Monthly Archives: May 2020

May 3, 2020

By David Snowball

It’s May.

Welcome to the Mutual Fund Observer’s ninth anniversary edition. When we first launched in 2011, Chip cautiously observed that the average independent website had a six-week lifespan and a median visitor of … one.

We appear to have beaten the averages by 462 weeks and 1,812,027 readers.

Our decade of readership looks remarkably like the rhythm on a heart monitor:

For that, thank you, dear friends. You are the beating heart of this community. You keep it going and, you alone, keep it meaningful.

Thank you.

I’m always at pains to thank the folks whose financial support keeps the lights on. Gregory, William, Matthew, the other William, Brian, David, and Doug have made small, regular contributions. Paul from New Paltz (a community that Chip, a former SUNY CIO, celebrates as home to her niece Cady’s university), Parker, R.W., Mitchell, and Wilson, too, weighed in this month and we’re in your debt.

I less regularly acknowledge the importance of the notes you’ve shared, sometimes a hand-written assurance that we’ve helped make retirement a bit more manageable or an emailed quip, that we read and share and read again. Thank you for them.

And thanks to my colleagues, remarkable people, who with little expectation of fame or fortune, share huge slices of time and formidable skills to make this all possible To Ed and Chip, Charles and Lynn, Bob C and David W, thanks.

The year ahead promises to be challenging. Have faith and work for the good. We’ll be here for you, and we’ll try to do likewise.

– – – – –

Things I think I think

That it’s always risky to ask smart, quiet people, “what are you thinking?” The Latin proverb is “altissima quaeque flumina minimo sono labi” … the deepest rivers flow with the least sound.

It’s the flip side of the observation attributed to Plato, “An empty vessel makes the loudest sound, so they that have the least wit are the greatest babblers.”

This month I asked my colleagues that very question: what are you thinking? I asked because they’re very good, and very different one from the other. I’m delighted to share their answers in a series of short essays this month, each entitled “What I’m thinking.” Their answers are very different, uniformly provocative, and intermittently optimistic. “Decisive action by the grown-ups may have allowed us to dodge both a depression and mass death, but the cost has been high, is climbing, and must be borne.” I commend their disparate reflections to you.

And me?

I think that Wall Street isn’t Main Street, and I think that Main Street is vastly more important. Wall Street is an important game, played primarily by people vastly wealthier than us, primarily for the benefit of people vastly wealthier than us, but with serious consequences for us.

That said, we live in towns, not in spreadsheets. Those towns need us. We need to support their vitality now if we expect to have them there for us and for the generation beyond. There’s a lot you can do to make that happen.

We have re-subscribed to the local newspaper online, the Quad City Times, to support the professional reporting we need to make sense of our world. Many papers have been pushed to the brink of extinction as ad revenues have collapsed. National outlets – the New York Times, Financial Times, Wall Street Journal, National Public Radio, and Marketplace – do outstanding work helping us understand the world and we support them all. Local media, more quietly, keeps alive a sense of community and a connection to the lives and needs of those we see each day.

We have established a rhythm of ordering food-to-go for one dinner in three, then over-tipping. Mostly mom ‘n’ pop restaurants which are driven by a family’s passion and are vital to the lives of dozens though not hundreds: Café de Marie, Azteca, Nally’s Kitchen, Steel Plow … It’s a nice break from the healthy dinners I’ve been inflicting on Chip and my son, Will.

We’re shopping locally, online, a lot. Our default has been gift cards, that provide a bit of cash flow for the business owners now … and a bit of beer, wine, chocolate, gifts, and dinners for us in the months ahead.

We’ve donated our stimulus checks to people who can use the money more effectively than we can: my particular check got split between the RiverBend Food Bank ($500), the Quad Cities Disaster Recovery Fund to support local businesses and service organizations in need ($500) and … well, Joe Biden ($200) because we really need a return of grown-ups and I was really irked that the Treasury insisted on sending me a written reminder of the source of this largesse:

I considered it part of my effort to get to “stronger than ever before” thing.

We’ve contributed to meet matching gifts and challenge grants from rich folks who are trying to make the most difference. Murry Gerber offered up to a $1 million match for folks who help Augustana weather the storm; I shared $500. A coalition of local businesses offered a $150,000 match for United Quad Cities for COVID-19 Recovery,” which supports the Quad Cities Disaster Recovery Fund; I shared $250 separate from the stimulus check and the Fund has provided over $1 million in direct support for small businesses. Bill Gates matched Donors Choose contributions that supported the transition to remote learning during the crisis; I made him ante up. None of my gifts were major, but they worked to make sure we weren’t leaving money on the table.

We’ve planted trees, rather a lot of them, through a small non-profit called One Tree Planted. At the rate of a dollar a tree, they’re attempting to replant damaged and degraded woodlands across the world.

On behalf of a young friend in Boston, my students, and our readers, we’ve planted nearly 500 trees.

Chip and I have enjoyed nighttime walks in which we’ve noticed that the stars shine more brightly now, and seem more numerous. We’ve watched the Squirrel Wars on our deck and celebrated swarms of goldfinches, Iowa’s state bird. Much of the planet, scientists say, breathes easier than it did just three months ago. And yet the global climate crisis ticks on, with ever-better data painting a picture of accelerating change.

Reforestation will help. Pakistan has even enlisted tens of thousands of COVID-idled workers in an effort to help plant billions of trees. With luck, our experience in fighting COVID – both the re-emergent role of science and the greater recognition of our interdependence and vulnerability – will help. And, too, the pressure from the investor community will help. We’ll return in June to our coverage of ESG- and impact investing, one year after we began our discussion of those issues.

And we’ve reached out. The distant family members – in New York and Pennsylvania – who used to hear from us occasionally, now get check-ins weekly. Students who’ve done well get hand-written notes. Neighbors get an extra wave. “Essential” workers get a smile (masked, sorry) and heartfelt words of respect. Folks in the industry get a dose of my, perhaps, annoyingly Midwestern take on sharing.

– – – – –

The Mutual Fund Observer is a singularly optimistic platform. We launched 9 years ago because we thought we could make a difference. We believed, and believe, that small investors can be guided to make better choices and live more secure lives. We believed, and believe, that there are small investment managers who are brilliant and passionate and determinedly out-of-step, and that we might help you discover them. We were optimistic that a site with no commercial backing, no ads, no ready source of attention or revenue, could make a difference.

Odd, since I am not, by nature, an optimist. For any fan of the Pittsburgh Pirates, the past 30 years has pretty much wrung that out of us.

I am, however, rational. Indeed, in a very real way, optimism is rational. Research in a half dozen fields, from management and economics to psychology and genetics, makes a compelling case for rational optimism. The “rational” part of “rational optimism” is the part that recognizes disasters, but also recognizes that disasters are overcome and looks actively for paths through – and beyond – the rubble.

Optimism seems doggedly successful, perhaps because optimism is doggedly adaptive. After controlling for a variety of factors, optimists are significantly more likely to maintain better financial health than others, they’re more resilient in the face of adversity, they make more money, they’re more likely to be promoted … heck, they even live 10% longer than the rest of us. And yet …

Optimism has never been popular.  John Stuart Mill, almost 190 years ago, wrote that “I have observed that not the man who hopes when others despair, but the man who despairs when others hope, is admired by a large class of persons as a sage.” Then, as now, pessimism buys attention and attention is intoxicating. It’s the oxygen and the heroin of both new and social media platforms, and of gadflies.

I had cause this month to reread the last words ever written by America’s longest-serving president.

April 13 was Jefferson Day, so declared by Franklin Roosevelt in 1938. Jefferson was born on April 13, 1743. He is, for all the painful ambiguities of his life and legacy, one of the three faces that every national politician dreams of seeing in the mirror in the morning. (Yes, I know, narcissists have a different dream.)

Roosevelt wrote his 1945 Jefferson Day speech on April 12, declared it done, sat for a portrait, and settled into lunch. Before he could eat, he suffered a stroke and collapsed. By day’s end, a presidency that stretched 4423 days had ended. His speech was never delivered but is available to us.

As he wrote it, he could see that light at the end of the tunnel: “The once powerful, malignant Nazi state is crumbling” and the Japanese homeland was being pounded. His attention seemed to be turning to the future, to rallying Americans from the temptation to withdraw in exhaustion and disgust.

We must go on to do all in our power to conquer the doubts and the fears, the ignorance and the greed, which made this horror possible.

Thomas Jefferson, himself a distinguished scientist, once spoke of “the brotherly spirit of Science, which unites into one family all its votaries of whatever grade, and however widely dispersed throughout the different quarters of the globe.”

Today, science has brought all the different quarters of the globe so close together that it is impossible to isolate them one from another.

Today we are faced with the preeminent fact that, if civilization is to survive, we must cultivate the science of human relationships—the ability of all peoples, of all kinds, to live together and work together, in the same world, at peace.

Let me assure you that my hand is the steadier for the work that is to be done, that I move more firmly into the task, knowing that you—millions and millions of you—are joined with me in the resolve to make this work endure.

The work, my friends, is peace. More than an end of this war —an end to the beginnings of all wars. Yes, an end, forever, to this impractical, unrealistic settlement of the differences between governments by the mass killing of peoples.

Today, as we move against the terrible scourge of war—as we go forward toward the greatest contribution that any generation of human beings can make in this world- the contribution of lasting peace, I ask you to keep up your faith. I measure the sound, solid achievement that can be made at this time by the straight edge of your own confidence and your resolve. And to you, and to all Americans who dedicate themselves with us to the making of an abiding peace, I say:

The only limit to our realization of tomorrow will be our doubts of today. Let us move forward with strong and active faith.

Some thoughts can’t be fit in a tweet and yet, 75 years on, remain evergreen. To the scientists. To the helpers. To the grown-ups who aspire to leadership. To the millions and millions who have joined in common resolve.

Thank you.

Be resolute.

We’re together.

There is a strong case to be made that we might soon experience another dramatic downswing in the stock market. Even those defending the split between Main Street (which is seeing record unemployment applications) and Wall Street (which ended April in the grasp of the year’s second bull market) based on the notion that Wall Street is always looking ahead, conclude “If you want to find peace of mind and haven’t sold yet, cashing in some of the gains since March makes sense” (James MacIntosh, “Market’s comeback isn’t really that crazy,” Wall Street Journal, 5/1/2020). Our colleague, Ed Studzinski, argues for moving to substantial levels of cash. Mark Hulbert, market historian, imagines the prospect of a serious challenge in August and JPMorgan putting the prospect of a serious fall at 60%. Neither Jeff Gundlach nor Mohammed El-Erian is sanguine. Mr. Buffett seems to have made no new investments in the stock market during the decline, though he does affirm his long-term faith:

We haven’t forgotten how to make progress in this country. And we haven’t lost interest in making progress. And that will benefit to varying degrees of all kinds of people, I think, around the world, but there will be interruptions. And I don’t know when they will occur. And I don’t know how deep they will occur. I do know they will occur from time to time, but I also know that we’ll come out better on the other end.

Caution seems warranted, dear friends. Not pessimism. Not flight. Caution.

“The American miracle, the American magic has always prevailed and it will do so again.” I concur and I’ll see you in June.

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The Young Investor’s Baptism by Fire: 2020 and the market beyond

By David Snowball

“As for me, I baptize you with water for repentance, but He who is coming after me is mightier than I, and I am not fit to remove His sandals; He will baptize you with the Holy Spirit and fire.” Matthew 3:11

“Making far more than a single statement, Cantigny was the doughboys’ baptism by fire, and for those who survived, it became the crucible by which they would measure all subsequent experience, in large-scale fighting at Soissons and the grand Meuse-Argonne offensive … May 28, 1918, was the US military’s coming-of-age—the day it crossed a historical no-man’s-land that separated contemporary fighting methods from the muskets and cannon of the nineteenth century.

Through the 1920s and ‘30s, ‘Cantigny’ remained a symbol of American sacrifice and triumph, a uniting emblem that finally exorcised the dividing demons of the Civil War in a way the Spanish-American War never could. But then came Pearl Harbor. And D-Day. And the Bulge. And in the wake of these epochal events, the 1st Division’s attack at Cantigny lapsed into footnotes, its story left to slumber for a century … the soldiers’ private writings, official reports and memoirs are now all they we have … they chronicle the front-line education under machine-gun and artillery fire that turned college students and young professionals into leaders of men.”

Matthew Davenport, First Over There: The Attack on Cantigny, America’s First Battle of World War I (2015)

To my younger colleagues: welcome to your Cantigny. There is very little question that the events of 2020, and perhaps 2021, will shape the way you view the world, your opportunities, and your obligations, for decades to come.

Great events do that to people. The question is how you choose to let those events play in your mind. And you do have that choice.

Your choice matters, a lot.

One way we choose how we’re affected is by choosing how we “frame” what we’re seeing. We know that all communication is ambiguous, it requires interpretation on our part. Someone smiles at you. What does it mean? Are they smirking? Do they know something you don’t? Are they bonding with you? Flirting with you? Trying to avoid talking to you? All of those are possible but you need to pick the version you’re going to react to. The version you pick is your frame for the interaction.

Our frame guides our choice. Is this “hanging with my friend group” or “dealing with a threat”? Is it “negotiating a date” or “trying to figure out a meal after class”?

Framing theory says that other people, frequently the media, help teach you which frame to use when you’re making sense of public events. Once we know what’s going on, we start noticing facts that confirm it, we fail to notice things that might challenge it, and we interpret what’s going on within the rules set by our frame.

How does this help us think about Covid-19?  The public health frame leads us to view this as another of a long series of public health emergencies (our 5th pandemic in 100 years) that needs to be understood and responded to, through evidence provided by the medical and scientific communities. A crisis frame leads us to view this as an unprecedented threat that might spiral out of control at any time. People who accept a crisis frame are buying guns and staggering out of crowded stores clutching armloads of toilet paper and frozen veggies that they don’t even like. They don’t have a long-term plan other than to hide and imagine the worst. This frame is encouraged by many on social and non-traditional media; it’s good for generating clicks and retweets. A tribal frame leads us to view this as a manufactured crisis; “they” are whipping us to hysteria to discredit “us” and our leaders. People relying on what’s called “tribal epistemology” accept as “facts” only things that support their tribe’s interests and beliefs. They view disagreement with their perspective as an attack whose purpose is to weaken us. People who accept a tribal frame are, mostly, defiant of the official explanations and insistent that they’re going to go about their lives as usual; the large St. Patrick’s Day bar crowds, now-packed beaches, and unmasked protesters would reflect the rejection of the legitimacy of scientific and public health advice.

Protestors at Michigan state capital, 4/30/2020, Jeff Kowalsky/Agence France-Presse

Likewise, how might you think about your investments and the decades ahead?

