Monthly Archives: October 2021

October 1, 2021

By David Snowball

Dear friends,

Welcome to autumn. Or, at least, our current attempt at autumn. Temperatures here in Iowa remain in the 80s and there’s only the barest hint of typical autumnal weather: a bit cooler nights, pumpkins studding the fields, the steady flow of apples out of the orchards, and bits of color emerging on the maples.

And, speaking of pumpkins it’s time to celebrate  …

Old guys acting badly.

We have always recognized the tendency of old guys to operate on some combination of delusion (Aristotle observed “they are continually talking of the past, their fits of anger are sudden but feeble … and they are slaves to the love of gain”) and … well, delusion (Mark Twain’s official biographer, two years after Twain’s death, quotes him as saying “When I was younger I could remember anything, whether it happened or not; but I am getting old, and soon I shall remember only the latter”).

Women everywhere nod.

That’s been highlighted in the news a lot this month.

MIT: The guys who are most confident in their investing abilities are also the ones quickest to sell in a panic.

Max Fox reports on the results of an MIT study entitled “When Do Investors Freak Out?” which analyzed the trading behavior of more than 600,000 brokerage accounts to see what best predicts who was “most likely to panic sell at the worst possible time.” Their answer: men over the age of 45 who are either married or identify as having “excellent investing experience.” (“Men over 45 who identify as having ‘excellent investment experience’ are more likely to panic sell,” 9/28/2021)

Bill Gross found to be contemptuous

The ridiculously rich former fund manager got involved in a dispute with his ridiculously rich neighbors. Gross put up white netting; He claims it was to protect a million-dollar statue, they claim it was to block their view. They sued. He started blasting the Gilligan’s Island theme song all night long … because he liked it, not because he wanted to punish them. A judge issued a three-year restraining order. He and his wife violated it, and so he’s been ordered to pay a $1,000 fine (laughter ensues) and spend three days in jail (“Billionaire Bill Gross found guilty of contempt,” 10/2/2021).

Fed governors: Conflicts-of-interest are problems for other people

The US Federal Reserve is the most powerful and influential financial institution on the planet. Period. Full stop. Its interventions have shaped the post-2008 financial landscape like no institution in history. Those interventions have underwritten a stock market whose valuations have more than doubled, from a Schiller PE ratio of 15 in 2009 to 38 today.

Depending on which manager you speak with, the Fed has either been providing steroids… or opioids.

All of this makes it essential that people have confidence in the impartiality of the Fed’s decision-making. That impression was dented by disclosures that two members of the Fed’s governing board made active and extensive trades in industries directly impacted by their actions. Eric Rosengren, the president of the Federal Reserve Bank of Boston, was buying mortgage-backed bonds … an asset-class that the Fed itself was purchasing. Last week, he said he would step down “for health reasons.” Meanwhile, Robert Kaplan, the president of the Dallas Fed, made 22 trades valued at over $1 million and said he would resign Oct. 8 to avoid becoming a “distraction.”

My two favorite financial journalists, Kimberly Adams and Kai Ryssdal of Marketplace agreed that their actions were not illegal. Their disagreement centered on whether the actions “look really bad” (Adams) or “look terrible” (Ryssdal). But at least both had a good grace to resign.

No such principled action from the seven members of Congress – a rare, bipartisan group of four Democrats and three Republicans – who made hundreds of unreported financial trades despite (or perhaps because of?) the fact that five of the seven sit on the powerful House Financial Services Committee. Their actions violate the STOCK Act, which was designed to eliminate insider trading by members of Congress.

That’s not entirely “old guys acting badly,” since one of those involved is Cindy Axne (D-Iowa).

All the guys who think they could play football like a pro now conclude that they can invest money like one

“That Roethlisberger’s just a burned-out hulk. I’d have two tight ends out, a fullback in, and Claypool on a fly pattern. The defense wouldn’t know what hit them.”

Yep. Good luck with that.

Direct indexing is the “retail investing trend that’s sweeping Wall Street.” It’s a way to “Beat Funds At Their Own Game.” Not envious enough? It’s just “like customizing a Tesla, but with your portfolio.”

Vanguard, Fidelity, Schwab, Franklin Templeton, Morningstar, and others are all getting into the game by rolling out their own direct index services or by acquiring some direct indexing startups to add as divisions.

What on earth is it? It’s the financial communities latest innovation in their ongoing efforts to separate you from your wealth, without ever having you notice (Cf “Where are the customer’s yachts?” and “portfolio manager” in The Devil’s Financial Dictionary for details.) Direct indexing allows you to directly and easily own all of the stocks in an index, rather than owning them indirectly through shares of a fund or ETF. And because you own the individual shares, you can also rebuild the index to suit your individual whims, passions, and insights.

Don’t like Exxon? Begone! Got a hot tip on Tesla? Double down. Sneaking suspicion that the high price of bacon heralds dark days ahead? In with real assets industries!

The presumed advantage of direct indexing is heightened tax efficiency (you can aggressively sell losers – a strategy some describe as “selling low” – to offset gains from your winners, or perhaps to buy more of the winners – aka “buying high”). Or you can customize your holdings to express your value preferences.

Three things to keep in mind:

  1. you suck at trading – nothing personal, but the research is fairly consistent that trading, a signal of personal confidence in what the future holds, is a disaster for individual and professional investors alike. Morningstar’s annual “mind the gap” studies estimate that investor behavior costs us something like 2-4% a year. Mr. Fox’s report on the MIT study, above, is a bit more apocalyptic: “the S&P 500 generated an annualized return of 7.5%, the average investor only saw a gain of 2.9%, according to data from JPMorgan.”
  2. you’re going to get bored and take your eye off the ball. Life is full of distractions and it’s rare that your passions of five years ago – you were dabbing, riding hoverboards, and raging about the downgrading of Pluto – burn near so bright now as they did then. (Dabbing?)
  3. even professionals lose at this game. A lot. That is, after all, why you think you should be doing this on your own. Go read Charles Ellis’s classic Winning the Loser’s Game (7e, 2017) to understand why they don’t win … and you can’t.

One of the questions that arose in recent years was “how can Fidelity (or Invesco or SoFi or BNY) possibly make money by offering funds that charge zero in expenses” or “how can Vanguard possibly make money with funds that charge 3 basis points … you pay $3 in expenses for every $10,000 you commit? The answer is: those products are not designed to make money for the advisors, they’re designed to rope you into other, high-margin services.

Abigail Johnson didn’t get to $24 billion in net worth by running a charity.

You fool! You fell victim to one of the classic blunders – the most famous of which is “never get involved in a land war in Asia” – but only slightly less well-known is this: “Never go in against a Sicilian when death is on the line.”

There are three great rules for national and financial survival. They are:

    1. Never start a land war in Asia.
    2. Never buy “C” shares of any fund. For any reason. Before the advent of direct indexing, they qualified as “The World’s Worst Investing Idea.” They were cynical, predatory moves to disguise the existence of sales charges from unwary investors and cost people tens of billions. They’re now virtually extinct. (Yet Legg Mason is still rolling them out.) 
    3. Never pretend you know more about investing than you do.

The best we can say about the direct indexing vogue is that it hasn’t, yet, caused us to invade Russia in the late summer (or Afghanistan, “the graveyard of empires”).  

But who knows what the future holds?

Our heartfelt condolences to Ira Artman and his sons, Daniel and Josh. Ira is a long-time reader and frequent contributor to MFO, both its discussion board and our monthly issue. Ira’s lovely wife Amy fell ill on the night of September 24 and passed away the next day at the JFK Hospital in New Jersey. Amy was a physical therapist and a healthcare administrator, a teacher and a volunteer, a passionate reader, puzzler, traveler, partner, and mom.

We share Rabbi Rosin’s quiet closing note, “May Amy’s memory forever be for a blessing and may her family find some comfort during this devastating time.” And may that same memory remind us all of the preciousness of the moments we have together, the joy of making a difference, the importance of savoring each day, and of making evident our abiding love for those around us.

We wish them peace.

And to you, thanks! As ever to The Shadow, for his indefatigable contributions to the discussion board and to our knowledge of otherwise-cryptic SEC filings. To our faithful cadre of financial supporters: Wilson and the folks at S&F Investment Advisors. Greg, William, William, Brian, David, and Doug!

And to all of you who’ll join us again in November!

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A Leap of Faith – MICUS Chicago 2021

By Charles Boccadoro

The Welcome
Last week Morningstar’s CEO Kunal Kapoor welcomed 700 in-person attendees to Chicago and the Morningstar Investment Conference [MICUS 2021, the “US” short for United States]. This was the first such in-person event since before COVID. Another 1400 attended virtually. This hybrid approach to conferencing likely signals the way forward.

While many 2021 events were being rescheduled or canceled because of the unexpected Delta variant surge, Morningstar pressed on. And it was so welcomed! [Literally, attendees could watch the sunrise over Lake Michigan from the Lakeside Center venue of McCormick Place.] Last year’s all-virtual conference attempt was noble, but nothing beats in-person attendance.

As he superbly does, Kapoor articulated today’s investment options and landscape. “Many of the barriers that have existed for people to become investors have melted away.” There are customized fractional shares [comprised of stock slices set by investor discretion], social impact funds, global databases, access to private markets, and zero trading and holding fees. “The face of the investor is changing … it’s changed!” He noted that on “we’ve seen a nearly 50% uptick in visits of 18-24 year olds in the past 12 months alone.”

Can you believe that? After GFC [Global Financial Crisis], having watched their parents deal with massive drawdowns in lifetime savings twice in a decade, Millennials [aka Gen Y] wanted nothing to do with financial markets! The interests of today’s younger investors are much different than those of the baby boomers, who up till now have been the focus of advisors. This situation mandates more personalized portfolios.

Similarly, while introducing a new “Risk Ecosystem” product, Kapoor described the current equity environment as “one of the greatest bull markets.” I was again struck by the change in sentiment: It took 10 years [and ignoring the intra-month drawdowns of late March 2020], but this bull market, which started in March of 2009, has gone from “most hated” to “one of the greatest.”

He also announced the Morningstar 2021 winners for investing excellence: Joel Tillinghast of Fidelity is named Outstanding Portfolio Manager; Sonali Pier of Pimco awarded Rising Talent; and Dodge & Cox is recognized for Exemplary Stewardship. Seeing this recognition was also welcomed!

David has long admired Joel Tillinghast [aka “Mr. T”], as evidenced in his piece Three Tales of the Faithful. Tillinghast’s Fidelity Low-Priced Stock Fund [FLPSX] has rewarded investors with 13.6% annualized returns over the past 32 years, or about 3000% more than its peers or benchmark, cumulatively. FLPSX remains today an MFO Great Owl.

And for Dodge & Cox: It only took 20 years, but recognition for their style of investing and stewardship is back. The table below from our MultiSearch tool summarizes lifetime [or back to 1960] risk and return metrics of D&C’s current fund line-up, listed by largest assets under management [AUM]. APR is annualized return [or absolute return for young DODEX]. An APR Rating of 5 [blue] is top quintile.

PIMCO’s Sonali Pier is a team member on five Allianz PIMCO products, all worthy of fixed-income investor attention:

• Diversified Income Inst [PDIIX, Multi-Sector Income]
• Dynamic Income Opportunities [PDO, Global Income]
• Enhanced Low Duration Active Exchange-Traded [LDUR, Short Investment Grade Debt]
• High Yield Inst [PHIYX, High Yield]
• High Yield Spectrum Inst [PHSIX, Global High Yield]

The City
MICUS was welcomed not just by the pandemic weary and Zoom-fatigued investment community, but by the city itself. In 2020 and continuing today, Chicago has experienced a serious spike in violence, including lootings and gun-related homicides, driven by social unrest, pandemic-driven layoffs, store-front closures, and the attendant loss of tax base. One Uber driver lamented: “Chicago is beautiful on the outside, but inside … not so much.”

