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 are in a scramble to launch by June 30th with the hope that having a “standard reporting period” to share with investors sooner. In a remarkable surge, we found 31 active funds and ETFs in registration, some quite notable. Expect them to launch by the end of July 2020.
The number of ESG-themed funds in the pipeline continues to grow. This month’s crop includes a couple of passive ETFs, SPDR [S&P 500 ESG] ETF and JPMorgan Carbon Transition U.S. Equity ETF, as well as active funds and ETFs from Aperture, BlackRock, Changebridge, Ecofin, Eventide and PIMCO.
Individual funds that warrant additional inquiry:
Aperture International Equity, the latest entry from a successful young boutique founded by a former AllianceBernstein CEO. They sport the industry’s most radical performance-based fulcrum fee.
Penn Mutual AM 1847 Income Fund, which seems to be a reincarnation of Berwyn Income (later Chartwell Income, which saw the departure of the entire Berwyn crew in 2019 and then entirely changed strategy in 2020).
Rayliant Quantamental China Equity Fund, whose name leaves me cold, but whose three quant managers include a co-founder of Research Affiliates and a former vice president there.
SmartETFs Dividend Builder ETF, a potentially revolutionary launch since it represents the first time that an extant mutual fund transitioned to become an active ETF. While it’s not uncommon for hedge funds or closed-end funds to become mutual funds, the SEC has never previously authorized a mutual fund to become an ETF, carrying its long-term track record with it.
Ziegler Piermont Small Cap Value Fund, a small-value fund using the same investment strategy which led the managers’ SMA composite to beat the Russell 2000 Value Index over the past 3, 5, 10, and 15 year periods.
Every month the ETF industry breathlessly trots out a few ideas designed to seize the moment. Last month, it was the Work from Home ETF, the Esports and Digital Entertainment ETF, and the BioThreat ETF. This month’s bright, shiny object of the month is Global X Digital Health & Telemedicine ETF which tracks a new index about which no information is available, except that if your annual report includes both the words “digital” and “health,” you’re in!
ABR 75/25 Volatility Fund
ABR 75/25 Volatility Fund will seek long-term capital appreciation. The plan is to “provide long and short exposure to CBOE Volatility Index futures and exchange-traded products, long exposure to S&P 500 Index futures and ETPs, long exposure to long-term U.S. Treasury securities, and cash.” (I nod.) The fund will be managed by Taylor Lukof and David Skordal. Its opening expense ratio is 2.0%, and the minimum initial investment will be $2,500.
Aperture International Equity Fund
Aperture International Equity Fund will seek returns in excess of the MSCI ACWI ex-US Index. The plan is to invest in quality growth companies located outside the US while shorting sucky companies (unattractive valuations, deteriorating fundamentals, inflexible structure, entrenched management, competitive threats and/or weak pricing power). The manager will notice, but not be controlled by, ESG factors. The fund will be managed by an unnamed employee of Aperture Investors. Its opening expense ratio is 2.20%, and the minimum initial investment will be $500. Aperture is a new boutique whose three funds were all launched within the past year and are all doing well. The fund was founded by former AllianceBernstein chairman/CEO Peter Kraus who promises, “Aperture charges minimum fees equivalent to those of typical passive ETFs in the same categories. This basically covers our base salaries and non-compensation expenses. When we exceed our benchmarks – and only when we exceed our benchmarks – we charge an additional performance-linked fee.” This fund’s published 1.90% management fee is the amount charged if the fund exceeds its benchmark’s performance by 5.0% in a calendar year; the actual fee might vary from 0.40% (insane underperformance) to 3.40% (insane outperformance).
BlackRock LifePath ESG Index [Target Date] Funds
BlackRock LifePath ESG Index [Target Date] Funds will seek to “provide for retirement outcomes based on quantitatively measured risk and to improve the environmental, social and governance investment profile as measured by MSCI Inc. In pursuit of this objective, the LifePath ESG Index Retirement Fund will be broadly diversified across global asset classes, including investing in underlying funds that seek to maximize exposure to companies with higher ESG ratings.” The fund will be managed by a six-person BlackRock team. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $1,000. BlackRock has launched ten funds in this series, from a retirement income fund through a target-date 2065 fund.
