abrams, a member of Augustana’s Board of Trustees and former manager of Vanguard Explorer, and Halsey Morris. Both are employees of Wellington Management. Its opening expense ratio is 0.45%, and the minimum initial investment will be $3,000.

Virtus KAR International Small-Mid Cap Fund

Virtus KAR International Small-Mid Cap Fund will seek capital appreciation. The plan is to buy international small- to mid-cap stocks. Really, that’s about all they’ll commit to. There is rather a lot of text about determining what “domicile” means. The fund will be managed by Hyung Kim and Craig Thrasher. The team also runs the five-star, Bronze-rated Virtus KAR International Small Cap Fund which is lauded for “a sensible, high-conviction approach that has led to strong returns.” Its opening expense ratio has not been disclosed, and the minimum initial investment will be $2,500.

Zacks Long/Short Equity ETF

Zacks Long/Short Equity ETF, an actively managed ETF, seeks long-term total return. The plan is to use the Zacks ratings system to create a portfolio that ranges from 50-100% long, with the long book focusing on “buy” and “strong buy” stocks. The fund will be managed by Mitch Zacks and Atanu Ghosh. The long-only Zacks equity funds have been quite solid, though the only hedged offering – Zacks Market Neutral – has returned -0.03% annually over a decade. Its opening expense ratio has not been disclosed.

Manager changes, July 2019

By Chip

Every month we track changes to the management teams of equity, alternative and balanced funds, along with a handful of fixed-income ones. Why “a handful”? Because most fixed-income funds are such sedate creatures, with little performance difference between the top quartile funds and the bottom quartile, that the changes are not consequential. Even in the realms we normally cover, the rise of management committees dilutes the significance of any individual’s departure or arrival. This is one of the months in which the number of funds making changes is large – 82 – but the number making dramatic changes is minimal. A couple funds – DWS and Mass Mutual – lost their entire management teams and a couple of funds have announced the impending retirements of long-time managers. Other than that, mostly tweaks this month.