Let’s share three bits of information that might help you frame the events raging around us.

1. This too shall pass.

Markets go up, markets go down. For those with a short time horizon and a large exposure to the stock market, that can be devastating. For you, folks with a long time horizon and small exposure to the stock market (relative to your lifetime investments), it’s mostly noise. The good folks at Morningstar created (What Prior Market Crashes Can Teach Us About Navigating the Current One, 4/16/2020), and gave us permission to share, a picture of the long-term significance of short-term terrors.

Pick the worst possible day to invest, say the day before the onset of the Great Depression or day before the oil price shocks in 1973, and ask where you’d be 25 years later if you stuck with the plan, continued to invest and put more passion into your life than your portfolio.

The short answer is, “really well-off.”

2. A sharp, continued price decline now is the best gift you’ll ever receive.

For any asset, your eventual profit is driven by your purchase price. If you pay too much for a house, a car, a share of stock, or a relationship now, your eventual returns on the asset are going to be modest. Driven by corporate tax cuts, near-zero interest rates that made it easy for companies to buy back shares of their stocks (at the rate of $500 billion – $800 billion a year, making them the “dominant” source of stock market demand) and that made conservative investments fundamentally unattractive, stock prices rose to some of their highest levels in history.

The chart below shows a cyclically-adjusted measure of stock market valuation, called the Shiller 10-year CAPE ratio. Dr. Shiller created the calculation to smooth out the effects of wild quarter-to-quarter gyrations and let us get a better sense of the underlying trend.

Right now, the Shiller PE is 26.5. The good news: that’s down from the 2019 peak when US stocks were the second most expensive in the last 140 years. The not-yet good news: that’s still mightily above the 140-year average price of about 16.

Because prices are high and our economy is mature, future returns from stocks are likely to be disappointing. Research Affiliates projected 1.5% returns, on average, for the next decade. BlackRock and Vanguard are a little more optimistic, GMO is a little less optimistic. All project a long period of disappointment … unless stock valuations return to earth.

For those of us who own lots of stocks and whose buying days are few, that’s bad. For those of us who own little stock and whose buying days stretch out for decades, that’s good.

3. Small investors have great opportunities to start.

In general, you need to do three things.

First, create as much balance in your life as possible. My grandparents never owned a car. My parents (dad, mostly) demanded a new car every three years. My siblings lease vehicles, which gives you “shiny” but no equity. I drive sensible used sedans. On whole, we probably need to ask, “did grandma get it right?” The most positive commentary amidst the current crisis is the folks who’ve suggested that the cult of Instagram influencers and cheap celebrity has faded and the fear-of-missing-out is daily less powerful. The short version: don’t embrace what you don’t need.

Second, create an emergency account in an insured, low-return account. The rule of thumb used to be “three to six months’ worth of expenses.” That’s not “three to six months of income,” that’s three to six months of DUG: Debt (mortgage or rent, loans, credit card minimums), Utilities, Groceries. Not Netflix, not upgrades, not my former Friday beerfest. Enough that you can forestall panic and plan reasonable next steps. Researchers think that $2500 is enough to actually get us through 80% of life’s traumas but folks with insecure incomes might shoot for more.

Third, begin small, automatic contributions to a zero-minimum fund that gives you some exposure to the world’s stock markets. In the long term, only equities return enough to make a substantial difference though they are gut-wrenchingly volatile in the short run. That’s why “automatic” matters: set yourself up to invest $50 (or $100 on the first of each month) via an automatic investing plan. Those can be set up, free, from most fund companies or online brokerages.

Fidelity has reduced the minimum initial investment on virtually all of its funds to zero. A young investor might reasonably start by looking at the Fidelity Asset Manager series. Each fund is well-diversified with exposure to US and foreign stocks and bonds, and its name tells you how much stock exposure you’re buying: Fidelity Asset Manager 20 (FASIX) is 20% stocks, for example. In general, less stock = less short-term volatility but also less long-term gains.

  2020 losses Five-year gains
Asset Manager 20% (FASIX) -2.2% 3.1%
Asset Manager 40% (FFANX) -5.0 3.9
Asset Manager 60% (FSANX) -8.3 4.2
Asset Manager 85% (FAMRX) -12.3 4.5

The Leuthold Group was founded in 1981 as an independent investment research firm and, in 1987, began offering mutual funds. Their model is called “tactical allocation,” which means that their exposure to stocks and other assets varies as their judgment of the asset’s attractiveness varies. They’re a rigorously quantitative group which allows the data, rather than their guts, to drive their decisions. Their flagship Leuthold Core Investment Fund (LCORX) has a four-star, Gold rating from Morningstar but a $10,000 minimum (albeit one waived at some online brokerages). The good news is that they have launched an ETF version, Leuthold Core ETF (LCR) which tracks LCORX, has no minimum investment requirement, and charges 0.86% in expenses which is far below the mutual fund’s charges. LCR is somewhat more adventurous than the Asset Manager series because it doesn’t lock you into a predictable level of equity exposure.

Bottom Line

What you don’t learn in the months ahead is as important as what you do. The strategies that thrive in 2020’s mad market are not a good guide to what will thrive in the succeeding years or decades. For now, long-tested strategies (e.g. low volatility investing) are lagging while gold (a long-term laggard) is soaring. In general, quality companies bought at reasonable prices and held for long periods work. Limiting your exposure to risky assets to the minimum needed to pursue your goals, works. Remembering that your portfolio is just a tool to help you enjoy a reasonable, reasonably secure stretch in late adulthood, works.

Greed fails. Impulse fails. Fear fails.

And you, dear reader, will not fail. Tune out the noise. Set aside the fear. Set up a plan that lets you pursue a slow and steady discipline. Ask how you can make a difference in the real world, in your neighborhood, and in the lives of those who depend on you. Have faith in your future. Have faith in ours. We’ll get through this together.

Back To Basics

By Charles Boccadoro

“All NAVs are opinions.” ― Richard Jacobs

While March was one of the most turbulent months on record for the S&P 500, with real-estate and oil sectors acutely affected, investors in fixed-income also experienced a rough ride. Funds reaching for yield were hardest hit, especially those employing leverage. There are plenty such funds, driven by a seemingly never-ending period of zero-interest-rate policy.

Warnings of the trouble in fixed-income came in early March, as was well as reported by Bloomberg’s Eric Balchunas and Lisa Abramowicz. Prices of exchange traded funds (ETFs) for even the most liquid and desirable assets, like US T-Bills and investment grade corporate bonds (e.g., tickers TLT and LQD) started trading at discounts to their NAV, the so-called Net Asset Value. Eric believes this behavior in ETFs acts like “a canary in a coal mine” … signaling broader issues, like illiquidity or front-running.

A fund’s NAV is defined as the value of assets held in a portfolio, less all liabilities, divided by the total number of shares outstanding. For open-ended funds, where most assets in US funds are held, the NAV is calculated at the close of business and those funds trade at NAV.

For ETFs, NAVs are computed periodically throughout the day, but because ETFs can be traded at any time the market is open, investors can end up paying a premium or a discount price to the NAV. The process is endearingly named: “price discovery.” Normally, these “dislocations” are very small, but in early March, they were not. The dislocations were even larger for non-investment grade bonds, so-called “junk” bonds (e.g., ticker JNK and HYD).

Large discounts can be a sign of illiquidity in the market. Basically, as the news of the potential impact of CV-19 spread (e.g., “Worst recession since the Great Depression.”) many investors panicked, CFO’s were fearful, and everybody wanted cash. Unfortunately, there were no buyers, so price dislocated from NAV. When the Fed announced in mid-March that it would be buying bonds, including junk bonds (a real shocker), prices recovered and closed back to their NAVs, or even above.

At month’s end, there remained about $25T in assets in US funds. Had the Fed not stepped-in to stabilize the markets, I suspect that number would be substantially lower. Only history will tell whether that stability is just temporary and what the long-term impact will be.

For investors, especially after an 11-year bull market that included periods of extremely low volatility, March was a wake-up call. Black swan events can and do happen. Risks can be secular and not just idiosyncratic. For investors in even the most stable assets, like core bond funds, there is a non-zero chance that they can lose substantially. (We’ll keep cash equivalents as “risk-free.” Let’s hope that never changes.)

Credit Quality and Duration Breakouts

Before the Fed announced it was also going to be “buyer of last resort” for junk bonds, I was worried that pensions, endowments, and funds that have an investment-grade only mandate would be forced to sell assets in anticipation of a wave of company down-grades, likely at large discounts.

While a bit less worried today, knowing how much junk or near junk (e.g., S&P “BBB” quality) your fixed income funds hold should be first and foremost on your mind. So, MultiSearch users on our MFO Premium site will now find that breakout under Bond Info.

Lipper defines the Core Bond category as follows:

“Funds that invest at least 85% in domestic investment-grade debt issues (rated in the top four grades) with any remaining investment in non-benchmark sectors such as high-yield, global and emerging market debt. These funds maintain dollar-weighted average maturities of five to ten years.”

There are currently 219 funds in this category, including ETFs. Here’s a breakout of the average quality held in these funds:

And here is the quality breakout of the five top core bond funds by AUM, which shows the long-time MFO Great Owl Dodge & Cox Income (DODIX) holding largest amount of junk and “near junk”:

While most core bond funds recovered nicely by month end, thanks again to Fed action, the intra-month drawdown of nearly 10% in funds like DODIX spooked investors. Core bond funds generally suffered large redemptions, $61B, or about 5%.

Similar to bond quality breakout, MultiSearch now also includes bond duration breakout. The former is a measure of credit risk while the latter helps assess interest rate risk. While no one expects rates to rise soon, it’s good to know just how much of your fund is in long duration bonds. Do you know?

Estimated Inflows and Outflows

As mentioned earlier, with liquid and stable markets, price and NAV tend to be pretty close with ETFs. But in unstable markets, they dislocate. And that may be an early indication that the NAV in your open ended fund may be about to change, perhaps drastically, as it did for many holding lightly traded assets, like non-agency rating mortgage backed securities. Such occurrences highlight the problem of stale or unchallenged NAV pricing, which is brilliantly addressed in the near prescient article by Jon Seed, entitled “Price, ETFs, and Bond Market Liquidity,” published in February of this year.  

At the end of the day for open-ended funds, both literally and figuratively, it’s about managing liquidity. Or, as PIMCO’s Dan Ivascyn said in a 2019 Morningstar Interview: “So, that’s the most important thing that a mutual fund manager needs to focus on, liquidity management.”

To help provide a bit more insight, estimated current month inflow and outflow, both in terms of $M and % of the portfolio, are now included in MultiSearch. While monthly updates may be too infrequent to protect against a “run of the fund,” I find it helpful to know what funds are seeing the most inflow and outflows and how their performance responds.

Price/NAV Premiums and Discounts

Closed-end funds (CEFs) are another way to help investors manage liquidity risk in that fund managers are not forced to sell underlining assets (likely at discount) to meet redemptions, like they do with open ended funds. Similar to ETFs, CEFs trade like stocks and are subject to large premiums and discounts, even during stable markets, sometimes perpetually. To get insight into how large those differences can be, MultiSearch now displays Premium/Discount (PremDisc) Highs/Lows, as well as high and low NAVs, associated dates, and NAV update frequency for all ETFs and CEFs in the database.

(Gentle reminder: When purchasing ETFs and CEFs, like when purchasing stocks, use limit orders.)

Alpha, Beta, and Information Ratio

As with many features in MultiSearch, a new group of screening metrics called “Alpha, Beta, and Information Ratio” are now available, thanks to a request from a subscriber, known as MikeW, on our discussion board.

Mike wrote:

Also, wanted to ask you if you thought it would be possible to add “Information Ratio” as a measurement to MFO.  I find this to be a really good gauge for measuring fund performance in the context of how much risk the fund takes in straying from the benchmark.  I have a good friend who works at [a fund company] and this is one of the primary ways they benchmark themselves against other mutual funds.

Users can now screen absolute values or ratings in alpha (versus benchmark defined by Lipper), tracking error and Information Ratio. Screening for best Information Ratio in the large cap value category over the last (presumptive) full and bull markets? The winner: PIMCO RAE Plus (PIXAX). And that’s with a high tracking error! RAE stands for Research Affiliates (Rob Arnott) Equity.

Past Performance To Determine Consistency and Beware of Asset Size

One of the first books I read on investing was John Bogle’s Common Sense on Mutual Funds. While he urged investors to commit to all-index funds, he offered the following eight basic rules for any investment program:

  • Select Low-Cost Funds
  • Consider Carefully The Added Costs of Advice
  • Do Not Overrate Past Fund Performance
  • Use Past Performance To Determine Consistency and Risk
  • Beware of Stars
  • Beware of Asset Size
  • Don’t Own Too Many Funds
  • Buy Your Fund Portfolio – And Hold It

Through the years, I’ve tried to follow these rules with varying degrees of success. Many of the screening tools and metrics in MFO Premium emphasize risk (volatility), risk adjusted returns, correlation, asset size, cost, and consistency. Ferguson Metrics are especially good at assessing relative outperformance and consistency.

This month we’ve added some graphics that help shed more insight into Bogle’s Rules 4 and 6. He cites that “good” funds will consistently outperform their peers on a yearly basis while “bad” funds will do the opposite. He also used the same visualization to assess whether a fund’s performance is deteriorating with asset size growth. I’ll venture to say that competition from lower cost ETFs may play the same role today.

Here’s an example of the new Yearly Return Ratings display in the MultiSearch results table. I believe Bogle would say it includes a few “good” funds for consideration (5 Blue = Top Quintile Absolute Return, 1 Red = Bottom Quintile):

The Sparrow’s Revenge

By Edward A. Studzinski

“The only way to success in American public life lies in flattering and kowtowing to the mob.” H.L. Mencken, “On Being an American” (1922)

Plague Investing

A question with which I am regularly peppered (and which I usually decline to answer) is how one should invest during this rather chaotic time. The short answer – circumstances continue to evolve so much, both from a public health perspective as well as an economic one, that things that made sense two weeks ago (or two months ago – a veritable lifetime) now have certain surreal aspects to them. For example, a 60-40 equity/fixed income asset allocation was the traditional balanced model that produced, over ninety years, a smoothed 6% compounded return. 

But with nominal rates on risk-free bonds hovering around 1%, real rates most likely already negative, and a good chance that the nominal rates will also go negative, it means that we are not living in a normal bell-shaped curve world. To get that smoothed 6% return, equities are going to have to do double duty. That does not look to be in the cards since equities were overvalued at the beginning of the year, and for the most part, are not even fairly valued as yet. The exception is the five FANG (Facebook, Apple, Google, Netflix, Microsoft) stocks, which are even more overvalued. 

