Most funds don’t show up on investors’ radar until they have at least a three-year record, which is also the point at which they receive their inaugural Morningstar rating. That’s a generally sensible, sometimes silly constraint since many funds that have been operating for fewer than three years are actually long-tested strategies managed by highly experienced professionals, which are just coming to market in a new form. Relatively recent examples of such funds include Andrew Foster’s Seafarer Overseas Growth & Income (SFGIX), Rajiv Jain’s GQG Partners Emerging Markets Equity (GQGPX), Abhay Deshpande’s Centerstone Investors (CETAX), and Amit Wadhwaney’s Moerus Worldwide (MOWNX). Collectively, those four managers had overseen more than $100 billion using strategies later embodied in their “too new to be on the radar” funds.
As a result, MFO Premium has a preset screen to allow us to identify funds that will receive their three-year recognition within the next 12 months. While many of those are undistinguished, and we’re looking closely at just a handful, our performance and risk screens highlighted a handful of funds that are intriguing.
The big picture is that there were 405 funds, CEFs and ETFs, as of 11/30/2021, which have passed their second birthdays but haven’t yet reached their third. About 200 mutual funds and 200 ETFs. We then sorted everyone by Lipper category, returns versus peers, MFO rating, Sharpe rating, and Ulcer Index rating. Thirty-one of the 405 funds decisively outperformed their peers in both total returns and all three measures of risk-adjusted returns.
The Terrific Twos
| Lipper Category | APR | APR vs Peer | MFO Rating | Ulcer Rating | Sharpe Rating | ||
| Alger Mid Cap Focus | AFOZX | Mid-Cap Growth | 36.3 | +13.9 | 5 | 1 | 5 |
| Allspring (formerly Wells Fargo) Special International Small Cap | WICRX | Intl Small / Mid-Cap Value | 12.7 | +3.5 | 5 | 1 | 5 |
| Baillie Gifford International Smaller Companies (inst. only) | BICKX | Intl SMID Growth | 25.9 | +7.6 | 5 | 1 | 5 |
| Baird Municipal Bond | BMQIX | Municipal General | 7 | +3.3 | 5 | 1 | 5 |
| BlackRock China A Opportunities | CHILX | China Region | 30.8 | +12.9 | 5 | 1 | 5 |
| Cliffwater Corporate Lending | CCLFX | Loan Participation | 8.9 | +5.0 | 5 | 1 | 5 |
| Direxion Russell 1000 Growth Over Value ETF | RWGV | Active Extension | 39.7 | +20.7 | 5 | 1 | 5 |
| Federated Hermes Global Equity | FHGIX | Global Multi-Cap Core | 16.2 | +2.3 | 5 | 1 | 5 |
| Federated Hermes International Developed Equity | HIEIX | Intl Multi-Cap Core | 13.7 | +3.7 | 5 | 1 | 5 |
| Fidelity Enduring Opportunities | FEOPX | Global Multi-Cap Core | 26.2 | +10.0 | 5 | 1 | 5 |
| Fidelity Founders | FIFNX | Multi-Cap Growth | 28.3 | +3.1 | 5 | 1 | 5 |
| Fidelity SAI International SMA Completion (internal to Fido) | FISZX | Intl Multi-Cap Growth | 17.6 | +5.1 | 5 | 1 | 5 |
| Franklin Templeton Clarion Partners Real Estate Income Inc | CPREX | Real Estate | 14.4 | +5.4 | 5 | 1 | 5 |
| Fuller & Thaler Behavioral Small-Mid Core Equity | FTSIX | Small-Cap Core | 22.4 | +4.3 | 5 | 1 | 5 |
| Goldman Sachs Small Cap Growth | GSAJX | Small-Cap Growth | 32.1 | +6.7 | 5 | 1 | 5 |
| Harbor Overseas | HAOSX | Intl Multi-Cap Core | 13.3 | +4.6 | 5 | 1 | 5 |
| Innovator Growth-100 Power Buffer ETF – October | NOCT | Options Arbitrage / Strategies | 14.8 | +3.8 | 5 | 1 | 5 |
| John Hancock International Dynamic Growth | LG-DQJ2 | Intl Large Growth | 25.3 | +11.6 | 5 | 1 | 5 |
| JPMorgan Core Plus Bond ETF | JCPB | Core Plus Bond | 5.5 | 0 | 5 | 1 | 5 |
| Lazard International Quality Growth Portfolio | ICMPX | Intl Multi-Cap Growth | 20.6 | +3.8 | 5 | 1 | 5 |
| Nicholas Partners Small Cap Growth | NPSGX | Small-Cap Growth | 33.1 | +11.9 | 5 | 1 | 5 |
