Monthly Archives: April 2020

April 1, 2020

By David Snowball

Dear friends,

When I say, “I hope you’re well,” it’s far more than an opening formality.

Did you blink?

If so, you missed it. The Great Bull Market of 2020. In perhaps the shortest-lived bull market in history, the DJIA rebounded by over 21.4% in three days after The (First) Bear Market of 2020. The latter growled from 19 February – 23 March, while the latter charged from 23 – 26 March after which we had a sharp down, a sharp up, a wimpy down and a sharp down.

What’s next?

Three magic words: No. one. knows.

We do know some things. First, small investors have been pretty resolute so far. Professional traders have run in circles, howling, as their trading algorithms materially worsened with each price swing. If you’ve made intelligent asset allocation choices, there’s virtually no action more sensible than ignoring the Howling Class and getting on with life.

Second, markets are down across all sorts of asset classes. The only things consistently up are the Treasuries purchased by panicked people looking for the safest of safe havens. I noted on March 25th that

Vanguard Short-Term Treasury (VFISX) yields 0.8%, costs 0.2% and has risen 1.47% in four weeks. That’s equivalent to 10 months of its normal (5-year) annual returns. Currently, the yield on one-year Treasuries is 0.25%; deduct the 0.2% and you’re yielding 0.05% a year.

Intermediate and Long-Term Treasuries have both returned more in four weeks than they normally would in an entire year.

If you look at the Vanguard bond index returns, the longer the term on Treasuries, the higher the four-week return. If you look at the Vanguard corporate bond indexes, all are substantially negative and the longer the term, the greater the loss.

Third, the markets still aren’t cheap. One sensible metric, which tries to factor out some of the short-term noise in both the economy and the market, is the Shiller 10-Year CAPE. The cyclically-adjusted price/10-year earnings ratio is a terrible tool for timing market purchases, but a pretty good one for measuring the broad cost of the market. At mid-day on April 1, it stood at 23.41, still about 40% higher than the average price over the market’s long history.

The mean CAPE ratio over the past 140 years is 16.7 and the median is 15.8. Stocks were their absolute cheapest in December 1920 (4.8 p/e) and their most expensive in December 1999 (44.2). (source:

“The market” is a lot lower than its 1999 peak but that’s a bit deceptive. “The market” averages, regardless of which market, are driven by a handful of its large stocks. An alternate way of looking is to focus on the median stock in the index. That is, the stock that’s exactly in the middle of the pack. By that standard, valuations remain painfully close to their highest point in history.

source:, 3/30/2020

Fourth, we may be “bottoming” but there’s no reason to believe we’ve seen “the bottom.” It’s not uncommon for a bear market bottom to sort of evolve over two or three months. The market registers the majority of its eventual declines, then stumbles for weeks with some sharp upswings and some sharp downswings but no clear direction. We are, with luck, sort of beginning that process.

Our work suggests that a cyclical bear market remains underway, and we believe it is too early to move to an overweight position in equities despite the vastly improved valuations from just two months ago. We have reduced some of the hedges in our tactical funds in recent weeks, and net equity exposure across those strategies is now in the 43-44% range. The massive rebound in the last five trading days looks much more like the handiwork of a mischievous bear rather than that of a newborn bull. (, 3/30/2020)

Four things you should consider doing

  1. Don’t be a hero. A number of value investors skipped Christmas in 2008 because they saw a once-in-a-lifetime opportunity developing. Those who flung money at the market in early 2009 were richly rewarded. Very few sensible people seem to be seeing an opportunity of that magnitude just yet.

    “Stay the course” probably the sounder advice. Tweedy Browne’s newly-issued letter on markets and pandemics speaks sensibly. The firm reminds readers that it’s more than a century old, so they have the experience to see occasional crashing-and-burning as part of the price of admission. They point out that the last 25 years have seen a long series of catastrophes – two currency meltdowns in the EMs, the Russian debt default, LTCM debacle, 9/11, the ’07-09 GFC – and a market that’s returned nearly 500%, cumulatively.

    I rather liked their conclusion:

        … at times like this, we actually begin to feel better about our prospects for future returns. That said, our and your ability to have a successful investment experience depends in large part on the willingness to “stay on the bus.” The ride can be bumpy, but you ultimately have to stay on board to have any chance of reaching your destination. As Margaret Thatcher famously said to George Bush Sr. just before the start of the Kuwait War in 1990, “Remember George, this is no time to go wobbly.”

  2. Deploy extra cash slowly and strategically. Mohammed el-Erian argues that the market hasn’t finished its descent. For those who disagree, el-Erian recommends dividing your available cash into five pieces then invest just 20% of your cash in each of the next five months.

    I automatically invest in five funds at the beginning of each month. In agreeing with Dr. el-Erian, I bought additional shares of five funds in mid-March, with Brown Advisory Sustainable Growth Fund (BIAWX) receiving the bulk of the investment. The total at mid-month was not much greater than my automatic start-of-month investments. I anticipate repeating that move in each of the next four months.

  3. Start assembling your shopping list. Really first-rate funds, many of which we list in “Briefly Noted” this month, are reopening to new investors. They anticipate tremendous opportunities in the months ahead and are looking to raise cash in order to act when the moment comes. That “moment” may well come first in the emerging markets, where many investors fear to tread. GMO asset allocation team member, James Montier (whose profile pic has him wearing a freakish Hawaiian shirt):

    Emerging markets are trading on a Shiller P/E of 13x. This is the level of valuation that generally gets me excited. We have not experienced permanent impairment of capital from this level outside of markets that have shut down due to war. This doesn’t guarantee short-term returns or that we have reached a bottom: cheap stocks can always get cheaper. But it does provide a compellingly attractive entry point for those with a long horizon.

    Even better are the value stocks within emerging markets, which trade on single-digit Shiller P/Es. So, embrace career risk, dare to be different, and recall the motto of the Special Air Service: Who Dares Wins.

    One strategy for the moment is to begin investigating EM and, perhaps especially, EM value funds. Perhaps global small caps for the venturesome. Perhaps first-tier equity income funds for folks tired of the excitement. There is no opportunity that you’re going to miss if you spend the next month or six weeks reviewing your opportunities and reflecting on how you’d like to move.

  4. Make a difference. As in, in your community.

It’s time to make a difference.

Small businesses and local non-profits are the organizations that are taking the greatest hit from our necessary adjustments to slow the spread of the COVID-19 virus. Businesses with fewer than 50 employees shed 90,000 jobs in March (, 4/1/20). A CNN analysis of nonprofits suggests that “less than half of nonprofits have one month of operating reserves” (, 3/20/20), making this “an extinction-level event” for many. The local newspapers whose websites we’re all flocking to, reveling in their decision to make COVID-related stories free for all, are hemorrhaging revenue as advertising disappears. The industry is described as being “in near collapse” (, 3/21/20). The business conditions indicators from the Dallas and New York Fed reached their lowest levels ever and since 2009, respectively.

You can’t save the world. But you might be able to save the coffee shop down the street. Chip and I have resolved to try by taking one conscious local support action each day. In the past 10 days we’ve:

  1. Bought a très cool t-shirt from the good folks at Cool Beanz Coffee in Rock Island. You can, too. We also participated in their program to provide coffee for hospital and public safety personnel; for a contribution of $10, they deliver a pound of fresh coffee to a local hospital, fire, or police station.
  2. Contributed to the RiverBend Food Bank which provides something like 21 million meals a year in western Illinois and eastern Iowa, but whose shelves are running bare.
  3. Posted Google reviews, positive and detailed, for five local businesses that we’d visited this month.
  4. Signed Chip up for a bookmaking class at Crafted QC. (Canceled. We’ll rebook.) I bought a gift certificate from them instead.
  5. Ordered take-out from Café de Marie and Azteca in Davenport and the Village Corner Deli in the Village of East Davenport. Excellent food, quiche, really good arroz con pollo, great turkey reuben, only so-so shrimp tostadas. Our batting average was pretty good!
  6. Bought a Roland keyboard from Grigg’s Music for Will’s (now online) piano class.
  7. Bought a gift certificate from Half Nelson, a nice downtown restaurant in Davenport that we’d rather visit when times are good than use for takeout when they’re not.
  8. As part of our “Even when we can’t be close, we can be together,” we assembled Easter-ish packages for family and friends with chocolates from Chocolate Manor and Lagomarcino’s. (Those go out this week. Don’t spoil the surprise.)
  9. Systematically, intentionally and joyfully over-tipped whenever we could. Iowa’s minimum wage for folks in foodservice is $4.35/hour. Yikes.
  10. Answered two challenge grant opportunities: Bill and Melinda Gates promised to match 1:1 our contribution to Donors Choose “Keep Kids Learning” project and Jeff and Reggie Goldstein did the same for contributions to the Quad Cities Disaster Recovery Fund.
  11. And when the Magic Money from the feds appears, sometime in the next three weeks, it will join the flow. I know that particular move isn’t appropriate for everyone; for a lot of families, that $1200, or whatever, might lift spirits and put food on the table. If so, there’s no better use for it. For those of us who aren’t financially insecure, the best thing we can do – for our economy, for our community, for our hearts – is to get it as quickly as possible to the place it will make the greatest difference.

None of which is big. All of which are things that we would have, eventually, or should have done anyway. Much of it came in the form of $30-40 payments. Will it save a slice of my adopted hometown? Don’t know. But I’ll be ding-danged if I’m going to sit here obsessing about toilet paper and not trying, over and over, to help.