Looking to have high yielding dividends replace your income needs that traditionally would have been met by decent bond yields? That appeared to be a great solution to the problem until companies started to report Q1 earnings, throw out their guidance for the rest of the year, and reduce or eliminate their dividends. This presents an interesting problem as the current generation of analysts, both sell and buy-side, tend not to understand the nature of the industries they follow. Rather they understand their spreadsheet models which they look to management to provide the inputs for, thus allowing them to arrive at their buy, hold, and sell recommendations. Absent the management inputs most analysts are lost. Perhaps the better analogy is a group of purported navigators who have not learned the art of celestial navigation. Rather they are dependent on global positioning satellites to tell them where they are. This works until your adversary deploys a low-level electromagnetic pulse weapon, which knocks out the computer systems and satellites (yes Virginia, such things exist and are a real danger).

So, we are where we are. Over the last few issues, David and I have spoken about liquidity. I have also spoken about redundancy. I would add to that simplicity. You may have thought that hedging or shorting in your portfolio could protect you. This assumes that there is another counterparty, able to fulfill their obligation. Alternatively, it assumes there is some value to the hedge, which given the volatility in energy prices these days, can be problematic.  

I expect more of the same going forward, especially in areas such as real estate, where the dynamics of various categories are likely to change. Examples of this are in commercial, where the demand for office space will likely fall. Many employees have found they like working from home rather than commuting long distances, and employers are finding that those employees can be productive not gathered in one space. In terms of residential, the density of urban living in high rise situations (vertical cruise liners) will in the short-term fall out of favor as single-family homes in less dense settings gain favor. Anecdotally, I had one insurance broker some weeks ago tell me that she was stunned at the number of individuals buying houses during the pandemic. I asked what areas she was seeing the most transactions in. The answer – anywhere in Florida and the far suburban areas outside of New York City. Florida will continue to see an influx of people and businesses, given its position as a low tax state. Exiting metropolitan New York will also appear to be logical given continuing underinvestment in infrastructure, the appearance of a dysfunctional political environment, and a horrible tax situation. Lastly, retail businesses will not return to what they were before, as individuals and families have become accustomed to shopping online from home. One winner will be warehouses and industrial space.

I would suggest holding an amount of cash in insured CDs and risk-free assets adequate to cover three years of living expenses … reexamine your relationship with big banks and find out what credit unions might work for you.

So, what is the appropriate asset allocation going forward? First, given the uncertainty of the current environment economically, I would suggest holding an amount of cash in insured certificates of deposit and risk-free assets such as government bonds adequate to cover three years of living expenses. And I would diversify. Some of you will have learned a great deal about your banking relationships through this environment. Put differently, did they really want to have you as a customer? One of the things the banks are discovering is that they do not need a lot of branches. You will have found out whether they really have good on-line sites, and call centers that work. In addition to a commercial bank, find out what credit union you may be eligible for given their definition of membership eligibility. Those of you with businesses who were frustrated by the process of applying for the Federal programs for the pandemic through the commercial banks, rethink with whom you do business. The large banks who gave the appearance of favoring their largest customers or who had computer systems that would not accept the paperwork on-line? There was a simple answer. They did favor their largest customers. And at least in Massachusetts, the large banks’ IT departments decided to set up new portals with new software. Surprise – the solutions did not work or crashed. I know that as sources told me that the smaller banks, lacking the resources, did it the old-fashioned way – on paper.

They did the entry themselves for the customers, often giving the customers appointments to come into the bank branch. 

I am sticking with my recommendation for a barbell strategy: short-duration fixed income securities picked by experts who have been doing real credit analysis for years and equity investments managed by those focused on absolute value who have seen difficult environments before and managed through them.

So, for your investable assets, I am sticking with my recommendation for a barbell strategy. For fixed income, limit yourselves to short-duration, short-maturity investments where the funds are managed by experts who have been doing real credit analysis for years. You can find them by paying attention to the reviews that David has written. These situations are to be differentiated from those fixed income funds run by generalists who did things based on rating spreads in quality rather than real analysis. They are nothing more than high-yield tourists. And in equities, find funds managed by those focused on absolute value who have seen difficult environments before and managed through them if you go the active manager route (in terms of passive, the verdict is out on whether investing in that fashion absent a truly long time horizon is appropriate). Look at the records over time, as well as the fund flows in or out of the fund over the last year. That will tell you how much pressure the fund or fund family may be under to compromise the investment process for the benefit of short-term performance. One clue will be found in portfolio turnover. Did it accelerate from the end of 2019 through quarter one and quarter two of 2020? That will give an indication as to whether there was a degree of comfort in what they had done. Or, had the portfolio just been filled out to be fully invested and make the consultants happy? There will be now an opportunity to get your financial house in order by rethinking your investments to better suit your risk tolerances going forward. And understand there will be real risks going forward.  

A Moment of Levity

Scott Adams, the Dilbert cartoonist, got his early material from his days working at the old Pacific Bell, being a keen observer of corporate culture. In recent years, I often thought he had a hidden camera in many investment firms. I found his daily cartoon of Monday, April 27 of this year quite telling. In frame one, the administrative assistant says to the CEO, “There seems to be some confusion about what our company culture is.” In frame two, the CEO responds, “Our priorities are honesty, integrity, and return on investment.” In frame three, the administrative assistant says, “Which priority is the highest?” And the CEO responds, “Integrity won’t buy me a new boat.”

More Levity

For those of you looking for new endeavors as you shelter in place, I suggest a revisit to “Game of Thrones.” Specifically, consider which political and media figures today would be appropriately cast in the various major and minor roles of the series. To give you a head start, consider the most appropriate real-life characters to be cast as Cersei Lannister and Arya Stark.

Rules Based Investing – Rule #5 Understand the Impact of Taxes on Investments

By Charles Lynn Bolin

Matthew Kenigsberg, Vice President of Investment & Tax Solutions at Fidelity Investments, summarizes the benefits of managing the impact of taxes on investments well in “Are you invested in the right kind of accounts?”

“You can’t control market returns, and you can’t control tax law, but you can control how you use accounts that offer tax advantages—and good decisions about their use can add significantly to your bottom line…”

The article goes on to say that investors should have a strategy for the mix of investments they want to own based on goals, financial situation, risk tolerance, and investment horizon.

I read an earlier edition of Retire Secure!: A Guide To Getting The Most Out Of What You’ve Got by James Lange ten years ago and it made a big impact on my saving and investing. Mr. Lange is a CPA, tax attorney, and financial planner. First, I followed his advice and created a budget for my expected lifetime. It pointed out that when I planned to start drawing Social Security at age 70 and had to take Required Minimum Distributions (RMD) that I would be in a higher tax bracket than I expected. Secondly, I switched savings to a Roth 401(k) instead of Traditional 401(k) in order to have earnings grow without RMDs and for benefits of inheritance. The Secure Act has some benefits such as raising the age that RMDs take effect from 70 and a half to 72, but it also has some negatives such as requiring heirs to withdraw the assets from an inherited IRA over 10 years. This reduces the benefits of a Roth IRA or 401(k) over a traditional IRA but does not eliminate them.

Assessing Retirement Readiness

Fidelity has an excellent retirement planning tool, recommends saving 15 percent of your income annually, and to start saving as soon as you can. Their rule of thumb is to have 10 times your income saved by age 67. The median household income is around $55,000 which implies median retirement savings of $550,000 or higher by retirement age. A typical, general target is to save one million dollars or more.

As savers and investors, we have multiple and diverse goals in life which may include raising a family, saving for retirement, children’s education, paying down debt, buying a home and paying off the mortgage, and taking that vacation. What is apparent is that people have not saved enough for retirement. The personal savings rate now stands at over 7 percent and was last at 15 percent in 1975. Chart #1 shows that only 33 to 39 percent of people aged 50 to 70 have more than $250,000 saved in their retirement savings accounts. It is a sacrifice to save for retirement, but it can be done as suggested by “Yes, You Can Save $1 Million For Retirement With A $50,000 Salary—Here’s How.” (CNBC Make It)

Chart #1:  Retirement Savings by Age

One point in the chart above is that the values are from retirement accounts which do not highlight the tax liability of the retirement accounts. A hundred thousand dollars in a Roth IRA has already had taxes paid, while the same amount in a Traditional IRA still owes the taxes when the funds are withdrawn. One question is whether your tax rates are higher now, or will be in the future.

Chart #2 is from The Nation’s Retirement System by the U.S. Government Accountability Office. It shows that Social Security will provide a third of the income for retirees which is more than the 20 percent provided by pensions and retirement savings. People are working longer and a third of the income comes from employment after age 65.

Chart #2:  Aggregate Income, by Source, for Households Age 65 or Older, 2015

Taxes and/or Inflation Will Be Higher

The taxes that we pay and inflation will be changing to some extent over the next 20 years. Take a look at the busy Chart #3 below. Coming out of World War II, taxes were high (red and blue areas) to pay down federal debt (solid black line). Inflation during the 1960s and 1970s played a major role in reducing federal debt as a percentage of gross domestic product. In the 1980s, federal debt began to rise due to lower corporate taxes (red area), rising social benefits (orange line), fighting two wars without raising taxes, and the stimulus to fight the 2009 financial crisis. The dashed black represents the top tax bracket.

Chart #3: Highest Tax Bracket, Federal Debt to GDP, Government Social Benefits to GDP

Sources: Created by the Author Based on St. Louis Federal Reserve & Tax Policy Center

Direct comparisons of U.S. corporate rates to other developed countries is subjective because of complex laws and the diverse sources of income such as property taxes, payroll taxes, value-added taxes, and goods and services taxes (Wikipedia). According to the Tax Policy Center, U.S. taxes are low as a percent of other developed countries.

Chart #4:  U.S. Taxes Compared to Other Countries

One can argue whether social benefits are too high or taxes are too low. There should be little doubt that large deficits are not sustainable.

Chart #5 shows the share of net worth held by the Top 1 percent of the population which owns nearly 33 percent of the net worth in the US. The top 10 percent own nearly 70 percent of the net worth and paid 69% (2016) of total income taxes. The bottom 50 percent own 2 percent. There are several explanations for this such as people nearing retirement own more than those starting their careers. Education levels play a large role in wealth accumulation. These metrics don’t include sales and other taxes which disproportionally are a higher percentage of disposable income for lower income people.

Chart #5:  Share of Total Net Worth

Source: St. Louis Federal Reserve (FRED)

My views are in alignment with Zach Gray in To Help Avoid a Tax Surprise, Diversify Your Retirement Accounts published in Kiplinger. One should take into the types of accounts when diversifying investments.

Current Taxes

Returns from stocks held for more than one year are classified as long term capital gains, which for most people are taxed at 15% as shown in Table #1. This is favorable compared to 22% to 37% for ordinary income. RMDs from Traditional IRAs and 401(k)s will be taxable income instead of at Capital Gains Rates. Conversions of Traditional IRAs to Roth IRAs may be beneficial during the window after retirement and before age 72 if income is lower. This reduces the amount subject to RMD’s at age 72 and may lower taxable income at age 72. Conversions to Roth IRAs may be taxable if they do not meet the five-year rule.

Table #1: Capital Gains Brackets

Table #2: Tax Brackets

The Net Investment Income Tax, sometimes called the Medicare surtax, is an additional 3.8% on investment income including interest, dividends, and realized capital gains for those whose MAGI is above thresholds such as those married filing jointly of $250,000.

Social Security and Medicare Taxes and Costs


Up to 85% of Social Security benefits may be taxable when a couple files as individuals and the combined income is more than $34,000 or when filing jointly and the combined income is more than $44,000. Up to 50% for lesser amounts may be taxable for lesser incomes.


The Social Security Administration uses the most recent tax return provided by the IRS to estimate your total adjusted income and tax-exempt interest income (M0dified Adjusted Gross Income, or MAGI). Monthly Medicare Premiums are shown for 2020 on an annualized basis for a couple based on their MAGI (an individual would be half the amount). Premiums are increased based on Income-Related Monthly Adjustment Amounts (IRMAA) in abrupt, cliff-like increments. Let’s say that due to a one-time event at retirement such as bonuses or rollover to a Roth IRA, your MAGI is $218,001. That extra $1 raises you and your spouse’s annual Medicare Part B premium $2085.20 and Part D by $463.40. The same jump occurs at $174,001, $272,001 and $326,001. Beware of the Cliffs!

You can adjust your premium later if your MAGI drops by contacting the SSA, and each year it is automatically recalculated based on the previous year’s Federal income tax information.

Table #3: Medicare Premiums

Individual Married Filing Jointly Part B ($3470.40  plus IRMAA increase)
(Annual  per couple)
Pres. Drug Plan Premium + (increase)
< $85,000 < $174,000 $3,470.40 $0
$87,000 to $109,000 $174,000 to $218,000 $4,857.60 $292.60
$109,000 to $136,00 $218,000 to $272,000 $6,942.80 $756.00
$136,000 to $163,000 $272,000 to $326,000 $9,024.00 $1,216.80
$163,000 to $500,000 $326,000 to $750,000 $11,104.80 $1,680.00
>= $500,000 >= $750,000 $11,798.40 $1,833.60

Social Security as Insurance

One lesser-known aspect of Social Security is that in addition to retirement benefits, there are survivor benefits similar to insurance. Spouses (even ex-spouses) may qualify for half of the amount of the other spouse’s Social Security Benefits. Surviving spouses may apply for Social Security benefits upon the death of their loved one and receive the greater of their own Social Security benefits or 100 percent of his or her benefits. Delaying retirement increases these benefits to the surviving spouse.

There are that over six million state and local government employees are not covered by Social Security in their public-sector pensions. These public-sector employees that are subject to the Government Pension Offset have two-thirds of their pension deducted from their spouses. In some cases, spousal benefits may be low due to the two-thirds reductions. Delaying collecting social security until age 70 can increase survivor benefits significantly.

Individual Retirement Accounts

Traditional IRA vs Roth IRA.

The Traditional IRA and Roth IRA both have contribution limits of $6,000 in 2020 if you are under 50 years of age or $7,000 if you are over 50. However, the Roth IRA has a limit of maximum modified adjusted gross income of $193,000 if you are married filing jointly, but partial contributions are possible up to a MAGI of $203,000. Contributions are made to a Roth IRA after taxes and the earnings grow tax-free and no minimum distributions are required. Traditional IRAs are made pre-tax and taxes are deferred until age 72, under the new Secure Act, when required minimum distributions are required.

For those who defer drawing Social Security until age 70 and who must now take required minimum distributions at age 72, the additional income can put a person into a higher tax bracket and a higher Medicare bracket.

