Monthly Archives: August 2020

August 1, 2020

By David Snowball

Welcome to our annual summer-lite edition of Mutual Fund Observer.

It’s the summer in which things might be … hmmm, a little lighter than usual. It’s normally a time when we quiet down for a month while you folks are off doing sensible and wonderful things, like hanging out at the beach with friends and family. Except, now, well …

Apparently, a rather large number of our younger colleagues have responded to being bored, locked-in, and denied sports (and sports betting) by day-trading stocks. E*Trade Financial opened up a quarter-million new accounts in March alone while the investing app RobinHood registered three million new accounts in the first quarter. The Wall Street Journal describes the surge of new retail investors as “bigger and broader” than the binge that drove the bubble (Michael Wursthorn, Mischa Frankl-Duval, and Gregory Zuckerman, “Everyone’s a Day Trader Now,” paywall,  7/25/2020). One investor, whose experience is mostly limited to a historic four-month surge, exults, “I feel like Sonic the Hedgehog, collecting my coins.”

One 20-year-old college student’s experience with day-trading via RobinHood was a bit different: checking his account one day, he saw numbers that convinced him he was $700,000 in the red … and killed himself. The Financial Times’ reporting on the case involved a number of rather troubling comparisons to dynamite, heroin, and other substances best kept out of the hands of impressionable young people (“The lockdown death of a 20-year-old day trader,” free to read, July 1, 2020).

None of which bothers them, given the ability of RobinHood traders to drive up Kodak stock by 2,760% in a single week.  And, really, they’re young, smart and have an app … how much trouble could they get into?

Oh … yeah.

Thank God for Wells Fargo

Constant change is enough to drive folks to despair; the sense that everything is fluid, that nothing can be counted on, that today’s gains become tomorrow’s false hopes … To which I say, “thank God for Wells Fargo!” They’re a virtual Northern Star in the financial fraud firmament. If there’s a cowpie to be found, you can 100% count on them to land on it with both feet, then to solemnly swear that it’s all a simple misunderstanding, followed by singling out a few bad actors, coughing up a billion or two in penalties and promising that they’ve got it all under control now.

I was a bit worried in January 2020 when their former chief was banned for life from working in the banking industry and, again, in February 2020 when they paid a $3,000,000,000 fine “to settle charges of collection fees for bank accounts, credit cards and other products worth millions from customers who didn’t need or request the services.” I was worried that a penalty that large might have gotten their attention in a way that the $185 million fine in 2016, for “opened as many as 2 million unauthorized accounts without customer authorization” didn’t. 5,300 people lost their jobs over that one. In 2017, they paid about $110 million to settle a class-action lawsuit by aggrieved customers. $185 million was clearly just an annoyance since they faced a $1,000,000,000 penalty two years later in 2018 for overcharging for mortgage interest rate-lock extensions “and by running a mandatory insurance program that added insurance costs and fees into some borrowers’ auto loans” (NPR, 4/20/2018). The Federal Reserve was sufficiently appalled by “pervasive and persistent misconduct” that they imposed an asset cap on Wells in 2018, effectively forbidding them to grow assets. In March 2020, both Democratic and Republican staffers in the House of Representatives released reports that concluded Wells still wasn’t following the rules.

So, would a $3 billion fine finally end the long-running Wells show?


In July 2020, Wells agreed to pay at least $175 million to resolve allegations it discriminated against black and Latino homebuyers. And they agreed to pay $142 million to reimburse customers who were harmed when bank employees created unwanted accounts in their names. The Fed lifted Wells’ asset cap in April so that they could help address the economic effects of the pandemic.

They addressed it by finding an unattended cowpie. According to research by NBC News, beginning in March 2020, Wells Fargo began placing their clients into loan or mortgage forbearance programs without their consent. Apparently, the bank’s website had a button on its homepage asking customers if they’d been affected by the pandemic. Customers who clicked on the link, expecting to learn more, soon found themselves enrolled – without knowing it – in a loan forbearance program which resulted in a modification of their credit reports and the potential for impairing their ability to secure loans in the future. The practice affected customers in at least 14 states.

By late July 2020 senators Elizabeth Warren of Massachusetts and Brian Schatz of Hawaii, wrote Wells requesting information and documents about the policy.

The senators’ letter said the bank “appears to be incapable of self-governance,” and noted that reports of borrowers being placed in forbearance programs they did not want “raise even more questions about the inability of Wells Fargo and its leadership team to comply with the law and the needs of its customers.” (Gretchen Morgenson, “Two Senators Demand Answers,” 7/29/2020).

Many index funds but no ESG / sustainable investing funds are among the bank’s top shareholders. MSCI’s ESG rating service places Wells Fargo in the bottom 1% of firms, noting “Wells Fargo’s rating remains unchanged since November, 2016.” Morningstar (7/2020, paywall) inches toward the same judgment, “We rate Wells Fargo’s stewardship as Poor … almost all the old management team and board are now gone [but] progress has been poor, and even new board members were as bad as the previous ones.”

I’m so glad there’s something we can still rely on.


To the folks on the MFO Discussion Board, who’ve kept it lively and (all things considered) remarkably civil in trying times.

To our kind contributors: Wilson, the good folks at S&F Investment Advisors, Sunil (welcome back!), Bill and Fred (not just any old Fred, Fred from Wisconsin Fred!). And to our faithful subscribers, Greg, Doug, David, Brian, Matthew, William, and the other William.

Thanks, too, to the folks in the profession who generously share their research with us. Most notably, that’s Dan Wiener of the Independent Adviser for Vanguard Investors (he’s been pretty dismissive of the Vanguard factor ETFs, none of which have yet matched the performance of the ultra-cheap Total Stock Market Index) and Michael Laske of Morningstar for sharing their daunting complete Monthly Monitoring Report. It’s like snagging a volume of the encyclopedia and settling in for an afternoon read. Both make a real difference, and Dan’s is even fun to read.

The Morningstar Minute

Russel Kinnel, Morningstar’s director of manager research, expressed some surprise this month at how many small funds, those with assets under $500 million, are out there. Umm … just north of 4,000, sir. Some of them are really impressive. Feel free to drop by any month and we’ll tell you about them!

In the first half of 2020, Morningstar added 10 strategies, including three with explicit ESG approaches, to their Prospects list which represent their assessment of up-and-coming funds. They are:

  • American Funds Tax-Aware Growth and Income Series follows a similar process as Bronze-rated American Funds Growth and Income target-risk series, but with an emphasis on maximizing after-tax returns.
  • AXS Aspect Core Diversified Strategy benefits from a seasoned team and unique, quantitative approach.
  • BlackRock Target Allocation ESG Series stands out for only using underlying ETFs that intentionally target securities from companies with favorable ESG characteristics.
  • Calvert Bond is an ESG-focused core fixed-income offering from a leader in sustainable investing.
  • Diamond Hill High Yield benefits from a solid team and an intrinsic value-driven approach.
  • Jensen Quality Value shares the same team and process behind Silver-rated Jensen Quality Growth.
  • Neuberger Berman Municipal Impact is one of only a handful of open-end municipal bond strategies focused on impact investing available to U.S. investors.
  • PIMCO Enhanced Short Maturity Active ESG ETF is a recent ESG launch from a proven investment team.
  • WCM Focused Emerging Markets‘ seasoned stock-pickers have expertly carried out their concentrated growth approach.
  • William Blair Large Cap Growth‘s approach, while not flashy, is consistent and repeatable.

Additionally, eight strategies graduated to full analyst coverage in 2020, including three strategies with environmental, social, and governance (or ESG) criteria. The complete report is available even to those who aren’t subscribers (free registration is required).

And that’s it for August! We’ve got interviews with a half dozen managers set up for this month, including two long-tenured guys in new gigs, Jim Callinan (once of Robertson Stephens and now at Osterweis) and one who I can’t name yet (I promised). More fun. More mischief. And a return to teaching! (Pray for me.)

As ever,

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H.R. Pufnstuf: 10 funds to buy when things get rough.

By David Snowball

Jimmy, Freddy the magic flute and Mayor Pufnstuf (right).

H.R. Pufnstuf was the answer to the question, “Who’s your friend when things get rough?” Pufnstuf starred in a Sid and Marty Krofft cult classic TV show which debuted during “the summer of love” in 1969 and continued in reruns as late as 1999. The show’s theme song assured us that Pufnstuff, Mayor of The Living Island, was “your friend when things got rough” because “he knew just what to do.”

(Take care with clicking on that link. I found myself humming bits of a cheery, half-forgotten, possibly drug-tinged theme song for an hour afterward.)

Jimmy, Freddy the magic flute and Mayor Pufnstuf (right).

In the series, “rough” was mostly occasioned by the evil Witchiepoo rather than interventionist bankers, inconsistent policy-makers, a rapidly mutating virus or a horde of bored new investors learning to day-trade. As little as we like it, we know that even the most brilliantly-managed, risk-conscious fund is going to suffer terrible losses if the market this fall goes to pot. (Sorry, another Pufnstuf joke.) The Great Owls, the funds with the most consistently excellent risk-adjusted returns, as a group dropped between 13% (Akre Focus, Amana Growth, Brown Advisory Sustainable Growth) and 35% (pretty much anything with “small” or “midcap” in its name) within just a couple weeks. The S&P 500 dropped 35%.

So far, those losses have proven fleeting as the fiercest declines in decades were followed by the sharpest rally. Sadly, we can’t count on that sort of rebound in the financial equivalent of “the second wave.” The losses sustained there can play with your mind, quite as much as your portfolio.

The question for us became, who’s your friend when things get rough?

Simple versus Sophisticated

One simple, perennial answer to that question is RiverPark Short-Term High Yield Fund (RPHYX/RPHIX). We profiled RPHYX most recently in 2017. Managed by David Sherman of Cohanzick Asset Management in New York, RPHYX offers an alternative to strategic cash and short-term debt funds. Mr. Sherman famously invests in orphan securities; profitable short-term investments that have very few logical buyers. Called and redeemed high yield bonds are an example. A corporation might issue a 20-year high-yield bond then, as its finances improve, it can “call” the bond; that is, announce to bondholders that it intends to redeem the bond early. That often happens when a stronger balance sheet allows a corporation to find a way out of onerous high-yield debt payments. When a bond is called, shareholders are generally entitled to one final monthly payout before redemption. On whole, high-yield managers would rather get their principal back right now so they can redeploy the cash; the gain for that last lonely payout is inconsequential to them. Mr. Sherman is willing to buy the bond from them, pocket that last all-but-guaranteed payment and redeem the bond.

Currently, he’s able to buy such ultra-low risk, ultra-short-term securities at a yield higher than the yield on a 30-year Treasury bond.

The fund is particularly attractive to investors in an environment with near-zero interest rates since his strategy is not particularly affected by interest rate moves. The Fed funds rate sat at 0.05% in May 2020, its lowest rate ever. That’s not necessarily an anomaly: the Fed maintained a fund rate under 1% for almost nine years, between 2008-2017.

Since inception, the fund has returned 2.97% annually, with returns of 3.41% during the stretch of a near-zero Fed funds rate. The fund has only had three negative quarters (-0.01 to -0.67%) in its history, it’s never had back-to-back negative quarters and its worst-ever drawdown was 1.09%, from which it recovered in a month (per Morningstar).

Its steady rise and minimal downside leaves it with the highest Sharpe ratio of any fund in existence: 2.68 over the past nine years while the next-best fund sits at 1.8. Since its inception, the fund has capture -2% of the S&P 500’s downside, which is to say that it tends to drift up as the S&P is falling. At the end of July 2020, Cohanzick laid out the case for Why this is the Perfect Market Environment for the RiverPark Short Term High Yield Fund. The fund surged to nearly $1 billion when interest rates last stayed this low and the manager closed it to new investors; during the short-lived rise in interest rates, assets migrated out and the fund drifted down to about $700 million. It would be subject to re-closure if renewed inflows jeopardized Sherman’s ability to execute on his shareholders’ behalf.

Another way of pursuing the same goal – low volatility, market-neutral returns – is provided by the MFO Premium fund screener. We looked for “alternative investment” funds that met three criteria:

  1. five-year returns of 2% or more. That eliminated half of all alts funds. While you might think this is an awfully low bar, remember that you’re looking for an option for a potential bear market in both stocks and bonds.
  2. an R-squared of 20 or less, relative to the S&P 500. The goal is to find funds whose returns are unaffected by movements of the stock market. An R-squared under 20 means that less than 20% of a fund’s performance is predicted by how “the market” did.
  3. a maximum drawdown of 10% or less. That’s because it would not be reassuring to choose a fund “for rough times” only to discover that the danged thing occasionally loses 20 or 30% on its own.