Many of its current problems started before the pandemic: A ballooning structural deficit and underfunded pension programs. Declining brick-and-mortar retail, like Macy’s exit from Water Tower Place. The tension between police and mayor. Morningstar, which was founded in Chicago in 1984 and incorporated in 2005, maintains its headquarters there, providing a note of hope.

Of my visits to MICUS in years past [2019, 2017, 2016], I called out Chicago’s vibrancy: Millennial Park, Art Institute, bustling food-courts inside McCormick Place, and restaurant row on Randolph Street. The 1871 entrepreneurial project. The future south-side location of the Obama Presidential Center, which just broke ground. The Riverwalk and breathtaking skyline. It certainly felt different this time.

The city seems to be recovering, but slowly. The Intelligentsia coffee bar at 53 West Jackson Blvd finally re-opened but to restricted hours. Fewer people are taking public transportation, exacerbating traffic as more employees return to the office place. Lake Shore Drive traffic during rush hour: “A nightmare.”

Uber rides cost a lot more. What used to be a $10 fare from my hotel, now costs $20-30, depending on time. I rarely saw a traditional cab visit McCormick Place, which is only about 3 miles outside the city center but feels more remote.

During a Friday walk along Magnificent Mile, which is not appearing so magnificent right now, I did delight in finding the outdoor café at Millennial Park open and busy. Lots of folks, including the four-legged kind, were relishing the blue skies and autumnal weather. The night before, I enjoyed the best late-night ham sandwich ever at a young and innovative new restaurant called Oriole. Fortunately, deep-dish Giordano’s remains a mainstay.

The Business
If attendance at Morningstar The Conference was down this year, it does not reflect the success of Morningstar The Business, in spite of COVID or perhaps helped by it. Since Kapoor took over CEO in 2017, employees have doubled, as have MORN’s valuations. The company’s market cap has nearly quadrupled.

Adding to its acquisition of private equity tracker Pitchbook, the company acquired credit rating firm DBRS in 2019 and ESG rating firm Sustainalytics in 2020.

Since most people probably think of Morningstar as just the “Good Housekeeping” of the fund industry, it’s probably worth listing all their current products:

DBRS Morningstar – Independent rating services and …
Morningstar Advisor Workstation – Investment research, financial planning, client reporting …
Morningstar Data – Global equity, managed investments, and market data …
Morningstar Direct – Advanced portfolio analytics and performance reporting …
PitchBook – Data, analysis, industry news, and in-depth reports on the private and public markets …
ESG Investing Solutions – Assessments of ESG risks and opportunities across asset classes …
Financial Planning Solutions – Web-based financial planning tools for advisors
Sustainalytics – Sustainable investment strategies and security-level ESG research and ratings …
Morningstar Office – Web-based portfolio and practice management …
Morningstar Research – Independent, comprehensive evaluations on equities, funds …
Morningstar Annuity Intelligence – Annuity research for professional investors
Morningstar ByAllAccounts – Account-aggregation and financial-management tools…
Morningstar Commodities and Energy – Research and data in the commodities and energy sectors …
Morningstar Credit Information and Analytics – Credit tools and research …
Morningstar Enterprise Components – Configurable, ready-to-integrate enterprise software …
Morningstar Essentials – Investment statistics and ratings for institutional marketing professionals
Goal Bridge – Goal-setting and investment planning for financial advisors
Morningstar Investment Research Center – Comprehensive investment resources for library patrons
Morningstar Reporting Solutions – Marketing materials, regulatory documents, and other custom …
Manager Selection Services – Manager selection and investment analysis for financial advisors
Morningstar Total Rebalance Expert – Tax-aware rebalancing for financial advisors
Morningstar Indexes – Product benchmarking and creation for financial institutions and asset managers
Managed Portfolios – Mutual fund, stock, and exchange-traded fund portfolios …
Morningstar Retirement Manager – Workplace retirement account service for plan sponsors
Advisor Managed Accounts – Managed accounts for registered investment advisors
Morningstar Fiduciary Services – Investment selection, portfolio monitoring, and portfolio reporting …
Morningstar Plan Advantage – Comprehensive retirement-plan management …
Target-Date Solutions – Target-date funds for plan sponsors
Morningstar Premium – Analysis of stocks, funds, and markets, plus tools …
Morningstar Investor Newsletters – Investment strategies and in-depth analysis …

Morningstar’s founder and chairman, Joe Mansueto, retains about 45% of outstanding shares, representing a current value of about $5 billion. If there is someone vested in Chicago’s recovery, it would be him. He purchased the historic Wrigley Building in 2018 and most recently the Waldorf Astoria Chicago. He owns Major League Soccer’s Chicago Fire. He remains a large donor to the University of Chicago, his alma mater.

One of the businesses Morningstar entered just under three years ago was their own brand of mutual funds, which replaced other funds in its Managed Portfolios business. The nine funds have accumulated $5.3B in AUM, or about $44M in additional fees for Morningstar.

At the time, it seemed awkward to us [here’s David’s Take] and it remains awkward for Morningstar to offer its own competing funds. What’s worse is that so far they have performed unremarkably, as can be seen in the table below. As a fiduciary, I would be hard-pressed to defend why these funds were chosen over others recommended by Morningstar’s own research teams. None of the funds will qualify for Morningstar’s “5 Star” rating when they soon reach the 3-year mark. Morningstar is also a sub-advisor of five other funds for ALPS. These five ETF asset-allocation portfolios suffer even worse performance; in fact, Morningstar itself ranks the ALPS family “Below Average.”

The Showdown
Perhaps the most anticipated session of the conference was entitled, “Gloom or Boom? Two Wildly Different Perspectives on Equity Valuations.” It showcased Research Affiliates’ Rob Arnott – “a diversified contrarian, value-oriented manager” – and ARK Investment Management’s Catherine Wood – “a disruptive, technology-focused, growth-oriented investor.”

Catherine Wood’s flagship ARK Innovation ETF [ARKK] has delivered eye-watering returns for investors for the past 7 years … 7 years! In the calendar year 2017, it returned 87.4%, and in 2020, 152.5%. Over this time, AUM across her eight funds grew to $44B.

Rob Arnott’s flagship Allianz PIMCO All Asset [PAAIX], a tactical allocation fund, has beaten its peers by 2.5% annualized for the past 20 years, included tempered drawdown during GFC. His RAE [Research Affiliates Equity] funds have also beaten their peers for the past 6 years, if modestly.

Arnott defends his investing style by deferring to Wood: “I’m not a growth investor. To be a growth investor, you need to be able to predict the future better than the market, which is very hard to do.” He’s more a believer in regression to the mean. While he acknowledges the explosive potential of “disruptive innovation,” he warns that the “disrupter can be disrupted” [Palm, Blackberry, Cisco] and it’s hard to know in advance which ones will come out on top [Amazon]. “Apple was on brink of ruin.” He believes markets can get ahead of themselves and for assets [Tesla, which he considers a bubble] get priced to perfection and to persist “the narrative must exceed expectations.” He believes that the disparity in growth vs value valuations will result in very satisfactory returns for value investors in the future.

Wood counters that Tesla is not a bubble and predicts TSLA will reach $3000 per share in 5 years. She never calls Tesla a car maker … “it’s a robot maker.” It poses four barriers of entry to competitors: lower battery costs, AI chip, miles driven, and software updates over the air. It represents the convergence of technologies that started 20 years ago: DNA engineering/robots/AI/energy storage/crypto. The attendant cost of these technologies continues to sink, creating enormous potential, as described in Wright’s Law. She predicts that Bitcoin will climb to $500,000. [Matt Hougan, an early champion of ETFs and now cryptocurrency, articulated in another session that “investing in cryptocurrency today is like investing in the internet in the early 1990s.”] She credits her dedicated analysts for ARK’s success. When does ARK exit a position? It trims positions when 5-year growth projections drop below 15% annualized and exit when below single digits.

In the end, they agreed on little, except perhaps that the finance sector was ripe for disruption through FinTech and DeFi. “Millions do not wish to go into a brick-and-mortar bank. The future bank branch is in your pocket.”

Wood has attracted lots of detractors or “haters.” Probably because of FOMO. Fear of missing out. Or, perhaps more literally, fear that they already missed out. Probably the same reason why “one of the greatest bull markets” was once one of the most hated. And probably the same for crytocurrency.

Morningstar published a portion of the showdown: The Tesla ‘Bubble Or Not’ Debate.

The Disruption
Similar to Arnott and Wood, the session “The Disruptors, the Disrupted, and How to Value Them” contrasted the different investing styles of two long-time successful managers: Dennis Lynch, Head of Counterpoint Global, Morgan Stanley Investment Management, and Bill Nygren, Portfolio Manager, Natxis Oakmark Funds. It was the best session of the conference.

Bill Nygren has been a value manager of the Oakmark Select Fund [OAKLX] since 1996, Oakmark Fund [OAKMX] since 2000, and the Oakmark Global Select Fund [OAKWX] since 2006. Dennis Lynch has led the Counterpoint Global team since 2002, focused on growth: Inception Portfolio I [MSSGX], Discovery Portfolio I [MPEGX], Growth Portfolio I [MSEQX], Advantage Portfolio I [MPAIX], Insight I [CPODX]. Both have received Morningstar’s Domestic Stock Manager of the Year, Nygren in 2001, and Lynch in 2013.

The table below summarizes their risk and return records for the past 12 years, plus more recent calendar year performance. Both managers have beaten their peers by healthy margins, but Lynch’s growth approach was better positioned to benefit from 2020, when four of his five funds joined the “100 Club” [delivered 100% or more].

They share several common views. For example, neither wants to be characterized as a trend chaser or appreciated being labeled. Nygren argues that disruption has always been part of the market, remembering “when newspaper used to be considered safe.” Lynch feels themes are traps, like “the tail wagging the dog.” Both feel that for companies to be successful the end user must benefit and unit economies achieved. Both are skeptical Tesla will maintain its lead in the automotive sector. Unlike Wood, they see Tesla as a car company.

One of their starkest differences was about cryptocurrency. Nygren wants no part of it because he doesn’t understand it, though he has tried. “We’re happy opting out. We don’t know enough to make an investment.” Oakmark cannot assign a value or margin of safety. Lynch sees crypto as “a bet on adoption and a bet on an alternative standard for how you think about value in relation to things like fiat currency, which also don’t necessarily have intrinsic value.” He recognizes the opposing camps [Warren Buffett considers it “rat poison.” Marc Andreessen is extraordinarily bullish.] He acknowledges it is speculative and sizes his bet accordingly. But it has persisted despite its critics claiming it will die since 2008. Lynch describes crypto as “anti-fragile” … it benefits from disorder.

Nygren tends to shy away from disruptive companies, in order to maintain his “skeptical hat.” He also believes that investors tend to underestimate the amount of change that established leaders can make … the disruption from within. Lynch likes the following contrarian guidance: “It’s always different this time; it’s just a matter of degree.” It’s a play on the old adage but helps avoid being dismissive. He was initially dismissive of Amazon in 2002. “Sounded like the worst idea of all time.”

The Rest

  • Jennifer Grancio, CEO of Engine No. 1. One of the founding partners of Blackrock’s hugely successful iShares, she led the activist movement to put three outside directors on Exxon’s board. An extraordinary accomplishment, but especially for a new ETF [VOTE]. It just reached $200M AUM. She presses companies to 1) incorporate tangible value on the environmental, social and governance actions, and 2) make decisions according to what will create long-term value for all stakeholders. Engine No. 1 works hard to assign that tangible value. She called Exxon the perfect test case.