Traditional IRAs work well for someone who is expecting to have lower taxes in retirement. The average life expectancy of someone 65 years old is to live another 21 years so Roth IRAs are the gift that keeps on giving. If taxes go up or required minimum distributions push the investor into a higher tax bracket then a Roth IRA is probably a better option than a Traditional IRA. There are strategies suggested by Charles Schwab for avoiding higher income brackets such as taking withdrawals before age 72, converting to a Roth IRA, or making charitable distributions. They point out, “…Roth withdrawals aren’t subject to income tax, assuming you’ve held the account for at least five years.”

The window between retirement and required minimum distributions at age 72 can be ideal for a conversion from a Traditional IRA to a Roth IRA as described by Charles Schwab:

“A Roth IRA conversion can be especially advantageous during your initial years of retirement, when RMDs haven’t yet kicked in and you’re most likely to be in a lower tax bracket vis-à-vis your working years.”

Be careful to evaluate the impact of conversion to Roth IRAs on Medicare Premiums.

401(k) Plans

For employees working for a company, there are often 401(k) plans which have employee deferral limits of $19,500 in 2020. The 403(b) is often available to employees of public schools, colleges, universities, churches, and charitable entities and have employee deferral limits of $19,500 in 2020. Many 401(k) and 403(b) plans allow for employer contributions. For Business Owners with no employees, there are One-Participant 401(k) plans, and SEP, SIMPLE, and Qualified Plans for small businesses.

Backdoor Roth

A backdoor Roth is an informal name of a process for high-income earners to contribute more to a Roth IRA. According to Investopedia:

A backdoor Roth can be created by first contributing [after-tax dollars] to a traditional IRA and then immediately converting it to a Roth IRA (to avoid paying taxes on any earnings or having earnings that put you over the contribution limit).

Reducing Taxes

The following contains some useful sources of information on reducing taxes and my summary of the articles.

  1. Listen to Advisers: CPA, Fidelity, Vanguard, Charles Schwab

    Understanding the impact of taxes is a special skill set that investors may not possess. I suggest using an advisor in addition to research through brokerages such as the table from Charles Schwab below:

    Table #4: Optimal Invests for Taxable and Tax-Advantaged Accounts

  2. Diversifying By Tax Treatment

    Kiplinger identifies show shortfalls of many investors saving for retirement and recommends diversifying across accounts that taxed differently.

  3. Owning Tax Efficient Funds in Taxable Accounts

    Bogleheads looks at the tax efficiency of investments and which types of accounts they should be placed in.

  4. Invest in Tax-Advantaged Accounts

    WealthFit provides a list of types of tax-advantaged accounts.

  5. Reducing Adjusted Gross Income Own a home, HSA, Energy Efficient Home Improvements

    The Balance provides a list of ways to reduce your adjusted gross income which can reduce taxes.

  6. Municipal Bonds and Treasury Bonds

    Investopedia has some tips on being tax efficient such as investing in municipal and treasury bonds.

Tax Efficient Funds

Morningstar has a 3 Year Tax Cost Ratio which they define as:

“This represents the percentage-point reduction in an annualized return that results from income taxes. The calculation assumes investors pay the maximum federal rate on capital gains and ordinary income. For example, if a fund made short-term capital-gains and income distributions that averaged 10% of its NAV over the past three years, an investor in the 35% tax bracket would have a tax cost ratio of 3.5 percentage points. (The 35% tax rate was used for illustrative purposes because, according to current tax law, the maximum income-tax rate will fall to that level. However, our tax-cost calculation uses the maximum income-tax rate that applied during the year in which the distribution was made.)”

Below are two tax-advantaged funds that I track. The Morningstar Tax Cost Ratio is 0.58 for VTMFX and 0.45 for VTCLX. These would be suitable for many taxable accounts. VTMFX also has a low Ulcer Index which measures the depth and length of drawdowns.

Table #5: Tax-Efficient Funds

Fund Symbol APR MAX DD% Ulcer Index Martin Ratio MFO Risk MFO Rating Yield
Vanguard Tax-Managed Balanced VTMFX 2.5 -11.1 2.9 0.2 3 5 2.25
Vanguard Tax-Managed Capital Appr VTCLX 0.2 -20.1 5.9 -0.3 4 4 1.96

Model Portfolios

I created three model portfolios that I am following with my accounts as described in Developing a Low-Risk Vanguard Portfolio for This High-Risk Environment and Developing a Low-Risk Fidelity Portfolio for This High-Risk Environment. Tracking the performance over time depends upon dividends, rebalancing strategy, and changes. I use Morningstar Portfolios for this purpose. The tax efficiency of these funds is shown in the table. I have these in tax-advantaged accounts. This month, I sold First Trust Preferred Sec & Inc (FPE) in the Fidelity Conservative Portfolio and iShares Global Utilities ETF (JXI) in the Fidelity Moderate Portfolio during this rally to reduce risk in my model portfolios. Most of my short term funds are external to these portfolios.

An investor should understand what he is buying. I am reminded of this each time I buy something that I thought I understood before it went sour. That is why I put a small account in the Schwab Intelligent Investor (Robo-Adviser Service) shown in Tables #7 and 8. My target fund to outperform during the late stage of the business cycle and recessions is the Vanguard Wellesley Income Fund (VWIAX). The three model portfolios that I follow have done as well or better than VWIAX year to date. The Schwab Intelligent Portfolio has done worse for this short time period than the model portfolios largely because of higher exposure to small cap stocks. Fidelity has tax-managed accounts that I have not covered in this article because I don’t understand the strategy or if the benefits outweigh the extra account costs. I will continue to research these options.

Table #6: Morningstar Portfolio (April 24)

Portfolio YTD Tax Cost Ratio Cash U.S. Stocks Foreign Stock Bonds Other
BarCap US Agg Bond 5.0 1.10          
Vanguard Conservative -3.2 0.96 3 17 12 62 6
Fidelity Conservative -3.0 0.96 2 16 15 59 9
Fidelity Moderate -3.3 0.93 9 20 20 41 10
S&P 500 (SPY) -11.7 0.70          

I use Mutual Fund Observer to identify lower risk funds with higher risk-adjusted returns to include in model portfolios. The metrics are for the past two years except for the year to date performance. They are based on the target allocations prior to selling FPE and JXI.

Table #7: Mutual Fund Observer Target Portfolio (March 31st)

Portfolio YTD APR MFO Risk Ulcer MaxDD Martin Ratio
Vanguard Conservative -6.8 2.4 2 1.8 -7.7 0.24
Fidelity Conservative -5.9 3.3 2 1.8 -7.1 0.77
Fidelity Moderate -7.4 3.7 2 2.2 -9.0 0.79
Schwab Intelligent Portfolio -9.4 -0.8 2 2.5 -9.7 -1.1
S&P 500 -19.5 0.9 4 5.8 -19.5 -0.18

I use Portfolio Visualizer for visualization and a double check as shown in Table #8. “Other” often includes real estate and commodities. For anyone interest more in these model portfolios, here is the link.

Table #8: Portfolio Visualizer Adjusted Portfolio (March 31st)

Portfolio Return Sortino Ratio Cash US Stocks Foreign Stocks US Bonds Foreign Bonds Other
Vanguard Conservative -6.9%  -2.3 3.3 18.1 13.5 43.1 18.4 5.7
Fidelity Conservative -6.2%  -2.2 3.6 16.3 17.3 45.2 9.4 8.3
Fidelity Moderate -7.6%  -2.1 11.4 20.4 21.8 32.7 4.2 9.5
Schwab Intelligent Portfolio -9.6% -2.7 2.9 19.8 17.1 49 8.7 2.5
Vanguard Wellesley Income -7.4%  -2.3            


The information contained in this article is research that I have done for personal finances and I do meet with a financial planner at least once a year. We are at the beginning of a recession which typically lasts one or two years. There are many unknowns such as COVID-19 and the massive stimulus. I believe that we are experiencing a bear market rally and there will be better times to add riskier assets to portfolios over the next year or two. I remain cautious at this time.

The picture of the hawk was taken outside my backdoor as the couple decides if they want to build a nest in the tree and raise their chicks. Several years ago we were able to enjoy the young hawks being raised and trained to hunt.

I wish you a safe and healthy 2020.

What I’m Thinking

By Robert Cochran

David asked each of MFO’s traditional contributors to share a few words about what we’ve been thinking as we watch events, both near and distant, personal and political, transpire.

I think I’m …

  1. Thankful to be retired and financially OK.
  2. Concerned for so many working families that suddenly have no jobs.
  3. Grateful to live in a state (Ohio) with a governor and health director who are action-oriented.
  4. Fearful that the hordes of annuity salespersons disguised as financial advisors will convince pre-retirees to hand over their retirement money for fat commissions.
  5. Confused trying to wear a mask at the same time I also wear eyeglasses and hearing aids. After all, my ears can only hold up so much.
  6. Feeling subdued about the investment advisory-only businesses in the country and how they might suffer a loss of clients once again.
  7. Feeling good about fee-only financial planning companies that offer different levels of services.
  8. Especially worried about the near-term financial viability of performing arts organizations, whose performances have been canceled for the foreseeable future.
  9. Happy to see that most people wear masks when they are out and about in grocery stores.
  10. Troubled by the high percentage of people who work in the service industries, who seem overlooked or forgotten by those who are deciding when restaurants, bars, health clubs, and salons might ever open.

True to my own retired nature, I have not spent one second looking at my portfolio since the end of February. There are myriad reasons, but the ones that count are:

  1. I have reasonable faith that the markets will become less volatile, as the economy starts to pick up, employment picks up, and whatever the new normal is going to be is somewhat defined.
  2. My retirement philosophy is to only worry about those things that I can actually affect. I can do nothing about the stock and bond markets, so if I have an allocation mixture with which I have been comfortable, there is no use spending sleepless nights. Finally,
  3. I am not using my portfolio for current income. This is a true blessing, and I realize, a luxury many retirees do not have.

Like most retirees, we have had numerous trips/vacations canceled. Our health club is closed. Even if we want to get out and about, little is open currently. We found out yesterday that our annual trip to Canada for the Stratford Festival has been put on hold. We did have four of our close friends over for wine in the back yard this week, social distancing (I am SO tired of that phrase) adhered to. We used to gather at least once a week, but we had not seen each other since February. Even from a distance, it was a delight. You might consider something like this. I know it was a treat for my wife, who has to be way done with me for all this time.

Day Two without sports: Found a young lady sitting on my couch. Apparently she’s my wife. She seems nice.

Physical work is even more important now that many of us have added COVID-19 pounds. I just finished putting down nearly 500 cubic feet of pine bark mulch in our many garden areas. Surprisingly, the old man can still get after it. I hope our readers are making efforts to take long walks, bicycle trips, gardening, and anything else that keeps us retirees moving. We have neighbors who work from home. The only time we see them is when they are taking a smoking break on their front porch, still in their pajamas at 3 in the afternoon. Not criticizing, but really?

In closing, I am sure we will not return to what we thought was normal. Much will be forever changed, some for the good of society, some as real losses. While I don’t pretend to know what those things will be, I know I will somehow adapt to most and complain about the rest. Isn’t that what much of life is about, adapting? Now, I really want to know when the NHL will resume play!

My wish is for good health, the joy of family, and financial security for all MFO readers as we celebrate our 9th year together. Sincere congratulations to our fearless leader, David.

What I’m thinking

By Chip

I’m so grateful to have stable employment in a position that allowed me to – quickly and fairly painlessly – pivot to a work from home model. I have not yet encountered a task that couldn’t be completed remotely. As a matter of fact, I think I’m being more productive than ever, as we puzzle through various scenarios for offering community college classes over the summer and into the fall semester.

I find my emotions quickly rising to the surface. First, crying for the student struggling to complete suddenly online classes, their father sick with COVID at home, three younger siblings to watch, and no internet access in the house. Then, awestruck and inspired when that same student spends three hours a few times a week, sitting in their car in the campus parking lot, just so they can use the campus wifi to keep with up classes.

I’m thinking that not opening my retirement statements for the next few months is the best idea I’ve had in a while. I won’t be considering retirement for another 15-20 years. My allocations seem reasonable and I really like to sleep at night.

I find that staying at home makes it easier to spend less money. As a result, two things have happened that make me happy.

The first is that I was able to put my stimulus check to good use, with donations to Planned Parenthood, the Riverbend Food Bank, and Argrow’s House, a local community that operates a social enterprise supporting female survivors of domestic abuse. I also purchased family memberships to the Figge Art Museum and the Quad City Botanical Center

The second is that I’m accumulating a small cash stash I’d like to invest when the next buying opportunity presents itself (my nature is to be cautious, but I want to think of this money as an opportunity to be a little more daring).

I alternate between being very proud of and very worried for my son, who took a direct support position in a residential facility just before the pandemic arrived. He enjoys his work and so far no residents or staff at his location have tested positive for COVID-19. However, he is in New York State where the cases continue to mount, albeit more slowly over the past week or so.

I’m pondering travel. Before the pandemic, we’d been tentatively planning a trip to Italy next year and a trip this summer to Glacier National Park, or perhaps to Colorado for train rides through the mountains. For now, those plans are on hold, but for how long? Could I safely begin looking at visiting the Grand Canyon next spring? Maybe a weekend trip to Door County in early autumn? Will international trips next summer be possible? I’m indecisive about the best way to be safe and cautious, while not becoming a prisoner to irrational fear.

While I understand the eagerness to open things up, I wish more people would wear masks and attempt social distancing as they start to get out and about. It angers me when people are too selfish to realize how far small actions can go toward helping others stay safe.

On the other hand, I continue to be stirred and overwhelmed by the capacity of people to come together in amazing ways in the face of calamity. From the balcony concerts in Italy, the daily applause for health care workers in New York City, the parades of fire trucks delivering lunches to hospitals, thousands of volunt

eers sewing masks at home, the local procession of school teachers sounding their horns and waving to their students as they drive through the neighborhood, to school districts using their busses to deliver lunches to children suddenly schooling at home.

Finally, perhaps the most shameful confession. I’ve become somewhat absorbed and fascinated by the infinite number of memes, videos (that made me cry) and more videos (that made me laugh), and most embarrassingly, TikToks, that help us make both humor and meaning out of the current situation.

What I’m Thinking

By Charles Boccadoro

David asked each of MFO’s traditional contributors to share a few words about what we’ve been thinking as we watch events, both near and distant, personal and political, transpire.

I think …

I’m starting to feel a little better about things generally. Just these last couple days actually. Maybe seeing more cars on the U.S. Route 101. Maybe the spring weather and a fairly active farmer’s market yesterday. People adapting to social distancing. Maybe hearing Cuomo say NYC is on the downswing. If we don’t see a resurgence in the next few days, as towns start to reopen, we may spring back faster than feared.

Given how much money governments have injected, I trust we will stave off depression. Hmmm. What would markets look like today, bond and stock, if you were to take away current Fed injections? Probably not so good. But, given there is $25T in US funds, I suspect they are just simply too big to fail.

