Monthly Archives: February 2021

February 1, 2021

By David Snowball

The Delights of January

I’m writing this on the final day of my January (aka J-term) class, Advertising and Consumer Culture. The course, like Propaganda, falls within the purview of my academic specialty, mass persuasion and compliance-gaining. It starts with the deceptively simple query: what might the consequences be of hearing the same message – you should be dissatisfied with your life, you need more! – 100,000 times?

Not to keep you in suspense but “not good.”

I approached the class with a sense of reluctance and dread. It met five days a week, starting at 8:30 in the morning and ending at 2:00 in the afternoon. It was cold, dark, and snowy. It was in a weird space, the far end of the main reference room of the Tredway Library, which had been converted into a makeshift classroom for us. There was too much light to see the screen. And Covid … some students were permanent “distance learners” and others rotated into quarantine on short notice as a result of close contact with potentially infected parties. I anticipated suckiness.

And then I met the kids. Nineteen souls, mostly first-years, maybe students of color or international students, few with experience in my academic field. Nervous at first, perhaps because I’m sometimes a tiny bit … umm, bombastic in person, they started opening up. They showed up, every student, every day. They did some fairly challenging readings with sufficient faith that, collectively, they earned the highest quiz average in a decade. They said bold things and sometimes pushed back at me. And, when it was time for their final group research presentations, they sparkled! The speakers actually talked with their audience. They had interesting things to say (about tokenism in US ads featuring same-sex couples when compared to similar ads in Sweden, about the oddly narrow vision of fashion advertisers, and about the changing world imagined in ads for children’s toys between the 1950s and today) and their classmates started calling out questions. Afterward, they were excited and stood around in small clots (masked and respectful), talking and laughing.

And suddenly, January was redeemed.

Nothing is exempt
from resurrection.”
 Kay Ryan, Say Uncle (2000)

And so, thanks to my students: to Micaela and Moises, Kalib and Caleb, to Claire and Titus and Xavier, and you all: thanks for a great January! Onward to February’s new madness!

Farewell, my lovely!

In 1936, E.B. White penned a farewell to the Model T Ford. His writing, as ever, was spare and graceful:

I see by the new Sears Roebuck catalogue that it is still possible to buy an axle for a 1909 Model T Ford, but I am not deceived. The great days have faded, the end is in sight. Only one page in the current catalogue is devoted to parts and accessories for the Model T; yet everyone remembers springtimes when the Ford gadget section was larger than men’s clothing, almost as large as household furnishings. The last Model T was built in 1927, and the car is fading from what scholars call the American scene—which is an understatement, because to a few million people who grew up with it, the old Ford practically was the American scene.

It was the miracle God had wrought. (Farewell, my lovely! 5/9/1936)

Are you tearing up?

Near the end of January, the ageless John Rekenthaler (at the very least, I don’t think Morningstar has changed his headshot in the past decade or two, so he’s ageless to us) penned a requiem for the mutual funds that he’s been watching, reflecting on and criticizing for the past two decades. While he admits that the end of the industry isn’t imminent, he also concludes that it’s unavoidable.

Farewell, Mutual Funds

Some 20 years after their 1993 debut, exchange-traded funds had become commonplace. However, several obstacles prevented them from supplanting mutual funds as the Main Street investment. ETFs lacked sales commissions, which limited their appeal to financial advisors. They were almost always passively managed stock portfolios. In addition, several ETFs had behaved erratically during the 2010 flash crash, which raised concerns about the group’s structural stability.

Those roadblocks no longer exist. Consequently, ETFs are positioned to overtake mutual funds. That event won’t happen anytime soon, because mutual funds possess the power of history.

He concludes,

Eventually, ETFs will be the industry standard.

These are, however, but quibbles. The broad direction is clear–as clear as the ultimate triumph of indexing was 20 years back. The age of mutual funds is passing. The age of ETFs is coming.

(Farewell, Mutual Funds, 1/21/21)

JR allows that there are some niche (i.e. capacity-constrained) areas where a fund’s ability to close to new investors might be vital, but otherwise sees open-end funds as having the same prospects as their predecessors, the closed-end funds.

One reader, having reached the same conclusion, removed himself from our monthly mailing list:

Actually, “so 1990s,” but I’m not one to quibble.

Nor am I one to worry. I share the conclusion that JR reached and have, for several years, been trying to get my contacts in the industry to rethink their commitment to an outdated legal structure. And, really, that’s all the term “mutual fund” signals: the legal framework in the Investment Company Act of 1940 that structures the relationship between managers and investors (and between investors and the IRS, sadly).

That framework embodies a series of structural disadvantages (on taxes and expenses, among other things) that made a world of sense when FDR was in the White House, the Great Depression has only just passed and the most imminent threat was the rise of fascism in Europe. They make rather less sense now and they are not essential elements of the enterprise.

MFO’s mission is to provide readers with calm, intelligent arguments and to provide independent fund companies with an opportunity to receive thoughtful attention even though they might not yet have drawn billions in assets. Its coverage universe has been described as “the thousands of funds off Morningstar’s radar,” a description one fund manager echoes as “a Morningstar for the rest of us.”

The mission of MFO doesn’t ride on the question of whether we call our preferred vehicle an open-end mutual fund or a non-transparent, active ETF. The question is, “are there important opportunities or perspectives that you should be learning about but aren’t?”

For as long as I’m around, we’ll remain true to that mission – calm arguments and independent managers – regardless of the legal structure that surrounds them.

But I’m definitely not renaming the site the Mutual Fund and Active, Sometimes Non-Transparent, Exchange-Traded Fund Observer (MFOSN-TETF). Sorry.


Thanks to Marty (Happy New Year, to you, too!), David from Beaver Dam (one of Chuck Jaffe’s indefatigable correspondents), the kind folks at S&F Investment Advisors, Calvin and Jane, Richard of OK, Tom from Bigfork, Wilson, and Pete from Medina.

Too, we appreciate the generosity of Joseph, Vincent, Andrew, Neha, and Michael. Many thanks to you!

PayPal subscribers David, Doug, Gregory, William, Matthew, the other William, and Brian. Thank you!

We would especially like to thank Eric George, whose wife executed a donation on his behalf last month. We foolishly recognized her role in the transaction but not his. Sorry, big guy! We really appreciate both of you.

As ever,

david's signature

Which Way to Sherwood Forest?

By Edward A. Studzinski

Amateurs talk about strategy and tactics. Professionals talk about logistics and sustainability.

Robert Hilliard Barrow (1922-2008), a former United States Marine Corps commandant and general, interview published in the San Diego Union on November 11, 1979.

A year that started out gangbusters in terms of market appreciation, without regards to valuations, has subsequently started having hiccups on and off. That begs the question as to whether it is now recognized that valuations are stretched? Or perhaps it is a recognition that no matter how many stimulus packages are passed by Congress, flooding the market with money and programs will not necessarily resuscitate the economy.

President Obama found himself in a similar set of economic circumstances when he entered office, absent a pandemic. He elected to focus on what was his signature (and perhaps from the view of history only) achievement – Obamacare. Likewise, President Biden has come into office with both some needed and lofty goals. He has started off with a flurry of executive orders representing motion if not necessarily progress. And while there is a temptation to look upon the last four years as something of an aberration, for many Americans, up until the pandemic became widespread and the economy tanked (or was tanked, depending on your political point of view), they were years of apparent economic prosperity. The question remains to be determined down the line whether that was true, or whether we were in effect living in a Potemkin village.

What I would like to raise here are some things we should be concerned about (and for those who would like a greater in-depth read as to some of the issues raised, I refer you to the excellent 4th Quarter Commentary from Horizon Kinetics, which can be found on their website). First, we have the question of inflation, both the Federal Reserve and our new Treasury Secretary Janet Yellen (a labor economist by training) talking about a target of roughly 2% inflation in terms of the Consumer Price Index. What does that do to cash and bonds in terms of a return certain? Well, it guarantees a negative return in those asset classes if the Federal Reserve achieves its monetary policy goals.

