Monthly Archives: January 2020

January 1, 2020

By David Snowball

Dear friends,

Welcome to the New Year. May it be blessed and joyful, full of mirth and mischief (really, what’s life without a bit of mischief?) for us all.

As I finish this essay on New Year’s Eve Day, the stock market is handing out returns with the enthusiasm (and responsibility) of a politician handing out tax cuts or a central banker handing out liquidity boosts. The Vanguard Total Stock Market Index (VTSMX) stands to end the year with a 30% gain.

Heck, it was almost impossible not to make good money this year. Take the case of a hypothetical investor (we’ll call him “Dave”) who starts by randomly deciding to split his investments evenly between US stocks, international stocks, bonds, and cash. And let’s further assume that Dave, being Dave, manages to sink his money into the worst performing domestic stock category (small value) and the worst-performing international (frontier markets) and worst bond (GNMA) and worst money market (national munis) categories. Our sad sack surrogate would still have made more than 10% gains this year.

In a normal world, returns from stocks are a combination of:

    • growth in corporate earnings (roughly zero in 2019) plus
    • dividends (about 1.7%) plus
    • the rate of inflation (2.1%) plus
    • the lunacy of other investors (if the fundamentals justify a 4% rise and the market delivers a 30% rise, lunacy necessarily accounts for 26% of the market’s gain).

Those seeking a term less judgmental than “lunacy” use “animal spirits.” Fair enough. Lyn Alden gave a fair illustration of how spirited animals might become, which she illustrated with the case of Apple and its stock:

Apple’s earnings were flat in 2019, with zero growth. Their phone sales were sluggish, which was partially offset by an increase in service revenue.

Flat earnings, zero growth, sluggish sales, stagnant product lines, glitch products, a rising suspicion that users need to be trapped in the Apple ecosystem to keep them loyal … all surely justifies the 86% rise in Apple’s stock price this year.

US corporate earnings, goosed by tax cuts and Fed interventions, have risen only 35% over the past decade, in which dividends and inflation are stuck at 2%. Meanwhile, the US stock market (measured by the rise of the Total Stock Market Index fund) has risen 241%. Neil Irwin of the New York Times frets about the implications of that past profligacy on our future returns.

But the interesting thing about this current moment in markets is that the prices of different assets look reasonable relative to one another while looking absurdly overvalued relative to those of decades past.

The buoyant stock market makes perfect sense in a world of very low long-term interest rates. The risk is not that one asset ends up being a bubble, but that all of them are.

Yet there’s nothing new about that risk. It has been the reality for the better part of the last decade, reflecting long-building, powerful forces. Market developments in 2019 suggest that they’re not going away in the foreseeable future; instead, it seems that’s just how the world is going to be.

All of which means we should enjoy our big market gains now — because they are essentially presaging a gloomy, even if not disastrous, economic decade to come. (Your Portfolio Is Probably Doing Great. That’s Bad News for the Future, 11/27/2019)

The Power of Click-Bait

In order to parody click-bait journalism and encourage folks to take winter refuge in more sensible pursuits (we suggested read books that are a bit off the beaten path), we wrote a click-bait article title: Reduce your 2020 risks by 50% with this one move!

Within 24 hours, it became the most-read article in MFO history. Here’s the readership data from Google Analytics, showing readers for our most popular and second-most popular articles:

Yep. Nine times as many page-views for the click-bait as for anything else. Our best guess is that computers scan the internet for click-bait, then dispatch fleets of drones to descend and “scrape” the article for some unknown use. 27,000 “readers” on Day One, about 1,000 readers combined between Days 2 and 30.

That explains the continuing flood of bad articles. We argued that you should step away from your keyboard for the three winter months, read books, clear and reset your brain, engage with family. That’s not, we argued, an indulgence. It’s a necessity if you want to enjoy life and avoid making a series of horrendous decisions driven by bad “analysis” and “journalism” that pours from your screen onto the floor.

At base, these article writers must take speculation and present it as certainty. Their confidence buys your attention. That’s painfully illustrated by at least five December headlines announcing the imminence of a stock market collapse: 50% or so, maybe starting in January.

How do they know that?

They don’t.

Why do they say that?

It sells.

Will the market crash? Likely, at some point. Since we don’t know when, why, by how much or for how long, we continue to offer the same guidance:

    • Focus on your real needs, not on the “beat the market” game
    • Take no more risk than you need to meet your objectives
    • Know how much risk you’re taking
    • Remember that cheap, passive, market-weighted funds thrive in rising markets, but suffer in falling ones
    • Entrust your money to managers only if you understand what they’re doing with your money, they have demonstrated the ability to manage risk intelligently and they invest alongside you.
    • Then go enjoy life. Go for a walk and leave your phone behind. (Can you remember growing up where that advice would have been nonsense since phones were … well, phones and securely wired to the wall? Can you imagine how terrified most people would be at the very thought of venturing without that tether in their pockets now?) Make dinner for people you love. Rearrange the living room. Call your mom. Plant a tree. Compliment a stranger. Read a book. Smile, ponder, grow.

We’ve written guides and essays on pretty much all of the investment-related reflections above, and we’ll keep at it.

Celebrating the faith of friends, family and the MFO community

A number of folks this winter expressed a heartwarming, yet nearly inexplicable, faith in my ability to learn.

To you all, thanks and thanks again!

Thanks, too, to the good folks at Long/Short Advisors who shared a pail of delicious cookies. They didn’t survive long enough to make the picture.

Celebrating a world that’s better than we recognize

Yes, I know (climate crisis, political crisis, social media crisis, inequality crisis) and no, I’m not (crazy, Pollyanna).

There’s an interesting paradox; most Americans think our country is moving in the wrong direction, and we’ve consistently believed that – through Republican and Democrat governments – since about the turn of the century. Before then, opinions varied. At the same time, the vast majority of Americans think things are pretty good in their own lives, and that’s been consistently true for decades.

Source: Gallup, Satisfaction with Personal Life (2019)

Here’s one possible resolution to the paradox: our life satisfaction is driven by what we directly experience, our social dissatisfaction is driven by what we’re told. Often enough, the sources of the disturbing news are people who directly benefit from our anxiety, either because it causes us to elect their candidates, fund their organizations or read their prose.

I’ll offer two minor start-of-year heresies for your consideration:

    1. outrage is good – it means that we’re not utterly complacent and can, under the best of conditions, set the stage for uniting to address problems.
    2. the sources of our outrage need to be kept in perspective – if we believe that all is chaos, we become attuned to seeing even more chaos, despair and lapse into complaint and inaction. Think of the post-WW1 poets, such as William B. Yeats:

Turning and turning in the widening gyre  

The falcon cannot hear the falconer;

Things fall apart; the centre cannot hold;

Mere anarchy is loosed upon the world,

The blood-dimmed tide is loosed, and everywhere

The ceremony of innocence is drowned;

The best lack all conviction, while the worst

Are full of passionate intensity. (The Second Coming, 1920)

That’s really not productive. And so I asked some folks, mostly smarter than myself, and stumbled across some others, uniformly smarter than me, “what do you see beyond the darkness?”

Tadas Viskanta, Huge gains have been made to alleviate poverty and disease

Tadas is the Director of Investor Education at Ritholtz Wealth Management and publisher since 2005 of the renowned Abnormal Returns which, daily, strives to bring “the best of the finance and investment blogosphere to its readers” through thoughtfully curated links and occasional snark.

You are absolutely right that we need some antidote to all of the bad news One trend I have seen over the past few years is that “good news’ has become a bit of a growth industry. The amazing thing is that the vast majority of people do not see or recognize the huge gains that have been made to alleviate poverty and disease over the past few decades. We, humans, are resourceful creatures. If you leave aside existential threats (for now), humans will adjust. Even when it is a painful thing to do.

Being a master of the links, Tadas offered five. “This Matthew Ridley piece has gotten a lot of play.” (Mr. Ridley is a member of the British House of Lords, gadfly and author of The Rational Optimist. He describes himself as “a climate lukewarmer.”) Other resources for folks seeking a counterweight to pessimism are the Arbutus Foundation’s Reasons to Be Cheerful blog and Oxford University’s “Our World in Data: Research and data to make progress against the world’s largest problems.” Folks looking to add to their book stack might consider Hans Rosling, Factfulness: Ten Reasons We’re Wrong About the World–and Why Things Are Better Than You Think (2018) or Steven Pinker’s Enlightenment Now: The Case for Reason, Science, Humanism and Progress (2019).

It’s interesting to me that the conservative Mr. Ridley’s piece is, in many ways, echoed by the liberal Mr. Kristof’s.

Nicholas Kristof, 2019 has been the best year ever

For humanity overall, life just keeps getting better.

Photo courtesy of the Wikimedia Commons

Nicholas Kristof is an American journalist and political commentator. A winner of two Pulitzer Prizes, he is a regular CNN contributor and has written an op-ed column for The New York Times since November 2001. Kristof describes himself as “a progressive.” His essay, “This Has Been the Best Year Ever” appeared in the New York Times on December 29, 2019.

If you’re depressed by the state of the world, let me toss out an idea: In the long arc of human history, 2019 has been the best year ever.

The bad things that you fret about are true. But it’s also true that since modern humans emerged about 200,000 years ago, 2019 was probably the year in which children were least likely to die, adults were least likely to be illiterate and people were least likely to suffer excruciating and disfiguring diseases.

But … but … but President Trump! But climate change! War in Yemen! Starvation in Venezuela! Risk of nuclear war with North Korea. …

All those are important concerns, and that’s why I write about them regularly. Yet I fear that the news media and the humanitarian world focus so relentlessly on the bad news that we leave the public believing that every trend is going in the wrong direction. A majority of Americans say in polls that the share of the world population living in poverty is increasing — yet one of the trends of the last 50 years has been a huge reduction in global poverty.

The proportion of the world’s population subsisting on about $2 a day or less has dropped by more than 75 percent in less than four decades.

 “Three things are true at the same time,” argues Max Roser, a research director in economics at the University of Oxford. “The world is much better, the world is awful, the world can be much better.”

I also take heart from the passion so many — especially young people — show to make the world a better place.”

Mr. Kristof’s final point provides a segue to …

Sarah Jackson, Twitter makes us better

Photo courtesy of Annenberg School of Communication

Sarah J. Jackson is a Presidential Associate Professor at the Annenberg School of Communication, at the University of Pennsylvania. (It’s my academic field, I can affirm that an appointment at Annenberg is a big honkin’ deal.) Her forthcoming book Hashtag Activism: Networks of Race and Gender Justice (MIT Press 2020) focuses on the use of Twitter in contemporary social movements. The essay from which this is excerpted appeared as “Twitter made us better,” New York Times, 12/27/2019.

It’s impossible to avoid news about how harmful social media can be …ubiquitous Russian bots …privacy violations, election meddling, and harassment.

Despite it all, the way we use Twitter made this decade better.

Rightful critiques of social media, and Twitter, in particular, shouldn’t obscure the significance of the conversations that have happened there over the past 10 years. As we enter 2020, powerful individuals and societal problems can no longer avoid public scrutiny. The online activism and commentary that take place on Twitter are often dismissed as expressions of “cancel culture” or “woke culture.” But a closer look reveals what’s really happening: Many people who lacked public platforms 10 years ago — the young and members of marginalized groups in particular — are speaking up, insisting on being heard.

Like all technological tools, Twitter can be exploited for evil and harnessed for good. Just as the printing press was used to publish content that argued fervently for slavery, it was also used by abolitionists to make the case for manumission. Just as radio and television were used to stir up the fervor of McCarthyism, they were also used to undermine it. Twitter has fallen short in many ways. But this decade, it helped ordinary people change our world.

Mitchell Baker not only (sort of) agrees but runs a global foundation to keep it going.

Mitchell Baker, people are speaking up and speaking out

Mitchell Baker is Chairwoman of Mozilla, the not-for-profit parent of the Firefox internet suite. This excerpt is from a December 2019 letter to Mozilla supporters.

As 2019 ends, I want to come to you with a message of hope. The world today — both online and off — has felt a bit daunting this year.

Which is why I want to tell you there is hope — lots and lots of hope — in the world today. Every day, I see more people speaking up and speaking out to demand change. Every day I see the media doing a better job of holding our big tech company friends to account. Every day I see my friends and colleagues here at Mozilla show up with a growing passion to keep up the fight for good in technology.

Yes, there are problems online and in the world, we must fix — misinformation seeps into too much of our lives, our privacy rights are constantly under attack, the bias in algorithms harms the most vulnerable. Mozilla exists to fight these problems. That is why I care so much about our work and our mission for good. Because at the end of the day, it is up to us to make a change.

When people who care step up with action, that is when change happens. And I see so many of you stepping up. Just think: when Mozilla shipped our first browser — Firefox 1.0 — in 2004, we did it with just 902 staff and volunteer contributors. As of last year, there are more than 15,000 people around the world helping bring Mozilla’s mission to life, the vast majority of those volunteers. This is why I have hope.

A recurrent thread seems to be the recognition that while we (uhhh … those of us subject to the taunt “okay, Boomer”) have let things get seriously awry, our children, inheritors of the problem, seem determined to face it.

Lewis Braham, Millennials take climate science seriously

Lewis Braham is a distinguished financial journalist, author of The House that Bogle Built: How John Bogle and Vanguard Reinvented the Mutual Fund Industry (2011), and a contributor to MFO’s discussion community.

I would say there have been some positive developments in science, particularly in the realm of quantum computing, in the treatments of certain diseases and in the discovery of a living — once thought extinct— giant squid. You can see many interesting discoveries here,

These positive developments, however, must be taken in context with the devastating and increasingly accurate discoveries regarding climate change and the failure of world governments to take them seriously enough. One interesting and I regard as positive change is some millennials are opting not to have children or only have one child because of climate change concerns. Ultimately classical economists would see this as bad news, but such population control is actually good for the planet. So I see it as good news. Millennials take climate science seriously. I’m not sure if this helps but I hope it does and that you have an excellent new year.

A.K. Sandoval-Strausz, Latino immigrants have saved the American city

Photo courtesy of Hachette Book Group

K. Sandoval-Strausz is director of the Latinx studies program and associate professor of history at Penn State University. He’s the author of Hotel: An American History (2007) and Barrio America: How Latino Immigrants Saved the American City (2019). Dr. Sandoval-Strausz’s work was featured on a Marketplace podcast, 12/26/2019.