The world seemed utterly unprepared for this crisis. That’s only partly the fault of the most over-matched US president in history.

Maybe we will develop better processes/procedures for the next unknown virus. And, better focus on things that matter. Perhaps too we address health and infrastructure and inequality. Perhaps many companies will revisit just-in-time delivery with supply chain hedges. Perhaps ROA won’t just be about reducing the denominator; that is, reducing a company’s total assets to goose its short-term ROA.

I think the measures we impose to contain the virus (social distancing, working from home) and most of the rescue aid we provide (Fed “liquidity” injections) disproportionately favor the wealthy. 

We’ve have had 6 trips canceled so far. Some big (France) and small (Palm Springs/LA to see the Getty Museum). But we are healthy and I know of not a single person who has this horrid virus. The scenes though of NYC and Italy will never go away. And, so far, the US seems to have avoided the worst-case scenarios.

What else? MultiSearch at MFO Premium now breaks down bond funds by quality, not just at the aggregate. Back to basics! After the 11-year bull run, I think we’d grown complacent. Just how many BBB bonds are in an Investment Grade bond fund? How many on the verge of being downgraded? There is also a new metric called Junk, which simply adds up everything less than BBB including Not Rated. You will also find breakouts of duration. So, the former gives better insight into credit risk while the latter tracks interest-rate risk.

The one other key risk, which rocked my world, is liquidity risk. And, discounts/premiums on ETFs like JNK (SPDR Bloomberg Barclays High Yield Bond ETF) or LQD (iShares iBoxx $ Invmt Grade Corp Bond ETF) may be a sort of “canary in a coal mine” when it comes to liquidity issues in the broader market. I’m also adding an estimated fund flow metric (dollars and portfolio percent), so some insight in purchases/redemptions.

I’m still weighing the pros/cons of different structures when it comes to bond funds … OEFs, ETFs, CEFs. With OEFs, long-time shareholders can get left holding the bag on degraded portfolios during liquidity crunches. March was a real wake-up!

A 50/50 S&P 500 SPT/ iShares 20+ Year Treasury Bond ETF TLT portfolio seems quite simple and sane. It delivered 7.6% annually across the last full cycle with 60% the volatility of either … and, much lower MAXDD.

Good to see Eric Cinnamond re-engaging.

If the SP500 holds, those tracking to month-only performance never entered a bear market. Can you believe that?

Congratulations on 9 years! Very beautiful.

What I’m Thinking

By Charles Lynn Bolin

I put some thought into the following paragraph.  It is not gloom and doom, nor does it paint a rosy picture. 

New cases of COVID-19 in the U.S. have stabilized at 25 thousand cases and 2,000 deaths on a daily basis which, if not improved soon, are terrifying numbers. 

Worldwide, 81% of the closed cases are due to recoveries while the other 19% resulted in deaths. 

Vaccines are promising, but not on the near term horizon. 

Plans to reopen businesses rely on continued social distancing, improved personal hygiene, increased and improved testing, personal surveillance to track who has come into contact with others, and temperature scanning which will take time to implement.

The number of people receiving unemployment claims has soared to 16 million.

Life for most of us is not returning to normal this year or next. Businesses will have to adapt to new lifestyles and some will go out of business. Government social programs and massive stimulus will prevent a financial crisis and depression, in my opinion, but burden the U.S. for decades with debts.  

New York offers a ray of hope after being hit the hardest with measured plans to open some low-risk businesses by May 15.

Elevator Talk: Eric Cinnamond and Jayme Wiggins, Palm Valley Capital Fund (PVCMX)

By David Snowball

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

The average five-star US small-blend equity fund posted a loss of –22% between January 1, 2020 and May 1, 2020. Fortunately for its investors, Palm Valley Capital Fund is not your average small-blend fund and it returned +7.25% for its investors with nary a short, derivative, hedge or scrap of financial engineering in sight.

Using the Russell 2000 as a proxy, that sort of looks like this:

That’s a 2925 basis point advantage driven by just two facts: a rigid investment discipline and two very good stock selectors.

A rigid investment discipline

Here’s my summary of the managers’ investment discipline:

Within the universe of US small cap stocks, buy (a) great companies (b) whose stocks are seriously mispriced.

If a stock does not meet conditions (a) and (b), don’t buy it.

If a stock ceases to meet conditions (a) and (b), sell it.

If no stocks meet conditions (a) and (b), buy no stocks.

That’s about it. The generic term for the discipline is “absolute value investing.” It’s rarely seen anymore, having been replaced by its cousin, “relative value investing.” Relative value investors will settle for buying “the best of a bad lot” so that they can remain fully invested. Absolute value investors warn “you know you’re putting ‘a bad lot’ into your portfolio! That’s not wise.”

Two very good stock selectors

Namely Eric Cinnamond and Jayme Wiggins.

Eric Cinnamond began managing small cap portfolios in 1998, first for Evergreen Funds and then for Intrepid Capital. He pursued absolute value investing in both the Intrepid Small Cap SMA strategy(1998-2010) and the Intrepid Small Cap Fund (2005-2010). After a move to Florida he managed the Aston River Road Independent Value Fund (ARIVX) until he chose to close it and return capital (2010-2016). Eric returned capital to investors in 2016 because he did not believe there were compelling investment opportunities. 

Messrs Cinnamond. and Jayme Wiggins met in 2002; shortly thereafter, Mr. Wiggins was hired as an analyst. When Mr. Cinnamond left the firm, Mr. Wiggins succeeded him as manager, a position he held until leaving Intrepid in September 2018. They launched Palm Valley together in April 2019.

They are very good at executing their discipline. Since we appear to be at a market turning point, let’s look at how their previous fund performed for the five years following the peak of the prior bull market, in October 2007. To be clear, 10/2007-10/2012 only. For comparison, we’ve included the returns of both the Vanguard 500 Index and the Russell 2000 small cap index.

Hmmm … up 1.4% versus up 72.8%. That would be a fifty-fold difference in returns. That difference was driven by having a large reverse of cash at the outset of the crash, a willingness to deploy it aggressively at the depth of the crisis, and the addition of excellent stocks to the portfolio.

Now comes the ugly part

On average, the stock market alternates between rising and falling markets on about a seven-year cycle. That pattern was broken during the Late Great Bull of 2009-2020 when the market rose longer than ever before with stock valuations at their second- or third-highest levels in history.

As valuations rose and the managers could find fewer and fewer “great companies with seriously mispriced (well, underpriced) stocks,” they let cash build in the portfolio until they finally held 90% of their assets in cash. Meanwhile, overvalued stocks – buoyed by near-zero interest rates which facilitated record stock-buybacks – rose steadily, becoming more and more overpriced. A recent shareholder letter returned to the tennis analogy first popularized by Charles Ellis in his essay “Winning the Loser’s Game.”

My tennis game as a young player and the last three market cycles have much in common. Investors and policy makers have been playing aggressively, overhitting, and ultimately committing too many unforced errors. Over the past two decades, we’ve been in a period of rotating asset bubbles, encouraged by ultra-easy monetary policy, fully invested mandates, and an obsession with keeping up with the herd (relative return investing).

With the latest asset bubble and market cycle ending, the Federal Reserve is back to its usual playbook—hit hard (flood the system with money) and with little control (hope the money lands in the right spot). While the Fed’s actions have been all too predictable, investors do not have to play along. They have a choice.

The refusal to play that game meant that top 1% returns were eventually supplanted by bottom 1% returns, money rushing in replaced by money rushing out.

We asked the guys why, after three market cycles and the government’s ongoing market distortions, they wanted to get back in the game. Here are their 300 words on what they’re thinking:

Brought together by our shared beliefs and passion for absolute return investing, we founded Palm Valley Capital Management to give investors an alternative to relative return strategies. Unlike small cap managers who mirror a benchmark or peer group, we view investing in absolute terms. Put simply, we love making money and hate losing money even more!

Our goal is to produce attractive absolute returns over a full market cycle. To accomplish this, we stick with what we know. Our opportunity set mainly consists of small caps we’ve followed for many years. Secondly, we don’t combine operating and financial risk. If cash flows are inconsistent, the company’s balance sheet must be strong. Lastly, we don’t force invest or manufacture opportunities—patience is our guiding principle. During periods of significant overvaluation, you can expect us to have a large allocation to cash. We will never knowingly overpay simply to stay fully invested.

We don’t view relative underperformance as a failure as long as we remain disciplined. We’d much rather assume career risk than permanently lose client capital. Likewise, we certainly don’t view relative outperformance as a success if clients suffered a significant drawdown.

Protecting capital when opportunities are scarce is essential to meeting our investment goal, but when we’re getting paid to take risk, we should act decisively. We’d much prefer to be fully invested because it would mean we’re finding enough value to meet our absolute return hurdles.

We think our ability to invest in a flexible manner positions us well to respond during market turmoil like we recently experienced. In many ways, our process is countercyclical—we become more aggressive when other investors are seeking safety, and we are defensive when risk-seeking behavior is prevalent. Ultimately, we want to own a portfolio of good businesses at good prices.

Palm Valley Capital Fund has a $2500 minimum initial investment with a capped expense ratio of 1.25%. The fund gathered about $7 million in assets since its April 2019 launch. The fund is available directly through the advisor and through Pershing and Vanguard. Mr. Cinnamond, writing from a lawn chair in his backyard, reported that “We continue to try to get on TD, Schwab, and Fidelity…it’s been a bear!”

An appeal to financial advisors:  If the strategy makes sense, go bug your Schwab / Fido / TD service rep about it. The managers note that “it’s never been harder to get on the platforms,” which frustrates them because other advisers have offered up $5 – 15 million allocations … if they can work through Schwab, TD or Fido. Schwab’s current position is that a new fund will be considered only if it has $100 million in assets already which is possible only if the fund gets on …

If enough folks call the balance might tip.

Here’s the fund’s homepage. It’s got a lot of links to other documents but is otherwise fairly Spartan.

Launch Alert: Grandeur Peak US Stalwarts Institutional (GUSYX)

By David Snowball

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

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

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

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

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

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

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

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

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

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

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

Launch Alert: Matthews Asia Emerging Markets Equity (MEGMX/MIEFX)

By David Snowball

On April 30, Matthews Asia launched its Emerging Markets Equity Fund. In parsing the name, please note that “Asia” modifies “Matthews,” rather than “Emerging Markets.” That is, this will be the first global equity fund in the Matthews lineup. While this is not the first time that Matthews has considered a fund with global reach (Mr. Matthews and Andrew Foster discussed it a decade ago), this is the first time that the Matthews strategy map encompasses the whole developing world.

The fund will be managed by John Paul Lech and Beini Zhou.

What’s the rationale for a non-Asia fund from a splendid Asia specialist? At base, Asia drives the EM train. Asia not only represents the vast bulk of the emerging markets universe – 75% of the corporations in the MSCI EM index are headquartered there and 85% of the emerging EM middle class lives in Asia – but its companies also compete against, partner with and occasionally acquire firms worldwide. That means that Matthews has, all along, needed to do a serious fundamental analysis of EM firms outside of Asia. That experience, and their decades of success in Asian investing, has convinced them that it is both possible and sensible to offer a global product.

Messrs Lech and Zhou describe their investment discipline as “core, quality growth.”

Approaching emerging markets through a bottom-up lens, the Fund offers a core, quality-growth orientation. We believe our deep expertise in Asia provides us a competitive advantage to construct an emerging markets portfolio built for sustainable growth. We typically look for companies that have higher growth metrics, as well as higher quality metrics, than the broader market. The Fund also tends to focus on companies that generally can serve the growing needs of domestic consumers within their market. We tend to look for companies that exhibit less cyclicality and have structural growth potential. Employing an all-cap approach, we believe that small companies may offer attractive potential for generating alpha.

The managers have done well in their other charges. Mr. Lech is the co-manager for Matthews Asia Growth & Income (MACSX) which focuses on dividend-paying stocks, preferred shares, convertible securities, and fixed income. Its long-time signature has been having one of the lowest-volatility Asia portfolios anywhere.  He joined Matthews in December 2018 after about a decade at Oppenheimer funds including a short stint co-managing the $35 billion, five-star Invesco Oppenheimer Developing Markets (ODMAX).

Mr. Zhou leads Matthews Asia Value (MAVRX), one of the very few funds that attempts to tap into the changes in the Asian markets that are, at long last, beginning to reward value investing. Our July 2019 profile of Matthews Asia Value concluded:

For those interested in looking beyond [the US], this is both an exceptional fund and an exceptional manager. While Mr. Zhou is risk-conscious in his decisions, though, it is not a “conservative” fund per se. You should not invest in it expecting low volatility or a downside hedge against either US or global market declines. The argument, instead, is that it offers a distinctive take on a dynamic region; Mr. Zhou has been finding value in ways, and in places, that others miss. In doing so, he’s been serving his investors in ways that other vehicles – both active and passive – have not been able to do.

Both funds have handily outperformed their peers in recent years, which is striking since neither “value” nor “conservative” has been widely rewarded. The table below chronicles the performance of the two Matthews funds against their Lipper peer group over the past four years. We chose four as the appropriate window because Asia Value, the younger of the two funds, is just over four years old.

  APR Max DD Std Dev Ulcer Index Sharpe Ratio Martin Ratio APR vs Peer Yield AUM
Matthews Asia Value MAVRX 3.3% -25.7 12.8 9.3 0.15 0.21 2.5 7.49 11.8 M
Matthews Asian Growth & Income MACSX 0.1 -18.9 12.2 6.1 -0.1 -0.2 -0.6 2.76 1,192
Average of Metrics for Pacific Region 0.7 -27.7 15.2 8.1 -0.02 0.02 0 3.98 564

Data: Lipper Global Data Feed via MFO Premium

The minimum initial investment is $2,000 and the expense ratio, after waivers, is 1.15%. The fund’s homepage is useful, primarily, because it offers a link to Mr. Lech’s white paper, Capturing Growth and Quality in Emerging Markets (2020). The paper lays out both the rationale for the fund and the drivers of its investing discipline.

Bruce Fund (BRUFX), May 2020

By David Snowball

Objective and strategy

The fund seeks long-term gains which it pursues through a primarily domestic stock and bond portfolio. The managers will invest as heavily in stocks as the market warrants, which might be 40% and it might be near 80%. The equity portfolio is not constrained by market capitalization but the managers prefer small cap stocks. The bond portfolio is primarily convertible and long-dated “zero coupon” corporate bonds. The managers might invest in distressed securities, both in the equity and fixed-income portfolios. They may be “a large cash position for a transitional period of time.” At the start of the global crisis in 2007, cash stood at 25%. In May 2020, it’s closer to 3%.