 – – – – – –

If the Federal Reserve is targeting inflation at or above 2% for an extended period and you have a 10-year U.S. Treasury Bond, yielding at purchase today just about 1%, your investment will decline in value or purchasing power by 2% each year, so at maturity, you will have earned about negative 1% a year. You say, well that is not too bad all things considered. But as is often the case, it is not considering all things. Rather, in the pandemic year of 2020 the domestic money supply, that is the supply of dollars in circulation, increased by 24.4%. Given that the amounts of goods and services in the economy did not change much in 2020, and if you had cash sitting in a CD or money market fund, that cash also did not change much, YOU HAVE ROUGHLY 20% LESS PURCHASING POWER TODAY THAN YOU DID A YEAR AGO.

(And those of you who do the grocery shopping will have noticed that the packaging sizes and weights continue to shrink – look at a Rice Chex box of cereal). In the sixty years in which records have been kept about such things, the money supply’s worst increase over a year was about 13.4%, during the decade from 1972-1982. In that period, the Consumer Price Index increased by slightly more than two-fold. Put differently, if you started 1972 with $10,000 of government 10-year bonds, at the end of 1982 you would have needed $23,000 of government bonds to buy the same amount of goods and services.

Now, of course, we are entering into unchartered territory, since having expanded the money supply by that amount in 2020, President Biden wants to “go big.” That suggests that the creation of an excess money supply will have a hyperbolic impact on increasing inflation. And that is at a time when we are at a rather dangerous tipping point. According to the National

We are at a rather dangerous tipping point. Twenty years ago, Federal government debt was 60% of GDP. Today it is 130%. Other countries have purchased that debt and have a call on it.

Debt Clock at the St. Louis Fed and the Bureau of Labor Statistics, in 2000 Debt per Taxpayer was $55,750; Interest Expense per Citizen was $8,053, and Real Median Personal Income was $32,032. In 2021, we are at $222,191 Debt per Taxpayer; Interest Expense per Citizen of $14,939; and Real Median Personal Income of $49,217. During that time, Debt has changed annually by 6.81%; Interest Expense on that debt changed annually at 3.00% (a very low interest rate period), and Real Median Personal Income grew at 2.07%. One last point to scare you with – 20 years ago Federal Government debt was 60% of Gross Domestic Product. Today it is 130%. That is not money that we just owe to ourselves. Rather, other countries have purchased our debt and have a call on it.

Asset Allocation in An Uncommon Time

So, where not to invest? Cash and money market funds should probably be limited to insured certificates and government/treasury money market funds. You will probably not find the best certificate of deposit rates at a bank. Seek out to get membership in one of the federal credit unions, which also offer insured accounts, not by the Federal Deposit Insurance Corporation but rather by the National Credit Union Association, a government agency. And often, one can become a credit union member by joining an affinity group, so do not just assume the door is closed at a particular institution. A good example of that would be the Digital Federal Credit Union, one of the largest credit unions in the country, with multiple ways to become a member of the affinity group.

Bonds present an interesting set of problems. Given what we have said above, you want to avoid interest rate risk (rates ultimately rise with inflation), duration risk (long maturities are out), or credit risk (given the finances of states and municipalities, municipal bonds need to be owned by those who understand the credits). And the issue of currency raises its ugly head in the face of the possibility of monetary debasement. If the dollar is no longer the sole reserve currency, holding dollars alone may beg the question of whether a diversifier is needed. As this is the point where some would raise the subject of crypto-currencies such as BITCOIN, I will suggest there are others far more qualified than I am to have an opinion in that regard.

The top two companies in the S&P 500 have the same combined market cap as the bottom 251 of them.

Which brings us to equities, index funds, and the mega-cap equities that represent such a large portion of the S&P 500. I have indicated in prior writings a preference for active management, value, and smaller capitalization companies than those represented at the top of the S&P Index. A slightly different perspective is perhaps worth looking at. The number 1 and 2 companies in the S&P 500, Apple and Microsoft, represent almost 11.5% of the market value of the index. The bottom 251 companies in the index represent a little more than 11.7% of the market value of the index. Do the top two companies represent the same exposure and slice of the economy that the bottom 251 do? How diverse really is an S&P 500 index fund, given the weightings of the companies. I will leave this by saying, do not assume that the other metrics regarding the largest companies at the top of the index have not been deteriorating in terms of operating margins, return on assets, and sales revenue growth.

A couple of observations from Jeremy Grantham’s recent piece, “Waiting for the Last Dance” are appropriate. Mr. Grantham recognizes, and I would agree, that we have reached a point of extreme overvaluation in terms of equities, especially in the United States, that there will be a bad ending. Grantham believes that career incentives in the investment banking and investment management industry as well as basic human greed will succeed in drawing investors into the markets at the worst possible time. Now investors in equities are relying on easy money policies by central banks around the world coupled with the promise of extremely low real interest rates for the foreseeable future. And those two things can prevent a decline in asset prices for now and the future as far as one can see. Really?

How will the current bubble end? Well, perhaps in the late spring or early summer, as the pandemic wanes somewhat in the face of increased vaccination, we will see the end of central bank stimulus, the economies of the world will still be struggling, and valuations will still be extreme.

Here’s the thing, to quote Mr. Grantham exactly, “The great bull markets typically turn down when the market conditions are very favorable, just subtly less favorable than they were yesterday. And that is why they are always missed.”

Ask yourself why, if stocks are rising not for their fundamentals, but just because they are rising, what that means? And what it probably means is that that bell tolling, which will be ignored, is tolling for a reason. For the brokerage firms, it is a matter of making a bet against their basic business, which they will not do. Being bullish always works best and appeals most to the innate optimism of customers. And it offers the benefit of everyone being in the same leaking boat when it all ends.

Final Thoughts

In future months, as I puzzle through some of the non-correlated asset classes that I tend to favor, I will try and make some more specific suggestions as to areas to focus on. In the interim, Mr. Grantham suggested that two areas worth exploring should be value stocks, which had their worst ever decade of underperformance through December of 2019, followed by their worst-ever year in 2020. He also suggested emerging market equities, which are at one of their lowest periods of performance against U.S. equities ever. And a corollary to that would be an exploration of the overlap between the two areas.

A separate question which I believe plagues investment consultants these days is China, and where to categorize it in terms of groupings and assets. Surely it is no longer an emerging market? Or is it? But that too is another discussion for another time.

Trending Funds by Stage

By Charles Lynn Bolin

Mention of “trending funds” often invokes thoughts of investors pouring into the hottest fund and that is probably true to an extent. This article looks at stages of trends for funds. This is an evolving experiment based on data about trends, moving averages and money flows from MFO Premium. As someone nearing retirement, I own core funds that are buy and hold for extended periods. I also invest a portion to take advantage of the economic and investing environment. Investors should develop storylines of why they own funds such as low valuations, a declining dollar, inflation, and stimulus expectations, but should look for confirming trends before investing.

The first stage of trending funds is after a correction for funds that are starting to recover, which I designated as the Bottom-Fishing stage. The second stage (Crossing) looks for funds that are near their ten-month moving average which means their recovery is on solid footing. The Trending stage contains funds that are above their 10-month moving average and are growing at a strong pace. Peaking Funds are those that have risen, and the growth has slowed to the point that investors may want to monitor them and consider rotating to other opportunities. Finally, there are the Declining Funds which I expect to use to identify funds to rotate out of.

As I write this article, the S&P 500 just fell 2.5% while my portfolio fell less than 0.5%. While looking for trending funds, I consider safety first and then returns. If the market continues to fall, there will be buying opportunities.

This article is set up in the following sections so readers may skip to sections that interest them. Key points are added at the beginning of each section for those who want to skip ahead. All data is as of the end of December 2020. I will provide updates in Seeking Alpha when the January data is released.

  • Section 1 lists the highest trending funds for each stage.
  • Section 2 evaluates trend fundamentals using the S&P 500
  • Section 3 describes the methodology used to select these funds.
  • Section 4 describes the trending metrics of the funds.

1. Beginning with the End in Mind

Key Point: Real estate, international, commodity, and value funds have started trending up in several of the trending stages.