Ticker Fund Out with the old In with the new Dt
GSXAX Aberdeen U.S. Small Cap Equity Fund No one, but … Tim Skiendzielewski joins Ralph Bassett, Jason Kotik, and Francis Radano on the management team. 7/19
Various All of the Meeder Funds Effective immediately, Clinton Brewer will no longer serve as a portfolio manager for the funds. All other members of the investment teams will continue to serve as portfolio managers to the funds. 7/19
TLEVX AMG GW&K Trilogy Emerging Markets Equity Fund, formerly AMG Trilogy Emerging Markets Equity Fund Robert Beckwitt is no longer listed as a portfolio manager for the fund. Brad Miller joins Pablo Salas and William Sterling on the management team. 7/19
ARDEX AMG River Road Dividend All Cap Value Fund No one, immediately, but effective December 31, 2019, James Shircliff will no longer serve as a portfolio manager for the fund. Henry Sanders, Thomas Forsha, and Andrew McIntosh will continue to manage the fund. 7/19
ADVTX AMG River Road Dividend All Cap Value Fund II  No one, immediately, but effective December 31, 2019, James Shircliff will no longer serve as a portfolio manager for the fund. Henry Sanders, Thomas Forsha, and Andrew McIntosh will continue to manage the fund. 7/19
AVEGX Ave Maria Growth Fund Brain Milligan has resigned from the subadvisor and is no longer listed as a portfolio manager for the fund. Adam Gaglio joins Richard Platte in managing the fund. 7/19
AVEDX Ave Maria Rising Dividend Fund Adam Gaglio will no longer serve as a portfolio manager for the fund. Joseph Skornicka joins Richard Platte and George Schwartz in managing the fund. 7/19
BGITX Baillie Gifford International Equity Fund No one, but … Jenny Tabberer is henceforth Jenny Davis. 7/19
BVEFX Becker Value Equity Fund McGarr has retired from Becker Capital Management and will no longer serve as a portfolio manager to the fund. Blake Howells joins Marian Kessler, Steve Laveson, Patrick Becker, Andy Murray, Thomas (T.J.) McConville, and Sid Parakh in managing the fund. 7/19
CPEAX Catalyst Dynamic Alpha Fund No one, but … Luke O’Neill joins Cory Krebs and Bruce Miller in managing the fund. 7/19
SBVAX ClearBridge Small Cap Value Fund Juan Miguel del Gallego will no longer serve as a portfolio manager for the fund. Albert Grosman and Brian Lund will manage the fund. 7/19
DABAX Delaware Global Value Fund Sharon Hill is no longer listed as a portfolio manager for the fund. Christopher Gowlland has joined the team! The remainder of the starting lineup is Jens Hansen, Klaus Petersen, Claus Juul and Åsa Annerstedt. 7/19
DEGIX Delaware International Value Equity Fund Sharon Hill is no longer listed as a portfolio manager for the fund. Christopher Gowlland has joined the team! The remainder of the starting lineup is Jens Hansen, Klaus Petersen, Claus Juul and Åsa Annerstedt. 7/19
DURAX DWS European Equity, which becomes DWS ESG International Core Equity Fund on October 1, 2019 The current management team will be replaced on or about October 1, 2019. Pankaj Bhatnagar and Arno Puskar will manage the fund. 7/19
IHIAX Federated Emerging Market Debt Fund No one, but … Mohammed Elmi, an employee of Federated Investors (UK) has joined the two Federated (US) managers, Ihab Salib and Jason DeVito in managing the fund. 7/19
Various Fidelity Dividend ETF for Rising Rates, Fidelity High Dividend ETF, Fidelity Low Volatility Factor ETF, Fidelity Momentum Factor ETF, Fidelity Quality Factor ETF, Fidelity Value Factor ETF, Fidelity Emerging Markets Index Fund, Fidelity Global ex U.S. Index Fund, Fidelity International High Dividend ETF and Fidelity International Value Factor ETF Patrick Waddell has left the building. Payal Gupta is taking over. 7/19
FRMCX Franklin Microcap Value No one immediately, but Bruce C. Baughman will be retiring on December 31, 2019. Oliver Wong joins in managing the fund now, and will become the sole manager upon Mssr. Baughman’s retirement. 7/19
FRSTX Franklin Strategic Income Fund No one, but … William Chong and David Yuen join Sonal Desai and Patricia O’Connor in managing the fund. 7/19