Bruce & Co. Bruce & Co. was launched in 1974 and is located in Chicago, Illinois. The firm reports have two non-clerical employees. They provide investment management services for the Bruce Fund, twelve individuals, and what looks to be a couple of charities and a pension plan. They do not, they aver, have a Twitter account. (We nod.) They do have $616 million in assets under management, as of March 2020.


Robert Bruce and Jeffrey Bruce, aka the elder Mr. Bruce (87) and the younger Mr. Bruce (59). The elder Mr. Bruce has over 65 years of experience working as a security analyst and portfolio manager. That included a stint at the Mathers Fund, one of the top-performing funds of the 1960s. The younger Mr. Bruce has worked for Bruce & Co. since 1983. Both have been managers of this portfolio since its inception, and neither has substantial other investing responsibilities.

Management’s stake in the fund

Mr. Bruce and Mr. Bruce both have over $1,000,000 in the fund and are the owners of the adviser. There are only two outside directors who receive nominal compensation ($1000 / year) and have nominal investments in the fund.

Opening date

December 31, 1983.

Minimum investment

$1,000, with a $500 subsequent investment minimum

Expense ratio

0.69% on assets of $488.9 million, as of July 2023. That’s extraordinarily low, given the fund’s size and activity.


For many Americans, the “social distancing” rules of 2020 were onerous and intrusive. For the managers of the Bruce Fund, they’re pretty much status quo. The managers rarely speak to the press (we can identify one short interview per decade), don’t advertise, have never spoken to a Morningstar analyst, refuse to be photographed, and limit shareholder communication to a bare minimum. There are no shareholder letters or factsheets, certainly no whitepapers or slide decks. The substantive comments in their 2019 Annual Report were 158 words. Their year-end Semi-Annual Report clocked in at 74 words.

Articles about the fund come in two flavors: the “the best fund you’ve never heard of” articles and the “let’s give you the real scoop on what the managers are thinking and doing ones. The former is harmless. The latter is occasionally laughable for their tendency to make pronouncements (“the secret is the mix of micro-caps and zero coupon bonds”) that confuse the fund’s position at a particular moment in time with the strategy that led to that point.

None of that obscures the fact that Bruce Fund has an almost unparalleled record of performance over time. It has a five-star rating (and has maintained it consistently) and Gold designation from Morningstar (though it does not have analyst coverage). It has been designated an MFO Great Owl for achieving top 20% risk-adjusted returns in every trailing measurement period. It is a Lipper Leader for Total Return and Consistent Return for every period they measure.

Rather than looking at the “what have you done for me lately” 3- and 5-year records (which, by the way, are to 20%), we’ll share three metrics across more meaningful stretches: multiple decades, full market cycles and the last two market crashes.








30 years


1st of 12





25 years


1st of 19





15 years


2nd  of 40





Full market cycle (2000-07)


1st  of 29





Full market cycle (2007-2020)


1st of 51





Down cycle (2007-09)


34th of 51





Down cycle (2020 – )


27th of 189





APR measures the fund’s returns, for all periods except the three months of decline at the start of 2020, those are annual returns.

Sharpe ratio is the most widely quoted measure of risk-adjusted returns, though our general preference is for a more risk-sensitive measure such as Martin Ratio.

Capture ratio is a “bang for the buck” measure, which begins by looking at how much of the S&P 500’s upside you capture and how much of its downside. The capture ratio compares the two: if you capture 200% of the market’s gains and 100% of its losses, your capture ratio is 2.0. Likewise, you end up with a capture ratio of 2:0 for capturing 100% of its gains and 50% of its losses or 2% of its gains and 1% of its losses. The best use of capture ratio is to help guide an answer to the question, “if there’s a group of funds whose strategies seem comparable and whose risks seem bearable to me, which offers me that best bang for the buck?”

Two patterns stand out:

  1. across time, no one has rewarded investors more consistently. That’s the message of the APR and Sharpe ratio rankings across time.
  2. this is not a timid fund. During periods of sharp decline, Bruce is not a terrible fund to own, it’s just not a defensive standard. As I surveyed the dozen downside measures for the fund at MFO Premium, the general placement is “middle of the pack.”

Here’s a rough approximation of the strategy

The Bruces appear to be skeptical devotees of equity investing. They target buying high-quality stocks, more commonly smaller names than most, but they’re not blind to the fact that rigidly following their preferences is not always a good idea. Their choices reflect remarkable mental agility.

  • They prefer firms with strong cash flows and solid balance sheets but will invest in turnaround plays and special situations when they think they’re being paid for the risk.
  • They prefer small caps, sometimes micro-caps, but are willing to load up on large cap names when the small cap environment is hostile and the opportunities seem few. Morningstar reports that 68% of their stocks are large cap names, 6% are small caps.
  • They prefer common stocks but are willing to invest in convertible bonds and zero coupon bonds because both have stock-like characteristics with less downside risk.
  • They prefer to keep their capital invested but “We’re willing to accept a nonreturning asset. We like to keep some powder dry in case a better opportunity arises,” according to Jeffrey Bruce. The fund’s cash reserves have, across the records I can access, ranged from low single digits to 41%.

Coming into 2020, the managers were not enthused about the statement of the economy, the markets, or the polity. Here is their entire year-end commentary:

The worldwide economy has slowed, and yet stock markets have looked beyond the trade tensions and continued to rise despite the slower economic activity. Given the excessive debt levels, the geopolitical, economic and policy uncertainties, we feel caution is warranted. Valuations for some companies show compelling long term opportunities but the market overall is very expensive and any further slowdown might expose the lofty multiples so we believe a more conservative posture is warranted.

In their June 30, 2019, Annual Report, they warned that central bank interventions were increasingly destructive:

Central banks increasingly financing government deficits through money creation and manipulations ultimately raises the risk in the market to an unacceptable level. Stimulus from central banks have bolstered asset prices, and the preverbal “pushing on a string” might be near, where such stimulus will have ever diminishing effect on the economy.

With the exception of that passage, their mid-year and year-end commentaries were identical: excessive debt, poor global leadership, excessive valuations, and “caution is warranted.”

Check, check, and check.

Bottom Line

Bruce is an enigmatic fund because its managers choose for it to be so. They don’t explain themselves to the public, though do answer calls from their investors. They don’t have “a formula,” don’t rely on rigorous quantitative analysis, don’t have “a deep bench” behind them. They do, so far as I can tell, talk to lots of contacts and industry insiders to keep a clear view of where risks and opportunities lie. They do maintain consistently low portfolio turnover while still moving when the opportunity set arises.

The two cautions about the fund are (1) the elder Mr. Bruce’s age and the implication of moving from a two-person team to a single manager without a partner and (2) the insensitivity of the portfolio to the sustainability, in an ESG sense, of the portfolio’s holdings.

That said, it is hard to imagine why an independent-minded investor wouldn’t have the fund on their due-diligence list.

Fund website

Bruce Fund. Nice picture of the Chicago skyline and, really, not so much else.

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 are in a scramble to launch by June 30th with the hope that having a “standard reporting period” to share with investors sooner.

Every month the ETF industry breathlessly trots out a few ideas designed to seize the moment. They’re the sort of products that Ron Popeil would have launched if only the SEC hadn’t obstructed “as seen on TV” ETFmercials. Sadly, not every launch can be a Mr. Microphone, a Chop-o-matic, Veg-o-matic, or even a Slice-o-matic. Many turn out to be just Inside-the-Shell Egg Scramblers.  We chronicle flameouts each month, whether through simple liquidation (The Obesity ETF and The Health and Fitness ETF) or transmutation from one o-matic to another (as when the Drone Economy Strategy ETF became the Global Cloud ETF).

Last month, it was the “Flight to Safety” ETF. This month brings the Work from Home ETF (feh … not a sangria stock in sight), the Esports and Digital Entertainment ETF, and the BioThreat ETF.

Eventide Exponential Technologies Fund

Eventide Exponential Technologies Fund will seek long-term capital appreciation. The plan is to invest in tech companies, particularly those poised to enjoy long-term exponential growth (though the prospectus quickly allows that the fund itself will not provide exponential returns). The fund will be managed by Anant Goel, a research analyst at Eventide. Its opening expense ratio for “N” shares is 1.63%, and the minimum initial investment will be $1,000.

First Trust Alternative Strategic Focus ETF

First Trust Alternative Strategic Focus ETF, an actively-managed ETF, seeks long term total return. The plan is to invest in a bunch of “alternative asset” categories using some combination of ETFs, ETNs, “funds backed by physical commodities or currencies,” futures, options contracts, and Treasuries. The fund will be managed by John Gambla and Rob A. Guttschow. Its opening expense ratio has not been disclosed.

Goldman Sachs Defensive Equity Fund

Goldman Sachs Defensive Equity Fund will seek long-term growth of capital with lower volatility than equity markets. The plan is to use a “variety of quantitative techniques, in combination with a qualitative overlay, when selecting investments.” The short version is that it’s a large cap equity fund with an options overlay. The fund will be managed by Federico Gilly and Matthew Schwab. Its opening expense ratio has not been disclosed, and the minimum initial investment for “A” shares will be $1,000.

Inspire Tactical Large Cap ESG ETF

Inspire Tactical Large Cap ESG ETF, an actively-managed ETF, seeks capital appreciation with below-market volatility. The plan is to invest in “the most inspiring, biblically aligned companies in the world.” The fund will be managed by a team from CWM Advisors. Its opening expense ratio is 0.84%, though the figure is placed in brackets which might mean that it’s tentative.

Janus Henderson Global Sustainable Equity Fund

Janus Henderson Global Sustainable Equity Fund will seek long-term growth of capital. The plan is to invest in 50-75 companies whose products and services are considered by the portfolio managers as contributing to positive environmental or social change and sustainable economic development. The fund will be managed by Hamish Chamberlayne and Aaron Scully. Its opening expense ratio has not been disclosed, and the minimum initial investment for “N” shares will be $2,500.

JPMorgan SmartSpending 2020 Fund  

JPMorgan SmartSpendingSM 2020 Fund will seek total return. It’s a halfway interesting fund, akin to the late and unlamented Vanguard Managed Payout Fund. The strategy is to provide retirement income with the expectation that investors will systematically draw down their accounts between now and 2055. The portfolio will be 20-50% global equities, 50-70% global fixed income, 0-20% alts and 0-20% cash. It’s not a target-date fund, in the sense that there is no predetermined asset allocation glide path. The fund will be managed by Daniel Oldroyd, Silvia Trillo, and Katherine Santiago. Its opening expense ratio has not been disclosed, and the minimum initial investment for “A” shares will be  $1000. That’s an odd amount since the prospectus is clear: this is not intended for investors in the “accumulation” phase, it’s intended for those in the “distribution” phase. Hmmm … not sure how well $1000 will stretch to 2055

Lazard US Sustainable Equity Portfolio

Lazard US Sustainable Equity Portfolio will seek long-term capital appreciation. The plan is to invest in US stocks with a capitalization of $1 billion or more. Which stocks, you ask? So far as I can tell, they’re ones that grow earnings longer and faster than the market expects. They then screen for firms whose human capital and natural capital principles might help sustain the firms in a changing world. The fund will be managed by a five-person team from Lazard. Its opening expense ratio has not been disclosed, and the minimum initial investment for “Open” shares will be $2500.

MFS International Large Cap Value Fund

MFS International Large Cap Value Fund will seek capital appreciation. The plan is undervalued large cap stocks. Really, they say virtually nothing else about their plans. The fund will be managed by Steven Gorham and David Shindler. Mr. Gorham had previously co-managed the $50 billion MFS Value Fund and several funds for European investors. Its opening expense ratio has not been disclosed, and the minimum initial investment for “A” shares will be $1,000, reduced to $250 for IRAs, and zero for accounts set up with an automatic investing plan.

Mondrian Global Equity Value Fund

Mondrian Global Equity Value Fund will seek long-term total return. The plan is to build a non-diversified value portfolio using fundamental, stock-by-stock analysis. The fund will be managed by Aileen Gan, CIO, James Francken, and Charlie Hill. Its opening expense ratio is 0.74%, and the minimum initial investment will be $50,000.

Principal Spectrum Qualified Dividend Active ETF

Principal Spectrum Qualified Dividend Active ETF, an actively-managed ETF, seeks current income. The plan is to preferred and convertible shares (including the lovely contingent convertible securities (“Cocos”). The managers will consider both investment-grade and high-yield securities. The fund will be managed by a large-ish team from Principal. Its opening expense ratio is 0.60%.

Schwab High Yield Municipal Bond Fund

Schwab High Yield Municipal Bond Fund will seek tax-free income. The plan is to buy munis “with remaining maturities of 5-30 years.” There’s also the prospect of some taxable bonds, some illiquid securities derivatives, futures contracts, and securities subject to the AMT. The fund will be managed by Jason D. Diefenthaler and Kenneth Salinger. This is the reincarnation of some earlier (“predecessor”) fund, but there’s no note about whether these are the predecessor’s managers, what fund it was, or how it did. Its opening expense ratio has not been disclosed, and the minimum initial investment will be zero.

Sterling Capital Focus Equity ETF

Sterling Capital Focus Equity ETF [LCG], an actively-managed ETF, seeks long-term capital appreciation. The plan is to beat the Russell 1000 Growth Index with a portfolio of 15-30 growth stocks. The fund will be managed by Colin R. Ducharme. Its opening expense ratio is 0.59%, though the figure is placed in brackets which might mean that it’s tentative.

WCM Focused International Value Fund

WCM Focused International Value Fund will seek long-term capital appreciation. The plan is to build a portfolio around undervalued large capitalization, established, multinational companies. Those might be located in developed or developing markets. The fund will be managed by Andrew Wiechert. Mr. Wiechert currently manages $6 million in three separate accounts using the same discipline. Its opening expense ratio is 1.50%, and the minimum initial investment will be $1000, reduced to $100 for accounts opened with an automatic investing plan.

Manager Changes

By Chip

Fund managers matter, sometimes more than others. As more teams adopt the mantra “we’re a team,” if only as window-dressing, more and more manager changes are reduced to “one cog out, one cog in.” Nonetheless, we know that losing funds with new managers tend to outperform losing funds that hold onto their teams, while the opposite is true for winning funds. Strong funds with stable teams and stable assets outperform strong funds facing instability (Bessler, et al, 2010). Because of the great volatility of their asset class, equity managers matter rather more than fixed-income investors. (Sorry guys.)

And so each month we track the changes in teams, primarily at active, equity-oriented funds and ETFs. With the kind assistance of the folks from Morningstar who share a record of changes they’ve recorded, we’ve tracked down 101 manager changes recorded in the past month or two.