One of my earlier methods of looking for trending funds was to look at the Lipper Categories with the highest fund inflows. This is shown in Table #1 for December. Rank refers to my ranking system.

Table #1: Trending Lipper Categories – Two Year Metrics ending December 2020

I want to invest at the start of a trend. Bottom Fishing currently contains Real Estate, Financial Services, and Commodity funds. Crossing contains funds value, industrial, international small-cap, and industrial funds that have a firm base for growth and are within 2 percent above or below the ten-month moving average. Because of the surge in COVID and the slowing of global economies, I recently sold European funds.

Table #2: Top Bottom Fishing Funds and Those Crossing the Ten-Month Moving Average


Bottom Fishing



CSRSX : Cohen & Steers Realty Shares Inc

VWNDX : Vanguard Windsor


VNQ : Vanguard Real Estate

VEUSX : Vanguard European Stock


IYR : BlackRock iShares US Real Estate

VGK : Vanguard European Stock


FIDSX : Fidelity Financial Services Port

FISMX : Fidelity Intern’l Small Cap


DBC : Invesco DB Cmdty Tracking

FCYIX : Fidelity Select Industrials

I have two methods for tracking funds with more established upward trends based on fund flows and trending metrics. These funds have recovered and are growing at a respectable pace. These are currently mostly value and international funds. Funds that are at risk of being overvalued, “the hot funds” are excluded.

Table #3: Top Trending Funds with Those High Inflows

  Fund Inflows Trending
1 INDS : Pacer Industrial Real Estate ANGL : VanEck Fallen Angel HY Bond
2 QYLD : Global X NASDAQ Covered Call VIGI : Vanguard Intern Div Appr EFT
3 VSGX : Vanguard ESG Intern Stock VIAAX : Vanguard Intern Div Appr
4 VWNDX : Vanguard Windsor VSGX : Vanguard ESG Intern Stock
5 EFAX : State Street Fossil Fuel Rsrv Free VWNFX : Vanguard Windsor II
6 VFWAX : Vanguard All-World ex US FIHFX : Fidelity Freedom 2035
7 FTIHX : Fidelity Tot Intern VWNDX : Vanguard Windsor
8 VGWAX : Vanguard Global Wellington NUSC : Nuveen ESG Small-Cap
9 VEU : Vanguard FTSE All-World ex US EFAX : State Street Fossil Fuel Rsrv Free
10 FLPSX : Fidelity Low-Priced Stock  

Finally, there are the funds that may have reached a plateau or have started to decline. These are candidates for reducing allocations if no storyline exists for owning them. These categories contain bonds, gold, and funds intended to manage risk. A storyline for keeping these funds may be that it will be months before COVID related problems are overcome as well as valuations are very high. I have reduced exposure to gold and TAIL but will continue to own HSTRX and short-term treasuries.

Table #4: Funds That Are Peaking or Declining

  Peaking Declining
1 SUBFX : Carillon Reams Uncons Bond FUMBX : Fidelity Short-Term Treas Bond
2 BAR : GraniteShares Gold Trust AGZ : BlackRock iShares Agency Bond
3 IAU : BlackRock iShares Gold Trust CPTNX : American Century Gov Bond
4 PHDG : Invesco S&P 500 Downside Hedge SPTI : State Street Port Interm Term Treas
5 RPIEX : T Rowe Price Dyn Global Bond TAIL : Cambria Tail Risk
6 HSTRX : Hussman Strtgc Total Return  
7 FSAGX : Fidelity Select Gold Port  

2. Trend Fundamentals

Key Point: Ten-month moving average, three-month trend, and fund flows can be combined to develop an automated system to identify funds in stages of trending.

Figure #1 is Fidelity’s concept of a typical business cycle divided into four stages. During these stages, different funds will over or underperform.

Figure #1: Typical Business Cycle

Figure #2 contains the sectors that do well by stage of the business cycle. The same concept came to be applied to Lipper Categories such as value and growth.

Figure #2: Sector Rotation by Business Cycle Stage

In Figure #3, I show the S&P 500 (blue line) and the ten-month moving average (orange line). The difference between the two is shown as the black line. SMA10 is the average difference over the time periods. During the Technology Bubble, the S&P 500 was 9 percentage points above the ten-month moving average. During normal cycles, the S&P 500 is only 3 to 5 percentage points above the ten-month moving average. The blue ellipsoids represent times when the funds have grown fast enough that a pullback may be likely and the red ellipsoids represent times when the funds represent buying opportunities. “The SMA10” represents the average for the period.

Figure #3: S&P 500 and Ten-Month Moving Average

In Figure #4, I show the three- and ten-month trends for the S&P 500. These are too noisy to use by themselves.

Figure #4: S&P 500 and Trends

Figure #5 creates a line where the SMA10 is less than -2 and the three-month trend is greater than 2. This line is a reasonable representation of low points in the S&P 500 when it has started to recover.

Figure #5: Combing SMA10 and 3 Month Trends

A final step in identifying trending funds is to combine fund flows with the ten-month moving average and three-month trend.

3. Methodology

Key Point: Trending metrics from Mutual Fund Observer can be used to develop an automated system to identify funds with higher potential.

Each month I download nearly six hundred mutual funds and exchange traded funds available to small investors through Charles Schwab, Fidelity, and Vanguard representing over one hundred Lipper Categories. I rate these funds based on risk-adjusted returns, risk, momentum, quality, sentiment, yield, and consistency. Sentiment is based on Lipper Category performance during bull and bear markets which I have set as risk off due to COVID and high valuations. Momentum is based on three- and then-month trends, three-month moving average, three-month return, and fund flows. The following sections describe the metrics used to automate the trending stages.

Bottom Fishing

The three-month trend is 90% of the median, three-month return is greater than zero, fund flows are greater than zero and 75% of the median, and the price is below the ten-month moving average. This will result in identifying more than a dozen funds. The final selection is based on the distance below the ten-month moving average and my Ranking System.


To identify funds crossing the ten-month moving average, the three-month trend is positive and greater than 50% of the median, three-month return is greater than zero, fund flows are greater than zero and 50% of the median, the relative ten-month moving average is greater than -2 and less than 2. The final selection is based on the three highest month trend and my Ranking System.

High Fund Flows

Funds with high inflows are identified when the three-month trend is greater than 50% of the median, fund flows are greater than 75% of the median, the relative ten-month moving average is less than the median. The final selection is based on my Ranking System.


Funds with established trends are selected when the Momentum Factor in my Ranking System is greater than 70% of the funds and the Fund Ranking is in the top 60% of funds. Fund Flows are higher than 80% of the funds. The distance below the ten-month moving average is less than 7. The final selection is limited by fund flows and ranked by my Ranking System.

Peaking and Declining

My calculations to identify funds that are peaking and declining are more complicated. Instead of simple comparisons to metrics, combinations of trend and fund flows are used. Generally, both the trends and flows are flat or negative.

4. Fund Trending Metrics

Key Point: Real estate, international, and value have favorable trends. Commodities and industrials are of interest if the recovery continues.

This section gets into the details of the funds. Trending metrics are shown. Real estate, financial services and commodities are still below the ten-month moving average but trends and funds are positive.

Table #5: Bottom Fishing Funds – Two Years

Funds that have recovered more and are near their ten-month moving average are value, international and industrial funds.

Table #6: Trending Funds Crossing the Ten-Month Moving Average – Two Years

Table #7 and #8 show funds that have recovered and are now growing at somewhat normal rates. They are again, real estate, international, and value funds. These are the funds that investors expect to do well but have probably not been overpriced.

Table #7: Trending Funds with High Inflows – Two Years

Table #8: Trending Funds – Two Years

Funds that may have peaked are gold and some of the more popular bond funds from 2020 as investors take on more risk.

Table #9: Peaking Funds – Two Years

Money is flowing out of bonds. The trends are relatively flat except for TAIL which is a defensive fund. I remain at the lower limit of Benjamin Graham’s 25 percent allocation to stocks because of COVID and high valuations.

