May 2020 IssueLong scroll reading

Launch Alert: Grandeur Peak US Stalwarts Institutional (GUSYX)

By David Snowball

On March 19, 2020, Grandeur Peak launched the U.S. Stalwarts (GUSYX) fund, the third of their “alumni funds.” U.S. Stalwarts will invest primarily in U.S. companies with market caps at the time of purchase of $1.5 billion or more. The fund’s first portfolio disclosure reflects those emphases: 84% US and 75% mid- to large-cap stocks.

Grandeur Peak, founded in 2011 by emigres from Wasatch Advisers which is located four miles down the road, is one of the best global small cap investors.  When launched, they had a clear plan that encompassed the number of funds that they’d eventually launch and the total amount of assets they could manage. Year by year they rolled out funds on the list, year by year they succeeded, and year by year they closed their funds to new – and sometimes existing – investors.

Grandeur Peak’s demesne were the micro- and small-cap stocks around the globe. They were one of the very few firms that developed the necessary discipline and expertise to invest in the smallest of small companies, sometimes in the smallest of small markets. Their success as investors and strength as partners to the financial advisory community eventually led to a problem: how could they continue to serve their partners when all of their strategies were closed?

The answer was the first funds not envisaged in the original plan: the Stalwarts. Stalwarts funds focused on stocks whose capitalizations were, on the whole, too large to fit into the original suite of small cap funds. Often enough, those portfolios embraced stocks in which they’d successfully invested before but which had grown too large for the core funds. Folks sometimes refer to them as “alumni funds,” as in “funds of stocks which had graduated from the core funds,” which is only partially correct. Some stocks are, and others are not, literal alumni.

Regardless, the larger market caps signaled three changes: (1) the stocks are a bit less volatile, and (2) the funds can accompany substantially more assets. As an illustration, over the past four years, International Opportunities (GPIIX) has a maximum drawdown of 28.2% while International Stalwarts (GISYX) posted a 22.7% loss. International Opportunities was closed at $500 million while International Stalwarts was still open at $800 million.

GP’s April 15, 2020 letter to shareholders addressed the apparent lunacy of launching a new fund – and hoping to draw brave investors – in the midst of a market that seemed completely unhinged.

After seeing the sell-off in the US markets, our team decided to launch our long-awaited US Stalwarts Fund on March 19, 2020. It may seem outlandish to launch a new fund during this period of uncertainty and volatility, but our team was well prepared and felt the current opportunity was compelling. We feel the work on our US names has been beneficial to all of our global strategies as we had names teed up when the markets saw some of its biggest drops in history. Randy Pearce and Brad Barth are the Portfolio Managers of the US Stalwarts Fund, with Stuart Rigby as guardian portfolio manager, and is run as a sister fund to the existing Stalwarts strategies. We believe seeing the global picture will potentially make us better US investors, and having a dedicated focus on a US fund may, in turn, make us better global investors.

Messrs Pearce and Barth also manage or co-manage, the other Stalwarts funds and Global Reach. The original Stalwarts funds are 4.5 years old, so we pulled the four-year records for each compared to its Lipper peer group. The green-shaded cells reflect areas where Grandeur Peak has outperformed its peers.

  APR MAX DD S DEV Ulcer Index Sharpe Ratio Martin Ratio APR vs Peer AUM M-star
GP International Stalwarts GISYX 4.3 -22.7 15.4 7.7 0.19 0.38 3.4 794 Five star, Bronze
Peer Average: Int’l Small/Mid-Cap Growth 0.8 -29 15.8 9.4 -0.02 0.04 0 797  
GP Global Stalwarts GGSYX 4.7 -22.9 15.7 6.1 0.21 0.55 2.2 170 Four star, Bronze
GP Global Reach Inst GPRIX 4.3 -23.7 15.1 6.2 0.2 0.48 1.8 207 Four star, Bronze
Peer Average: Global Small-/Mid-Cap 2.5 -28.1 16.5 7.4 0.08 0.22 0 1,176  

Which is to say, all of them: higher returns, lower volatility, and superior risk adjusted performance. That might reasonably give investors looking for multi-cap growth exposure some considerable confidence.

Despite the “Institutional” moniker, the minimum initial investment in the fund is $2000. The expense ratio, after waivers, is 1.0% on assets of $9.5 million. The fund’s website is rich, in part because the strategy here is linked to the other, long-running strategies.

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About David Snowball

David Snowball, PhD (Massachusetts). Cofounder, lead writer. David is a Professor of Communication Studies at Augustana College, Rock Island, Illinois, a nationally-recognized college of the liberal arts and sciences, founded in 1860. For a quarter century, David competed in academic debate and coached college debate teams to over 1500 individual victories and 50 tournament championships. When he retired from that research-intensive endeavor, his interest turned to researching fund investing and fund communication strategies. He served as the closing moderator of Brill’s Mutual Funds Interactive (a Forbes “Best of the Web” site), was the Senior Fund Analyst at FundAlarm and author of over 120 fund profiles. David lives in Davenport, Iowa, and spends an amazing amount of time ferrying his son, Will, to baseball tryouts, baseball lessons, baseball practices, baseball games … and social gatherings with young ladies who seem unnervingly interested in him.