Perhaps you’re doing likewise? Perhaps you might yet?


For being here. For reading and, at least occasionally, writing back to me. For your good humor and your good leads on funds and stories.

Thanks to Dan a/k/a OJ, who also got lost in the shuffle, and to Kirk, Sunil, Jason, Henry, Trev, W. E., and Donald. Thanks, as ever, to the good folks who’ve expressed their confidence by being “subscribers” to MFO; that is, who’ve set up modest monthly contributions through our PayPal link. They are David, Doug, Brian, Matthew, Gregory, James, William, and William.

I would, at this point, often enough encourage you to support MFO. But really, for now, I’d much rather you support those struggling in your local community.

Dark days are coming. Better days are coming. We’ll be there through them both, and thinking of you.

david's signature

Quo Vadis, America?

By Edward A. Studzinski

“Look straight ahead. What’s there?

If you see it as it is

you will never err.”

Bassui Tokusho, Japanese Zen Buddhist monk

Today we have little if any clarity as to where we are going with regards to the markets and the economy. We simply do not know, never having been here before. Much depends on when the numbers of people testing positive for COVID-19 peak and begin to trend downwards, as they seem to be doing now in Italy and South Korea. These are countries where one can have some degree of confidence in the numbers being presented. Italy, for instance, has been categorizing the deaths to distinguish between those who died with COVID-19 but had some other terminal illness and those who died because of COVID-19. And they factor in the ages of the deceased, as well as where they lived. This is important since the air quality in northern Italy, the industrial north, where the greatest number of deaths has been, was reportedly worse than any other part of the country.

With greater testing, we will also learn the numbers of people who have had the virus and recovered from it, and what degree of immunity that has conferred to them. For if nothing else, we need to think about whether, as with the annual flu season (which is another virus), COVID-19 will mutate and return at a later date.

That said, I remain optimistic that we will get through this. After all, the greatest minds in medical science around the world are working on this. They want to find a treatment that may lessen the severity of the illness, to find a possible vaccine, to improve our ability to rapidly test large segments of the population, and to get the response rates of testing equally as quickly. We will also relearn the value of redundancy in supply chains and in other things. There was, after all, a reason why warships used to be built with multiple engine rooms to provide increased survivability and mobility. And as well, we will relearn the importance of triage philosophy, that is decisions that must be made by medical personnel (not politicians) to achieve the greatest good for the greatest number.


David Snowball and I have spoken ad nauseam here in the past about the problems of illiquidity in some parts of the marketplace, as well as the exacerbation of those problems by investment vehicles such as exchange-traded funds. Enough said.

But why has the carnage been so widespread and immediate? My first thought is that a lot of it has to do with the widespread shift to passive investing in the last few years, with more financial assets being invested in index funds than in products or accounts run by active managers. Last year, the percentage exceeded fifty percent in those passive products. When an individual or institutional account decided to exit their investments, stocks or bonds, an entire basket of securities had to be sold. The basket was not necessarily the most liquid, nor the securities with any other special factors. It was just that the entire basket of those securities had to be sold. And if you multiply that by many thousands of investors, both institutional and individual, you will have a greater appreciation as to why we have seen the waterfall effect we have for most of March. And we will most likely continue to see the same going forward.

But I am a long-term investor you say, and my mutual funds have outperformed for me over many years. I think the question here is going to be the quality and discipline of your investment managers, and what their priorities were and are, and, the quality and discipline of your fellow investors. As we mentioned in the past, the no-load mutual fund is an open-ended vehicle of unlimited duration. So people can call and redeem unless one of the conditions arises that allows the managers to limit or suspend redemptions, all outlined in the prospectus or statement of additional information, which I am sure all of you have read and committed to memory.

You have absolutely no control over what your fellow investors are doing or are going to do in a mutual fund. And if their time horizon is now shorter than they thought it was, or they don’t really understand their investments, then they will redeem and your manager will have to continue to raise cash to meet the redemptions, selling what can be sold, most likely in a down market. And this will happen with managers who are doing either absolutely or relatively well compared to others. There will be investors who will say, “We’re flat or we’re only down 5%, let’s get our money while we can.”

Which brings me back again to the subject of closed-end funds, some of which go back to and have been around since the Depression. With a fixed capital structure, the manager(s) have no redemptions to meet. They can continue to invest in the portfolio without having to worry about unplanned for calls on cash. And yes, while the shares trade with the market, at this point you are looking at them often selling at discounts to the net asset value of the portfolio. If the market price of the fund is at a 20% discount to net asset value, you are getting a much bigger bang for your buck. And you will not be having to worry about the irrational responses of your fellow investors, except to the extent they may sell their shares in the market and create a bigger discount to net asset value.

And finally, there are the not very transparent, disguised, closed-end funds trading in the market, the most well-known of which is Berkshire Hathaway, the Warren Buffett vehicle. In January and February Buffett was being criticized for not investing the billions of dollars of cash he was sitting on. The arguments from the financial talking heads were that he should either pay up for something, buy back stock, or pay a special dividend. At the time he did nothing that we know of. Those billions of dollars of cash look pretty good now. We shall see what comes out at the other end of this (and by way of disclosure, I have been an investor in Berkshire since the early 1980s).


Buying on market declines was a favored strategy during the long bull market. We are in a bear market now. We do not know how long it will last. The best analogy I can come up with is the beginning of World War One, which started in August of 1914. The British, the French, and the Germans all thought the war would be over by Christmas of 1914. We saw how that turned out.

I have been told several times over the last year by active managers I know that the crop of analysts they presently have are the best analysts they have ever had. Unfortunately, to go back to my analogy, most of them have not been shot at before, that is, they have never been in a bear market. So as the days go by, they find themselves staring at the vast swaths of red on their Bloomberg terminals, frozen in place, with anything they recommend in equities or fixed income, working at best for a few days.

They find themselves in the equivalent of the Battle of the Somme.

Sadly, in the short term, it will not get better. And there will be unintended consequences on many sectors of the economy such as real estate, moving companies, automobile companies, apparel, insurance, retailers, restaurants, family businesses such as dog groomers, cleaning services, hairdressers and manicurists. I think one needs to ponder very carefully one’s risk tolerances and what one wants to put at risk (although risk may end up being defined somewhat more broadly than it has in the past), and over what time horizon.


For some years it has been difficult to make a strong argument for fixed income, given that with minimal or no interest rates, you were not being compensated for the possibility of a quick rise in rates. And this leaves aside the question of erosion of purchasing power since it is quite clear we have had inflation in recent years, notwithstanding the efforts of the political class to conceal it. The scenario is even worse for those invested in bonds with a negative yield. At the same time, equities were, depending on the industry, somewhat to very overvalued. Now, on a broad basis, things are somewhat more reasonably priced. Put differently, there are things to look at. But at the same time, as we see with the beginnings of bankruptcy filings for companies in industries with leveraged business models where cash flow has evaporated, what you see may not be what you are getting.

I am going to use another Draconian analogy. I think one needs to think in terms of a barbell asset allocation strategy at this point, with cash and equities. Are we going to face hyperinflation in the future or a deflationary world? I don’t know. I do know that I don’t want to have anything really in bonds, other than short-term ones that are “money good” as they say. In terms of equities, they need to be sustainable business models with little or no leverage, and cash flow that continues regardless.

In closing, I am going to leave you with another historical analogy. In terms of thinking about where we are, with massive running of the currency printing presses around the world, and governments buying every kind of bond in sight to keep the capital markets from freezing up, you need to think about the post-World War One period. Specifically, look at those people who had wealth and investments going into the Weimar Republic in Germany. Then look at those people who still had wealth and investments coming out of the Weimar Republic. And draw your conclusions accordingly.

Rules Based Investing – Rule #4 Pursue Investments Appropriate for the Business Cycle and Long Term Trends

By Charles Lynn Bolin

In this fourth of a six-part series on the Six Rules of Investing, I look at investing according to the business cycle. This article is divided into four sections: 1) The Investment Environment, 2) Assets that do well in stages of the business cycle, 3) February Fund Performance, and 4) My Target Portfolios.

How has your portfolio compared to the market or other portfolios? Does it offer sufficient reward for the risk that you are taking? Chart #1 contains the mixed-asset funds from Charles Schwab, Fidelity, and Vanguard grouped by Lipper Category. The horizontal axis is the Ulcer Index (risk) compared to the average return over the past two years ending February on the vertical axis. Notice that for the past two years, higher risk funds have had low or negative incremental returns. Secondly, notice that the Lipper Categories cover a wide range of risks and returns. In other words, some of the conservative funds have a higher risk than some of the moderate funds, and so on. My personal target portfolios are shown as Vanguard Conservative, Fidelity Conservative and Fidelity Moderate Portfolios. This topic is covered in Section 3 and 4 of this article.

Chart #1: Two Year Performance of Mixed Asset Funds and Target Portfolios

(Source: Author based on data from the MFO Premium screeners)

In 2005, I read Charles Schwab’s New Guide to Financial Independence.  Mr. Schwab said something to the effect that you have to take into consideration your spouse’s ability to manage finances in case of your untimely death. As we get older, some of us won’t be as capable of managing our investments. With these two thoughts in mind, I spent the past month simplifying my portfolios for the long run. Section #4 contains my three Target Portfolios for Vanguard and Fidelity. The intent is to have low risk, globally diversified portfolios.

