Updates
Guinness Atkinson’s groundbreaking OEF-to-ETF conversion is surging ahead. In early summer, GA filed a plan to convert two of their current funds – the four-star Dividend Builder GAINX and Alternative Energy GAAEX – directly into ETFs. Other firms have launched ETF clones of their funds, and a bunch of strategies that would normally have been launched as funds have instead followed the non-transparent, active ETF route. Guinness was the only firm bold enough to try a switchover mid-flight.
The conversions were slowed by “a thousand thoughtful questions and comments” from the SEC, according to president Jim Atkinson. In the latest round of comments, the agency has asked GA to begin incorporating concrete dates. Mr. Atkinson believes that the GAINX conversion will occur in the second week of December.
The Alternative Energy conversion is now slated to occur in two steps. With GAAEX still in operation, the firm launched the clone Sustainable Energy II ETF (SULR) on November 11, 2020. They now expect to convert GAEEX into Sustainable Energy I ETF early in the new year and will promptly merge the two.
On a parallel track, GA has already launched the Smart Transportation & Technology ETF (MOTO) – with a lot of Tesla under the hood – via their SmartETFs brand and anticipate launching the Marketing Technology ETF in mid-December. The company intends to convert, sooner rather than later, all of its mutual funds to ETFs.
Finally, on November 17, 2020, DFA announced their intention to follow suit by converting six tax-managed mutual funds, with a combined AUM of $26 billion, into active ETFs. Given the generally favorable tax treatment that ETFs receive (and DFA’s need to staunch the $35 billion outflow they experienced this year), the conversion makes sense. It will reduce shareholder expenses by 17-56%. Interestingly, the prospectus for the ETFs does not note the preceding funds’ existence.
Briefly Noted . . .
SMALL WINS FOR INVESTORS
Diamond Hill is closing and liquidating the “C” share class for all of its funds. The “C” class will close on December 4, 2020, and liquidate on February 19, 2021. Given the clear evidence that “C” shares are a bad idea – they were originally an attempt to mask the sales charge on load-bearing funds by replacing the sales charge with an egregious expense ratio – their demise certainly qualifies as a win.
SGA International Equity Fund (SGLCX) reduces the investment minimum for its Institutional shares from $1,000,000 to $1,000 and is, not surprisingly, doing away with its Investor share class. Morningstar assigns a Bronze rating to the fund, signaling that they are “confident [it] will outperform a relevant index, or most peers, over a market cycle.” Over the three years since launch, the fund has trailed 90% of its peers.
CLOSINGS (and related inconveniences)
As of November 23, 2020, FS Energy Total Return Fund (FSEGX) has closed to new investments, including those from existing investors. Here’s the good news: it’s a four-star fund and has handily outperformed its index. The bad news: even so, it has lost a cumulative 20% since inception and has only $40 million in assets after three years of operation. None of those assets have been contributed by the fund’s seven managers whose collective investment in the fund is zero.
The Administrative Class Shares of the PIMCO CommoditiesPLUS Strategy Fund (PCPSX) will be liquidated on or about March 12, 2021. PIMCO describes them as shares “offered primarily through employee benefit plan alliances, broker/dealers, and other intermediaries.” They’re not one of the share classes offered through Schwab or TD.
OLD WINE, NEW BOTTLES
On December 1, 2020, the ABR Dynamic Short Volatility Fund was renamed the ABR 50/50 Volatility Fund. The proferred explanation is that they’re seeking “a reduction in the Fund’s short volatility exposure, such as short exposure to VIX Index futures contracts, and a potential increase in the Fund’s long volatility exposure.”
Effective January 19, 2021, Crawford Dividend Growth Fund (CDGIX) becomes Crawford Large Cap Dividend Fund. By Morningstar’s calculation, the fund lags 90% of its large-value peers over the past decade, though with modestly suppressed volatility. On the whole, a name change and strategy tweak might not fully address that.
KraneShares CICC China 5G and Technology Leaders Index ETF (KFVG) has been renamed KraneShares CICC China 5G & Semiconductor Index ETF.
Effective on or about April 1, 2021, Putnam Global Equity Fund (PEQUX) becomes Putnam Focused International Equity Fund. Disposing of the 70% of the portfolio currently invested in US stocks is likely to be a significantly taxable event.
Effective on January 4, 2021, T. Rowe Price Spectrum International Fund (PSILX) becomes the T. Rowe Price Spectrum International Equity Fund. The fund of funds will also restructure its expense ratio from passing along a prorated portion of the underlying funds’ expenses to charging a flat 0.89%. At the same time, T. Rowe Price Spectrum Growth Fund becomes T. Rowe Price Spectrum Diversified Equity Fund.
Effective on January 1, 2021, Touchstone Credit Opportunities II Fund (TMARX) will be renamed the Touchstone Credit Opportunities Fund.
Effective November 18, 2020, TrimTabs All Cap International Free-Cash-Flow ETF (TTAI) became TrimTabs International Free Cash Flow Quality ETF and TrimTabs All Cap U.S. Free-Cash-Flow ETF turned into TrimTabs US Free Cash Flow Quality ETF.