Out of a universe of hundreds of alt funds, those three criteria leave us with a list of just 10 possibilities which I’ve sorted by their five-year returns. The highlighted funds qualify as MFO “Great Owls” for having achieved top-tier risk-adjusted returns in all evaluation periods longer than one year.

  Style R2 APR MAX DD
Infinity Q Diversified Alpha  IQDNX Multi Strat 0.16 6.8 -2
Arin Large Cap Theta AVOLX Long/Short 0.04 6.3 -8.4
JPMorgan Opportunistic Equity Long/Short JOERX Long/Short 0.22 4.9 -6.8
LoCorr Macro Strategies LFMIX Futures 0.04 4.4 -8.7
Westwood Alternative Income Ultra WMNUX Mkt Neutral 0.15 3.1 -4.8
JPMorgan Research Market Neutral JPMNX Mkt Neutral 0.03 2.8 -6
BlackRock Tactical Opportunities PCBAX Macro 0.23 2.5 -6.3
Cognios Market Neutral Large Cap COGIX Mkt Neutral 0.07 2.1 -10
American Beacon AHL Managed Futures Strategy AHLYX Futures 0.06 2.1 -9.9
T Rowe Price Dynamic Global Bond RPIEX Macro 0.06 2.1 -3.4

Infinity Q Diversified Alpha  (IQDAX) launched in September 2014, but it is run side-by-side with the firm’s older hedge fund. Like many hedge funds, the mantra is “we can do anything! Let’s see what works.” To describe the mutual fund as “an after-thought” is about fair. The fund’s website is virtually empty, the “investor shares” minimum is $100,000 and the expense ratio is 2.46%.

Arin Large Cap Theta (AVOLX) likewise. High minimum with a website that was out-of-style in 1994.

JPMorgan Opportunistic Equity Long/Short (JOERX) launched in 2014, with Rick Singh, a former hedge fund manager, at the helm since inception. Mr. Singh invests, long and short, in mid- to large-cap stocks based on his assessment of their valuation. He’s got the freedom to range from -30% market exposure – where the market falling by 10% would automatically boost his returns 3% – to 80%, with his next exposure last year being under 60%. His hedging has been successful enough that the fund’s bear market deviation is around 4%. It has a $1,000 minimum and a 2.3% expense ratio.

LoCorr Macro Strategies (LFMAX), a managed futures fund, launched in 2011. Managed futures work so well on paper; that vast majority of them crash-and-burn in practice. LoCorr, so far, has held on. In general, managed futures strategies identify a number of distinct asset classes then flip the switch to either invest in the asset class, or short it, depending on a variety of technical measures. The strategy here is to employ three different specialist sub-advisors, each of whom has their own strengths and specific approach. So far, their down years have seen losses of about 5% while their up years average a bit more than that. $2,500 minimum with 2.25% expenses.

Westwood Alternative Income Fund (WMNAX) launched in 2015. It uses a convertible arbitrage strategy, which sort of translates to “it buys convertible bonds issued by Company X then simultaneously shorts the common stock of Company X,” leaving it with modest, market-neutral gains. The expense ratio is just 0.77%, the investment minimum is $1,000 and the sales charge is avoidable.

JPMorgan Research Market Neutral (JMNAX) is a long-short equity fund with an 18-year track record. Most long-short funds are long-biased; that is, they act as if 60% of their portfolio is invested in stocks. That’s a fine idea of you’re competing with a 60/40 hybrid fund but less wise if you’re trying to free yourself from the effects of the market altogether. With an R-squared of just 3, JPMorgan manages that. The fund is a low minimum and it’s relatively easy to get around the sales charge; sadly, it also sports a 3.4% expense ratio. In effect, 60% of the manager’s gains are eaten by overhead expenses.

BlackRock Tactical Opportunities (PCBAX) has two words for you: “Trust us.” PCBAX is a multi-strategy hedge fund for the masses. And it is, on whole, really quite good. It’s overall correlation to the stock market is minimal and its beta is negative; that is, it tends to rise when the market falls. That might imply that it falls when the market rises which isn’t the case: over the past three years, the fund has returned 4.7% annually or just under half of the stock market’s return while harvesting virtually none of its losses. The key caveat is that the fund’s strategy changed in 2016, from tactical allocation to a focus on avoiding market risks. As a result, it’s long track record – dating back to 1988 – is largely irrelevant. That said, BlackRock is a multi-trillion manager. $1,000 minimum and 1.1% expense ratio.

Cognios Market Neutral Large Cap (COGIX) is a solid long/short fund with a market-neutral mandate and a distinctive strategy. They try to construct a “beta neutral” portfolio, which means that the size of the short portfolio is adjusted so that it contributes the same beta as the long portfolio. That allows, they believe, a more truly market-neutral portfolio. In consequence, they’ve never lost more than a fraction of one percent in a year and frequently post annual gains of 4-6%. You might review our 2016 profile of the fund for details. $1,000 minimum and 1.8% expense ratio after substantial waivers.

American Beacon AHL Managed Futures Strategy (AHLPX) is another managed futures fund. AHL is a British hedge fund firm whose parent company was founded in 1783. They use a quantitative system to toggle between long and short positions in commodities, equity, currencies, and fixed-income. Curiously, 2020 is the strongest performance since launch: they’re up 5.6% through the end of July.  $2,500 minimum and 1.9% expense ratio. American Beacon no longer sells directly to the public, so interested parties would need to work through a fund supermarket. That’s why Morningstar flags the fund’s availability as “limited,” which is usually a euphemism for “soft-closed.”

T Rowe Price Dynamic Global Bond (RPIEX) is one of a series of hedge-fund-like offerings that Price has been adding as the broad markets become less reliable. It’s a high turnover, go-anywhere fixed income fund with the ability to hedge currency and interest rate risks. The goal is “attractive” returns each year while “outperform[ing] equities and high yield in periods of market stress.” Low cost, low minimum, first-rate parent. The manager, Saurabh Sud, is a PIMCO alumnus who helped manage their Credit Opportunities fund.

Bottom Line

If I were really quite anxious about the prospects for the second half of 2020, where would I consider investing? I have had a position in RiverPark Short Term High Yield, nearly since the fund’s inception. I would be most comfortable looking at the offerings from Westwood, BlackRock, Cognios, and T. Rowe Price.

I would read rather a lot about managed futures strategies before considering either LoCorr or American Beacon. While these funds are both doing a fine job, their records are short and the same strategy in other hands has blown up with some regrettable consistency.

The two JPMorgan funds bear watching. Mr. Singh has done a very fine job though I would want to better understand his hedging since it’s challenging to reconcile a 60% net equity exposure with market-neutral performance. The Market Neutral fund’s expense ratio is troubling.

The bottom of the bottom line: get comfortable now with how your portfolio might perform over the next six months. While many starry-eyed day traders and shills see nothing but rainbows and unicorns, rather a lot of serious managers are deeply disquieted. Laura Geritz, principal of the Rondure Funds and former Wasatch manager, offered a powerful warning in her most recent letter to shareholders:

This hot, hot, hot market reminds our team of their interactions with their children and in the endeavors to teach our children about the risks and danger from the hot gas stove. Currently, when they walk by the stove, they will stick out their hands and parrot, “hot, hot, hot.” While they are able to … repeat the words we’ve tried to teach, they are failing to understand the connection to the consequences that will inevitably come … [when] there will be many, many tears.

It’s becoming more common to hear our friends and others talk about investing. The thing is, they often parrot some nugget or cliché of investing – calling out “hot, hot, hot” but their actions belie their understanding.

“Invest in what you know” … they either put all their investible assets into a single stock or daily/weekly rotate through Apple, Facebook, Tesla, Nikola, Google, Nio, and Microsoft. They don’t invest in what they know, they trade what they know – valuation agnostic.

And there will be many, many tears.

Between here and the end of the world: Ten things to know

By David Snowball

In the spring of 2019, MFO ran a two-part series on the investment implications of climate change: The Investor’s Guide to the End of the World and The Investors Guide to the End of the World, Part 2: Concrete advice. The former laid out the scientific consensus behind the human role in climate change and explained the four ways in which even the broad perception of climate change would affect your portfolio through a combination of physical, biological, regulatory, and reputational risks. We finished with three investment strategies (divest, invest, innovate) and two fund recommendations: Brown Advisory Sustainable Growth Fund (BIAWX) and Green Century Balanced (GCBLX). Since then, Brown returned 27% (versus 7% for its peers) and Green Century made 8.8% (versus 4% for its peers).

Our second article reviewed the investing recommendations of three major firms: BlackRock, the world’s largest investor, GMO and Morningstar.

This month we wanted to offer a short, research-based update. The first four updates concern the state of our understanding of the science of climate change. The remaining six look at the investment options and implications.

  1. The world may have already passed peak CO2 production.

    “Climate researchers increasingly believe 2019 may represent the world’s peak output of carbon dioxide, with a combination of the coronavirus pandemic and a rapid expansion of renewable energy putting a cap on emissions years earlier than expected.

    ‘The milestone would signal a significant shift for the planet, ending decades of runaway emissions growth and signaling the beginning of a new chapter where CO2 levels start to fall.

    ‘It really shows us how close we are to turning this corner,’ said Kim Cobb, a professor of earth and atmospheric science at Georgia Tech and the director of the Global Change Program.”

    (Benjamin Storrow , “Global CO2 has risen for a century. That appears to be over,” E&E News, 6/1/2020)

  2. The current “worst case” projections are less apocalyptic than they once were.

    “…the plateauing of carbon emissions is encouraging for several reasons. First, it suggests some dire scenarios by the U.N.’s Intergovernmental Panel on Climate Change—previously seen as inevitable, absent dramatic government action—are actually pretty unlikely. Second, it gives the world more breathing room to figure out how to decarbonize faster.”

    (Greg Ip, Coronavirus Is Buying Time on Climate Change. Will We Make Use of It? paywall, Wall Street Journal, 5/28/2020)

    Sadly, the same thing is true of the “most hopeful case.”

    “A team of 25 scientists from around the world published, July 22 in Reviews of Geophysics, [research that] showed that the planet would most likely warm on average between 4.7 degrees Fahrenheit and 7 degrees Fahrenheit (2.6 degrees Celsius and 3.9 degrees Celsius) if atmospheric carbon dioxide were to double. … that’s much smaller than prior estimated range of 2.7 and 9.1 degrees Fahrenheit (1.5 and 4.5 degrees Celsius) that had been the reigning benchmark for decades.

    The new, narrower estimate for climate sensitivity has huge implications, not just for climate science, but for how humanity prepares for a warming world. It shows that the worst-case-scenario is not as dire as previously thought, but also that the best possibilities are still quite grim. In particular, it means that it will be almost impossible to hit the main target of the Paris climate agreement, limiting warming to less than 2 degrees Celsius (3.6 degrees Fahrenheit) this century, by chance; it will require aggressive action to reduce emissions with even less margin for delay.”

    (Umair Irfan, “Scientists have ruled out the worst-case climate scenario — and the best one too,” Vox, 7/31/2020)

  3. The scientific consensus on the human role has now reached 100%.

    “Scholars responded to the controversy by surveying the opinion of scientists. The results of eight such studies conducted between 2009 and 2015 showed a consensus on AGW ranging from 83.5% to 97%. But given the ingrained caution of scientists and their reluctance to affirm findings outside their own field, opinion surveys are likely to underestimate the consensus. The consensus among research scientists on anthropogenic global warming has grown to 100%, based on a review of 11,602 peer-reviewed articles on ‘climate change’ and ‘global warming’ published in the first 7 months of 2019.”

    (James Powell, “Scientists Reach 100% Consensus on Anthropogenic Global WarmingBulletin of Science, Technology & Society, 11/29/2019)

  4. The pandemic has had a dozen impacts, good and bad, on the global climate and efforts for climate change management.

    “As a result of the lockdowns around the world to control COVID-19, huge decreases in transportation and industrial activity resulted in a drop in daily global carbon emissions of 17 percent in April. Nonetheless, CO2 levels in the atmosphere reached their highest monthly average ever recorded in May — 417.1 parts per million. This is because the carbon dioxide humans have already emitted can remain in the atmosphere for a hundred years; some of it could last tens of thousands of years.

    Beyond carbon emissions, however, COVID-19 is resulting in changes in individual behavior and social attitudes, and in responses by governments that will have impacts on the environment and on our ability to combat climate change. Many of these will make matters worse, while others could make them better.”