As I write this article in the middle of March, the S&P 500 is going through extreme gyrations. The S&P 500 is down 16% year to date. The coronavirus is serious for the lives lost. There are additional impacts as transportation is restricted, schools closed, sporting events canceled, and tourism curtailed. We won’t know the full impacts of coronavirus and oil price wars, nor the massive monetary easing and fiscal stimulus on the economy and investment environment for several months. At times like these, having a financial plan is critical. Fidelity advises:

  • For long-term investors, having a diversified investment plan—and sticking to it through market ups and downs—is better than selling stocks when they drop and locking in short-term losses.
  • If the market pullback has shifted your target mix of stocks, bonds, and cash, consider rebalancing your portfolio back to your target asset mix. That can help position you for the eventual rebound.

1) A Brief Review of the Investment Environment

Chart #1 is my Investment Model which is intended to maximize return by adjusting allocations (dark blue line) based on the business cycle. I roughly follow Benjamin Graham’s guidelines of never having less than 25% invested in stocks and never more than 75%. The dashed blue line is the index underlying the Allocation Index before a 20% and 75% cap is applied. It shows improvement in the Investment Environment since September 2019 until the fear of the Coronavirus shook investors. The Allocation Index (blue) is now at 20% stocks recommending conservatism. The red line is the percent of indicators that are negative showing there is some improvement.

Chart #2: Investment Model

Source: Author

In “Updating Our Recession Probability Model”, Wells Fargo presents three cases for a recession starting in the next six months. The “best case” scenario is that there is a 16% probability of a recession starting in the next six months, the “worst-case” scenario is 99% probability, and the mild case (Chart #3) is 73%. There you have it. Over the next few months, the market can go up a lot because the coronavirus is contained, oil wars resolved, and benefits of monetary and fiscal stimulus or the market can go down a lot because we are in a recession. Hold on to something steady!

Chart #3: Wells Fargo Mild Case Recession Probability

Source: Wells Fargo

2) Assets that Do Well By Stage of the Business Cycle

Investing according to the business cycle is more common than many investors realize. Fidelity provides a summary view (Chart #4) of the characteristics of the economy during the stages of the business cycle.

Chart #4: Fidelity Hypothetical Business Cycle

Source: Fidelity

In Chart #5, Fidelity shows the sectors that do well by stage of the business cycle.

Chart #5: Fidelity Sector Performance by Business Cycle Stage

Source: Fidelity

Chart #6 is a comparable view from Charles Schwab showing which sectors do well during stages of the business cycle.

Chart #6: Charles Schwab Sector Performance by Business Cycle Stage

Source: Charles Schwab

Chart #7 shows my breakout of the business cycle by stage (right axis) with “1” being Recovery, “2” is Expansion, “3” is Late Stage, and “4” is Potential Recession. Most of the data is not in for February.

Chart #7: Author’s Delineation of Business Cycle Stages

Source: Author

Table #1 shows the funds that do well by business cycle stage. Typically, investors should be invested in growth stocks during the Recovery and Expansion Phase and shift to a value orientation in the Late Stage and Recessions. Real Estate can be good for diversification is all stages. Gold tends to do well in the Late Stage and Recessions.

Table #1: Fund Style Performance by Business Cycle Stage

Source: Author

I use the St. Louis Federal Reserve FRED database for bond total return. High yield bonds typically do well during the Recovery and Expansion stages. “CB” stands for corporate bonds and “HY” for high yield.

Table #2: Bond Quality and Duration Performance by Business Cycle Stage

Source: Author

Fidelity reports sector performance as shown in Table #3. Year to date, utilities, real estate, consumer staples, technology, and health care have outperformed industrials, materials, financials, and energy.

Table #3: Sector Performance

  YTD 1 Year
Utilities -12% -1%
Real Estate -9% -1%
Consumer Staples -10% 4%
Information Technology -8% 18%
Health Care -11% 0%
Communication Services -13% -1%
Consumer Discretionary -18% -6%
Industrials -23% -15%
Materials -25% -16%
Financials -25% -12%
Energy -47% -50%
S&P 500 Index -8% 7%

 “Schwab Intelligent Portfolios Guide to Asset Classes & ETFs” describes asset classes and when they perform well.

Table #4: Asset Class Description

Asset Class Performs Well During:
US Large Company Stocks During economic expansions and when inflation is low or moderate
Stocks—Fundamental Environments that reward value stocks
US Small Company Stocks When the economy is expanding or investors expect such expansion to occur
International Developed Large Company Stocks When international developed countries are growing more rapidly than the U.S. and when their currencies are appreciating against the U.S. dollar.
US High Dividend Stocks High dividend paying stocks perform well in most markets. They have exhibited particularly strong relative performance versus non-dividend paying equities during bear markets.
International Developed Small Company Stocks During the earlier stages of a global economic recovery and when a strong foreign currency relative to the dollar
International Emerging Market Stocks During periods of faster growth when commodities are trading at relatively high levels, local export markets are thriving due to a growing economy, and local governments implement policies more conducive to private sector growth.
US Exchange-Traded REITs In moderate or high inflation environments.
International Exchange-Traded REITs During declining interest rate environments and when banks are expanding their lending portfolios, and against inflationary pressures.
Master Limited Partnerships During periods of high commodity production, especially oil and gas.
US Treasuries When inflation is low and interest rates are falling, like all bonds. But they tend to outperform other types of bonds, on a relative basis, when market volatility is high and when the economy is weakening and stock prices are falling.
US Investment Grade Corporate Bonds When the economy is growing and default rates are low and are expected to stay low.
US Securitized Bonds When interest rates are relatively stable or falling.
US Inflation Protected Bonds When inflation rises, since the principal and coupons would both rise as well. If traditional Treasury yields are falling, inflation protected bonds’ yields may follow suit.
US Corporate High Yield Bonds When the economy is strong and default rates are low and are expected to remain low.
International Emerging Market Bonds When the U.S. dollar and other major currencies like the euro or Japanese yen decline because EM assets look more attractive by comparison. A growing global economy tends to benefit EM country bonds as well.
Preferred Securities When long-term bond yields are stable or falling, and the economic outlook is positive.
Bank Loans When short-term interest rates—specifically 3-month Libor—are rising and default rates remain low.
Investment Grade Muni Bonds When interest rates are falling and inflation is low.
Gold and Other Precious Metals When expectations for future inflation are increasing, the U.S. dollar is falling, geopolitical unrest is rising, or there are widespread concerns about the stability of the financial system.

Source: Charles Schwab

The following table is from “Small Investors Should Be Conservative Going Into 2020”, where I estimate which funds have done best over the past 25 years. As a note, international fund performance depends on where the rest of the world is in relationship to the U.S. in the business cycle.

Table #5: Asset Class Performance by Business Cycle Stage

Source: Author using MFO Premium and Portfolio Visualizer

Schwab Intelligent Portfolios Asset Allocation White Paper” describes evolving theories of asset allocation. Correlations of equities have become much higher over the past 25 years. Allocations across diverse assets can reduce risk in portfolios. In this environment of lower expected stock returns and low-interest rates, asset allocations may be evolving as they show in the hypothetical allocation below.

Chart #8: Charles Schwab Conceptual Changes in Asset Allocation

3) A Review of February Fund Performance

I began writing articles about the business cycle and managing risk several years ago. I built a Ranking System based on Mutual Fund Observer data using factors of Risk, Risk-Adjusted Returns, Momentum, Income, and Quality (Valuation, Bond Ratings, etc) to represent my preferences. Most of the trends that I follow now start January 2018, because that is when many investors began rotating to assets that do well in the late stage of a business cycle. The coronavirus and oil price wars have been catalysts to an already weak and overvalued market.

Chart #9 is intended to answer if the drawdown of the mixed asset funds from Charles Schwab, Fidelity and Vanguard in 2020 (vertical axis) follow the same trends in drawdown for the past two years ending February 2020 (horizontal axis). In other words, can the risk in a fund over the past two years accurately reflect the risk going forward over short time periods? Vanguard Conservative, Fidelity Conservative, and Fidelity Moderate are Personal Target Portfolios that I cover in the next section. There is a good correlation (0.69) between the drawdowns for the two time periods.

Chart #9: Two Year Drawdown (Ending Feb 2020) vs YTD Drawdown

Fidelity Puritan (FPURX) and Schwab Balanced (SWOBX) are two funds that had significantly lower drawdowns in 2020 compared to the last two years. Vanguard Managed Payout (VPGDX), Fidelity Multi-Asset Income (FMSDX), and Schwab Monthly Income – Moderate Payout (SWJRX) had significantly higher drawdowns in 2020 compared to the last two years. The performance of the three Target Portfolios reflected relatively low drawdowns for the past two years and year to date.

Chart #10 is intended to answer the question if the Ulcer Index from the past two years reflects the relative drawdown in 2020? The correlation (0.74) between the Ulcer Index from the previous two years and the drawdowns in 2020 is very good. Again the funds that outperform during the 2020 correction relative to the past two years are shown in green, and the funds that underperformed are shaded tan.

Chart #10: Two Year Ulcer Index (Ending Feb 2020) vs YTD Drawdown

Source: Created by the Author based on Mutual Fund Observer (Ulcer) and Morningstar (DD)

Table #6 shows all of the funds with the maximum drawdown and Ulcer Index from the past two years compared to one month, year to date, and one year returns. The green shaded cells are the top ten performers for the column and the red are the bottom ten. The table is divided into three sections with the top representing the lowest risk, higher-performing funds in 2020, while the bottom section represents the higher risk, lower-performing funds.