Considering the severity of the urban crisis, it is hardly surprising that few people expected the recovery that was already taking hold by the mid-1990s — but interestingly, everyone seemed to agree that cities had been saved by people with lots of money … But they overlooked the indispensable role played by Latina and Latino migrants and immigrants, who had started to repopulate and revive declining neighborhoods at least two decades before the “back to-the-city” movement became a significant trend among prosperous and mostly white Anglo professionals. Hispanic newcomers to U.S. cities were more numerous than the returning yuppies.

Over the course of half a century, Latino migrants and immigrants revitalized the cities of the United States, saving scores of neighborhoods from abandonment and replenishing the population in many places that would otherwise have continued to empty out. Their earnings and expenditures served as a form of large-scale urban reinvestment. As workers, they powered metropolitan economies by performing essential labor at countless offices, construction sites, restaurants, day cares, farms, hotels, and homes, while also allowing thousands of manufacturing firms to keep production in the United States rather than moving jobs overseas. As tenants and homeowners, they made distressed residential real estate viable again by renting, maintaining, and renovating countless houses and apartment buildings. As entrepreneurs and customers, they opened local businesses and served as a clientele for revived inner-city commerce, bringing activity and energy back to once-hushed streets and sidewalks. In fiscal terms, their economic activity produced a rebound in sales tax receipts, property tax revenues, and utility payments, adding billions of dollars to once-strapped city budgets, allowing municipalities to pay teachers, maintenance workers, firefighters, and police officers — though the proceeds of these greater revenues were not necessarily spent in the neighborhoods that these newcomers had done so much to improve. Immigrants also helped reverse the crime wave of the 1970s and 1980s and make cities safer than at any time since the 1950s. In sum, they helped remedy a profound national crisis that most observers thought was hopeless.

And elsewhere, coffee!

Research published in the European Journal of Epidemiology (2019) concluded that drinking as little as two cups of coffee a day can increase your life expectancy by up to two years. That’s based on what’s called a “meta-analysis” of 40 other published studies who drew from the experiences of 3.9 million subjects.

Two cups, two years? The path to immortality might lie before me!

Thanks and thanks and thanks!

Thanks to folks who’ve shared books, cookies, kind words, and inspiration.

Thanks to the 249,393 folks who came by in 2019, sharing part of their year with us as we share as much help as we can offer. Thanks, most especially, to the 2,997 of you who are registered members of the discussion board, an active, snappy crowd.

Thanks to the many folks who stepped up to help us meet the terms of our two modest matching grants in December. Challenge One sought five new members. Charles reports that, as of December 30, we have 20 new members. That’s the best single month in a long, long time and we celebrate the growing recognition of MFO Premium’s value. Challenge Two sought $500 to unrestricted contributions. We received two contributions that each, alone, would more than cover the challenge along with a bunch of non-Premium contributions ranging from $10 – 100. We’re deeply grateful for them all.

Not to name names, but we’d like to recognize folks who sent checks this month: Jon V from Gig Harbor (lovely town and a lovely place to enjoy your retirement), Carlyn of Seattle, Richard, Kevin, Rad (we’re so glad to be helpful!), the good folks at S&F Investments (mug #3 is in the mail!), Sharon (we appreciate your continued support!), Rick (we’re happy you enjoy the Premium site),  Sheila, the Ellie and Dan Fund, and several anonymous donors. Through our PayPal link we heard from Jeroen, John, Sunny (a Happy New Year to you, as well!), William from Arcadia (thanks for the vote of confidence!), Vincent (we’re glad you keep coming back!), Barry (you’re an ace!), Robert G, Raymond, the estimable Victoria Odinotska (who, on November 30th, “celebrated 30th anniversary of my landing at the shores of United States (in JFK to be precise) with two suitcases and a $100 in my pocket to start a new life.  I have been living a miracle of a life!” A million cheers, Victoria, happy tears and warm hugs), Edwin, Michael, Joseph, Dale, Altaf, Jason, Cynthia, and Charles.

As always, to our loyal subscribers, Greg, the two Williams, James, Matthew, Brian, Joseph, Seshadri, David, and Doug.

And, finally, to Ted “The Linkster” Didesch (1937-2019). We’ll miss you, sir.


david's signature



“We’re here because you’re looking for the best of the best of the best, sir!”

By David Snowball

When I first started writing regularly about funds and investing, it was as an analyst for FundAlarm, a site whose publisher proclaimed

Our view of the mutual fund industry is slightly off-center. We help you decide when it’s time to sell a fund, instead of when it’s time to buy. The mutual fund industry is full of broken promises, arrogance, greed, hypocrisy — the list goes on. We try to shine a light in the darker corners, and poke holes in balloons that could use some poking.

In honoring that heritage, we routinely publish a roll call of the wretched, funds that have distinguished themselves by their inability to rise even to the level of honorable mediocrity.

The flip side of that equate are the funds that have achieved outstanding returns without sacrificing protection in falling markets. We’ll identify those funds by using the inverse of the roll call of the wretched methodology:

instead of starting with Three Alarm funds (those that have trailed at least 80% of the peers over the past 1, 3 and 5 year periods), we start with Honor Roll funds (those that have beaten at least 80% of the peers over the past 1, 3 and 5 year periods).

we’ll still use four different measures of downside risk –downside deviation, down month deviation, bear month deviation –

Using the tools at MFO Premium, we’ve identified the 10 best equity-oriented funds of the past decade based on each of three different downside measures.

Lowest 10-year downside deviation

Downside deviation can be thought of “day-to-day downside.” It measures only downward variation; specifically, it measures a fund’s return below the risk-free rate of return, which is the 90-day T-Bill rate (aka cash). Downside deviation doesn’t worry about how the stock market is doing, it just identifies funds which – in any market – return less than money in a savings account would.

  Lipper category Downside deviation 10-year annual returns Worst drawdown vs peer group
Vanguard Total Stock Market VTSMX Multi core 7.9 13.3 -17.7 1.6%
Vanguard Balanced Index VBINX Growth allocation 4.4 9.5 -9.0 1.0
Akre Focus AKREX Multi-Cap Growth 5.6 17.1 -8.6 3.5
First Trust Value Line Dividend Index FVD Multi-Cap Value 5.7 13.4 -11 2.6
Vanguard Dividend Growth VDIGX Equity Income 6.2 12.9 -11.2 2
WisdomTree US LargeCap Dividend DLN Large-Cap Value 6.6 12.4 -11.3 1.4
FAM Dividend Focus FAMEX Equity Income 6.7 13.8 -14.4 2.8
Madison Investors MINVX Multi-Cap Core 6.7 12.7 -15 1
Parnassus Core Equity PRBLX Equity Income 6.8 12.9 -14.8 2
Vanguard Dividend Appreciation Index ETF VIG Equity Income 6.8 12.5 -14.2 1.6
Hartford Core Equity HAIAX Large-Cap Core 7 14 -16.2 1.7
Nuveen Santa Barbara Dividend Growth NSBRX Equity Income 7.1 12.4 -13.9 1.5

Lowest 10-year down market deviation

Down market deviation can be thought of as “the downside in any sort of declining market.” Pure downside deviation includes only fund returns less than zero. Basically, DMDEV indicates the typical annualized percentage decline based only on a fund’s performance during negative market months. So, if the market drops by even 0.1% in a month, we report how each fund did and then project it over 12 months.

  Lipper category Down market deviation 10-year annual returns Worst drawdown vs peer group
Vanguard Total Stock Market VTSMX Multi core 7.8 13.3% -17.7 +1.6
Vanguard Balanced Index VBINX Growth allocation 4.3 9.5 -9.0 1.0
Akre Focus Multi-Cap Growth 5.5 17.1 -8.6 3.5
First Trust Value Line Dividend Index Multi-Cap Value 5.6 13.4 -11 2.6
Vanguard Dividend Growth Equity Income 6.1 12.9 -11.2 2
WisdomTree US LargeCap Dividend Large-Cap Value 6.5 12.4 -11.3 1.4
FAM Dividend Focus Equity Income 6.6 13.8 -14.4 2.8
Madison Investors Multi-Cap Core 6.6 12.7 -15 1
Parnassus Core Equity Equity Income 6.7 12.9 -14.8 2
Vanguard Dividend Appreciation Index ETF Equity Income 6.8 12.5 -14.2 1.6
Hartford Core Equity Large-Cap Core 6.9 14 -16.2 1.7
Nuveen Santa Barbara Dividend Growth Equity Income 7 12.4 -13.9 1.5

Lowest 10-year bear market deviation

Bear market deviation can be thought of as “the downside in a seriously declining market.” Basically, bear market deviation indicates the typical annualized percentage decline based only on a fund’s performance during bear market months. For equity-oriented funds, a bear market month is one in which the market declined by 3% or more in 30 days.

  Lipper category Bear market deviation 10-year annual returns Worst drawdown vs peer group
Vanguard Total Stock Market Index VTSMX Multi core 7.4 13.3 -17.7 1.6
Vanguard Balanced Index VBINX Growth allocation 3.9 9.5 -9.0 1.0
Akre Focus Multi-Cap Growth 4.9 17.1 -8.6 3.5
First Trust Value Line Dividend Index Multi-Cap Value 5.1 13.4 -11 2.6
Vanguard Dividend Growth Equity Income 5.8 12.9 -11.2 2
FAM Dividend Focus Equity Income 5.8 13.8 -14.4 2.8
WisdomTree US LargeCap Dividend Large-Cap Value 6.1 12.4 -11.3 1.4
Madison Investors Multi-Cap Core 6.2 12.7 -15 1
Fidelity Select Wireless Portfolio Telecom 6.2 12 -16.1 2.9
Parnassus Core Equity Equity Income 6.3 12.9 -14.8 2
Vanguard Dividend Appreciation Index ETF Equity Income 6.3 12.5 -14.2 1.6
Neuberger Berman Real Estate Real Estate 6.4 13.2 -17.9 1.2
Nuveen Santa Barbara Dividend Growth I Equity Income 6.5 12.4 -13.9 1.5
Johnson Equity Income Equity Income 6.5 12.1 -14.9 1.2
Virtus Duff & Phelps Global Real Estate Securities Global Real Estate 6.5 11.4 -18.6 2.6

Let’s step back and assess what we’ve done and what we’ve discovered. What we did was:

Step One: identify funds with top tier returns over the last 1, 3 and 5 years – the FundAlarm Honor Roll

Step Two: from among those funds, identify the ones that has subjected their investors to the smallest routine trips and falls (downside deviation), the smallest trips and falls in months where the market was tripping and falling (down market deviation) and the smallest trips and falls in months where the market was falling hard (bear market deviation).

What we found was that the same funds appeared over and over. Apparently, the discipline that limits small, day-to-day trips also points toward funds that protect in far more serious declines. Here, then, is a very short list of very good funds. Each appeared on all three lists. Funds in blue are designated as MFO Great Owl funds, funds that have delivered top quintile risk-adjusted returns, based on Martin Ratio, in its category for evaluation periods of 3, 5, 10, and 20 years.

Akre Focus AKREX

FAM Dividend Focus FAMEX

First Trust Value Line Dividend Index FVD

Madison Investors MINVX

Nuveen Santa Barbara Dividend Growth NSBRX

Parnassus Core Equity PRBLX

Vanguard Dividend Appreciation Index ETF VIG

Vanguard Dividend Growth VDIGX

WisdomTree US LargeCap Dividend DLN

Bottom line: as we’ve found before, dividends matter and quality matters, most especially to investors who are less obsessed about shooting for the stars and more concerned about sustainable gains in good times and manageable losses in bad ones. We commend our profiles of Akre Focus and FAM Dividend Focus (formerly FAM Equity Income) to you, but admit the Parnassus Core Equity has an amazing array of attractions from its long-term ESG focus, stable team, huge insider ownership, and first-rate risk-return profile.

In celebration of Ted Didesch (1937-2019)

By David Snowball

On 9 December 2019, the longest-tenured member of the MFO Discussion Board passed away. Theodore J. Didesch, universally known as “Ted” though he dearly wished for the sobriquet “The Linkster,” died of congestive heart failure.

We mourn his passing even as we celebrate his life. I’d like to share a few words about Ted, interspersed with the comments left by other members of our community on a memorial thread.

FundAlarm launched its “moderated Bulletin Board” in 1998. Ted arrived shortly thereafter. The records of that version of the board are lost now but the Internet Archive’s Wayback Machine first began capturing records of the FundAlarm board in late 2001. And when we look at the first captured page, there was Ted.

For the past 19 years or so, Ted’s daily ritual – almost his devotional – was to rise by 5:00 a.m., set the coffee to brewing, boot up his computer and search the internet for useful story leads. Coffee at hand, he’d spend the hour finding and posting links. He’d return later in the day to see what conversation he’d provoked and to poke the people who vexed him.

There was rather a lot of the latter, then and for the decades that followed.

Mark: Yes we scuffled but all families do. RIP Ted.

Hank: In celebration of Ted – As most here probably know, we were often at odds over the years. He sometimes labeled me “the Trump Basher” (not meant as a compliment) and I often responded in kind – occasionally to excess. Ted was a worthy opponent in any kind of tussle.

But I am so fortunate to say that our last exchange was both cordial and one I will forever cherish as my lasting memory of Ted. It was little more than a month ago, November 12, that I found myself whiling away the hours during a lengthy layover at Chicago O’Hare. I posted some innocuous comment on the board and mentioned my whereabouts. Hours later when I got back home in Michigan and logged-in, there was a warm “Hank: Welcome to The Windy City” from Ted. And he followed it with a smiley emoticon. While Ted frequently used emoticons, readers will recall that he was quite stingy with the smiley ones.:) So I am doubly fortunate to have had the wisdom of his long presence here and also to have had such a memorable and pleasant final exchange to remember him by.

In broad terms, 7,300 days have passed since Ted first started posting. I’ve been around for most of them. To my knowledge, Ted took one sabbatical – he briefly attempted to retire, but it was making him crazy – and, otherwise, missed only about 20 days of posting.

Simon: His eagerness to look out for us all was unstoppable and I will miss (and am already missing) his breakfast briefings in particular. He was a one-man CNBC. Cheers, Ted.

