Monthly Archives: January 2022

January 1, 2022

By David Snowball

Dear friends,

Merry Christmas and Happy New Year!

Let’s hope it’s a great one.

If you think I’m a bit late on the former, it’s because you think of Christmas as a day rather than as a season. Not so! In 567, the Council of Tours established that the twelve days between Christmas and Epiphany – also sometimes known as “Chip’s son’s birthday” – were to be treated as a single holiday. (Her sister was born on Christmas Day so it makes sense she waited to give David a reason to celebrate the other end of the holiday.) In England, in 877, the law codes of Alfred the Great decreed that the twelve days between the two were a holiday.

We think of the period as “the Dark Ages” but, really, people were guaranteed a two-week holiday at year’s end. That might be what got him “the Great” designation. Alfred’s father got to be “Noble Wolf,” so it could be that cool monikers simply run in the family.

The World in 2022

Here’s our bold prediction: it will be one durned thing and then another.

If you think you’ve got a better guess than that, you’re crazy. Just sayin’.

Here’s a retrospective test of your predictive abilities. Going into 2021, how much would you have predicted the following ETFs would make? To help out, we’ve shared their 2020 performance.

  In 2020, it made … In 2021, this dog will drag in …
Horizen Grayscale Trust 30%  
Breakwave Dry Bulk Shipping (-50)  
iPath Global Carbon 5  
Large Cap Growth Index-Linked ETN (due 2028) (-13)  
Direxion Homebuilders Ultra-Bull (-32)  


  In 2021, this dog dragged in …
Horizen Grayscale Trust 478%
Breakwave Dry Bulk Shipping 283
iPath Global Carbon 246
Large Cap Growth Index-Linked ETN (due 2028) 197
Direxion Homebuilders Ultra-Bull 168

They’re the top five exchange-traded products that Morningstar tracks.

Are you better with mutual fund predictions? Here are the top five funds in the MFO Premium database, based on 2020 returns.

  2020 2021
Baron Partners 149% 32%
American Beacon ARK Transformational Innovation 148 (-23)
Zevenberger Genea 145 (-4)
Morgan Stanley Discovery 143 (-12)
Baillie Gifford US Equity Growth 125 (-11)

All of these funds saw huge inflows late in 2020 as investors rushed to buy the prior gains, and several had crushing withdrawals at the end of 2021 as investors locked in losses and fled.

So, let’s celebrate the success of Baron Partners, an MFO Honor Roll fund, but also consider a possible lesson from all of the others. We’re not very good at predicting the short term. Yet we’re greatly influenced by the short term. And we’re generally betrayed by our faith.

The famous Callan Periodic Table of Investment Returns reminds us that even the longer term is treacherous terrain.

They track nine asset classes. Here’s the relative return of EM equities starting in 2001:

4 – 5- 1 – 2 – 1 – 2 – 1 (you’re in 2007. Convinced that this is a no-brainer yet?) – 9 (oops) – 1 – 3 – 9 – 3 – 8 – 7 – 9 (you’re in 2015. Fleeing or fled?) – 4 – 1 – 9 – 5 -3.

And your darling US large-cap growth stocks? Same pattern but almost in the opposite order: dogs, muddled, stars.

MFO’s answer, across it all, has remained the same: manage risk rather than returns, manage expectations, ignore the noise, embrace life. That’s unlikely to change.

MFO in 2022

As you know, this is my last issue as the publisher of MFO. The path here began in 1971. For 25 years, I devoted a huge fraction of my time and mental training to academic debate: first as a high school then college debater, college coach, and Augustana’s director of debate. When I retired from coaching at 40, I discovered mutual funds and online investor communities as a way of filling the void left by leaving debate and of serving my community. For 25 years, I’ve devoted a huge fraction of my time applying the training and research-obsessiveness that debate gave me to reasoning with folks about life, finance, joy, and balance.

Who knows what passion will consume my next quarter-century? I surely don’t. But I do know that every moment of that chapter will be informed and enriched for the hours and months, and years I’ve spent with you.

Thank you for them.

This is not the last issue of MFO. Several members of the MFO and MFO Premium community have stepped forward, signaling their interest in continuing our monthly conversation with you. I celebrate their commitment to the common good, as should you. The February Observer will look different than what you’re used to, as the guys try out their individual voices and pursue their individual and shared vision.

I’ll let Devesh, Mark, and The Shadow introduce themselves in our February issue.