Table #6: Mixed Asset and Target Portfolio Past and Present Performance

Source: Created by the Author based on Mutual Fund Observer (metrics) and Morningstar (return)

Each month, I extract data for about a thousand funds from the Lipper database using Mutual Fund Observer screens. I rate funds and Lipper Categories based upon risk, risk-adjusted return, income, momentum, and quality factors (including bond quality and stock price to earnings ratio). Table #7 contains the top Lipper Objective along with a representative component of the factors. The “Rank” column is my Ranking System. The way to read the table is that the S&P 500 had an Ulcer Index (Risk) of 4.3 and an average return (APR) of 8.1%, a risk-adjusted return (Martin Ratio) of 1.0% for the past two years ending February. The three-month return is also as of the end of February. I look for funds with lower risk and higher risk-adjusted returns in each of the nine buckets.

Table #7: Top Performing Lipper Objectives – 24 Months Ending February 2020

(Source: Author based on data from the MFO Premium screeners)

Table #8 contains the top funds for each of the Top Lipper Categories for Vanguard mutual funds and no-load, no transaction fees at Fidelity and Charles Schwab, along with closed-end funds and exchange-traded funds. (Note: DODIX may have transaction fees at Fidelity.)

Table #8: Top Performing Funds by Top Performing Objectives

(Source: Author based on data from the MFO Premium screeners)

4) My Portfolio Target Allocations

Chart #11 is the chart that I showed at the top of this article. I have created three target portfolios that I will follow: Vanguard Conservative, Fidelity Conservative, and Fidelity Moderate. The performance was compared in the previous section. My own portfolio contains similar portfolios as these with emergency and specific accounts separate. Overall, I am about 30 to 35% invested in stocks. This section looks at the composition of the three portfolios. All three are globally diversified portfolios. For the last two years, they have done about as well or better than the S&P 500, and with less risk. All three portfolios have a Mutual Fund Observer Risk Rating of Conservative (MFO Risk =2).

Chart #11: Two Year Performance of Mixed Asset Funds and Target Portfolios

(Source: Author based on data from the MFO Premium screeners)

Table #9 contains the risk and risk-adjusted return data from Mutual Fund Observer and the returns from Morningstar as of March 13, 2020, for the S&P 500. It is shown for comparison purposes for the Target Portfolios.

Table #9: S&P 500 for Comparison

Source: Author based on Mutual Fund Observer (metrics) and Morningstar (return)

In February, I wrote an article describing Vanguard Mixed-Asset Funds and an update for a final Target Portfolio which I will be following and adjusting going forward. The portfolio is intended to be a low risk, globally diversified portfolio. It is conservative for the late stage of the business cycle and is based on the belief that the U.S. may have a couple of quarters of slow or negative growth followed by a global recovery. It contains 31% stocks.

Table #10: Vanguard Conservative Target Portfolio

Source: Author based on Mutual Fund Observer (metrics) and Morningstar (return)

In March, I wrote an article describing Fidelity mixed-asset funds. Since then, I have adjusted my portfolios and created two Fidelity Target Portfolios. The Fidelity Conservative Target Portfolio is shown in Table #11. It contains 35% stocks.

Table #11: Fidelity Conservative Target Portfolio

Source: Author based on Mutual Fund Observer (metrics) and Morningstar (return)

The Fidelity Moderate Target Portfolio is shown in Table #12. It is more aggressive than the Fidelity Conservative Target Portfolio and has 50% stocks.

Table #12: Fidelity Moderate Target Portfolio

Source: Author based on Mutual Fund Observer (metrics) and Morningstar (return)

The S&P 500 has fallen 16% year to date. Table #6 was created using portfolios that I created at Morningstar with a set number of shares. These are my base case. The tables in this section are based on the target allocation. The difference between the two is the drift due to performance. Is it time to jump in and buy the dip? Or is it time to sell and avoid further losses?

In “Best Practices for Portfolio Rebalancing,” Vanguard advises against trying to time the markets when rebalancing. They study three methods for timing the rebalancing of portfolios. The one that I like is the “Threshold Only” method where limits are set on the portfolio and the portfolio rebalanced when the allocations exceed targets by these thresholds. The new Mutual Fund Observer Portfolio Tool (MFO Premium access required) is a great “keep it simple” tools for the individual investor. One of the criteria for rebalancing my portfolios will be that the portfolio maintains a Conservative Risk Rating from Mutual Fund Observer.


I have been simplifying and positioning my portfolios optimistically and cautiously for a slow growth, high-risk environment. The dip has been a good laboratory to see how my funds and portfolios will perform in a down market. I was surprised at the rapid changes in the markets, and how some of the funds performed. I was also relatively pleased with the way they performed.

I wish everyone good health and happiness.


I am neither 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.

A Presumptive Bear Ends an 11-Year Bull Run

By Charles Boccadoro

In November 2014 we published a piece entitled, “Mediocracy and Frustration,” a lament of lame 3.9% annualized returns since the century began for the S&P 500. The historically low returns reflected two monster drawdowns blamed on the tech bubble of 2000 and the financial crisis of 2008 and 65 months of retractions 20% or more from peak.

As if that was not bad enough, every pundit was predicting eminent collapse, including two Nobel Prize winners. A beloved bull, it was a not.

They were wrong. All of them.

The bull lasted six more years delivering healthy returns after all. While still weaker than two previous bulls, from 1980s and 1990s, folks stopped complaining. Ten-year rolling returns recently became quite strong. Along the way, it persevered through various stages of quantitative easing, the taper tantrum, multiple mass shootings, proliferation of ETFs, a surprising presidential election result, BREXIT, the Greece bailout, Brazilian economic downturn, and global trade wars.

One signature characteristic was long periods of low volatility. By several measures, it was the lowest in decades, as described in “Historically Low Volatility.” In 2017, there was a stretch of 12 consecutive months with no drawdown in the S&P 500. None!

Until it all stopped suddenly with the CV-19 crisis, beginning Black Monday March 9. Over the next week, the S&P 500 would fall 10% or more on three different days. The fastest bear ever, based on daily returns, bringing attendant volatility not seen since the Great Depression.

At MFO, we track to month ending levels. And, given a strong bounce, the month ending drawdown from the last peak (in December) was just shy of the formal bear territory threshold at -19.7%. The distinction may be mute. (The Russell 2000, more indicative of breath of hemorrhage, is down 31% month-ending.) So, with a bit of cautious presumption, here’s a graphical presentation of performance for each of the five cycles dating back to the Vietnam War.

The period holds five market cycles, the last now complete, each cycle comprising a bear and bull market, defined as a 20% move down from previous peak or trough, respectively. It is an update of a similar graph presented in the 2014 article.

Similarly, here’s an update of the comparative table, depicting the dramatic differences between the two great bull markets at the end of the last century with the first two of the new century. Note that the excess return (levels above “risk-free”) of the last cycle  were actually quite high.

In retrospect, Bull No. 5 turned out to be quite sweet.

I’d take it back in a New York minute.

The Long and Short of it

By David Snowball

Long-short funds generally position themselves as “the new 60/40,” that is, as funds appropriate as a core holding for a reasonably conservative investor. Their argument is that 60/40 funds work only when both the stock and bond markets are in a relatively good mood. A fund that simultaneously bets against wobbly companies with overvalued stocks and bets in favor of high-quality companies with undervalued ones has the prospect of earning money, or at least minimizing pain, even when markets are behaving poorly.

There are two problems with such funds. First, they tend to be egregiously expensive. That’s not necessarily a reflection of a manager’s avarice; instead, it reflects the fact that a shorting strategy can be quite expensive to execute. Second, the category can cover funds with dramatically different strategies. Some, as in our opening examine, target stocks one-by-one. Some make bets against entire market sectors. Some use complex derivatives. That means that long-term investors need to do rather more due-diligence here than in many “vanilla” investment sectors. The key is that you’re got to have a clear understanding of what your manager is doing and when it’s likely to make you feel like an idiot for owning it; in 2019, for example, the average long-short fund made 12% while the Vanguard 500 Index Fund (VFINX) made 32% and the stodgy Vanguard Balanced Index (VBINX) made 22%.

The category looked a lot better in the first quarter of 2020, where the average long-short fund dropped 12.5%, close to the 11.6% loss for VBINX far better than the 19.6% decline in VFINX. Eight long-short funds finished Q1 in the black, and most of the funds with top 25% YTD returns also best the Balanced Index over the past three years.

Top 25% of long-short equity funds, based on Q1 2020 performance

  ytd rk 3 yr rk 5 yr e.r.
Benchmark: Vanguard Balanced Index -11.63 18 4.57 11 4.93 0.18
ABR Dynamic Blend Equity & Volatility ABRTX 33.33 1 13.94 1 2.25
RiverPark Long/Short Opportunities RLSFX 9.48 3 13.19 2 8.97 2.18
Nuance Concentrated Value Long-Short NCLIX 6.12 4 4.64 13 3.61
Absolute Capital Opportunities 1.71 7 5.07 10 3.02
JPMorgan Opportunistic Equity 1.64 7 4.96 11 4.61 1.75
MFS Managed Wealth 1.52 7 5.50 8 3.53 0.65
Toews Tactical Monument 1.45 9 9.17 5 3.34 1.25
Alger Dynamic Opportunities 1.02 11 7.56 6 5.11 2.17
Salient Tactical Growth -0.41 11 4.25 15 3.70 1.43
Longboard Alternative Growth -1.35 15 6.24 7 5.21 1.99
Anchor Risk Managed Equity Strategy -2.35 16 10.34 4 2.19
Salient Tactical Plus -3.32 18 5.60 8 4.77 1.09
Neuberger Berman Long Short -5.64 21 3.99 17 2.70 1.78
361 Domestic Long/Short Equity -7.06 23 2.74 25 2.43

The story of the top three

ABR Dynamic Blend Equity & Volatility (ABRTX) rebalances daily between S&P500 index futures, S&P VIX Short-term volatility futures and cash. If their models show rising volatility, they buy the VIX. The goal is to thrive in high-volatility markets and to at least make some money in the others.