  • Tyrone Ross, Jr., CEO of Onramp Invest. “Crypto is a godsend to those that are underserved. Fifty percent of the people in South Bronx are unbanked. That is the quintessential use case. It is digital social justice.” He argues that Bitcoin itself could go to zero tomorrow, but it’s the technology that will bring financial services closer to people that have never had it, because of financial red-lining.

  • Mike Green, Portfolio Manager and Chief Strategist, Simplify. He believes the massive success of passive index investing and its attendant massive inflows are distorting underlying risks in markets. There is no price discovery anymore. It just re-enforces momentum characteristics. [The five young ETFs he is mentioned as managing are all top quintile performers in Refinitiv’s Options Arbitrage/Strategies category of 130 funds: SPD, SPUC, SPYC, QQC and QQD.]

  • Megan Greene, Global Economist, Harvard Kennedy School. She believes the best of the recovery is behind us in macro. [Macro does not equal Markets!] Does not believe inflation will spiral, because it needs increasing wages to support it and continued productivity growth will mitigate it. Labor market has a ways to go, but “shortage of workers is not new.” COVID exacerbated inequality with high wage employment [>$60K per year] up 10% and low wage employment [<$27K per year] down 21%. “The rich save more and spend less.” This dynamic helps explain why we currently have a savings glut. She does not believe Evergrande will be China’s Lehman Moment. Nor does she worry about US debt: “The US can carry debt because 1) it’s the reserve currency, and 2) T-Bills are the most liquid and deepest asset class in the world.” EM will suffer as rates normalize. She predicts growth sector will continue to outperform value. Lastly, she sees opportunities in Europe … “I rarely say this!” Asked what’s it like working for Larry Summers, she said “It’s great.”

  • Morningstar’s US Equity Research Team: David Sekera, Seth Goldstein, Karen Andersen, Preston Caldwell, and Erin Stafford. Each gave an outstanding summary of their area of expertise, detailing where they saw opportunities to invest. EV is the future, but not for 15 years when the current supply of internal combustion cars starts to end. Until then, don’t discount traditional energy companies. There remains $4T of debt in commercial real estate. Brick and mortar malls will need to change or be plowed under and the land redeveloped. COVID broke records on vaccine discovery and development time. Many innovates product in pipeline, especially those based on mRNA [messenger ribonucleic acid]. US GDP should recover strongly and most workers will return to office. The US market is about 7% overvalued.

The Coverage
Here’s a link to Morningstar’s coverage of the conference.

The March
After MICUS, many of us had planned to participate in March for the Fallen [MFTF], as we have previously. But our group event was canceled due to COVID. Fortunately, Morningstar’s Ben Johnson, Director of Global ETF and Passive Strategies Research, organized a local “virtual” event at the Waterfall Glen Trail. The trail is located about 26 miles from downtown and completely surrounds Argonne National Laboratory. It was a glorious cool autumn day, perfect for us to enjoy in honor of the fallen.

“But we in it shall be remembered —

We few, we happy few, we band of brothers …”


Time to take out the trash: 25 huge funds with serious questions

By David Snowball

It is unfair and irrational to judge a fund solely on its total returns, much less on whether it has managed to “beat the market” lately. The former concern ignores a long series of important questions, the most important of which is “how much risk does the strategy expose you to in exchange for those returns?” Many would argue that receiving 20% of the market’s gains is great if you bear only 10% of its risk, and that’s what you signed up for in the first place.

The latter concern is simply lunatic. Rational people do not invest with the goal of beating the market. Rational people invest with the goal of ending up with resources that match or exceed their needs. If you beat the market ten years straight and your resources are less than your needs, you have lost. If you trail the market ten years straight and your resources exceed your needs, you have won.

Nonetheless, some funds have performance that warrants serious concern. One red flag is risk-adjusted returns (which allow us to answer the first question) that are seriously subpar. That is, returns that are substantially lower than the risks investors are accepting.

A more serious red flag might be consistently terrible risk-adjusted-performance.

And a redder than red flag might be consistently terrible risk-adjusted performance in funds that hold tens of billions to hundreds of billions of dollars of investors’ futures.

MFO Premium offers many, many ways to approach the question, “am I getting reasonable returns for the risks I’m being exposed to?” A fund’s capture ratio measures whether the fund captures more of an index’s gains than its losses. The Ulcer Index looks at a fund’s worst stretches, those marked by its major drawdowns, and incorporates both how far a fund has declined and how long it took (if ever) to recover. You could think of a fund that stumbles and recovers as warranting the occasional Tums, while those that do a face-plant and stay on the ground moaning might call for gastric surgery. Downside and down market deviation refine “standard deviation” to focus on the part of volatility that investors actually care about: the frequency and severity of a fund’s downside moves. The Sortino and Martin ratios are more risk-sensitive riffs on the famous Sharpe ratio.

For the sake of simplicity, we screened for very large funds ($10+ billion in assets) that ended up with bottom-tier Sharpe ratios over the past three years. Those seemed reasonable parameters since the past three years have seen a combination of dramatic bull and bear moves, and the Sharpe ratio is the most widely recognized snapshot of risk-adjusted returns.

What is the Sharpe ratio? It’s a formula that won a Nobel Prize for its namesake creator, William F. Sharpe, who developed it in 1966. It’s simply the difference in returns between an investment (your fund) and a risk-free return (typically a Treasury bill), divided by the investment’s standard deviation. In general, a Sharpe ratio of 1.0 is okay: you’re getting the same balance of risks and returns as a T-bill investor. Higher is better.

Over the past ten years, only one fund has had a Sharpe ratio above 2.0: RiverPark Short-Term High Yield (RPHIX), with annual returns of 2.8% and a standard deviation of 0.8%.

Over the same period, 1460 funds are above 1.0, but only 11 – all income funds – reached 1.5.

At the other end of the spectrum is nearly a trillion dollars devoted to funds that were cellar-dwellers over the past three years. In the table below, a Sharpe Rating of “1” signals a fund that was in the poorest 20% of performers in its peer group, “2” is below average but not terrible, “3” is average, and so on.

If you own one of the funds on this list, it’s time to start asking questions. There might be a very fine reason for a fund’s bottom tier performance over a three-year span … and a five-year span, also ten years, and the current market cycle that began at the end of the Covid bear in March 2020.

As the string of stumbles gets longer and funds with formerly top-tier performance show no sign of a rebound, the need to ask hard questions grows.

Bottom line: there are many ways to measure risk-adjusted performance precisely because no one way perfectly captures all of the aspects of performance that an investor needs to understand in order to be comfortable with a long-term holding. By some measures, some of these are perfectly fine performers. But as we enter into a period of increasing economic challenge (from rising prices, rising rates, energy price volatility, stretched valuations, and  China’s lurch, as examples), it’s increasingly important to understand what you own and why it acts the way it does. Sorting through those same questions in the midst of a storm would be … challenging.

Comparing Fidelity Strategic and Multi-Asset Income Funds (FADMX, FMSDX, FSRRX)

By Charles Lynn Bolin

This article takes a closer look at Fidelity Advisor Multi-Asset Income (FMSDX/FAYZX), Fidelity Strategic Real Return (FSRRX), and Fidelity Advisor Strategic Income (FADMX/FSIAX) which I have identified in previous articles as funds with high risk-adjusted-performance. They are managed by Adam Kramer, Ford O’Neil, and a strong team of co-managers.

This article continues the theme from the long-term trends identified in Retrospection Is a Hard Metric to Match. Recently Lance Roberts wrote Deficit Deniers & 40-Years of Economic Erosion covering the same 40 year period but emphasizes the detrimental impact of high federal budget deficits. The Catastrophe Portfolio, which contains FMSDX and FADMX, describes how to build a “buy and hold” portfolio for an investment environment starting with high valuations, high deficits, and low interest rates.

This article is divided into four sections so that readers can skip to the sections of interest: 1) Fund Managers, 2) Fund Strategy, 3) Composition, and 4) Performance. Key Points are provided for each section so that readers with limited time may gloss over sections. FMSDX is available to individuals at Fidelity while FAYZX is an older institutional share class. Likewise, FADMX is available to individuals while FSIAX is an institutional share class.  

As an overview, Table #1 contains some of my favorite metrics and ratings from Mutual Fund Observer for a select few funds managed by Mr. Kramer and Mr. O’Neil. The funds are Conservative (MFO Risk = 2) to Aggressive (MFO Risk = 4) and the Lipper Preservation Ratings are Average (3) to Above Average (4). The MFO Rating shows that the funds have Average (3) to Best (5) risk-adjusted performance for their categories. The Ferguson Mega Rating has the funds from Average (3) to Best (5). The Fidelity Advisor Strategic Income (FSIAX/FADMX) and the Fidelity Convertible Securities (FCVSX) have an average Lipper Rating for Five Year Tax Efficiency and the rest are less tax efficient.

Table #1: Five Year Ratings and Metrics

Source: Created by the Author using MFO Premium database and screener

The Growth of $10,000 in these five funds for the past five years can be seen in Figure #1. Note that the performance of some of these funds has improved since the 2020 correction as can be seen in the YTD performance in Table #1 above or Figure #1 below. This is due to FMSDX being able to take advantage of volatility to find value among asset classes, and FSRRX protecting against inflation. FADMX had relatively stable performance, and by assets under management is the most popular fund. FCVSX and FSDIX have done well, but are not covered in this article, because of higher risk ratings.

Figure #1: Growth of $10,000

Source: Created by the Author using Fidelity

1. Fund Managers

Key Point: This section is a brief summary of the management teams of FMSDX, FSRRX and FADMX.

Morningstar gives FMSDX a Five Star Rating and a Quantitative Rating of Silver, in part for its strong management team who have a sizeable personal investment in the fund. They give FMSDX a High People Pillar rating. They only give FSRRX a Two-Star Rating but a Quantitative Rating of Silver for its strong management team. FADMX gets a Four-Star Rating and Quantitative Ratings of Neutral to Gold depending upon its share class. Morningstar describes the management team as “Experienced leadership, thoughtful succession planning, and a well-equipped team of researchers, analysts, and traders.”

Adam Kramer (Lead Manager FMDSX, Co-manager Primary FSRRX & FADMX)

Adam Kramer is a portfolio manager in the Fixed Income division, who manages Convertible Securities Funds, Multi-Asset Income Funds, Strategic Funds including Dividend & Income Funds, Real Return Funds, and Income Funds. Mr. Kramer began working at Fidelity in 2000 as a research analyst and has since covered a variety of industries. Prior to joining Fidelity, Mr. Kramer worked for RSM Richter in Montreal as a chartered accountant and auditor. He has been in the financial industry since 1994. Mr. Kramer is a Chartered Professional Accountant (CPA) who earned his bachelor of commerce degree in accounting and a graduate diploma in public accountancy from McGill University, and his master of business administration degree from Cornell University.

Ford O’Neil (Co-manager Primary FSRRX & FADMX, Co-Manager FMDSX)

Ford O’Neil joined Fidelity in 1990 and has over 36 years of industry experience. Mr. O’Neil manages various retail and institutional taxable bond funds and portfolios, and five funds across three sectors in the U.S. for Fidelity. He was a Co-Manager of FADMX since 2012 but became the Primary Manager in 2017 when he was joined by Adam Kramer. Before joining Fidelity in 1990, Mr. O’Neil was an associate in the Investment Banking department at Advest. He received his Bachelor of Arts degree in government from Harvard University in 1985 and an MBA from the University of Pennsylvania – The Wharton School in 1990.