Table #10: Declining Funds – Two Years


Globally, new COVID cases appear to be peaking, but lockdowns may stunt the recovery. The 2.5% drop in the S&P 500 is a warning of future volatility. Investors should understand their tolerance to risk. Articles describing the markets as overvalued are frequent now. Historically, December and January have good stock market performance while February tends to lag. In January, I continued to simplify my portfolio and reduce risk by shifting from European equity funds to global mixed-asset funds or cash.

Identifying trending funds is a relatively new addition to my ranking system. I built it to improve fund selection and reduce the time required to research funds. While I am not in the market for buying funds while I monitor global developments, trending funds identifies real estate, international, value, and commodity funds as potential investments.

My Uncle Bob Warren celebrates his 100th birthday as the oldest living mayor of Frisco, Texas, and author of Frisco: Now and Then, on February 1st. Happy Birthday Uncle Bob. Here’s Uncle Bob with Beth, his best friend, and wife of seven years.

Best Wishes for a Safe and Prosperous 2021.

Snowball’s Indolent Portfolio

By David Snowball

A tradition dating back to the days of FundAlarm was to annually share our portfolios, and reflections on them, with you. My portfolio, indolent in design and execution, makes for fearfully dull reading. That is its primary charm.

2020 was replete with adventures and surprises:

  • a global pandemic that killed over 2 million people worldwide
  • stock market crash which saw a 25-50% drop within a few weeks
  • stock market rebound which saw many funds double in value
  • a contentious election
  • subsequent crazy claims about a “stolen” election
  • historically high stock market valuations
  • the biggest drop in economic activity since the Great Depression
  • the most massive intervention by the Fed in its 107-year history
  • a seismic shift toward remote working and schooling
  • crude oil futures trading below $0 briefly and prices down substantially
  • the collapse of CO2 emissions, which didn’t stave off another global heat record
  • a quadrupling of the price of cryptocurrencies such as bitcoin.

In response to which, I astutely did very nearly nothing with my portfolio. 

I was, I think, awake and richly engaged with a world that was rocked by challenges. In response to Covid, I changed my way of moving through the world (consistent masking, no vacation, fewer shopping trips) and dramatically increased my support for the most hard hit members of my community (which translated to giving my original stimulus check to the QC Community Foundation and the Riverbend Area Food Bank, doubling my normal monthly commitments to several charities, ordering out almost one dinner in three from locally owned restaurants, and tipping as generously as I could). I tried to support sensible candidates for local, state and national office and spent rather a lot of time helping my international students overcome the feeling that America had turned against them. (It hasn’t.) I worked with family health challenges, including my son’s Covid infection, and the psychological challenges we all felt.

But I didn’t play with my portfolio. By design, my portfolio is meant to be mostly ignored for all periods because, on whole, I have much better ways to spend my time, energy and attention. For those who haven’t read my previous discussions, here’s the short version:

Stocks are great for the long term (think: time horizon for 10+ years) but do not provide sufficient reward in the short-term (think: time horizon of 3-5 years) to justify dominating your non-retirement portfolio.

An asset allocation that’s around 50% stocks and 50% income gives you fewer and shallower drawdowns while still returning around 6% a year with some consistency. That’s attractive to me.

“Beating the market” is completely irrelevant to me as an investor and completely toxic as a goal for anyone else. You win if and only if the sum of your resources exceeds the sum of your needs. If you “beat the market” five years running and the sum of your resources is less than the sum of your needs, you’ve lost. If you get beaten by the market for five years running and the sum of your resources is greater than the sum of your needs, you’ve won.

“Winning” requires having a sensible plan enacted with good investment options and funded with some discipline.  It’s that simple.

My target asset allocation: 50% stocks, 50% income. Within stocks, 50% domestic, 50% international and 50% large cap, 50% small- to mid-cap. Within income, 50% cash-like and 50% more venturesome.

Morningstar tells me that my non-retirement portfolio returned 22.5% last year. Because (a) I prefer managers who do not lose my money during downturns and (b) the stock upturn beginning in April 2020 was so explosive, I started the year near my asset allocation goals and ended the year slightly overweight in stocks (about 60% against a target of 50%) and substantially overweight in international stocks (about 40% against a goal of 25%).

I did make three portfolio moves:

  1. I sold Artisan International Value after holding it since its inception. It’s a solid fund though it’s undergone management changes recently. Two factors motivated the sale, neither of which reflect poorly on the fund. First, I needed the cash for a combination of college tuition expenses and medical bills for my son. Second, I was hopeful of easing back on my international equity allocation.
  2. I bought Palm Valley Capital, a domestic small cap value fund managed by two excellent absolute return managers, Eric Cinnamond and Jayme Wiggins. I needed to inch up my domestic exposure and have a lot of faith in the guys’ willingness to hold cash rather than plow my money into irrationally expensive investments.
  3. I shuffled money from T. Rowe Price Spectrum Income to T. Rowe Price Multi-Strategy Total Return. The Total Return fund is close to Price’s version of a hedge fund for the public; the managers have done an excellent job of pursuing a market-neutral strategy with limited downside and mid-single-digit returns. Given the parlous state of fixed income markets, it seemed a prudent hedge.

Beyond that, I invested a small amount each month into five or six funds. In the chart that follows, I illustrate where I started the year (column 1), where I ended the year (column 2), how each fund performed during the brief, vicious bear market (column 3) and my brief reflections on each.

Where we started 2020, by weight Where we ended 2020 Covid bear – relative What’s up?
1. FPA Crescent #1 -6.1% 12% gain
2. Seafarer Overseas #2 +2.5 22% gain, though I switched from monthly to quarterly contributions since it was about to become my single-largest holding.
3. T. Rowe Price Spectrum Income #4 -1.9 6% gain, though I sold 50% of my original position early in the year to add TMSRX. I also switched off monthly additions.
4. Grandeur Peak Global Micro Cap #3 +2.2 53% gain (wow) with automatic monthly additions.
5. Artisan International Value Sold n/a Liquidated. We needed to cover medical bills and college tuition and I was badly overweight in international equities.
6. RiverPark Short Term High Yield #7 +8.7 2.4%, my “cash” fund. It also has the highest 10-year Sharpe ratio of any fund in existence.
7. Matthews Asian Growth & Income #5 +5.3 16%, steady, steady, steady.
8. Brown Advisory Sustainable Growth #10 +3.9 39%, my first ESG investment.
9. Matthews Asia Total Return Bond #9 +2.9 5.4%, another sensible, steady performer which I’m looking for income unconnected to the US bond market
10. Grandeur Peak Global Reach #6 +3.6 41%, GP’s flagship fund.
New – T. Rowe Price Multi-Strategy Total Return #8 +6.2 13%, the rare market-neutral that’s actually worth the money.
New – Palm Valley Capital Fund #11 +25.3 19%, an absolute value  SCV fund, added to increase my domestic equity exposure without being stupid.
Portfolio   -16.7% loss during the bear, which is 2.8% better than its peer average +22.5% gain in 2020

So here’s where I ended up:

Domestic equity Close to target Traditional bonds Close to target
Target 25% 2020: 21% Target: 25% 2020: 20%
Mostly Brown and Palm Valley (40% cash). Mostly RPSIX plus MAINX
International equity Overweight Cash / market neutral / liquid Underweight
Target 25% 2020: 45% Target: 25% 2020: 14%
My “global” managers are 4:1 international which accounts for most of the imbalance. Mostly TMSRX and RPHYX

What will 2021 bring?

A vacation in Door County? Experimenting with broccoli rabe and garlic scapes in my garden?

Oh, you mean with my portfolio!

Not much. I’ll continue to ramp up my investment in the new T Rowe Price fund and I’ll add to my two domestic ones, beyond my normal monthly. I’d love to have a more ESG-sensitive portfolio (the fate of the world vaguely hangs in the balance, tipped by our collective commitment to either gluttony or sustainability) but haven’t found a compelling option.