GFSFX GMO Foreign Small Companies Fund Neil Constable is no longer listed as a portfolio manager for the fund. Simon Harris and Josh White will manage the fund. 7/19
GMOIX GMO International Equity Fund Neil Constable is no longer listed as a portfolio manager for the fund. Simon Harris and Josh White will manage the fund. 7/19
GMOKX GMO Risk Premium Fund Neil Constable is no longer listed as a portfolio manager for the fund. Simon Harris and Van Le will manage the fund. 7/19
GTMIX GMO Tax-Managed International Equity Fund Neil Constable is no longer listed as a portfolio manager for the fund. Simon Harris and Josh White will manage the fund. 7/19
GMUEX GMO US Equity Fund Neil Constable is no longer listed as a portfolio manager for the fund. Simon Harris and Josh White will manage the fund. 7/19
GRGTX Goldman Sachs Equity Income Fund Daniel Lochner will no longer serve as a portfolio manager for the fund. Charles “Brook” Dane will continue to serve as a portfolio manager for the fund. 7/19
GGOTX Goldman Sachs Growth Opportunities No one, but … Jenny Chang will join Steven Barry in managing the fund. 7/19
GKIRX Goldman Sachs Income Builder Fund Daniel Lochner will no longer serve as a portfolio manager for the fund. Ashish Shah, Ron Arons, Collin Bell, Charles “Brook” Dane and Christopher Lvoff will continue to serve as portfolio managers for the fund. 7/19
HAFYX Hartford AARP Balanced Retirement Fund Lutz-Peter Wilke, David Elliott, and Campe Goodman are no longer listed as portfolio managers for the fund. Christopher Goolgasian now manages the fund. 7/19
SAFFX Hedeker Strategic Appreciation Fund Michael McClain no longer serves as a portfolio manager to the fund. Ryan Casaquite will now manage the fund. 7/19
CHTRX Invesco Charter Fund Ronald Sloan is no longer listed as a portfolio manager for the fund. Manind Govil, Paul Larson, and Benjamin Ram are managing the fund. 7/19
GTAGX Invesco Mid Cap Core Equity Fund Ronald Sloan is no longer listed as a portfolio manager for the fund. Raymond Anello, Joy Budzinski, Kristin Ketner, Magnus Krantz, Raman Vardharaj, Adam Weiner,
and Matthew Ziehl will now manage the fund.
VGRAX Invesco Mid Cap Growth Fund James Leach is no longer listed as a portfolio manager for the fund. Justin Livengood and Ronald Zibelli will now manage the fund. 7/19
OPTFX Invesco Oppenheimer Capital Appreciation Fund Paul Larson is no longer listed as a portfolio manager for the fund. Ido Cohen and Erik Voss have taken over managing the fund. 7/19
OPPEX Invesco Oppenheimer Capital Income Fund Krishna Memani and Michelle Elena Borré Massick are no longer listed as portfolio managers for the fund. Mark Ahnrud, John Burrello, Chris Devine, Scott Hixon, Christian Ulrich, and Scott Wolle will now manage the fund. 7/19
OSVAX Invesco Oppenheimer Dividend Opportunities Fund Laton Spahr is no longer listed as a portfolio manager for the fund. The new management team is Robert Botard, Kristina Bradshaw, Christopher McMeans, and Meggan Walsh. 7/19
OAEIX Invesco Oppenheimer Equity Income Fund Laton Spahr is no longer listed as a portfolio manager for the fund. The new management team is Robert Botard, Kristina Bradshaw, Christopher McMeans, and Meggan Walsh. 7/19
QMGIX Invesco Oppenheimer Global Multi-Asset Growth Fund Alessio de Longis and Benjamin Rockmuller are no longer listed as portfolio managers for the fund. Mark Ahnrud, John Burrello, Chris Devine, Scott Hixon, Christian Ulrich, and Scott Wolle will now manage the fund. 7/19
QMAIX Invesco Oppenheimer Global Multi-Asset Income Fund Alessio de Longis and Benjamin Rockmuller are no longer listed as portfolio managers for the fund. Mark Ahnrud, John Burrello, Chris Devine, Scott Hixon, Christian Ulrich, and Scott Wolle will now manage the fund. 7/19
QVSCX Invesco Oppenheimer Mid Cap Value Fund Eric Hewitt and Laton Spahr are no longer listed as portfolio managers for the fund. Jeffrey Vancavage has taken over managing the fund. 7/19
OVSIX Invesco Oppenheimer Small Cap Value Fund Eric Hewitt is no longer listed as a portfolio manager for the fund. Jonathan Edwards and Jonathan Mueller will now manage the fund. 7/19
