Monthly Archives: September 2021

September 1, 2021

By Chip

Dear friends,

It’s fall! We’re back! And we hope you are, too.

Well, it’s “meteorological fall” anyway. “Astronomical fall” (or is it “anatomical fall”? I can’t recall) holds off until September 22. With two classrooms full of students (one studying Propaganda with me, the other Advertising and Consumer Culture), my brain assures me it’s really fall. Their choice of attire (short, light, and often shredded), contrarily, suggests that they’re still holding on to summer.

And bless them for it!

Things I Learned While Trying to Avoid Doing Actual Work

It’s all a game to you, isn’t it!?!  Actually, with our newest cohort of investors, it sort of is. CNBC surveyed 5,530 adults in August and discovered:

  • 35% of investors aged 18-34 say they get investment ideas from social media, with smaller numbers of investors selecting “friends and family,” financial guidance websites, and news media.
  • Three-fifths of the young retail investors surveyed said they began investing in 2020 or 2021 when they were bored and trapped at home.
  • When asked why they started investing, 12% said because it “feels like a game.” 27% said “it’s exciting,” and 24% said it’s easy to do on their own. (from Amy Graffeo, Business Insider, 8/23/2021)

Portfolio advice? Who Ya Gonna Call?

“Social media,” you say? Yep. Lovely clueless people on TikTok are making tens of thousands of dollars a day, in some cases, and hundreds of thousands of dollars a year, in others, cheerleading for “fun and exciting” stocks. The Wall Street Journal’s Robbie Whelan describes them this way:

Now, a new generation of Jim Cramers has risen up on social media with massive followings as guides to these market newbies.

Many of these influencers have no formal training as financial advisers and no background in professional investing, leading them to pick stocks based on the whims of popular opinion or to dispense money-losing advice. (“The Social-Media Stars Who Move Markets,” 8/27/2021, a really striking piece of journalism albeit behind a paywall)

The one inviolable rule? “Never criticize a meme stock.”

How could this not end well?

September is, on average, the worst month for the S&P 500. It’s the only month where, on average, stocks decline. That said, October – a halfway decent month in terms of average performance – is the one renowned for all of the really spectacular crashes including 1929, 1987 (who now remembers Black Monday when the Dow dropped 22.6% – 7,980 points in today’s market – in a single trading session?) and 2008.

ETFs now hold over $9 trillion. With a “t.” Based on Morningstar data, the Wall Street Journal reports “Investors poured $705 billion into exchange-traded funds through the first seven months of the year, pushing 2021’s world-wide tally to a record $9.1 trillion” (Michael Wursthorn, WSJ.com, 8/12/2021) In the first seven months of the year, investors added $224 billion to Vanguard’s ETFs.

In a way, that highlights the argument we’ve been making for a long time: the mutual fund versus ETF fight is specious. First, traditional mutual fund advisors – Vanguard, BlackRock, State Street, Fidelity – completely and utterly dominate the ETF industry. Second, the rise of actively managed ETFs, especially the non-transparent ones, and the accelerating repackaging of existing mutual funds as ETFs means that the ETF wrapper is barely more than Mutual Funds 2.0.

The key debate remains to what extent to entrust your portfolio to relatively more active vehicles and to what extent to entrust them to relatively less active vehicles. (Index funds are not “passive,” it’s just that the active decisions are delegated to the index designers. And portfolios comprised of a dozen wacky micro-indexes – the Quality Plus Value Distilled Water and Cloud Technologies ETF – is not passive at all.)

When might you rationally consider mutual funds rather than active ETFs? Primarily if the investment universe you’re exploring – say international micro-cap value – has palpable capacity constraints since ETFs, unlike funds, cannot close to new investors.

When might you rationally consider more active rather than more passive? Four possibilities stand out. One, you’re looking for some sort of active risk mitigation. Two, you want to delegate the job of tactical asset allocation – of being a little more aggressive now and a little less aggressive at another time – to a professional but you don’t want to trust those decisions to a financial planner. Leuthold Core Investment, the fund or the ETF version, and Palm Valley Capital Fund are examples of funds where the managers love investing in stocks – but only when the risk-return calculus is in their favor. Three, you believe you’ve found a sufficiently distinctive strategy that outperforms passive counterparts and which can’t be arbitraged away; that is, you can’t design an index to do what they’re doing. David Sherman’s RiverPark Short Term High Yield Fund would be the poster child here. Four, you’ve found something that makes a world of sense to you and you’re comfortable with it. The key to investing success, after all, is discipline: finding a sensible strategy and sticking with it through thick and thin. If you’ve found a strategy that lets you go about your life without worrying about the market’s lunacy, you’ve won. Congratulations!

It might be worth looking at Japanese small value stocks. GMO, famously insistent that valuations matter and trees don’t grow to the sky, now project negative real returns on virtually every asset class over the next 5-7 years. Their model is based on the simple assumption that profit margins and stock valuations must, eventually, return to something like “normal.” If they do, the wild prices for all assets – and the hefty 11% annual returns that investors in an utterly vanilla 60/40 index fund have pocketed over the past decade – foretell A Great Reckoning.

Except, perhaps, for investors in small, undervalued Japanese stocks. “The massive snap-back in asset prices around the world has left it increasingly difficult to find attractively priced equities. Fortunately, those willing to look to Japan will find small cap value stocks to be an island of potential in a sea of otherwise expensive equity markets.” (Usonian Japan Equity and Asset Allocation Team, Japan Small Value, 7/2021).

“The combination of expected multiple expansion and rising ROC leaves Japan Value and Japan Small Value among GMO’s most attractive 7-Year Asset Class Forecasts,” they report.

Investors not interesting in paying GMO’s investment minimums – $500,000,000 on some share classes – might look at the Japan Smaller Capitalization ETF (JOF) which has a true small-value portfolio, Hennessy Japan Small Cap (HJPSX) which is more small-core or possibly Fidelity Japan Smaller Companies (FJSCX) which is more mid-cap but which, once upon a time, made me something like 250% in a single year. The caveat is that, YTD, they’ve only made a couple of percent.

Investors continue to underperform their investments. In other contexts, we call  that “shooting yourself in the foot.” Morningstar just released their latest “Mind the Gap” study that tries to compare the returns received by investors with the returns generated by their investments.  It’s not pretty. Amy Arnott reports:

Our annual “Mind the Gap” study of dollar-weighted returns (also known as investor returns) finds investors earned about 7.7% per year on the average dollar they invested in mutual funds and exchange-traded funds over the 10 years ended Dec. 31, 2020. This was about 1.7 percentage points less than the total returns their fund investments generated over that span. (Why Fund Returns Are Lower Than You Might Think, 8/30/2021)

The problem is simple and psychological: we see bright shiny objects – funds that made a lot of money for other people in the past (hypothetically an ETF, let’s call it “the Ark,” that made 152.82% last year) – and buy it in hopes that we magically inherit those wonderful gains. Then we discover that after great gains there are great pains (if, for instance, the Ark were in the red this year, trailing 100% of its peers and leaving new investors 1716 basis points behind a simple index), and we flee. 

Morningstar’s breakdown of the size of the gap by investment type supports our argument about the folly of buying bling:

The greatest carnage came from investing in sector funds (cloud computing, oil, and so on) and alternative funds, almost all of which rely on arcane financial engineering and many of which rely on black-box algorithms, that investors have no hope of actually grasping. Mild-manned stock-bond hybrid funds, on the other hand, have the smallest gap.

FOMO is mostly MO.  Part of the craze for “investing is a game” funds was manifested in the FOMO ETF. FOMO was designed to give you access to all of the cool stuff – SPACs, crypto, volatility ETFs, inverse volatility ETPs – that you were otherwise missing out on. Meh. Since its launch, the fund is up 3.4% and the MSCI world stock index is up 5.4%. I’m not sure that you’re missing much, but I am sure that the latest wave of silliness – Anti-ARKK, MEME, cannabis, dynamic cannabis, cloud cannabis, crypto cannabis – will serve you no better.

Vanguard is making $580 million a month from the management fees on its nearly $8 trillion in global assets, according to Dan Wiener of The Independent Adviser for Vanguard Investors (9/2021). By way of context, there are nearly 4,000 mutual funds (3927) – including 310 five-star funds – smaller than Vanguard’s monthly earnings.

The way we tell stories to ourselves is incredibly powerful. I’ve been reading Frank Rose’s The Sea We Swim In: How Stories Work in a Data-Driven World (2021). It’s a maddeningly rich, interesting book. Rose, a former journalist (we forgive him), argues

For decades, psychologists didn’t deign to study stories—they were considered frivolous, unworthy of serious study. But … narrative thinking is our default mode—it’s what we engage in all the time. It’s gossip. It’s television. It’s the movies. It has little to do with reason and everything to do with emotion. As a species, we humans have an enormous investment in the idea that we are rational creatures, that we’re far too smart to be persuaded by something so emotional as a story. Unfortunately, our attachment to this idea is much more emotional than it is rational.

Economists made believe that we are “rational actors,” wild stock market swings and tulipomania notwithstanding. Ad executives used to talk about the “unique selling proposition,” the benefit that would give their product an edge over all competitors—as if consumers would automatically make the right choice when confronted with the facts. But deep down, we all realize that reason is an aspirational goal. Maybe that’s the real reason scientists were so reluctant to study stories; maybe they were afraid of what they’d find.

Rose cites and connects an awful lot of research across a half dozen fields that, collectively, helps us understand how we talked ourselves into our current predicament.

If you haven’t quite escaped summer mode yet, Chip and I are also reading – aloud to one another, as is our habit – from Kenji Lopez-Alt’s collection, The Best American Food Writing 2020. It’s not a cookbook, it’s a collection of essays from a dozen sources whose subjects range from racism in restaurant reviews to exposes on the air content of ice creams. We’ve enjoyed it, mostly, though some of the “what it’s actually like to work in a high-end restaurant kitchen restaurant” is a tiny bit soul-crushing.

Thanks, as ever …

To the folks who read and support the Observer, whether through monthly contributions, occasional gifts, MFO Premium memberships, thoughtful notes or interesting suggestions. You all matter, more than you know.

Thanks then to Wilson and the folks at S&F Investment Advisors and to our hearty, faithful PayPal subscribers: Greg, William, William, Brian, David, and Doug.

I’ll get a chance to speak (virtually) with the folks at the Orange County chapter of the AAII in the middle of September.  “Stillness Is the Key: The Indolent Investor’s Guide to Sanity & Success.” I’m looking forward to it.