Don’t worry if we appear to be off-line

Chip knows that we’re using outdated versions of the software that runs the site behind the scenes. That’s in part because we know that the WordPress upgrade will almost certainly break the site, at least temporarily. It has been a notoriously rocky road for folks trying to install it, so we’ve been putting it off.

That said, the upgrade is essential for our ongoing stability and security. We’re going to work with our hosting provider to set up a time for their programmers to handle the switchover in both the main site’s software and the discussion board’s. MFO Premium is unaffected by all this.

When that happens, there’s a good chance that we will disappear for 24-36 hours. We will post a notice, and any updates, at the top of the MFO Discussion Board. Please check there if you’ve got any concerns, or drop a note to Chip or me.

Thanks for your patience!

Thanks to …

To the 2,091,050 readers who’ve joined us over the years, including that one guy in Vatican City (greetings … Francis?) and the 55,000 Canadians and 36,000 Indians. To the thousand Czechs and 10,000 Filipinos and Chileans, greetings and cheers! We hope you come again.

To Debbi and Nick Burnett, my friend of many decades who made a contribution to MFO during the last weeks of his stay on this mortal plane, to the faithful folks at S&F Investment Advisers, and to Wilson and Rae. To Hank, Binod, Eric, Jeroen, Kevin, Michael, Victoria, and Charles, who sent gifts of support through our Paypal link. And, finally, to our faithful subscribers whose recurring monthly Paypal contributions were powerful financial and moral support subscribers: Gregory, William, William, Brian, David, and Doug.

To Ed and Charles, to Lynn and Leigh, to Sam and Denny, and to all of the folks who’ve written for MFO, thanks! Literally, we wouldn’t have made it to 2012, much less 2022, without you.

To Devesh, Mark, The Shadow, and all who might add their voices, bless you and thanks. Be brave. You’ll make a difference in the world, though you’ll have no idea of it at the time.

If you want to support their work, consider making a tax-deductible contribution, one-time or recurring, via Paypal (no, you don’t need a Paypal account to use it), or check, by becoming a member of MFO Premium or through unencumbered support. It all works, and it all helps.

To Chip, the light of my days, the woman whose first reaction to the idea of launching an investing website was “that’s crazy” and whose second reaction was, “oh heck, let’s go for it!”, thanks without end.

david's signature

Drawdown Occurs (Almost) Every Calendar Year

By Charles Boccadoro

Refinitiv dropped month-ending December data, capping 2021, early this New Year’s Day.

We are on schedule to post year-end fund results to the MFO Premium site this evening.

We added a couple of features to MultiSearch, the site’s main tool, this past month worth calling out:

  • Max Drawdown (MAXDD) and Excess Return. Better insight into a fund’s maximum drawdown, which measures peak-to-trough retraction in return across a specified time period, represented one of the motivations for the premium site. While MAXDD has been central to MFO’s search tools since 2011, back when it was hard to find on other sites and publications, we recently added it to the Calendar Year and Period Performance tools within MultiSearch (press Analyze button above results table). So, at a glance, users can now see MAXDD and Excess Return across multiple periods. Excess Return, which measures return above risk-free 3-month T-Bill rate, has been of little interest since 2009 (GFC), but again if rates normalize, this metric will gain more attention.
  • Expanded Bond Metrics. Thanks to another request from subscriber Devesh Shah, who publishes the YouTube Channel Understanding Personal Finance, users can now screen for funds by duration, average coupon, and yield to maturity … either by value levels or ratings within peer group or both. (Select Bond Info group on MultiSearch screening page.) Awareness of duration risk will increase if rates normalize. The longer a bond portfolio’s duration, the larger the drawdown per each unit increase in rate, all else equal. While the Fed attempted a couple of times to raise rates, most recently from 2016 through 2018, bond fund managers and investors have benefited from forty years of generally decreasing rates, representing the “40-Year Bond Bull Market.” (See New MultiSearch Screens To Help Analyze Impact of Rising Rates and More.)
  • SubFamily and SubAdviser. Users can now screen funds by subadviser and “subfamily,” which is a term we coined to start distinguishing acquired fund families (e.g., Oakmark and PIMCO), or distinct offerings within families (e.g., iShares). “Adviser” is becoming more and more a legal entity and not reflective of the people actually making investment decisions, particularly with so-called “white label” ETF issuers (e.g., ETF Architect). As the fund industry continues its consolidation and white labels proliferate, it can be difficult to understand who is really doing what, and honestly, hard to keep up.