CGRWX Invesco Oppenheimer Value Fund Laton Spahr is no longer listed as a portfolio manager for the fund. Devin Armstrong, Charles DyReyes, Kevin Holt, and James Warwick will now manage the fund. 7/19
USGLX John Hancock U.S. Global Leaders Growth Fund Effective January 1, 2020, George Fraise will no longer serve as a portfolio manager for the fund. Kishore Rao will be added as a portfolio manager for the fund and, together with Gordon Marchand and Robert Rohn will manage the fund. 7/19
LSIOX Loomis Sayles High Income Opportunities Fund  No one, but … Brian Kennedy and Todd Vandam have joined Elaine Stokes, Daniel Fuss, and Matthew Eagan on the management team. 7/19
MMVYX MassMutual Select Small Company Value Fund The current management team is out, out, out. Jeff John, Miles Lewis, James MacGregor, and Shri Singhvi will now manage the fund. 7/19
NGQAX Neuberger Berman Global Equity Fund, which will become Neuberger Berman Integrated Large Cap Fund on September 3, 2019. Benjamin Segal and Elias Cohen will leave with the rebranding. Simon Griffiths and Jacob Gamerman will manage the rebranded fund. 7/19
NGREX Northern Global Real Estate Index Fund Thomas O’Brien will no longer serve as a portfolio manager for the fund. Volter Bagriy and Brent Reeder are managing the fund. 7/19
NSRIX Northern Global Sustainability Index Fund Thomas O’Brien will no longer serve as a portfolio manager for the fund. Volter Bagriy and Brent Reeder are managing the fund. 7/19
NSMAX Nuveen NWQ Small/Mid-Cap Value Fund Phyllis Thomas is no longer a portfolio manager of the fund. Thomas Lavia joins Andrew Hwang in managing the fund. 7/19
NSCAX Nuveen NWQ Small-Cap Value Fund Phyllis Thomas is no longer a portfolio manager of the fund. Thomas Lavia joins Andrew Hwang in managing the fund. 7/19
NSBRX Nuveen Santa Barbara Dividend Growth Fund James Boothe will no longer serve as a portfolio manager for the fund. David Calupnik and David Park are managing the fund. 7/19
NUGIX Nuveen Santa Barbara Global Dividend Growth Fund James Boothe will no longer serve as a portfolio manager for the fund. David Calupnik and David Park are managing the fund. 7/19
NUIIX Nuveen Santa Barbara International Dividend Growth Fund James Boothe will no longer serve as a portfolio manager for the fund. David Calupnik and David Park are managing the fund. 7/19
OWSOX, now OWMAX Old Westbury Strategic Opportunities Fund, which has now become Old Westbury Multi-Asset Opportunities Fund Edward Aw and Gregory Lester are no longer listed as portfolio managers for the fund. Jared Olivenstein joins the other nine team members in managing the fund. 7/19
LDUR PIMCO Enhanced Low Duration Active Exchange-Traded Fund No one, but … Sonali Pier joins David Braun and Jerome Schneider in managing the fund. 7/19
PHDAX PIMCO High Yield Fund  Hozef Arif is no longer listed as a portfolio manager for the fund. Sonali Pier joins Andrew Jessop in managing the fund. 7/19
PHSAX PIMCO High Yield Spectrum Fund  Hozef Arif is no longer listed as a portfolio manager for the fund. Sonali Pier joins Andrew Jessop in managing the fund. 7/19
PMFIX PMC Core Fixed Income Fund Andrew Johnson and Thomas Marthaler are no longer listed as portfolio managers for the fund. David Brown, Thanos Bardas, Thomas Sontag, and Nathan Kush join Neil Sutherland, Lisa Hornby, and Brandon Thomas on the management team. 7/19
SBBAX QS Conservative Growth Fund Ellen Tesler and Adam Petryk are no longer listed as portfolio managers for the fund. Lisa Wang joins Thomas Picciochi in managing the fund. 7/19
SBCPX QS Defensive Growth Fund Ellen Tesler and Adam Petryk are no longer listed as portfolio managers for the fund. Lisa Wang joins Thomas Picciochi in managing the fund. 7/19
SCHAX QS Growth Fund Ellen Tesler and Adam Petryk are no longer listed as portfolio managers for the fund. Lisa Wang joins Thomas Picciochi in managing the fund. 7/19
SCGRX QS Moderate Growth Fund Ellen Tesler and Adam Petryk are no longer listed as portfolio managers for the fund. Lisa Wang joins Thomas Picciochi in managing the fund. 7/19
LRRAX QS Strategic Real Return No one, but … Christopher Floyd joins Frederick Marki, Adam Petryk, Ellen Tesler, Thomas Picciochi, Joseph Giroux, S. Kenneth Leech, and Stephen Lanzendorf on the management team. 7/19