Mihir Worah, one of the team that replaced Bill Gross at PIMCO and on PIMCO-advised funds, retired at the end of March. Mr. Worah was PIMCO’s CIO of asset allocation and real return investing. His departure impacts PIMCO Real Return (PRRIX), PIMCO Commodity Real Return Strategy (PCRIX), PIMCO Total Return (PTTRX), and Harbor Bond (HABDX). Morningstar reports that Worah’s successor is considered “a rising star” at PIMCO.

Roger Edgley has stepped away from managing the four-star, $900 million Wasatch International Growth (WAIGX) after a 14-year run, the longest in the fund’s history. He’s been succeeded by Derrick Tzau, and lead manager Kenneth Applegate (2016- ) remains in charge.

Nicholas Kaiser has called it a career. Mr. Kaiser has stepped away from day-to-day responsibilities at the Amana, Sextant, and Saturna funds. They’re all advised by Saturna Capital, a firm Mr. Kaiser founded in 1989. Mr. Kaiser is a monumental figure: an early champion of sustainable investing, the manager of the first funds accessible to faithful Muslim investors, a ten-time honoree on Morningstar’s Ultimate Stockpicker’s list, twice nominated for Morningstar’s Domestic Stock Portfolio Manager of the Year and twice named to Barron’s Top 100 Portfolio Managers. Mr. Kaiser remains as Saturna’s board chair and chief strategist. We offer our heartfelt thanks for the difference he’s chosen to make.

Ticker Fund Out with the old In with the new Dt
ABASX AB Discovery Value Shri Singhvi is no longer listed as a portfolio manager for the fund. Erik Turenchalk joins James MacGregor in managing the fund. 4/20
SCAVX AB Small Cap Value Shri Singhvi is no longer listed as a portfolio manager for the fund. Erik Turenchalk joins James MacGregor in managing the fund. 4/20
GMCAX AllianzGI Micro Cap Robert Marren, K. Mathew Axline, Stephen Lyford, and Blake Burdine are no longer listed as portfolio managers for the fund. Steven Klopukh will now manage the fund. 4/20
GUCAX AllianzGI Ultra Micro Cap Robert Marren, K. Mathew Axline, Stephen Lyford, and Blake Burdine are no longer listed as portfolio managers for the fund. Steven Klopukh will now manage the fund. 4/20
ASVIX American Century Small Cap Value Fund Miles Lewis will no longer serve as a portfolio manager for the fund. Ryan Cope joins Jeff John in managing the fund. 4/20
IICAX AMF Large Cap Equity Ana Galliano is no longer listed as a portfolio manager for the fund. Anupam Ghose will now manage the fund. 4/20
AZEIX AQR Emerging Defensive Style Jacques Friedman is no longer listed as a portfolio manager for the fund. Lars Nielsen and Ronen Istrael join Michele Aghassi and Andrea Frazzini on the management team. 4/20
ANDIX AQR International Defensive Style Jacques Friedman is no longer listed as a portfolio manager for the fund. Lars Nielsen and Ronen Istrael join Michele Aghassi and Andrea Frazzini on the management team. 4/20
AUEIX AQR Large Cap Defensive Style Jacques Friedman is no longer listed as a portfolio manager for the fund. Lars Nielsen and Ronen Istrael join Michele Aghassi and Andrea Frazzini on the management team. 4/20
QLEIX AQR Long-Short Equity Jacques Friedman is no longer listed as a portfolio manager for the fund. Lars Nielsen and Ronen Istrael join Michele Aghassi and Andrea Frazzini on the management team. 4/20
ARCIX AQR Risk-Balanced Commodities Strategy Brian Hurst is no longer listed as a portfolio manager for the fund. Lars Nielsen and Ronen Istrael join Yao Hua Ooi and Ari Levine on the management team. 4/20
ATGAX Aquila Three Peaks Opportunity Growth No one, but . . . Dave Battilega joins Zach Miller and Sandy Rufenacht on the management team. 4/20
AVEGX Ave Maria Growth Richard Platte will no longer serve as a portfolio manager for the fund. Chadd Garcia joins Adam Gaglio in managing the fund. 4/20
MDFGX BlackRock Capital Appreciation No one, but . . . Phil Ruvinsky joins Lawrence Kemp in managing the fund. 4/20
STSEX BlackRock Exchange BlackRock No one, but . . . Phil Ruvinsky joins Lawrence Kemp in managing the fund. 4/20
BMEAX BlackRock High Equity Income No one, but . . . Christopher Accettella joins Tony DeSpirito, Kyle McClements, Franco Tapia, and David Zhao on the management team. 4/20
MDYHX BlackRock High Yield Municipal No one, but . . . Michael Perilli joins Theodore Jaeckel and Walter O’Connor on the management team. 4/20
MDFOX BlackRock Large Cap Focus Growth No one, but . . . Phil Ruvinsky joins Lawrence Kemp in managing the fund. 4/20
BTMAX BMO Short-Term Income No one, but . . . Don McConnell joins Peter Arts and Boyd Eager in managing the fund. 4/20
DEQAX BNY Mellon Global Equity Income No one, but . . . Nick Clay and Andrew MacKirdy are joined by Jonathan Bell, Paul Flood, Ilga Haubelt, and Robert Hay on the management team. 4/20
MLIIX BNY Mellon International Equity Income William Cazalet and C. Wesley Boggs are no longer listed as portfolio managers for the fund. Peter Goslin and Syed Zamil are joined by Tao Wang on the management team. 4/20
MILCX BNY Mellon Large Cap Stock William Cazalet and C. Wesley Boggs are no longer listed as portfolio managers for the fund. Peter Goslin and Syed Zamil are joined by Chris Yao on the management team. 4/20
BBGLX Bridge Builder Large Cap Growth George Fraise is no longer listed as a portfolio manager for the fund. Kishore Rao joins the other 14 or so managers on the team. 4/20
CVAAX Calamos Select Fund Jon Vacko and John Hillenbrand are no longer listed as portfolio managers for the fund. John Calamos is joined by R. Matthew Freund, Brad Jackson, Michael Kassab, and Bill Rubin on the management team. 4/20
CFOAX Calvert Floating-Rate Advantage Scott Page is no longer listed as a portfolio manager for the fund. Andrew Sveen joins Catherine McDermott and Craig Russ in managing the fund. 4/20
CAMGX Cambiar Global Equity Fund No one, but . . . Munish Malhotra joins Anna Aldrich, Todd Edwards, and Alvaro Shiraishi on the management team. 4/20
ETAFX Carillon Cougar Tactical Allocation Abe Sheikh will no longer serve as a portfolio manager for the fund. Irina Dorogan and Amy Steciuk are now managing the fund. 4/20
BERCX Chartwell Mid Cap Value No one, but . . . T. Ryan Harkins joins David Dalrymple in managing the fund. 4/20
CWSIX Chartwell Small Cap Value No one, but . . . T. Ryan Harkins joins David Dalrymple in managing the fund. 4/20
OCIO ClearShares OCIO ETF Mark Hong, Jonathan Chesshire, and Eric Blasberg are no longer listed as portfolio managers for the fund. Brian Lockwood and Dan Hughey now manage the fund. 4/20
LIIAX Columbia Corporate Income Timothy Doubek will no longer serve as a portfolio manager for the fund. Royce Wilson and John Dawson join Thomas Murphy in managing the fund. 4/20
NGCAX Columbia Greater China Jasmine Huang is no longer listed as a portfolio manager for the fund. Derek Lin joins Dara White in managing the fund. 4/20
IGLGX Columbia Select Global Equity Pauline Grange is no longer listed as a portfolio manager for the fund. Alex Lee joins Dave Dudding on the management team. 4/20
CDCDX Community Development Alfio Leone will no longer serve as a portfolio manager for the fund. Kevin Hendrickson will now manage the fund. 4/20
SNTKX Crossmark Steward International Enhanced Zachary Wehner will no longer serve as a portfolio manager for the fund. Ryan Caylor joins Brent Lium and John Wolf on the management team. 4/20
SEEKX Crossmark Steward Large Cap Enhanced Index Zachary Wehner will no longer serve as a portfolio manager for the fund. Ryan Caylor joins Brent Lium and John Wolf on the management team. 4/20
TRDFX Crossmark Steward Small-Mid Cap Enhanced Index Zachary Wehner will no longer serve as a portfolio manager for the fund. Ryan Caylor joins Brent Lium and John Wolf on the management team. 4/20
DGMMX DGHM MicroCap Value Investor Donald Porter is no longer listed as a portfolio manager for the fund. Douglas Chudy joins Jeffrey Baker, Bruce Geller, and Peter Gulli on the management team. 4/20
DGSMX DGHM V2000 SmallCap Value Donald Porter is no longer listed as a portfolio manager for the fund. Douglas Chudy joins Jeffrey Baker, Bruce Geller, and Peter Gulli on the management team. 4/20
DAIOX Dunham International Opportunity Bond Malie Conway is no longer listed as a portfolio manager for the fund. Matthew Cottingham, James Craige, William Perry, David Scott, David Torchia, and Peter Wilby will now manage the fund. 4/20
DAREX Dunham Real Estate Stock David Wharmby will no longer serve as a portfolio manager for the fund. Burland East and Creede Murphy now manage the fund. 4/20
ETAZX Eaton Vance AZ Municipal Income No one, but . . . Trevor Smith joins Craig Brandon in managing the fund. 4/20
ETCTX Eaton Vance CT Municipal Income No one, but . . . Trevor Smith joins Craig Brandon in managing the fund. 4/20
EAFVX Eaton Vance Focused Value Opportunities No one, but . . . Bradley Galko joins Edward Perkin and Aaron Dunn on the management team. 4/20
EHSTX Eaton Vance Large-Cap Value No one, but . . . Bradley Galko joins Edward Perkin and Aaron Dunn on the management team. 4/20
ETMDX Eaton Vance MD Municipal Income No one, but . . . Trevor Smith joins Craig Brandon in managing the fund. 4/20
ETMNX Eaton Vance MN Municipal Income No one, but . . . Christopher Eustance joins Craig Brandon in managing the fund. 4/20
ETMOX Eaton Vance MO Municipal Income No one, but . . . Christopher Eustance joins Cynthia Clemson in managing the fund. 4/20
EATVX Eaton Vance Tax-Managed Value No one, but . . . Bradley Galko joins Edward Perkin and Aaron Dunn on the management team. 4/20
LOMAX Edgar Lomax Value Philip Titzer is no longer listed as a portfolio manager for the fund. Thomas Murray and Randall Eley will continue managing the fund. 4/20
FDAGX Fidelity Advisor Consumer Staples No one, but . . . Ben Shuleva joins Nicola Stafford in managing the fund. 4/20
FDHAX First Trust Short Duration High Income Peter Fasone and Scott Fries are no longer listed as portfolio managers for the fund. Jeffrey Scott joins Orlando Purpura and William Housey on the management team. 4/20
FKGRX Franklin Growth Fund John Anderson will no longer serve as a portfolio manager for the fund. Christopher Anderson joins Serena Perin Vinton and Robert Rendler in managing the fund. 4/20
GSGIX Goldman Sachs Global Core Fixed Income Andrew Wilson left in December and Iain Lindsay left in February. Simon Dangoor and Hugh Briscoe began managing the fund in December and February, respectively. 4/20
GFSZX GuideStone Funds Strategic Alternatives Iain Lindsay is no longer listed as a portfolio manager for the fund. Michael Swell joins the other dozen managers on the team. 4/20
HRBDX Harbor Bond Mihir Worah is no longer listed as a portfolio manager for the fund. Mohit Mittal joins Mark Kiesel and Scott Mather in managing the fund. 4/20
MKNAX Invesco Global Market Neutral Michael Abata is no longer listed as a portfolio manager for the fund. Jerry Sun, Glen Murphy, and Tarun Gupta join Robert Nakouzi and Nils Huter on the management team. 4/20
VSQAX Invesco Global Responsibility Equity Michael Abata is no longer listed as a portfolio manager for the fund. Glen Murphy and Tarun Gupta join Robert Nakouzi, Manuela von Ditfurth, and Nils Huter on the management team. 4/20
GLTAX Invesco Global Targeted Returns No one, but . . . Sebastian Mackay joins Danielle Singer, Gwilym Satchell, David Jubb, Richard Batty, and David Miller on the management team. 4/20
LVLAX Invesco Low Volatility Emerging Markets Michael Abata is no longer listed as a portfolio manager for the fund. Glen Murphy, Sergey Protchenko, and Tarun Gupta join Su-Jin Fabian and Nils Huter on the management team. 4/20
AUBAX Invesco World Bond Factor Fund Gareth Isaac, Thomas Sartain, Hemant Baijal, and Wim Vendhoeck are no longer listed as portfolio managers for the fund. Noelle Corum, James Ong, Jay Raol, and Sash Sarangi will now manage the fund. 4/20
JDBAX Janus Henderson Balanced Mayur Saigal and Darrell Watters are no longer listed as portfolio managers for the fund. Greg Wilensky and Michael Keough join Jeremiah Buckley and E. Marc Pinto on the management team. 4/20
JDFAX Janus Henderson Flexible Bond Mayur Saigal and Darrell Watters are no longer listed as portfolio managers for the fund. Greg Wilensky joins Michael Keough on the management team. 4/20
JANWX Janus Henderson Global Research Carmel Wellso will no longer serve as a portfolio manager for the fund. Matthew Peron will now manage the fund. 4/20
JNRFX Janus Henderson Research Carmel Wellso will no longer serve as a portfolio manager for the fund. Matthew Peron will now manage the fund. 4/20
JSHAX Janus Henderson Short-Term Bond Mayur Saigal and Darrell Watters are no longer listed as portfolio managers for the fund. Greg Wilensky joins Michael Keough and Seth Meyer on the management team. 4/20
JIAFX JHancock Income Allocation No one, but . . . Caryn Rothman, Geoffrey Kelley, and John Addeo join Christopher Walsh and Nathan Thooft on the management team. 4/20
JSCAX JHancock Small Cap Value No one, but . . . Edmond Griffin joins Timothy McCormack and Shaun Pedersen in managing the fund. 4/20
JIVIX JHFunds2 International Value Peter Nori and Christopher Peel no longer manage the fund. Josheph Feeney, Christopher Hart, Joshua Jones, Joshua White will now manage the fund. 4/20
JLCAX JPMorgan US Large Cap Core Plus No one, but . . . Steven Lee joins Susan Bao and Scott Davis in managing the fund. 4/20
LBCAX Lord Abbett Corporate Bond No one, but . . . Eric Kang and Yoana Koleva join Kewjin Yuoh and Andrew O’Brien in managing the fund. 4/20
EUGDX Morgan Stanley Europe Opportunity Matthew Leeman, Riccardo Bindi, Jonathan Day, and Jaymeen Patel are no longer listed as portfolio managers for the fund. Kristian Heugh and Wendy Wang now manage the fund. 4/20
PYARX Payden Absolute Return Bond Brad Boyd will no longer serve as a portfolio manager for the fund. James Wong, Mary Beth Syal, Eric Souders, and Michael Salvay join Scott Weiner and Brian Matthews on the management team. 4/20
PYCBX Payden Core Bond Brad Boyd and Frank Spindler will no longer serve as portfolio managers for the fund. James Wong, Scott Weiner, Nigel Jenkins, Timothy Crawmer, and Brian Matthews join Michael Salvay on the management team. 4/20
PYCEX Payden Emerging Markets Corporate Bond Darren Capeloto and Vladimir Milev are no longer listed as portfolio managers for the fund. James Wong, Zubin Kapadia, Arthur Hovsepian, Alfred Giles and Brian Matthews join Kristin Ceva on the management team. 4/20
PYELX Payden Emerging Markets Local Bond Darren Capeloto will no longer serve as a portfolio manager for the fund. Scott Weiner, Nigel Jenkins, and Brian Matthews join Kristin Ceva and Arthur Hovsepian on the management team. 4/20
PYGFX Payden Global Fixed Income Natalie Trevithick is no longer listed as a portfolio manager for the fund. James Wong, James Sarni, Timothy Crawmer, and Kristin Ceva join Michael Salvay and Nigel Jenkins in managing the fund. 4/20
PYSGX Payden Strategic Income Brad Boyd and Frank Spindler will no longer serve as portfolio managers for the fund. James Wong, Scott Weiner, Nigel Jenkins, Timothy Crawmer, and Brian Matthews join Michael Salvay on the management team. 4/20
PSRZX PIMCO Senior Floating Rate Elizabeth MacLean is no longer listed as a portfolio manager for the fund. David Forgash and Michael Levinson will now manage the fund. 4/20
PRADX PIMCO Total Return II Mihir Worah is no longer listed as a portfolio manager for the fund. Mohit Mittal joins Mark Kiesel and Scott Mather in managing the fund. 4/20
IRHAX Rational Iron Horse John Pearce, Stefan ten Brink, and Craig Van Hulzen are no longer listed as portfolio managers for the fund. Charles Ashley and David Miller now manage the fund. 4/20
SEEFX Saturna Sustainable Equity Nicholas Kaiser will no longer serve as a portfolio manager for the fund. Scott Limo and Jane Carten will continue to manage the fund. 4/20
SVTAX SEI Global Managed Volatility No one, but . . . Brendan Bradley joins the rest of the team in managing the fund. 4/20
SBIFX Sextant Bond Income Phelps McIlvaine and Patrick Drum are no longer listed as portfolio managers for the fund. Elizabeth Alm and Bryce Fegley will now manage the fund. 4/20
SCORX Sextant Core Phelps McIlvaine is no longer listed as a portfolio manager for the fund. Bryce Fegley joins Christopher Paul in managing the fund. 4/20
SSIFX Sextant International Nicholas Kaiser and Scott Klimo will no longer serve as portfolio managers for the fund. Christopher Lang and Christopher Paul will now manage the fund. 4/20
STBFX Sextant Short-Term Bond Phelps McIlvaine and Patrick Drum are no longer listed as portfolio managers for the fund. Elizabeth Alm and Levi Zurbrugg will now manage the fund. 4/20
SGDLX Sprott Gold Equity No one, but . . . Nicole Adshead-Bell joins John Hathaway and Douglas Groh on the management team. 4/20
VRLIX Stone Ridge US Hedged Equity Daniel Fleder and Erik Buischi are no longer listed as portfolio managers for the fund. Allen Steere is joined by Nate Conrad and Li Song on the management team. 4/20
PRIDX T. Rowe Price International Discovery No one, but . . . Ben Griffiths joins Justin Thomson in managing the fund. 4/20
TGGBX TCW Global Bond David Robbins is no longer listed as a portfolio manager for the fund. Bryan Whalen and Laird Landmann join Stephen Kane and Tad Rivelle in managing the fund. 4/20
THLSX Thornburg Long/Short Equity Connor Browne will no longer serve as a portfolio manager for the fund. Robert MacDonald joins Bimal Shah in managing the fund. 4/20
GUTEX Victory Tax-Exempt Douglas Gaylor will no longer serve as a portfolio manager for the fund. John Bonell, Regina Conklin, and Andrew Hattmen now manage the fund. 4/20
PDPAX Virtus Duff & Phelps Real Asset Warun Kumar is no longer listed as a portfolio manager for the fund. David Grumhaus, Daniel Petrisko, and Steven Wittwer will now manage the fund. 4/20
PSTAX Virtus KAR Capital Growth No one, but . . . Chris Armbruster joins Douglas Foreman in managing the fund. 4/20
PHSKX Virtus KAR Mid-Cap Growth No one, but . . . Chris Armbruster joins Douglas Foreman in managing the fund. 4/20
WAIGX Wasatch International Growth Roger Edgley is no longer listed as a portfolio manager for the fund. Derrick Tzau joins Kenneth Applegate and Linda Lasater in managing the fund. 4/20
WMCVX Wasatch Small Cap Value No one, but . . . Austin Bone joins Jim Larkins in managing the fund. 4/20
WBFIX William Blair Bond Christopher Vincent is retiring from William Blair to become CEO of the CFA Society of Chicago. Ruta Ziverte, head of fixed income at William Blair Investment Management, joins Paul Sularz as a co-portfolio manager of the fund. 4/20
BIFIX William Blair Income Christopher Vincent is retiring from William Blair to become CEO of the CFA Society of Chicago. Ruta Ziverte will now manage the fund. 4/20
WBLIX William Blair Low Duration Christopher Vincent is retiring from William Blair to become CEO of the CFA Society of Chicago. Kathy Lynch joins Paul Sularz as a co-portfolio manager of the fund. 4/20