Ted’s last posts to the board came on November 28; not a farewell, not a personal note or complaint, just a full list of stories to follow. His very last, “M*: A Well-Built Balanced Fund for Retirees: (TRRIX).” Few of his sparring partners knew of his illness, none knew of its gravity or could have guessed the imminence of his departure.

That last post was #32,279 for him at MFO. At FundAlarm, he hit 32,000 and was determined to surpass that at his new home online.

And he did. His wife, Lynn, shared with us a bit about her husband.

I am so sorry it took me so long to write you. I’m not that computer savvy and I could not figure out how to get on the MFO site.

I can’t begin to tell you how much I appreciate all of your kindness to me. The flowers you sent were so lovely and the transcript from your discussion about Ted meant so much to my son and me.

Ted loved being a part of the Mutual Fund Observer. He would spend hours doing whatever it was he did. I was never quite sure what he was doing but I know it gave him great pleasure. He had his coffee every morning out of his Mutual Fund Observer mug while he was happily tapping away on his computer.

Thank you so much for everything you have done. It does not seem enough to just say thank you, but I do thank you very, very much.



I share the sentiment, Lynn. It does not seem enough just to say thank you, but thank you, Ted. In your memory, I planted a tree (an oak, renowned for longevity, hardness and the ability to absorb lightning strikes without failing) and posted a link.

The stream of characters on a screen can touch a heart, just as surely the words that flow from the poet or novelist. The daily routine of checking in, seeing familiar names, watching the predictable sparring, can create meaning. It can create a space that’s important, and a community – perhaps a family – that’s very different from our physical ones but no less meaningful.

Anna: Christmas at MFO without Ted pulls at my heart. So long, Linkster, I’ll miss you, your leadership, and your banters.

VirtueRunsDeep: I share so many of the same feelings already expressed here. One thing I will add, is that Ted’s presence through his many posts (he was a force on MFO, to be sure), his presence is a reminder of how we can be connected to people we never meet in person, how we can make virtual-relationships and impressions because of the internet and places like MFO. It’s a reminder (for me) that what we do — even online — might matter. In honor of Ted, I’d like to thank so many of you here who I have read through the years, the ways you’ve challenged me to do more and better financial research, to think about investments (not just money, but investments in people) as an ongoing lifelong experience. Thanks to all. And to Ted: peace.

I’ll leave the closing thought to STB65, whose conclusions I share:

STB65: I want to add my condolences on Ted’s passing. His multiple postings almost always had something of value among them, and flat days were never truly flat. I suspect the site will be a bit smaller, unless others step up their postings of relevant articles and columns. Ted looked at multiple sources for his articles and I don’t know if anyone really will replace him.

The road goes on, but the company of travelers is diminished.

San Francisco Treat

By Charles Boccadoro

“Go West, young man, go West and grow up with the country.” ― Horace Greeley

My home state of California rates a close second to Pennsylvania.

On what scale?

Assets under management (AUM) by the fund companies.

At $6 trillion, it sports twice the AUM of New York.

While Pennsylvania is home to fund behemoth Vanguard, California is home to about 125 fund companies, including Capital Research, advisor of American Funds, BlackRock iShares, PIMCO, Dodge & Cox and DoubleLine. Charles Schwab also resides here but recently announced it would be moving its headquarters at least to Texas with the TD Ameritrade acquisition.

The AUM is split pretty evenly between the north and south parts of the state. San Francisco with surrounding cities like San Mateo, Walnut Creek, Redwood City, San Jose, and Palo Alto, may hold a slight edge over Los Angeles with its surrounding cities like Newport News, Pasadena, Santa Monica, El Segundo, Irvine and Beverley Hills.

Walnut Creek based Litman Gregory recently held its Investment Forum in San Francisco, and I used the opportunity to catch-up with three previously profiled funds. I remain a champion of all three:

AlphaCentric Income Opportunities Fund

In his amazing book Outliers: The Story of Success, Malcom Gladwell maintains that meaningful work embodies three things (paraphrasing): it challenges the mind, has no one looking over your shoulder, and provides reward commensurate with effort. Each time I visit Tom Miner and his team at Garrison Point, IOFIX’s subadvisor, I see meaningful work firsthand.

Still in Walnut Creek, they moved recently to a smaller, but more open office with great views of the town’s rolling hills. It’s just a block from the BART station, about 30 minutes to downtown San Francisco. The enthusiastic team has grown slightly, but at its core remains three traders and three analysts.

Sixty-five inch displays line tables and walls, most emitting market data from Bloomberg terminals. One emits a crystal clear live image of co-founder and CEO Garrett Smith. He says “hi” as I walk in. He often works remote from his home state of Idaho. Co-founder and CIO Brian Loo works similarly from LA.

Director Jonathan Tran and Principal Tom Miner of Garrison Point Capital

While touring the new space, Director Jonathan Tran and I marvel at the rapid advancement in streaming technologies that make remote work possible: the myriad of communication features on the iPhone, proliferation of wireless Nest cameras in the home and office, and free high-speed internet at public libraries.

This is important.

Why are city managers from small and rural cities around this state encouraging companies to set-up remote offices or utilize the satellite work spaces they themselves are building? “Because they are places where young families and college grads can afford to live. San Francisco and Palo Alto are untouchable.”

This team remains immersed in the “miracle of the housing market.” With emphasis, Tom adds “no other asset class both appreciates and de-leverages.”

But he is skeptical of the large disparity between the most expensive properties and the least. “You know what the difference is? $2000 per square foot versus $20!” While his job mandates he ponder ways to exploit the opportunity, he personally looks for ways to help communities with current low-income housing shortages.

Tom and Jonathan take me through their latest chart deck on the fund.

Many of the selling points remain:

  • Housing prices increase at 4% per year … have for a long, long time
  • Mortgage delinquencies are decreasing
  • Loan-to-values (LTVs) are increasing
  • Voluntary prepayments (refinancings) are increasing
  • Lower priced homes continue to outperform more expensive one
  • Mortgage rates also remain historically low
  • Owning is less expensive than renting
  • Primary residence remains largest portion of household wealth
  • Fund is uncorrelated with other asset classes, including equities and traditional bonds

What’s changed?

Corporations have re-levered since the great recession, making corporate debt twice as large as non-agency residential mortgage back securities (RMBS) and BBB ratings now represent largest portion of investment grade credit, like it was in 2001 and 2008.

There is less than $300B in legacy (2007) non-agency RMBS debt available, down from its peak of $2.1T in 2007. It continues to shrink at 16% per year. They’ve partially replaced their legacy holdings with Freddie K, the multi-dwelling equivalent.

Per the latest statement of additional information (SAI), Garrett and Brian have increased their investment in the fund to over $100K each up from $50K and $10K. Tom remains above $1M.

IOFIX assets have grown to $4B, which places them in about the 15th spot of 130 funds in its category. The largest by far is PIMCO Income (PIMIX) with $134B AUM.

Why has AUM grown?

Because since launch in July 2015, the fund goes up in healthy increments and rarely goes down. Through November 2019, it has returned 10.2% annualized, or 6.2% better that its peers … annualized! Its worst drawdown, based on month ending returns, was 0.9% in December of last year when everything else was crashing.

It holds the top absolute and risk adjusted (based on Martin) return positions in its category since launch, with a batting average (of beating peers monthly) of 72%.

It returned 12% this past year and pays a 4.7% dividend, distributed monthly.

The fund has received Morningstar’s 5 star rating since it turned three. It also received Lipper’s “Best” rating in the Multi-Sector Income category.

It is an MFO Great Owl.

Here are the four-year risk and return measures of the five top performing Great Owls in the Multi-Sector Income category … IOFIX far outperforms them all:

Why have they not yet closed, when in our profile (at closer to $2B) Tom felt closure was month-to-month?

“We still manage to find opportunities. At the current rate of growth, it amounts to just one trade per day.” The firm now prefers “steady if slightly increasing net flow.”

So far, it has not hurt performance. As a niche firm, they hold only a small percentage of the non-agency RMS market. Much larger holders are PIMCO and TCW.

Regarding liquidity, they continue to maintain a $200M line-of-credit (LOC), though they rarely to use it. Last time was about a year ago. The LOC represents a hedge against any sudden large redemption. That said, they also know every shareholder of the fund and ultimately their behavior. Any frequent trading is flagged and no single shareholder owns enough to warrant concern at this point.

Junkster, a long-time junk bond investor and contributor to the MFO Discussion Board, posted recently that this fund possessed unique qualities. He believed the Garrison team seized the right opportunity set at the right time. And, because of its niche roll, the fund had not succumbed to group think. From his post:

These subprime borrowers have now been in their homes 12 to 16 years and have built up equity instead of being upside down when the housing market cratered in 07/08. Dan Ivascyn mentioned in his recent interview how unlikely these borrowers would be to default now even if their economic situation worsens.

The fund’s core strategy may have a limited time horizon. Perhaps a handful more years. Maybe less.

In any case, with over 13,000 funds flooding the market place, the folks at Garrison Point accomplished something quite unique.

It has been a joy to watch this shop do meaningful work.

Zeo Short Duration Income (ZEOIX)

Venk Reddy, Founder and CIO of Zeo Capital, along with Paige Uher, Director Investor Relations, were kind enough to meet with me in their downtown SF office for a brief update on ZEOIX and the firm in general.

Each time I meet with Venk I come away feeling he’s always the smartest guy in the room. Since launching ZEOIX in June 2011, the fund has delivered 3.1% per year in a zero interest rate environment.

In 2018 I surmised that given “the current interest rate environment and the continued maturity of this fund, there has never been a better time for very conservative investors to consider owning ZEOIX …”

This past year it returned 5.5%, the fund’s best, paying 3.7% yield, distributed monthly. Venk makes it look easy.

Its AUM now exceeds $400M and Paige makes a point of knowing every investor. The quarterly letters and teleconferences with investors help support its growth.

Since launch, it is a top quintile fund based on every risk adjusted return measure in the Multi-Sector Income category and holds the highest Martin Ratio.

Its drawdown based on month ending return has never exceeded 1.5%.

It is an MFO Great Owl.

It remains a very attractive option for risk-averse investors who might normally only consider money market funds.

The firm continues to patiently seek short-term credit opportunities in defensive, if boring, companies that everybody needs with minimal chance of default. And, it’s never tempted to just “do something” if the opportunities don’t appear.

“Did you know there is a helium shortage?” Venk asks. And then goes on to tell me about companies benefiting from it.

He remains skeptical of the Fed’s “unapologetic market manipulation” and of the industry’s “vilification of paying for expertise.” Paige informed me that they were not crazy about our latest expense ratio rating (ZEOIX scores a 4 … above average.), but did share they were hoping to reduce the ER still.

The firm lost portfolio manager Brad Cook, requiring Venk to engage more frequently in daily operation, but Paige shares that she appreciates the benefits of a small team.

Finally, their second fund Zeo Sustainable Credit (ZSRIX), which David alerted us to recently, has accumulated about $10M. But the firm is deeply committed to the fund, stating “ESG has a long-term mandate” and “sustainable credit equals good credit.”

I believe them.

Litman Gregory Alternative Strategies Fund (MASFX)

This year’s investment forum was the firm’s largest and included notable speakers like DoubleLine’s Jeffrey Gundlach and Guggenheim Partners’ Scott Minerd.  The relatively small downtown setting was supported by LG’s strong and steady team of seasoned analysts.

I give Brian Selmo my vote for best talk. He’s one of FPA’s portfolio managers along side Steven Romick.

The firm known simply as DCI now fills the long-short portion of MASFX, replacing Passport Capital. The fund’s composition:

  • DoubleLine, Opportunitic Income, 25%
  • DCI, Long/Short Credit, 19%
  • Loomis Sayles, Absolute-Return, 19%
  • Water Island Capital, Arbitrage Strategy, 19%
  • FPA, Contrarian Opportunity, 18%

Since its launch just over 8 year ago, MASFX is the top returning fund in the so-called Alternative Multi Strategy. Here is Lipper’s definition:

Funds that, by prospectus language, seek total returns through the management of several different hedge-like strategies. These funds are typically quantitatively driven to measure the existing relationship between instruments and in some cases to identify positions in which the risk-adjusted spread between these instruments represents an opportunity for the investment manager.

Here are its 8-year risk and return numbers versus category average:

It delivered 8.5% this year, one of its best.

It reduced its expense ratio recently to 1.36%, which places it as one of lower costing alt funds.

AUM has slowed a bit and remains just under $2B. I suspect it will climb more quickly when volatility returns to the markets.

Given the uncertainty of today’s environment, this conservative fund is one I would strongly consider owning.

LG’s latest fund High Income Alternatives (MAHIX) also had a good year, if disappointing its “High Income” expectations at just 3.3% yield.

I continue to believe that the alternatives space is where LG analysts add value:  vetting, portfolio construction, and monitoring. If it were my firm, I’d consider providing only mixed-asset funds with alternative strategies, perhaps targeting various levels of risk tolerance, investment horizon, and investor need … like I believe they have and are trying to do with MAFSX and MAHIX, respectively.

Here’s lifetime performance on the full family of LG funds, with MASFX remaining its clear star.

Rules Based Investing

By Charles Lynn Bolin

Ah, Rules Based Investing, the magic elixir to investing success! It is the answer to the gloomy conclusions of both behavioral finance scholars and Pogo. Guys with PhDs have taken reams of paper and thousands of hours of computing time to document what Pogo knew 50 years ago: in the search for the source of our problems, we rarely need to look much past our mirrors. Our impulsiveness, fits of greed and spasms of fear, overconfidence, and hesitance, sabotage our portfolios. Rules-based investing attempts to take the emotion out of our decisions by laying out a series of simple triggers and mechanical responses: for a simple example, if the S&P 500 does X, you do Y.

Look up Rules Based Investing on the internet and you find companies wanting to manage your money – to sell you something – a service or a subscription. Rules Based Investing is often associated with quantitative trading such as Smart Beta funds – funds that apply rules faster and more efficiently than you can. Few of these funds have been stress tested during hard times. These rules are usually oriented toward investors who trade frequently. I briefly cover my Investment Model and Ranking System at the start of this article.