RMBTX RMB International Fund Egor Rybakov and Robert Gwin are no longer listed as portfolio managers for the fund. Masakazu Hosomizu is managing the fund. 7/19
RMBSX RMB International Small Cap Fund Egor Rybakov and Robert Gwin are no longer listed as portfolio managers for the fund. Masakazu Hosomizu is managing the fund. 7/19
SIMVX SIM Global Core Managed Volatility Fund David D’Eredita will no longer serve as a portfolio manager for the fund. Joshua Mellberg will continue to manage the fund. 7/19
SIMMX SIM Global Moderate Managed Volatility Fund David D’Eredita will no longer serve as a portfolio manager for the fund. Joshua Mellberg will continue to manage the fund. 7/19
SIMZX SIM Income Fund David D’Eredita will no longer serve as a portfolio manager for the fund. Joshua Mellberg will continue to manage the fund. 7/19
SIMUX SIM U.S. Core Managed Volatility Fund David D’Eredita will no longer serve as a portfolio manager for the fund. Joshua Mellberg will continue to manage the fund. 7/19
TRIGX T. Rowe Price International Value Equity Fund Sebastien Maller will no longer serve as a portfolio manager for the fund. Colin McQueen now manages the fund. 7/19
TEMFX Templeton Foreign Fund Tucker Scott is no longer listed as a portfolio manager for the fund. Warren Pustam joins Peter Moeschter, Christopher Peel, Herbert Arnett, Heather Arnold, and Norman Boersma on the management team. 7/19
TEPLX Templeton Growth Fund No one, but … Warren Pustam joins Peter Moeschter, Christopher Peel, Herbert Arnett, Heather Arnold, and Norman Boersma on the management team. 7/19
VEVFX Vanguard Explorer Value Fund Thomas Duncan will no longer serve as a portfolio manager for the fund. Rushan Jiang joins Robert Fields, Rachel Matthews, William Teichner, Robert Kirkpatrick, and Eugene Fox on the management team. 7/19
VGYAX Vanguard Global Wellesley Income Fund John C. Keogh has retired from Wellington Management Company LLP and no longer serves as a portfolio manager for the fund. Loren Moran, Michael Stack, and Michael Reckmeyer will continue to manage the fund. 7/19
VGWAX Vanguard Global Wellington John C. Keogh has retired from Wellington Management Company LLP and no longer serves as a portfolio manager for the fund. Edward Bousa, Loren Moran, Daniel Pozen, and Michael Stack will continue to manage the fund. 7/19
VMGRX Vanguard Mid-Cap Growth Fund No one, but … Ravi Dabas joins Christopher Scarpa, Timothy Manning, Paul Leung, Stephen Knightly, D. Scott Tracy, Christopher Clark, Melissa Chadwick-Dunn, and Stephen Bishop on the management team. 7/19
VWINX Vanguard Wellesley Income Fund John C. Keogh has retired from Wellington Management Company LLP and no longer serves as a portfolio manager for the fund. Loren Moran, Michael Stack, and Michael Reckmeyer will continue to manage the fund. 7/19
VWELX Vanguard Wellington Fund John C. Keogh has retired from Wellington Management Company LLP and no longer serves as a portfolio manager for the fund. Edward Bousa, Loren Moran, Daniel Pozen, and Michael Stack will continue to manage the fund. 7/19
OMOAX Vivaldi Multi-Strategy Fund Brad Friedlander will no longer serve as a portfolio manager to the fund. A dozen other managers from Vivaldi, RiverNorth and Angel Oak remain on duty. 7/19
IAVGX Voya Growth and Income Portfolio Kristy Finnegan no longer serves as a portfolio manager for the fund. Vincent Costa and James Dorment continue to manage the fund. 7/19
IEOPX Voya Large Cap Growth Portfolio No one, but … Kristy Finnegan is added, joining Jeffrey Bianchi and Michael Pytosh in managing the fund. 7/19
IPEAX Voya Large Cap Value Portfolio  Kristy Finnegan no longer serves as a portfolio manager for the fund. Vincent Costa and James Dorment continue to manage the fund. 7/19
IAMOX Voya MidCap Opportunities Portfolio No one, but … Kristy Finnegan is added, joining Jeffrey Bianchi and Michael Pytosh in managing the fund. 7/19
YWBIX Yorktown Mid-Cap Fund J. Dale Harvey and Stephen Burlingame are no longer listed as portfolio managers for the fund. David Basten now manages the fund. 7/19