Ramona Persaud (Co-Manager FMDSX)

Ramona Persaud was born in South America and grew up in Latin American and the Caribbean. She received a Bachelor of Science degree from the Polytechnic University in 1997, and a M.B.A. University of Pennsylvania (Wharton) in 2003. Ms. Persaud joined Fidelity Investments in 2003 and has worked as a research analyst and portfolio manager.

Bill Maclay (Co-Manager of FSRRX)

BA, University of Washington, 1999
MSF, Boston College, 2005

Brandon C Bettencourt (Co-Manager of FSRRX)

MS, Worcester Polytechnic Institute, 2008
BS, Boston University, 2005

Richard Munclinger (Co-Manager of FSRRX)

PhD, George Washington University, 2009

Mark J Notkin (Co-Manager of FADMX)

MBA, Boston University, 1988
BS, University of Massachusetts, Amherst, 1986

Franco Castagliuolo (Co-Manager of FADMX)

BS, Bryant University, 1997

Sean Corcoran (Co-Manager of FADMX)

MBA, Northeastern University, 2002
BS, Colorado School of Mines, 1995

Timothy J Gill (Co-Manager of FADMX)

BS, University of Vermont, 2000

Ario Emami Nejad (Co-Manager of FADMX)

PhD, Imperial College London, UK, 2010

Brian S Chang (Co-Manager of FADMX)

BA, Northwestern University, 2002
MBA, Columbia University – Columbia Business School, 2007

Rick Patel (Co-Manager of FADMX)

Mathematical Sciences, University of Oxford, 2000
Abingdon School, 1997

Nader Nazmi (Co-Manager of FADMX)

BS, Iowa State University, 1981
BSE, University of Illinois at Urbana-Champaign, 1983
PhD, University of Illinois at Urbana-Champaign, 1985

2. Investment Strategies

Key Point: These funds apply an active, tactical approach and are not a substitute for safer bond funds, but lie between stock and bonds on the risk spectrum.

I like Fidelity’s approach to investing according to longer-term secular cycles and shorter-term business cycles.

Fidelity’s Business Cycle Board – composed of portfolio managers and other analysts within our Global Asset Allocation division – believes the U.S. has moved into the midcycle phase of expansion, marked by wide-scale reopening across states, with activity and inflation rates likely reaching a peak. Global economic expansion has likewise broadened, with variance across regions due in part to different vaccination and virus trends. Easy financial conditions are providing companies access to capital, but above-average valuations across many asset classes and potential volatility due to the anticipated tapering of monetary support remain risk factors.

– Abigail P. Johnson, Chairman’s Message, June 30, 2021

The Organisation for Economic Co-operation and Development (OECD) has released its Interim Economic Outlook as shown in Figure #2. As Fidelity points out, we are in a mid-cycle phase of the expansion, and the OECD expects growth to moderate, but sill grow at a healthy rate.

Figure #2: OECD World Growth Projections 2021 & 2022

Source: OECD Economic Outlook, Interim Report September 2021

Table #2 shows the average performance over the past fifteen years of all of the funds with the exception of those rated in the lowest fund family in these Lipper Categories. Martin Ratio is the risk adjusted performance and “Best Martin” is the highest Martin Ratio for all funds within that Lipper Category. Over the past fifteen years, the Multi-Sector Income Category had the highest risk adjusted returns. The traditional Moderate Allocation Mixed Asset Fund category has done well.

Table #2: Fifteen Year Risk and Reward of Income Oriented Funds

Source: Created by the Author using MFO Premium database and screener

Table #3 is from Tactical Sleeve for the Conservative Minded where I used MFO to categorize the best performing funds by stage of the business cycle. The flexible and multi-sector categories are broad, but appeal to me for the potential to offer higher risk adjusted returns by changing allocations based on market conditions.

Table #3: Best Performing Funds by Business Cycle Stage

Source: Created by the Author Using MFO Premium screener and Portfolio Visualizer

The team approach of Fidelity includes a macroeconomic research group and fixed income specialists.

In the wake of the global financial crisis, the firm’s fixed-income group improved communication and accountability across its various teams while also investing heavily in operations, developing a bevy of tools for portfolio managers to slice and dice a portfolio’s risks and identify opportunities in individual credits and mortgage pools.

– Mike Mulach, “A thoughtful multi-sector offering,”, Aug 24, 2021

Fidelity Multi-Asset Income (FMSDX)

Fidelity Multi-Asset Income Fund invests tactically across domestic and global equities, investment-grade debt securities, high-yield bonds, preferred stock, floating-rate securities, bank loans, emerging-markets debt, and real estate investment trusts in order to take advantage of short and long term market opportunities. The key take-aways from Adam Kramer, “Income and inflation: What you should know” (Fidelity Viewpoints, July 13, 2021) are:

    • Multi-asset income strategies may help investors meet their needs for income in the second half of 2021 despite interest rate uncertainty and the high prices of many stocks.
    • In exchange for higher income, some assets that these strategies invest in may experience more volatility than traditional income investments. In an inflationary environment, however, strategies that can invest in a variety of income-oriented assets may offer both higher income and better capital preservation tools than traditional fixed-income investments.
    • High-yield bonds, floating-rate loans, dividend-paying U.S. and international value stocks including energy and gold producers, master limited partnerships (MLPs), and real estate investment trusts (REITs), are among the investments that may offer income opportunities in the second half of 2021.
    • Professional investment managers may find opportunities when markets misprice these assets due to excessive pessimism about the future.

Figure #3 from Fidelity’s Quarterly Fund Review, shows how this tactical approach has changed allocations over time.

Figure #3: Rotation in FMDSX Allocations

Source: FMR

Fidelity Strategic Real Return Fund (FSRRX)

Fidelity Strategic Real Return Fund uses a multi-asset-class strategy that seeks inflation-adjusted return consistent with reasonable investment risk by investing in domestic and foreign issuers including U.S. TIPS, floating-rate high-yield bank loans, commodities, and related investments, and real-estate-related securities including REITs. Subportfolio managers are responsible for security selection in their respective areas of expertise, while the lead portfolio managers have the flexibility to make tactical allocation shifts. The managers use fundamental analysis of factors such as financial condition and industry position, and market and economic conditions to select investments.

When looking at the composition of FSRRX it can be confusing that there can be so much invested in “Other” categories. These are actually Fidelity’s central funds (specialized investment vehicles used by Fidelity funds to invest in particular security types or investment disciplines). Pairing allocations to categories along with holdings from MFO, I equate the following:

Fidelity Cent Invt Portfolios = Fidelity Floating Rate Central Fund

Fidelity Garrison Str Tr = Fidelity Commodity Strategy Central Fund

Inflation has many components and some are rising as shown in Figure #4 by the OECD. Inflation is affected by technology, supply chain, globalization, and geopolitics. Some aspects of inflation may be transitionary, but others may be less so.

Figure #4: Rising Inflation Components

Source: OECD

Fidelity Strategic Income Fund (FADMX)

FADMX seeks a high level of current income, but may also seek capital appreciation. The managers of FADMX invest primarily in debt securities by allocating assets among four general investment categories: high yield securities, U.S. Government and investment-grade securities, emerging market securities, and foreign developed market securities. The fund uses a neutral mix of approximately 45% high yield, 25% U.S. Government and investment-grade, 15% emerging markets, and 15% foreign developed markets. Forward foreign currency exchange contracts are used to hedge currency exposure. The Fund uses swaps, options, and futures contracts, and forward-settling securities, to manage risk. The fund also uses Fidelity’s central funds as described above.

The managers use a disciplined investment process incorporating economic and market signals to allocate across the range of the portfolio’s asset classes while the sub-portfolio managers seek to focus on security selection. The fund’s investment approach is to offer a diversified strategy with the potential to provide income regardless of the interest-rate environment. The managers use a bottoms-up approach to find attractive valuations.

3. Fund Composition

Key Point: The Funds have different strategies but there is some overlap in assets that investors should be aware of when managing their portfolios. The fixed income portions of these three funds are lower quality on average with interest rate sensitivity ranging from low for FSRRX to moderate for FADMX and extensive for FMSDX.

Fidelity Multi-Asset Income (FMSDX)

We are likely past the peak in year-on-year GDP growth rates, but growth and inflation are likely to stay elevated, thanks to consumer spending, retailer restocking, and monetary and fiscal stimulus measures. This should drive ongoing robust earnings growth: We are looking for 42% growth in global corporate earnings this year and 9% in 2022. We think this is a good environment for equities overall, and in particular for the energy and financials sectors…

FMSDX may be of interest to an investor who wants income (2.9% yield) with high risk-adjusted returns through an actively managed diversified portfolio. FMSDX has had a maximum drawdown of 11% over the past five years, and an average annual return of 11% during this time period. I like the value approach as shown by the higher allocation to energy, real estate, and financials and lower allocation to technology. I also like the portfolio diversification.

Table 4: FMSDX Composition

Source: Fidelity

Fidelity Strategic Real Return Fund (FSRRX)

Investors holding cash or traditional bonds but looking for additional income now should consider alternative means of yield generation, across private credit, senior loans, active fixed income, direct real estate, and FX, or by employing leverage or volatility-linked strategies.

– UBS Q4 Market Outlook

FSRRX may be a fund of interest to those who believe that inflation is a concern or that rates may rise. It has had a maximum drawdown of nearly 15% over the past five years with an average annual return of over 5%. The yield is about 2 percent.

Table 5: FSRRX Composition

Source: Fidelity

Fidelity Strategic Income Fund (FADMX)

FADMX may be a fund of interest to those who are seeking yield (3.1%), and are willing to accept a moderate amount of risk. FADMX has had a maximum drawdown of 9% over the past five years with an average annual return of over 5%.

Table 6: FADMX Composition

Source: Fidelity FADMX Fund Fact Sheet

Table 7:  FAMDX Rate Sensitivity

4. Fund Performance

Key Point: Future performance will differ because valuations, which are an excellent predictor of long-term returns, are now high, parts of inflation may or may not be transitionary, and rates are low. Use your judgment, and consider the risks…

The Fidelity Asset Manager 50% (FASMX) is shown as a baseline fund. All funds have compared well against their peers for the past five years. Fidelity Advisor Multi-Asset Manager (FAYZX/FMSDX) has performed better than FASMX with a lower drawdown and higher yield. Fidelity Strategic Dividend and Income (FSDIX) has also outperformed FASMX, but with a higher drawdown and higher yield. Over the past fifteen years. Fidelity Advisor Strategic Income (FSIAX/FADMX) has performed relatively well compared to FASMX but with a higher yield. FSRRX has not performed well over the past fifteen years, because inflation has been low, but the yield is decent.

Table 8: Fund Performance (Metrics for Five Years)

Source: Created by the Author using MFO Premium database and screener


Nearing retirement, I have consolidated accounts, talked with an advisor, and loosely come up with a strategy to have a managed tax-efficient after-tax account, and a managed Roth IRA for riskier investments, self-managed Traditional IRAs for more conservative investments, and a conversion from a Traditional IRA to a Roth IRA. I reviewed the basis of this strategy in Best Tax Efficient Funds. Taxes should be considered in building your portfolio, but not be the main driver of investment choices.

There is an excellent article on converting to a Roth in the September 2021 issue of the AAII Journal (Roger Young, “Can a Roth IRA Conversion Save You Money?”). It may make sense for those who have saved diligently mostly in traditional IRAs, have taxable accounts, and may have pensions. “It is especially attractive if their taxable income is low in their early retirement years”. By deferring social security until age 70, I will keep “income low in my early retirement years”, which “will reduce unwanted RMDs” and lower taxes in later years.