This is been a near-perfect market for the strategy. Over the longer-term, it’s been a middle-of-the-road long-short fund, trailing its peers in three of the past four years. The minimum initial investment is $2,500.

RiverPark Long-Short Opportunity (RLSFX) starts by identifying important secular themes (for example, the switch to online retail), then dividing the financial world into thriving sectors and dying sectors (big box retail). They invest long in the best companies in thriving sectors and short the worst companies in dying sectors. The strategy has worked pretty consistently: Mr. Rubin has outperformed his long-short peers in four of the past five years and now has top 1-3% returns for every trailing time period.

Our profile of RLSFX, written shortly after the fund’s launch, concluded, “Both of [Mitch Rubin’s] long-short hedge funds offered annual returns within a few tenths of a percent of the stock market’s but did so with barely half of the volatility.  Even with the drag of substantial expenses, RLSFX has earned a place on any short-list of managed volatility equity funds.”

The minimum initial investment is $1,000.

Nuanced Concentrated Value Long-Short (NCLIX) invests long in the stocks of 15-35 “leading businesses with stable competitive positions when they are underearning their long-term potential” and shorts 0-50 “large businesses with average competitive positions when they are over-earning their long-term potential.” The fund has tended to seesaw back and forth between top-tier relative performance (2016, 2018, Q1/2020) and the bottom tier (2017, 2019).

The minimum initial investment is $2,500.

Taking the Polar Plunge

By David Snowball

First Pacific Advisers, the adviser to the FPA funds, has reached an agreement with London-based Polar Capital. Under the agreement, FPA’s International Value and World Value teams – headlined by Pierre Py and Greg Herr – will operate as Phaeacian Partners, an independent subsidiary of Polar Capital. The transition from FPA to Polar would play out over six to nine months.

Phaeacian? Mysterious race, much discussed in Homer’s works. Highly advanced, great seafarers, generally hospitable. Their king was a grandson of Poseidon, Greek god of the seas.

The most visible manifestation of the agreement will be the move of FPA International Value (FPIVX) and FPA Paramount (FPRAX) to Polar. In sum, about a billion in assets will make the transition: three pooled vehicles and three institutional segregated accounts.

Two questions: why the sale? And, what does it mean to you?

Why? In a word, growth. FPA’s absolute value strategy makes a world of sense to a world of investors – folks from western Europe to Asia – while being only modestly attractive to US investors. FPA recognized that it did not have the global network necessary to promote and distribute it widely in those markets. Polar did.

FPA has faith in both the team and the strategy. Under the terms of the agreement, FPA will continue to benefit from a revenue-sharing agreement so that the team’s Polar success will help strengthen FPA.

So? Polar’s emphasis is on the institutional marketplace, so future Polar products are not likely to be accessible to individual investors. As an illustration, Polar is bringing its successful emerging markets strategy to the US in the form of Polar Capital Emerging Market Stars Fund which will have a $1 million minimum. The folks at FPA anticipate that International Value and Paramount will continue to be accessible to US retail investors, albeit with new names and tickers. They also anticipate that AUM growth would translate into lower expense ratios for the funds.

Bottom Line. We agree with FPA’s core conclusions: very good strategy, very good team. We wish the guys well in their new domicile and continue to recommend the funds to value investors with an interest in global exposure.

Launch Alert: One Rock Fund (ONERX)

By David Snowball

One Rock Fund (ONERX) launched on March 6, 2020, the only public offering by – and only client of – Wrona Investment Management of Pinehurst, NC.

One Rock will invest in the stocks of corporations with “business momentum.” Here’s a description of the investment process:

a bottom-up, fundamental research approach to each company and industry with a technical analysis overlay to gain a better understanding of investor sentiment and potential future risks. The Adviser expects that many, or possibly all, of these companies, will be in the technology sector and exhibit strong growth in revenues, earnings and/or cash flows, although significant investments may also be made in other sectors.

The manager might also seek to exploit short-term opportunities created by what he perceives to be market overreactions to corporate or headline-driven events. The portfolio will be focused, likely on 15-30 stocks. The stocks will be traded in the US, but the firms might be domiciled here, or in developed or developing foreign markets.

As a volatility-control measure, the manager can use covered calls or covered puts, which he sees as being less risky than a pure long or pure short position on any of his stocks. He also has the flexibility to hedge overall market exposure.

The manager will not intentionally invest in firms involved in “production or wholesale distribution of alcohol, tobacco, vaping equipment, gambling equipment, gambling enterprises, pornography, or which provide products or services that do not allow the right to life at all stages” but might have unintentional exposure to the extent that he uses index futures in the portfolio.

Let’s talk about Jeff Wrona

When we first wrote about the fund, when it was just a fund in registration with the Securities and Exchange Commission, we summarized it this way.

The plan is to trust the manager: non-diversified, momentum, tech-heavy, stocks, options, futures, shorting, with the prospect for investing in “short-term opportunistic situations.”

If Jeff’s name is familiar to you, you’ve either got a long record as an investor and a good memory, or you’re a market historian.

Jeff was last prominent in the 1990s as one of the guys who most effectively exploited the dot-com bubble as a manager, first, for Munder (1990-97) and then for PBHG (1997-2001).  In the latter post, he was responsible for managing over $10 billion in assets. He, more than most, experienced both the era’s highs (up 240% one year) and lows (down 44% another).

For personal reasons, he left PBHG and the world of professional investment management in 2001. Life got rocky, then life got better.

Because the manager’s idiosyncratic judgment is so central to One Rock’s prospects, we spoke with Jeff for a while on March 30, 2020. Highlights of that conversation are:

Prospective investors should imagine the core of the portfolio as focused, long-only, technology-centered. In reality the portfolio will likely be more nuanced and complex, but that’s the heart of it.

Prospective investors need to understand what Jeff means by “momentum.” He focuses on the momentum of the underlying business, not the momentum of their stocks. Part of the portfolio’s emphasis on tech reflected the fact that those firms are over-represented in the universe of high-momentum firms. Momentum is a short-term phenomenon, so he’s focusing on how the business has done relative to one, two or three months ago.

The underlying discipline grows out of the approach he used two decades ago at PBHG but the “grows out” is an important qualifier. “Investing was my job back then and there were rules I had to play by: be in a certain box, 90-100% invested at all times, long-only portfolio. The last 18 years have been different: I needed to pay bills and live off the portfolio. That changes your perspective from beating a benchmark to supporting a family. That’s made me more valuation sensitive. While high-valuation stocks will have a place in the portfolio, I wouldn’t expect that the whole portfolio to ever again be comprised solely of such stocks.”

Given the availability of options and futures, the portfolio might not be fully exposed to the market at any given moment. While he has trouble imagining a world in which his market exposure is under 50%, he can imagine exposures in the 70-100% range. Still, a NASDAQ-like volatility would be reasonable to expect.

On whole, the fund is probably better held in a tax-sheltered account. This has traditionally been a fairly high turnover, though rewarding, discipline. That means that many of the fund’s gains will be taxed at the higher short-term capital gain rates. That said, he and his wife have shares of the account held in both tax-sheltered and regular accounts.

Did F. Scott Fitzgerald write, “there are no second acts in American lives”? He did, sort of. It appears in the handwritten notes for a novel published in 1941, after his death. But Fitzgerald was, at base, an optimist. That attitude is better conveyed by his first and polished use of the phrase. In “My Lost City” (1932), Fitzgerald writes, “I once thought that there were no second acts in American lives, but there was certainly to be a second act to New York’s boom days.” After 18 years away, Jeff Wrona seems intent to demonstrate that the original Fitzgerald was the truer Fitzgerald. One wishes him well at the attempt.

The fund’s expense ratio is capped at 1.75%, The initial investment minimum is $2,000. It is available for purchase direct from the adviser.

Launch Alert: Direxion Flight to Safety ETF

By David Snowball

In real estate, it’s all about location.

In investing, it’s all about timing.

On February 5, 2020, which the Dow at 28,807, Direxion launched the Direxion Flight to Safety Strategy ETF (FLYT). The passive fund tracks an index comprised of gold, large-cap utility stocks, and long-dated US Treasury bonds. It rebalances quarterly, with the least volatile component of the index, based on trailing five-year volatility, receiving the greatest weight.

The initial weightings are roughly 43% bonds, 35% utilities, and 22% gold. Gold is capped at 22.5% of the portfolio. Because they had to put it somewhere, Morningstar benchmarks it against their 50-70% equity allocation category.

Direxion’s argument is that some assets are seen as safe havens, and tend to rise when people flee “risk assets.” They illustrate this tendency by looking at a relatively short period of market history, the events since the financial crisis in 2008.

The fund has risen about 1.0% from inception through March 27, 2020. The Vanguard Total Bond Market ETF (BND) declined 0.81% during the same period.

Magic shield? Haven’t found one yet. Useful balm? Maybe. You need to know that the underlying assets have been bid up by others who’ve already fled. Historically low-interest rates will undercut the appeal of long-term bonds once the crisis passes since any uptick in interest rates will reduce their price.