Briefly Noted . . .

By David Snowball


The ETF industry has continued to distinguish itself for its almost laughable me-tooism. The themes of the day are marijuana (ETFMG Alternative Harvest ETF MJ, AdvisorShares Pure Cannabis ETF YOLO, AdvisorShares Vice ETF ACT which splits time between tobacco, pot and alcohol, The Cannabis ETF THCX, Cambria Cannabis ETF TOKE, Amplify Seymour Cannabis ETF CNBS, Cannabis Growth Opportunity Corp CWWBF) and pets (and pet parents). There are even articles now on the top marijuana ETFs for 2019 and the best marijuana ETFs for conservative portfolios. Uhhh … note to conservative investors, (1) the oldest and largest of these ETFs substantially trails the Vanguard Total Stock Market over the past three years yet has triple the volatility and (2) possession of marijuana is still a federal crime.

Briefly Noted . . .

Mellody Hobson is now co-CEO of the Ariel Funds, and their largest shareholder. On July 11, founder John Rogers announced that he’d sold part of his stake in the company to Hobson, who has been Ariel’s president since 2000. Here’s his explanation.

Both her promotion, as well as this share purchase, represents a long-planned generational transition of leadership and ownership while simultaneously allowing us to maintain continuity. As many know, I have never been a seller of my Ariel stock and these are the only shares that I ever plan to sell. I am happily doing so to level the playing field.

Mr. Rogers, 61, also announced his intention to continue managing Ariel funds for “at least a decade.”


Effective on or about September 19, 2019, the Franklin Mico-Cap Value Fund (FRMCX) will re-open to new investors. Three months later, its founding manager will retire after 24 years. Morningstar describes it as a two-star fund, which belies its charms. The fund consistently outperforms its SCV peers in rocky mountains – lower standard deviation, lower downside deviation, lower bear market deviation, better bear market composite – but its entirely respectable 10 year returns (10% per year) has it trailing 80% of its peers.

The minimum initial investment for Gotham Enhanced S&P 500 Index Fund (GSPFX) has been reduced from $250,000 to $5,000 and the minimum for each subsequent investment has been reduced to $100, effective July 15, 2019.

CLOSINGS (and related inconveniences)

You … missed it? Equable Shares Small Cap Fund (EQSIX) has $14 million in AUM, launched in August 2018, is hard-closed and has performed like this:

returns chart

On July 15, 2019, it was opened to new investors. On July 17, 2019, it was hard-closed again. We’re guessing that some one significant investor wanted in, so they opened and closed the door quickly. No idea of why. The manager describes himself as a successful hedge fund guy, so maybe a Richie Rich fleeing the implosion of other hedge funds?


The AB Intermediate Bond Portfolio has been renamed AB Total Return Bond Portfolio (ABQUX). AB was formerly AllianceBernstein.

Effective July 1, 2019, the Balter Invenomic Fund became Invenomic Fund (BIVIX).

Effective August 2, 2019, the name of Calvert Aggressive Allocation Fund is changed to Calvert Growth Allocation Fund (CAAAX).

On or about October 1, 2019, DWS European Equity Fund will be renamed DWS ESG International Core Equity Fund (DURAX). The current management team will be removed and replaced by Pankaj Bhatnagar, PhD, and Arno V. Puskar.

Sometime in the next couple months, the Equinox funds will become, with minor amendments, the AXS funds.  Equinox Ampersand Strategy Fund becomes AXS Alternative Growth Fund, Equinox Aspect Core Diversified Strategy Fund turns into AXS Aspect Core Diversified Strategy Fund, Equinox Chesapeake Strategy Fund becomes AXS Chesapeake Strategy Fund and, finally, Equinox IPM Systematic Macro Fund   is rechristened as AXS IPM Systematic Macro Fund. Same managers, same fees, and likely the same marketing challenge; these are, generally, decent funds but they’ve seen a collective outflow of nearly 30% of assets in the past twelve months.

In another hit for the “follow the smart money” strategy, NYSE Pickens Oil Response ETF (BOON) will depart from the ways of the legendary T. Boone Pickens and become the properly corporatized Pickens Morningstar Renewable Energy Response ETF (RENW), tracking the Morningstar North America Renewable Energy Index at which point the “Pickens” in the name becomes a bit gratuitous.

Effective July 10, VanEck Vectors Global Alternative Energy ETF became VanEck Vectors Low Carbon Energy ETF (GEX) whose investable universe will be “stocks of low carbon energy companies.”

More research, less discipline? On September 9, 2019, JPMorgan Disciplined High Yield ETF’s (JPHY) name will change to the JPMorgan High Yield Research Enhanced ETF. “On the Effective Date, the Fund will adopt a credit research enhanced investment strategy.” Uh-huh. Credit research enhanced. The wording in the new prospectus comes down to “we’ll do about what you’d expect any responsible investor to do,” which is to say:

the adviser combines fundamental research with a disciplined portfolio construction process. The adviser utilizes proprietary research, risk management techniques and issuer and individual security selection in constructing the Fund’s portfolio. In-depth, fundamental research into issuers and individual securities is conducted by research analysts who emphasize each issuer’s long-term prospects.