    (Renee Cho, “COVID-19’s Long-Term Effects on Climate Change—For Better or Worse,” Earth Institute / Columbia University, 6/25/2020).

    Two points that Ms. Cho makes clear: (1) the substantial reduction in CO2 this year is close to inconsequential and (2) managing the pandemic might restore the citizens’ faith in science and in working today, and raise their caution about grandstanding politicians.

  5. There are prospects for widespread financial failures in fossil fuel extraction companies.

    “The fossil fuel system is being disrupted by the forces of cheaper renewable technologies and more aggressive government policies. In one sector after another these are driving peak demand, which leads to lower prices, less profit, and stranded assets. The COVID-19 crisis is now accelerating this.

    Our analysis finds falling demand, lower prices and rising investment risk is likely to slash the value of oil, gas and coal reserves by nearly two thirds, increasing the risk and likelihood of stranded assets.”

    (Decline and Fall: The Size & Vulnerability of the Fossil Fuel System, 6/4/2020)

  6. There is a huge amount of money to be made in post-carbon economy investments.

    “The low-carbon economy is emerging as a major U.S. employer, though COVID-19 is threatening that progress. In the power sector, zero-emissions generation like solar and wind was responsible for about 544,000 jobs in 2019, more than twice as many as the 214,000 jobs in fossil fuel generation. $1 million spent on clean energy in the United States generates more than twice as many jobs as $1 million spent on fossil fuels in the short- to medium-term.

    Emphasis on low-carbon technologies can help the United States to boost its manufacturing sector and secure a share in the booming domestic and global cleantech market. The U.S. advanced energy industry generated $238 billion in revenue in 2018, about 15% of the global total. That’s roughly equal to that of aerospace manufacturing and double that of the biotechnology industry.”

    (Devashree Saha and Joel Jaeger, America’s New Climate Economy, July 2020)

    Some analysts, by the way, believe that this will be another driver favoring the dominance of growth investing over value, since these advances will likely most benefit fast-growing tech companies.

  7. ESG-screened funds, on whole, outperformed during the 2020 turbulence.

    “Earlier this year, Morningstar published a wealth of research on the nexus between ESG and risk. One study, “ESG Indexes Protect on the Downside,” concluded that 72% of Morningstar equity indexes that incorporate ESG screens lost less than the market during down periods for the five years through the end of 2019. It also found that the ESG indexes are more likely to select companies that are competitively advantaged and financially healthy, which undoubtedly contributed to their ability to reduce volatility.

    Obviously, much has changed in markets since the end of 2019. The rapid, violent sell-off in first-quarter of 2020 offers an excellent follow-up opportunity to look at the performance of our ESG-screened indexes. We found that 51 of Morningstar’s 57 ESG-screened indexes, or 89%, outperformed their broad market equivalents in the first quarter of 2020. This is consistent with the conclusions that Morningstar director of sustainability research Jon Hale outlined in his article, ‘Sustainable Equity Funds Are Outperforming in the Bear Market.’”

    (Dan Lefkovitz, “How Did ESG Indexes Fare During the First Quarter Sell-off?, 4/8/2020).

  8. The number of ESG-screened choices is huge and rising.

    Investors have a choice of 623 “socially conscious” funds and ETFs. Nearly 10% of those have been launched in the past year. New ESG funds are being registered at the rate of about five a month.

  9. ESG funds represent two fundamentally different impulses: doing no harm versus making a difference. The former are generally designated as “ESG-screened” funds, the latter as “impact funds.”

    “Impact funds are often focused on specific themes, such as low carbon, gender equity, or green bonds (which fund new and existing projects with environmental benefits).”

    Karen Wallace, “Interested in Sustainable Investing? Here’s What You Need to Know About Sustainable Funds,”, 2/11/2020).

    In some cases, “impact funds” are willing to accept somewhat lower short-term returns, especially in the case of bond impact funds, in exchange for fostering social or environmental goals supported by their investors.

  10. There are great free tools to allow you to look before you leap.

    Morningstar’s sustainability assessment of equity funds is available on every fund’s portfolio page. Here, for example, is Fidelity Contrafund (FCNTX).

    MSCI recently made access to their ESG rating system available for thousands of funds and stocks. Where Morningstar’s ratings are titled toward environmental sustainability, MSCI’s offer a balance of factors. Here’s the top of their Fidelity Contrafund report.

Investing in the Coming Decade

By Charles Lynn Bolin

I listened to Peter Navarro’s lecture, “The Modern Scholar: Principles of Economics: Business, Banking, Finance, and Your Life” (2005) on a recent return flight to the U.S. The discussion on budget deficits was timely. The planes, airports, and hotels had very few travelers. The hotel shuttle to the airport was not running. Coronavirus cases are increasing with vaccines not expected until early 2021. For reasons described in this article, I reduced my exposure in July for stocks from 25% to 20% by trading higher-risk funds that have risen this year for less popular funds such as value as well as funds to reduce downside risk.

This isFelix. She made numerous edits to this article for me.

Source: Felix

In Conservative Portfolios of Funds for This Bear Market last March, I explained my approach to investing according to the business cycle. This article describes how I am shifting from a “returning to growth” scenario to a more defensive one. My sentiment for the month comes from the investment team at Wealthspire Advisors in Another Ride on the Roller Coaster?, who wrote the following statement:

“…you have enjoyed a ten-year bull market and can now meet your financial goals while taking less market risk… Deciding to de-risk now, after the market rebound, is much more tenable than doing so earlier in the year. If your first trip on the roller coaster was not an enjoyable one, you are not obligated to withstand a second ride.” –  

Seeking Safety in Portfolios

As the markets recovered this year and coronavirus cases began increasing, I exchanged riskier funds such as growth, retail, telecommunications, pharmaceuticals, emerging markets, clean energy, and real estate for lower-risk funds such as those shown in the following table.  

Table #1: Defensive and Conservative Funds – YTD

Created by the Author Based On Mutual Fund Observer

The following chart shows gold, the Vanguard LifeStrategy Income Fund, and Hussman Strategic Total Income Fund compared to the S&P 500 following the start of the 2007 bear market. It took 5 years for an investment in the S&P 500 to get back to even from October 2007, and another year to surpass the conservative funds.

Figure #1: Fund Performance Oct 2007 – Aug 2013

Buy “Low, Sell High” or “Let Your Winners Ride”?

The following figure from Fidelity shows the winners and losers since March. If we are in a growth mode then “Letting Your Winners Ride” may be the best strategy. If the recession is going to be more protracted than many realize then it may be best to “Sell Your Winners” and buy the laggards. The second quarter Gross Domestic Product fell 9 percent compared to a year ago. The latter is my preferred option and I have sold “Large Growth” and added a Europe Fund and more “Value” Funds.

Figure #2: Fund Performance since March

The Bucket System

Investors use the Bucket approach to match market risk with withdrawal needs. I use a four Bucket Approach based on the Ulcer Index with “1” having the risk of money markets and short term treasuries and “4” having the risk of the S&P 500 or higher. Rank in the table refers to my Ranking System where 100 is the best and zero the worst. Rank is based on risk, risk-adjusted return, income, momentum, and quality factors. To reduce risk in July, I shifted funds from Bucket #4 to safer buckets. For diversification purposes, I have a bucket set up for International/Global Bonds and one for International/Global stocks. I have a separate bucket for Income because high-income funds usually come with their own set risks. Finally, I have two buckets set up to track the business cycle as “Inflation” and “Defensive”. The following table shows the automated results of about a thousand funds extracted using Mutual Fund Observer for the top Lipper Category for each of the buckets. By comparison, the Ulcer Index of the S&P 500 is 6.2 and the Martin Ratio is 1.1. As a general observation, the top-rated funds have an Ulcer Index less than the S&P 500 and a Martin Ratio close to 1.0 or higher. The detailed results of my Ranking System can be found in Mutual Fund Observer July 2020 Update at Seeking Alpha and the July update will be posted next week.

Table #2: Top Ranked Lipper Categories since January 2018

Created by the Author Using Mutual Fund Observer

Current Investment Environment

According to an Axios poll, Americans are beginning to realize that coronavirus is going to be around for a while. I think it is a matter of time before this sentiment is reflected in the markets.

This week’s poll findings suggest that Americans are grappling with the reality that the virus isn’t going away anytime soon.

According to the Federal Reserve Bank of Philadelphia’s second-quarter Survey of Professional Forecasters, labor markets and the economy are unlikely to return to 2019 levels until 2022 or later as shown in the table below.

Table #3: Economic Forecasts

Source: Federal Reserve Bank of Philadelphia

The price that investors are paying for a dollar of earnings (P/E) has increased to 28 as shown in the following figure.

Figure #3: Price to Earnings Ratio

Source: Stockcharts

Price to earnings ratios are biased by the effects of the business cycle and share buybacks. In the figure below, I show market capitalization (purple), consumer spending (PCE, green), and corporate profits (red). Quantitative Easing has inflated asset prices since 2012 while profits have been declining.

Figure #4: Profits (red), Consumer Spending (Green), Market Value (Purple)

I created the following chart at the St. Louis Federal Reserve FRED website to measure valuation. The green line is Warren Buffet’s favorite indicator of the stock market capitalization to the gross domestic product which some investors don’t like because companies have become more global. The Orange line is market capitalization divided by profits which the same investors may not like for the same reason. The Blue line is Tobin’s Q Ratio of Capitalization to Replacement Value. These metrics show valuations are high historically.

Figure #5: Stock Market Valuations

Created by the Author Using St. Louis Federal Reserve FRED

The following chart is from Liz Ann Sonders at Charles Schwab, “Running on Faith: Are Stocks Discounting Too Powerful an Earnings Recovery?” The chart shows that the market capitalization of Apple, Microsoft, Amazon, Google, and Facebook now represent nearly 23% of the S&P 500 market capitalization. Seriously?! One percent of the companies in the S&P 500 has a market capitalization of 23%. Seriously?! I don’t take comfort that the P/E of these 5 companies is only 60% of the 2000 peak.

Figure #6: Market Weight of Top Five Stocks

Insured unemployment is over 16 million people, and more companies filed for bankruptcy in the first half of 2020 than any year since 2012. This includes large companies such as well-known names like Hertz, Latam Airlines, Frontier Communications Corp, Intelsat, McDermott International, JC Penney, and Neiman Marcus.  

The following figure shows that banks are tightening lending standards and delinquency rates are rising. Financing by riskier companies and individuals will become more difficult or expensive. Note also the decline in private investments. Credit finances economic growth, and tighter credit will dampen economic growth.

Figure #7: Banks Tightening Lending Standards and Delinquencies

Created by the Author Using St. Louis Federal Reserve FRED

Federal Debt is nearly $24 trillion and the interest payments to finance the debt is nearly 600 billion dollars per year! Interest payments as a percentage of GDP are rising, but not near the levels of the 1980s.  

Figure #8: Federal Debt vs Interest Payments

Created by the Author Using St. Louis Federal Reserve FRED

The stimulus is likely to keep interest rates low for years. The velocity of the money supply and price pressures probability indicate that near-term inflation is likely to remain low and deflation is more likely than inflation. The falling value of the dollar and de-globalization may impact this in the longer term, raising concerns of stagflation.

With spare time traveling, I read 10 Major Investment Implications (and 32 charts!) of a Weak US Dollar by Bryce Coward of Knowledge Leaders. He makes a strong case for the dollar weakening further because the federal deficit is increasing as a percent of GDP and the Federal Reserve increasing money supply faster than the European Central Bank, among other reasons.  

Figure #9: the US and Eurozone Money Supply Growth

What this implies is a leadership change in markets, and I list Mr. Coward’s key takeaways:

  • Technology, which has been THE leadership group over recent years, is highly unlikely to continue to lead if the USD weakens on a secular basis
  • Areas of the equity market where investors are most underweight (value, international, smaller companies, EM) tended to do the best in a falling USD environment
  • Hard assets outperformed stocks in falling USD periods
  • Credit outperformed stocks in falling USD periods

An article from Fidelity points out the falling dollar may reflect investors’ views that international stocks, where coronavirus is more contained, may outperform US equities in the near term.

Secular Trends  

Lance Roberts provided the following figure in The Odds Are Stacked Against Investors In A Post-Covid Economy that shows that since 1871, the stock markets have returned a steady history of growth when adjusted for inflation. Using the S&P 500 Return Calculator, stock markets would have had approximate annual returns of 4.5% nominally or 9% with dividends reinvested since 1871, or 2.4% after inflation and 6.9% with dividends reinvested. The decades-long periods where the markets are falling are known as secular bear markets while the long periods when the market is rising are known are secular bull markets. US markets are currently well above the regression trend suggesting a long period of low returns will follow.  