For the more conservative, self-managed accounts, FMSDX is one of my largest holdings. I bought FSRRX as a lower-risk hedge against inflation. Over time, I plan to add FADMX. FMSDX is best suited for a Roth IRA or 401k because of its higher returns and lower tax efficiency. FADMX is best suited for a taxable account, traditional IRA, or 401k because of its lower relative returns and moderate tax efficiency. FSRRX is best suited for a Traditional IRA because of its lower returns and low tax efficiency. If higher inflation develops then FSRRX would be suited for a Roth IRA or 401k. Investors with a longer time horizon may want to consider FSDIX.

As for the managed accounts? I once read that one of the primary roles of an investment advisor is to protect us from ourselves. This may mean from being too aggressive, too conservative, or from trading too often. I want a fund manager to do the heavy lifting for me. As Harry Callahan, played by Clint Eastwood, said in Magnum Force, “A man’s gotta know his limitations”.

Best Wishes and Stay Safe!

Between Scylla and Charybdis

By Edward A. Studzinski

“What is this optimism?” asked Cacambo.
“Alas!” said Candide, “it is the madness of maintaining that everything is right when it is wrong.”

~ Voltaire, Candide: or, The Optimist (1762)

Suffice it to say that September was not an easy month for equity investors. The equity markets entered the month overextended in terms of valuation metrics. And by the end of the month, we had seen the worst period for underperformance since March of 2020. And that comes as we have increasingly seen not consistency from day to day, but rather greater volatility.

The inflation reading for August came in at a higher level than it has for many years, confirming what the average individual has seen as that person does the grocery shopping, purchases fuel for the car, pays insurance bills, and tries to maintain his home in good repair. Inflation is here, and not at the 2% rate that the Federal Reserve had targeted. And while the political talking heads make obeisance in the direction of a “transitory” period of inflation, the definition of transitory is starting to look as if it might be greater than three years. In that vein, one must wonder if, in their own private conversations and briefings, Speaker Pelosi and Leader Schumer acknowledge to each other that we are on the edge of a period of hyperinflation. Which on the one hand might be viewed as good, since it would inflate away the debt being undertaken to finance a new paradigm. At the same time, hyperinflation would destroy the purchasing power of the earnings and savings of most likely all but the top two percent.

I will simply state that I believe we are on the cusp of a period coming that will be a hyperinflationary period, much as we saw at the end of the 1970s and beginning of the 1980s, all of which led to the election of Ronald Reagan. At this time, the focus of personal investing should be on wealth protection rather than growth. How should assets be allocated then? That is a question that requires an evolving answer, as the usual suspects are either not working, or facing political headwinds that haven’t usually been seen (energy). And we need to add to the mix the fact that supply chain issues are again beginning to bedevil us. For example, Costco is again putting purchasing limits on paper products (toilet paper) and bottled water. And in your regular supermarket forays, you will see more half-filled shelves along with prices on milk, butter, bacon, beef, pork, and chicken that are substantially higher than at the beginning of the year.

One factor contributing to that is the general unavailability of labor to fill open positions. Earlier this week I was speaking with a friend who banks with a $14B in assets bank in eastern Massachusetts. She wanted to go into her local branch to open a savings account for her son as a birthday present. She called her relationship banker, who told her the branch lobby was closed, she had to make an appointment. Which she did, and when they were in the branch, there was one bank account officer and one person on the teller line. When she asked what was going on, she was told that the bank had ninety open positions that it could not fill. I mentioned that story to someone at another bank in a different part of the state, who told me their problem was that the news media have made people so frightened of the Delta variant of the virus, that bank customers are doing most of their banking by phone, online, or by mail (not really by mail, which has its own problems presently). And all of this contributes to the hiccup in achieving a business revival.

What to do? I have never been a fan of investing in commodities (and never made money investing in them). In terms of agriculture, one had to deal with projecting and understanding the issues of weather, pests, plant disease, and the like. The same could be said for the extractive industries such as mining or energy. I still remember sitting at a gold mining conference in the 90’s outside of London where it dawned on me and one of my conference neighbors simultaneously that the problem with the business model was the culture of the management and the engineers. There was always another project to start, which SHOULD be cash flow positive in the future. It is a problem that we saw in the energy industry in this country – there were always more wells to be drilled, and with financing available, one could keep drilling. That said, 2020 was a wake-up call to energy, and the focus shifted to rational capital allocation.

Unfortunately, an energy surplus is now in danger of being something else, which if oil hits $90 a barrel by the end of the year, there will be a major impact on the economy and the way of life for most of America.

Put differently, 73% of the electricity generated in China comes from coal, natural gas, and nuclear. I don’t expect the leadership there to be willing to tell their population to sit in the dark and cold during the coming winter to fight global warming. I do expect to see as much Liquified Natural Gas as possible being shipped out of Texas and Virginia to Asia and Europe so companies in that arena will be minting money for the foreseeable future.

So, back to asset allocation – obviously have enough cash reserves to fund at least two years of living expenses, in insured certificates of deposit. There is a market to be shopped there in smaller banks and credit unions, with nine to twelve month certificate yields running between 35 and 45 basis points. In terms of currencies, if your liabilities are dollar-denominated, your investments also should be. The exception is using international funds that do not hedge back their foreign currency exposure to dollars.

In terms of bonds, favor those with maturities of less than a year, generally using some of the ultra-short bond funds available from Vanguard or Northern Funds. And in terms of equities, this is probably not the time to be making wholesale changes. If you have been comfortable with the funds you have been using in terms of management and holdings, and I mean that in terms of being willing to ride down with them in a drawdown, there is probably no good reason to make a shift now. On the other hand, if we are seeing management and ownership turnover as we have seen at Walthausen, or managements doing something new and out of character, such as going into small-cap investments when they don’t have the talent pool to do quality research in that area, be very careful.

China – I am not going to say much here, since I think the story is too complex to cover in a few sentences. You have people like Ray Dalio at Bridgewater saying it will be a mistake not to be invested in China going forward. You have others like George Soros questioning the wisdom of any investments in China, indeed questioning whether what you own is in effect anything other than a piece of paper. I suspect I would be more comfortable limiting myself to holding investments in Asian countries that have solid trade and economic relationships with China, such as Singapore.

Finally, the next two months will require careful attention to any tax law changes that make it into law, as well as the proposed effective dates. Some of the changes being bandied about could have major impacts in the areas of energy, real estate, master limited partnerships, and family-owned businesses.

And above all, when in doubt, sometimes the best thing to do is – nothing.

Launch Alert: CrossingBridge Pre-Merger SPAC ETF

By David Snowball

On September 17, 2021, CrossingBridge Advisors, LLC, launched their actively managed Pre-Merger SPAC ETF (SPC). CrossingBridge, primarily an institutional/high net worth advisor located in Pleasantville, New York, has approximately $970 million in assets under management and is responsible for the CrossingBridge Low Duration High Yield, CrossingBridge Ultra-Short Duration, and the CrossingBridge Responsible Credit funds.

While the buzz surrounding SPACs is that they are a high-risk, get-rich-quick scheme, the CrossingBridge fund is positioned as a cash alternative vehicle that seeks “total return with the preservation of capital.” They intend to invest in “SPACs that have yet to consummate a shareholder-approved merger or business combination,” which are also “trading at or below the SPAC’s pro-rata trust account value.” The fund hopes to offer significantly higher returns than you might find in a short-term fixed-income fund with a very limited downside.

A SPAC, or special purpose acquisition company, is a public corporation. As such, it can be judged on many of the same metrics that managers use to assess other potential investments: the quality and track record of the management team, the clarity of the business’s plan, and its yield. The handicap investors face is that individual SPACs don’t have performance records: they are created for a single purpose (for example, to help a private company go public) and have a limited lifespan (two years, in general).

SPACs have two special attractions. First, their business model allows them to execute the equivalent of an IPO with less hassle and expense than the traditional IPO process incurs. That makes them attractive to lots and lots of private companies. There are now 571 SPACs in existence with a total trust value north of $170 billion. Second, their portfolios are fully collateralized (typically) with Treasury securities. That is, they have actual money in the bank equal to or greater than their net asset value.

The CrossingBridge managers argue that it’s possible to assess a SPAC using the same discipline they use to assess the other high-yield companies in their portfolios. Those questions involve the time until culmination or liquidation, the SPAC’s yield (185 SPACs have a yield of 3% or more), the record of the management, and so on.

The fund will be managed by David Sherman and T. Kirk Whitney. Mr. Sherman has a distinguished record as a fixed-income investor (his RiverPark Short-Term High Yield Fund has the highest 5- and 10-year Sharpe ratios of any fund in existence), and he’s been investing in SPACs for 15 years. The fund’s initial expense ratio is 0.80%.

Interested parties might check out the fund’s website. Slightly obsessive parties might check out the adviser’s newly launched SPAC Informer website. SPAC Informer aims to provide the resources necessary for direct SPAC investors. Mr. Sherman analogizes it to the choice between trying to feed yourself by learning how to fish on your owner (SPAC Informer) or going to a professional fishmonger who does this stuff all the time and who can offer you a nice catch without all the hassle (the Pre-Merge SPAC ETF).

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 we survey actively managed funds and ETFs in the pipeline. This month brings 33 new products into the pipeline, most of which will launch by the end of late November.

French historian Jean Francois Marmontel (1723-99) coined, and the American agitator Thomas Paine (in The Age of Reason, 1793) popularized, the phrase “from the ridiculous to the sublime.” This month’s offerings perfectly capture that sentiment, ranging at they do from a bunch of marketing confections destined for ignominy and closure to a floating rate fund from Artisan Partners, an ETF that captures the equity portion of FPA Crescent’s portfolio and the conversion of the really solid Motley Fool Global Opportunities Fund into an ETF.

The two sets of offerings that give me the most pause are:

RCG ETF, an ETF version of the Sequoia Fund. There was a time when people rhapsodized about “the mighty Sequoia” and waited years in hopes that the long-closed titan would reopen. That time has passed. Sequoia’s rank in its 138 fund Lipper Multi-Cap Growth peer group is …

      • Annual return: 110th
      • Sharpe ratio: 111th
      • Capture ratio (S&P500): 115th
      • Downside deviation: 97th, that is, 97 have better “bad volatility” scores than Sequoia
      • Maximum drawdown: 120th

I wonder where else there would be any buzz around the announcement, “Hey, guys, we’re offering a clone of the 115th best fund in its peer group! Climb abroad”?

There’s a really thoughtful discussion of the prospect on MFO’s discussion board.

A suite of four Steward equity funds. Crossmark Steward is a faith-based investment house with six (soon-to-be eleven) funds that run the gamut from really solid performers to really soft ones. The driver for these new launches is the arrival of Robert (Bob) Doll, a guy who has already had a long, high-visibility career and who is very committed to faith-based investing. That said, he’s was born in 1955 and is in, likely, the latter stages of his career. Having him take the lead on four new funds at a firm far smaller than his earlier employers is curious and might warrant a bit of reflection on the part of prospective investors.

Alger Weatherbie Enduring Growth Fund

Alger Weatherbie Enduring Growth Fund will seek long-term capital appreciation. The plan is to build a portfolio of no more than 30 growth stocks, primarily mid-caps, that Weatherbie believes have enduring earnings, reasonable valuations and a distinct competitive advantage. The portfolio is also ESG-screened. The fund will be managed by H. George Dai, Ph.D. and Joshua D. Bennett of Weatherbie Capital. Its opening expense ratio for “A” shares will be 1.15%, and the minimum initial investment will be $1,000.