Here is a 10-year (through 2/28/2020) snapshot of the performance of the three components of FLYT against Vanguard STAR (VGSTX), a 60/40 balanced fund of funds. For simplicity, I targeted Vanguard funds to capture the asset classes but Vanguard shuttered its precious metals fund in 2002. I substituted a middle-of-the-road gold fund for it.

  Annual return Standard deviation Sharpe ratio
Vanguard STAR 8.6% 8.6 0.93
Vanguard Long-Term Treasury VUSTX 7.9% 11.8 0.62
Vanguard Utilities Index VUIAX 12.1 12.0 0.96
Gabelli Gold AAA GOLDX -2.0 32.9 -0.08

The expense ratio is 0.40%.

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 June.

The month’s SEC pipeline saw filings for Direxion U.S. Hyper Growth ETF (HIPR) and Direxion U.S. Fallen Knives ETF (NIFE). Precious little of the former. As to the latter: Fallen. Falling. What a difference just a couple letters might make!

Anfield Capital Management Extended Yield ETF

Anfield Capital Management Extended Yield ETF [YALT], an actively-managed ETF, seeks total return through capital appreciation and income with a primary focus on instruments with potentially higher yields as compared to traditional fixed income instruments and markets. YALT is a fund of funds that might invest in anything except open-end mutual funds; its investable universe is fixed-income ETFs, closed-end funds, master limited partnerships, and business development companies. The fund will be managed by Peter van de Zilver and David Young of Anfield. Its opening expense ratio is 1.30%.

Fiera Capital Intermediate Tax Efficient Fixed Income Fund

Fiera Capital Intermediate Tax Efficient Fixed Income Fund will seek attractive after-tax total return. The plan is to invest in muni bonds, which might range in maturity from 1-30 years though the portfolio as a whole will typically be 3-10 years. Up to 20% of the portfolio might be in high-yield bonds and up to 20% might be investing in other sorts of fixed-income assets that “offer relatively attractive after-tax returns.” The fund will be managed by Bryan Laing. Mr. Laing is a VP for credit research at Fiera and used to work at Bloomberg. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $1,000.

Franklin Liberty U.S Treasury Bond ETF

Franklin Liberty U.S Treasury Bond ETF, an actively-managed ETF, seeks “Income.” That’s it. Just “Income.” The plan is to buy Treasuries, but it “intends to primarily focus on U.S. Treasury securities with a remaining maturity of between 1-30 years.” (Ummm … that’s pretty much all of them, at least as far as bonds go). They might also buy MBS and hedge interest rate exposure. The fund will be managed by Warren Keyser and Patrick Klein, Ph.D., of Franklin Templeton. Its opening expense ratio has not been disclosed.

Global X Emerging Markets Bond ETF

Global X Emerging Markets Bond ETF, an actively-managed ETF, seeks a high level of total return consisting of both income and capital appreciation. The plan is to invest in government and corporate, fixed-rate and floating-rate, investment-grade and high-yield EM debt. The fund will be managed by Joon Hyuk Heo who heads Mirae Asset Global Investment’s global fixed-income team. Its opening expense ratio has not been disclosed.

Oakmark Bond Fund

Oakmark Bond Fund will seek to maximize both current income and total return. The plan is to invest across fixed-income classes. They commit to at least 25% investment grade but beyond that, the portfolio allows possibly 20% equities, 10% defaulted corporate securities and up to 35% junk bonds. The fund will be managed by M. Colin Hudson, CFA and Adam D. Abbas. Its opening expense ratio is 0.54% for Advisor shares whose minimum initial investment will be $100,000.

Polar Capital Emerging Market Stars Fund

Polar Capital Emerging Market Stars Fund will seek long term capital growth. There’s no much information about the investment strategy beyond a bland announcement that they’ll buy EM equities and “derivatives for hedging or efficient portfolio management purposes or to reduce portfolio risk.” The fund will be managed by Jorry Rask Nøddekær. Its opening expense ratio is 1%, and the minimum initial investment will be $1 million. We don’t normally report on institutional funds. Two special considerations in this case. First, Polar Capital just entered into an agreement to buy FPA’s two international funds and to extend its marketing worldwide. And, second, “Jorry Rask Nøddekær.” Cool.

Stone Ridge Diversified Alternatives Fund  

Stone Ridge Diversified Alternatives Fund will seek total return. The plan is to invest in six strategies that they believe to be diversified (uncorrelated to one another) and diversifying (uncorrelated to either stocks or bonds). These strategies will initially include Reinsurance, Market Risk Transfer, Style Premium Investing, Alternative Lending, Single Family Real Estate and Healthcare Royalties. The fund will be managed by “[                ], [                ]and [                ] (the “Portfolio Managers”).” Its opening expense ratio and minimum initial investment have not been disclosed.

Terra Firma US Concentrated Realty Equity Fund

Terra Firma US Concentrated Realty Equity Fund will seek long-term capital appreciation, with current income as a secondary objective. Extra points to those who can decipher the key passage in their SEC filing.

Performance data for the classes varies based on differences in their fee and expense structures. The performance figures for Open Class shares reflect the historical performance of the then-existing shares of the […] (the “Predecessor Portfolio”) (the predecessor to the Fund, for which […] served as the investment adviser), a series of […], from September 23, 2011, to […], 2020. The performance figures for Open Class shares also reflect the historical performance of the then-existing shares of the predecessor fund to the Predecessor Portfolio, the […] (the “Predecessor Fund”) (for which […] served as the investment adviser), for periods prior to September 23, 2011. Jay P. Leupp has served as a portfolio manager for the Fund, the Predecessor Portfolio, and the Predecessor Fund since December 31, 2008. Christopher J. Hartung has served as a portfolio manager for the Fund and the Predecessor Portfolio since 2018.

And thanks to msf (who checked and determined that the unnamed Predecessor is Lazard US Realty Equity and the predecessor to the predecessor was Grubb & Ellis AGA US Realty) and the folks on the MFO discussion board for helping me breathe deeply afterward. The fund will be managed by Jay Leupp who managed both the Predecessor Fund and Predecessor Portfolio and Christian Hartung. Its opening expense ratio is 1.25%, and the minimum initial investment will be $2500.


Manager changes, March 2020

By Chip

Most months, 50 or 60 equity-oriented funds and ETFs undergo partial or complete changes to the management teams. Perhaps owing to our strained physical and financial environment, the number of changes this month is substantially lower: 38. Three of those are occasioned by retirements and 11 more are simply adding a member to an existing team. On whole, the industry seems to be focusing its energy elsewhere this month.

And good for them!