Figure #10: Inflation-Adjusted Stock Market

Source: Real Investment Advice, Lance Roberts

Earnings per share are highly dependent upon the business cycle and so they are often adjusted to reflect longer-term trends which are referred to as cyclically adjusted price to earnings (CAPE) ratio. Mr. Roberts shows the inflation-adjusted market prices and the CAPE ratio since 1871. The cyclically adjusted price to earnings ratio is currently at historical highs. Two of the reasons for this are asset price inflation (high valuations) due to quantitative easing and low-interest rates.  

Figure #11: Inflation-Adjusted Stock Market, CAPE, and Reversions 

Source: Real Investment Advice, Lance Roberts

Ed Easterling at Crestmont Research shows the expected 10 year returns based on starting valuations at the beginning decade. This decade is starting with a historically high cyclically adjusted price to earnings ratio. The implication is that returns over the coming decade are likely to be in the low single digits or even negative. For more information on Market Valuations by Ed Easterling, I suggest reading Crestmont Market Valuation Update: June 2020.

Figure #12: Rolling 10 Year Stock Returns vs Starting P/E

Source: Crestmont Research

John Hussman Ph.D. and President of Hussman Econmetrics Advisors, in Fundamentally Unsound shows that according to the relationship of market capitalization to Gross Value Added that the historical relationship points to negative returns over the next 10 years.

Figure #13: 10 Year Stock Market Returns vs Gross Value Added

Source: Hussman Strategic Advisors

S&P 500 earnings for the second quarter are estimated to be more than 50% below those one year ago. The price to earnings ratio based on the second quarter is over 30 based on operating earnings. Including the CAPE and P/E, all five valuation methods show the market is highly valued.

Lessons from the Current Secular Bear Market

During the past 25 years since 1995, the Vanguard Wellington with about 60% stock and 40% bonds has performed as well as the S&P 500 (left), but with less volatility. Vanguard Wellesley with about 40% stock has done well. The link to Portfolio Visualizer is provided here. If you change the starting year to 1998 (right) to exclude the run-up to the Technology Bubble then the Vanguard Wellesley performed as well as the S&P 500 due to losing less during the recessions.

Figure #14: 25 Year Vanguard Mixed Asset Returns vs S&P 500

Created by the Author Using Portfolio Visualizer

The next chart shows the S&P 500 compared to international and global funds. For long periods, the S&P 500 has over or underperformed international markets. The US stock market has over-performed international markets for much of the past decade and valuations are higher in the US suggesting that some exposure to international markets may be prudent.

Figure #15: International Returns vs S&P 500

Created by the Author Using Portfolio Visualizer

Portfolio Strategies that Manage Risk

How do you manage risk? Graham suggested in The Intelligent Investor a guiding rule that the investors should never have less than 25% nor more than 75% of their money in stocks. Warren Buffet is a value investor who builds up cash as valuations rise as shown by Lance Roberts. Institutional investors have been increasing cash as well.

Figure #16: Berkshire Cash Holdings

Source: Real Investment Advice, Lance Roberts

As a simple example of managing risk, the chart below is based on switching allocations to Vanguard stock, bond, and mixed asset funds to maximize return for maximum volatility of 10% (red line). Over the past 25 years, it has returned as much as the S&P 500, but without the volatility. The link to Portfolio Visualizer Rolling Portfolio Optimization is provided here. Last month, I celebrated my birthday working internationally. At 65 years of age, the average life expectancy of a male is 84 years. Downturns matter to retirees, but also raise the risk to those who may need access to savings.  

Figure #17: Maximum Return of Vanguard Funds @ 10% Volatility

Created by the Author Using Portfolio Visualizer

Figure #18 shows the changes in investments for the same scenario. Allocations don’t change much except during recessions.  

Figure #18: Asset Allocation for Maximum Return of Vanguard Funds @ 10% Volatility

Created by the Author Using Portfolio Visualizer

Table #4 shows the statistics for the above scenario, a buy and hold strategy of equal proportions, and the S&P 500.  

Table #4: Managed Volatility Strategy vs S&P 500

Description CAGR Stdev Max. Drawdown Sharpe Ratio (ex-post) Sortino Ratio
Maximum Return at 10.00% Volatility 7.6% 7.7% -16.4% 0.73 1.08
Equal Weighted 7.1% 6.9% -24.4% 0.74 1.11
Vanguard 500 Index Investor 8.2% 15.3% -51.0% 0.46 0.66

Source: Created by the Author Using Portfolio Visualizer

Investment Model

Over the past ten years, I built an investment model as described in Rules-Based Investing – Rule #4 Pursue Investments Appropriate for the Business Cycle and Long Term Trends. The goal is to change allocations to stocks and bonds based on risks and returns measured in the business environment. One view of the model is shown below which represents allocations to stocks, bonds, and cash. The model began increasing allocations to cash and bonds in early 2018. The model also allocates up to 10% of the portfolio in defensive funds (red). The model is intended to reduce risk while keeping risk-adjusted returns high. It returned 9.9% while the S&P 500 returned 9.8% over the same time period. These funds are listed at the beginning of the article including gold but don’t necessarily include bearish funds such as inverse funds.  

Figure #19: Author’s Investment Model Allocations

Source: Author


Stock markets typically go up before presidential elections. My investment strategy at this time is to make modest returns with limited downside exposure until the recession has ended and there is a resolution of coronavirus. I believe there will be more attractive buying opportunities for US stocks in 2021 or 2022.  


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

Value investors unite!

By David Snowball

Value investing – the simple notion that it’s not a good idea to overpay for the stuff you buy – makes enormous intuitive sense. Two indisputable facts about value investors:

  1. In the long run, they crush growth investors

    A July 2020 research note from the Bank of America reports that “from 1926 to now, value investing has handily outperformed growth investing, notching a gain of 1,344,600% versus growth’s gain of 626,600% over that same time period” (Matthew Fox, “Value investing has been ‘broke’ since 2007,” Business Insider, 7/14/2020

    As recently as the end of 2018, the since-inception record (1992-2018) for Vanguard Value Index (VIVAX) still trumped Vanguard Growth Index (VIGRX).

  2. It hasn’t been “the long run” for a long time.

    Since emerging from the Global Financial Crisis (2007-2009), growth stocks have been on a tear often led by a small group of stocks whose valuations could be justified only if you assume that their corporate growth will extend unbroken for between 50-250 years. To get a sense of the magnitude of the divergence, I used to screener at MFO Premium to find both the best fund and category average in value and growth for the past 10 years.

    10-year Value Gap 10-year Growth
    Smead Value SMVLX 12.8% Average: 10.1 760 bps Invesco QQQ Trust 20.4% Average 16.2%
    WisdomTree US MidCap Dividend DON 11.3% Average: 8.7 980 bps T Rowe Price New Horizons PRNHX 21.1% Average 14.1%
    SPDR S&P 600 SCV ETF 10.9% Average: 7.2% 600 bps Wasatch Ultra Growth WAMCX 18.9% Average 13.2%

    It’s painful enough to note that the best growth fund in each size crushed the best value fund by 600-1000 bps.

    It’s more painful to note that the average, run-of-the-mill, no-possible-reason-to-own-it mediocre growth funds beat the very best value fund in its size category by 600 bps in the same period.

    Things have only gotten worse during the coronavirus pandemic with absolutely historic divergences of 2,000 bps between growth and value. Research Affiliates now tags the growth – value divergence at being at the 100th percentile; that is, there has never been a more extreme split between the two (Rob Arnott, et al, The reports of the death of value may be greatly exaggerated, May 2020).

Value investors, especially dedicated value boutique firms, have suffered tens of billions of outflows, enough to threaten the survival of some small- to mid-sized firms. That’s especially troubling for a couple of reasons.

First, value investing’s absolute returns have been perfectly respectable. Booking 10% annual returns, which was easily achieved in all three value sizes, is exactly in-line with the returns of the US equity market over the past century. It’s only the dizzying returns available from growth strategies that make it look unattractive.

Second, value is quite capable of crushing growth in the decade ahead. One of our worst cognitive biases is assuming that the future is here; that is, we project whatever we’re experienced right now and assume that it will continue unabated.

Mr. Arnott of Research Affiliates argues that “the stage is set for potentially historic outperformance of value relative to growth over the coming decade” (May 2020). Their research on “broken asset classes” (June 2020) – that is, stuff written off for dead – concludes that value might outperform growth by 13-15% a year for much of the decade. The chief strategist for Bank of America (July 2020) offers seven reasons why value might surge, offering the 95% prospect of a substantial period of substantial value dominance.

The key is making sure that there are first-class value investors available to you so that you have the opportunity to profit from that turn.

FPA and Queens Road have entered a promising partnership to help guarantee it.

On July 30, 2020, the two announced a strategic partnership for FPA to oversee and market the Queens Road Funds and related institutional separate accounts. Two related developments:

  • both Queens Road Funds will plan to offer an institutional share class with materially lower expenses with the goal of offering “below average” expenses in the Morningstar institutional class categories
  • FPA Capital Fund will be merged into the new Queens Road Small Cap Value institutional class once the Queens Road funds have migrated to the FPA platform. As many as possible of Queens Road’s investors will be shifted to the lower-cost institutional classes.

Who wins from this integration? Off-hand:

These really are famously good!

Queens Road wins. Manager Steve Scruggs and his team have a remarkable track record of 18 years, consistently offering solid returns paired with some of the best risk scores for any fund in their category. Nonetheless, they’ve gotten little traction in the market which keeps them from being able to develop the economies of scale that would benefit their investors. Both the strength of  FPA’s institutional relationships and the inflow from the FPA Capital merger will help reverse that. And they believe that their styles and cultures are well-aligned. Mr. Scruggs noted, “we declined numerous offers from other firms who wished to partner with us. But when FPA suggested working together, we were immediately interested. We have followed FPA for several decades, and similarly embrace a long-term, value-oriented approach, capacity discipline, and shareholder focus.”

FPA wins. With the spin-off of their two international and world funds to Polar Capital completing later this year, closing FPA New Income (FPINX) to new investors, and eventually merging away FPA Capital, FPA is creating on-hand administrative and marketing capacity. The addition of the Queens Road funds allows them to use that spare capacity to generate additional visibility and assets. It also offers attractive options to FPA investors who might be growing concerned that the FPA lineup is thinning.

FPA Capital shareholders win. In the merger with Queens Road Small Cap Value, they move from a closed, underperforming fund that charges 0.92% to a really first-rate fund that will be charging 0.89%.

Other small, value-oriented managers win. To be blunt, the “go it alone” approach is a disaster waiting to happen. The long-term survival of independent managers is in the hands of two groups: professional advisors and online supermarkets such as Schwab and Fidelity. Neither group is hospitable to small, independent operations; both want to see hundreds of millions in assets, which demonstrate “viability,” before even engaging. But the hundreds of millions are almost impossible to secure without the active support of professional advisors and online supermarkets.

The ability to join with like-minded managers in an arrangement that maintains the independence of the teams while creating a critical mass of resources seems vital, especially now. In some ways, it was pioneered by Steve Romick’s own decision to bring his Crescent Fund to FPA in 1996 and is comparable to the highly-successful model used by Artisan to aggregate and support – but not constrain – “category killing” management teams under the Artisan umbrella.

For the benefit of interested parties, the Observer published an updated profile of Queens Road Value in July 2020 and we’re publishing a short profile of Queens Road Small Cap Value in this issue, August 2020. They are both exceptional funds, well worth your interest.

“He said what?”

By Edward A. Studzinski

“Why shouldn’t things be largely absurd, futile, and transitory? They are so, and we are so, and they and we go very well together.”

George Santayana, in a letter to Logan Pearsall Smith (24 May 1918) in The Works of George Santayana: The letters of George Santayana 1910 – 1920 (2002), p. 319

Another month of strong market performance. Another disconnect to what is going on in the domestic economy. For the month of July, the S&P 500 ground out a 5.5% gain. However, once you set aside the strong results of the large technology stocks, results in other sectors are clearly mixed. And that would appear to be true of both international and domestic markets.