That leads one to wonder what they aren’t doing currently. The fundamental research? The disciplined portfolio construction? Risk management? The mind boggles.

Giving up the globe: Effective September 3, 2019, Neuberger Berman Global Equity Fund (NGQAX) will change its name to Neuberger Berman Integrated Large Cap Fund. The rebranded fund will invest in domestic large caps though it “may” invest in foreign stocks. It also gets a new management team, Simon Griffiths and Jacob Gamerman.

Effective immediately, the Old Westbury Strategic Opportunities Fund (OWSOX) becomes Old Westbury Multi-Asset Opportunities Fund (OWMAX). Additionally, Jared B. Olivenstein will become a Co-Portfolio Manager and will be joining Amit Bortz and Anthony Wile.


The Board of Trustees of the Trust has approved a Plan of Liquidation for the Advisory Research MLP & Equity Fund (INFJX). The Plan of Liquidation authorizes the termination, liquidation and dissolution of the fund. In order to perform such liquidation, effective immediately the fund is closed to all new investment. The fund will be liquidated on or about August 26, 2019

AlphaCentric Asset Rotation Fund (ROTAX) will cease rotation on August 23, 2019. The Board determined it was “in the best interests of the Fund and its shareholders.” Given that the fund has lost money for its investors in four of its five years of operation, I’m prone to agree.

American Century Capital Value (ACTIX) will merge into American Century Value Fund sometime following “a special meeting of shareholders” on September 30, 2019.

Ariel Discovery Fund was liquidated and reorganized with and into Ariel Fund (ARGFX) after 3:00 PM Central Time on June 28, 2019. Given that Ariel’s founder and CEO, John Rogers, is just a bit OCD about things, I wouldn’t be at all surprised to learn that the liquidation occurred precisely at 3:00 CDT.

Bernstein U.S. Research Fund (BERN) and Bernstein Global Research Fund (BRGL) liquidated at the end of July, 2019.

Broadview Opportunity Fund (BVAOX) will merge into Madison Small Cap Fund (MYSVX) on or about August 30, 2019. I’m not sure of the motivation for the merger, BVAOX has a quarter-billion in assets, but it’s an entirely reasonable outcome for shareholders. The funds have a high correlation (.96) and comparable performance numbers plus, with additional assets, the MYSVX e.r. should drop.

Calamos Emerging Market Equity Fund (CEGAX) will be liquidated on or about September 13, 2019.

Calvert Ultra-Short Duration Income NextShares (CRUSC) will be liquidated on or about August 1, 2019.

Eaton Vance Floating-Rate NextShares (EVFTC) will be liquidated on or about August 1, 2019. Eaton Vance Oaktree Diversified Credit NextShares (OKDCC) follows suit at month’s end, August 30, 2019.

Eaton Vance Multisector Income Fund (EVBAX) is merging into Eaton Vance Multi-Asset Credit Fund (EIAMX) by about Thanksgiving. On face, it’s a small three-star fund disappearing into a tiny five-star one. Shareholders should be aware that these are not comparable funds: while Credit has offered twice the returns with barely half the risk, the correlation between the two is low (0.76) and they’re assigned to different Lipper peer groups. You might be happy with your new home, but should certainly take time to figure out whether what they do is what you want.

EnTrust Global – Alternative Core Fund (LPTAX) is expected to cease operations on or about September 6, 2019. Oddly for a tiny, undistinguished fund, this thing had full Morningstar analyst coverage. Complicated, tiny, expensive, volatile with a 0.05% five year return.

Franklin Flexible Alpha Bond Fund (FABFX) will merge into Franklin Low Duration Total Return Fund, a move which is currently expected to be completed on or about October 25, 2019, but may be delayed if unforeseen circumstances arise.

On July 17, 2019, the Board of Trustees of Franklin Global Trust, on behalf of Franklin Global Listed Infrastructure Fund (FLGIX), approved a proposal to liquidate and dissolve the Fund. The liquidation is anticipated to occur on or about November 6, 2019.

Franklin Real Return Fund (FRRAX) will merge with and into the Franklin Total Return Fund (FKBAX) on or about January 31, 2020. Two cautions: (1) a Real Return fund targets inflation protection which is not the obsession of a total return fund and (2) Total Return’s management team is changing with Michael Materosso leaving after more than a decade as co-manager and a new guy joining the team.