Ticker Fund Out with the old In with the new Dt
BGEIX American Century Global Gold Fund Elizabeth Xie is no longer listed as a portfolio manager for the fund. Yulin Long will continue to manage the fund. 3/20
BIGRX American Century Income and Growth Fund Brian Garbe will no longer serve as a portfolio manager for the fund. Steven Rossi joins Claudia Musat in managing the fund. 3/20
ACEVX American Century International Value Fund No one, but . . . Tsuyoshi Ozaki has joined Yulin Long on the management team. 3/20
AOGIX American Century One Choice Portfolio: Aggressive No one, but . . . Brian Garbe joins Richard Weiss, Scott Wilson, Radu Gabudean, and Vidya Rajappa on the management team. 3/20
AOCIX American Century One Choice Portfolio: Conservative No one, but . . . Brian Garbe joins Richard Weiss, Scott Wilson, Radu Gabudean, and Vidya Rajappa on the management team. 3/20
AOMIX American Century One Choice Portfolio: Moderate No one, but . . . Brian Garbe joins Richard Weiss, Scott Wilson, Radu Gabudean, and Vidya Rajappa on the management team. 3/20
AOVIX American Century One Choice Portfolio: Very Aggressive No one, but . . . Brian Garbe joins Richard Weiss, Scott Wilson, Radu Gabudean, and Vidya Rajappa on the management team. 3/20
AONIX American Century One Choice Portfolio: Very Conservative No one, but . . . Brian Garbe joins Richard Weiss, Scott Wilson, Radu Gabudean, and Vidya Rajappa on the management team. 3/20
ASQIX American Century Small Company Brian Garbe will no longer serve as a portfolio manager for the fund. Steven Rossi will continue to manage the fund. 3/20
AAAIX American Century Strategic Allocation: Aggressive No one, but . . . Brian Garbe joins Richard Weiss, Scott Wilson, Radu Gabudean, and Vidya Rajappa on the management team. 3/20
AACCX American Century Strategic Allocation: Conservative No one, but . . . Brian Garbe joins Richard Weiss, Scott Wilson, Radu Gabudean, and Vidya Rajappa on the management team. 3/20
ASAMX American Century Strategic Allocation: Moderate No one, but . . . Brian Garbe joins Richard Weiss, Scott Wilson, Radu Gabudean, and Vidya Rajappa on the management team. 3/20
CHTTX AMG Managers Fairpointe Mid Cap Fund Effective as of April 30, 2020, Marie Lorden will retire from Fairpointe Capital LLC and no longer serve as a portfolio manager of the fund. Thyra Zerhusen, Frances Tuite, and Brian Washkowiak will continue to manage the fund. 3/20
ASUIX Arabesque Systematic USA Fund Philipp Müller will no longer serve as a portfolio manager for the fund. Gilles Jacobs has joined Dr. Hans-Robert Arndt in managing the fund. 3/20
ADJEX Azzad Ethical Fund Ziegler Capital Management, LLC will no longer serve as sub-adviser to the fund and Christian Greiner will no longer manage the fund. Jamal Elbarmil will now manage the fund. 3/20
LMANX BrandywineGLOBAL – Alternative Credit Fund Gerhardt “Gary” Herbert is no longer listed as a portfolio manager for the fund. Tracy Chen and Brian Kloss will continue to manage the fund. 3/20
LFLSX BrandywineGLOBAL – Global Flexible Income Fund Gerhardt “Gary” Herbert is no longer listed as a portfolio manager for the fund. Tracy Chen, Brian Kloss, Jack McIntyre, and Anujeet Sareen will continue to manage the fund. 3/20
LMZIX BrandywineGLOBAL – Global High Yield Fund Gerhardt “Gary” Herbert is no longer listed as a portfolio manager for the fund. Tracy Chen and Brian Kloss will continue to manage the fund. 3/20
FSELX Fidelity Select Semiconductors No one at the moment, but Stephen Barwikowski is expected to retire at the end of June. Adam Benjamin joins Mr. Barwikowski on the management team and will continue to manage the fund upon his retirement. 3/20
GSCAX Goldman Sachs Commodity Strategy Fund Mark Van Wyk will no longer serve as a portfolio manager for the fund. Peter Stone joins Samuel Finkelstein in managing the fund. 3/20
IHGIX Hartford Dividend and Growth Fund  Effective immediately, Mark Vincent will no longer serve as a portfolio manager for the fund. Nataliya Kofman, Matthew Baker, and Edward Bousa will continue to manage the fund. 3/20
HGOAX Hartford Growth Opportunities Michael Carmen is no longer listed as a portfolio manager for the fund. Mario Abularach and Stephen Mortimer will continue to manage the fund. 3/20
JHVIX John Hancock Funds II International Value Fund Peter Nori and Christopher Peel no longer manage the fund. Joseph Feeney, Christopher Hart, Joshua Jones, and Joshua White will now manage the fund. 3/20
MOTAX MassMutual Select Fundamental Growth Fund Joel Thomson will no longer serve as a portfolio manager for the fund. Richard Lee, Timothy Manning, Ethan Meyers, and William Muggia will now manage the fund. 3/20
ANTVX NT International Value Fund No one, but . . . Tsuyoshi Ozaki has joined Yulin Long on the management team. 3/20
JCE Nuveen Core Equity Alpha Fund Jody Hrazanek is no longer a portfolio manager of the fund. David Friar, Adrian Banner, and Vassilios Papathanakos will continue to manage the fund. 3/20
DIAX Nuveen Dow 30 Dynamic Overwrite Fund  Jody Hrazanek is no longer a portfolio manager of the fund. David Friar will continue to manage the fund. 3/20
QQQX Nuveen Nasdaq 100 Dynamic Overwrite Fund Jody Hrazanek is no longer a portfolio manager of the fund. David Friar will continue to manage the fund. 3/20
SPXX Nuveen S&P 500 Dynamic Overwrite Fund  Jody Hrazanek is no longer a portfolio manager of the fund. David Friar will continue to manage the fund. 3/20
RLY SPDR SSGA Multi-Asset Real Return ETF John Gulino will no longer serve as a portfolio manager for the fund. Robert Guiliano and Michael Martel will continue to manage the fund. 3/20
XLSR SPDR SSGA US Sector Rotation ETF John Gulino will no longer serve as a portfolio manager for the fund. Michael Martel and Michael Narkiewicz will continue to manage the fund. 3/20
TQSMX T. Rowe Price QM U.S. Small & Mid-Cap Core Equity Fund No one, but . . . Vidya Kadiyam and Navneesh Malhan will join Sudhir Nanda and Prashant Jeyaganesh on the management team. 3/20
TCWAX Templeton China World Fund Yu-Jen Shih is no longer listed as a portfolio manager for the fund. Eric Mok joins Michael Lai in managing the fund. 3/20
TECGX TIAA-CREF Quant Large-Cap Growth Fund James Johnson is no longer listed as a portfolio manager for the fund. Max Kozlov will continue to serve as portfolio manager of the fund. 3/20
TELCX TIAA-CREF Quant Large-Cap Value Fund James Johnson is no longer listed as a portfolio manager for the fund. Max Kozlov will continue to serve as portfolio manager of the fund. 3/20
VPGDX Vanguard Managed Payout Fund John Ameriks will no longer serve as a portfolio manager for the fund. Fei Xu will join Anatoly Shtekhman in managing the fund. 3/20
VWELX Vanguard Wellington No one immediately, but Edward Bousa will retire effective June 30, 2020. Loren Moran, Daniel Pozen, and Michael Stack will continue to manage the fund upon Mr. Bousa’s retirement. 3/20
DTLGX Wilshire Large Company Growth Effective on or about March 24, 2020, Victory Capital Management Inc. no longer serves as a subadviser of the fund. Wilshire and Fred Alger Management, LLC will now subadvise the fund. 3/20


Briefly Noted

By David Snowball

Fidelity has disclosed plans to underwrite their money market funds in order to keep their yield from going negative. They have also closed Fidelity Treasury Only Money Market Fund, FIMM Treasury Only Portfolio, and FIMM Treasury Portfolio, which have cumulative $85.5 billion AUM. Fidelity was concerned about the yields on T-bills which, briefly, looked like this:

If a sense of panic drove more investors into ultra-safe Treasury money markets, Fidelity would be forced to buy a bunch of issues that might have negative rates which would force them either to expand the size of the subsidies that the funds were receiving or allow their funds to go negative. Since the latter was unpalatable and the former was expensive, they chose the third path: closing increasingly popular funds to new investors until conditions allowed them to run the funds in a financially sustainable way.

The Direxion 3X funds just became the Direxion 2X funds, albeit without changing their names. Direxion notes

Effective after market close on March 31, 2020, each Fund’s new investment objective and strategy will be to seek daily leveraged, or daily inverse leveraged, investment results, before fees and expenses, of 200% or -200%, as applicable, of the performance of its underlying index as noted in the table below.

The Philippine Stock Exchange closed on March 17, 2020, which modestly complicates the already-miserable lives of EM managers who are torn between the best valuations in a generation and terrified investors. The Kuwaiti national stock exchange also closed, but for only three days: 12-15 March 2020.

Briefly Noted . . .

About half of all of the substantive 497 filings with the SEC this month report urgent changes to the funds’ “primary investment risks” prospectus text. The risk disclosure du jour is “market disruption risk.” Several fund firms hurried filed “bad s**t can happen” amendments to their “Principal Risks” disclosure. BBH, for example, warns us

Natural disasters, the spread of infectious illness and other public health emergencies, recession, terrorism and other unforeseeable events may lead to increased market volatility and may have adverse effects on world economies and markets generally.

Blackstone classes up their disclosure by designating it as “Force Majeure Risk.”

The Master Fund may be affected by force majeure events (e.g., acts of God, fire, flood, earthquakes, outbreaks of an infectious disease, epidemic/pandemic or any other serious public health concern, war, terrorism, nationalization of industry and labor strikes).

It’s intriguing that God, viruses and labor unions all represent the same sort of risk.

Domini, contrarily, offers the new risk up as “Recent Events.” There’s an echo, there, of “the recent unpleasantness,” a Southern euphemism for the Civil War which can be dated to around 1868. Both rely on a rhetorical figure called “meiosis,” an intentional understatement of the size or significance of a thing (says the guy with the doctorate in rhetoric).

Blackstone Real Estate Income Fund also added a whole series of “hey, remember how we all pretended that illiquid investments were actually things with reliable daily liquidity” disclosures.

The most bewildering, maddening risk disclosure comes from xTrackers who now disclose the thing that mayhap should have been highlighted from Day One for every index investor: “Indexing Risk.”

Because an index fund is designed to maintain a high level of exposure to its Underlying Index at all times, it will not take any steps to invest defensively or otherwise reduce the risk of loss during market downturns.

It’s Splitsville, man!

On March 25, 2020, the Catalyst MLP & Infrastructure Fund (MLXAX) underwent a 5:1 reverse share split. Just guessing here, but the fund’s 20% annualized losses over the past five years probably drove the NAV to embarrassingly low levels ($1.74/share on the day before the reverse split though it had been as low as $1.43), which the 5:1 split was designed to remedy. It doesn’t so much address the 54% YTD decline (through 3/27/2020), which might actually be the more pressing issue.

On March 30, 2020, InfraCap MLP ETF (AMZA) pulled off a 10:1 reverse-split to deal with the fact that their NAV has been as low as $0.72 this month. AMZA is down 76% YTD.

And the Direxion Daily Latin America Bull 3X Shares (LBJ)? 20:1 reverse split, down 90% YTD.

Finally, on March 6, 2020, the Steward Funds had reverse splits ranging from 2:1 to 10:1.


Effective 17 March 2020, Artisan International Value Fund and Artisan Small Cap Fund reopened to new investors.

On March 26, Fidelity announced that Fidelity Small Cap Growth (FCPGX) and Fidelity Small Cap Discovery (FSCRX) will reopen on April 1 to new investors.

Forester Discovery Fund (INTLX) reduced its administrative fee from 0.35% of the Fund’s daily average net assets to 0.15%.