Briefly Noted

By David Snowball


Chicago Equity Partners Balanced (MBEAX) no more. MBEAX has been a splendid performer that mixed high-quality, larger US stocks (93% mid- to mega-cap) with investment-grade bonds (99.5% BBB or above, at last reading). Effective April 17, 202, it became the AMG GW&K Global Allocation Fund (MBEAX) with a new name, new team, and new discipline. The portfolio shifts from domestic to global in both its equity and bond sleeves.

Investors should treat this as an entirely new fund. Morningstar will continue to allow it to claim its current four-star rating but they’ve placed it “under review” so far as their analyst rating goes. Investors ought to do likewise. Chip, who had a position in the fund, has moved it to cash pending a review of her options.

– – – – –

The Investor share class for EAS Crow Point Alternatives Fund (EASAX), Crow Point Global Tactical Allocation Fund (CGHAX), and Crow Point Alternative Income Fund (AAIFX) will be eliminated on May 29, 2020. At the same time, the word “Timber” will replace the word “Crow” in each fund’s name, presumably on marketing grounds. A “murder of crows” and all that.

– – – – –

A wide variety of advisors – having forgotten to latch the barn door in the first place – have continued filing helpful amendments to their risk statements. Upon reflection, they’re decided to warn us that a global pandemic might disrupt financial markets and adversely affect their portfolio holdings. I extend thanks on behalf of all of the investors who would not otherwise have been aware of that risk by now.

Briefly Noted . . .

All of the Alpha Architect funds will transform from passive to active on July 1, 2020. The change reflects the extent of the gray area between an active quant fund and a passive fund that follows a self-designed index. The filing notes that “the Adviser will use a quantitative model to identify which securities each Fund might purchase and sell as well as opportune times for purchases and sales. The Adviser’s methodology will be substantially unchanged from the current approach it uses to manage the Funds.” 

  Index tracked New Investment Objective
Alpha Architect U.S. Quantitative Value ETF QVAL Alpha Architect Quantitative Value Index. long-term capital appreciation.
Alpha Architect U.S. Quantitative Momentum ETF QMOM Alpha Architect Quantitative Momentum Index. long-term capital appreciation.
Alpha Architect International Quantitative Value ETF IVAL Alpha Architect International Quantitative Value Index. long-term capital appreciation.
Alpha Architect International Quantitative Momentum ETF IMOM Alpha Architect International Quantitative Momentum Index. long-term capital appreciation.
Alpha Architect Value Momentum Trend ETF VMOT Alpha Architect Value Momentum Trend Index. long term capital appreciation while attempting to minimize market drawdowns.

No changes in the fees or expenses charged by the Funds will result.

Amidst the madness that afflicts oil ETPs, ProShares K-1 Free Crude Oil Strategy ETF (OILK) has announced a series of portfolio shifts. One shift is moving toward longer-dated futures. The other is to open the option of investing in “other crude oil-related investments, such as futures contracts on other crude oil benchmarks (for example, ICE West Texas Intermediate (WTI) Light Sweet Crude Oil Futures Contract), options on crude oil futures contracts, swap transactions or futures contracts on exchange traded funds that provide exposure to crude oil or crude oil futures.” Year-to-date (4/28/2020), the fund is converted a $10,000 investment into a $2,074 portfolio.

On the bright side, that edges out the returns on the United States Oil ETF (USO): -79% versus -83%.


Dana Small Cap Equity Fund (DSCIX) and the Dana Epiphany ESG Equity Fund (ESGIX) will convert their “Investor” shares into “Institutional” shares on June 4, 2020, at which point the Institutional shares will announce a $5,000 minimum investment. That’s down from $1 million and $100,000, respectively, owing, perhaps, to the fact that the funds have barely $20 million between them. (Trailing your peers in 100% and 80%, respectively, of calendar years, tends to have that effect on investor enthusiasm.)

Effective on April 24, 2020, the minimum initial investment amount RiverNorth Core Opportunity Fund’s Institutional Share Class (RNCIX) will reduce from $5,000,000 to $100,000.

Effective as of April 6, 2020, the Towle Deep Value Fund (TDVFX) was reopened to new investors. Towle is distinguished for owning stocks that are far smaller and far more deeply discounted than its peers. Perhaps, in consequence, the fund is a bit streaky in terms of performance. Here are its peer rankings in each of the past nine years.

CLOSINGS (and related inconveniences)

Vanguard Treasury Money Market Fund (VUSXX) is closed to all new investors. At base, this is a move to protect existing investors. The managers simply don’t want to be forced into buying a bunch of new T-bills paying 0.10% for a fund charging 0.09%.

Walthausen Select Value Fund (WSVRX) is eliminating its retail share class on May 15, 2020. It’s a really solid fund that ought to have drawn more than $9 million in assets.


The actively-managed Invesco Global Responsibility Equity Fund (VSQRX), which is really pretty bad at what it does but at least does it with very little money, will become the passively managed Invesco MSCI World SRI Index Fund, effective on or about June 29, 2020. 

Effective as of May 1, 2020, the name of the Parnassus Fund (PARNX) will change to the Parnassus Mid Cap Growth Fund. The fund has sagged a good deal since Jerry Dodson stepped away in 2018. There’s already a Parnassus Mid-Cap (PARMX) with a splendid record and manageable asset base. Investors would do well not to mix up the two.


On July 20, 2020, you’ll lose access to 1290 Convertible Securities Fund, 1290 Global Talents Fund (TNYAX), and 1290 Low Volatility Global Equity Fund.

Effective on June 26, 2020, AllianzGI Micro Cap Fund (GMCAX) and AllianzGI Ultra Micro Cap Fund (AAUPX) will be liquidated and dissolved.

American Century Zero Coupon 2020 Fund (BTTTX) will be liquidated on September 18, 2020.

The Arrow Dogs of the World ETF (DOGS) … hmm, shouldn’t joke about the “dogs” part, eh? Okay, after having trailed 100% of its peers in 2019 and, so far, in 2020, the fund will be liquidated on May 15, 2020. Morningstar’s computer assigned it a “Bronze” rating, which might suggest that it’s time to tweak an algorithm.

On final descent: Ascendant Deep Value Bond Fund (AEQAX) will make a final hard landing on May 22, 2020.

Do you remember the good ol’ days when you were Foster Friess and you wanted to call your fund the Brandywine Fund and so you could call it … oh, the Brandywine Fund? Not so much now. The tiny and sad AMG Managers Brandywine Advisors Mid Cap Growth Fund (BWAFX) will be liquidated on May 15, 2020. The original Brandywine Fund is still around, with a long name and one manager from Friess Associates. Mr. Friess himself has transitioned to a life of conservative activism.

Catalyst Growth of Income Fund (CGGAX) was liquidated on April 30, 2020.

Effective April 24, 2020, the CLS Strategic Global Equity Fund “has ceased operations and is no longer available for purchase.” Frankly, I didn’t even know that it had been in operation.

Core Market Neutral Fund (STTKX/STAKX) will be cored on May 15, 2020.

Cutler Fixed Income Fund (CALFX) and Cutler Emerging Markets Fund (CUTDX) will be liquidated on May 28, 2020.

The Defiance Next Gen Food & Agriculture ETF (DIET) will be liquidated on May 22, 2020. As is painfully common, the fund’s sponsors pulled the plug after less than one year of operations.

The four-star Frost Mid Cap Equity Fund (FAKSX) will be liquidated on June 30, 2020.

Gator Financial Fund (GFFIX) – a $2 million fund with a 34% YTD drop – will sink into the swamp on June 16, 2020.

The Hartford Quality Bond Fund is merging into The Hartford Total Return Bond Fund on July 24, 2020. The merger was originally slated for June 5, 2020. No word on why.

Following shareholder approval (baaaaa!), the $15 million Mainstay Cushing Energy Income Fund (CURAX) will be merged into MainStay CBRE Global Infrastructure Fund (VCRAX).

Miller/Howard Income-Equity Fund (MHIEX) will be liquidated on June 15, 2020.

Effective April 17, 2020, the North Capital Emerging Technology Fund (NCTEX) ceased operations and is no longer available for purchase.

Parametric 1-to-10 Year Laddered Corporate Bond Fund (EACBX) will be liquidated on my birthday, May 29, 2020.

RiskPro PFG Aggressive 30+ Fund, RiskPro Aggressive 30+ Fund, RiskPro Alternative 0-15 Fund, and the RiskPro Dynamic 15-25 Fund will be liquidated on June 30, 2020.

The Second Nature Thematic Growth Fund (CEGSX) was liquidated on short notice (uhh … eight days) on April 30, 2020.

Source Dividend Opportunity ETF (DVOP) was liquidated on April 30, 2020.

Strategy Shares EcoLogical Strategy ETF (HECO) was liquidated two days after the 50th anniversary of Earth Day.

Thomas White Emerging Markets (TWIIX) will be liquidated on March 8, 2020.

The Validea Market Legends ETF (VALX), whose marketing slogan was “Invest Using the Strategies of Market Legends,” will close after five years of trailing its peers and liquidate immediately after the close of business on May 15, 2020.

Ummmm … to be fair, Charles Steadman was a market legend, of sorts.