Changebridge Capital Long/Short Equity ETF
Changebridge Capital Long/Short Equity ETF, an actively-managed ETF, seeks long-term capital appreciation while minimizing volatility. The plan is to build a domestic, all-cap, ESG-sensitive long-short portfolio. The long portfolio feels like it will focus on “special situations” stocks: “companies that are facing temporary uncertainties and potential problems that are specific to those individual companies or sectors.” The short book uses typical language. The fund will be managed by Ross Klein of OBP Capital, LLC. Mr. Klein was “long/short generalist for a $1B long/short equity portfolio at Boston Partners from April 2010 to March 2020.” Its opening expense ratio is 1.75%.
Changebridge Capital Sustainable Equity ETF
Changebridge Capital Sustainable Equity ETF, an actively-managed ETF, seeks capital appreciation while preserving capital. The plan is to buy “companies with above-average financial characteristics and growth potential that excel at managing ESG risks and opportunities.” The fund will be managed by Ross Klein of OBP Capital, LLC. Its opening expense ratio is 0.85%.
Corbett Road Tactical Opportunity ETF
Corbett Road Tactical Opportunity ETF, an actively-managed ETF, seeks to provide long-term total return. The plan is to allocate between stocks and fixed-income or cash based on “its proprietary MACROCAST scoring system.” The equity portion of the portfolio will be a combination of core large-cap holdings and “opportunistic” stocks, whose nature is not defined. The fund will be managed by C. Scott Airey and Rush Zarrabian of Corbett Road Management. Prior to founding Corbett Road, Mr. Airey was a Branch Manager at Charles Schwab in Alexandria, VA. Its opening expense ratio has not been disclosed.
Ecofin Global Renewables Infrastructure Fund
Ecofin Global Renewables Infrastructure Fund will seek to generate long-term total returns. The plan is to invest in the stocks of companies who are developers, owners, and operators, in full or in part, of renewable electricity technology plants and systems, and related infrastructure investments. The portfolio will be global and might include up to 15% in fixed-income. This is the conversion of a hedge fund that launched in 2015. The fund will be managed by Matthew Breidert and Michel Sznajer of Tortoise Advisers UK Limited. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $2,500.
Eventide Core Bond Fund
Eventide Core Bond Fund will seek total return. The plan is to buy “income producing securities issued by entities [who] have a positive impact on the world.” Mostly investment grade, mostly intermediate-term with social screens that might mostly appeal to folks with socially-conservative views. The fund will be managed by Dolores S. Bamford and David M. Dirk of Boyd Watterson Asset Management. Its opening expense ratio is 0.78% for “N” shares whose minimum initial investment will be $1,000.
JOHCM Credit Income Fund
JOHCM Credit Income Fund will seek to preserve capital and deliver returns through a combination of income and modest capital appreciation. It’s positioned as a sort of go-anywhere, market opportunities fund. The fund will be managed by Lale Topcuoglu and Giorgio Caputo of JOHCM. Its opening expense ratio on Class II shares, which are available through financial platforms, is 0.94% and there is no minimum initial investment.
Modern Capital Tactical Opportunities Fund
Modern Capital Tactical Opportunities Fund will seek to provide income and capital gains. The plan is to invest long or short primarily in domestic or foreign common stocks and debt instruments directly or through closed-end funds, ETFs, and American depositary receipts. They will seek income from interest payments and dividends and capital gains through short-term trading strategies. The fund will be managed by Peter Montalbano. Its opening expense ratio is 1.45%, and the minimum initial investment will be between $1,000 – 10,000.
Mortgage-Backed Securities ETF
Mortgage-Backed Securities ETF, an actively-managed ETF, seeks a high level of total return. The plan is to buy mortgage-backed securities, with no distinctive strategy laid out in the prospectus. The fund will be managed by Andrew Serowik and Travis Trampe. Previously, the managers were quants at Goldman Sachs and Invesco, respectively. Its opening expense ratio has not been disclosed.
Penn Mutual AM 1847 Income Fund
Penn Mutual AM 1847 Income Fund will seek current income and total return consistent with the preservation of capital. The plan is to buy some combination of income-producing securities ranging from T Bills to common, preferred, and convertible shares. The fund will be managed by a team from Penn Mutual Asset Management. The team includes a bunch of experienced managers, including folks formerly associated with Chartwell / Berwyn Income. Its opening expense ratio is 1.0%, and the minimum initial investment will be $3,000.
PIMCO ESG Income Fund
PIMCO ESG Income Fund will seek to maximize current income. The plan is to build a multi-sector portfolio of Fixed Income Instruments of varying maturities. They will avoid issuers whose business practices related to ESG issues “are not to PIMCO’s satisfaction.” At base, this is the ESG-screened version of PIMCO’s $115 billion PIMCO Income Fund (PONAX). The fund will be managed by as-yet-unnamed parties. Its opening expense ratio has not been released for any of its five share classes, and the minimum initial investment will be $1 million.