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Run-Away Train Coming

By Edward A. Studzinski

“It’s a scientific fact that if you stay in California you lose one point of your IQ every year.”

~ Truman Capote

Is THE MARKET overvalued at this point? How do share prices relate to the underlying fundamentals of the businesses they represent? Is inflation eating away the value of my savings (and our currency) now?

How should I invest to preserve my capital and lifestyle going forward?

These are all important questions to which, unfortunately, there are no easy answers. Should one be invested in small capitalization or large/mega-capitalization equities? A period of high inflation and high interest rates tends to present a favorable environment for small businesses. But now we have neither. We are perhaps moving into a period of high inflation, certainly higher inflation than we have had for many years now. And our interest rates have been artificially suppressed, by our central bank among others, ostensibly to keep our economy, now for many years, out of a severe downturn. And while we were not looking, we were not supposed to notice a shift by our own central bank (the Federal Reserve) to focus on attaining fuller employment rather than keeping inflation in check. We are not yet at a point that would favor small companies, which are generally more nimble than large companies at raising prices. Rather, a large capitalization company moves its prices more slowly upwards, growing at what its historic growth rate has been, without adjusting for inflation.

Alternatively, we appear to be in a period which in many respects mimics that of the “Nifty Fifty” during the late 1960s, where large cap growth stocks like Polaroid and IBM were trading at high multiples of earnings, valuations that were usually seen in small cap growth stocks. The future earnings levels that were being assumed and discounted required permanent economic perfection. Instead, what was coming down the tracks (train wreck) was OPEC price increases, America held hostage by Iran, and extraordinarily high inflation. In theory, fast-growing companies with moderate inflation and a decent dividend can continue to provide a return well above inflation. However, that ends once inflation begins to rise. The prices (and high multiples) of those securities will collapse.

What to look for? At some point, we will see high rampant inflation. And there will be a societal push to get it under control. That will happen, but it will also result in larger companies being undervalued again. What should be done for an investment program in the interim? And what is different this time that needs to be considered?

Some eighteen months ago, an institutional consultant I know told me that he was taking all of his personal money out of real estate as an asset class. My question to him was, if you get out, when will you know to get back in? His answer was that he wouldn’t, but he didn’t want to ride the class down to zero.

Starting this year, of course, real estate, if real estate investment trust prices are any example, is doing quite well as an asset class, equaling or exceeding the returns of some equity indices. Unfortunately, he was too young to remember the 70’s, when a similar period had seen banks and insurance companies shedding their real estate investments (at the lows), only to come back into those markets later, not at the lows. That, of course, is why we no longer have such vehicles from that period as the Continental Illinois REIT and the Northwestern Mutual REIT. Real estate does not get repurposed all of the time.

My advice is this. One should generally stick with a long-term asset allocation program that has been well thought out and implemented. Regularly review it, considering your current goals and risk tolerances. Where appropriate, tweak it around the edges. But, making wholesale changes when panicked can often result in a permanent loss of capital that cannot be recovered from, along with a degradation of a portfolio income stream. In terms of equities, as you tweak around the edges, maintain a concentrated portfolio where you are aware of what you own and why you own it. If possible, have a good representation of businesses with true pricing power that are not impacted by the swings of commodity prices. On occasion, pay attention to the opportunities in real assets throwing off an income stream that are selling for less than their replacement cost (e.g. pipelines and various kinds of shipping). And finally, when given a choice between a good to very good business at a fair price with no debt (leverage) and a poor or commodity business that is very cheap with a lot of leverage, opt for the better business.

Recommendations

Since every now and then, I feel the need to throw out book or movie recommendations, here are three that I think are germane to our world.

  1. Regularly we limit ourselves in this country to discussions about investment from Americans. There are good lessons to be learned by going across the pond to the United Kingdom on occasion. In that vein, I would suggest Investing Through the Capital Cycle: Capital Returns – A Money Manager’s Reports, 2002-2015, from Marathon Asset Management, edited by Edward Chancellor (2016)
  2. In terms of movies, I cannot think of a more timely production to be viewed than the original version of “The Manchurian Candidate.” It is as a good a compendium of manipulative personalities, all perhaps seen from their individual perspectives with the best of intentions, as has ever been put together in a script. It is superbly acted in the original version with Frank Sinatra, Laurence Harvey, and Janet Leigh.
  3. Finally, for cable viewers, I recommend both seasons of “The Godfather of Harlem,” which gives us an appreciation of how much we have lost in terms of societal leaders who, although often flawed individuals, were in many respects far more visionary and exemplary than those we see today.

The Catastrophe Portfolio

By Charles Lynn Bolin

What if you had to build a portfolio now and could not change it for the next five years other than annual rebalancing? The most obvious real-life situation might be preparing in case a spouse who does not know much about investing needs to manage finances; hence the name, “Catastrophe Portfolio”. A different scenario is the Rip Van Winkle scenario where you fall asleep for five to ten years and wake up to see what your portfolio is worth. And of course, there is the K.I.S.S philosophy. 

The obvious question would be, “Why not use an investment advisor and/or an independent financial planner?” I have talked with four investment professionals this year and have narrowed consideration down to two. There are eight funds in The Catastrophe Portfolio whose Lipper Categories have a history of performing well following periods when valuations were high or rates were rising. The portfolio is tilted toward international equity and domestic value funds.

My editor, Felix, likes my new desk in the retirement home we bought in Colorado last month. She enjoys working remotely and anxiously awaits my return to get back to work. 

In my article last month, I showed seven long term trends for the past twenty to fifty years which are 1) slowing economic growth, 2) stagnant profit growth, 3) massive stimulus which will wear off, 4) end of the bond bull market with associated low interest rates, 5) impact of corporate buybacks on asset inflation and volatility, 6) high leverage which increases instability, and 7) taxes that are will head higher. In this article, I show the Investment Model that I use to determine current market conditions and provide guidance for allocations in Section #1. I summarize Fidelity’s Long Term View of Investments in the coming decade(s) in Section #2. In Section #3, I look at historical time periods to evaluate funds using risk-adjusted returns (Martin Ratio).  Section #4 contains the Catastrophe Portfolio. 

Table #1 contains ten time periods, some of which represent long periods of time with different market conditions, full-cycle time periods, and time periods with similarities to the current market condition. In particular, I searched for time periods available in the Mutual Fund Observer Multi-Search Tool with rising interest rates, high inflation, or falling valuations. The table shows the starting price to earnings ratio for the year, annual returns for the S&P 500 and ten-year treasuries, and annual inflation. The green shaded cells represent the 16 lowest P/E ratios, lowest inflation rates, highest returns. The red shade represents the opposite (worse) conditions. The twenty years prior to 1991 have very low valuations relative to the following thirty years. For each of these time periods, I extracted all of the no-load mutual funds and exchange traded funds in the Lipper Database using the Mutual Fund Observer Multi-Screen Tool. 

Table #1: Ten Evaluation Periods

Source: Created By the Author

1. Investment Model

Key Point: I built the Investment Model five to ten years ago to guide me in determining where the Investment Environment is heading over the next six months. I use Benjamin Graham’s guideline of never investing less than 25 percent in stocks nor more than 75 percent.

For the same reason some people enjoy solving a crossword puzzle, I built the Investment Model as a technical challenge. It is based on 32 main indicators which consist of one or more sub-indicators. The goal is to maximize returns by changing stock and bond allocations according to the investment environment and following Benjamin Graham’s guideline of never investing less than 25 percent in stocks nor more than 75 percent. During the COVID pandemic, several sub-indicators were discontinued. These were eliminated in the Model and the weights applied to these indicators were re-calculated. The indicators include leading and coincident indicators, the U.S. and global economic growth, financial risk, interest rates, monetary policy, valuations, inflation, among others.

The main index is the dashed blue line in Figure #1. The Allocation Index is the dark blue line which currently stands at 75% stocks. The red line is the percent of timely indicators that are negative. The economy is currently growing strongly and the investment environment is positive. On the long-term negative side, valuations and margin debt are high. Inflation is also a negative indicator. Construction and Investment have not recovered from the pandemic. There is a partial list of references that I used to build the Investment Model after the closing.

Figure #1: Investment Model

Source: Created By the Author

Figure #2 shows the allocations and performance of the Investment Model compared to the S&P 500. The Investment Model would have averaged 10% returns over the past 36 years. The S&P 500 has just now caught up to the Investment Model Portfolio. The primary benefit is that the Investment Model Portfolio reduces the impact of the major drawdowns. I avoided the majority of the drawdown of the 2020 recession by reducing allocations to stock and being more defensive. I perhaps remained too conservative during the recovery because the Investment Model was not available due to indicators being discontinued and because COVID and the new Delta variant are still large unknowns, and massive stimulus has inflated asset prices.

Figure #2: Investment Model Allocations and Returns

Source: Created By the Author

Table #2 shows the performance of the Lipper Categories since 1996 along with a representative fund chosen as having the highest risk adjusted return (Martin Ratio) during this time period. Growth funds have benefited from stimulus and asset inflation that will likely be a headwind for future performance while conservative funds have low or rising rates that will be a headwind for future performance.

Table #2: Metrics 1996 to 2021

Source: Created By the Author Using Mutual Fund Observer

2. Fidelity’s Long Term View

Key Point: Fidelity’s view is that funds with more international exposure, particularly emerging markets, will outperform in the coming decade(s).

Fidelity published Investing for the Next 20 Years which contains its outlook for international growth over the next twenty years. In summary:

    • Population and productivity trends may slow global GDP growth over the next 20 years.
    • Slower growth could mean lower-than-average interest rates and lower stock market returns than in recent decades.

Investing for the Next 20 Years, Fidelity, July 2021

Fidelity forecasts that many developing economies will continue to have higher growth than the developed economies as shown in Figure #3.

Figure #3: Long Term Historical and Forecast Growth

Source: Fidelity

Fidelity also published its view for the shorter term in Q3 2021: Reopening brings growth, but risks too. The highlights are reproduced below:

    • We expect increased potential for elevated volatility in the coming year, as shifting expectations for monetary policy could push markets toward more inflationary or disinflationary outcomes
    • The post-World War II shift to a peacetime economy, which catalyzed a cyclical rebound of growth and inflation, may be the closest historical analog to the upcoming post-COVID era where vaccination and reopening gain steam over the course of 2021 and 2022.
    • Global liquidity surged during Q2, and we expect liquidity growth to slow in the coming months, raising the prospect of higher market volatility.
    • While technology and other factors have kept inflation in check, we believe greater policy experimentation and “peak globalization” trends will eventually cause long-term inflation to rise faster than expected.