Finally, a word about my retirement accounts. I don’t talk about them because I don’t much have control over them anymore. For entirely sensible reasons, my employer dramatically limited our investment options and increased the incentives to save for retirement. Unfortunately, in the past year or so they’ve made a bunch of vaguely idiotic follow-up moves that closed off many of the funds and annuities I’d been investing in and substituted market-cap-weighted index funds that did not even have the same asset allocations. I’m irked and frustrated. I responded by greatly simplifying my portfolio, with the vast bulk of my retirement portfolio in T. Rowe Price Retirement 2025 and TIAA-CREF Lifecycle 2025 Index funds. I complement the core T Rowe Price holding with international small-cap (T. Rowe Price International Discovery) and EM value (T. Rowe Price Emerging Markets Discovery) investments. I also have TIAA Real Estate, which flatlined during Covid. Collectively, my retirement investments returned 15.5% in 2020 which is still far above the returns in my investment plan: I need to make about 6% annually to have a fair prospect of a financially secure retirement.

Introducing MFO Premium’s Saved Searches Feature

By Charles Boccadoro

Our friends at Gaia Capital Management once again encouraged us to upgrade MultiSearch, our main tool on MFO Premium. This request was to enable stored search criteria; thereby, relieving them from the task of re-entering the various screening criteria they employ each month. (The Compare Funds tool was also developed for Gaia, as described in the April 2019 commentary. )

The new feature is particularly helpful when employing various screens with numerous criteria. For example, the MFO Premium’s Best Funds of the Decade, which we published in January 2020 (a short lifetime ago), involved half a dozen criteria.

They included, across the decade and in their respective categories:

  • highest risk adjusted return rank based on Martin,
  • top quintile absolute return and Martin for the past 10, 5, and 3 years,
  • top quintile average absolute return across rolling 3-year periods,
  • annualized return above the 10-year T-Bill at the start of the decade, which was 3.7%.

All those criteria can now be entered into MultiSearch and then saved to your user profile, like Watchlists and Portfolios. Once saved, just click the Run button next to the saved Search to get the update. Up to 25 Searches can be saved to your portfolio with customized names.

Here are the current results of those same criteria one year later:

It’s an impressive list! Dodge & Cox Income (DODIX), Morgan Stanley’s Global Advantage (MIGIX) and International Advantage (MFAIX), and T Rowe Price Capital Appreciation (PRWCX), Vanguard California Intermediate Term Tax-Exempt (VCAIX), and Virtus KAR Small-Cap Growth (PXSIX). But none are from the same list a year ago.

Here’s how the Search is saved on the MultiSearch Input page, right under the Watchlists:

They are best saved by performing a normal search then hitting the Export/Searches button on the results page. The criteria are saved in a rather cryptic form, but don’t worry … just name it appropriately!

Curious how the 2020 Funds of the Decade did this year? Below are the year-end results. Not great. But they all delivered healthy returns. Their 10-year numbers are still awesome.

Also this month, thanks to a suggestion by long-time subscriber Laurie Rubin at our recent webinar, we increased the number of Watchlists and Portfolios that can be saved from 10 to 25. And, thanks to a similar suggestion by Michael Ball of Ball Financial Group, LLC of Tempe, AZ, users can now hold up to 50 funds in each Portfolio in the Portfolio Analysis tool. Each Watchlist can hold 100 funds.

Please enjoy the latest features!

Mislearning the lessons of 2020

By David Snowball

2020 seems to have restored our belief in wizards, wands, fairy dust, and the powers of the Great Wizard Jerome (Powell). It is a year in which more funds and ETFs posted 100%-plus returns than any I know of. Setting aside leveraged, double-leveraged, triple-leveraged, and inverse-leveraged funds (please set them aside!), 36 funds posted triple-digit returns in 2020.

Invesco Solar ETF 234%
Invesco WilderHill Clean Energy ETF 205
GMO Special Opportunities VI 194
First Trust NASDAQ Clean Edge Green Energy Index Fund 184
ARK Genomic Revolution ETF 181
ARK Next Generation Internet 157
ARK Innovation ETF 153
Morgan Stanley Inst Inception 151
Baron Partners 149
American Beacon ARK Transformative Innovation 148
Invesco Global Clean Energy ETF 145
Zevenbergen Genea 145
Morgan Stanley Inst Discovery 143
iShares Global Clean Energy ETF 142
ALPS Clean Energy ETF 140
KraneShares MSCI China Environment ETF 138
SPDR Kensho Clean Power ETF 138
Global X Lithium & Battery Tech ETF 128
Baillie Gifford US Equity Growth 125
Zevenbergen Growth 125
Amplify Online Retail ETF 124
Jacob Internet 123
Baron Focused Growth 122
Virtus Zevenbergen Innovative 119
Morgan Stanley Insight 117
Morgan Stanley Inst Growth 116
Shelton Green Alpha 114
ProShares Online Retail ETF 112
Transamerica Capital Growth 112
WisdomTree Cloud Computing ETF 110
Morgan Stanley Global Endurance 110
Upright Growth 109
O’Shares Global Internet Giants ETF 108
ARK Fintech Innovation ETF 108
Renaissance IPO ETF 108
Baillie Gifford Long Term Global 102

This list is long, but not terribly diverse. Read the prospectuses and you’ll come across the same words over and over: focused, concentrated, disruptive, innovative, disruptive innovation, next-gen, thematic, pure-play, sustainable.

I’m passionate about the “sustainable” part; really, our children’s and grandchildren’s world hangs in the balance. If we’d acted when we first discovered the role of human activity on disrupting the global climate – nearly 50 years ago – modest and unremarkable changes (from stepping up the replacement of Depression-era power grids to avoiding our embrace of 74oo pound urban assault vehicles) would have led us to a far less threatening future. But if the best time to act was 50 years ago, the second-best is surely “now.”

That said, many of the Titans of ’20 show the same performance chart, here illustrated by the Invesco WilderHill Clean Energy ETF.

This is a fund that had lost money in six of the preceding nine years. An investment made in the fund in February of 2011 was still underwater almost 10 years later. And then, without noticeably economic and government tailwinds, the returns exploded. An investment made on March 31, 2020, quadrupled in value by year’s end.

For many funds, 2020 will have been the high point of their existence. By way of illustration, the table below identifies the mutual funds which returned 30% or more last year after having trailed 66-100% of their peers in 2019, 2018 and 2017.

2020 Return 2020 Rank 2019 Rank 2018 Rank 2017 Rank 2016 Rank Morningstar
Upright Growth Technology 108.7 3 99 100 100 83 High
US Global Investors World Precious Minerals Equity Precious Metals 70.6 1 93 94 97 7 Above Average
Tanaka Growth Mid-Cap Growth 50.9 21 99 100 100 95 High
Royce Smaller-Companies Growth Small Growth 49.3 27 75 78 68 56 Above Average
Matthews Asia Small Companies Pacific/Asia ex-Japan Stk 43.7 17 73 79 75 80 Average
Ashmore Emerging Markets Small Cap Diversified Emerging Mkts 43.4 4 75 93 74 44 High
Permanent Portfolio Aggressive Large Growth 38.0 36 84 99 88 1 High
Quantified Market Leaders Mid-Cap Growth 37.9 38 90 89 91 2 Average
WesMark Small Company Growth Small Growth 36.6 49 87 92 90 43 Below Average
Timothy Plan Aggressive Growth Mid-Cap Growth 36.1 40 85 85 84 93 Average
Sit Small Cap Growth Mid-Cap Growth 35.9 40 76 81 94 66 Above Average
Fidelity Capital Appreciation Large Growth 33.8 49 70 77 74 50 Average
SEI Extended Market Index Mid-Cap Growth 32.9 53 83 74 88 3 Above Average
Rydex S&P MidCap 400 Pure Grow Mid-Cap Growth 30.7 61 99 91 86 71 Above Average
BNY Mellon Small/Mid Cap Multi-Strategy Mid-Cap Growth 30.0 64 81 82 76 78 Above Average

The members of the Centennial Club – the funds that posted triple-digit gains in 2020 – show the same pattern of inconsistent excellence and high volatility, if to a lesser degree than the funds above.