Franklin Select U.S. Equity Fund (FCEQX) will merge with and into the Franklin Growth Fund, on or about February 7, 2020.

Franklin Mutual International Fund (FMIAX) will merge with and into the Franklin Mutual Global Discovery Fund (TEDIX) on or about February 21, 2020. The former Mutual Series funds are an idiosyncratic bunch, though disciplined and distinctive. TEDIX has a strong special situations / arbitrage / value focus has pretty much defines “out of favor with the market.” As the market turns, it will be an interesting place to be.

MFS Equity Opportunities Fund (SRFAX) will merge into MFS Core Equity Fund (MRGAX) on October 25, 2019.

Monteagle Informed Investor Growth Fund (MIIFX), which wobbled between trailing 96 and 99% of its peers, will be liquidated on or about August 30, 2019.

On June 26, 2019, the Board of Trustees of Neuberger Berman Equity funds decided to merge Neuberger Berman Value Fund (NVAAX) into Neuberger Berman Large Cap Value Fund (NPRTX). They decided that Value is not financially sustainable and liquidating it would impose “tax consequences on shareholders,” hence a merger on August 16, 2019. Same manager, comparable 10-year returns but Large Cap Value has much high risk scores at Morningstar than does Value.

In a nice illustration of writing in the passive voice, NorthPointe Large Cap Value Fund (NPLVX) “is expected to cease operations and liquidate on or about August 15, 2019.”

PPM Credit Fund (PKDIX) and PPM Strategic Income Fund (PKSIX) have closed and will be liquidated “as of a date determined by the Trust’s officers (the ‘Cessation Date’), consistent with the Plans.” Well, okay then.

Principal Multi-Manager Equity Long/Short Fund (PGMMX) was slated for liquidation on August 16, 2019.  In mid-July, the Board of Trustees got a bit antsy and accelerated the liquidation to July 31, 2019 “or such other date determined by the Fund’s officers, without further notice to shareholders.”

PSG Tactical Growth Fund (PSGTX) disappeared on July 29, 2019 just 10 days after its board announced their intention to liquidate it. In its best year, it trailed 93% of its peers.

Effective July 17, 2019, the RMB International Small Cap Fund (RMBSX) closed to additional investment in anticipation of being liquidated on August 15, 2019.

On July 19, 2019, Skybridge Dividend Value Fund merged into Centre Global Infrastructure Fund (DHIVX).

On July 17, 2019, the Board of Trustees of Templeton Global Investment Trust, on behalf of Templeton Frontier Markets Fund (TFMAX), approved a proposal to liquidate and dissolve the Fund. The liquidation is anticipated to occur prior to March 31, 2020. The fund was, if nothing else, dramatic: its gains (17-44%) and losses (15-22%) were in the double-digits in nine of the past 10 years. The sole exception was a 5% gain in 2016. That pattern seems not to have enchanted investors.

Wells Fargo sent a 50 page file to shareholders in July, explaining why Wells Fargo Small Cap Value Fund (SMVAX) will get absorbed by Wells Fargo Small Company Value Fund (SCVNX) on September 20, 2019. Here’s the most substantive reason they offered: “The merger will eliminate duplicative expenses and may reduce associated operating costs.” Somehow, Small Cap Value has trailed 95% of its peers over the past 10 years and hasn’t seen a month with net inflows since 2012; rather than burying it at the crossroads at midnight, we decided that it would be easier to have it absorbed by a much smaller, much younger fund with a decent track record. Of course, the team that built SCVNX’s record is gone now and their successors have had a rough first year with bunches of shareholder departures but, hey, we’ve got to do something.

Westwood MLP and Strategic Energy Fund (WMLPX) will liquidate – uhh, run out of energy? – on August 30, 2019. It’s been a perfectly ordinary performer as energy funds go, which is to say that an investment of $10,000 at inception in now worth about $7,000.

Westwood Opportunistic High Yield Fund (WWHYX) will also liquidate on August 30, 2019 … or on some other date of the officers’ choosing. The fund’s made decent money for its “too few to be sustainable” investors. Westwood Worldwide Income Opportunity Fund (WWIOX), which is liquidating on the same day, has managed rather less salutary returns for its “too few to be sustainable” investors.