3. Historical Fund Performance

Key Point: Tables are shown for 1) Fixed Income, 2) Mixed-Asset, 3) Global and International Equity, and Domestic Equity for ten time periods based on risk adjusted returns (Martin Ratio).

I extracted all no-load mutual funds with low minimum required investments (excluding money market and target-date funds) and exchange traded funds available during these ten time periods. For the most recent time period, there are over three thousand funds representing 20 trillion dollars. I then calculated a market-weighted, risk-adjusted return (Martin Ratio) for the time period. I eliminated categories that had fewer than ten funds and less than fifteen billion dollars. The remaining thirty-three categories are grouped by 1) Fixed Income, 2) Mixed Asset, 3) Global and International Equity, and 4) Domestic Equity.

Mixed-Asset

Table #3 shows that the best mixed asset mutual funds during these ten time periods, on a risk adjusted basis, are Conservative and Flexible Portfolio Categories. Moderate Mixed Asset Funds also performed well. Total returns of Flexible Portfolios tend to do well when valuations are falling. 

Table #3: Mixed Asset Categories with Highest Risk Adjusted Returns

Source: Created By the Author Using Mutual Fund Observer

Fixed Income

Table #4 shows that multi-sector income, Corporate Bond BBB, and US Mortgage are among the most consistent categories for risk adjusted performance during the ten time periods. On a total return basis, multi-sector income and municipal high yield debt are consistently high performers while emerging market and high yield are less consistent.

Table #4: Fixed Income Categories with Highest Risk Adjusted Returns

Source: Created By the Author Using Mutual Fund Observer

Global and International Equity

Of the Global and International Equity funds, Global Multi-Cap Value funds outperform on a risk adjusted basis. On a total return basis, global multi-cap value and global real estate funds are strong performers.

Table #5: Global and International Equity Categories with Highest Risk Adjusted Returns

Source: Created By the Author Using Mutual Fund Observer

Domestic Equity

Equity Income, Multi-cap value, large cap value, and large cap core are consistently among the best categories for risk adjusted performance. Multi-cap value also performs well on total return basis while Equity Income is more middle of the road.

Table #6: Domestic Equity Categories with Highest Risk Adjusted Returns

Source: Created By the Author Using Mutual Fund Observer

4. The Catastrophe Portfolio

Key Point: Eight funds are selected to be in the Catastrophe Portfolio from the Lipper Categories that have performed well following periods of high valuations or rising rates.

I selected the best performing funds from the funds that I track based on the Lipper Categories that do well in secular bear markets and when rates are rising. The Catastrophe Portfolio had an average annual performance of 12 percent over the past 55 months with a yield of 2.3% (See Table #7). I chose to show MFO/Lipper Category Rankings as opposed to metrics because I expect performance over the coming decade(s) to improve compared to past decade. All of the funds are great funds and five make the MFO Great Owl Classification. Each has outperformed its peer over the past four-year period.

I wrote about CDC in Right Beneath My Nose on MFO and DIVO in Amplify CWP Enhanced Dividend Income ETF With 5% Distribution on Seeking Alpha. Columbia Thermostat (COTZX/CTFAX) and Fidelity Multi-Asset Income (FAYZX/FMSDX) are two Flexible Portfolio funds that I include in many articles. I have identified the WisdomTree International Quality Dividend Growth ETF as a fund to track, but this is the first time that I have taken a serious look at its performance.

River Canyon Total Return Bond (RCTIX) fund has made my radar screen frequently but has a transaction fee at Fidelity. The Fidelity Strategic Income Fund (FSIAX/FADMX) is a fair alternative. Over the past 20 years (since 2001), FSIAX has had an annualized return of 6.5% with a maximum drawdown of 15.8%. The return over twenty years is only 2.3 percentage points less than the S&P 500. Multi-Sector Income Funds invest in high yield, emerging market debt, foreign market debt, and floating rate debt, among others, and is higher risk than investment-grade bonds.

Table #7: Catastrophe Portfolio Fund Metrics and Ratings – Four Years

Source: Created By the Author Using Mutual Fund Observer

Table #8 shows the Catastrophe Portfolio. It had an average annual return of 12 percent over the last 55 months with a maximum drawdown of only 11 percent. I chose to weight the four mixed-asset funds at 15% of the portfolio to increase diversification. COTZX/CTFAX sets its target allocation based on cyclically adjusted price-to-earnings ratios. It currently only has 10% allocated to stocks, but may increase this allocation to 90% depending upon how far the market falls. I included FAYZX/FMSDX because of its higher diversification than a traditional mixed asset fund. I included the Fidelity Freedom 2020 fund because I want the portfolio to get a little more conservative over time. 

Table #8: Catastrophe Portfolio with MFO Metrics (4.6 Years)

Source: Created By the Author Using Mutual Fund Observer

I selected the funds based on a process of elimination using Portfolio Visualizer, and the link to the last Portfolio Optimization in Portfolio Visualizer is provided here. I chose the Vanguard LifeStrategy Growth Fund (VSMGX) for comparison, because of its international exposure. The link to Backtest Portfolio in Portfolio Visualizer is provided here. Figure #4 shows the performance of the Catastrophe Portfolio without dividends reinvested, and with annual rebalancing. It looks similar to the Vanguard LifeStrategy Moderate Growth Portfolio.

Figure #4: Performance of Million Dollar Catastrophe Portfolio without Dividends Reinvested

Source: Created By the Author Using Portfolio Visualizer

One of the reasons that these funds were selected is the higher yield, in addition to risk adjusted performance and solid future performance. The average (full year) annual income for the Catastrophe Portfolio has been $46,371 compared to $35,877 for the LifeStrategy Moderate Growth Portfolio. 

Table #9: Annual Returns and Income of Catastrophe Portfolio

Source: Created By the Author Using Portfolio Visualizer

Looking under the hood, the Catastrophe Portfolio has 37% in domestic stocks and 17% in international for a total of a 57% allocation to stocks and “Other”. With COTZX/CTFAX, allocations to stocks will vary between about 57 and 69 percent depending upon market conditions. The stocks are multi-cap concentrated in large cap core and value. Bonds are mostly investment quality intermediate bonds. There is a significant allocation to lower quality short duration bonds due to the multi-sector income fund (RCTIX). 

Table #10: Asset Allocation of Catastrophe Portfolio

Source: Created By the Author Using Morningstar

Table #11 shows the exposures of the Catastrophe Portfolio from the Morningstar XRay Tool. The Portfolio is overweight Basic Materials, Industrials, Consumer Defensive, and Utilities, and underweight Consumer Cyclical, Communication Services, and Technology. This is a tilt toward the sectors that I believe will outperform over the next decade.

Table #11: Exposure of Catastrophe Portfolio

Source: Created By the Author Using Morningstar

Closing

This article is the culmination of a 15-year quest to build a low-risk, low-maintenance portfolio that will do well during a secular bear market. I appreciate the excellent service provided by Mutual Fund Observer that allows the individual investor to cut through the hype and look at both sides of the “Reward to Risk” equation. 

As I approach retirement, I have two financial planners that I will talk to in more detail. My bigger concern is on managing risks and taxes, more than squeezing a little return out of a highly valued market. As for the Catastrophe Portfolio, it is a journey. The final Portfolio will be a combination of funds that I own and the funds from my last few articles moving in the direction of the Catastrophe Portfolio in this article. 

What will I do in retirement now that I am getting my finances in order? I am going to take five percent of my portfolio and put it in an account to do short-term trend following to satisfy the adventuresome boy in me.

Best Wishes and Stay Safe!

Books and Articles about Business Cycles

Below are some of the books that have been influential to me when building the Investment Model, including essays I’ve published on the significance of business cycles in your success as an investor. I hope you find them provocative and profitable!

Nowcasting The Business Cycle: A Practical Guide For Spotting Business Cycle Peaks, (2014) by James Picerno

Conquering the Divide: How to Use Economic Indicators to Catch Stock Market Trends Hardcover, (2011) by James B. Cornehlsen, Michael J. Carr, and Karris Golden (Editor)

Investing with the Trend: A Rules-based Approach to Money Management, (2013) by Gregory L. Morris

Business Statistics for Competitive Advantage with Excel, (2019) by Cynthia Fraser

Business Cycles: History, Theory and Investment Reality, (2006) by Lars Tvede

Business Cycles (1999) by Francis X. Diebold, Glenn D. Rudebusch

The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation, (2011) by A. Gary Shilling

Recessions and Depressions: Understanding Business Cycles (2010) by Todd A. Knoop

Business Cycle: Simple Portfolios by StageCharles Lynn Bolin

Business Cycle: Boring Bond FundsCharles Lynn Bolin

Business Cycle: Slowing Sales with Growing InventoriesCharles Lynn Bolin

 

Getting To The Upper Right Corner with One Number

By Charles Boccadoro

That’s what Brad Ferguson, an Indianapolis-based financial adviser, strives to achieve for his clients at Halter Ferguson Financial: consistent outperformers, as depicted in the quad chart below

He developed a set of metrics to help him identify a stable of such funds, which he uses candidates for further due diligence. He first shared those metrics with us in 2018 (see Introducing Ferguson Metrics) and discussed them in our early 2019 webinar.

The methodology employees three key metrics:

  • Outperformance Metric (FOM) – Measures fund outperformance based on annualized absolute return versus peers for the past 3, 5, and 10 calendar years, plus any year-to-date YTD partial year.
  • Consistency Index (FCI) – Measures fund consistency based on how a fund performs each calendar year relative to its peers and hurdle rate. If a fund’s absolute return beats its peers by its hurdle rate, the fund scores a win. If it underperforms its hurdle rate, it scores a loss. Anything in-between is a push.
  • Hurdle Rate (FHR) – Sets the absolute return percentage that a fund must beat its peers to score a win or loss in a calendar year. For funds that track to SP500 volatility, this value is (or close to) 1.00 %/yr. FHR is higher or lower based simply on the ratio of annualized standard deviation of the fund to that of the SP500 over the same evaluation window.

Early this year, he added a “Life” period, or more specifically “relevant life,” which according to is not younger than 3 years but not older than period beginning CY 2008, start of the Great Financial Crisis. The “Life” addition helps ensure nothing falls through the cracks between the 3, 5, and 10 year metrics. And this month, he adds one more:

  • Mega Ratio (FMR) – Measures consistency, risk, and expense adjusted outperformance, similar to other adjusted return ratios, like Sharpe. “Mega” because it represents a distillation of key metrics Brad et al. use to help maintain a core group of attractive candidate funds suitable for their clients. Typically, FMR = (FOM * FCI) / (FHR * ER).