2020 Return 2020 Rank 2019 Rank 2018 Rank 2017 Rank 2016 Rank M-star Risk
GMO Special Opportunities VI 70% to 85% Equity 194% 1 92 90 1 21 High
Morgan Stanley Inst Inception Small Growth 151 1 11 17 46 96 High
Baron Partners Mid Growth 149 1 1 18 9 63 High
American Beacon ARK Transfmt I Mid Growth 148 1 74 56 High
Zevenbergen Genea Large Growth 145 1 79 1 1 81 High
Morgan Stanley Inst Discovery Mid Growth 143 2 8 1 1 99 High
Baillie Gifford US Equity Growth Large Growth 125 1 73 2 High
Zevenbergen Growth Large Growth 125 1 9 4 14 91 High
Jacob Internet Technology 123 1 93 26 86 41 High
Baron Focused Growth Mid Growth 122 3 71 5 31 87 High
Virtus Zevenbergen Innovative Large Growth 119 1 15 2 14 89 High
Morgan Stanley Insight Large Growth 117 1 38 1 1 94 High
Morgan Stanley Inst Growth Large Growth 116 2 97 3 2 87 High
Shelton Green Alpha Mid-Cap Growth 114 3 3 96 14 95 High
Transamerica Capital Growth Large Growth 112 2 98 3 2 92 High
Morgan Stanley Global Endurance World Large Stock 110 1 19
Upright Growth Technology 109 3 99 100 100 83 High
Baillie Gifford Long Term Global World Large Stock 102 1 7 3 1 96 High

Bottom line

Without any question, some of these are very fine funds. Likewise ETFs. But you cannot now buy the fund’s 2020 returns, so you should not use them to justify 2021’s purchases.

Funds in Reg

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. Fund companies anxious to have a new fund up and running by December 31st need to have it in the hopper by the third week in October at the latest. This month brings a far more sedate pace of launches with 20 new products in the pipeline, most of which will launch in April or May.

It’s a distinctly mixed-bag this month. Expense ratios range from 0.10% to 2.93%. Mandates range from crystal clear to “trust us! You’ll love it!” And the public record of the managers ranges from nil to “long-tenured team.” And, naturally, another “disruptive” ETF from Cathie Wood whose funds have made a gajillion dollars (ARK Innovation has averaged 54.5% returns for the past five years, which adds up) for her investors.

Acruence Active Hedge U.S. Equity ETF  

Acruence Active Hedge U.S. Equity ETF, an actively-managed ETF, seeks capital appreciation with reduced volatility. The plan is to invest in the S&P 500, while seeking to reduce volatility by purchasing options contracts on the CBOE Volatility Index. The fund will be managed by a team led by Rob Emrich. Its opening expense ratio has not been disclosed.

Applied Finance Valuation Stewardship Large Cap US ETF

Applied Finance Valuation Stewardship Large Cap US ETF, an actively-managed ETF, seeks long-term capital appreciation. The plan is not terribly clear: 200 or more large cap stocks, multiple strategies, sub-adviser not yet disclosed. The fund will be managed by a yet-unnamed individual (or individuals) from a yet-unnamed sub-adviser. Its opening expense ratio is 0.49%.

ARK Space Exploration ETF

ARK Space Exploration ETF, an actively-managed ETF, seeks long-term growth of capital. The plan is to invest in domestic and foreign companies engaged in space exploration and innovation. While the universe of, say, pure-play asteroid miners might seem thin, one of the sub-themes focuses on companies that enable space exploration which covers AI, robotics, 3D printing, materials and energy storage. Another theme, beneficiaries of space exploration, includes agriculture. The fund will be managed by Catherine D. Wood. Its opening expense ratio has not been disclosed.

BCM Decathlon Conservative Fund

BCM Decathlon Conservative Fund will seek income and capital appreciation. The plan is to invest roughly 20% of the portfolio in global stocks and 80% in bonds with the goal of limiting volatility to the 4-7% range. The fund and its siblings rely, in part, on “pattern recognition technology to identify repeating patterns within the return and volatility data that suggest a desirable distribution of potential returns over the next 25 trading days.” The fund will be managed by David M. Haviland, Denis Rezendes, CFA, and Brendan Ryan, CFA, all of Beaumont Capital Management. Its opening expense ratio is 1.84%, and the minimum initial investment will be $1,000. The same prospectus covers “Moderate” and “Growth” versions of the strategy as well.

BlackRock U.S. Carbon Transition Readiness ETF

 BlackRock U.S. Carbon Transition Readiness ETF, an actively-managed ETF, seeks long-term capital appreciation by investing in large- and mid-capitalization U.S. equity securities that may be better positioned to benefit from the transition to a low-carbon economy. The plan is to invest in mid- and large-cap stocks based, in part, on their Low Carbon Economy Transition Readiness score. They overweight high-scoring companies and underweight otherwise attractive low-scoring ones. The fund will be managed by Eric van Nostrand and Jonathan Adams. Its opening expense ratio is 0.30%. The same prospectus covers a global version of the strategy as well.

First Trust TCW ESG Premier Equity ETF

First Trust TCW ESG Premier Equity ETF, an actively-managed ETF, seeks long-term capital appreciation. The plan is to buy “enduring, cash generating businesses whose leaders prudently manage their environmental, social, and financial resources and whose shares are attractively valued relative to [their] free cash flow.” The fund will be managed by Joseph R. Shaposhnik. Its opening expense ratio has not been disclosed.

Gavekal Asia Pacific Government Bond ETF

Gavekal Asia Pacific Government Bond ETF, an actively-managed ETF, seeks to provide absolute positive returns. The plan is to invest in local currency bonds issued by national governments and organizations such as the World Bank, Asia Development Bank, and Asian Infrastructure Bank. The portfolio will average a five-year duration and the managers may invest in junk bonds. The fund will be managed by Andrew Serowik and Chung Hui Lor. Its opening expense ratio has not been disclosed.

Goldman Sachs Future Tech Leaders Equity ETF

Goldman Sachs Future Tech Leaders Equity ETF, an actively-managed ETF, seeks long-term growth of capital. The plan is to create a global portfolio of tech companies at various growth stages that are able to grow over many years by using or deploying differentiated technology. The fund will be managed by a team led by Sung Cho. Its opening expense ratio has not been disclosed.

Polen U.S. SMID Company Growth Fund

Polen U.S. SMID Company Growth Fund will seek long-term growth of capital. The plan is to invest in small- and mid-cap stocks whose underlying businesses have (i) consistent and sustainable high return on capital, (ii) strong earnings growth and free cash flow generation, (iii) strong balance sheets typically with low or no net debt to total capital and (iv) competent and shareholder-oriented management teams. The fund will be managed by Rayna Lesser Hannaway. Its opening expense ratio is 1.30%, and the minimum initial investment will be $3,000.

Spectrum Unconstrained Fund

Spectrum Unconstrained Fund will seek total return. The plan is to apply “trend-following, momentum, relative strength and many other technical strategies applied to domestic and international stock and bond markets.” They’ll execute through some combination of ETFs and funds, leveraged ETFs, inverse ETFs and derivatives. The fund will be managed by a team led by Ralph Doudera. Its opening expense ratio is 2.93% (uhh … yikes), and the minimum initial investment will be $1,000.

TFA Multi-Strategy Growth Fund

TFA Multi-Strategy Growth Fund will seek capital appreciation. The plan is to combine four active strategies, such as “daily long-short directional” and “leaders-based equity.” If they anticipate a favorable equity climate, they invite in equity ETFs, funds, and stocks. Otherwise, they switch to fixed income. They’ll maintain an equity exposure somewhere between -25% and 150% of assets. The fund will be managed by five sets of sub-advisers. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $250. There’s a whole series of Tactical Fund Adviser funds in the same prospectus, several of which have been running as Anchor Capital funds.

Uncommon Portfolio Design Core Equity ETF

Uncommon Portfolio Design Core Equity ETF (UGCE), an actively-managed ETF, seeks capital appreciation. The plan is to invest 40-60% of the portfolio in dividend-paying value stocks and the remaining in reasonably priced industry-leading growth stocks. The fund will be managed by Wes Strode, CFA, and Paul Knipping. Its opening expense ratio is 0.65%.