While I do use a rules based system for picking funds and making allocations, I am going to look at a broader set of issues over the next several columns. I’ll argue in favor of six rules of investing that I describe are more about rules for lifetime investing. In this month’s essay I’m going to:

    1. lay out the six rules that I’ll be talking with you about
    2. review the current financial environment and the funds fit to it, and,
    3. explain the importance of developing a financial plan, Rule #1.

I’ll close by offering some resources for developing a financial plan.

Let’s go!

Six Rules of Investing

These are a broader set of rules that are more important to follow. Below are the most important rules of investing for the individual investor. The topics are broad that I will write these as a series of articles. The goals are inter-related, making financial planning a continuous process that should be done over a lifetime.

Rule #1: Develop a Financial Plan

Rule #2: Know the Short and Long Term Investment Environment

Rule #3: Manage Risk First

Rule #4: Invest Appropriate for the Business Cycle and Long Term Trends

Rule #5: Understand the Impact of Taxes on Investments

Rule #6: Develop a Simple Investment Process Based on Rules and Guidelines


Few people understand was “the long run” actually means when we talk about “stocks for the long run.” The chart below was a surprise to me when I first saw one like it about 15 years ago. It is the inflation-adjusted stock market prices. It took 25 years for stock prices to permanently rise above the level of 1960 when adjusted for inflation. Valuations and inflation have a major impact on long term investing.

FIGURE #1: Inflation-Adjusted Stock Returns

Source: Created by the author based on St. Louis Fed Reserve (FRED) & S&P Dow Jones Indices

The next chart is equally descriptive. It shows the inflation-adjusted 10 year Treasury rate. Inflation-adjusted savings have typically been above 2.5% for most of the past 70 years, but have been very low since the 2007 recession. Note that with inflation rising and bond rates dropping, real interest rates are near zero when adjusted for inflation. This is something that has only occurred three other times in the past 70 years.

FIGURE #2: Inflation-Adjusted 10 Year Treasury Rates

Source: Created by the author based on St. Louis Fed Reserve (FRED) & S&P Dow Jones Indices

As a result of low stock and bond returns and longer lives, companies have shifted responsibility for funding retirement from themselves to their employees; that is, from defined benefit company pension plans to the defined contribution plans. The responsibility for managing one’s retirement is increasingly shifted to individuals in a landscape with increasing complexity, more choices, and higher risk.

In short, “getting it right” is getting both more challenging and more important.

Review of Investment Environment

The Investment Environment has begun to improve, but risks and valuations remain elevated. Bonds are no longer benefiting from falling rates. Fund investors continue to reduce equity holdings in favor of municipal bond funds, in particular. Stock buybacks are supporting the equity markets but that support is declining. As someone nearing retirement, my preference, in this environment, is to hold stock allocations at conservative levels. Below is my Investment Model. The red shaded area suggests that investors should remain conservative, but the dashed blue line shows that the investment environment is improving.

FIGURE #3: Investment Environment

Source: Created by the Author

Investing according to the business cycle is about managing risk. Figure #4 below from Fidelity shows a conceptual impact of the strategy. An investor takes less risk in the late stage of the business cycle and loses less during bear markets which leaves him better prepared for the recovery stage.

FIGURE #4: Conceptual Results of Investing According to the Business Cycle

Source: Fidelity

Several investment advisers suggest that there is the possibility of higher inflation and a weakening dollar related to higher budget deficits and falling rates. The impact is that gold and commodities may do well. I monitor but don’t react until I see trends developing.

Review of November Funds

An investor should be able to summarize his or her investment strategy on a napkin. Here is my rules based system. Each month, I extract about a thousand funds from the Lipper database using the Mutual Fund Observer screens. The funds are ranked based on momentum, risk, risk-adjusted returns, yield, and quality factors. The top funds are grouped into four buckets based on risk and additional buckets for inflation, commodities, income, global bonds, global stocks, and defense. I follow Benjamin Graham’s guidelines of never having more than 75% in stocks nor less than 25%. To be diversified, I own funds from at least six of the buckets.

Risks in the economy are related to global negative yields, high budget and debt levels high valuations, the potential for interest rates to rise, weakening dollar, and inflation potential. I have adjusted the Ranking System to better account for these risks. The top-ranked Objectives and funds are shown in Tables #1 and #2. The Bear column refers to the average category performance during the past two recessions.

It is noteworthy that the bond funds in Bucket #2 have had negative returns over the past three months. Bucket #3 (balanced, income, Healthcare, and flexible portfolios) is where I prefer to be concentrated at this time. For Bucket #4, I think it is too early to move into growth funds and prefer Equity Income. I prefer quality debt but do own corporate bond funds. It is also interesting to note that the Global Equity Funds lie between Buckets #3 and #4 for risk (Ulcer Index) and Risk Adjusted Returns (Martin Ratio). I believe that this is due to the high budget deficits, falling interest rates, and higher valuations in the U.S. It is a trend worth monitoring.

For diversity, I like international income funds and global real estate. Top Ranked value, equity core, and income have returned about 8% over the past three months compared to 6% for low volatility funds.

TABLE #1: Top Ranked Lipper Objectives

Source: Created by the Author based on Mutual Fund Observer

TABLE #2: Top Ranked Funds for Top Ranked Lipper Objectives

Source: Created by the Author based on Mutual Fund Observer

I selected two funds from each bucket and set up Portfolio Visualizer to select one or more funds from each of the buckets excluding commodities and to assign allocations. The link to Portfolio Visualizer can be found here. The resulting portfolio is shown using MFO Portfolio since June 2018. The Portfolio is rated “Conservative” (MFO Risk = 2). The Ulcer Index (length and duration of drawdown) is low (less than 1). The Martin Ratio (risk-adjusted return) is high (10.2). Overall the returns were 10.1% annualized with a maximum drawdown of less than 3%. Some of the rules built into my Ranking System are evident from the results (Momentum, Risk, Risk-Adjusted Returns, Momentum, Yield, and Quality). Age and Fund Family Rating are part of the Quality Index and are used to ensure a proven track record. The Great Owl Classification is part of my Ranking System. Another rule that I use is to restrict sector funds, riskier funds, and Closed End Funds to 5% allocation per fund or less. The yield for the portfolio is 3.0%.

TABLE #3: Model Portfolio

Source: Created by the Author based on Mutual Fund Observer

Figure #5 shows the performance of this portfolio since January 2018. The portfolio performed well in 2018 being defensive, and well in 2019 due to falling rates and the rebound in equities. How will funds perform in 2020? Will they behave more like 2018 or 2019? I have no crystal ball but build my portfolio based on the anticipation of low market returns with high volatility.

FIGURE #5: Performance of Model Portfolio

Source: Portfolio Visualizer

Figure #6 is the efficient frontier for the funds in the portfolio for the time period starting January 2018. The Blackrock Muni Assets Fund (MUA) is a closed end fund with a yield of 4.5%. Closed end funds typically have higher volatility. The funds in the lower-left corner are the low risk, low reward funds in Bucket #1. As the funds move to the upper right they become higher volatility, higher reward.

FIGURE #6: Efficient Frontier of Model Portfolio

Source: Portfolio Visualizer

I have done an end of year rebalance from intermediate bonds and equities to short-term bonds and money market funds. I expect a run of the mill correction in 2020 and use model portfolios as shopping baskets of funds to buy when the next correction occurs.


My first exposure to financial planning was about a decade ago when I read Retire Secure!: A Guide To Getting The Most Out Of What You’ve Got by James Lange. I developed two habits inspired by the book. I developed a lifetime budget complete with expenses, estimated returns, and inflation. I also switched contributions to my Roth 401k because earnings will grow tax-free as long as I have them and heirs can inherit them without paying taxes.

Later, I started using the Fidelity Retirement Tool which takes into account pensions and retirement dates, social security, inflation and market conditions. Plans should have a margin of safety built into them for inflation, health care costs, longevity, and market volatility. I talked over the results with a Fidelity advisor and moved funds from my employer-sponsored account into a traditional IRA which has more funds available to choose from.

Following simple rules of retirement planning such as starting early, building up to a savings rate of 15% of your income or more, maintaining emergency funds, having enough insurance, keeping debt low, and investing appropriately will allow many people to have a more secure retirement.

The first rule is “Develop a Financial Plan”. It is the basis for knowing how much risk you need to take and the required savings rate to reach your goals.

Partnering with a financial adviser who is well versed in all of the rules, regulations, options, and opportunities facing you makes much more sense than trying to educate yourself from the ground up.

From The 5 Years Before You Retire: Retirement Planning When You Need It the Most (2014) by Emily Guy Birken.

Once you have established your Personal Principles, it is then time to move on to setting your goals. Without goads, life is lived at the behest of a collection of circumstances.

The Ultimate Financial Plan, Jim Stovall and Tim Maurer

Having a disciplined financial plan is a short term sacrifice for long term gains. Just as important, it provides an investor with options to afford to change to more enjoyable work, to go back to school, to buy that house as well as financial security to get through hard times. There are many advantages to developing a financial plan. First, it educates people on how much it takes to retire and hopefully develops a disciplined approach to saving. Secondly, it helps people develop disciplined plans for investing. Thirdly, it can provide a long term view on how to manage risk and taxes.

Developing and reviewing a lifetime financial plan has proven very beneficial to me. It answers many questions but raises even more. I read books about retirement and estate planning, and talk annually with a financial planner. I have built up pensions and will be taking an annuity instead of lump-sum buy out. I am deferring social security partly for the higher payout, but more as another source of insurance for my wife. My wife and/or I are covered with life, health, and/or longevity insurance. In this article, I review some of the factors I have reviewed preparing for my own retirement, as well as some of the things that I still need to consider.

People should save 15% of their income over their lifetimes in order to meet retirement needs, but most fall short of this amount. Saving for retirement should begin as early as possible in life even though starting salary may be relatively low and starting a new career and family take precedence. Saving for many of us is a choice. The old adage to “pay yourself first” means to prioritize a savings plan. If investors save automatically then they are more likely to have enough saved for retirement and emergencies. Sacrificing now benefits the saver as those savings continue to grow with compound interest.

What Help Is Available?

I like the quote below from 10 Best Robo-Advisors of 2020 in which the author recommends that if one does use a robo-adviser that you do also use a professional.

“Disclaimer: Our content is intended to be for informational purposes only and should not be understood as financial advice. We recommend that you consult a professional that can help you achieve your goals when making life’s important financial decisions.”

There are many sources available for getting help in developing a financial plan. A good place to start researching financial plans is with these three Consumer Reports. Finding advisers to meet general planning advice, insurance and estate planning, or tax expertise read What Do the Letters after a Financial Adviser’s Name Really Mean? If you are trying to decide if you want a robo-adviser, human adviser, or a hybrid system take the survey in Find the Adviser That Suits Your Style. If you are looking for a highly rated company or service then Investment Company Guide provides some insights but is a teaser to subscribe to Consumer Reports.

Many of us are locked into one or more investment companies because they manage our employer-sponsored savings plans. I have been with Charles Schwab, Fidelity, and Vanguard for up to 35 years. They each have their strengths. For this article, I looked at the advisory services at Vanguard, Fidelity and Charles Schwab. As one gets older, accumulates more or experiences life’s challenges, he or she may want to consider financial advisory services or managed accounts. Here is a good review of managed accounts at Fidelity and Charles Schwab by Smart asset profiles investment companies in Fidelity Wealth Management Review, Vanguard Personal Advisor Services Review, and Charles Schwab Wealth Management Review.

Resources for Developing a Financial Plan

The AARP Retirement Survival Guide, Julie Jason

Tax-Free Retirement (2017), Patrick Kelley

The 5 Years Before You Retire, Emily Guy Birken

IRAs, 401(k)s, & Other Retirement Plans – Taking Your Money Out (2006), by Twila Slesnick, Ph.D. & Attorney John C. Suttle, CPA

The Ultimate Financial Plan, by Jim Stovall and Tim Maurer

Retire Secure!: A Guide To Getting The Most Out Of What You’ve Got, James Lange

What Should I Do with My 401k?: Should I Buy an Annuity?, Tim Clairmont


I like to manage my own investments using Mutual Fund Observer Premium and other tools. I know my strengths and weaknesses and seek help in financial planning. As I enter retirement, I will continue to experiment with the services described in this article.

I wish everyone a happy and prosperous new year!!!


I am not an economist nor an investment professional. I became interested in economic forecasting and modeling in 2007 when a mortgage loan officer told me that there was a huge financial crisis coming. There were signs of financial stress if you knew where to look. I have read dozens of books on business cycles since then. Discovering the rich database at the St. Louis Federal Reserve (FRED) provides most of the data to create an Investment Model. The tools at Mutual Fund Observer provide the means for implementing and validating the Investment Model.

Vanguard – I can get it for you retail!

By Ira Artman

By Ira Artman, December 2019

Do we pay attention to the competitive environment? Absolutely. Are we reactive to what one competitor does? Absolutely not…

Investors always have to ask themselves when they see an offering like this [zero fee expense ratio mutual funds], ‘What’s the catch?”‘ The question becomes what else are investors going to be charged in other products? …

Greg Davis, Vanguard CIO

That’s what Vanguard CIO Greg Davis said in August 2018, immediately following Fidelity’s announcement that it would offer no-fee index funds.

Within a month, Fidelity’s new zero-fee funds had taken in nearly $1 billion in assets. By August month-end:

  • The Fidelity Zero Total Market Index fund grew to $753.5 million in assets under management; and
  • The Fidelity Zero International Index fund attracted $234.2 million.

Three months later, on 19 Nov 2018, Vanguard “hit back” at Fidelity’s zero-fee funds and cut the minimum initial investments needed to access 38 of its cheap Admiral share fund classes from $10,000 to $3,000.

Vanguard also said:

  • It had closed the more expensive Investor share classes of those index funds to new investors and expects to roll over all existing money in Investor shares of the funds to Admiral shares by April of 2019.
  • It estimated that these moves were expected to deliver an estimated [annual] $71 million in aggregate savings, for investors that rolled their money over to the cheaper Admiral shares.

What Vanguard did not say was that – for investors in its own LifeStrategy funds – Vanguard did not yet have an answer to the questions posed by its CIO —“What’s the catch? … What else are investors going to be charged in other products?”