The bigger concern of course is the contraction seen in the domestic economy, which is unparalleled even including the Great Depression. An article in the Chicago Tribune a few weeks ago indicated that some 4000 plus small businesses had closed in Illinois since the beginning of the pandemic (“From museums and restaurants to law firms and supermarkets, thousands of Chicago-area businesses got PPP loans worth $1 million or more,” 7/7/2020). More sobering was the estimate in the same article that roughly 50% of them would never reopen. Today’s Wall Street Journal (8/1/2020, paywall) floated an estimate that as many as 4 million small businesses could be lost entirely this year. Contrary to popular belief among politicians, Washington beltway insiders, and the denizens of Wall Street, small businesses are what drive growth in this country, so that is troubling for the future. Five years of economic growth have been wiped out. For those concerned that a strong economy in the hinterlands would lead to political results they did not favor, they have gotten their wish.

Carnage in Fund Land

David Snowball reports, monthly and at length, about some of the closures and restructurings going on in Fund Land. What is driving them? At the end of the day, it comes down to egos and greed. Obviously, the fact that many active managers have failed to keep up with their benchmarks has raised issues as to what one is getting in return for the fees being paid.

Senior executives at many firms see the handwriting on the wall.

However, as with icebergs, what is going on beneath the surface should be of more concern. The best explanation I can offer is that the senior executives at many firms see the handwriting on the wall. The business model that they thought was sustainable for their economic prosperity has ended or is winding down.

We have heard of one large firm in San Francisco which is a partnership where the partners buy in or are bought out at book value of the business. If assets under management, as a result of redemptions and market declines are down, then book value is down. If you were a partner scheduled to leave this year, you are not happy about the haircut your capital account is taking, so you drag your feet on retiring. The younger group, who think it should be their turn to step up, are not happy about being held back.

Variations on this are occurring around the country. In Boston at one large firm, if your retirement payout again is tied to the growth of the business over the next ten years, but not for the last five years of your fifteen-year payout, then your plans for retiring to Bar Harbor or the south of France, perhaps are put on hold or downgraded. The same is true at firms where there are unfunded deferred compensation plans as a retention benefit in a corporate holding company structure, except when the corporation decides that there is no reputational benefit to retaining underperforming fund managers.

225 funds and ETFs were either liquidated or merged out of existence in the first six months of 2020; the pace of liquidations – and the willingness to liquidate after just a year or two in operation – ticks steadily upward.

I am going to leave this by saying that there is going to be a continuing shakeout in the fund business. Those of you who have tied yourselves to your favorite firms for the last fifteen or twenty years perhaps need to rethink the issue of whether you have a Plan B or a Plan C for your assets, as change is going to occur. Not the last of that change will be driven by the platform companies such as Schwab, Fidelity, and Vanguard as their businesses evolve to put more emphasis on vehicles that tilt the playing field of fees in their direction. I will again point out that consolidation and change is happening.

Look at the sale of the USAA group of mutual funds to Victory, which gave Victory scale. This was followed by the sale of USAA’s investment management and brokerage business to Schwab. Look for similar transactions to keep happening, particularly in situations where management did not understand the difference between being a low-cost provider and a low-priced provider.

Global News

One of the more surprising things to me has been the almost exclusive focus in our domestic news reporting on three things: COVID and our response to it; the Presidential campaign; and the domestic economy and the stock market. Almost non-reported here was a major setback a few weeks ago to Iran’s nuclear program, which could have happened on another planet for all the news coverage it received.

I also continue to see a focus on our economy that ignores one basic fact. People in this country are not going to feel comfortable going back to work, resuming consumer spending, and doing all of the things that fed our economy, until they are comfortable that the virus is under control. Not that we have a vaccine, not that we have a treatment, but that the virus is under control. Which means that we need a consistent set of numbers and benchmarks that people can understand. To get there we need economists and public health people in the same room. And the politicians need to be locked up in some other room.

Which brings me to one other thing we are also not paying attention to, which is China’s economy in relation to the global economy (while our economy appears to be in freefall). Two things to look at are the Caixin Services Purchasing Managers Index as well as the Baltic Dry Index. The Baltic Dry Index is a shipping index, which rose from 500 in May to 1894 at the beginning of July. The Caixin Services PMI represents some 400 small and medium-sized enterprises, drivers of the Chinese economy. The index rose 6.2% in June, the highest level since April 2010. The cause was seen in the index for new orders, which is at the highest level in the last ten years, reflecting an increase in orders and backlogs.

The other point to pay attention to – shipping rates from Shanghai to the U.S. West Coast and the U.S. East Coast have continued to fall. But shipping rates from Shanghai to Northern Europe have quadrupled and from Shanghai to the Mediterranean have doubled. Some of this reflects China’s continuing efforts at building up strategic stockpiles. But it also reflects a determination to build up inventories so that the domestic Chinese economy can function (and thus minimize internal political disruption) no matter what is going on in the rest of the world. The conclusion then becomes that China will emerge from the pandemic in a stronger economic position than most other economies.

There are several takeaways from that. The investing ones are obvious, the trick will be finding those investment firms that can execute them, having built up the information network and infrastructure to stay ahead of the curve. Or put differently, global investment diversification will continue to be key for long-term investors. And in Asia especially, that information advantage will need to be gleaned from boots on the ground rather than on the internet, by people who understand cultural nuances.

FPA Queens Road Small Cap Value (formerly Queens Road Small Cap Value), (QRSVX), August 2020

By David Snowball

At the time of publication, this fund was named Queens Road Small Cap Value.

Objective and strategy

The fund seeks capital appreciation by investing in the stocks or preferred shares of U.S. small-cap companies. Small caps are companies whose stocks are, at the time of purchase, valued at under $5 billion. The manager pursues a sort of “quality value” strategy: he seeks high-quality firms (strong balance sheets and strong management teams) whose stocks are undervalued (based on estimates of intrinsic value using free cash flow and book value growth models.).

In general, the portfolio holds 50-60 names (currently 49) and currently has 15% in cash.  The manager notes that while “we like to keep the money invested, we don’t want to make bad investment decisions. If there aren’t names that meet our criteria, we will let cash build.”


Bragg Financial Advisors, headquartered in Charlotte, NC. Bragg was founded in 1964, provides investment services to institutions and individuals, and has approximately $1.8 billion in assets under management as of June 30, 2020. Bragg serves as an advisor to the two Queens Road funds and to approximately 400 high net worth families. The firm is now run by the second generation of the Bragg family.


Steven Scruggs, CFA. Mr. Scruggs has worked for BFA since 2000 and manages this fund, the Queens Road Value Fund (QRVLX), and separate accounts using the same value strategy. That’s about it. No hedge funds or other distractions. He is supported by Matt Devries, CFA.

Strategy capacity and closure

Not determined.

Active share

95.24%. “Active share” measures the degree to which a fund’s portfolio differs from the holdings of its benchmark portfolio. High active share indicates management, which is providing a portfolio that is substantially different from, and independent of, the index. An active share of zero indicates perfect overlap with the index, 100 indicates perfect independence. The “active share” research done by Martijn Cremers and Antti Petajisto finds that only 30% of U.S. fund assets are in funds that are reasonably independent of their benchmarks (80 or above) and only a tenth of assets go to highly active managers (90 or above).

QRSVX has an active share of 95.2, which reflects a very high degree of independence from the benchmark assigned by Morningstar, the Russell 2000 Value.

Management’s stake in the fund

As of the most recent Statement of Additional Information, Mr. Scruggs has invested about $400,000 (0.3% of fund assets) in his fund. All of the fund’s trustees have invested in it, with five of six trustees having invested over $100,000. The officers of Bragg Financial, including Mr. Scruggs, collectively own 1.7% of the fund’s shares.

Opening date

June 13, 2002.

Minimum investment

$2,500 for regular accounts with a surprisingly high subsequent investment minimum of $1,000; the minimum is $1,000 for tax-advantaged accounts

Expense ratio

1% on assets of $514.8 million.


In conjunction with our August 2020 story on the partnership between the Queens Road Funds and FPA, under which the long-closed, $200 million FPA Capital (FPPTX) fund will eventually merge into Queens Road Small Cap Value, we wanted to share a quick profile of the fund.

Queens Road Small Cap Value shares an investment discipline with its larger-cap sibling, Queens Road Value. The strategies for both funds are easily explained, sensible and repeatable: buy a reasonable number of well-run companies (signaled by their strong balance sheets and management teams) when their stocks are substantially discounted (using free cash flow and book value growth models.). Then hold them until something substantially changes, which leads to a relatively long, relatively tax-efficient holding period.

Because the manager’s view of “value” is less mechanical than many of his peers’, he tends to own some stocks that are somewhat “growthier” than average. As a result, the two major rating services – Morningstar and Lipper – classify the fund somewhat differently. Morningstar places it in the “small value” peer group, while Lipper assigns it to “small core.”

Since Mr. Scruggs targets outperformance over the full market cycle rather than trying to “win” every quarter or every year, we used the screener at MFO Premium to measure the fund’s long-term performance against both small-value and small-core peers.

By every measure, across time and against both peer groups, Queens Road Small Cap Value produced competitive returns with virtually unparalleled downside protection.

QRSVX performance over a full market cycle, 10/2007 – 12/2019

  Small-cap value peers Small-cap core peers
Annual returns 6.7%, beats by 0.5% 6.7%, trails by 0.4%
# peer funds / ETFs 71 249
Sharpe ratio #3 #42
Maximum drawdown #4 #10
Ulcer Index #2 #5
Standard deviation #1 #4
Downside dev #1 #4
Down market dev #2 #4
Bear market dev #2 #5

Data from Lipper Global Data Feed, calculations from MFO Premium, as of 6/30/2020

How do you read that table?

Annual returns measure the fund’s gains, which is a bit above the average small value fund’s and a bit below the average small-core fund’s.

Sharpe ratio weighs the gains against the risks investors were exposed to. They rank in the small value elite and the top tier (top 18%) of the growthier small-core group.

All of the other metrics are different ways of measuring the risks that investors were exposed to: largest decline, day-to-day volatility, downside or “bad” volatility, volatility in months when the market fell even a little, volatility in months when the market fell more than 3% and amount of the S&P 500’s losses that the fund “captured.” In each case, against both groups, QRSVX is among the elite performers.

What explains the steady outperformance?

In looking at Mr. Scrugg’s other funds, we suggested that three factors might plausibly explain it.

First, Mr. Scruggs keeps his eye on the long-term drivers of returns and actively screens out the short-term noise. While he recognizes and worries about, the “severe and uncertain crisis” created by the Covid-19 pandemic and the “unprecedented” involvement in markets by central banks, he also acknowledges that we don’t know the near- or long-term economic effects of either, so neither can drive the portfolio. He remains focused on finding individual stocks that “provide a reasonable expected return and an adequate margin of safety.”

Second, he has a less mechanical view of “value” than most. He argues that the appropriate measures of a firm or industry’s valuations evolve with time. That evolution requires some rethinking of the importance of both physical capital (reflected in price-to-book ratios) and intellectual capital in assessing a firm’s value. That’s led him, he reports, to buy some value stocks that purely mechanical metrics might describe as growth stocks.

Third, he maintains a portfolio of higher-quality companies. My Morningstar’s estimation, only 3% of the QRVLX holdings lack an economic “moat.” That’s compared to 10% in his average competitor’s portfolio. Similarly, the QRVLX portfolio has higher grades for financial health, profitability, and growth (measured by growth in long-term earnings, book value, cash flow, and sales).

Bottom Line

Equity investors wary about high valuations, untested business models and volatile markets have cause to be more vigilant than ever about their portfolios. Queens Road Small Cap Value has a record that makes it a compelling addition to their due-diligence list.

Morningstar recognizes Queens Road as a five-star fund, an assessment of their past performance, and a Gold-rated fund, a recognition offered to “strategies that they have the most conviction will outperform a relevant index, or most peers, over a market cycle.” We concur.

Fund website

Queens Road Funds.

Launch Alert: Ziegler Piermont Small Cap Value

By David Snowball

On July 21, 2020, Ziegler Capital Management launched the Ziegler Piermont Small Cap Value Fund (ZPSVX). The fund invests primarily in undervalued, domestic small-cap stocks. The fund is managed by the five-person Piermont Group, led by John Russon.

What do they do?

The fund is the newest manifestation of a strategy that Mr. Russon has been running since 2005. Like me, Mr. Russon is a graduate of the University of Pittsburgh. Mr. Russon had been employed by Piermont Capital Management, which was acquired in 2019 by Ziegler. Based in Chicago, Ziegler has built strategic partnerships with a number of managers and now oversees $9.4 billion in assets.

Mr. Russon and his team use a rigorously quantitative approach to position the portfolio. The portfolio generally holds about 100 stocks.