Like Peter Brand’s explanation to Oakland A’s general manager Billy Beane in the 2011 movie Moneyball: “It’s about getting things down to one number.”

All of Brad’s metrics have been incorporated into our MFO Premium MultiSearch screener. He’s kindly agreed once again to share his thoughts on the methodology and how he employees it to distill down from the thousands of funds available to just about 100 candidates.

If you’d like to listen-in and ask questions, please join us Wednesday, 15 September at 10:30 am Pacific on the webinar.

In addition to the Mega Ratio, several other new features have been added this past month to MultiSearch: expanded trend, momentum, and benchmark screening options, as described here.

Launch Alert: GQG Partners Global Quality Dividend Income Fund

By David Snowball

On July 1, 2021, GQG Partners launched three new “quality dividend” funds. For the sake of simplicity, we will headline GQG Partners Global Quality Dividend Income Fund since it straddles the realms of its U.S. and International siblings. The strategy seeks to invest in high-quality dividend-paying companies, primarily large caps, with attractively priced future growth prospects. The fund will be managed by Rajiv Jain and James Anders.

What will they do?

The strategy is to assemble a portfolio of 30-70 stocks. The target universe is dividend-paying securities of U.S. and non-U.S. companies, including those in emerging market countries. GQG Partners primarily relies on fundamental, rather than quantitative, research to evaluate each business based on financial strength, sustainability of earnings growth, and quality of management. GQG is more typically a value than a growth investor.

Why might you be interested?

In general, both dividends and an emphasis on quality firms pays off. They do not thrive every year, but they’re correlated with the sort of relentless compounding that makes them appropriate attributes for your core equity holdings.

But, really, the attractive is manager Rajiv Jain. Mr. Jain joined Vontobel Asset Management as an equity analyst in 1994. By the time he left in May 2016, he had risen to become their chief investment officer, co-CEO, and manager on 15 funds available to American and European investors. He was responsible for portfolios valued at $50 billion, including $30 billion in emerging markets investments, and he built their Quality Growth boutique. The GQG in the name of his firm stands for Global Quality Growth Partners.

It is fair to describe his career to date as “spectacularly successful.” Over a ten year period, Mr. Jain’s Vontobel fund posted the highest returns among diversified E.M. equity funds, suffered the smallest maximum drawdown, had the second-lowest volatility, and tied for the lowest downside volatility (a variation of standard deviation focusing on “bad” volatility) which led to the group’s second-highest Sharpe ratio (the industry’s most widely-used measure of risk-adjusted returns).

Analysts have noticed. He was recognized as Morningstar’s International Fund Manager of the Year for 2012 (“Jain’s approach has produced attractive risk-adjusted returns over his tenure”) and won Morningstar Europe’s Global Equity Manager of the Year (“Performance metrics … confirm Jain’s ability to limit risk during market downturns while driving strong returns across a market cycle to offset the inherent weakness in his approach during low-quality rallies. Risk-averse investors who look for global equity exposure are in very good hands here”) nod in 2013.

His flagship GQG Emerging Markets Equity is a five-star fund that has sort of clubbed its competition in both measures of return and risk. The newer GQG Global Quality fund has a weak relative performance record, though two years is hardly a reliable sample, and a relatively attractive risk profile.

Bottom Line:

 GQG is a very strong firm. In less than five years of operation, they’ve earned enough trust from investors that they now manage $84 billion in assets. Mr. Jain has assembled a distinctive team of 17 analysts, including former investigative journalists and forensic accountants. They offer six funds and have seen consistent inflows for years. Seventeen members of the investment team hold ownership stakes in the firm.

That said, the newer GQG funds have had strong absolute performance but weak relative performance. They absolutely shined during the short-lived Covid bear market in the first quarter of 2020; they outperformed their peers by 320 – 660 basis points. Across their lifespans, all GQG funds have top-tier ratings for downside deviation, down market deviation, and bear market deviation. Investors in these new funds are likely to be well rewarded if they track the success of the funds across complete market cycles (that is, through both bull and bear phases of the market) though less pleased if they focus only on the most exuberant stretches in a bull market.

The fund’s expense ratio, after waivers, is 1.0% for the Investor shares. The minimum initial purchase is $2,500. The fund’s webpage is, understandably, somewhat sparse just now.

Launch Alert: Virtus KAR Small-Mid Cap Value

By David Snowball

On August 3, 2021, Virtus Partners launched their latest collaboration with Kayne, Anderson, Rudnick (KAR), Virtus KAR Small-Mid Cap Value. The fund is managed by the KAR of the title: Kayne, Anderson Rudnick Investment Management, Virtus’s largest wholly-owned subsidiary. KAR, based in Los Angeles, manages rather more than $17 billion in assets.

Across all of their portfolios, KAR emphasizes one core attribute:

It has generally worked well for them. The KAR Small Cap Core, Small-Mid Cap Core, Small-Mid Cap Quality Value, and Mid Cap Core portfolios all received the Manager of the Decade designation from Informa Investment Solutions for the 10-year period ending December 31, 2019. Informa is a financial intelligence firm that caters to institutional investors.

In particular, it will be managed by Julie Kutasov and Craig Stone, the same team responsible for Virtus KAR Small-Mid Cap Core and Virtus KAR Small Cap Value.

What will they do?

The plan is to build a portfolio with three characteristics:

High-Quality Businesses

Searches for quality small-mid capitalization value companies with solid balance sheets, consistent growth, profitability, and market-dominant business models.

Lower Volatility Approach

Extensive fundamental research favors companies with less business risk, as defined by lower earnings variability, consistent and profitable growth, high returns on capital, strong free cash flow, and a low organic need for external financing, all of which can help to protect profits in difficult markets.

High-Conviction Portfolio

Focused on the portfolio team’s 25-35 strongest investment opportunities, with a long-term, low-turnover approach to realize full stock value potential.

Compared to their Morningstar peers, the team’s Small Cap Value fund has below average standard deviation and beta, a “low” risk score, and a substantially higher quality portfolio (measured by the percentage of stocks with a “moat,” financial health, and profitability). The portfolio holds  31 stocks, with a 19% turnover ratio (which is exceedingly low), and an active share of 96 (which is exceedingly high).

The fund had strong absolute returns in 2020, but weak relative ones, and that lag weakens its long-term performance record.

The Virtus KAR Small-Mid Core Fund has a shorter, stronger record but, by Morningstar’s calculation, is most heavily invested in mid-cap growth stocks.

Bottom line:  Kutasov and Stone benefit from KAR’s strong culture and deep bench. That said, they seem to be modestly more adept at selecting somewhat larger and somewhat growth-ier stocks. This is likely to be a solid performer with subdued risk and a mid-cap bias.

“A” shares of the new fund have a 1.17% expense ratio. The minimum initial investment nominally is $25,000, but it’s available at TD Ameritrade (and, presumably, other platforms) for $2,500.

Folks interested in learning more should read KAR’s “Thinking Beyond the Benchmark” (2021), which walks through their review of the Small-Mid Cap Core strategy, including the performance metrics and the underlying rationale for their strategy.

 

Harbor International Small Cap (HIISX / HNISX)

By David Snowball

Objective and strategy

Harbor International Small Cap Fund pursues long-term growth by investing in a diversified portfolio of international small-cap stocks. They have three particular preferences:

  1. demonstrate traditional value metrics primarily on a price to book, price to earnings, and/or dividend yield basis;
  2. well-capitalized and transparent balance sheets and funding sources; and
  3. business models that are undervalued by the market.

Up to 15% of the fund’s total assets may be invested in emerging markets, though direct EM exposure is currently minimal. The portfolio held 60 stocks as of 6/30/2021.

Adviser

Harbor Capital Advisors. Harbor is headquartered in Chicago. In 2013 its corporate parent, Robeco Group NV, was acquired by ORIX Corporation, a Japanese financial services firm with a global presence. Harbor is now a wholly-owned subsidiary of ORIX. In May 2021, Harbor liquidated its five Harbor Robeco funds just two years after launch. Collectively, the 20 Harbor funds, almost all of which are externally managed, have $60 billion in assets.

Cedar Street Asset Management serves as the sub-advisor for Harbor International Small Cap Fund. It is an independent value-oriented investment management firm with ten employees and is also headquartered in Chicago. The firm is independent, owned by its employees, and manages approximately $290 million (as of 6/30/2021).

Managers

Jonathan Brodsky and Waldemar Mozes. Mr. Brodsky founded Cedar Street in 2016. Prior to that, he established the non-U.S. investment practice at Advisory Research. Mr. Brodsky began his investment career in 2000. He worked for the U.S. Securities and Exchanges Commission’s Office of International Affairs, focusing on cross-border regulatory, corporate governance, and enforcement matters. Mr. Brodsky holds a B.A. in political science and an M.A. in international relations from Syracuse University and an M.B.A. and J.D. from Northwestern University. He also studied at Fu Jen University in Taipei, Taiwan.

Mr. Mozes is a Partner and the Director of Investments for Cedar Street Asset Management. Prior to joining Cedar Street, Mr. Mozes developed and implemented the international investment strategy at TAMRO Capital Partners LLC and managed ASTON/TAMRO International Small Cap Fund (AROWX). It had a very promising launch, but the advisor pulled the plug after just one year because they had over $2 million AUM. Mr. Mozes, is a bright guy with experience at Artisan and Capital Group. He jokingly described himself as “the best fund manager ever to come from Transylvania.”

Strategy capacity and closure

$2 billion. The equivalent non-US small cap value strategy that Mr. Brodsky managed at Advisory Research reached around $1.5 billion and there were considerations at the time to move toward a soft close once they hit the $2 billion plateau.

Management’s stake in the fund

Each of the PMs has between $10-$50K invested directly in the mutual fund, and the senior investment team has over $2 million invested in a limited partnership on which the fund is based. Beyond that, the managers own the sub-advisor and have sort of dedicated their lives, fortunes, and sacred honor to making it work.

Opening date

Nominally, February 01, 2016. As a practical matter, the fund was reborn on May 23, 2019, when Cedar Street Asset Management brought a new team and new discipline to the fund. They succeeded the Barings team that had been in place at inception.

Minimum investment

$2,500 for the Investor class shares, $50,000 for Institutional shares.

Expense ratio

1.32% for Investor class shares and 0.96% on Institutional class shares, on assets for $60 million. The fund has seen steady inflows over the past year or so, often from investors who had worked with them on earlier funds.