| Overlay Shares Core Bond ETF | OVB | Corporate Debt BBB- | 5.3 | +1.1 | 5 | 1 | 5 |
| Overlay Shares Municipal Bond ETF | OVM | Municipal General | 5.5 | +1.9 | 5 | 1 | 5 |
| Pacer Trendpilot US Bond ETF | PTBD | Specialty Fixed Income | 5.8 | +8.1 | 5 | 1 | 5 |
| Prudential PGIM QMA Strategic Alpha International Equity ETF | PQIN | Intl Multi-Cap Value | 10.2 | +1.6 | 5 | 1 | 5 |
| Reynders McVeigh Core Equity | ESGEX | Multi-Cap Growth | 27.2 | +2.9 | 5 | 1 | 5 |
| Sierra Tactical Bond | STBJX | High Yield | 10 | +4.6 | 5 | 1 | 5 |
| Thornburg Summit | TSUMX | Long / Short Equity | 16 | +7.9 | 5 | 1 | 5 |
| Timothy Plan US Large/Mid Cap Core ETF | TPLC | Mid-Cap Core | 16.3 | +2.7 | 5 | 1 | 5 |
| Virtus Seix Senior Loan ETF | SEIX | Loan Participation | 4.4 | +0.9 | 5 | 1 | 5 |
| Wasatch International Select | WGISX | Intl Multi-Cap Growth | 18.8 | +4.4 | 5 | 1 | 5 |
| William Blair Small-Mid Cap Core | WBCIX | Mid-Cap Value | 24 | +9.1 | 5 | 1 | 5 |
Funds that caught our eye
Life in the Jungle: Terrific at Two, Dead at Four
Our last review of “the Terrific Twos” ran in January 2019. We highlighted 10 funds. Here’s what became of them.
Alger Mid Cap Focus (AFOZX) is the sibling to the $6 billion Alger Small Cap Focus, which is closed to new investors. Both are managed by Amy Zhang, who brought the strategy from her previous stint at Brown Capital Management Small Cap (BCSIX). Morningstar already awarded it full analyst coverage, which is really rare, and a Silver rating. Small Cap Focus had huge gains since her arrival, then crashed in 2021. The Mid Cap fund has crushed both its Morningstar peers and its older sibling since its inception. It’s probably more “pure thrills” than I’d go for, but it has the makings of a very successful, very aggressive growth fund.
Fidelity Founders (FIFNX) targets firms whose founders are still in charge. One wonders if they’ve noticed the same sort of anomaly that gave rise to Low-Priced Stock all those decades ago?
Fidelity Enduring Opportunities Fund (FEOPX) is a global large-cap fund whose eight-person management team is also responsible for their new series of Disruptive funds, such as Disruptive Tech and Disruptive Finance.
Fuller & Thaler Behavioral Small-Mid Core Equity (FTSIX) is the sibling to the five star, Gold-rated, Great Owl, $6 billion Fuller & Thaler Behavioral Small-Cap Equity (FTHAX). The question with any strategy is, “what do you bring that a dozen other folks aren’t already doing?” In F&T’s case, it’s a profound grasp of the mistakes that other people make and a pretty rigorous discipline that lets them make money off the foolishness of other investors.
Harbor Overseas (HAONX) is run by a team from Acadian; that same team has been running global managed volatility funds for European investors.
Wasatch International Select (WGISX) is run by the same three-person team entrusted with the three-star International Growth fund. The goal is to find the 20-40 highest quality growth companies outside of the US. A mix of old and new talent at the helm.
William Blair Small-Mid Cap Core (WBCIX), with a Morningstar Gold analyst rating, has the makings of a star fund – from strategy to management – but is only available to rich people and retirement plans. (sigh)
You should keep an eye on them; they have the prospect of offering real value in the right portfolio.
The Younger Defenders
A handful of these young funds, by luck or design, have managed the rare feat of peer beating returns since inception with top tier risk-adjusted returns (MFO rating, Ulcer rating) and risk metrics (downside deviation, bear market deviation, down market deviation). Check them out here.