Portfolios have three possible sources of outsized gains or risks: portfolio positioning, security selection, and execution. Portfolio positioning refers to the “big picture” bets that some managers make: they bet on the success of a particular sector by, for example, overweighting tech stocks or avoiding financials. Some bet that the tiniest stocks in their universe will thrive (or fail) while others bet that the highest or lowest volatility ones will. The problem with that strategy is that you’re no longer analyzing individual companies; you’re pretending to analyze the psychology of millions of other investors whose actions will eventually move the market. Mr. Russon & co. avoid all such bets. He describes the portfolio as “effectively sector, beta, and market-cap neutral to the benchmark.” Industry sector weightings, for example, are generally within 0.3% of the benchmark.

Security selection, then, drives the portfolio. They rely on 14 multi-factor models supplemented with qualitative risk assessment. By their account, the system “seeks to identify individual companies with the potential to outperform their industry peers by assessing more than forty factors, which are weighted differently for each industry.”

Why might you care?

The team’s performance, measured by the performance of its separately managed account composite, has been consistently strong. It’s good that they have outperformed that benchmark over time: their 10-year returns (as of 6/30/2020) where 9.29% annually, net of fees. Their benchmark returned 7.82% in the same period: a 146 bps annual advantage of Piermont.

It’s better that they have achieved highly consistent outperformance. Net of fees, the separate account composite has outperformed its benchmark in nine of the past 10 years. The exception was 2016 when Piermont returned 26.8% while the Russell 2000 Value made 31.7%. On whole, they’ve beaten their benchmark over the past 3, 5, 10, and 15 year periods. That validates the team’s aspiration of using “repeatable and dependable analytical processes.”

Better still, the strategy operates with lower volatility than its benchmark. The reported standard deviation is below the benchmark’s in nine of the past 10 reporting periods. Standard deviation was modestly higher than the benchmark’s in 2012, a year in which their returns were substantially higher than the benchmark’s.

The administrative stuff

The institutional shares are currently open, with an investor share class authorized but not funded. The institutional share class minimum is $100,000, but the minimum is waived for retirement plans and clients of eligible financial intermediaries, such as a fee-based advisory program. The expense ratio, after waivers, is 0.90%. Institutional shares should be available at Fidelity in the immediate future and at Schwab, hopefully, by year’s end. Somewhere in there, the low-minimum retail shares are likely to become available.

The strategy’s website is understandably a bit richer in content than the fund’s, though neither is particularly rich just yet. That said, the folks at Ziegler Capital seemed very approachable and interested in getting folks the information they needed.

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. We found 17 active funds and ETFs in registration, some quite notable. Expect them to launch by the end of September 2020. All but two of those funds are either conservative income funds or hedged alternative funds.

The key additions are a growing number of low-cost ESG options, across a range of asset classes. We do not cover passively-managed ETFs, but fans of sustainable investing might want to add the upcoming Vanguard ESG U.S. Corporate Bond ETF and iShares ESG Screened S&P 500 ETF to their watchlists. iShares also has S&P mid-cap and small-cap ESG ETFs in the pipeline.

Of less consequence to most of us is that fact that Morningstar plans to launch a suite of funds designed for use in their managed portfolio program.

  • Morningstar U.S. Equity Fund
  • Morningstar International Equity Fund
  • Morningstar Global Income Fund
  • Morningstar Total Return Bond Fund
  • Morningstar Municipal Bond Fund
  • Morningstar Defensive Bond Fund
  • Morningstar Multisector Bond Fund
  • Morningstar Unconstrained Allocation Fund
  • Morningstar Alternatives Fund

The equity funds typically have four sub-advisers and more than a dozen portfolio managers, the fixed-income funds about half that. Expenses have not yet been disclosed and, to be clear, no, you can’t buy on your own.

Every month the ETF industry breathlessly trots out a few ideas designed to seize the moment. Last month, it was the Virtual Work and Life ETF which tracks a new index of companies that “provide products, services, and technologies that empower individuals to work remotely, and support an increasingly virtual way of life across entertainment, wellness, and learning.” This month brings the ISE Mobile Payments® ETF (IPAY) which tracks an index of firms, currently 26, which make their money in “payments-related products and/or services.” Visa, Mastercard, and Paypal are 25% of the fund.

Ashmore Emerging Markets Investment Grade Income Fund

Ashmore Emerging Markets Investment Grade Income Fund (MSTB) will seek to maximize income, with a secondary objective of long-term capital appreciation. The plan is to invest in “hard currency” EM bonds. The fund will be managed by a team which includes CIO Mark Coombs. Ashmore has a lot of experience in EM fixed income, including products available only to European investors. Its opening expense ratio has not been released, and the minimum initial investment for “A” shares will be $1,000.

C WorldWide International Equities Fund

C WorldWide International Equities Fund will seek long-term growth of capital exceeding the return of the market with a moderate risk profile. The plan is to invest in 25-35 non-US large-cap companies that qualify as “sustainable growth companies.” Between 30-50% of the portfolio will be invested in stable blue-chip names, giving the manager some flexibility to add opportunistic picks. The fund will be managed by a team person team from C WorldWide Asset Management Fondsmaeglerselskab A/S of Denmark. The firm was founded in 1986 and manages about $20 billion in assets. The team has been managing private money with this strategy since 1986 and they have, pretty consistently, outperformed the MSCI All-World ex-US index by a margin of two-to-one. They’ve returned 13.9% since inception, against 5.8% for the benchmark. Its opening expense ratio is 0.80%, and the minimum initial investment for “A” shares will be $10,000.

ClearShares Piton Intermediate Fixed Income ETF  

ClearShares Piton Intermediate Fixed Income ETF (PIFI), an actively-managed ETF, seeks current income consistent with the long term preservation of capital. The plan is to use both a macro-level assessment and individual securities analysis to put together an intermediate (3-10 year) bond portfolio. The fund will be managed by Brian Lockwood and Ralph Chan, both former HSBC guys. Its opening expense ratio has not been disclosed.

Leatherback Long/Short Absolute Return ETF

Leatherback Long/Short Absolute Return ETF, an actively-managed ETF, seeks an absolute return. Duh. The plan is to have a long portfolio of blue-chip names and a short portfolio of firms where the managers identify “idiosyncratic ideas that suggest a security’s price will decline.” The portfolio will be 0-80% net long. The fund will be managed by Michael Venuto and Michael J. Winter. Previously Mr. Venuto did product development at GlobalX and Mr. Winter helped manage Otter Creek Long/Short Opportunity Fund. Its opening expense ratio has not been disclosed.

Leatherback Long/Short Alternative Yield ETF

Leatherback Long/Short Alternative Yield ETF, an actively-managed ETF, seeks capital appreciation and income. The plan is to build an all-cap long portfolio of high shareholder yield companies (identified as those with a combination of dividends, stock buybacks, and debt pay downs) and a short portfolio of miscellaneously sucky companies. The managers have the option of investing in fixed-income and convertible products as well, but those are secondary The fund will be managed by Michael Venuto and Michael J. Winter. Previously Mr. Venuto did product development at GlobalX and Mr. Winter helped manage Otter Creek Long/Short Opportunity Fund. Its opening expense ratio has not been disclosed.

LHA Market State Tactical Beta ETF

LHA Market State Tactical Beta ETF, an actively-managed ETF, seeks returns that outperform the large-capitalization U.S. equity market on a risk-adjusted basis. The plan is to do really complicated stuff based on the advisor’s estimation of the volatility of the market. It appears that they will have about a 90% exposure to the S&P 500 in normal markets but volatile markets will see them switch to volatility futures, options, and leveraged, inverse, and inverse-leveraged ETFs. The fund will be managed by Michael Thompson and D. Matthew Thompson of Little Harbor Advisors. They’ve been using this strategy in separately-managed accounts since 2016. Its opening expense ratio is 1.16%.

Loomis Sayles Credit Income Fund

Loomis Sayles Credit Income Fund will seek high current income with a secondary objective of capital growth. The plan is to build a portfolio of global fixed-income securities, mostly investment grade but with up to 35% junk bonds and 30% foreign securities. The fund will be managed by a team headed by Matthew J. Eagan. Its opening expense ratio has not been disclosed, and the minimum initial investment for “A” shares will be $2,500.

Mairs & Power Minnesota Municipal Bond ETF

Mairs & Power Minnesota Municipal Bond ETF, an actively-managed ETF, seeks current income that is tax-free from Minnesota investors. M&P is, of course, famously headquartered in Minnesota and has a strong predilection for investing in regional firms. The plan is to buy “all types” of munis, typically 75% of which will be investment grade. The fact that one of the stated risks is “large shareholder risk” implies that the fund was created at the behest of … well, large shareholders. The fund will be managed by Brent S. Miller and Robert W. Thompson. Its opening expense ratio has not been disclosed.

Old Westbury Credit Income Fund

Old Westbury Credit Income Fund will primarily seek income. The plan is to buy “any debt instrument, including corporate and sovereign bonds, leveraged loans (or bank loans), municipal securities, and securitized instruments (including mortgage- and asset-backed securities)” that they believe makes sense. The fund will be managed by a team from Bessemer Investment Trust while help from niche BlackRock and Muzinich teams. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $1,000.

Regan Total Return Income Fund

Regan Total Return Income Fund will seek to provide a high level of risk-adjusted current income and capital appreciation. The plan is to invest in relatively short-term (under five years) mortgage-backed securities. The fund will be managed by Skyler Weinand, Arup Saha, and Chris Hall of Regan Capital. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $1,000.

Rimrock Emerging Markets Corporate Credit Fund

Rimrock Emerging Markets Corporate Credit Fund will seek to maximize long-term total return. The plan is primarily to buy EM corporate debt, roughly in line with the maturity of its benchmark. Currently, that’s 4.68 years, give or take two years. The fund will be managed by Novruz Bashirov. His pedigree includes stints at Barings, PIMCO and Fidelity. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $5,000.

SoFi Weekly Income ETF

SoFi Weekly Income ETF, an actively-managed ETF, seeks current income. The plan is to invest in a variety of fixed-income instruments with a fixed or floating (variable) interest rate, with the expectation of sending out a weekly check (?). I’ve got no idea why the “weekly” thing is anything other than a marketing gimmick. The fund will be managed by the team from Income Research + Management and CSat Investment Advisory, L.P., doing business as Exponential ETFs. Its opening expense ratio has not been disclosed.

SPDR Bloomberg Barclays 3-12 Month T-Bill ETF

SPDR Bloomberg Barclays 3-12 Month T-Bill ETF, a passively-managed ETF, tracks a T-bill index. It strikes me as worth noting as an alternative to money market funds. The key distinction is that money markets can’t afford to let their NAV drop below $1.00 (aka, “breaking the buck”) which often requires subsidies from the adviser. This is probably a more honest way to tap this sliver of the market. The fund will be managed by Todd Bean, Sean Lussier, and April Borawski. Its opening expense ratio has not been disclosed but needs to be durn near zero since the three month T-bill pays 0.13% and the one-year T-bill pays 0.15% (both as of 6/30/2020).

T. Rowe Price Short Duration Income Fund

T. Rowe Price Short Duration Income Fund will seek income consistent with limited fluctuation in principal value and liquidity. The plan is to center the portfolio on investment-grade corporate and securitized instruments within the U.S. while also incorporating “plus” sectors to enhance income and portfolio diversification. The “plus” group includes bank loans, international and EM debt, and non-IG debt. The fund management has not yet been named. (Odd.) Its opening expense ratio is 0.4%, and the minimum initial investment will be $2,500.

Trend Aggregation Conservative ETF

Trend Aggregation Conservative ETF, an actively-managed ETF, seeks total return. The plan is to invest in ETFs, REITs, MLPs, dividend-paying stocks, volatility-linked securities, and inverse ETFs. Other than “multiple models,” there’s not a lot of detail on what they’re planning. The fund will be managed by Matthew Tuttle of Tuttle Tactical. Its opening expense ratio has not been disclosed.

VELA Small Cap Fund

VELA Small Cap Fund will seek long-term capital appreciation. The plan is to buy undervalued small caps. The management team has not been disclosed, its opening expense ratio has not been disclosed, and the minimum initial investment has not been disclosed. Shells for VELA Large Cap 130/30 and International are contained in the same prospectus. These may be linked to an identically positioned series of Aperture Funds, whose prospectus is similarly incomplete and riddled with typos (the “Portfolio Mjnagers” remain unnamed).