As summarized on the Bogleheads wiki, the Vanguard LifeStrategy Funds are lifecycle offerings, providing investors with a variety of highly diversified all-in-one portfolios. The products are structured as funds-of-funds, charging only weighted averages of the expense ratios associated with the underlying index funds. The LifeStrategy funds have a fixed target asset allocation.

There are four LifeStrategy Funds – Income, Conservative Growth, Moderate Growth, and Growth. The funds were started by Vanguard twenty-five years ago, in 1994. Each fund invests in other Vanguard index funds – See FIGURE 1, below. The Vanguard Index Funds, in turn, invest in the broad US Bond Market, International Bond Market, US Stock Market, and International Stock Market.

The LifeStrategy Funds offer investors static portfolios with consistent risk profiles:

  • Income Fund: 20% stocks/80% bonds
  • Conservative Growth Fund: 40% stocks/60% bonds
  • Moderate Growth Fund: 60% stocks/40% bonds
  • Growth Fund: 80% stocks/20% bonds

The LifeStrategy Funds are large funds. The smallest, Income Fund, has total assets of $4.7 billion, while the largest Moderate Growth Fund has total assets of $17.6 billion. Collectively, the aggregate assets of the four Vanguard LifeStrategy Funds total $49.2 billion, as of Dec 2019.

The four LifeStrategy funds invest in the Investor Share classes of each of the following four index funds – VTBIX (US Bonds), VTIBX (International Bonds), VTSMX (US Stocks), and VGSTX (International Stocks). FIGURE 2, below, summarizes the symbols used to access these funds, as well as their respective expense ratios and total assets under management (or AUM).

The expense ratios of the four Investor class funds range from 17 bps for the Total International Stock Market Index Fund, to 9 bps for the Total Bond Market Index Fund.

The problem – that is, “the catch” (What else are investors going to be charged in other products?) – for Vanguard LifeStrategy investors– is that Vanguard offers identical funds or ETFs that track the same index and have the same management team, but are much less expensive than the Investor Share classes held by the LifeStrategy Funds.

The expense ratios of the respective Admiral share classes – which now require only $3,000 to open – are 2 to 10 bps cheaper than the corresponding Investor share classes owned by the LifeStrategy funds.

The largest expense differentials (i.e., ‘Investor – Admiral’ in FIGURE 2) can be found among the stock funds (US stock @ 10 bps and International Stock at 6 bps). The bond fund differentials are closer (US bond at 4 bps, International Bond at 6 bps.)

Or to put it another way, if we take the ratio of the respective a) expense ratios of the Investor share classes, over the b) expense ratios of the Admiral share classes, the Investor shares are 3.5 times to 1.2 times more expensive than the respective Admiral share classes — See the ‘Investor/Admiral’ line in FIGURE 2 above.

One might say “So what – what’s a bp here or there”? To make a long story short – not much. Unless, of course, you are talking about billions of dollars. Which we are. So take a look at FIGURE 3, below.

FIGURE 3 shows the weighted average expense ratio (i.e., “ER”) for each of the LifeStrategy funds, based on the expense ratios of the underlying index funds, as previously summarized in FIGURE 1, above. The “weights” are the “Portfolio Allocation” percentages that are listed in FIGURE 1 for each asset type (US Bonds, International Bonds, US Stocks, and International Stocks.) The expense ratios that are weighted are those appearing in FIGURE 2.

EXAMPLE Investor Class Expense Ratio and Annual Expenses for the LifeStrategy Income Fund (VASIX). VASIX ER = 11.2 bps in FIGURE 3, above.
VASIX ER (56.4% x 9bps) + 5.076 bps (23.5% x 13bps) + 3.055 bps (12.1% x 14bps) + 1.694 bps (8.0% x 17 bps)  + 1.360 bps
= 11.185 bps, which after rounding, is equal to the 11.2 bps shown in FIGURE 3, above. $ 4.7 Billion x VASIX ER of 11.2 bps = $5,254,000.
In other words, it costs just under $5.3 million to run VASIX — with AUM of $4.7 billion and an Expense Ratio of 11.2 bps — for a year. This $5.3 million figure will vary as VASIX’s AUM and Expense Ratio varies.

All of the other Expense Ratios and Annual Expenses in FIGURE 3, above, are similarly calculated.

The LifeStrategy Funds currently invest in Investor share classes of the various stock and bond index funds. The calculated Investor Class expense ratios for the LifeStrategy Funds match, after rounding to the bp, the expense ratios reported by Vanguard on its website:

  • Income 11 bps
  • Conservative Growth 12 bps
  • Moderate Growth 13 bps
  • Growth Fund 14 bps

But what if the LifeStrategy Funds could invest in the cheaper Admiral share classes? Well, their expenses should fall. In aggregate – see FIGURE 2 – a switch from Investor to Admiral shares might reduce investor class expenses from 13.1 bps, on average, to only 6.8 bps.

For the total $49.2 billion currently invested in LifeStrategy Funds, their costs might drop by almost half, from $64.6 million per year to $33.2 million per year — see FIGURE 3. These differentials are summarized in FIGURE 4, below.


EXAMPLE             Expense Investor vs Admiral Differential (ER and Annual $ Fees) for the LifeStrategy Income Fund (VASIX)

VASIX ER Differential = 4.4 bps and Annual $ Fees Differential = $2,068,000 in FIGURE 4, above.

VASIX ER Differential = VASIX ER Investor Class – VASIX ER Admiral Class
= 11.2 bps – 6.8 bps. [These numbers come from FIGURE 3.]
= 4.4 bps.
VASIX Fee Differential = $4.7 Billion x 4.4 bps = $2,068,000. [See FIGURE 4.]

All of the other Expense Ratio Differentials and Annual Fee Differentials in FIGURE 4, above, are similarly calculated.

Saving roughly $30 to $40 million per year is nothing to sneeze at – even for Vanguard. In the Nov 2018 Press Release announcing a lowering of the Admiral Share Class minimums from $10,000 to $3,000, Vanguard touted in the first paragraph of the press release that the lowered minimums would save investors $71 million, which is of the same order of magnitude as the $30 to $40 million estimated in FIGURE 4, above.

So what gives? Why doesn’t Vanguard let its LifeStrategy Funds buy Admiral Share classes?

Because it seems that it can’t.

Mike Piper, author of the ObliviousInvestor blog, corresponded with the head of Public Relations for Vanguard’s US business, in 2017.

Piper: Why don’t the LifeStrategy and Target Retirement funds use Admiral shares as the underlying holdings?

Vanguard PR Department: Vanguard is unable to offer multiple share classes on funds of funds due to the structure in which we operate, and the agreement we have with the SEC regarding multiple share classes. Our funds of funds have no direct costs — the costs are derived only from the ERs of the underlying funds. According to that agreement, we must be able to offer a differentiated cost advantage between share classes. (Therefore, because there is no direct cost associated with a fund of funds — it’s not possible for us to offer such an advantage).

Calls to Vanguard asking “Why don’t LifeStrategy Funds own Admiral Share classes?” produced answers ranging from the wrong  (“There is no relationship between the LifeStrategy Fund costs and the costs of the funds that they own”) to the interesting (“LifeStrategy funds own Investor Class shares because the extra Investor Class fees offset the rebalancing costs of the LifeStrategy Funds”).

Page B36 of the LifeStrategy Fund Statement of Additional Information (“SAI”) says:

… Each [LifeStrategy] Fund will bear its own direct expenses, such as legal, auditing, and custodial fees. In addition, … the Funds’ direct expenses will be offset … by a reimbursement from Vanguard for (1) the Funds’ contributions to the cost of operating the underlying Vanguard funds in which the Funds invest, and (2) certain savings in administrative and marketing costs that Vanguard expects to derive from the Funds’ operations. The Funds expect that the reimbursements should be sufficient to offset most or all of the direct expenses incurred by each Fund. Therefore, the Funds are expected to operate at a very low—or zero—direct expense ratio. Of course, there is no guarantee that this will always be the case. Although the Funds are not expected to incur any net expenses directly, the Funds’ shareholders indirectly bear the expenses of the underlying Vanguard funds…    

The last sentence of the SAI paragraph would seem to rule out the “no relationship” answer.  But there may be some justification for the “rebalancing” response.  Perhaps it does cost $31,281,000 per year (See FIGURE 4) to rebalance the LifeStrategy Funds?

Daniel Wiener, editor of The Independent Adviser for Vanguard Investors, stated in a recent phone call that Vanguard’s statements about fund expense ratios can be confusing.   Re-emphasizing what he observed in a 2019 Citywire article about Vanguard expense cuts, Wiener said that Vanguard’s cuts were ‘old news’:

The prospectus only says this is what Vanguard may charge. Until you have an audited annual report, you don’t know what the fund or ETF has charged. But Vanguard has actually been charging these lower fees for months.

Despite Vanguard’s agreement with the SEC (mentioned by the ObliviousInvestor blog, see above), there are rumors of a possible workaround to the no-multiple-share-class “catch” for funds-of-funds, such as the LifeStrategy VASIX, VSCGX, VSMGX, and VASGX. These rumors were posted on the ‘Bogleheads’ website –

If so, this workaround solution may be spelled B-N-D-B-N-D-X-V-T-I-V-X-U-S – See FIGURE 1. These are the letters in the symbols of the very inexpensive ETF Shares that are linked to the respective Investor Share Class stock and bond index funds that are owned by the LifeStrategy funds.

According to the ‘boglehead’, posting in Jun 2019:

My family & I met w Vanguard reps last week. Excellent service all around…

Was perhaps the best investment meeting we’ve ever had. I cannot say enough about the superb care & interest taken. Vanguard has always exceeded our expectations & won multi-generational admiration in our family.

Also, I heard that their Target & LifeStrategy Funds may be moving to ETFs in the next few years, which makes sense in so many ways. Mutual funds will always be there, but adjustments to those all-in-ones that they steward make good sense…

The Vg reps told us that last week & it was presented as fresh news.

Mutual funds will always be available at Vg. ETFs will always be available at Vg. But, there’s a migration over to ETFs inside Target & LifeStrategy expected over the next couple of years.

Or, at least, that’s what I heard them say!

If the conversion within the LifeStrategy fund-of-funds – from Investor Shares to ETFs – occurs, it would seem to follow the tax-free conversion process that was described to the SEC, approved by Vanguard’s board, and explained on Vanguard’s website.

As described in the Vanguard Funds Multiple Class Plan filed with the SEC in 2013:

    1. Conversion into ETF Shares. Except as otherwise provided,
      a shareholder may convert Investor Shares, Admiral Shares, Signal Shares
      or Institutional Shares into ETF Shares of the same fund (if available),
      provided that: (i) the share class out of which the shareholder is converting
      and the ETF Shares declare and distribute dividends on the same schedule;
      (ii) the shares to be converted are not held through an employee benefit
      plan; and (iii) following the conversion, the shareholder will hold ETF
      Shares through a brokerage account. Any such conversion will occur at the
      respective net asset values of the share classes next calculated after
      Vanguard’s receipt of the shareholder’s request in good order. Vanguard
      or the Fund may charge an administrative fee to process conversion

As explained by Vanguard in an ETF “FAQ”:

Can I convert my conventional Vanguard mutual fund shares to Vanguard ETF Shares?

Yes. Most funds that offer ETF Shares will allow you to convert from conventional shares of the same fund to ETF Shares. (Four of our bond ETFs—Total Bond Market, Short-Term Bond, Intermediate-Term Bond, and Long-Term Bond—don’t allow for conversions.)

Conversions are allowed from both Investor and Admiral™ Shares and are tax-free if you own your mutual fund and ETF Shares through Vanguard.

Keep in mind that you can’t convert ETF Shares back to conventional shares. If you decide in the future to sell your Vanguard ETF Shares and repurchase conventional shares, that transaction could be taxable.

If you have a brokerage account at Vanguard, there’s no charge to convert conventional shares to ETF Shares. If you have questions, contact us.            

Time will tell if Vanguard can deliver on the boglehead-predicted inclusion of  ETF shares in the LifeStrategy funds.  If not, then Vanguard may need to greet its new LifeStrategy fund-of-fund investors with a rarely heard salutation:

  • “Welcome to Vanguard. We can get it for you retail!”


[1] Greg Davis, Bloomberg News, “Vanguard exec: Investors should look for ‘the catch’ in Fidelity’s no-fee funds”,, 8 Aug 2018.

[2] Fidelity, “Fidelity Rewrites the Rules of Investing to Deliver Unparalleled Value and Simplicity to Investors”,, 1 Aug 2018.

[3] Andrew Jones, “Fidelity zero-fee funds attract almost $1bn in first month”,, 8 Sep 2018.

[4] Ian Wenik, “Vanguard hits back at Fidelity’s zero-fee funds with Admiral cuts”,, 19 Nov 2018.

[5] Vanguard Press Release, “Vanguard Shareholders To Save Estimated $80 Million Through Broader Access To Low-Cost Admiral Shares”,, 19 Nov 2018.

[6] Bogleheads wiki,, last edited 9 Jul 2018.

[7],, 30 Nov 2019.

[8] James Chen, Investopedia,, 29 Jul 2019.

A ‘bp’ or basis point refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001.

[9] Vanguard, LifeStrategy Funds,, accessed Dec 2019.

[10] Mike Piper, “Why Don’t Vanguard’s Target Retirement and LifeStrategy Funds Own Admiral Shares?”,, 24 Jul 2017.

[11] Vanguard, “Security starts with you (and us)”,, 2018.

[12] Bogleheads/newcollegeman, “RE: Insights from Vanguard”,, 6 Jun 2019.

[13] Daniel Wiener, Phone call with Ira Artman, 24 Dec 2019.

[14] Vicky Ge Huang – Citywire, “Vanguard announces fee cuts on 10 ETFs”,, 26 Feb 2019.

 [15] Financial Times/Lexicon, Definition of a Boglehead,, “Bogleheads are those who follow the investment principles of Jack Bogle, founder of Vanguard, the low-cost … fund specialist. Boglehead principles aim at modest, simple, investment and savings plans. To invest like a Boglehead you should build a simple portfolio based on index investing. For example, a typical holding would be a stock market index tracking fund (either through an index-tracking mutual fund or an exchange-traded fund), a global stock market index fund, and a bond index fund. Bogleheads, typically, do not favour alternative investments such as hedge funds. Bogleheads are also long-term investors and do not believe in trying to time the market.”

