Note to our readers:
On June 3, AlphaCentric and Garrison Point, investment advisor and sub-advisor respectively, to the AlphaCentric Income Opportunities Fund, were fined by the SEC for failing to implement its compliance policies and procedures concerning its role in valuing fund securities. From May 2015 through July 2015 and from January 2017 through February 2019, AlphaCentric failed to implement policies requiring it to assist with the process of determining the fair value of the fund holdings. According to the order, the portfolio manager had purchased small “odd-lot” bonds, and the fund valued those holdings at higher prices provided by a pricing service for larger “round-lot” bonds. Alphacentric and Garrison Point have agreed to pay civil money penalties as well as agreed to other sanctions in this matter.
Fidelity Hedged Equity Fund is in registration. The fund’s principal investment strategies are:
- Normally investing at least 80% of its assets in equity securities.
- Investing in common stocks of companies with market capitalizations generally similar to companies in the S&P 500® Index.
- Investing in “growth” stocks or “value” stocks, or both.
- Using a disciplined approach focused on minimizing predicted tracking error relative to the S&P 500® Index based on an optimization algorithm and risk model.
- Employing a disciplined options-based strategy designed to provide downside protection (i.e., offset or mitigate a decrease in the value of the fund’s investments). The extent of this protection will be determined primarily based on the cost of the put options in the marketplace.
- Managing the options positions in a way that provides diversification of options strike prices and expirations.
The fund will have three co-managers, Zach Dewhirst, Eric Granat, and Mitch Livstone. Total annual fund operating expenses will be .55%.
First Eagle U.S. Smid Cap Opportunity Fund is in registration. The Fund invests, under normal circumstances, in equity securities of small- and mid-cap (“smid cap”) companies which are opportunistic situations for undervalued securities. Expenses have not been set. William A. Hench is the lead portfolio manager of the Smid Cap Fund as well as the First Eagle Small Cap Opportunity Fund. He was the portfolio manager or co-manager of the Royce Small Cap Opportunistic Value strategy and the Royce Opportunity Fund (RYOFX) from 2014-2021. Morningstar described the April 2021 departure of Mr. Hench and his management team as “stunning.”
On April 25, 2022, First Manhattan Corporation launched FMC Excelsior Focus Equity ETF (FMCX). Excelsior Focus is an actively managed, non-transparent ETF that will invest in approximately 25-30 U.S. stocks. As of June 15, 2022, the fund has $68 million in AUM, with two-thirds of that estimated to come from First Manhattan’s partners and employees.
The fund intends to be concentrated on its research team’s best ideas. That 12-person team is led by Himayani Puri, FMC’s Director of Research, and an investor with 26 years of experience. Her most notable prior stint was with Lehman Brothers from 1996-2008. She is a graduate of the Management & Technology dual-degree Program at The University of Pennsylvania with degrees in economics and engineering.
The team’s target stocks are defined as those reflecting corporations with durable competitive advantages and higher than average returns on capital which “treat shareholders like partners” and have opportunities to reinvest excess cash profits at above-average rates of return.
NightShares 100 ETF is in registration. The fund seeks to return the night performance of a portfolio of the 100 largest (based on market capitalization) domestic and international non-financial companies listed on the NASDAQ. The night return is measured from the time when the regular daytime trading ends in the U.S. market (the closing) to the time the market is open on the next trading day in the U.S. The night return is calculated as the percent difference from the opening price today versus the previous day’s closing price. The fund is most suitable to investors seeking to gain exposure to the overnight markets. The fund will be managed by a team of five members. Total annual fund operating expenses will be .55%.
On June 21, 2022, ProShares launched the ProShares Short Bitcoin Strategy ETF (BITI) and Short Bitcoin Strategy ProFund (BITIX), which allows investors to short bitcoin either to hedge their portfolio or for speculation. BITI is designed to deliver the inverse of the daily performance of the S&P CME Bitcoin Futures Index. In October 2021, ProShares launched BITO, the first bitcoin-linked ETF. With a cumulative loss of 67% since inception, BITO both earns its ticker (as in “I got bit-o in the butt-o”) and validates ProShares demure observation that “bitcoin can drop in value.”