Wells Fargo Ultra Short Duration Income ETF

Wells Fargo Ultra Short Duration Income ETF, an actively-managed ETF, seeks current income consistent with capital preservation. The plan is to buy high-quality, U.S. dollar-denominated short-term fixed-, floating- and variable-rate debt securities rated investment grade. The fund will be managed by a Wells Fargo team headed by Travis Dugan. Mr. Dugan, a PIMCO veteran, uses the same discipline to manage $4.5 billion for rich folks in separately managed accounts. Its opening expense ratio has not been disclosed.

Manager Changes, July 2020

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 than 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.  This month saw over 50 revisions, a total buoyed by the fact that in two cases a manager left an entire series of funds.

The most consequential, and intriguing, is the departure of Charles “Chuck” de Lardemelle from International Value Advisors, the advisor for IVA Worldwide and IVA International. It’s consequential because Mr. de Lardemelle was one of the funds’ two managers, was IVA’s chief investment officer, cofounder, and had been managing the funds since inception. It’s intriguing because we have no idea of why Mr. de Lardemelle left and nobody’s talking.  As folks on the MFO Discussion board point out, the notice of his departure was pretty curt:

Charles de Lardemelle is no longer a portfolio manager of the Funds. All references to Mr. de Lardemelle are hereby removed.

In the case of amicable separations and retirements, there’s usually some … well, amicable words. Here, there’s the sound of an offended firm spitting.

Lewis Braham, writing in Barron’s, speculates that Mr. de Lardemelle might have been poached, perhaps to launch his own non-transparent active ETF. For now, his Linked In profile merely describes him as a “private investor.” Regardless of the cause, his departure leaves a considerable hole to fill at IVA.

Beyond that, manager changes were occasioned by one death (Monte Avery, briefly memorialized in “Briefly Noted” this month), three retirements, and the imminent liquidations of a couple of funds, as well as the usual – and usually inconsequential – staff churn.

Ticker Fund Out with the old In with the new Dt
AGFQX 361 Global Managed Futures Strategy Fund Effective immediately, Jason Leupold and John Riddle will no longer serve as portfolio managers to the fund. Blaine Rollins and Aditya Bhave will continue to serve as portfolio managers of the fund. 7/20
AMFQX 361 Managed Futures Strategy Fund Effective immediately, Jason Leupold and John Riddle will no longer serve as portfolio managers to the fund. Blaine Rollins, Aditya Bhave, and Randall Bauer will continue to serve as portfolio managers of the fund. 7/20
EGALX Aberdeen International Real Estate Equity Fund Effective immediately, all references to Jon Stewart in the Prospectus and SAI are deleted. Svitlana Gubriy and Toshio Tangiku remain with the fund. 7/20
various AdvisorShares Dorsey Wright FSM US Core ETF, AdvisorShares Dorsey Wright FSM All Cap World ETF, AdvisorShares Dorsey Wright Alpha Equal Weight ETF,  AdvisorShares FolioBeyond Smart Core Bond ETF, AdvisorShares Pure Cannabis ETF, and AdvisorShares Vice ETF Mr. Robert Parker no longer serves as portfolio manager for the funds. Mr. Dan Ahrens has replaced Mr. Parker as portfolio manager for the funds. 7/20
AAIPX American Beacon International Equity Fund Effective July 1, 2020, James A. Doyle of Causeway Capital Management LLC will no longer serve as a portfolio manager for the fund. Nineteen other managers from Lazard, Causeway and American Century remain. 7/20
BPESX Baillie Gifford Positive Change Equities Fund Beginning on or about September 30, 2020, Julia Angeles, Kirsty Gibson, and William Sutcliffe are expected to continue to be involved with the investment process for the fund’s strategy but will no longer be considered to be primarily responsible for the day-to-day management of the fund. The sole named portfolio managers of the fund will be Kate Fox and Lee Qian. 7/20
DRTHX BNY Mellon Sustainable U.S. Equity Rob Stewart is no longer listed as a portfolio manager for the fund. Jeff Munroe and Yuko Takano are the fund’s primary portfolio managers.  Mr. Munroe has held that position since May 2017, and Ms. Takano has held that position since May 2019. 7/20
YLDE ClearBridge Dividend Strategy ESG ETF It is anticipated that Scott Glasser will step down as a member of the fund’s portfolio management team effective on or about June 30, 2021. At that time, Mr. Glasser will transition from his current role as Co-Chief Investment Officer of ClearBridge to become sole Chief Investment Officer of ClearBridge. the rest of the team remains intact. 7/20
SOPAX ClearBridge Dividend Strategy Fund It is anticipated that Scott Glasser will step down as a member of the fund’s portfolio management team effective on or about June 30, 2021. At that time, Mr. Glasser will transition from his current role as Co-Chief Investment Officer of ClearBridge to become sole Chief Investment Officer of ClearBridge. Michael Clarfeld, Peter Vanderlee, and John Baldi remain on the fund management team. 7/20
LAIAX Columbia Acorn International Louis J. Mendes has announced that on August 28, 2020, he will retire from Columbia Wanger Asset Management, LLC, the fund’s investment manager, step down as portfolio manager to the fund and resign as Co-President of Columbia Acorn Trust. Mr. Mendes will continue in his current roles through August 28, 2020, including serving as a portfolio manager to thefund along with Tae Han (Simon) Kim and Hans Stege. 7/20
DGMMX DGHM MicroCap Value Fund Effective immediately, Bruce H. Geller no longer serves as a portfolio manager of the DGHM MicroCap Value Fund. Jeffrey C. Baker, Peter A. Gulli and Douglas A. Chudy of Dalton, Greiner, Hartman, Maher & Co., LLC, the Fund’s investment adviser, continue to serve as portfolio managers of the fund. 7/20
FELAX Fidelity Advisor Semiconductors Fund Stephen Barwikowski will retire from the fund effective on or about June 30, 2020. Adam Benjamin will manage the fund. 7/20
FADTX Fidelity Advisor Technology Fund No one, immediately, but Nidhi Gupta is expected to transition off of the fund effective on or about December 31, 2020. Adam Benjamin joins Ms. Gupta on the managment team and will continue to manage the fund upon her departure. 7/20
FDGFX Fidelity Dividend Growth Fund No one, immediately, but Gordon Scott is expected to transition off of the fund effective on or about December 31, 2020. Zachary Turner joins Mr. Scott on the managment team and will continue to manage the fund upon his departure. 7/20
FPPTX FPA Capital Arik Ahitov is no longer listed as a portfolio manager for the fund. Daniel Kaplan will now manage the fund. 7/20
SIDVX Hartford Schroders International Multi-Cap Value Fund Effective August 14, 2020, Michael O’Brien will no longer serve as a portfolio manager to the fund. Daniel Woodbridge joins Justin Abercrombie, Stephen Langford, David Philpotts, and Michael O’Brien in managing the fund. 7/20
RMRGX Highland Resolute Fund Effective June 30, 2020, Chatham Asset Management, LLC no longer serves as an investment sub-adviser to the fund and Anthony Melchiorre, Keven O’Malley, and Evan Ratner will no longer serve as portfolio managers for the fund. The rest of the team remains. 7/20
NRGDX Integrity Energized Dividend Fund Mr. Monte Avery, Senior Portfolio Manager on the portfolio management team for each Fund, recently passed away unexpectedly. The Integrity Energized Dividend Fund continues to be managed by the adviser’s portfolio management team, consisting of Mr. Shannon Radke, Mr. Michael Morey, and Mr. Trey Welstad.  7/20
ICPAX Integrity Mid-North American Resources Fund Mr. Monte Avery, Senior Portfolio Manager on the portfolio management team for each Fund, recently passed away unexpectedly. Effective immediately, Trey Welstad has been added to the Integrity Mid-North American Resources Fund’s portfolio management team, now consisting of Mr. Shannon Radke, Mr. Michael Morey, and Mr. Trey Welstad. 7/20
VADDX Invesco Equally Weighted S&P 500 Fund Glen Murphy, Daniel Tsai, Anthony Muchak, and Francis Orlando are no longer listed as portfolio managers for the fund. Peter Hubbard, Michael Jeanette, and Tony Seisser will now manage the fund. 7/20
SPIDX Invesco S&P 500 Index Glen Murphy, Daniel Tsai, Anthony Muchak, and Francis Orlando are no longer listed as portfolio managers for the fund. Peter Hubbard, Michael Jeanette, and Tony Seisser will now manage the fund. 7/20
IVIOX IVA International Fund Effective July 13, 2020, Charles de Lardemelle is no longer a portfolio manager of the fund. Charles de Vaulx remains primarily responsible for the day-to-day management of the fund and serves as Chief Investment Officer of the adviser. 7/20
IVWAX IVA Worldwide Fund Effective July 13, 2020, Charles de Lardemelle is no longer a portfolio manager of the fund. Charles de Vaulx remains primarily responsible for the day-to-day management of the fund and serves as Chief Investment Officer of the adviser. 7/20
OIEAX JPMorgan International Research Enhanced Equity Fund Demetris Georghiou and James Cook will no longer serve as a portfolio manager for the fund. Effective September 16, 2020, Nicholas Farserotu and Winnie Cheung will join Piera Elisa Grassi in managing the fund. 7/20
KSMVX Keeley Small-Mid Cap Value Fund Kevin Chin is no longer listed as a portfolio manager for the fund. Thomas Browne, Jr. and Brian Leonard join Brian Keeley, Nicholas Galluccio, and Scott Butler on the management team. 7/20
SWMIX Laudus International MarketMasters Fund Effective immediately, all references to Frances Cuthbert in the fund’s Statutory Prospectus and SAI are hereby deleted in their entirety. The other dozen and a half managers remain on the team. 7/20
LZOEX Lazard Emerging Markets Equity Portfolio No one, but . . . Ganesh Ramachandran joins James Donald, Rohit Chopra, Monika Shrestha, and John R. Reinsberg on the management team. 7/20
MSVVX Mesirow Financial Small Cap Value Sustainability Fund No one, but . . . Michael Vitek has joined Leo Harmon and Kathryn Vorisek in managing the fund. 7/20
OWSIX Old Westbury All Cap ESG Fund Anna White will no longer serve as a portfolio manager for the fund. Desiree Davis joins Dr. Qiang Jiang and Y. Gregory Sivin in managing the fund. 7/20
MSEFX PartnerSelect Equity Fund (formerly, Litman Gregory Masters Equity Fund) Effective July 31, 2020, Frank M. Sands, Jr. , CIO of Sands Capital, will be removed as a portfolio manager to the PartnerSelect Equity Fund.  Thirteen other managers remain to steer the one-star fund. 7/20
WTMVX Segall Bryant & Hamill Global Large Cap Fund Derek Anguilm, Alex Ruehle, and Robbie Steiner are no longer listed as portfolio managers for the fund. Suresh Rajagopal and Ralph Segall will now manage the fund. 7/20
WTMCX Segall Bryant & Hamill Mid Cap Value Dividend Fund Mark Adelmann, Derek Anguilm, and Alex Ruehle are no longer listed as portfolio managers for the fund. Ralph Segall will now manage the fund. 7/20
WISVX Segall Bryant & Hamill Small Cap Value Dividend Fund Mark Adelmann, Derek Anguilm, and Alex Ruehle are no longer listed as portfolio managers for the fund. Ralph Segall will now manage the fund. 7/20
EMSQX Shelton Emerging Markets Fund Scott Callahan, Brian Callahan, and Craig Callahan are no longer listed as portfolio managers for the fund. Andrew Manton now manages the fund. 7/20
OVEAX Sterling Capital Mid Value Fund Effective immediately, Timothy Beyer is retiring from serving as a portfolio manager of the fund. Patrick Rau, Lee Houser, and William Smith will continue to manage the fund. 7/20
TRAMX T. Rowe Price Africa & Middle East Fund No one, but . . . Seun Oyegunle will join Oliver Bell as a portfolio manager and cochairman of the fund’s Investment Advisory Committee. 7/20
VEXPX TrueShares ESG Active Opportunities ETF Derek Deutsch will no longer serve as a portfolio manager for the fund. Matthew Lilling joins the rest of the team. 7/20
SGAAX Virtus SGA Global Growth Fund No one, immediately, but George Fraise will be stepping down as a portfolio manager for the fund at the end of the year. Hrishikesh Gupta is expected to join Gordon Marchand and Robert Rohn on January 2, 2021. 7/20
WSCAX Wanger International Louis J. Mendes has announced that on August 28, 2020, he will retire from Columbia Wanger Asset Management, LLC, the fund’s investment manager, step down as portfolio manager to the fund and resign as Co-President of Columbia Acorn Trust. Mr. Mendes will continue in his current roles through August 28, 2020, including serving as a portfolio manager to thefund along with Tae Han (Simon) Kim and Hans Stege. 7/20
NVDAX Wells Fargo Diversified Equity Fund Effective immediately, Thomas Biwer is removed as a portfolio manager to the fund.  Aldo Ceccarelli will continue to manage the fund. 7/20
WEMAX Wells Fargo Emerging Growth Fund No one, but . . . Effective immediately, Robert Gruendyke and David Nazaret join Thomas Ognar and Joseph Eberhardy on the management team. 7/20


Briefly Noted

By David Snowball


We pause a moment to commemorate the lives and mourn the passing of two fund managers this month.