Vanguard Ultra-Short Bond ETF

Vanguard Ultra-Short Bond ETF, an actively-managed ETF, seeks to provide current income while maintaining limited price volatility. The plan is to invest primarily in high-quality bonds with a duration of 0-2 years; just to spice things up, the managers can also dabble in medium-quality bonds. The fund will be managed by Samuel C. Martinez, Arvind Narayanan, and Daniel Shaykevich. Its opening expense ratio is 0.10%.

American Beacon Continuous Capital Emerging Market Equity Fund (CCEYX), February 2021

By David Snowball

*This fund has been liquidated.*

Objective and strategy

Continuous Capital pursues long-term capital appreciation through investing in a diversified portfolio of EM equities. The managers view their core competence as security selection. They try to keep the portfolio roughly sector- and country-neutral relative to their benchmark so that the portfolio’s performance will be driven primarily by their security selection. Security selection, in turn, is driven by the interplay of three factors: value, quality, and dividends. In consequence, the fund’s “style” might appear more growth-oriented in some markets and more value-oriented in others.

The portfolio is broadly diversified, with a commitment to including both mid- and small-cap stocks. The managers anticipate holding 50% large caps and 50% small- and mid-caps on average, over time. They anticipate holding 100-140 stocks.  In addition, individual positions are “loosely” equally weighted so each of the current 130 positions occupies roughly 0.75% of the portfolio.


Resolute Investment Managers of Irving, Texas, is the parent company. Resolute oversees $102 billion in assets and has nine affiliated managers including American Beacon, ARK Invest, and Continuous Capital.

Continuous Capital, the sub-adviser responsible for the fund’s day-to-day operations launched in April 2018 as a dedicated EM manager. It is jointly owned by former Allianz Global Investors portfolio manager Morley Campbell and Resolute.

Campbell worked at Allianz for 10 years, rising to run $4.2 billion across six funds before his departure,


Morley Campbell and Luis Lemus.  Mr. Campbell is the founder of Continuous Capital, its chief investment officer, and the named manager on the fund. Prior to that he worked for Allianz NFJ as an investment analyst (2007-08), portfolio manager (2008-18), and Managing Director (2013-2018). While there he was the lead portfolio manager from the inception of the AllianzNFJ Emerging Markets Value Fund (AZMIX), a four- to five-star fund across his tenure. Overall, he managed or co-managed approximately $4.2 billion prior to his departure. Mr. Lemus joined Continuous Capital in April 2020 after stints at Goldman Sachs, Lord Abbett, Chiron Investment Management, and Highland Capital Management. They are supported by nine professionals who assist with operations, legal, compliance, and other investment management functions.

Strategy capacity and closure

The adviser estimates the strategy’s current capacity is around $5 billion. That’s driven by their assessment of trading liquidity within their universe. At base, they need to remain small enough that they can get out of any particular position within five days without disrupting the market with their sales. That means that the capacity is necessarily a moving target. If it becomes necessary to close this fund, they have plans to launch a second fund that doesn’t compete for the same liquidity.

Management’s stake in the fund

Morley Campbell currently holds between $100,000 – $500,000 and Luis Lemus currently holds between $50,000 – $100,000.

Opening date

December 18, 2018.

Minimum investment

Investor Shares carry a $2,500 minimum.  The minimums for various Institutional share classes run from $100,000 – $1,000,000. As a practical matter, online brokers can choose to reduce or eliminate the minimums.

The fund is available through the major national brokerages, Fidelity, Schwab, TD Ameritrade, BNY/Pershing as well as some of the regional platforms like Waddell & Reed.

Expense ratio

1.54% for the Investor shares (CCEPX) and 1.16-1.27% for Institutional shares on assets of $30 million.


Investing in emerging markets is a tricky business. On the other hand, there’s a near-universal consensus that they offer the most attractive potential returns of any public asset class over the remainder of the decade. On the other hand, most EM funds – both active and passive, OEF and ETF – tend to embed a series of biases. They tend to build portfolios that are large-cap, growth, and export-oriented. One signal of that herding behavior is the long-term correlation between the ten largest EM funds, around .98. The EM world is, they note, “crowded into about five names.” In 2020, almost all of the index returns were attributed to just 10 names. The largest fund managers in the category aspire to offer more of an echo than a choice.

The folks at Continuous Capital share the enthusiasm for the prospects of the emerging markets and set out to offer investors a choice rather than an echo. Drawing on a substantial body of academic research and Mr. Campbell’s decades of experience at Allianz NFJ, they built a portfolio driven by four core tenets.

  • Value + Quality Outperforms: Academic research indicates that high-quality companies have historically outperformed if purchased at the right price.
  • Dividends Dampen Volatility: Dividends and share repurchases help dampen volatility and provide downside protection.
  • Security Analysis Adds Alpha: Data-driven security analysis helps identify companies in which desirable characteristics and factors are likely to persist.
  • Diversification Reduces Risk: Diversification across multiple dimensions – countries, sectors, industries, and companies – helps minimize uncompensated risks to achieve more consistent results for investors.

They start with an investable universe of about 4000 stocks, many inaccessible to large institutional investors, and use quantitative screens to reduce that to a watch list of 300-500 stocks which have relatively attractive value, quality, and dividend characteristics. They then subject those companies to an intensive analysis of their financial statements to determine the answers to questions such as

  • Is the company overvalued relative to its history or the market?
  • Has the company grown or changed so much that a historical valuation comparison is not relevant?
  • How stable are returns on invested capital?
  • Does management deploy capital wisely?
  • Is the balance sheet strong enough to maintain the dividend and/or buyback growth?

That analysis leads them to a portfolio of 100-140 attractive stocks.

How’s that working out?

Since its inception, the fund has offered slightly lower returns with substantially lower volatility than its peers.

In consequence, it posted above-average performance on all four measures of risk-adjusted returns: the Ulcer Index (which tracks the depth and duration of a fund’s drawdown) as well as the Sharpe, Sortino, and Martin ratios. They were on-track to outperform their peers in 2020 until an explosive late-year rally left them behind.

The bigger question is, is the cause for long-term investors to pursue the fund? If Mr. Campbell’s long-term record is any indication, yes. His previous charge:

  • Achieved a 4-or 5-star Morningstar Rating throughout his tenure
  • Posted a downside market capture ratio of 89% (December 2012-April 2018)
  • Outperformed its benchmark in four of his five full years at the helm: 2013, 2015, 2016, and 2017. CCEYX did the same in 2019.

His current portfolio has more of a growth tilt than would traditionally be the case. The managers attribute that, primarily, to the effects of Covid which led them to a greater focus on quality, which is more expensive than value. With the arrival of Covid vaccines (the Chinese version of which is cheap and available, though not as effective as the Western vaccines), the reopening of businesses and immense monetary stimulus – BOE Fed ECB BOJ have all seen unprecedented growth in their balance sheets – things could rotate the other way pretty quickly.

Bottom Line

In general, Mr. Campbell’s track record is very sound and reflects exceptional risk-consciousness. CCEYX offers a distinctive option with substantially more exposure to smaller capitalization stocks, substantially less portfolio concentration, broad diversification and a sensible balance of forces. Like many sensible choices, it’s least likely to shine in irrationally frothy markets but might well serve investors well over time. It’s warranted a place on of due diligence list for risk-sensitive EM investors.

Fund website

Adviser website: American Beacon Continuous Capital Emerging Markets

Sub-adviser website: Continuous Capital




Briefly Noted

By David Snowball


Eric Heufner, president of Grandeur Peak Global, shares the sad news of the death on January 21, 2021, of one of his colleagues.

It is with great sadness that we announce the death of our dear friend and colleague, Keefer Babbitt. Keefer was not only a great partner and friend, he also set the bar extremely high as it relates to his work. His character, work ethic, depth of thought and the quality of his output were greatly admired by all of us at Grandeur Peak. Keefer joined Grandeur Peak in 2012 as one of our first interns, and over the past 8+ years he has been a true builder of our firm. He made an enormous difference here and he will be greatly missed.