[16] Boglehead/newcollegeman, “RE: Insights from Vanguard”,, 6 Jun 2019.

[17] Board of Directors, The Vanguard Group, “Vanguard Funds Multiple Class Plan”,, 22 Mar 2013.

[18] Vanguard Group, “Common ETF Questions – Can I Convert?”,, accessed Dec 2019.

[19] 20th Century Fox, “I Can Get It For You Wholesale”,,, Movie Poster, 1951.

Time Flashing By …. Again

By Edward A. Studzinski

An instance of an

Inability to recall

Makes one wonder if it

Really happened at all    

Momentary by J.P. Niemeyer, 10/28/2019. Niemeyer is a retired naval officer living in Japan who writes about Japan regularly for Red Star Rising.

So, another year, and for those invested, pretty good returns if they stayed invested through-out the year rather than attempting to time the market. The Vanguard S&P 500 Index fund achieved a total return for 2019 of 31.5% with an expense ratio of 4 basis points. Other actively managed equity funds achieved total returns on average ranging from 25% to 40%. I am not going to get into the semantic debate as to whether they were growth or value. Increasingly funds call themselves one thing or the other when the reality is they have a substantial commonality of ownership in various equities. The expense ratios of course are another matter. They do cut into the long-term returns earned by active managers, with often little benefit to the investors but great indirect benefit to the managers and trustees of the actively managed funds.

These days there continues to be concern about the ability of all 1940 Act funds to meet withdrawal requests in a timely manner in the event of a substantial and protracted market decline which triggers an ongoing wave of redemptions. An article worth reading concerning one such situation can be found in The Guardian, 8 June 2019 entitled “Bright star to black hole: the rise and fall of fund manager Neil Woodford.”  In it, 23 consecutive months of withdrawals greater than inflows caused the fund to close to withdrawals. The damage to pensions and other investors in this fund is covered in detail.

Sadly, Woodford Investment Management continued to pay substantial dividends to a company called Woodford Capital. There is a further discussion in the article about the lifestyles of the rich and famous. Most interesting of all is a description of the multitude of large (often greater than 20% of float) investments in small or what in the UK are called unquoted markets (and we would call pink sheet companies). There was an insufficient ability to raise cash quickly to deal with the illiquidity of the investments, many of which were technology or biotech companies bordering on venture capital.

Third Avenue Focused Credit Fund, awash in suddenly illiquid investments, was placed in a sort of receivership on December 11, 2015. Investors could make no withdrawals and the fund’s overseers struggled for 31 months to dispose of what was nominally a portfolio of illiquid investments. Investors received payouts in dribs and drabs – $1.00 per share in July 2017 then $0.42 in October 2017 – until the portfolio was fully liquidated on June 27, 2018. Investors received 85 cents on the dollar.)

Some of you will think that the same thing could not happen here. I would refer you to the issues that surrounded the Third Avenue Focused Credit Fund (TFCIX) and its long-running liquidation. 

I will stress again, think about what you own and when you may need the money. Or, why are you making the investment. Think carefully about what the funds are invested in. Bother to read not just the prospectus and statement of additional information, but also the semi-annual and annual reports to look at what is owned. And if you can’t understand what is owned, you probably shouldn’t be invested in that fund (or in some instances, partnership).

In the UK, and I suspect to a certain extent in this country, there is the potential for a “gating” problem, as a result of illiquid investments. The problem is exacerbated when the investment is one step removed. Investors make an investment in (or are sold) exchange-traded funds or regular mutual funds that trade as liquid assets. Yet they have committed themselves to what are very illiquid investments in their portfolios (think certain types of real estate or alternatively, high-tech new issues). The sizzle is what is being sold, rather than the reality of the income statement, cash flow statement, or balance sheet. One would like to think that the lessons of Teapot Dome and Ponzi have been learned, but maybe not. The next downturn will tell, one way or the other.


There have been a few questions this past month about the Barron’s article I mentioned last month (Leslie Norton, “These Ancient Funds Keep Beating the S&P,” 12/2/2019) concerning several closed-end funds that trade on the exchanges, and have histories going back into the 1920’s.  And as the article indicated, over the very long-term these closed end funds had often outperformed the germane index. I would suggest that those interested in those funds read the article again, as well as the annual and semi-annual reports on the respective websites. All three have Morningstar write-ups. The three are Adams Diversified Equity Fund (ADX); Central Securities Corporation (CET); and General American Investors (GAM). By way of disclosure, I have an investment in Central Securities Corporation (CET).

Given that these closed-end funds often and currently trade at discounts to their net asset value, the ideal place to hold them is in a tax-exempt account such as a Roth IRA or Roth 401(k). All three have management teams that have acted to repurchase stock on the open market when management feels the value opportunity is especially compelling in terms of a discount to NAV (usually more than 10%). And all three are managed internally. And as closed-end funds, they avoid the issue of forced sales to meet withdrawal requests.

Balanced Funds

Often when one looks at balanced funds, the focus tends to be on the equity portion of the portfolio. Make sure you also look at the fixed income or bond side of the portfolio, especially in terms of asset classes and diversity. If a fund, in that portion of the portfolio, owns nothing but straight corporates and governments, there is insufficient diversity. That portion of the fund needs the ability and expertise to also invest in mortgage-backed securities, asset-backed securities, and short-term bank loans. If they don’t (and look in the prospectus) and you don’t see them at any time in the semi-annual or annual reports it tells you something. The investment management firm is skimping on systems or personnel, or alternatively the investment firm itself is in a run-off mode. Having the ability to make those types of investments aided total returns in 2019 at funds managed by some of the larger industry names, such as the Vanguard funds managed for Vanguard by Wellington out of Boston. Alternatively, firms such as Loomis Sayles (closing in on $300B in assets) are being run for the future, with a long-term horizon in mind, since they have a multi-asset class investment capability.

Elevator Talk: Michael Carne, Westwood Flexible Income (WFLEX)

By David Snowball

Since the number of funds we can cover in-depth is smaller than the number of funds worthy of in-depth coverage, we’ve decided to offer one or two managers each month the opportunity to make a 200-word pitch to you. That’s about the number of words a slightly-manic elevator companion could share in a minute and a half. In each case, I’ve promised to offer a quick capsule of the fund and a link back to the fund’s site. Other than that, they’ve got 200 words and precisely as much of your time and attention as you’re willing to share. These aren’t endorsements; they’re opportunities to learn more.

Michael Carne manages WFLEX which launched December 19, 2018. He joined Westwood in January 2018. Hussein Adatia joined the firm later in 2019 as a research analyst for the strategy. Flexible Income embodies a decade-old strategy that mixes a dash of dividend-paying common stocks with preferred stocks, corporate bonds, and Treasuries.

Mr. Carne has had a rich and interesting professional journey. From 2002 to 2015, he was a Managing Director and Head of Income Strategies at NWQ Investment Management. In that role, he managed the Nuveen NWQ Flexible Income Strategy and Nuveen NWQ Flexible Income Fund (NWQAX) from their inception until 2015. Flexible Income performed splendidly and you could be forgiven for thinking, “and so, happily ever after.” Life was substantially more complicated.

Over the years, we’ve had occasion to write several pieces about his adventures. NWQUX, his original flexible income fund, launched in December 2009. Three years later, it received a five-star rating in the conservative allocation category from Morningstar (celebration!!). That was followed a couple of weeks later by Morningstar’s decision to reclassify it as a “convertibles” fund (it wasn’t) whence it plunged to one-star. We wrote about the silliness of the reclassification and the adviser appealed to Morningstar. Morningstar concurred, reversed its ruling, the fund was reclassified as “conservative allocation,” it regained its five-star status, did splendidly and grew to over $1 billion in strategy AUM. Two years later, corporate restructuring occurred and Mike was off “in search of other opportunities.” That opportunity was as founder and owner of Horner Street Capital Management, LLC, which deployed the same strategy on behalf of family offices. Hopeful of bringing the strategy to a wider audience, he decided to partner with Westwood Group.

Through it all, he’s maintained the same discipline which has allowed him to document a 10-year GIPS-compliant performance record. Mr. Carne reports that the strategy’s performance record sits in the top 5% of its peer group over pretty much all trailing time periods.

What’s the Flexible Income Strategy up to? The strategy is pursuing a high level of current income with significantly less volatility than a traditional “balanced” strategy and significantly less interest rate sensitivity than a traditional bond strategy. The manager has a value-oriented approach, which is consistent with Westwood’s approach as well, that builds a portfolio from the bottom-up.

The strategy is designed to provide high income by investing at the optimal point, on a risk/reward basis, in a company’s capital structure. Mr. Carne notes “The companies invested in are closely followed by our research team and tend to have strong and effective management teams, solid balance sheets, are responsible shepherds of investor capital and exhibit a track record of cash flow growth and sustainability.” The question the manager asks is, “of all of the public securities offered by this corporation – common or preferred stock, high-yield or investment-grade debt, or whatever – do any offer an attractive combination of high return and low volatility?” If the answer is “no,” he moves on. If the answer is “yes,” he works to identify where in the capital structure the best opportunity occurs.

While the strategy is focused on income-generation, it is not restricted to investments in fixed income and can invest up to 35% of assets in stocks, but typically averages around 20%. This ability to invest in stocks, he argues, “is central to allowing us to successfully navigate changes in interest rates, the bane of all income-oriented strategies. By carefully balancing investments with a high degree of negative interest-rate sensitivity such as preferreds and corporate bonds with investments in stocks such as banks and insurance with highly positive interest rate sensitivity, the strategy can mitigate the effects of a rise in rates on the portfolio.”

The portfolio’s asset and sector allocations are derived dynamically as changes in risk and reward change using a bottom-up research process. The adviser offered this snapshot showing their estimation of the current risk-reward status for the asset classes they might invest in.

The risk-return tradeoff for individual asset classes is consistent but unappealing: past a certain point, each small gain in return is accompanied by a large rise in volatility. Through careful security and asset class selection, the strategy is positioned to generate greater returns for less incremental risk than you could obtain otherwise.

Given that there are 200 funds trawling the conservative allocation space, mostly unsuccessfully, we decided to ask Mr. Carne why he thought he had a compelling reason to launch yet another. Here are Michael’s 300 words on why you should add Westwood Flexible Income to your due-diligence list:

In early 2009, as the financial crisis was coming to a close and markets were recovering, I set out to develop an income-oriented strategy that would pay a high dividend and give greater downside protection as interest rates rose than traditional fixed income strategies. This Strategy, Flexible Income, launched at the end of 2009 and has demonstrated outstanding performance and downside protection ever since.

The idea is to carefully research a company universe, looking for great firms with good prospects and then analyze ALL of the securities they have issued – stock, bonds, preferreds, etc. – with an aim towards making an investment in the one (or more) with the highest expected return given the risk taken. This process yields a portfolio of great investments that have all ‘paid their way into the portfolio’ and help to achieve the goal of providing a strong income stream with lower risk than other income alternatives such as balanced and high-yield funds. The portfolio consists of a diversified mix of industries and security types (stocks, bonds, preferreds) where the asset allocation is derived from a dynamic, bottom-up process and not from top-down forecasts.

The Strategy is well-suited for those seeking a reliable income stream such as retirement accounts, foundations and endowments derived from well-researched investments across a range of asset classes and industries. Also ideal for those Individuals and RIA firms that seek to spend more time with their personal affairs and those of their clients and less time picking individual bonds and preferreds.

Westwood Flexible Income is currently only available as an institutional share class with a  $100,000 minimum initial investment. However, many of the platforms it is available on have lower minimums – Schwab has a $5,000 minimum investment, for example. The firm plans to launch an “A” share class with a $2,000 minimum during the first quarter of 2020. The fund has a capped expense ratio of 0.86%, including a management fee of 0.69%. Launched with $1.6 million in assets in January of 2019, assets have risen to about $7 million as of December of 2019. Mr. Carne is invested in the fund. Only one of eight trustees has any investment in any Westwood fund. It’s available through a relatively small, but growing, number of brokerages: Commonwealth, Schwab, Fidelity and TD Ameritrade. Here’s the fund’s homepage. It’s got a lot of links to other documents but is otherwise fairly Spartan.


Launch Alert: Harbor Robeco US Conservative Equities

By David Snowball

On December 2, 2009, Harbor Funds launched six new offerings, including four overtly “conservative equities” funds. Those funds are:

  • Harbor Robeco US Conservative Equities
  • Harbor Robeco International Conservative Equities
  • Harbor Robeco Global Conservative Equities
  • Harbor Robeco EM Conservative Equities

All four are being advised by a team from Robeco, a global asset manager that was launched in Rotterdam just after the 1929 stock market crash. Robeco is a portmanteau of the firm’s original name, Rotterdamsch Beleggings Consortium (the Rotterdam Investment Consortium). The firm now manages over $220 billion, with nearly $150 billion of that in ESG-integrated assets. They’ve incorporated ESG factors into their investment strategies since the 1990s.

The “conservative equities” story

Investors have always been taught that the only way to earn returns higher than a savings account is to accept a type of risk – short-term volatility – that’s higher than a savings account; the higher the return you seek, the greater the risk you must inevitably endure.

In equity investing, the level of risk is hard for new investors to imagine, much less endure. Over the course of the current market cycle (from the peak of the previous bull market in October 2007, through the brutal bear market that lasted until March 2009, to now), the average domestic large-cap core fund – the heart of most long-term portfolios – saw a maximum loss of 49%, and it stayed in the red for four years. Investors in international (-54%, 87 months to recover) and emerging markets (-63%, 90 months to recover) saw worse.

That’s not ideal. No one needs to lie awake at night worrying about their portfolio.

Robeco and others observe, though, that not all stocks are equally volatile and that it’s possible to identify stocks with consistently below-average volatility as your investable universe; that is, the starting point from which you construct a portfolio.

Robeco believes there’s a way out of the risk-return relationship. Pim van Vliet, Head of Conservative Equities at Robeco and one of the managers of the Conservative Equities funds argues that

The Robeco Conservative Equities strategy benefits from a revolutionary paradox: risk and return do not go hand in hand. The scientific evidence for this is the basis for our investment philosophy.