Amberwave Invest USA JSG Fund

Amberwave Invest USA JSG Fund, an actively managed ETF, seeks long-term capital appreciation. The plan is to invest in companies that contribute to U.S. jobs (25% weight in the portfolio screening), security (50% weight), and growth (25% weight). This ethos is embraced by one new fund every couple of years; to my best recollection, none of its predecessors have survived the test of the American marketplace. The fund will be managed by a three-person team from Amberwave Partners. Its opening expense ratio is 0.75%.

Amplify Decentralized Finance & Crypto Exposure ETF

Amplify Decentralized Finance & Crypto Exposure ETF, an actively managed ETF, seeks total return. The plan is to invest in companies that advance the crypto / defi realm (at least 40% of the portfolio) and in companies that are highly correlated to the price movements of cryptocurrencies. Not sure if that’s an earnings correlation or a share price correlation. The fund will be managed by a team led by Michael Venuto of Toroso Investments. Its opening expense ratio has not been disclosed.

Artisan Floating Rate Fund

Artisan Floating Rate Fund will seek total return through a combination of current income and long-term capital appreciation. The plan is to construct a diversified portfolio of floating rate debt instruments (floating-rate leveraged loans, which could include, among other types of loans, senior secured loans, unsecured loans, second lien loans, bridge loans, and junior loans) which are issued by firms with high-quality business models that have compelling risk-adjusted return characteristics. The fund will be managed by Bryan Krug and Seth Yeager. Mr. Krug manages the (closed, five-star, $7 billion) Artisan High Income Fund and Mr. Yeager serves as one of his analysts. Its opening expense ratio has not been disclosed and the minimum initial investment will be $1,000.

Bitwise Bitcoin Strategy ETF

Bitwise Bitcoin Strategy ETF, an actively managed ETF, seeks long-term capital appreciation. The plan is to invest in a combination of bitcoin futures (but not bitcoins themselves ‘cause that’s not permitted by the SEC) and short-term securities. There’s an interesting and distinctive risk disclosure focusing on “whipsaw markets risk” as well as for the possibility of “dramatic declines.” The fund will be managed by our friends [ ], [ ], [ ], and [ ]. Its opening expense ratio is, likewise, not known.

BlackRock Future U.S. Themes ETF

BlackRock Future U.S. Themes ETF, an actively managed ETF, seeks long-term capital appreciation. The plan is to use “a systematic framework for analyzing companies and seeking proactive risk-management by focusing on theme identification, theme evaluation, and portfolio construction.” What themes? What’s up with “Future US Themes” in the name? No hint, except for the promise of pursuing multiple themes. That sense of mystery extends to the management team, who are unnamed in the prospectus. Likewise, its opening expense ratio has not been disclosed.

Calamos Global Sustainable Equities Fund

Calamos Global Sustainable Equities Fund will seek long-term capital appreciation. The plan is to build a global portfolio of ESG-screened growth stocks. At least 40% of the portfolio will be invested outside of the US and that might include companies in emerging markets. The fund will be managed by James Madden and Anthony Tursich. Its opening expense ratio has not been disclosed, and the minimum initial investment for “A” shares will be $2,500.

Conestoga Micro Cap Fund

Conestoga Micro Cap Fund will seek long-term growth of capital. The plan is to invest in the stocks of higher quality micro-cap companies that have been growing through multiple business cycles. This is the conversion of Conestoga’s micro-cap hedge fund whose record is not yet available. The fund will be managed by David R. Neiderer, CFA, and Joseph F. Monahan who are responsible for its predecessor fund. Its opening expense ratio is 1.50%, and the minimum initial investment will be $2,500.

Connors Hedged Equity Fund

Connors Hedged Equity Fund will seek capital appreciation and some income, with lower volatility than U.S. equity markets. The plan is to invest in 25-50 high-quality mid- and large-cap firms then hedge the portfolio by writing call options on 25-75% of the portfolio. The fund will be managed by Robert Cagliola and Robert Hahn. Its opening expense ratio is 1.15%, and the minimum initial investment will be $25,000.

First Eagle Global Real Assets Fund

First Eagle Global Real Assets Fund will seek long-term growth of capital. The plan is to invest in “real assets” (gold bullion, precious metals, TIPs) and in industries tied to such assets (base materials, industrials, chemicals, energy, infrastructure, real estate, utilities, and related suppliers). The expectation is that such assets will perform relatively well in periods of rising or high inflation. The fund will be managed by Benjamin Bahr, John Masi, George Ross, and David Wang. Its opening expense ratio has not been disclosed, and the minimum initial investment for “A” shares will be $2,500. The fund will debut in November 2021.

FMC Excelsior Focus Equity ETF

FMC Excelsior Focus Equity ETF, an actively managed, non-transparent, non-diversified ETF, seeks long-term capital appreciation. The plan is to buy and hold 25-30 high-quality stocks though, at inception, “the Fund expects to hold significantly more than the usual 25-30.” Two notes: (1) no reason why and (2) “the Fund” is a legal fiction, not a person, and hence “expects” nothing. The fund will be managed by Himayani Puri, director of research for First Manhattan. Its opening expense ratio is not known.

FPA Global Equity ETF

FPA Global Equity ETF, an actively managed ETF, seeks long-term growth of principal and income. The plan is to build a global value portfolio using the firm’s Contrarian Value Equity Strategy. You might be forgiven for suspecting that this is pretty much just the equity portfolio from FPA Crescent. The fund will be managed by Steve Romick, Mark Landecker, and Brian A. Selmo. Its opening expense ratio is 0.49%.


Gen Z ETF, an actively managed ETF, seeks capital appreciation. The plan is to invest in 50 companies that are “most relevant to Generation Z.”  There’s a lot of talk about the sorts of Z Scores (the Gen Z Disruption score) that will determine who makes the portfolio. From the outside, the portfolio construction seems driven by the desire to make something marketable, as with the various “young investor” funds. The fund will be managed by Leonard (Lenny) Feder. Its opening expense ratio is 0.60%.

GIA Core Plus Fund

GIA Core Plus Fund will seek total return derived primarily from interest income and secondarily from price appreciation. The plan is to build a broadly diversified portfolio that invests in U.S. core fixed income markets and focus on global credit to generate most of the strategy’s excess returns. The fund will be managed by a six-person team from GIA Partners. Its opening expense ratio is not known, and the minimum initial investment for Investor shares will be $1,000 while Institutional shares will be available at $10,000.

Grizzle Growth ETF

Grizzle Growth ETF, an actively managed ETF, seeks capital appreciation. The plan is to invest in 30-60 growth stocks in trendy industries, from solar and crypto finance to gaming and plant-based meat. The fund will be managed by Thomas George and Scott Willis of Grizzle Investment Management. Its opening expense ratio is 0.75%.

Janus Henderson B-BBB CLO ETF

Janus Henderson B-BBB CLO ETF, an actively managed ETF, seeks capital preservation and current income by investing in floating-rate securities with exposure to collateralized loan obligations (that’s the “CLOs”) generally rated between and inclusive of BBB+ and B- (the B-BBB). The fund will be managed by John Kerschner and Nick Childs. Its opening expense ratio has not been disclosed.

John Hancock Preferred Income ETF

John Hancock Preferred Income ETF, an actively managed ETF, seeks a high level of current income, consistent with preservation of capital. The plan is to buy preferred stocks and other preferred securities, including convertible preferred securities, contingent convertible securities, and corporate hybrid securities. Up to 50% of the portfolio holdings might be lower-quality issues. The fund will be managed by Joseph H. Bozoyan and Bradley L. Lutz, CFA. Its opening expense ratio is not known.

MFAM Global Opportunities ETF

MFAM Global Opportunities ETF, an actively managed ETF, seeks long-term capital appreciation. The plan is to build a focused portfolio of common stocks from high-quality U.S. and non-U.S. companies. This represents the conversion of MFAM’s successful $700 million Global Opportunities mutual fund into an ETF format. The fund will be managed by the same four people that manage the fund. Its opening expense ratio is 0.85%. For those of you who aren’t one of the cool kids, MFAM is Motley Fool Asset Management.

MFAM Mid-Cap Growth ETF

MFAM Mid-Cap Growth ETF, an actively managed ETF, seeks long-term capital appreciation. The plan is to build a focused portfolio of high-quality midcap companies. This is the conversion of the $300 million MFAM Mid-Cap Growth Fund, which started life as the Motley Fool Great America Fund, into an ETF. The mutual fund is, to be blunt, just okay. The fund will be managed by the four managers who run the mutual fund (and the Global Opps fund). Its opening expense ratio is 0.85%.

MFS Intrinsic Value Fund

MFS Intrinsic Value Fund will seek capital appreciation. The plan is to build an all-cap, possibly global, portfolio of firms whose stock is undervalued relative to its … well, intrinsic value. The fund will be managed by Timothy W. Dittmer and Benjamin Stone. Its opening expense ratio is “[[Report does not exist]],” and the minimum initial investment will be $1,000. That’s waived for accounts set up with automatic investing plans. The fund’s curiously delayed launch date is February 2022.

PGIM Total Return Bond ETF

PGIM Total Return Bond ETF, an actively managed ETF, seeks total return. The plan is to buy a combination of US Government securities, mortgage-related and asset-backed securities, corporate debt securities, and foreign debt securities. Up to 30% of the fund might be invested in junk bonds and up to 30% in non-US securities. The fund will be managed by a five-person team from Prudential. Its opening expense ratio is 0.49%.


RCG ETF, an actively managed ETF, seeks long-term growth of capital. The plan is to buy undervalued securities and to hold cash substitutes when there aren’t enough good options to be found. As a practical matter, it’s the ETF version of Sequoia Fund. The fund will be managed by Sequoia’s managers. Its opening expense ratio has not been disclosed.

Sterling Capital Diversity Equity & Inclusion Active ETF

Sterling Capital Diversity Equity & Inclusion Active ETF, an actively managed ETF, seeks long-term capital appreciation through strategies managed by sub-advisers that are majority diverse-owned (i.e., greater than 50 percent owned, controlled, and operated by persons of designated diverse backgrounds, including women, racial minorities, LGBTQ+ individuals, veterans, and disabled individuals). The portfolio is balanced between large value, large growth, and mid-cap core. Boston Common Asset Management handles the large-cap value sleeve, GQG Partners does large-cap growth strategy and EARNEST Partners LLC will be responsible for U.S. mid-cap core strategy. Its opening expense ratio has not been disclosed.

Steward Equity Market Neutral Fund

Steward Equity Market Neutral Fund will seek capital appreciation independent of the U.S. equity market. The plan is to use a values-based screen to create a mostly large-cap long portfolio, then match it with a short portfolio in hopes that returns for the fund will be driven by the superiority of the companies in the long portfolio rather than broad market movements. The fund will be managed by Robert Doll and Ryan Caylor. Mr. Doll is, to put it gently, famous: formerly Chief Equity Strategist at Nuveen and BlackRock, President and Chief Investment Officer at Merrill Lynch Investment Managers, Chief Investment Officer at Oppenheimer Funds, and beloved talking head on CNBC. Its opening expense ratio for “A” shares is 2.25%, and the minimum initial investment will be $1,000.  The same prospectus gives Messrs. Doll and Caylor responsibility for three other funds, all likely to launch in November: Steward Large Cap Core Fund, Steward Large Cap Growth Fund, and Steward Large Cap Value Fund. Presumably, each of those funds owns a slice of this fund’s long portfolio. Steward Small Cap Growth Fund will be managed by Brent Lium.