Comments

Why international small caps?

There are four arguments for considering an investment in international small cap (ISC) stocks and one additional argument for considering it now.

  • The ISC universe is huge. Depending on who’s doing the calculation, there are 6,000 – 11,000 publicly traded non-US small cap stocks. In comparison, there are about 3,000 international large cap companies and 2,100 US small cap stocks.
  • It is the one area demonstrably ripe for active managers to add value. The average ISC stock is covered by fewer than five analysts, and it’s the only area where the data shows the majority of active managers consistently outperforming passive products. If we screen for the international small cap funds/ETFs with the highest Sharpe ratio over the past three- and five-year periods, only one of the top 20 was a passive product.
  • International small is a more attractive asset class than international large. The managers noted that “most US investors fail to recognize that small caps outperform large caps outside the US. When people think of small caps, they think of extreme volatility, but that doesn’t hold up in the small cap space outside the US. Small caps tend to have comparatively lower volatility, better risk-adjusted returns, and a lower correlation to the US markets.” Over the past five- and ten-year periods, international small has posts better absolute and better risk-adjusted returns than international large.
  • Most investors are underexposed to it. International index funds (e.g., BlackRock International Index MDIIX, Schwab International Index SWISX, Rowe Price International Index PIEQX or Vanguard Total International Stock Index VGTSX) typically commit somewhere between none of their portfolio (BlackRock, Price, Schwab) to up a tiny slice (Vanguard) to small caps. Of the ten largest actively managed international funds, only one has more than 2% in small caps.

Why now?

Because international small caps are substantially undervalued as a group. Steven Lipper, senior equity strategist for the Royce Funds, noted in August 2021 that small caps are “significantly undervalued” relative to large caps; in the past, gaps this large were typically followed by “very attractive [returns], averaging 19.2%” in the following year.

Why Cedar Street AM and Harbor International Small Cap?

Because they are really good at this stuff. The portfolio reflects three distinct preferences:

  1. it’s a small cap portfolio. Its Morningstar peers in the international small value group have, on average, 35% of their portfolios in large- and mega-cap names. Harbor has zero. At the other end of the scale, Harbor has 46% invested in small- and micro-cap stocks, about twice the peer average. That works out to a median market cap of $1.85 billion, compared to $7.7 billion for its peers.
  2. it’s a value portfolio. Many of its peers cheat toward growth.
  3. it’s a quality portfolio. The managers consciously pursue quality companies, and quality is one of the most powerful and consistent predictors of investment performance. In particular, they generally pursue firms with both high-quality management and pristine balance sheets.

In consequence, they’ve done exceptionally well. The Institutional share class has earned five stars from Morningstar, and the slightly more expensive Investor shares have earned four. And, over the past 2.5 years, the period roughly corresponding to Cedar Street’s management of the fund, it has been the best performing international small cap fund in existence.

Using the screeners at MFO Premium, which draw on the Lipper Global Data Feed, we examined the records of all international small cap value and core mutual funds and ETFs. In both absolute and risk-adjusted metrics, Harbor is the top-performing value fund.

30-month record (through July 2021), international small value

Total return is a fund’s average annual return for the period; Harbor had the highest total return. Sharpe and Martin ratios are standard and conservative measures of risk-adjusted performance; Harbor was again first. And capture ratio is a sort of “how much bang for the buck” calculation; any score above 1.0 means that you’re winning. Relative to a standard international all-cap index, Harbor does a better job of capturing more of the index’s upside than downside than any of its peers.

Even when we extend the comparison to the larger set of international small cap core funds, Harbor remains one of the top choices.

Bottom Line

It’s an experienced team and a sensible strategy with a rock-solid track record, both here and at their former Advisory Research and TAMRO funds. Equity investors interested in putting a bit of light between themselves and the high-priced US equity market would be well-advised to put Harbor International Small Cap Fund on their due diligence list.

Fund website

Harbor International Small Cap Fund. Readers interested in the general case for investing in international small cap stocks might find interest in one of several recent white papers. Those might include Artisan Partner’s “The Case for International Small Caps” (2021), Wells Fargo’s “International small-cap equities are underused and overlooked by most U.S. investors” (2020), which argues you might want 7% of your equities there, and Steve Lipper’s “Why Allocate to Non-U.S. Small-Caps?” (2021).

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 50 new products in the pipeline, most of which will launch by the end of October. The recent record, though, is that many authorized products are being withheld from the market; that is, there are funds that advisers could launch but haven’t chosen to. It might be a sign of market anxiety.

It’s raining bitcoin funds. Filings this month for bitcoin or crypto funds come from AdviserOne, Galaxy,  GlobalX, IDX (bitcoin), IDX (Ethereum), Invesco, ProShares (for bitcoin), ProShares (for ether), Valkyrie, Valkyrie again (miners), and VanEck. My bias here is clear: almost no one has the ability to use bitcoin well enough to warrant the warrant. In theory, bitcoin would raise the returns of an all-equity portfolio … but would increase its volatility, even more, resulting in a lower Sharpe ratio for everything from a 1% to a 10% bitcoin stake. (All of that from Amy Arnott’s fine analysis, Does Your Portfolio Need Bitcoin?, at Morningstar.com.) The underlying problem is that bitcoin is 10 – 20x more volatile than the stock market and relatively few of us would stick patiently through an 82% market decline – the max drawdown for bitcoin over the past decade – and think, “Wowza! It’s a sale! Let’s buy more!” A few active managers, such as the guys at Appleseed Fund, hold tiny slices of bitcoin because of its diversifying value and the parlous state of the fixed-income market. I suppose that if I wanted a bit of cryptocurrency, I’d move in that direction.

AdvisorShares Poseidon Dynamic Cannabis ETF

AdvisorShares Poseidon Dynamic Cannabis ETF, an actively managed ETF, seeks long-term capital appreciation. The plan is to invest, directly and through total return swaps, in “marijuana and hemp business or firms providing services, products or technology to the marijuana and hemp business.” At least 25% will be invested in biotechs. The fund will be managed by Emily Paxhia, Morgan Paxhia, and Tyler Greif. Its opening expense ratio has not been disclosed.

Advocate Rising Rate Hedge ETF

Advocate Rising Rate Hedge ETF, an actively managed ETF, seeks to generate positive returns in periods of rising interest rates. The plan is to buy some combination of Treasuries and long and short derivatives on a whole bunch of stuff. The fund will be managed by Scott Peng. Dr. Peng has a Ph.D. in Applied Plasma Physics from MIT and a B.S. in Nuclear Engineering from Texas A&M. Its opening expense ratio is 0.85%.

Alpha Intelligent – Large Cap Value ETF

Alpha Intelligent – Large Cap Value ETF, an actively managed ETF, seeks total return. Apparently, it will be a fund-of-funds whose success is driven by “investment expertise with big data analytics and powerful machine learning.” Whoa! Big and powerful! The fund will be managed by John L. Sabre and Greg D. Anderson of Princeton Fund Advisors. Its opening expense ratio is 0.85%. The same prospectus announces growth and value ETFs for large, mid and small cap stocks.

Ambassador Fund

Ambassador Fund will seek current income. The plan is to invest primarily in “catastrophe” or “cat” bonds and special purpose vehicles tied to the reinsurance industry. At the moment, the adviser, portfolio managers, expense ratio, and minimum investment are all unnamed.

American Century Select High Yield ETF

American Century Select High Yield ETF, an actively managed ETF, seeks high current income. The plan is to invest in medium- to long-term high-yield bonds. The fund will be managed by a team led by David Crall. The same team manages the $1.1 billion, four-star American Century High Income fund. Its opening expense ratio has not been disclosed.

BlackRock Sustainable U.S. Growth Equity Fund

BlackRock Sustainable U.S. Growth Equity Fund will seek to maximize total return. The plan is to start with ESG screens and then build the portfolio based on strength of earnings, quality of balance sheet, cash flow trends, and relative valuation. The fund will be managed by Lawrence Kemp and Sam Console. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $1,000 for “A” shares.

Build Bond Innovation ETF

Build Bond Innovation ETF, an actively managed ETF, seeks capital appreciation and risk mitigation. The plan doesn’t strike me as terribly innovative: it’s a fixed-income portfolio and S&P 500 options. The fund will be managed by Matthew Dines and Dustin Qualley. Its opening expense ratio has not been disclosed.

Capital Group International Focus Equity ETF

Capital Group International Focus Equity ETF, an actively managed ETF, seeks long-term growth of capital. The plan is to invest in attractively valued non-US companies that represent good, long-term investment opportunities. The fund will be managed by Sung Lee, Renaud Samyn, Nicholas Grace, Jesper Lyckeus, and Christopher Thomsen. The key attraction is that Capital Group is a part of the $2.5 trillion dollar complex that manages the American Funds. The “Capital System” is to use multiple managers but to give each manager a slice of the portfolio to run. Its opening expense ratio has not been disclosed. The advisor simultaneously filed a prospectus for Core Equity, Core Plus Income, Dividend Value, Global Growth, and Growth ETFs.

Federated Hermes Short-Term Corporate ETF

Federated Hermes Short-Term Corporate ETF, an actively managed ETF, seeks current income. The plan is to invest primarily in a diversified portfolio of investment-grade, fixed-income securities consisting primarily of corporate debt securities with a portfolio duration of 1.5 – 3.5 years. The fund will be managed by John Gentry and Robert Matthews. Its opening expense ratio is 0.29%.

Genuine Investors ETF

Genuine Investors ETF, an actively managed ETF, seeks attractive long-term risk-adjusted returns. The plan is to build a 20-30 name all-cap stock portfolio but thinking like genuine investors. That translates to thinking like a business owner, not a trader. The fund will be managed by Guy Davis of GCI Investors. He’s been running separate accounts using this approach since 2017 but the performance information is blank in the prospectus. Its opening expense ratio has not been disclosed.

Guru Favorite Stocks ETF

Guru Favorite Stocks ETF, an actively managed ETF, seeks long-term capital appreciation. The plan is to invest in high quality companies that are favored by prominent long-term investors (“Gurus”) and at reasonable prices. The fund will be managed by Cechan Tian, founder of Guru Focus Investments (see GuruFocus.com), and Brandon Koepke. Its opening expense ratio is 0.65%.

Hartford Schroders Sustainable Core Bond Fund

Hartford Schroders Sustainable Core Bond Fund seeks long-term total return consistent with the preservation of capital. The plan is to identify sustainable issuers and, from their securities, build an unconstrained bond portfolio. It can buy bonds of any duration but the overall portfolio will stick close to the BarCap Aggregate. This is the relaunch of the former Schroder Core Bond Fund. The fund will be managed by a team led by Lisa Hornby. Its opening expense ratio ranges from 0.32 – 1.06% depending on which (idiosyncratic) share class you buy. The minimum initial investment in “I” shares is $2,000.