All Grandeur Peak Funds have reopened to new investors. Mark Siddoway, their head of client relations, writes:

We continue to be encouraged by the limited redemptions by our shareholders as we experience increasing volatility in the markets, and believe it is in the best interest of both shareholders and portfolio managers to have the funds open at this time. Opening the Funds to new shareholders may provide an opportunity to make investment decisions in today’s depressed markets that we believe will benefit shareholders for the long term.

Grandeur Peak Emerging Markets Opportunities Fund GPEOX/GPEIX Open

Grandeur Peak Global Contrarian Fund GPGCX Open

Grandeur Peak Global Micro Cap GPMCX Open*

Grandeur Peak Global Opportunities Fund GPGOX/GPGIX Open

Grandeur Peak Global Reach Fund GPROX/GPRIX Open

Grandeur Peak Global Stalwarts Fund GGSOX/GGSXY Open

Grandeur Peak International Stalwarts Fund GPIOX/GPIIX Open

Grandeur Peak International Stalwarts Fund GISOX/GISYX Open

Grandeur Peak US Stalwarts Fund GUSYX Open

In the event the market has an unexpected rebound or the flows into the funds exceed our target asset levels, we are prepared to return back to a Soft Closed status to maintain a relatively small asset base and preserve the nimbleness for our research team. 

BNY Mellon Municipal Opportunities Fund (MOTIX) reopened to new and existing investors on March 11, 2020. It’s a five-star fund and a 10-year Great Owl.

Effective March 31, 2020, the Vaughan Nelson Small Cap Value Fund (NEFJX) began accepting orders for the purchase of shares from new investors.

All Wasatch funds, except the International Opportunities Fund, are now open to investors.   The International Opportunities Fund is sort of “soft open” in the sense that it’s accepting new accounts as long as they’re directly purchased from Wasatch. Existing shareholders can, of course, continue to invest in the fund. 

CLOSINGS (and related inconveniences)

Vanguard Managed Payout Fund (VPGDX) has eliminated its monthly payout, effective May 21, 2020. The last scheduled payout is May 15, 2020. Kinda makes you wonder about the significance of the word “Payout” in the fund’s name, doesn’t it? Made Vanguard wonder, too. The fund’s name will soon change to Managed Allocation. In the interim, Dan Wiener reports that “Vanguard stopped charging shareholders the cost of running the fund… Why? No disclosures as far as I can tell, they just did it.”


On or about May 1, 2020, Aristotle/Saul Global Opportunities Fund (ARSOX) becomes Aristotle/Saul Global Equity Fund. As far as I can tell, the current version of the fund is equities with the possibility of some fixed income; the new version will be equities.

ASG Dynamic Allocation Fund (DAAFX) became AlphaSimplex Multi-Asset Fund on April 30, 2020.

Centaur no more. I’ve always been uncomfortable about the ability of the new owners of the Centaur Total Return Fund (TILDX) to use the fund’s name and ticker. No disrespect to them, but the “new” Centaur Fund was a complete rebuild of the predecessor: new team, new objective, new (and evolving) strategy. The fund has now changed its name  DCM/INNOVA High Dividend Income Innovation Fund (TILDX). While Morningstar still assigns it a star rating and a top 1% 15-year record, the fund is down to $7 million in assets and trails 98% of its Morningstar peers YTD.

In connection with Federated Investors’ corporate name change to Federated Hermes, every Federated Fund will add “Hermes” to their names on June 26, 2020. No other change is attendant to that.

Holmes Macro Trends Fund (MEGAX) will get a new name, strategy, and benchmark. Don’t know when. Don’t know what. The one clue, it will “focus on luxury goods-related investments.” Given the ticker, perhaps mansions and mega-yachts?

Effective as of May 1, 2020, the name of the Parnassus Fund (PARNX) will change to the Parnassus Mid Cap Growth Fund. Folks on the discussion board speculate that the move is designed to help create clearer distinctions between PARNX and siblings such as Parnassus Core Equity (PRBLX). The correlation between the two funds is 0.91, which Core Equity having a far stronger 25 year (yep, we took the long view) record:

That said, with only 13% of the current portfolio in mid-cap growth stocks, considerable restructuring of the portfolio is likely.


Acuitas International Small Cap Fund will be liquidated on May 11, 2020.

AdvisorShares Cornerstone Small Cap ETF (SCAP) will be liquidated on April 16, 2020.

On March 3, 2020, the shareholders of the ALPS/WMC Research Value Fund approved merging the fund into the Heartland Mid Cap Value Fund (HRMDX). The Reorganization closed on March 16, 2020.

Two waves of liquidations are coming to American  Beacon. A bunch of quant funds, American Beacon Alpha Quant Core Fund, American Beacon Alpha Quant Dividend Fund, American Beacon Alpha Quant Quality Fund, and American Beacon Alpha Quant Value Fund vanish on or about April 30, 2020.

American Beacon Crescent Short Duration High Income Fund and the American Beacon GLG Total Return Fund had been scheduled to disappear on the same date, but the dissolution has now been postponed to June 30, 2020.  My guess would be that the managers encountered liquidity challenges and were hopeful of completing the sale of portfolio assets in calmer markets.

The fate of American Beacon Acadian Emerging Markets Managed Volatility Fund is uncertain. It was also scheduled to dissolve on April 30 and might, or might not, be covered by the extension.

AMG River Road Dividend All Cap Value Fund II will merge into AMG River Road Dividend All Cap Value Fund on or about April 27, 2020.

AMG Managers Fairpointe ESG Equity Fund (ARDEX) is expected to disappear on or about April 29, 2020.

Direxion Daily Total Bond Market Bear 1X Shares (SAGG), Direxion Daily MSCI European Financials Bull 2X Shares (EUFL), Direxion Daily MSCI Developed Markets Bear 3X Shares (DPK), Direxion Daily Mid Cap Bear 3X Shares (MIDZ), Direxion Daily Regional Banks Bear 3X Shares (WDRW), Direxion Daily Natural Gas Related Bull 3X Shares (GASL), Direxion Daily Natural Gas Related Bear 3X Shares (GASX), and Direxion Daily Russia Bear 3X Shares (RUSS) no longer trade and will be liquidated on April 6, 2020.

Fiera Capital Equity Allocation Fund (FCEAX) gave its two-week notice (really: 3/12/20) and was liquidated on March 31, 2020. The first was 16 months old and, for whatever reason, neither of its managers had chosen to invest in it.

Harbor Small Cap Growth Opportunities Fund (HISOX) merges into the Harbor Small Cap Growth Fund (the “Acquiring Fund”) on May 15, 2020. The filing assures us that “shareholder interests will not be diluted.”

Highland Opportunistic Credit Fund (HNRAX) will fold its tent on June 16, 2020.

HSBC Frontier Markets Fund will be liquidated on or before April 24, 2020.

Janus Henderson Diversified Alternatives Fund (JDDAX) will be liquidated on June 12, 2020.

Legg Mason Emerging Markets Low Volatility High Dividend ETF (LVHE) will be liquidated about May 22, 2020.

Neuberger Berman Multi-Asset Income Fund (NANAX) hits the scrapheap on April 28, 2020.

RMB Mendon Financial Long/Short Fund (RMBFX) merges into the RMB Mendon Financial Services Fund (RMBKX) on June 12, 2020. It’s rare for an adviser to explain, except in uselessly vague terms, why they’ve chosen to kill a fund. RMBFX is an exception, but the decision to merge it out of existence comes hard on the heels of a change in the fund’s “primary investment risk” language:

As a result of recent market disruptions arising from the rapid and escalating spread of COVID-19, the Fund has experienced significant losses and a decrease in assets. The relatively long positioning of the portfolio coupled with a lack of success in hedging its concentration in smaller cap financials during this severe market drawdown resulted in market losses. As a result, Mendon … has repositioned the portfolio, which includes maintaining a high level of cash and liquidating derivatives and short positions. As a result, the Fund is in a temporary defensive posture as permitted under the Fund’s prospectus. Mendon believes this step will allow the Fund to protect value for shareholders.

“Significant losses” would be 63% YTD (as of 3/27) while its Morningstar long/short peers are down by 13%.

The RMB Dividend Growth Fund (RMBDX) will be liquidated on April 28, 2020.

RVX Emerging Markets Equity Fund (RVEMX), owing to small size and unmanageable economics, was liquidated on March 30, 2020.

Schroder Total Return Fixed Income Fund (SSBIX) will merge into Schroder Core Bond Fund (SCBRX) “during the second quarter of 2020.”

Strategy Shares US Market Rotation Strategy ETF (HUSE) has a date, a date with cessation: April 20, 2020.

T. Rowe Price Institutional Africa & Middle East Fund (TRIAX) has been closed and will be liquidated on May 8, 2020. To be clear: this is not the T. Rowe Price Africa and Middle East Fund (TRAMX), which remains open though tiny.

Vanguard Capital Value Fund (VCVLX) will be reorganized into Vanguard Windsor Fund (VWINX) on July 24, 2020.

Voya Global Equity Dividend Fund is slated to merge into Voya Global High Dividend Low Volatility Fund in mid-September, 2020.

Westwood Flexible Income (WFLEX) will be liquidated on April 27, 2020. It’s a $5M fund led by a very good manager who had one cosmically bad month: YTD through March 26, 2020, the fund lost 38% despite having just 18% in common stock. The majority of the portfolio was in preferred shares, often held through ETFs. The manager notes “our [exposure in] energy, transportation (LNG Shippers) and financials crushed us. It wasn’t just the magnitude of the price correction, but also the swiftness of it. We were taking steps to de-risk and re-position but a lot of things we owned in preferred securities and high yield gapped down.”