OFF TO THE DUSTBIN OF HISTORY
Shareholders of 361 Managed Futures Strategy Fund (AMFQX) will be asked to approve the merger of their fund into 361 Global Managed Futures Strategy Fund (AGFQX).
AllianzGI Emerging Markets Small-Cap Fund was liquidated in mid-November.
AQR Emerging Defensive Style Fund,AQR Multi-Strategy Alternative Fund, AQR Risk Parity II HV Fund, AQR Style Premia Alternative LV Fund and AQR Volatility Risk Premium Fund will all be Former Funds as of December 18, 2020.
By the end of the first quarter of 2021, AQR will also merge away seven of its funds:
| Target Funds | Acquiring Funds |
| AQR Emerging Multi-Style Fund | AQR TM Emerging Multi-Style Fund* |
| AQR TM International Momentum Style Fund | AQR International Momentum Style Fund |
| AQR TM International Multi-Style Fund | AQR International Multi-Style Fund |
| AQR TM Large Cap Momentum Style Fund | AQR Large Cap Momentum Style Fund |
| AQR TM Large Cap Multi-Style Fund | AQR Large Cap Multi-Style Fund |
| AQR TM Small Cap Momentum Style Fund | AQR Small Cap Momentum Style Fund |
| AQR TM Small Cap Multi-Style Fund | AQR Small Cap Multi-Style Fund |
Immediately thereafter, AQR TM Emerging Multi-Style Fund will be renamed AQR Emerging Multi-Style II Fund. So far as I can tell, the “TM” signals “Tax Managed,” a discipline which will no longer be enshrined in the name or, more importantly, mandate.
Delaware U.S. Growth Fund (DUGAX) will merge into Jackson Square Large-Cap Growth Fund at … hmm, some point in 2021.
Federated Hermes Global Strategic Value Dividend Fund (GVDSX) will be liquidated on or about the close of business on January 22, 2021
The $1 billion Fidelity Export and Multinational Fund (FEXPX) will merge into Fidelity Fund (FFIDX) on or about April 16, 2021. Multi-cap value merging into large cap growth? A month later, on May 14, 2021, the $60 million Fidelity Emerging Europe, Middle East, Africa (EMEA) Fund (FEMEX) is served as an hors d’oeuvre to $6 billion Fidelity Emerging Markets Fund (FEMKX) and Fidelity Independence Fund (FDFFX) becomes a dependent of Fidelity Magellan Fund (FMAGX). That latter merger pours about $4 billion into Magellan, increasing its asset base by 20%. The domestic funds have a correlation of between 0.94-0.95 over the long term, which makes their mergers a plausible enough proposition.
Frontier Caravan Emerging Markets Fund (FCEMX/FCESX) will be liquidated on December 15, 2020.
Gotham Master Neutral Fund (GMNFX) will be liquidated on or about December 15, 2020. Nominally it’s a market neutral fund. Practically, it’s lost an average of 2.5% a year since launch.
Intrepid Disciplined Value Fund (ICMCX) will be reorganized into the Intrepid Endurance Fund (ICMAX) on or about January 22, 2021. Arguably Disciplined Value has the better track record, but its value style has been way out of favor and it’s way too small to survive.
The $10 million Mission-Auour Risk-Managed Global Equity Fund (OURAX) is in the process of merging with the $34 million Union Street Partners Value Fund (USPVX).
The four-star Natixis Seeyond International Minimum Volatility ETF (MVIN) ceases to exist on December 16, 2020.
Rational/NuWave Enhanced Market Opportunity Fund (NUXAX) shuts down a week before Christmas: December 18, 2020. A 45% YTD loss likely contributed to the decision.
On December 18, 2020, REMS Real Estate Income 50/50 Fund (RREFX) will merge into REMS Real Estate Value-Opportunity Fund (HLRRX). The survivor has just $36 million in AUM and a one-star rating at Morningstar, making the merger seem like a delay of the inevitable.
Speaking of real estate income, the $4 million Shelton Real Estate Income Fund (RENTX) has closed to new investments as it begins the process of liquidation, which should be completed by December 28, 2020. The fund has a 2.99% yield, which passes for real income these days.
The five star, $2.5 billion Touchstone Sands Capital Institutional Growth Fund (CISGX) will merge into the four-star, $2.5 billion Touchstone Sands Capital Select Growth Fund (TISNX) on December 11, 2020.
Vanguard graciously published their telephone script (“How are you doing today? Do you have a moment to speak?”) used in the process of getting shareholders to support the merger of Vanguard US Value into Vanguard Value Index (VVIAX).
Voya Diversified Emerging Markets Debt Fund (IADEX) will be liquidated on or about January 22, 2021.
After a pretty major asset outflow in 2021, the perfectly okay Wells Fargo International Value Fund (WFFAX) will be merged into Wells Fargo International Equity Fund (WFEAX) in March 2021.