Hood River International Opportunity Fund

Hood River International Opportunity Fund will seek superior long-term growth of capital. The plan is to invest in the stocks of 80-85 small-capitalization companies that are located in non-U.S. developed or emerging markets countries. For them, small caps are under $5 billion. The fund will be managed by a team led by Brian P. Smoluch. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $25,000. The prospectus also covers an Investor share class, but that’s not being launched just yet.

JPMorgan Climate Change Solutions ETF

JPMorgan Climate Change Solutions ETF, an actively managed ETF, seeks to achieve “a return.” “A return,” guys? Really? The plan is to invest in companies that are helping address climate change. The fund will be managed by Yazann Romahi, Francesco Conte, and Sara Bellenda. Its opening expense ratio has not been disclosed.

JPMorgan Inflation Managed Bond ETF

JPMorgan Inflation Managed Bond ETF, an actively managed ETF, seeks to maximize inflation-protected total return. The plan is to combine a diversified fixed income portfolio with inflation hedging derivatives. The key is that these are not inflation-protected securities per se, they are attractive securities with an inflation-protection overlap. It appears that this ETF will be a converted mutual fund already in operation but the prospectus leaves blank spaces for all of that fund’s information. The fund will be managed by Scott E. Grimshaw, Steven Lear, and David Rooney. Its opening expense ratio will be 0.25%.

Kingsbarn Tactical Bond ETF

Kingsbarn Tactical Bond ETF, an actively managed ETF, seeks to maximize total return. The plan is to buy fixed-income investments ETFs and hedge the portfolio with futures contracts on 10-year U.S. Treasury notes. The fund will be managed by Steven Todd Ruoff and Stephen Haley Scott. The prospectus is blank on the question of their qualifications. Its opening expense ratio has not been disclosed.

Lazard US Systematic Small Cap Equity Portfolio

Lazard US Systematic Small Cap Equity Portfolio will seek long-term capital appreciation. The portfolio construction “combines fundamental and quantitative techniques into a fully systematic process” to generate a portfolio of 300-500 small cap stocks. Yikes. For them, “small cap” means anything up to $19 billion in market cap. Yikes. The fund will be managed by Oren Shiran, Philip N. Summe, and Stefan T. Tang. The team comes from the hedge fund firm Baylight Capital. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $2,500.

Levo Fund I 

Levo Fund I  will seek total return from income and capital appreciation. The plan is to invest in a global mix of stocks, bonds, gold, and real estate with a bias toward the US and bonds. It’s a sort of “permanent portfolio” strategy that mixes uncorrelated assets each of which thrives in different market conditions; the adviser targets “a 3-5% annual return after fees with a portfolio return standard deviation of under 10%.” The fund will be managed by Dillon T. Martin who earned his BA at the U of Tennessee in 2017 and has had short stints with Merrill Lynch and a software company. Its opening expense ratio and minimum initial investment have not been disclosed.

Lord Abbett Emerging Markets Equity Fund

Lord Abbett Emerging Markets Equity Fund will seek long-term capital appreciation. The plan is to do pretty undistinguished things (growth and value stocks that are worth more than they’re selling for), with the proviso that they might hedge the portfolio. The fund will be managed by Sue Kim. Its opening expense ratio is 1.24%, and the minimum initial investment will be $1,500.

Oakmark Small Cap Fund

Oakmark Small Cap Fund will seek long-term capital appreciation. The plan is to try again to apply Oakmark’s “intrinsic value” discipline to the mid-cap space (the cap is $28.44 billion) and call it a small cap strategy. Oakmark’s last version of Oakmark Small Cap (1995- 2004) was managed for a while by our colleague Ed Studzinski and James Benson. This time the fund will be managed by long-time Oakmark analysts Thomas W. Murray and Robert F. Bierig. Its opening expense ratio is 1.28%, and the minimum initial investment will be $1,000.

OneAscent Large Cap Core ETF

OneAscent Large Cap Core ETF, an actively managed ETF, seeks capital appreciation. The plan is to construct the portfolio around a two-step screening process: (1) eliminate problematic companies such as those involved in abortion, addictive products, or human rights violations then (2) seek to invest in companies that “promote flourishing for their stakeholders.” The fund will be managed by Cole Pearson and Nathan Willis. Mr. Pearson was part of the successful Eventide team and Mr. Willis managed a family office. Both are, they report, Presbyterian. Its opening expense ratio is 0.76%.

RBC BlueBay Core Plus Bond Fund

RBC BlueBay Core Plus Bond Fund seeks total return. The plan is to build a (possibly) global ESG-screened intermediate bond portfolio. Mostly investment grade, with up to 20% high yield. The fund will be managed by a puzzling three-person team. All of the managers are from RBC even though Blue Bay is listed as the sub-advisor. Its opening expense ratio and investment minimums have not been disclosed.

RBC BlueBay Strategic Income Fund

RBC BlueBay Strategic Income Fund will seek total return. The plan is to build a (possibly) global ESG-screened unconstrained bond portfolio. Mostly domestic investment grade, with up to 30% high yield. The fund will be managed by a puzzling three-person team. All of the managers are from RBC even though Blue Bay is listed as the sub-advisor. Its opening expense ratio and investment minimums have not been disclosed.

Regents Park S&P 500 Hedged ETF

Regents Park S&P 500 Hedged ETF, an actively managed ETF, seeks capital appreciation through hedged exposure to the S&P 500. The plan is to own fixed-income securities plus FLEX Options and standard call options on the S&P 500 Index. The manager believes that the FLEX Options gives him a structural advantage of strategies relying on standard call options. He might well be right but the intricacies of the options market are beyond my poor understanding. The fund will be managed by Darren Leavitt. Its opening expense ratio has not been disclosed.

ROBO Global Covered Call and Growth ETF

ROBO Global Covered Call and Growth ETF, an actively managed ETF, seeks growth and income. The plan is to buy “disruptive technology companies” then try to hedge up to 75% of the portfolio with covered calls. The fund will be managed by William Studebaker. Its opening expense ratio has not been disclosed.

Roundhill Cannabis ETF

Roundhill Cannabis ETF, an actively managed ETF, seeks capital growth. The plan is to invest, directly and through total return swaps, in “the cannabis and hemp ecosystem.” There are already nine ETFs in the space and their records (the largest ETF is down nearly 10% YTD) might give investors pause. The fund will be managed by a seven-person team from both Roundhill Financial (the advisor) and Exchange Traded Concepts (the sub). Its opening expense ratio has not been disclosed.

Simplify Hedged Equity ETF

Simplify Hedged Equity ETF, an actively managed ETF, seeks capital appreciation. The plan is to buy S&P 500 ETFs and add an option overlay known as a “put/spread collar” strategy. The fund will be managed by Paul Kim, David Berns, and Michael Green of Simplify Asset Management. Its opening expense ratio is 0.53%.

SPDR Nuveen Municipal Bond ESG ETF

SPDR Nuveen Municipal Bond ESG ETF, an actively managed ETF, seeks current income. The plan is to build an ESG-screened, intermediate-term muni portfolio. The fund will be managed by Timothy T. Ryan and Shawn O’Leary of Nuveen. Its opening expense ratio has not been disclosed.

TSW Emerging Markets Fund

TSW Emerging Markets Fund will seek long-term capital appreciation. The plan is to use a “bottom-up, business-focused approach based on careful study of individual companies and their competitive dynamics” to construct a value-oriented portfolio of 40-80 names. The fund will be managed by Elliott W. Jones and C. William Halladay of Thompson, Siegel & Walmsley LLC. Its opening expense ratio has not been disclosed, and the minimum initial investment will be zero unless it’s imposed by the intermediary platform (e.g. Schwab) that you use.

TSW High Yield Bond Fund

TSW High Yield Bond Fund will seek high current income. The plan is to deploy a “disciplined, bottom-up research process in order to identify securities showing stable or improving credit metrics and offering strong relative value.” The fund will be managed by William M. Bellamy of Thompson, Siegel & Walmsley LLC. Its opening expense ratio is, and the minimum initial investment will be.

TSW Large Cap Value Fund

TSW Large Cap Value Fund will seek maximum long-term total return, consistent with reasonable risk to principal, by investing in a diversified portfolio of common stocks of relatively large companies. . The plan is to use a “bottom-up, business-focused approach based on careful study of individual companies and their competitive dynamics” to construct a value-oriented portfolio of 30-70 names. This represents the conversion of an unnamed predecessor fund that has modestly trailed its benchmark over the past decade. I’m guessing it’s TS&W Equity. The fund will be managed by Brett P. Hawkins and Bryan F. Durand. Its opening expense ratio is, and the minimum initial investment will be.

Vanguard Core-Plus Bond Fund  

Vanguard Core-Plus Bond Fund will seek total return while generating a moderate to high level of current income. The plan is to buy … well, bonds of various maturities, yields and qualities. That might include EM bonds. The fund will be managed by a team led by Michael Chang. Its opening expense ratio is 0.30%, and the minimum initial investment will be $3,000.

Vanguard Multi-Sector Income Bond Fund

Vanguard Multi-Sector Income Bond Fund will seek total return while generating a moderate to high level of current income. The plan is to buy a mix of fixed income securities that are high-quality, medium-quality, and lower quality bonds including government, corporate, and EM. The fund will be managed by Michael Chang, Arvind Narayanan, and Daniel Shaykevich. Its opening expense ratio is 0.40%, and the minimum initial investment will be $3,000.

Wahed Dow Jones Islamic World ETF

Wahed Dow Jones Islamic World ETF, an actively managed ETF, seeks long-term capital appreciation. The plan is to build a global portfolio of ESG-screened, Shariah-compliant companies. The “Shariah-compliant” piece means that they’ll avoid both banks and debt-ridden firms, as well as those involved in a handful of specific areas (pork, porn, gambling, alcohol, tobacco, and armaments production). While the fund is actively managed, it seems to approximate the returns of the Dow Jones Islamic International Titans 100 Index. The fund will be managed by Samim Abedi. Its opening expense ratio has not been disclosed.

Wasatch Long/Short Alpha Fund

Wasatch Long/Short Alpha Fund will seek long-term growth of capital. The plan is to build a global, all-cap long/short portfolio with rather more exposure to small- and mid-cap stocks than is typical. This is Wasatch’s second attempt at a long-short fund. The fund will be managed by Mick Rasmussen, a quant analyst for the US and global small cap teams. Its opening expense ratio is 1.75%, and the minimum initial investment will be $2,000.