The NextGen Trend and Defend ETF

The NextGen Trend and Defend ETF, an actively managed ETF, seeks capital appreciation. The plan is to figure out what the market’s trend is and buy S&P500 ETFs if the market is positive, inverse ETFs if it’s negative, and short-term Treasury ETFs if it can’t make up its mind. The fund will be managed by Chuck Brokop and Sean Puckett of Tuttle Capital Management. Its opening expense ratio is 1.0%.

UBC Algorithmic Fundamentals ETF  

UBC Algorithmic Fundamentals ETF, an actively managed ETF, seeks long-term capital appreciation. The plan is to invest in 40-80 large-cap stocks using “proprietary artificial intelligence (AI) algorithms” to pick the winners by identifying growth companies “with predicted expanding fundamentals.” The fund will be managed by an unnamed manager from an unnamed sub-adviser. Its opening expense ratio is 0.75%.

VegTech Environmental Impact and Plant-based Innovation ETF

VegTech Environmental Impact and Plant-based Innovation ETF, an actively managed ETF, seeks long-term growth of capital. The plan is to invest in innovators in developing products, services, trade secrets, technology, methods, and advancements in scientific research relating to the areas of plant-based foods, cell-cultured foods, precision fermented foods, animal-free agriculture, animal-free materials, and scientific services. The fund will be managed by a four-person team from Penserra Capital Management. Its opening expense ratio is 0.75%.

WealthTrust DBS Long Term Growth ETF

WealthTrust DBS Long Term Growth ETF, an actively managed ETF, seeks long-term growth of capital with a secondary objective of providing dividend income. It’s a sort of managed futures fund with lots of complexity but a core belief that “the trend is your friend” and that they can maneuver the fund to profit from it. The fund will be managed by as-yet-unnamed parties. Its opening expense ratio is not known.

Westwood Quality MidCap Fund

Westwood Quality MidCap Fund will seek long-term capital appreciation. The plan is to invest in 50-80 securities that are undervalued in relation to the broader market and issued by mid-cap corporations (including REITs and MLPs) which employ superior business models compared to their competition and possess strong balance sheets and free cash flow. The fund will be managed by Trip Rodgers, Lauren Hill, and Michael Wall. Its opening expense ratio is 0.78%, and the minimum initial investment will be $100,000.

Manager changes, September 2020

By Chip

Each month we track changes to the management teams of actively managed, equity-oriented funds and ETFs. That excludes index funds and most fixed income funds. The index fund exclusion is pretty straightforward: in a passive fund, the managers are interchangeable cogs whose presence or absence is almost always inconsequential to the fund’s performance.

Similarly, most bond fund managers have a very limited ability to add value. Over the past ten years, for instance, the top-performing Core Bond fund in the Lipper universe outperformed its peers by just 1% per year with a virtually identical Sharpe ratio (0.98 for the top returning fund, 0.97 for the average fund). The best global income and flexible income managers outperformed by 3.5 and 2.4%, respectively, which is comparable to the margin between the best large-core equity fund managers and the pack.

This month, we noted just 31 funds with changes in their management teams.

Ticker Fund Out with the old In with the new Dt
SMCVX ALPS | Smith Credit Opportunities Fund Steve Zamsky is no longer serving as a portfolio manager for the fund. Jonathan Aal, Garrett Olson, and Eric Bernum join Gibson Smith in managing the fund. 9/21
CAIBX American Funds Capital Income Builder David M. Riley will no longer manage money in the fund. Twelve other managers remain, raising the question, “will they even notice someone’s missing?” 9/21
CWGIX American Funds Capital World Growth and Income Fund David M. Riley will no longer manage money in the fund. The rest of the team remains. 9/21
GBLAX American Funds Global Balanced Fund David M. Riley will no longer manage money in the fund. Alfonso Barroso, Winnie Kwan, Thomas Høgh, Andrew Cormack, and Bradford Freer remain. 9/21
ATPCX Aquila High Income Effective October 1, 2021, Three Peaks Capital Management, LLC will no longer serve as Sub-Adviser. Effective October 1, 2021, Pedro Marcal and David Schiffman will serve as portfolio managers of the fund. 9/21
ATGAX Aquila Opportunity Growth Effective October 1, 2021, Three Peaks Capital Management, LLC will no longer serve as Sub-Adviser. Effective October 1, 2021, Pedro Marcal will serve as portfolio manager of the fund with John McPeake. 9/21
MPISX BNY Mellon Income Stock No one but… Keith Howell joins John Bailer, Brian Ferguson, and David Intoppa as a portfolio manager of the fund. 9/21
QCVAX Clearwater International Effective December 31, 2021, Kurt Winrich will no longer serve as a portfolio manager of the fund.   9/21
CSFAX Cohen & Steers Global Realty Shares No one but… Effective November 1, 2021, Ji Zhang will join Jon Cheigh, William Leung and Rogier Quirijns as a portfolio manager of the fund. 9/21
IRFAX Cohen & Steers International Realty No one but… Effective November 1, 2021, Ji Zhang will join Jon Cheigh, William Leung and Rogier Quirijns as a portfolio manager of the fund. 9/21
FAMEX FAM Dividend Focus Effective December 31, 2021, Thomas Putnam will retire as co-manager of the fund. Effective December 31, Paul Hogan and William Preston will continue to manage for the fund. 9/21
FAMDX FAM Small Cap Effective December 31, 2021, Thomas Putnam will retire as co-manager of the fund. Effective December 31, Andrew Boord and Kevin Gioia will continue to manage for the fund. 9/21
FAMVX FAM Value Effective December 31, 2021, Thomas Putnam will retire as co-manager of the fund. Effective October 1, 2021, Marc Roberts will join Thomas Putnam, John D. Fox, Andrew P. Wilson and Marc Roberts in managing for the fund. 9/21
KAUFX Federated Hermes Kaufmann Fund Jonathan Art will no longer serve as a portfolio manager for the fund. The rest of the team remains. 9/21
KLCAX Federated Hermes Kaufmann Large Cap Fund Jonathan Art will no longer serve as a portfolio manager for the fund. The rest of the team remains. 9/21
FKASX Federated Hermes Kaufmann Small Cap Fund Jonathan Art will no longer serve as a portfolio manager for the fund. The rest of the team remains. 9/21
GPGOX Grandeur Peak Global Opportunities Fund Robert Gardiner, GP’s founder, is moving from portfolio manager to a “Guardian Portfolio Manager” role. That’s not quite the same as chaperoning a date rather than going on one yourself, but it’s getting close. Ben Gardiner, Amy Hu Sunderland, and Blake Walker remain. 9/21
GPIOX Grandeur Peak International Opportunities Fund Robert Gardiner is stepping down as co-Guardian Portfolio Manager. Blake Walker, Juliette Douglas, and Mark Madsen remain with the fund. 9/21
JSCAX John Hancock Small Cap Value Effective December 31, 2022, Timothy McCormack will no longer serve as a portfolio manager of the fund. Edmond Griffin and Shaun Pedersen will continue as portfolio managers of the fund. 9/21
OLGAX JPMorgan Large Cap Growth Holly Fleiss is on leave and will return about January 2, 2022. Giri Devulapally, Larry Lee, and Joseph Wilson will continue to manage for the fund. 9/21
MKIEX McKee International Equity Portfolio Micheal J. Donnelly is no longer listed as a portfolio manager of the fund. Shawna Aufman will join Micheal P. Donnelly, Bradley Thompson, Paul Frank, and Clayton Wilkin as a portfolio manager of the fund. 9/21
ORILX North Square Multi Strategy Oak Ridge Investments, LLC is no longer serving as the sub-adviser to the fund. NSI Retail Advisors, LLC will serve as a new sub-advisor to the fund. 9/21
MSILX PartnerSelect International Fund, formerly Litman Gregory PartnerSelect International Fund Following a change in sub-advisors, value investors David Marcus, Fabio Paolini and Benjamin Beneche will no longer serve as portfolio managers for the fund. Todd Morris and Daniel Fields join David Herro, Jeremy DeGroot, Mark Little, and Rajiv Jain on the management team. 9/21
SVDHX Savos Dynamic Hedging Jason Thomas is no longer listed as a portfolio manager of the fund. Steven Wang has join Matthew Goff in managing for the fund. 9/21
LCG Sterling Capital Focus Equity ETF   Effective September 28, 2021, Colin Ducharme and Jeremy Lopez will serve as portfolio managers of the fund. 9/21
SMDPX Sterling Capital SMID Opportunities Joshua Haggerty and Adam Bergman are no longer listed as portfolio managers for the fund. Effective August 31, 2021, Lee Houser and James Curtis will now serve as portfolio managers of the fund. 9/21
SUPRX Superfund Managed Futures Strategy Fund Gerhard Entzmann is out. Tennyson Briggs will now manage the fund. 9/21
TASCX Third Avenue Small-Cap Value Evan Strain is no longer managing the fund. Victor Cunningham continues to serve as the portfolio manager of the fund. 9/21
HIEMX Virtus Vontobel Emerging Markets Opportunities Fund Brian Bandsma will no longer be a portfolio manager of the fund. Ramiz Chelat joins Matthew Benkendorf and Jin Zhang in managing the fund. 9/21
WFGGX WCM Focused Global Growth Fund Effective December 31, 2021, Kurt Winrich will retire and no longer serve as portfolio manager of the fund. Sanjay Ayer, Paul Black, Peter Hunkel, and Michael Trigg will continue to manage the fund. 9/21
WCMRX WCM Focused International Growth Fund Effective December 31, 2021, Kurt Winrich will retire and no longer serve as portfolio manager of the fund. Sanjay Ayer, Paul Black, Peter Hunkel, and Michael Trigg will continue to manage the fund. 9/21

Briefly Noted…

By David Snowball


And the beat goes on. Five more mutual funds are becoming ETFs. On October 22, 2021, the Adaptive Fundamental Growth Fund, Adaptive Hedged High Income Fund, Adaptive Hedged Multi-Asset Income Fund, Adaptive Tactical Outlook Fund, and Adaptive Tactical Rotation Fund will be converted into the AI Quality Growth ETF, Adaptive High Income ETF, RH Hedged Multi-Asset Income ETF, RH Tactical Outlook ETF, and RH Tactical Rotation ETF, respectively. While the names and structure change, the investment strategies do not.

DFA is dancing to that very beat. Two more active DFA mutual funds have converted to ETFs: Dimensional International value ETF (DIV) and Dimensional DFA World ex US Core Equity 2 ETF (DFAX). That brings the DFA tally to nine ETFs, six of which are converted mutual funds, and about $40 billion in ETF assets.

Briefly Noted . . .

Franklin Templeton announced that it will acquire O’Shaughnessy Asset Management, LLC. The celebration of O’Shaughnessy focuses on SMAs and custom indexing services, with the acquisition of its one remaining fund (O’Shaughnessy Market Leaders Value) and four ETFs (mostly “quality dividend” focused) as a minor afterthought.  

Stand by for the executions. Macquarie Asset Management purchased Waddell & Reed Financial and, through them, the Ivy Funds. Macquarie has “completed a thoughtful review” and will soon announce “a number of changes” to who manages a fund, benchmark changes, and, in some cases, investment strategy modifications and liquidations.

Perhaps as a warm-up exercise, Macquarie has resolved to liquidate and dissolve Delaware Ivy ProShares Russell 2000 Dividend Growers Index Fund, Delaware Ivy ProShares MSCI ACWI Index Fund, Delaware Ivy Cash Management Fund, Delaware Ivy VIP Government Money Market, Delaware Ivy VIP Global Bond, Delaware Ivy ProShares Interest Rate Hedged High Yield Index Fund, and Delaware Ivy ProShares S&P 500 Bond Index Fund on or about November 15, 2021.

