January 2022 IssueLong scroll reading

Terrific twos: Intriguing funds not yet on your radar

By David Snowball

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.

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About David Snowball

David Snowball, PhD (Massachusetts). Cofounder, lead writer. David is a Professor of Communication Studies at Augustana College, Rock Island, Illinois, a nationally-recognized college of the liberal arts and sciences, founded in 1860. For a quarter century, David competed in academic debate and coached college debate teams to over 1500 individual victories and 50 tournament championships. When he retired from that research-intensive endeavor, his interest turned to researching fund investing and fund communication strategies. He served as the closing moderator of Brill’s Mutual Funds Interactive (a Forbes “Best of the Web” site), was the Senior Fund Analyst at FundAlarm and author of over 120 fund profiles. David lives in Davenport, Iowa, and spends an amazing amount of time ferrying his son, Will, to baseball tryouts, baseball lessons, baseball practices, baseball games … and social gatherings with young ladies who seem unnervingly interested in him.