Manager Changes, August 2021

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 36 funds with changes in their management teams.

The epochal changes are the departure of John Walthausen from the helm of the funds he launched and long-managed, and of Tad Rivelle, cofounder of MetWest and manager on at least 34 funds available to investors on several continents.

Mr. Rivelle has been on duty for 36 years and Mr. Walthausen for 37. As someone entering his 37th year as a professional in, admittedly, a different industry, I wish them well as they begin to pen their next chapters.

Ticker Fund Out with the old In with the new Dt
SBFAX 1919 Financial Services Christopher Perry will no longer serve as a portfolio manager of the fund. The fund continues to be managed by Charles King and Mel Casey. 8/21
ATPYX Aquila Three Peaks High Income Effective on or before September 30, 2021, Three Peaks Capital Management, LLC will no longer serve as a sub-adviser to the fund. Aquila Investment Management LLC will remain as investment adviser to the fund. 8/21
ATGAX Aquila Three Peaks Opportunity Growth Effective on or before September 30, 2021, Three Peaks Capital Management, LLC will no longer serve as a sub-adviser to the fund. Aquila Investment Management LLC will remain as investment adviser to the fund. 8/21
DMVAX BNY Mellon Select Managers Small Cap Value John Walthausen will no longer serve as a portfolio manager of the fund. The rest of the team remains. 8/21
BBTBX Bridge Builder Core Bond Daniel A. Tranchita no longer serves as a portfolio manager of the fund. Mary Stanek, Charles Groeschell, Warren Pierson, Jay Schwister, M. Sharon deGuzman, Meghan Dean, and Jeffrey Schrom will each continue to serve as portfolio managers of the fund. 8/21
BBIEX Bridge Builder International Equity David Cull is no longer listed as a portfolio manager of the fund. Alex Duffy joins the management team. 8/21
EBSAX Campbell Systematic Macro No one, but… Grace Lo and John Radle will join William Andrews and Kevin Cole as portfolio managers of the fund. 8/21
RPFCX Davis Appreciation & Income Effective September 1, 2021, Peter Sackmann will no longer serve as a portfolio manager of the fund. Christopher Davis and Creston King will continue to manage the fund. 8/21
FSLEX Fidelity Environment and Alternative Energy Kevin Walenta is no longer listed as a portfolio manager of the fund. Julia Pei will join Asher Anolic as a portfolio manager of the fund. 8/21
APSGX Fiera Capital Small/Mid Cap Growth Nitin Kumbhani no longer serves as a portfolio manager of the fund. Sunil Reddy and Michael Kalbfleisch continue to manage the fund. 8/21
GMAMX Goldman Sachs Multi-Manager Alternatives Ares Capital Management II LLC and Sirios Capital Management, L.P. will no longer be investment subadvisers for the fund. Peter Seok and Jennifer Stack join Betsy Gorton as portfolio managers of the fund. 8/21
GNCFX Goldman Sachs Multi-Manager Non-Core Fixed Income BlueBay Asset Management USA LLC will now serve as a subadviser for the Fund Ares Capital Management II LLC, BlueBay Asset Management LLP, BlueBay Asset Management USA LLC, Brigade Capital Management LP, Marathon Asset Management L.P., Nuveen Asset Management, LLC, River Canyon Fund Management LLC, and TCW Investment Management Company LLC are the investment subadvisers for the fund. 8/21
INCIX James Alpha Hedged High Income Concise Capital Management, LP, and Amundi Asset Management US, Inc. no longer serve as sub-advisers of the fund. Glenn Koach, Tom Krasner, and Jonathan Duensing will no longer serve as portfolio managers of the fund. Akos Beleznay, Michael Cannon, Vincent Mistretta, and Salvatore Naro will continue to manage the fund. 8/21
JEMMX John Hancock Emerging Markets Equity No one, but… Talib Saifee will join Philip Ehrmann and Kathryn Langridge in managing the fund. 8/21
LDFVX Lord Abbett Fundamental Equity Eli Rabinowich is no longer listed as a portfolio manager of the fund. Jeff Diamond and John Hardy will continue to manage the fund. 8/21
LAVLX Lord Abbett Mid Cap Stock Eli Rabinowich is no longer listed as a portfolio manager of the fund. Jeff Diamond and John Hardy will continue to manage the fund. 8/21
LVOAX Lord Abbett Value Opportunities Eli Rabinowich is no longer listed as a portfolio manager of the fund. Jeff Diamond and John Hardy will continue to manage the fund. 8/21
MSCFX Mairs & Power Small Cap No one, but Allen Steinkopf, lead portfolio manager of the fund, will be contributing to the management of the fund in a reduced capacity as he takes time to focus on health issues.   Mr. Steinkopf will remain a co-manager of the fund during this period.    Andrew Adams, a co-manager of the fund, will re-assume the duties of the lead portfolio manager, and Christopher D. Strom will continue to serve as co-manager of the fund. 8/21
MKIEX McKee International Equity Portfolio No one, but… Micahel P. Donnelly, Paul Frank, Brad Thompson, and Clayton Wilkin join Michael J. Donnelly in managing the fund. 8/21
MWATX Metropolitan West AlphaTrak 500 At the end of the year, Tad Rivelle will no longer serve as a portfolio manager of the fund. Laird Landmann, Steve Kane, and Bryan Whalen will continue to manage the fund. 8/21
MWFSX Metropolitan West Flexible Income At the end of the year, Tad Rivelle will no longer serve as a portfolio manager of the fund. Laird Landmann, Steve Kane, and Bryan Whalen will continue to manage the fund. 8/21
MWIMX Metropolitan West Intermediate Bond At the end of the year, Tad Rivelle will no longer serve as a portfolio manager of the fund. Laird Landmann, Steve Kane, and Bryan Whalen will continue to manage the fund. 8/21
MWISX Metropolitan West Investment Grade Credit At the end of the year, Tad Rivelle will no longer serve as a portfolio manager of the fund. Laird Landmann, Steve Kane, and Bryan Whalen will continue to manage the fund. 8/21
MWLDX Metropolitan West Low Duration Bond At the end of the year, Tad Rivelle will no longer serve as a portfolio manager of the fund. Laird Landmann, Steve Kane, and Bryan Whalen will continue to manage the fund. 8/21
MWORX Metropolitan West Opportunistic High Income Credit At the end of the year, Tad Rivelle will no longer serve as a portfolio manager of the fund. Laird Landmann, Steve Kane, and Bryan Whalen will continue to manage the fund. 8/21
MWSIX Metropolitan West Strategic Income At the end of the year, Tad Rivelle will no longer serve as a portfolio manager of the fund. Laird Landmann, Steve Kane, and Bryan Whalen will continue to manage the fund. 8/21
MWTRX Metropolitan West Total Return Bond At the end of the year, Tad Rivelle will no longer serve as a portfolio manager of the fund. Laird Landmann, Steve Kane, and Bryan Whalen will continue to manage the fund. 8/21
MWUIX Metropolitan West Ultra Short Bond At the end of the year, Tad Rivelle will no longer serve as a portfolio manager of the fund. Laird Landmann, Steve Kane, and Bryan Whalen will continue to manage the fund. 8/21
MWCRX Metropolitan West Unconstrained Bond At the end of the year, Tad Rivelle will no longer serve as a portfolio manager of the fund. Laird Landmann, Steve Kane, and Bryan Whalen will continue to manage the fund. 8/21
OVEAX Sterling Capital Mid Value No one, but… Effective August 31, 2021, William Smith will join Patrick Rau and Lee House in managing for the fund. 8/21
SMDQX Sterling Capital SMID Opportunities No one, but… Effective August 31, 2021, Lee Houser and James Curtis will join Joshua Haggerty and Adam Bergman as portfolio managers of the fund. 8/21
STRLX Sterling Capital Stratton Mid Cap Value No one, but… Effective August 31, 2021, Andrew DiZio will join Shawn Gallagher as a portfolio manager of the fund. 8/21
STMDX Sterling Capital Stratton Real Estate No one, but… Effective August 31, 2021, Shawn Gallagher will join Andrew DiZio as a portfolio manager of the fund. 8/21
TINGX Thornburg International Growth Effective December 31, 2021, Greg Dunn will no longer serve as a portfolio manager of the fund. Sean Sunn will continue to manage the fund. 8/21
WSCVX Walthausen Small Cap Value Effective immediately John Walthausen is no longer a portfolio manager of the fund. Gerard Heffernan and DeForest Hinman continue to serve as portfolio managers of the fund. 8/21
WMNIX Westwood Alternative Income Seth Gold is no longer listed as a portfolio manager of the fund. Christopher Hartman joins Adrian Helfert as a portfolio manager of the fund. 8/21

 

Briefly Noted

By David Snowball

Updates

Effective immediately, Neuberger Berman Commodity Strategy Fund‘s investment strategy will permit the fund to invest up to 5% of its assets in cryptocurrency investments through bitcoin futures and investments in the securities of exchange-traded funds organized and listed for trading in Canada to gain indirect exposure to bitcoin.

WisdomTree Cloud Computing Fund, an active ETF, now solemnly swears not to invest in … you know, weapons systems, coal, or tobacco. In short, it’s declared itself to be socially responsible by not investing in things it wasn’t going to invest in anyway.

Briefly Noted . . .

SMALL WINS FOR INVESTORS

Effective immediately, Vanguard Wellington Fund is re-opened to all prospective financial advisory, institutional, and intermediary clients without limitation. The fund remains open to all other clients without limitation.

CLOSINGS (and related inconveniences)

The Artisan International Small-Mid Fund closed to most new investors at the end of business on July 30, 2021.

Effective as of the close of business on September 5, 2021, sales and operations of Class Y shares of the Swan Defined Risk Fund, Swan Defined Risk Emerging Markets Fund, Swan Defined Risk Foreign Fund, Swan Defined Risk U.S. Small Cap Fund, and Swan Defined Risk Growth Fund will be suspended. It is a minor inconvenience for most of us since the minimum initial investment for “Y” shares was $25,000,000.

The five-star, billion-dollar WCM International Small Cap Growth Fund, an institutional fund, has soft-closed.

OLD WINE, NEW BOTTLES

Effective August 16, 2021, AMG River Road Long-Short Fund disappears and is replaced with AMG River Road International Value Equity Fund. Matt Moran and Dan Johnson lose their positions as managers and are succeeded by Wenjun (William) Yang and Jeffrey B. Hoskins.