Applying the SPACkling: Voya has added SPACs as investment options for the Global High Dividend Low Volatility, International High Dividend Low Volatility,  Multi-Manager Emerging Markets Equity, Multi-Manager International Equity, Multi-Manager International Factors, and Multi-Manager International Small Cap funds.

VanEck Digital Transformation ETF announced some unhappy news (“Effective September 17, 2021, semiconductor and online money transfer companies will no longer be eligible for inclusion in the Index”) and then some news that might affect the fund’s tracking error (“Semiconductor and online money transfer companies that do not meet the above criteria may be added to the Index to reach a component number of 25”). Translation: “We have an investment universe so small that if we eliminate the two sectors we propose to eliminate, our portfolio violates other rules so … ummm, we’re going to squint really hard!”


Effective October 1, 2021, Investor Class Shares, Y Class Shares and I Class Shares of Acadian Emerging Markets Portfolio will be available for purchase. Should you peek in? The fund has seen three years of pretty consistent outflows. By pretty much every measure we track, the fund has been mediocre since inception. Not bad, by any means, just “almost identical to its peer group average” on the standard measures of risk-adjusted performance.

After a four-month closure, DGI Balanced Fund has reopened to new investors. A curious fund. Opened in May. Drew a quarter billion in assets. Closed in June. Reopened and, as of 10/1/2021, has managed to turn a $10,000 initial investment into … well, $10,000.

CLOSINGS (and related inconveniences)

Nuveen High Yield Municipal Bond Fund closed to new investors on September 30, 2021.

Victory Sycamore Established Value Fund and Victory Sycamore Small Company Opportunity Fund have closed to new investors.


On October 1, 2021, Aquila Three Peaks High Income Fund and Aquila Three Peaks Opportunity Growth Fund were renamed Aquila High Income Fund and Aquila Opportunity Growth Fund, respectively. That’s consequent to Three Peaks surrendering their sub-advisory role on the funds.

Effective on or about November 6, 2021, Aware Ultra-Short Duration Enhanced Income ETF will change names to become the National Investment Services Ultra-Short Duration Enhanced Income ETF.

Baird Small-Cap Value is giving up on … well, small caps and value to become Baird Equity Opportunity Fund as management switches to Greenhouse Funds LLLP (more L’s than I’m used to seeing) and becomes a focused, opportunistic SMID cap fund.

Following shareholder approval, BlackRock Long-Horizon Equity Fund will be renamed BlackRock Unconstrained Equity Fund.

On September 24, 2021, the Cannabis Growth Fund became an exchange-traded fund, the Cannabis Growth ETF. For what interest it holds, here are the lifetime records of all 10 funds and ETFs whose name includes “cannabis.”

EEEEEEEEEEE!  Aberdeen Standard Bloomberg All Commodity Strategy K-1 Free ETF, Aberdeen Standard Bloomberg All Commodity Longer Dated Strategy K-1 Free ETF, and Aberdeen Bloomberg Industrial Metals Strategy K-1 Free ETF have gotten virtually E-free as they transition from Aberdeen (which people both can say and which makes some sense) to abrdn (for which neither is true). The more pressing question, “why didn’t they also become the strategy TFs?” remains unanswered.

Effective November 1, 2021, Catalyst Multi-Strategy Fund becomes Catalyst Income and Multi-Strategy Fund and gains a heightened appreciation for income.

Effective September 30, 2021, the name of the Emerald Banking and Finance Fund has changed to the Emerald Finance & Banking Innovation Fund.

First Trust Strategic Income ETF intends to become a fund-of-funds. Following shareholder approval of the changes, the fund will be renamed First Trust High Income Strategic Focus ETF (HISF).

Effective September 1, Harbor Mid Cap Growth Fund was renamed Harbor Disruptive Innovation Fund.

Effective on or about October 28, 2021, Janus Henderson Short-Term Bond Fund will change its name to Janus Henderson Short Duration Flexible Bond Fund.

Effective as of December 29, 2021, the PGIM QMA funds become the PGIM Quant Solutions funds. Before they became obsessive with abbreviations, PGIM was just Prudential. The name changes will not result in any change in the investment objective or investment strategies.

PGIM QMA US Broad Market Index PGIM Quant Solutions US Broad Market Index
PGIM QMA Mid-Cap Core Equity PGIM Quant Solutions Mid-Cap Core *
PGIM QMA International Developed Markets Index PGIM Quant Solutions International Developed Markets Index
PGIM QMA Emerging Markets Equity PGIM Quant Solutions Emerging Markets Equity
PGIM QMA Commodity Strategies PGIM Quant Solutions Commodity Strategies
PGIM QMA Large-Cap Value PGIM Quant Solutions Large-Cap Value
PGIM QMA Stock Index PGIM Quant Solutions Stock Index
PGIM QMA Large-Cap Core Equity PGIM Quant Solutions Large-Cap Core *
PGIM QMA Mid-Cap Value PGIM Quant Solutions Mid-Cap Value
PGIM QMA International Equity PGIM Quant Solutions International Equity
PGIM QMA Small-Cap Value PGIM Quant Solutions Small-Cap Value
PGIM QMA Strategic Alpha International Equity ETF PGIM Quant Solutions Strategic Alpha International Equity ETF
* Remove “equity” from fund name.  

Effective on December 10, 2021, VanEck Vectors ChinaAMC SME-ChiNext ETF will be renamed VanEck ChiNext ETF. (And here we thought ChiNext was just an upscale brand of paper plates!)

Effective September 1, 2021, the 35 VanEck Vectors ETFs will be re-named VanEck ETFs. Their lineup ranges from the eminently sensible (VanEck Morningstar Wide Moat ETF) to … well, the regrettable (VanEck Social Sentiment ETF, Gaming and eSports ETF).

Hope Allsprings eternal. Two items in the news which cynics suspect are related. Item #1, Wells Fargo has been found guilty of fraud for the … oh, who knows, 240th time? Wells Fargo has paid, or agreed to pay, $72.6 million for defrauding 771 small and medium-sized businesses. The lede from the Daily Mail (9/27/2021) captures the scam:

Wells Fargo will pay $37 million in fines after “routinely” lying to small and medium businesses about exchange rates and keeping a running tally of the overages they were willing to accept while their own workers made up to $1 million in bonuses.

The bank failed to disclose the fees it charged companies that dealt in foreign currency between 2010 and 2017, only letting them know about the ‘all in’ final rate rather than the market rate or the extra money it was charging … The bank has already paid $35 million in restitution to its customers, according to the settlement, the latest in a series of scandals that have damaged the bank’s reputation.

Forbes (9/28/2021) went into damning detail about the callous and calculated ways in which Wells Fargo employees executed the fraud.

Admittedly $72.6 million is chump change compared to the $3 billion they were forced … ummm, agreed to pay out last year, as a result of their vast fake accounts scam but it’s still not a good look.

Item #2, Wells Fargo Asset Management – which is completely blameless and has operated a clean business for decades – has announced that they and their funds’ names will be changing from Wells Fargo to Allspring on December 6, 2021.


AQR Risk Parity II MV Fund will be liquidated on November 5, 2021, having paid three distributions between the announcement of the liquidation and its occurrence.

Bridgeway Small-Cap Growth Fund (BRSGX) has been merged into Bridgeway Small Cap Value Fund.

The tiny, five-star Easterly Hedged High Income Fund was liquidated on September 30, 2021. Until six months ago it was the ALPs/Westport Resources Hedged High Income Fund.

Because the funds’ assets are “remaining quite small” and not anticipated to grow, Global X TargetIncome Plus 2 ETF, Global X MSCI China Large-Cap 50 ETF, and Global X TargetIncome 5 ETF will be liquidated (and terminated!) on October 15, 2021.

Having determined “that continuation of the fund is not in the best interests of the fund or its shareholders as a result of factors or events adversely affecting the fund’s ability to conduct its business and operations in an economically viable manner,” John Hancock Absolute Return Opportunities Fund will cease to be, on or about October 29, 2021

Morgan Stanley Institutional Intermediate Municipal Income Portfolio and Municipal Income Portfolio were liquidated, on seven days notice, on September 24, 2021.

My former president, Tom Tredway, observed, “to ask the question is to ask the question.” That is, I would not ask “gee, I wonder if he’s a reality-challenged nutjob?” unless I thought there was a good reason to worry that he’s exactly that. And so, when the Principal Global Investors muses aloud “I wonder if it’s time to kill this fund?” you’ve got to assume there’s reason to kill the fund (and they probably will).

Here’s the unprompted public musing about a two-year-old fund:

Principal International Multi-Factor ETF

Principal Global Investors, LLC (“PGI”), the Fund’s investment advisor, is currently assessing potential strategic options for the Fund but has not yet made a final determination. Options being considered include a broad range of potential recommendations to the Fund’s Board of Trustees, including the possible continuance of the Fund, a combination or reorganization of the Fund, or liquidation of the Fund. PGI is expected to formulate a recommendation to the Board by the end of 2021.

And here’s the entirely admirable performance profile, since inception, for the $50 million fund from MFO Premium.

Higher returns, lower downside volatility, smaller drawdown higher risk-adjusted returns, two-tier MFO rating … yep, they’re pretty much toast.

PSI Tactical Growth Fund will be liquidated on October 8, 2021.

Rational Insider Buying VA Fund will reach its rational end on or about November 30, 2021. The fund is used as a funding vehicle for variable annuity contracts of several insurance companies.

RiverFront Dynamic Unconstrained Income ETF will be liquidated on October 22, 2021.

A minor stay of execution has been granted for Schroder Long Duration Investment-Grade Bond Fund. The fund’s liquidation, first scheduled for September 30, has been delayed to October 20, 2021.

Schwab Hedged Equity Fund will be liquidated on October 22, 2021. The fund has seen substantial outflows since the fourth quarter of 2018 and now has $67 million in AUM. This year’s peer-clobbering performance (its 17% returns through September 2021 are effectively double those of its peers) has not brought any renewed interest in the fund, which was likely fatal.

The Trend Aggregation Conservative ETF was liquidated on September 28, 2021. Apparently, the trend was not their friend.

VanEck Vectors Emerging Markets Aggregate Bond ETF and VanEck Vectors Unconventional Oil & Gas ETF will undergo “liquidation, winding down and termination” happen on or about Friday, October 22, 2021. Kudos to VanEck for introducing a new verb into the process!

On February 11, 2022, the 12 Vanguard Institutional Target Retirement Funds will each merge into the corresponding Vanguard Target Retirement Fund. Following each reorganization, the expense ratio for each Target Retirement Fund will be reduced to 0.08%.

VictoryShares Top Veteran Employers ETF and VictoryShares Protect America ETF will liquidate on or about October 15, 2021.

On July 26, 2021, the investment strategy for Virtus KAR International Small Cap Fund changed to an international small-mid cap strategy. In a singular display of flexibility and a remarkable act of contortion, on September 24, 2021, Virtus KAR International Small-Mid Cap Fund changed its name to Virtus KAR International Small-Mid Cap Fund II (for our purposes, VKISMF II). Then Virtus KAR International Small-Cap Fund will be renamed Virtus KAR International Small-Mid Cap Fund, the name formerly held by VKISMF II, and the former VKISMF (now WKISMF II, remember) will merge into the current VKISMF, and disappear. As previously disclosed.

The merger of Wells Fargo Diversified Equity Fund into Wells Fargo Spectrum Aggressive Growth Fund is now expected to occur on or about February 4, 2022. At the same time, the 12 Wells Fargo Target (date) funds will merge into the corresponding Wells Fargo Dynamic Target (date) funds.