Dowe Bynum (1978-2020), half of the team of Cook & Bynum, passed away on Friday, July 17, 2020, at peace and surrounded by loved ones. Dowe, who eschewed his given first name “Jasper,” cofounded Cook & Bynum in 2001 with long-time partner Rickard Cook. They believed that they could best execute their disciplined value strategy far from the maddening distractions of the East Coast, and so founded their firm in Birmingham, Alabama. He was diagnosed with brain cancer about three years ago. Richard Cook has been largely responsible for the day-to-day management of the portfolio since that time. Dowe’s illness deeply affected his family, his friend and partner, and their firm.

Monte Avery (1957-2020), one of the senior managers of the Viking Funds for the past 27 years, passed away on July 13, 2020. He’d been managing diabetes and heart disease for years. He helped manage the Integrity Energized Dividend Fund and a suite of muni bond funds that targeted the upper Midwest (and Maine?). They were, even by the standards of such funds, exceptionally risk-conscious though that came at the expense of strong returns. I had a funny conversation with the Viking folks once on the vicissitudes of a firm headquartered in North Dakota and serving the needs of elderly Scandinavians.

I wish their families, and most especially Dowe’s wife and their three youngsters, peace.

Briefly Noted . . .

The Master Catalog of Bad Investing Decisions starts with “any fund that’s forced into a reverse share split.” After the close of the markets on August 27, 2020, Direxion will author six new entries in the catalog:

Fund Name Reverse Split Ratio Approximate decrease
in the total number of
outstanding shares
Direxion Daily S&P Biotech Bear 3X Shares 1 for 20 95%
Direxion Daily Semiconductor Bear 3X Shares 1 for 12 92%
Direxion Daily Communication Services Index Bear 3X Shares 1 for 10 90%
Direxion Daily Consumer Discretionary Bear 3X Shares 1 for 10 90%
Direxion Daily Dow Jones Internet Bear 3X Shares 1 for 10 90%
Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 2X Shares 1 for 10 90%

As a result of these reverse splits, every twenty, twelve, or ten shares of a Fund will be exchanged for one share. Illustrating the principle that these are not buy-and-hold investments, $10,000 invested in Biotech Bear 3X (LABD) at inception would now be worth $78. If you’d bought the fund on March 4, 2020, and held it for two weeks, you would have more than doubled your original investment. If you held it for two months, you would have halved your original investment.

On July 14, 2020, the Board of Trustees changed the investment objective for Virtus WMC International Dividend ETF (VWID) from seeking capital appreciation with a secondary objective of seeking income, to just seeking income.


Each of the Gotham Absolute Return Fund (GARIX), the Gotham Enhanced Return Fund (GENIX), and the Gotham Neutral Fund (GONIX) have reduced their investment advisory fee from 2.00% to 1.50% and their expense limitation from 2.15% to 1.50%. Even at 1.5%, Morningstar categorizes their expenses as “high” for institutional funds; more so because their performance has been no better than middling.

All Wasatch Funds, except Core Growth Fund, International Opportunities Fund, and Small Cap Growth Fund, are now open to investors.

CLOSINGS (and related inconveniences)

On August 1, 2020, FPA New Income (FPNIX) closed to new investors. That decision was driven by “a combination of the current investment opportunity set, the overall size of the strategy, and modest but consistent asset growth.” The fund has posted gains in each of the past 35 years. Its managers are also responsible for the slightly more venturesome FPA Flexible Fixed Income Fund (FPFIX) which has a $100,000 minimum.


Anfield Tactical Fixed Income ETF (AFTI) is now the Anfield Dynamic Fixed Income ETF (ADFI).

Gadsden Dynamic Multi-Asset ETF (GDMA) is being adopted by the Alpha Architect, but there should be no visible changes to the fund’s name or operations.

On December 20, 2013, the Holmes Growth Fund changed its name to the Holmes Macro Trends Fund. The Holmes Macro Trends Fund changed its name to the Global Luxury Goods Fund (USLUX) effective July 1, 2020.

Going a bit greener: Somewhere between September and December, iShares iBoxx $ High Yield ex Oil & Gas Corporate Bond ETF (HYXE) will become the iShares ESG Advanced High Yield Corporate Bond ETF (HYXF). They currently track a high-yield bond index that excludes the oil and gas industry; after the change, the mandates broadens to ESG issues and avoiding “involvement in controversial activities.” The expense ratio then drops from 0.5% to 0.35%.

Masters no more. Effective July 31, 2020, the Litman Gregory name was replaced with PartnerSelect in the name of each of their funds. Nothing else changes.

Current Name New Name (effective July 31, 2020)
Litman Gregory Masters Equity PartnerSelect Equity
Litman Gregory Masters International PartnerSelect International
Litman Gregory Masters Smaller Companies PartnerSelect Smaller Companies
Litman Gregory Masters Alternative Strategies PartnerSelect Alternative Strategies
Litman Gregory Masters High Income Alternatives PartnerSelect High Income Alternatives

Effective September 8, 2020, the Securian AM Managed Volatility Equity Fund (VVMIX) will be renamed the Securian AM Equity Stabilization Fund. The investment objective then shifts from outperforming a custom benchmark of low vol stocks and bonds to getting as much money as they can while capping volatility at 10%.  

Segall Bryant & Hamill Global Large Cap Fund (WTMVX) will be renamed the Segall Bryant & Hamill Global All Cap Fund on September 22, 2020.


Morningstar reports that 225 funds were liquidated or merged away in the first six months of 2020. In describing “flowmaggedon,” a term that we really could have lived without, Russel Kinnel reports being “struck by just how many small funds there are.” Nearly two-thirds of active funds have under $500 million in assets.

For more than 10 years Mutual Fund Observer has been covering “the funds that are off Morningstar’s radar.” Still, I admit being surprised by Mr. Kinnel’s surprise. The fund screener at Morningstar has gotten pretty glitchy but still, it’s not that hard to find this stuff out:

I wonder if he knows that over 300 of them are five-star funds, of which only 11 have analyst coverage? (Another dozen are parts of a target-date series where the whole series – BlackRock LifePath, TIAA-CREF Lifecycle Index, and so on, gets covered.)

Hot lead for Morningstar’s Fund Spies: 45 of those funds have a five-star rating for the past 3, 5, and 10 year periods as well as an overall five-star rating. You might want to cover them before they perish for lack of … well, coverage.

AlphaCentric Energy Income Fund (AEIAX), after eight months of operation and a 23% YTD loss, was liquidated on July 31, 2020.

On August 1, 2020, the Applied Finance Dividend Fund AFADX) was merged into the Applied Finance Core Fund (AFALX). Morningstar’s quantitative medalist system gives the Core Fund a Gold rating … a rating that it shares with, oh, Yacktman, Dodge & Cox, and LSV Value.

Arabesque Systematic USA Fund will be liquidated on or about September 18, 2020. That’s a pity. It was a really solid ESG balanced fund, though with an investment minimum ($50,000) that was a bit too high to warrant much attention from MFO.

Somewhere between December 2020 and the beginning of 2021, the AB (AllianceBernstein) International Portfolio (AIZAX) and Tax-Managed International Portfolio (ABXAX) will transfer all of their assets and stated liabilities to the AB International Strategic Equities Portfolio (STEZX).

BMO Small-Cap Core Fund (BBCAX), the BMO Alternative Strategies Fund (BMASX), and the BMO High Yield Bond Fund (BMHAX) will be liquidated on August 28, 2020.

Brand Value ETF (BVAL) was liquidated on July 30, 2020.

Bread & Butter Fund (BABFX) closed up shop on July 30, 2020. We may have been a tiny bit dismissive of the fund at its launch, almost 15 years ago since the qualifications of the manager struck us as thin. Of the past 12 years (our longest available measurement period), the fund has trailed all but one of its 150 Lipper multi-cap value peers.

The Ultimate Loser? Ken Heebner’s CGM Focus Fund (CGMFX) still has a quarter billion in assets despite losing an average of 7% annually for 12 years. In 2008, declared him “the best manager alive” after 10 fat years … and immediately before 12 lean ones.

Columbia Funds continues paring its lineup

Target Fund Acquiring Fund Reorganization Date
Columbia Global Energy and Natural Resources Fund (UMESX) Columbia Global Equity Value Fund IEVAX August 7, 2020
Columbia Global Infrastructure Fund Columbia Global Equity Value Fund July 10, 2020
Columbia Select International Equity Fund (NIEQX) Columbia Acorn International Select LAIAX August 7, 2020

The acquiring funds are particularly good, but they have the virtue of being large enough to be sustainable which is important when you’ve seen 10 consecutive years of asset outflows.

In one of those announcements sensible only to lawyers, Glenmede Alternative Risk Premia Portfolio (GLARX) was liquidated on July 23, 2020 and, a day later, the adviser notified people that “therefore, effectively immediately, the [fund] is closed to investments.” Dudes: the fund can be neither open nor closed if it no longer exists.

Harbor High-Yield Opportunities Fund (HHYVX) joins the heavenly chorus on August 31, 2020.

Highland Opportunistic Credit Fund (HNRAX) will eventually liquidate. The authorized liquidation date was June 16, 2020, but the managers worry that market volatility has been too high to allow them to manage an orderly liquidation in which they receive a fair price for their portfolio holdings. So the new date is “ASAP.” 

Hodges Capital is liquidating the Institutional share class (HDPIX) of Hodges Fund (HDPMX) because it’s “not economically viable.” Over the past eight years, Hodges has finished in the top 1% of its peer group twice (2013, 2016) but also trailing 96-100% of its peers five times (2015 and 2017-2020).

On or about September 26, 2020, Manning & Napier is going to merge its target-date series of funds into its Pro-Blend series (Conservative, Moderate, Extended Term, and Maximum Term). Current shareholders in Target Income and Target 2015 move into Conservative; 2020 and 2025 into Moderate; 2030, 2035, and 2040 into Extended; and longer-dated funds into Maximum Term. Some of the Target funds are quite good but all of them have tiny-to-modest asset bases, presumably pushing the merger to maintain economies of scale.

Meritage Growth Equity Fund (MPGEX), Meritage Value Equity Fund (MVEBX), and Meritage Yield-Focus Equity Fund (MPYEX) have all closed to new investments and will all be liquidated on August 27, 2020.

Neuberger Berman Unconstrained Bond Fund (NUBAX), launched in 2014 when “unconstrained” was the marketing term du jour, will become a former fund on or about August 17, 2020. Neuberger Berman Short Duration High Income Fund (NHSAX) departs the same day.

Newfound Multi-Asset Income Fund (NFMAX) has closed and will be liquidated on August 24, 2020.

Sometime in the third quarter of 2020, Pioneer Corporate High Yield Fund (HYCYX) will eat the Pioneer Dynamic Credit Fund (RCRAX). Pioneer coyly refers to the resulting entity as “the Combined Fund,” which is a fair description in the way that the encounter between a wolf and a rabbit result in “the Combined Animal.”

Segall Bryant & Hamill Mid Cap Value Dividend Fund (WIMCX) will liquidate on or about September 17, 2020. Segall Bryant & Hamill Small Cap Value Dividend Fund (WISVX) merges into the larger and stronger Segall Bryant & Hamill Small Cap Value Fund (SBRVX) on or about September 25, 2020.

As of July 24, 2020, the merger of Vanguard Capital Value Fund into Vanguard Windsor (VWINX) is complete. 

Vanguard U.S. Value Fund (VUVLX) will be merged into Vanguard Value Index Fund (VIVAX) in early 2021. VUVLX is a low-cost quant fund that decided, in 2016, to update its models. In retrospect, that seems to have been a bad idea and fund transitioned from consistent outperformer (every year 2010-2016) to consistent underperformer (every year from 2017-present). Vanguard says that merger offers “a comparable fund with better historical long-term investment performance, deliver a large expense ratio reduction for U.S. Value Fund shareholders, and create a larger combined fund which we anticipate would achieve greater economies of scale.”