Keefer’s current roles included co-managing the Global Contrarian Fund alongside Mark Madsen and Robert Gardiner, co-managing the Global Reach Fund with six other portfolio managers, contributing on our Industrials team, and of course first and foremost serving as a global research analyst. Given our unique team-based approach, we do not anticipate making any immediate changes to the portfolio management of either fund.

Mr. Babbitt is survived by his wife Riley and their young daughter Ivy Lou. With the Grandeur Peak folks, we mourn his passing and wish peace and the comfort of friends for his family.

Briefly Noted . . .

Here’s the filing: “Effective at the close of business on December 31, 2020, Jill T. McGruder resigns as President of the [Touchstone Funds] Trusts and Steven M. Graziano resigns as a Vice President of the Trusts. Their resignations are not motivated by any disagreement with the Board or management.” It’s always nice when two leaders of an organization leave without any disagreement with those running the shop, though it would be nice to know what other than disagreement motivated the move.

The active ETF revolution is beginning to gnaw at the passive ETF business. Effective March 23, 2021, the passively managed ERShares 30 Entrepreneurs ETF (ENTR) becomes the actively managed ERShares Entrepreneur ETF and the passive ERShares Non-US Small Cap ETF becomes the active ERShares NextGen Entrepreneurs ETF. In each case, the fund’s policy concerning industry concentration was revised to make them more diversified.

Effective March 26, 2021, PIMCO StocksPLUS Short Fund and PIMCO CommoditiesPLUS shareholders will receive one share in exchange for every two shares of a Fund they currently own, which is called either “a reverse-split” or “evidence that our strategy is cratering.” Let’s see how things have gone in the past 10 years …


Well, that’s better, at least. Folks investing $10,000 in the commodity fund 10 years ago would still have $6572 left.

CLOSINGS (and related inconveniences)

Effective as of the close of business on February 5, 2021, the JPMorgan Small Cap Growth Fund will be closed to new investors. By MFO’s measures, over the past decade it’s been a little more volatile and a lot more profitable than its small-growth peers. Four-star, $6.8 billion small growth fund with booked a 59% gain in 2020. All of the managers have invested in the fund, with the lead manager having over a million in it.

Effective as of the close of business on March 31, 2021, Kopernik Global All-Cap Fund will be closed to new investors. $1.5 billion international small- to mid-cap value fund. David Iben, the manager, has been running the fund since 2013 but has yet to invest in it or in its International sibling. Mr. Iben previously ran Nuveen Tradewinds Global All-Cap and Value Opportunities, both of which beat their peers by a 3:1 margin over time. In the year after Mr. Iben’s departure, Tradewinds lost 75% of its AUM and both were eventually liquidated.


The Horizon Defensive Multi-Factor Fund will be changed to Horizon U.S. Defensive Equity Fund on or about March 29, 2021.

On March 1, 2021, iShares MSCI Frontier 100 ETF becomes their Frontier and Select EM ETF, which will add stocks from Pakistan, Philippines, Peru, Colombia, Argentina and Egypt to the portfolio.

On March 30, 2021 North Country Equity Growth Fund will change to North Country Large Cap Equity Fund.  Only 5% of the current portfolio is invested in anything other than large cap equities, so the new name won’t force any change in the portfolio.

Effective March 31, 2021, the sustainability profiles of three of the Pax World Funds will be enhanced and the Funds’ names will be changed to better reflect their core focus of investing in the transition to a more sustainable economy. The new Fund names will be the Pax U.S. Sustainable Economy Fund (currently, Pax ESG Beta Quality Fund), the Pax International Sustainable Economy Fund (currently, Pax MSCI EAFE ESG Leaders Index Fund) and Pax Global Sustainable Infrastructure Fund (currently, Pax ESG Beta Dividend Fund).

As of January 14, 2021, The Gabelli Focus Five Fund has changed its name to The Gabelli Focused Growth and Income Fund. You’ll notice the “The” as an official part of the fund’s name, akin to Miami’s college football players (last seen losing in the Cheez-It Bowl on December 20 2020) announcing their identification for “THE U” or that institution in Columbus declaring itself “THE Ohio State University” as a defense against all of those other Ohio state universities.

On May 1, 2021, T. Rowe Price New America Growth will change its name to T. Rowe Price All-Cap Opportunities Fund and broaden its benchmark index from the Russell 1000 Growth to the Russell 3000.

Effective on March 22, 2021, Virtus Newfleet Dynamic Credit ETF will be renamed Virtus Newfleet High Yield Bond ETF.



Effective on March 15, 2020, Cambria Sovereign Bond ETF will convert from an actively managed, non-diversified ETF that invests primarily in the sovereign and quasi-sovereign bonds of developed and emerging market countries into Cambria Global Tail Risk ETF (FAIL), an actively managed, diversified ETF that “invests in a mix of developed and emerging market sovereign bonds and U.S. government bonds, while utilizing a put option strategy to manage the risk of a significant negative movement in the value of global ex-U.S. equities (i.e., global tail risk) over rolling one-month periods.” Technically the existing ETF isn’t being liquidated but the change is so substantial that the original will have been obliterated.

There’s a new liquidation date for Columbia Pacific/Asia Fund; it’s been changed from February 5, 2021 to March 19, 2021.

Counterpoint Long-Short Equity Fund will cease operations on or about February 10, 2021.

Dupont Capital Emerging Markets Debt Fund faces “final liquidation” (as opposed, presumably, to all of those preliminary and intermediate liquidations) on or about February 26, 2021.

First Trust RiverFront Dynamic Asia Pacific ETF is set to merge into First Trust RiverFront Dynamic Developed International ETF. The Board assures us both funds are active and looking for capital appreciation, and surely “Asia PC” and “Developed” are practically synonyms. No date set.

The F/m Investments European L/S Small Cap Fund (BESRX) has terminated the public offering of its shares and will discontinue its operations effective February 12, 2021. Ummm … $800k in assets, 3.65% expense ratio after five years of operation.

Effective April 23, 2021, four Invesco funds will be absorbed by their siblings.

Disappearing Funds Acquiring Funds
Invesco Endeavor Fund Invesco Main Street Mid Cap Fund
Invesco Pacific Growth Fund Invesco Greater China Fund
Invesco Select Companies Fund Invesco Main Street Small Cap Fund
Invesco Senior Floating Rate Plus Fund Invesco Senior Floating Rate Fund

Jaguar Global Property Fund (JAGGX) will be liquidated on February 26, 2021.

JPMorgan International Advantage Fund (JFTAX), trailing 93-95% of its peers and having offered no real advantage (none of the fund’s current managers chose to invest in it), will be liquidated on February 26, 2021. It’s striking because this is the largest fund liquidation – the portfolio holds $1.2 billion – in memory.

Ryan Labs Long Credit Fund (RLLCX) has terminated the public offering of its shares and will discontinue its operations effective February 25, 2021. It’s a high-risk / high-return high-yield fund. The performance-since-inception profile is pretty telling:

No reason for the liquidation is explicitly stated but the note “the adviser will continue to waive fees” pretty much signals that it’s been a money-losing proposition.

SPDR EURO STOXX Small Cap ETF, SPDR Solactive Canada ETF, SPDR Solactive Germany ETF, SPDR Solactive Hong Kong ETF, SPDR Solactive Japan ETF, SPDR Solactive United Kingdom ETF, SPDR MFS Systematic Core Equity ETF, SPDR MFS Systematic Growth Equity ETF, SPDR Dorsey Wright Fixed Income Allocation ETF and SPDR MFS Systematic Value Equity ETF will all be liquidated between March 18 and March 23, 2021.

The three-star Schroder North American Equity Fund is expected to cease operations and liquidate on or about February 22, 2021.

Stone Ridge All Asset Variance Risk Premium Fund (AVRPX) will be reorganized into the tiny, year-old Stone Ridge Diversified Alternatives Fund on February 5, 2021

Theta Income Fund (LQTIX) will be liquidated on or about March 22, 2021.

Virtus Aviva Multi-Strategy Target Return Fund will be liquidated on or about February 26, 2021.