The five-star, $300 million BlackRock Long-Horizon Equity Fund has become BlackRock Unconstrained Equity Fund.

BlackRock Mid-Cap Value Fund has now become BlackRock Mid Cap Dividend Fund.

BMO is selling its fund operations to Columbia Funds. 

BMO Fund Corresponding Acquiring Fund
BMO Disciplined International Equity Fund Columbia Overseas Value Fund
BMO Mid-Cap Value Fund Columbia Select Mid Cap Value Fund
BMO Small-Cap Value Fund Columbia Small Cap Value Fund II
BMO Short Tax-Free Fund Columbia Short Term Municipal Bond Fund
BMO Short-Term Income Fund Columbia Short Term Bond Fund
BMO Balanced Allocation Fund Columbia Capital Allocation Moderate Aggressive Portfolio
BMO LGM Emerging Markets Equity Fund Columbia Emerging Markets Fund
BMO Mid-Cap Growth Fund Columbia Mid Cap Growth Fund
BMO Core Plus Bond Fund Columbia Total Return Bond Fund
BMO Corporate Income Fund Columbia Corporate Income Fund
BMO Intermediate Tax-Free Fund Columbia Intermediate Municipal Bond Fund
BMO Strategic Income Fund Columbia Strategic Income Fund
BMO Conservative Allocation Fund Columbia Capital Allocation Conservative Portfolio
BMO Moderate Allocation Fund Columbia Capital Allocation Moderate Portfolio
BMO Growth Allocation Fund Columbia Capital Allocation Aggressive Portfolio
BMO Aggressive Allocation Fund Columbia Capital Allocation Aggressive Portfolio
BMO Dividend Income Fund Columbia Integrated Large Cap Value Fund
BMO Large Cap Value Fund Columbia Integrated Large Cap Value Fund
BMO Low Volatility Equity Fund Columbia Integrated Large Cap Value Fund
BMO Large-Cap Growth Fund Columbia Integrated Large Cap Growth Fund
BMO Small-Cap Growth Fund Columbia Integrated Small Cap Growth Fund
BMO Pyrford International Stock Fund Columbia Pyrford International Stock Fund
BMO Ultra Short Tax-Free Fund Columbia Ultra Short Municipal Bond Fund

BAMC’s disciplined equity team (the “DE Team”) manages the (1) BMO Disciplined International Fund, (2) BMO Mid-Cap Value Fund, (3) BMO Small-Cap Value Fund, (4) BMO Mid-Cap Growth Fund, (5) BMO Dividend Income Fund, (6) BMO Large-Cap Value Fund, (7) BMO Low Volatility Equity Fund, (8) BMO Large-Cap Growth Fund, and (9) BMO Small-Cap Growth Fund (together, the “DE Funds”). The DE Team will transfer to become employees of Columbia on or about December 16, 2021. 

On September 24, 2021, the $4 million Cannabis Growth Fund transforms into the Cannabis Growth ETF.

Shareholders have been asked to approve the merger of EquityCompass Tactical Risk Manager ETF (TERM) into EquityCompass Risk Manager ETF (ERM). The disappearance of TERM ($12 million AUM, trailing 100% of its peers over the past three years) isn’t unusual, the desperate attempt to keep ERM afloat ($11 million AUM, trailing 97% of its peers) isn’t that unusual but the requirement to ask permission from ETF shareholders is exceedingly unusual.

It’s not clear whether the revolving door of fund names is going to slow, but Rochedale Emerging Markets begat City National Rochedale Emerging Markets which begat Fiera Capital Emerging Markets Fund, which (in July) begat Sunbridge Capital Emerging Markets Fund. It’s a really exceptional $600 million fund whose record is besmirched by a single horrendous year (2018). The manager-since-inception, Anindya Chatterjee, formed Sunbridge in order to acquire control of his fund. There’s a nice discussion of the twists (thanks, msf!) on our discussion board.

Global X MSCI Norway ETF (the “Acquired Fund”)is merging into Global X FTSE Nordic Region ETF then, like the rampaging xenomorphic in Alien, it will erupt from within the body of its host. After ingesting the Norway ETF, the Nordic Region ETF will be renamed Global X MSCI Norway ETF; its ticker symbol will be NORW, and it will follow the same investment objective and principal investment strategies as the original Norway fund, be benchmarked against the MSCI Norway IMI 25/50 Index and rely on the Norway Fund’s historical record. The Reorganization will occur in the fourth calendar quarter of 2021.

JPMorgan Intrepid Growth Fund has been rechristened as JPMorgan U.S. GARP Equity Fund.

James Alpha Global Real Estate Investments Fund has become Easterly Global Real Estate Fund following Easterly’s decision to buy partial ownership of James Alpha.

Litman Gregory is in the process of acquiring one fund and two ETFs from iM Global Partners. Same structure, teams, and expenses but …

Before the change you owned … But after the change, you’ll own …
iM Dolan McEniry Corporate Bond Fund iM Dolan McEniry Corporate Bond Fund
iM DBi Managed Futures Strategy ETF iM DBi Managed Futures Strategy ETF
iM DBi Hedge Strategy ETF iM DBi Hedge Strategy ETF

Shareholders have been asked to approve the reorganization of Macquarie Large Cap Value Portfolio into Delaware Value Fund. The Delaware fund has $10 billion in AUM and is … meh, kind of mediocre with average risk but noticeably below average returns over the past five years.

The Marketfield Fund (previously the MainStay Marketfield Fund and, before that, the Marketfield Fund) is about to become the Cromwell Marketfield L/S Fund. Expenses will range from 2.36% (for institutional shares) to 3.36% (for “C” shares).

Effective December 31, 2021, Nuveen NWQ Flexible Income Fund will be renamed Nuveen Flexible Income Fund.

Effective November 30, 2021, Santa Barbara Management is being removed from the Nuveen Santa Barbara (formerly Santa Barbara) Funds and replaced by Nuveenites. In consequence, the funds will be renamed as follows:

Current Fund Name New Fund Name
Nuveen Santa Barbara Dividend Growth Fund Nuveen Dividend Growth Fund
Nuveen Santa Barbara Global Dividend Growth Fund Nuveen Global Dividend Growth Fund
Nuveen Santa Barbara International Dividend Growth Fund Nuveen International Dividend Growth Fund

Similarly, on October 29, 2021, the Nuveen NWQ Funds lose NWQ Investment Management and will be renamed:

Current Fund Name New Fund Name
Nuveen NWQ Global Equity Income Fund Nuveen Global Equity Income Fund
Nuveen NWQ International Value Fund Nuveen International Value Fund
Nuveen NWQ Multi-Cap Value Fund Nuveen Multi Cap Value Fund
Nuveen NWQ Large-Cap Value Fund Nuveen Large Cap Value Fund
Nuveen NWQ Small/Mid-Cap Value Fund Nuveen Small/Mid Cap Value Fund
Nuveen NWQ Small-Cap Value Fund Nuveen Small Cap Value Opportunities Fund

Pinnacle TrendRating Innovative Equity Fund is now the Pinnacle Sherman Breakaway Strategy Fund.

The planned conversion of Steward Small-Mid Cap Enhanced Index Fund and Steward Large Cap Enhanced Index Fund into actively managed growth funds, originally scheduled to occur at the end of August, has been delayed under October 29, 2021.

Effective October 26, 2021, the Tactical Conservative Allocation Fund will be renamed TFA Tactical Income Fund.

Effective July 29, 2021, the Tweedy, Browne Global Value Fund and Tweedy, Browne Global Value Fund II – Currency Unhedged will change their names to Tweedy, Browne International Value Fund and Tweedy, Browne International Value Fund II – Currency Unhedged.

The previously announced merger of Wells Fargo Diversified Equity Fund into Wells Fargo Spectrum Aggressive Growth Fund is now expected to occur on or about October 22, 2021.

Effective August 18, 2021, Xtrackers MSCI ACWI ex USA ESG Leaders Equity ETF is known as Xtrackers Emerging Markets Carbon Reduction and Climate Improvers ETF.

OFF TO THE DUSTBIN OF HISTORY

AQR Risk Parity II MV Fund is in the process of being liquidated. It will close to new investments on October 13, 2021 (really, why wait?), will begin liquidating its portfolio that day, and will be gone by November 5, 2021.

The $30 million CAN SLIM Tactical Growth Fund disappeared on August 31, 2021, after a run of 16 years. Can Slim is not a diet supplement (who knew?) but, instead, is the acronym for the seven characteristics of great stocks as propounded by William O’Neill, founder of the Investor’s Business Daily. Apparently, great stocks aren’t always great investments, and the fund substantially trailed its Lipper peer group and the S&P 500 over both the short- and long-term.

Direxion Connected Consumer ETF, Direxion High Growth ETF, Direxion S&P 500® High minus Low Quality ETF and Direxion MSCI USA ESG – Leaders vs. Laggards ETF “will be closed to purchase by investors” as of the close of regular trading on the NYSE on September 17, 2021. That’s the gentle way of saying “liquidated.”

Hanlon Managed Income Fund was liquidated and dissolved on August 27, 2021.

Hartford Multifactor International Fund will be liquidated on or about September 24, 2021. Morningstar’s algorithms gave it a Gold rating; both the market (which it substantially trailed) and investors (who committed only $3 million to it) disagreed.

The Hartford Multifactor Large Cap Value Fund was liquidated “on or about” August 20, 2021.

Management is recommending that Hartford Schroders Opportunistic Income Fund be liquidated on or before October 31, 2021, so I guess it will be.

Jackson Square Select 20 Growth Fund was liquidated on August 30, 2021.

The Janus Long-Term Care ETF has entered hospice care; visitation will be held on or about October 14, 2021

Morgan Stanley Emerging Markets Small Cap Portfolio was merged into Morgan Stanley Next Gen Emerging Markets Portfolio in early August.

The impending liquidation of the RBC BlueBay Global Bond Fund, originally scheduled for August 20, 2021, has been delayed and is currently expected to occur on or about September 29, 2021.

SGA International Equity Fund was liquidated on August 23, 2021.

Transamerica Event Driven will see its last sunrise on or about October 22, 2021.

Value Line Tax Exempt Fund will, following shareholder approval, be liquidated by year’s end.

Ziegler Piermont Small Cap Value Fund will be liquidated, terminated, and, possibly, looked down upon, on September 24, 2021. The advisor gave up on the fund, which had under $300,000 in assets, most of which came from large investments by two of its three managers, after a year.