The Securities and Exchange Commission has been busy on your behalf lately. Per Citywire and Investment News, the SEC filed their first action under Reg BI, a more restrictive standard for advisors who need to prove that the securities they purchase for a client’s portfolio are suitable. Reg BI requires advisors to assess the alternatives available to the security they’re recommending, and the enforcement action was triggered by an advisor who put one-third of a retired truck driver’s small portfolio into a single “risky, unrated, high-commission-paying ‘L bond.'” The Wall Street Journal (6/10/2022) reports that the SEC is investigating Goldman Sachs over whether the “ESG” in the names of two of their nominally ESG funds was nothing more than window-dressing. A month earlier, German authorities raided the offices of Deutsche Bank’s asset management arm in pursuit of evidence that DB engaged in intentionally deceptive marketing of their ESG products. And a June report by the public auditor of the Upright Growth Fund (UPUPX) addresses a laundry list of deficiencies alleged last fall by the SEC, including an “excessively concentrated” portfolio in which a supposedly diversified fund had one-third of its portfolio in a single microcap stock. The verbs in the SEC report – “miscalculated, willfully violated” and, repeatedly, “failed” – were pretty striking. Reportedly, the management has fixed or is fixing the problems. And the Commission will add 20 enforcement positions to the newly renamed Crypto Assets and Cyber Unit in hopes of protecting investors in crypto markets and from cyber-related threats.
Hmmm … that means that 50 federal agents will be charged with protecting you in a market with a $1 trillion market cap (one year ago: $3 trillion market cap) and 20,002 separate cryptocurrencies. We wish them well.
SMALL WINS FOR INVESTORS
Driehaus Emerging Markets Growth Fund was reopened to new investors on June 6. The fund closed to new investors on February 28, 2020. Howard Schwab is the lead portfolio manager of the fund.
Invesco International Small-Mid Company Fund has reopened to new investors effective June 28. The Morningstar four-star rated fund is down over 25% YTD. The fund last closed to new investors on April 1, 2016. David Nadel has been the portfolio manager since 2019.
Janus Henderson Triton and Venture Funds will reopen to new investors on or about July 18. Both funds last closed on or about May 15, 2015. Morningstar rates both the Triton and Venture funds with three stars. Jonathan Coleman and Scott Stutzman are co-portfolio managers of the Triton and Venture Funds. Jonathan Coleman has co-managed both funds since May 2013; Scott Stutzman has co-managed both funds since July 2016.
Kennedy Capital ESG SMID Cap Fund has lowered its initial minimum investment from $50,000 to $5,000 effectively immediately.
Nicholas Partners Small Cap Growth Fund has lowered its initial minimum investment for institutional class shares from $100,000 to $5,000 immediately. Minimum subsequent investments are $2,500.
OLD WINE, NEW BOTTLES
American Beacon Mid-Cap Value Fund is being reorganized into the American Beacon Shapiro SMID Cap Equity on or about October 28, 2022. The reasons for the reorganization are both funds have identical investment objectives and similar principal investment strategies.
JPMorgan International Research Enhanced Equity Fund was converted into an actively managed ETF on June 10. It has the same investment objective and substantially similar investment strategies as its predecessor fund.
Neuberger Berman Commodity Strategy Fund will be converted into an exchange-traded fund (ETF). The Commodity Strategy ETF will have the same portfolio managers and be managed in a substantially similar manner as the Commodity Mutual Fund. The Commodity Strategy ETF will not commence investment operations prior to the Conversion, and its shares are not currently being offered to the public, nor have they been approved for listing on any exchange. It is anticipated that the Conversion will occur during the fourth quarter of 2022.
CLOSINGS (AND RELATED INCONVENIENCES)
Abrdn International Real Estate Equity Fund will be liquidated on or about August 18.
American Beacon Continuous Capital Emerging Markets Fund will liquidate on or about July 15.
Anchor Risk Managed Municipal Strategies Fund will liquidate on or about July 7.
DoubleLine Ultra Short Bond Fund will liquidate on or about July 29. The fund never gained much traction in the market, peaking at a few hundred million and collapsing to $10 million today.
Krane UBS China A Share Fund was liquidated on or about June 13, 2022.
Mondrian U.S. Small Cap Equity Fund will liquidate on or about July 8.
Nationwide Emerging Markets Debt Fund will liquidate on or about August 19, 2022.
Savos Dynamic Hedging Fund will liquidate on or about September 30.
Virtus Core Plus Bond and Virtus Preferred Securities and Income Funds will be liquidated on or about July 22.
Virtus Global Dynamic Allocation Fund (formerly known as Virtus AllianzGI Global Dynamic Allocation Fund) will be liquidated on or about July 22.