The classic risk/reward theory says that to gain greater rewards, you must assume higher risks. But research shows that investing in low-volatility stocks, which tend not be the focus of aggressive stock pickers making big bets for big gains, can offer superior risk-adjusted returns. As investor bias leads many to overpay for high-risk stocks, low volatility stocks may offer better protection in down markets, and achieve market-like gains in up markets

And, indeed, that very dynamic has played out in the markets. We compared the performance of the “regular” S&P 500 with its minimum volatility subset. The comparison period is the full market cycle, so that incorporates both the grinding bear market (10/2007 – 3/2009) and the historically long bull (4/2009 – present). That gives a fairer sense of performance than merely grabbing a five- or ten-year run which captures mostly a period of relentless market gains.

  Annual returns Maximum drawdown Sharpe ratio
S&P 500 8.3% -50.9% 0.51
S&P 500 Minimum Volatility 8.9 -43.1 0.69

Predictably, that combination of higher gains and smaller losses has not gone unnoticed. A screen at MFO Premium for the word “volatility” turns up 26 indexes and 90 funds or ETFs in their names. It’s an area in which funds and ETFs are about equally successful when measured by Sharpe Ratio.

Robeco believes that many of the existing funds are too simple-minded. They simply and mechanically invest in just one factor, low volatility, while ignoring all of the other factors (or variables) that influence long-term stock performance. Examples of such factors include size, quality, dividends, valuations, and momentum. By building those factors into their models, Robeco believes they can generate a more sustainable low volatility / conservative equity advantage. Pim van Vliet:

Unlike generic low volatility index funds or ETFs, Robeco’s active Conservative Equity model includes critical factors like valuation and momentum. This helps to avoid the low-volatility stocks that are too expensive or are trending downward, which in turn reduces both risk and expenses.

You could think of this as “smart low vol” investing or “conservative low vol” investing. At least measured by the performance of the firm’s European products, that conservativism comes at a price: short-term performance lags both the broad market and their low-vol peers, both of which are getting bid up by anxious investors, though long-term performance remains strong.

Many investors might benefit from exploiting the low volatility anomaly. It is, along with long/short investing, absolute value investing and stock-light investing, among the strategies which promise to capture more of the market’s upside than its downside, offering a smoother ride to near-market returns.

All four Harbor Robeco funds are managed by the same four-person team with the same quantitative discipline, though in different investment universes. The minimum initial investment for Investor class shares is $2,500 and the expense ratio, after waivers, is 0.80%. For Institutional shares, the numbers are $100,000 and 0.43%. The fund’s website is straightforward and readable. Robeco has pretty extensive discussions of its Conservative Equities strategy which it also deploys in funds for European investors and accounts for high net worth individuals. Robeco also has reported on the version of the strategy offered to European investors, with a curiously engaging Portfolio Manager’s Update (11/2019) that begins:

I mean, really, how many management teams would splash that all over the cover of their letter?

MFO Premium Webinar

By Charles Boccadoro

On Wednesday January 15th, we will host a webinar discussing latest features of the MFO Premium search tool site. Topics covered will include the new home page and user portal, the MultiSearch Portfolios tool, updated metrics for risk adverse investors, expense rating, expanded category averages, revised “Include Averages and Benchmarks” options, and finally allocation indices across ten decades.  

There will be two sessions, one at 11 am Pacific time (2pm Eastern) and one at 2pm Pacific time (5pm Eastern). The webinar will be enabled by Zoom. Please use the following links to register for the morning session or afternoon session. Each will last nominally 1 hour, including questions.

Here are links to previous webinar charts and video recording.

Hope to you can join us again on the call. If you have any questions, happy to answer promptly via email ([email protected]) or scheduled call.

Launch Alert: Frontier Caravan Emerging Markets Fund

By David Snowball

On December 4, 2019, Frontegra launched Frontier Caravan Emerging Markets Fund (FCESX / FCEMX). The fund is sub-advised by Caravan Capital Management and managed by Cliff Quisenberry.

There are two arguments for paying attention to Frontier Caravan.

First, valuations in emerging markets are at their lowest levels in a decade.

Chart shows trailing Price to Earnings Ratio of the MSCI Emerging Markets Index as percent difference of the S&P 500’s P/E.   MSCI P/E data obtained from MSCI.  S&P 500 P/E data obtained from Bloomberg.

In general, money flows toward inexpensive asset classes. The long-term asset class projections from State Street, BlackRock, Northern Trust, Research Affiliates, GMO, Callan Associates, and others uniformly foresee stronger performance in the emerging markets than in either the US or other developed markets. It is more typical for projections to rank the US as the least attractive venue for the next decade, rather than the most attractive.

In the rare instances when investment style is also considered, value – and particularly EM value – trumps growth. The magnitude of the projected outperformance varies – some models see a few tenths of a point annually, some see multiple percentages annually – and forecasters routinely model higher volatility in EM than elsewhere, but there’s a near-universal agreement that – after a decade long run in the US markets and near-record valuations – the compelling opportunities lie elsewhere.

Second, the Caravan team is experienced.

Mr. Quisenberry began his career in 1987 at Fred Alger Management in New York as a research associate, was a Vice President and portfolio manager at Cutler & Company. In 1994 he joined Parametric, a Seattle-based subsidiary of Eaton Vance, and became Parametric’s Director of Research and chief of emerging market strategies.

His strategy starts with country selection. His research found that country risk dominates in the emerging markets. About 73% of the portfolio’s risk, for example, is driven by country risk. As a result, he spends an abnormal amount of time and energy managing that source of risk. He grades each country based on five variables (P/E, P/B, dividend yield, correlations, and volatility) then systematically favors investments in high-rated nations and underweights low rated ones. As of September 30, 2019, that would translate to a huge overweight in Turkey (8.0% versus 0.6% in the index) and much larger underweight to India (0.9% versus 8.9%) and China (16.5% versus 31.9% for the index). The top five countries in the MSCI EM index (China, South Korea, Taiwan, India, Brazil) comprise nearly 75% of the MSCI index weighting but only 30% of the Caravan weighting. That means that Caravan’s portfolio is, necessarily and automatically, far different from the index.

At the security level, his discipline is value-oriented, more focused on consumer and financial stocks, and somewhat ESG screened.

The minimum initial investment for “I” shares is $100,000 and the initial expense ratio is 0.80%. The minimum for Service shares is $10,000 with an e.r. of 0.95%. The fund has about $21 million in assets. It’s not a great surprise that the fund’s homepage is almost no content: some text cribbed from the prospectus and linked to generic docs from the adviser.

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 not become available until late February.

We found 24 funds in the pipeline. What stands out is the rise of the non-transparent, active ETFs. Here’s the breakdown:

7 traditional mutual funds

12 active ETFs

5 non-transparent active ETFs.

That latter category includes the ETF version of five very large funds, one from Fidelity and four from T. Rowe Price. Each of the Price ETFs will hold a 10-12 bps cost advantage over its already low-cost doppelganger. If the rumored move to allow direct conversion of a mutual fund into a non-transparent ETF comes to fruition, there’s going to be a major tectonic shift in the investment landscape and I’m going to need to rename our site.

AAF First Priority CLO Bond ETF

AAF First Priority CLO Bond ETF, an actively-managed ETF, seeks capital preservation and income. The plan is to invest in “AAA-rated first priority debt tranches of U.S. dollar-dominated collateralized loan obligations.” The fund will be managed by Peter Coppa and Scott Farrell of Alternative Access Funds. Its opening expense ratio has not been disclosed.

Fidelity Opportunistic ETF

Fidelity Opportunistic ETF, an actively-managed non-transparent ETF, seeks long-term growth of capital. The plan is to build a global portfolio of both growth and value stocks. None of the practical details such as who’ll manage the fund or what it will cost has been disclosed. That said, the $7 billion Fidelity Series Opportunistic Insights Fund (FVWSX) is managed by Will Danoff. That’s the only fund in the Fidelity stable which uses the titular term “Opportunistic.”

Franklin Liberty Ultra Short Bond ETF

Franklin Liberty Ultra Short Bond ETF, an actively-managed ETF, seeks “a high level of current income as is consistent with prudent investing, while seeking preservation of capital.” That’s so cautious it’s almost cute. The plan is to invest in U.S. dollar-denominated, investment-grade bonds with a substantial portion of its assets in cash, cash equivalents, and high-quality money market securities. “Ultra short” means under one year, on average. The fund will be managed by a team from Franklin Templeton Portfolio Advisors. Its opening expense ratio has not been disclosed.

Invesco Multi-Sector Bond Income Factor ETF

Invesco Multi-Sector Bond Income Factor ETF, an actively-managed ETF, seeks total return. The goal is to beat their index. The plan is to create a fairly global bond portfolio but to base holdings on “quantifiable issuer characteristics,” which are the “factors” in the name. In the equivalent of a “smart beta” strategy, the portfolio will typically overweight “value bonds (bonds that have high spreads relative to other securities of similar credit quality and/or sector); low volatility bonds (bonds that have lower levels of price volatility); and high carry bonds (bonds with higher absolute yield or spread).” The fund will be managed by Jay Raol, Sash Sarangi, James Ong and Noelle Corum of Invesco Advisers. Its opening expense ratio has not been disclosed. The same prospectus announces Invesco Intermediate Bond Factor and Invesco Short-Term Bond Factor ETFs using the same strategy and same investment team. A separate prospectus lists Invesco Corporate Bond Factor ETF and Invesco High Yield Bond Factor ETF.

Hartford Core Bond ETF

Hartford Core Bond ETF, an actively-managed ETF, seeks long-term total return. The plan is to invest primarily in investment-grade, government and corporate, domestic and foreign, bonds. They might invest in private placements and up to 25% might be non-US. The unifying feature is that Wellington finds them “attractive.” The portfolio duration will stay within 1.5 years of its Bloomberg Barclay US Aggregate Bond benchmark. The fund will be managed by Joseph F. Marvan, Campe Goodman, and Robert D. Burn of Wellington Management. Its opening expense ratio has not been disclosed.

Lyrical International Value Equity Fund

Lyrical International Value Equity Fund will seek long-term capital growth. The plan is to invest in stocks of mid-capitalization and large-capitalization companies with low valuations relative to their long-term normalized earnings. The fund will be managed by John Mullins and Dan Kaskawits of Lyrical Asset Management. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $2500.

Masters Concentrated Small Cap Value Fund

Masters Concentrated Small Cap Value Fund, a Litman Gregory fund-of-funds, will seek long-term growth of capital. The plan is to hire a star manager who will invest in their 20-40 best ideas. The fund will be managed by as-yet-unnamed sub-advisers who LG consider “masters” in the asset class. Its opening expense ratio is 0.99%, and the minimum initial investment will be $10,000. That’s reduced to $1000 for tax-advantaged accounts and $2,500 for accounts with an automatic-investing commitment.

Morgan Stanley Institutional Fund Permanence Portfolio

Morgan Stanley Institutional Fund Permanence Portfolio will seek long-term capital appreciation. The plan is to make long-term investments in companies that survive ESG screening and have the most durable long-term competitive advantages. The fund will be managed by a large team from Morgan Stanley. The opening expense ratio for “A” shares is 1.25% with a nominal 5.25% sales load and $1,000 minimum initial investment.

Polen Global Emerging Markets Growth Fund

Polen Global Emerging Markets Growth Fund will seek long-term growth of capital. The plan is to build a concentrated portfolio of high-quality growth companies that it believes have a competitive advantage and can deliver sustainable, above-average earnings growth. The fund is flagged as “non-diversified,” which always signals the prospect for abnormal volatility; one might expect that to be especially true in underdeveloped markets. The fund will be managed by an as-yet-unnamed individual from Polen Capital UK LLP. Its opening expense ratio is 1.50%, and the minimum initial investment will be $3,000, reduced to $2,000 for accounts with an AIP and for various tax-advantaged accounts. For institutional shares, the corresponding figures are 1.25% and $100,000.

SPDR [SSGA Responsible Reserves ESG] ETF

SPDR [SSGA Responsible Reserves ESG] ETF, an actively-managed ETF, will seek to maximize current income, consistent with the preservation of capital and liquidity while giving consideration to ESG. I suppose the brackets signals some sort of ambivalence about the fund’s final name. The plan is to eliminate issuers in troublesome industries (“Civilian Firearms”) or categories (“Extreme Event Controversies”), then to eliminate issuers for whom too little ESG data is available, then score the remainder. In the end, you’ll have a clean fund that’s a bit more aggressive than a money market but a bit less aggressive than an ultra-short bond fund. The fund will be managed by Thomas Connelley and Karyn Corridan of SSGA. Its opening expense ratio has not been disclosed.

Syntax Stratified U.S. Equities ETF

Syntax Stratified U.S. Equities ETF, an actively-managed ETF, seeks to be the S&P Composite 1500 Index. The plan is unclear, in part because the prospectus is incomplete. It looks like they’ll use ETFs and individual securities to selectively overweight large-cap, mid-cap or small-cap stocks. The fund will be managed by Vantage Consulting Group. Its opening expense ratio has not been disclosed.

T. Rowe Price

  1. Rowe Price is planning to launch ETF clones of four of its most domestic popular funds. They describe them as “semi-transparent exchange-traded funds.” Unlike traditional ETFs, the funds will not publish their portfolios daily. Instead, at the end of each day, they’ll release “a proxy portfolio” which is “a basket of securities that closely tracks the daily performance of the fund’s portfolio holdings. While the Proxy Portfolio includes some of the fund’s holdings, it is not the fund’s actual portfolio.” Price notes that, by releasing incomplete information to investors, “the fund’s shares may trade at a wider bid/ask spread than shares of ETFs that publish their portfolios on a daily basis, especially during periods of market disruption and volatility, and, therefore, may cost you more to trade.” In exchange, investors receive the structural advantages of an ETF which will include lower expenses and fewer short-term capital gains bills. The new ETFs and their expense ratios will be:

Name (mutual fund ticker)

ETF expenses

Fund expenses

Blue Chip Growth (PRBCX)



Dividend Growth (PRDGX)



Equity Income (PRFDX)



Growth Stock (PRGFX)



I’ve included the tickers for the mutual funds as a research aid for readers beginning their due diligence. Other than for those structural changes, the new ETFs are clones of the existing funds.