Rayliant Quantamental China Equity Fund
Rayliant Quantamental China Equity Fund will seek long-term capital appreciation. The plan is to invest in Chinese stocks using “large amounts of data and computer models are paired with human insights about economic and financial features to make investment decisions.” The fund will be managed by Jason Hsu, Vivek Viswanathan, and Phillip Wool, all PhDs and all employees of Rayliant. Mr. Hsu was a co-founder, with Rob Arnott, of Research Affiliates where Mr. Viswanathan served as a vice president. Its opening expense ratio is 0.98%, and the minimum initial investment will be $1,000.
Simplify US Equity PLUS Convexity ETF
Simplify US Equity PLUS Convexity ETF (SPYC), an actively-managed ETF, seeks to provide capital appreciation. The plan is to maintain equity exposure through index ETFs along with an options overlay. “The option overlay is intended to add convexity to the Fund,” which means outperforming in up and down markets. The fund will be managed by Paul Kim and David Berns of Simplify Asset Management. Prior to this, Mr. Kim was a portfolio manager and managing director at Principal Global Investors (2015 -20). Mr. Berns, according to the prospectus, “was [insert 5-year business history].” Its opening expense ratio has not been disclosed. There are two other funds, Upside Convexity (SPUC) and Downside Convexity (SPD) in the same portfolio.
SmartETFs Asia Pacific Dividend Builder ETF
SmartETFs Asia Pacific Dividend Builder ETF, an actively-managed ETF, seeks to provide investors with dividend income and long-term capital growth. The plan is to invest in publicly-traded dividend-producing equity securities of Asia Pacific companies. In general, it would equally weight the portfolio holdings and, in general, will hold around 35 positions. The fund will be managed by Edmund Harriss and Mark Hammonds. This ETF formerly operated as Guinness Atkinson Asia Pacific Dividend Builder Fund (GAADX), and it is the first instance of a mutual fund being converted directly to an active ETF. Its opening expense ratio has not been disclosed.
SmartETFs Dividend Builder ETF
SmartETFs Dividend Builder ETF, an actively-managed ETF, seeks a moderate level of current income and consistent dividend growth at a rate that exceeds inflation. The plan is to buy the stocks of dividend-paying companies that have the ability to consistently increase their dividend payments over the medium term. “One key measure of a company’s ability to achieve consistent, real dividend growth is its consistency in generating high returns on capital. The Adviser seeks to invest in companies that have returned a real cash flow return on investment of at least 10% for each of the last 10 years and … are likely to grow their dividend over time.” The fund will be managed by Dr. Ian Mortimer and Matthew Page. This ETF formerly operated as Guinness Atkinson Dividend Builder Fund (GAINX) and, with its Asia-Pacific sibling, is the first instance of a mutual fund being converted directly to an active ETF. Its opening expense ratio has not been disclosed.
T. Rowe Price Retirement 2065 Fund
T. Rowe Price Retirement 2065 Fund will seek the highest total return over time consistent with an emphasis on both capital growth and income. This is just the newest, longest-dated entry. It’s a fund-of-funds in Price’s more-aggressive target-date series. The fund will be managed by the same four-person team responsible for all of the funds. Its opening expense ratio is 0.71%, and the minimum initial investment will be $2,500.
William Blair Emerging Markets Debt Fund
William Blair Emerging Markets Debt Fund will seek attractive risk-adjusted returns. The plan is to buy EM fixed income securities that are denominated in developed-world or “hard” currencies. The fund will be managed by Marcelo Assalin and Marco Ruijer. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $1 million but that’s most relevant at the retirement-plan level; that is, the retirement plan would need to invest at least a million but individual investors within the plan would contribute a sort of retail amount.
Ziegler Piermont Small Cap Value Fund
Ziegler Piermont Small Cap Value Fund will seek to maximize total return from capital appreciation and income. The plan is to use “a proprietary multi-factor, quantitative ranking system combined with a qualitative risk review” to build a domestic, small-value portfolio. The fund will be managed by John S. Albert, Kevin A. Finn, and John Russon. Their small cap value composite has handily outperformed the Russell 2000 Value index over the last 3, 5, 10, and 15 year periods. The composite’s annualized 15-year returns are 10.3%. Its opening expense ratio for Investor shares will be 1.15%, and the minimum initial investment will be $1,000.