TFA Quantitative Fund

TFA Quantitative Fund, a fund of ETFs, will seek capital growth. The plan is to use “signals” from its computer to seek one of three things: (1) 100% exposure to the NASDAQ 100 Index, (2) up to 150% exposure to the S&P 500 Index or (3) up to 100% exposure to an inverse S&P 500 index. The fund will be managed by Meghan S. Paul and Rich M. Paul of Potomac Advisors. Its opening expense ratio has not been disclosed, and the minimum initial investment for the no-load “A” class shares will be $500; the institutional share class is open only to the adviser’s clients and will charge $500 to get in. The prospectus describes the $500 required for “I” shares as “higher minimum initial investment than Class A shares.” Since these folks are quants, I’m sure they apprehend the reason that $500 > $500 better than I.

TFA Multidimensional Tactical Fund

TFA Multidimensional Tactical Fund will seek capital growth. The basic portfolio is 50% individual stocks and 50% fixed income ETFs. Based on their analysis of “multiple variables over four different lookback periods,” they’ll shift – frequently, they say – between stocks, bonds and cash. The fund will be managed by Theodore J. Doremus of Preston Wealth Advisors. Its opening expense ratio has not been disclosed, and the minimum initial investment for the no-load “A” class shares will be $500.

TrueMark AI & Deep Learning ETF

TrueMark AI & Deep Learning ETF, an actively-managed ETF, will seek total return. The plan is to invest in the stock of artificial intelligence and deep learning companies. The manager classifies those companies as one of three sorts (secular growth, cyclical growth, and newly-public) and has different selection criteria for each category. The fund will be managed by Sangbum Kim of Black Hill Capital Partners. Its opening expense ratio has not been disclosed.

TrueMark ESG Active Opportunities ETF

TrueMark ESG Active Opportunities ETF, an actively-managed ETF, seeks total return. The plan is to score US large-cap stocks on their greenhouse gas emissions and use of ESG “best practices.” They then do some sort of valuation analysis. “Some sort of” just reflects my confusion: they estimate that their total investable universe based on ESG screening is 100-150 companies and that, after valuation analysis, they’ll invest in 100-150 of them. The fund will be managed by Jordan C. Waldrep and Linda H. Zhang of Purview Investments. Its opening expense ratio has not been disclosed.

Wells Fargo Municipal Sustainability Fund

Wells Fargo Municipal Sustainability Fund will seek current income exempt from federal income tax. The plan is to buy muni bonds funding projects “which have a positive ESG impact.” They may invest up to 10% of their assets in “inverse floaters” to seek enhanced returns. Inverse floaters are a sort of derivative which is allowed to use leverage to increase returns. The fund will be managed by a three-person Wells Fargo team. Its opening expense ratio has not been disclosed, though the “A” shares carry a 4.5% load and $1000 minimum initial investment.

Briefly Noted

By David Snowball


Seafarer thrills! Russ Kinnel, anyway. Russ’s December 30thThe Thrilling 34” article sought to create “a short list of outstanding funds accessible to individual investors.” The plan was to screen for the more important investment factors, “and let them do the weeding for me.”  They are

  • Expense ratio in the category’s cheapest quintile.
  • Manager investment of more than $1 million in the fund.
  • Morningstar Risk rating below the High level.
  • Morningstar Analyst Rating of Bronze or higher.
  • Parent rating better than average/neutral.
  • Returns above the fund’s benchmark for a minimum of five years.
  • Must be a share class accessible to individual investors

On a list dominated by very large funds (and fund companies – 28 of the offerings were from five big firms), Seafarer Overseas Growth & Income (SIGIX) stood out as the only independent fund to make the list. In addition to passing screening criteria that eliminated, well, 7200 other funds, Kinnel celebrated the fact that “Andrew Foster has done a fine job here and at previous funds he ran for Matthews.”

– – –

Voya Corporate Leaders (LEXCX) was the subject of John Rekenthaler’s December 31, 2019 essay, “How Tortoises Compete with Hares.” LEXCX, originally Lexington Corporate Leaders, is one of the industry’s coolest stories. It was set up at the start of the Great Depression with a singular mandate: invest, exclusively and eternally, in a portfolio of America’s 30 greatest companies. Once that portfolio was set, it was never permitted to change and so the fund needed, and has, no manager. MFO long ago dubbed it “the ghost ship of the investing world.” In any case, John misunderstood the reason for the absence of financial and tech stocks (Radio Corporation of America anyone?) in the portfolio; Jason Zweig amiably swatted him upside the head.

– – –

Effective December 9, 2019, the Pax Large Cap Fund, the Pax Small Cap Fund, the Pax Ellevate Global Women’s Leadership Fund, and the Impax Global Women’s Leadership Index became fossil fuel-free.

– – –

LS Opportunity Fund (LSOFX) received a five-star rating from Morningstar on November 30, 2019. The adviser shared this snapshot of the fund’s performance since the arrival of the Prospector Partners management team.

Our profile of the fund, which was written just a bit after Prospector Partners became the fund’s subadviser, concluded that “The evidence available to us suggests that LSA has found a good partner for you: value-oriented, time-tested, and consistently successful. As you imagine a post-60/40 world, this is a group you should learn more about.”

– – –

Royce & Associates has just announced a bold rebranding strategy. It “better describes the breadth of the firm’s business and the importance it places on the spirit of partnership with which the company has always conducted itself … it better represent[s] to all of our constituents who we are now as a firm … it better represent[s] the range of our strategies.” With a boldness surely inspired by their be-bowtied, soon-to-be-octagenarian founder, Royce and Associates has become …

Royce Investment Partners!

Ta da!

Uhhh … R.I.P.? Was that an inspired choice for a firm who’s seen assets decline 17% in the past 12 months and 75% in the decade?

Here’s the 12 year correlation between their flagship Pennsylvania Mutual (PENNX) fund and the other funds in their lineup:

There’s one fund in the lineup, their only international offering, with a correlation to the flagship of below 90. And that’s after liquidating much of the sea of clones they launched after Legg Mason bought them.

I got a heads up about the change from a reader, Brett S., who concludes, “The joke writes itself. RIP.” The folks on our discussion board weighed in, noting that Royce does have several fine funds, and then a lot of chaff. One hopes that the name change signals a generational shift in leadership that will allow folks to make some hard, important decisions.

Briefly Noted . . .

Special thanks, once again, to The Shadow for his indefatigable trawling of the SEC database. Much of what follows reflects his posts this month on the MFO Discussion Board. Gracias!

Effective December 31, 2019, Tad Rivelle and Bryan Whalen leave the management team for TCW High Yield Bond (TGHNX) and Metropolitan West High Yield Bond Fund (MWHIX). Our Manager Change column is away this month, skiing in Vail or surfing off Maui or something. It’ll be back, tanned and rested next month. That said, Mr. Rivelle is one of the top tiers of managers, independent and respected, whose movements deserve note.


Effective January 1, 2020, the management fees for the Bretton Fund (BRTNX) have been reduced from 1.50% to 1.35%.

Dimensional Funds announced expense reductions on 77 of the DFA Funds offered to US investors; those cuts will take place on February 28, 2020.

Gabelli / GAMCO is getting rid of a lot of surplus share classes (AAA, A and C) for at least four of their funds, Gabelli ESG Fund, Gabelli International Small Cap Fund, Gabelli Global Rising Income and Dividend Fund, and Gabelli Global Mini Mites Fund. The minimum initial investment for the remaining “I” shares have been reduced to $1,000.

Apparently two of those three funds are actually “The Gabelli” funds, apropos of an organization dominated by The Mario.

Effective December 16, 2019, JOHCM Global Income Builder Fund’s (JOBIX) investment adviser, J O Hambro Capital Management Limited, has agreed to increase the contractual expense reimbursements it provides to the JOHCM Global Income Builder Fund by 5 bps.

Vanguard is trumpeting (a) having lowered fees on 56 funds over the past several months and (b) saving investors a collective $750 million through fee reductions over the past four years.

CLOSINGS (and related inconveniences)

Nope. Not that I noticed.


Effective December 27, 2019, The GAMCO Global Growth Fund will change its name and become The Gabelli Global Growth Fund (GGGIX). “The,” indeed.

In the near future, Invesco will tweak the names of seven funds. The fates of 80 others are discussed below in “The Dustbin of History.”

Current Name Proposed Name
Invesco Oppenheimer Value Fund Invesco Comstock Select Fund
Invesco Oppenheimer Portfolio Series: Conservative Investor Fund Invesco Select Risk: Conservative Investor Fund
Invesco Conservative Allocation Fund Invesco Select Risk: Moderately Conservative Investor Fund
Invesco Oppenheimer Portfolio Series: Moderate Investor Fund Invesco Select Risk: Moderate Investor Fund
Invesco Growth Allocation Fund Invesco Select Risk: Growth Investor Fund
Invesco Oppenheimer Portfolio Series: Growth Investor Invesco Select Risk: High Growth Investor Fund
Invesco Oppenheimer Portfolio Series: Active Allocation Fund Invesco Active Allocation Fund

Effective December 18, 2019, Pax Balanced Fund (PAXWX) became the Pax Sustainable Allocation Fund.

Effective on or about February 3, 2020, the Walden Small Cap Fund’s name will change to Boston Trust Walden Small Cap Fund (BOSOX!). The fund’s ESG screening will be extended to include a flat ban on investments in certain industries ranging from factory farming and private prisons to alcohol and tobacco.


Aberdeen Japanese Equities Fund (AJEAX) will be liquidated on or about January 16, 2020. It’s few investors have been loyal, though I’m not entirely sure why.

Pending shareholder approval, ALPS/WMC Research Value Fund (AMWYX), a tiny, poor performing fund whose managers have chosen not to invest in, will be merged into Heartland Mid Cap Value Fund (HRMDX), a tiny, strong-performing fund whose managers into which its managers have made a substantial investment. The merger is anticipated at the end of the first quarter of 2020.

On December 27, 2019, Aptus Fortified Value ETF (FTVA) was merged into Aptus Drawdown Managed Equity ETF (ADME), formerly known as the Aptus Behavioral Momentum ETF.

City National Rochdale Short Term Emerging Markets Debt Fund (CNRGX) “will liquidate approximately 2 ½ years after the Fund’s inception date of May 14, 2019.” Uhhh … they’re prospectively announcing a closure in December, 2021? Here, you can read the filing for yourself.

Context Insurance Linked Income Fund (ILSAX) was liquidated on December 30, 2019.

Equinox IPM Systematic Macro Fund (EQIPX) will be liquidated on January 17, 2020.

Fiera Capital STRONG Nations Currency Fund (SCAFX), having turned an initial $10,000 investment in 2012 into $8,321, was liquidated on December 31, 2019.

We speculated, last month, that the departure of Mr. Fisher from the Gernstein-Fisher funds probably wasn’t a good sign. That was confirmed this month with the announcement liquidations of Gerstein Fisher Multi-Factor Growth Equity Fund, Gerstein Fisher Multi-Factor International Growth Equity Fund and Gerstein Fisher Multi-Factor Global Real Estate Securities Fund, all on January 30, 2020.

The Global Rates Fund (FXFIX) was liquidated on December 30, 2019.

Innovation Alpha United States ETF (INAU), Innovation Alpha Global ETF (INAG) and Innovation Alpha Trade War (TWAR) were all given their two weeks’ notice On December 5 and liquidated on December 17, 2019.

Invesco reads Orwell. The new term for “liquidation” or “execution” is “rationalization.” Invesco has absorbed a lot of competitors and launched a fair number of “funds that seemed like a good idea at the time”. And now cometh The Reaper bearing a rationalization decree.

The fund rationalization began on Oct. 30, 2019, with the liquidation of 11 mutual funds.  The final portion of the fund rationalization comprises 38 mutual funds and 42 ETFs (not including changes to fund names), affecting a fraction (approximately 4%) of Invesco’s $589 billion in US assets under management.

Invesco Oppenheimer Capital Income Fund is merging into Invesco Multi-Asset Income Fund (PIAFX), likely in April or May 2020. The latter is a good fund with $850 million in assets and low expenses, so good news for the investors.

Janus Henderson U.S. Growth Opportunities Fund (HGRAX) will be liquidated on February 7, 2020. Strong insider investments and respectable record but only $31 million in assets.

JPMorgan Emerging Markets Corporate Debt Fund (JEDSX) will be liquidated on January 28, 2020.

LMCG Global Multicap Fund (GMCRX), another decent fund with no investors, will be put out of its $1.5 million misery on January 15, 2020.

Loomis Sayles Multi-Asset Income Fund (IIDPX) will be liquidated on or about February 3, 2020. Morningstar offers an intriguing picture which, at the very least, implies an intriguing back story.

Each of the green teardrops on the upper line represents a partial management change, as the team once led by the renowned Kathleen Gaffney was succeeded by a new trio. Hard not to notice the correspondence of her team’s departure, asset outflows and faltering performance.

Slightly stale news, Miller/Howard Drill Bit to Burner Tip Fund liquidated on December 31, 2019.

Putnam Capital Spectrum Fund (PVSAX) and Putnam Equity Spectrum Fund (PYSAX) will merge into Putnam Focused Equity Fund (PGIAX) on April 20, 2020. It’s always curious when you’re merging your big two-star funds – in this case, a billion dollars’ worth of them – into your little ones.

The $250 million Putnam International Growth Fund (PIONX) will merge into the $12 million Putnam Emerging Markets Equity Fund (PEMEX). The rationale is the funds have “identical investment goals and pursue comparable investment strategies.” Oookay … Putnam’s own listing of the top five country exposures in International Growth are:

  1. Japan
  2. United Kingdom
  3. Netherlands
  4. France
  5. US

Give or take your judgment about the effects of Brexit, I doubt that investors choosing such a fund did so out of excitement about the emerging markets.

Shelton Short-Term Government Bond was liquidated on December 9, 2019.

TCW International Small Cap Fund (TGNIX) has closed and will be liquidated on February 13, 2020.

WSTCM Global Allocation Risk-Managed Fund (WSTEX) will liquidate on February 20, 2020. Not a terrible fund, just one that almost nobody was interested in. “Wilbanks, Smith and Thomas” in case you’re interested.