Taking a peek at the Calendar Year Max Drawdown data for the S&P 500 dating back to 1926, we see that most years, investors should expect drawdown as much as 10%. These calendar year and period performance metrics are available for all 12,000 funds maintained on the site, as far back as 1960 and across 100 evaluation periods. 

Building a Multi-Strategy Portfolio – Managed Fidelity Roth IRA

By Charles Lynn Bolin

The Mutual Fund Observer writes for the benefit of intellectually curious, serious investors— managers, advisers, and individuals—who need to go beyond marketing fluff, beyond computer-generated recommendations, and beyond Morningstar’s coverage universe.

The quote above had a big impact on me in July 2019 when I was first introduced to Mutual Fund Observer, and I became its most enthusiastic fan. I began contributing to the monthly newsletter shortly thereafter. I appreciate the efforts that have gone into creating and maintaining MFO by Professor Snowball, Chip, Charles Boccadoro, Barb Bradac, and Edward Studzinski. You greatly contributed to the financial well-being of so many people. I appreciate that the Premium Service will continue. Thank you.

I would also like to wish all Readers a happy and prosperous New Year. With the MFO newsletter transitioning to new voices after this month, my final article for MFO is the third of a three-part series describing how I have simplified my portfolios using a bucket approach, the business cycle, and of course, the MFO Premium Multi-Screener Tool. Bucket #1 contains three years of living expenses, Buckets #2 and #3 are conservative, traditional IRAs at Vanguard and Fidelity, and Bucket #4 is a tax-efficient after-tax portfolio still in planning. This article describes Bucket #5, which is a Roth IRA managed by Fidelity using the business cycle model.

This article covers the following sections, and readers may skip to the sections of interest. The Key Point is summarized at the beginning of each section for those with limited time.

  1. Wealth Management Options at Fidelity
  2. Asset Allocation Strategies through the Business Cycle
  3. Model Portfolios at Fidelity
  4. Model Portfolios at Fidelity Institutional
  5. Fidelity Business Cycle Portfolio

I have created two Watchlists, each with one hundred funds, in MFO Multi-Search for tracking funds available at Fidelity and Vanguard. The Watchlists are available following the Closing in this article along with my ranking of some of these funds based on recent trends. I also identify top-performing funds from Brown Advisory and Grandeur Peaks for further research to determine if I want to add them to the Watchlists.

1.   Wealth Management Options at Fidelity

Key Point: There are many Fidelity investment services available to investors with wide ranges of experiences and needs.

I found the post by Bolin “Building a Multi Strategy Portfolio” very
Building a Multi-Strategy Portfolio – Fidelity Traditional IRA… While this portfolio is just one of his- the “Fidelity Traditional IRA“… I found myself wondering about one sentence he mentioned “a Bucket for a more aggressive Roth IRA managed by Fidelity”… What funds might be in that Roth?

-MFO Discussion Board, JonGaltIII

Please see descriptions of those funds included in the “more aggressive Roth managed by Fidelity” in Section #3, Mr. Galt.

I have been using the Fidelity Retirement Calculator for years and discussing retirement planning once a year with a Fidelity Advisor. The Fidelity website for Planning and Advice offers the following services depending upon an investor’s needs:

Table #1: Fidelity Planning Services

 Service Description Minimum Fees
Fidelity Go Robo advisor $0 0.35% > $50,000
Personalized Planning & Advice Digital investing + coaching $25,000 0.5%
Wealth Management Planning & advice from a dedicated advisor $250,000 0.50%–1.50%
Private Wealth Management Planning & advice from an advisor-led team $2 million managed through Fidelity Wealth Services 0.20%–1.04%

Fidelity offers the option of using an independent advisor and has low-cost index services available. The Fidelity Institutional website covered in this article is for advisors, but it was worth my time to research the site and see what is available. In the Wealth Management services, one of the choices to be made is whether you want a portfolio based on Fidelity Funds, a Blended Approach with funds from other families, and an Index Approach.

In starting a Managed Account, I had a remote working session with my dedicated personal advisor and a Senior Portfolio Specialist to discuss goals and possible solutions. I elected to use the business cycle model portfolio with the Blended Approach for funds. “Investment Team Perspectives” at the Fidelity website provides a good summary each month of the Investment Team’s views including Market Backdrop, Positioning, Performance, and Outlook. They explain changes to allocations that are made.

2.   Asset Allocation Strategies through the Business Cycle

Key Point: My base case is a 50% stock and 50% bond and cash portfolio that tilts 15 points higher during the Recovery Stage and 15 points lower in the Late Stage.

At Fidelity, we believe:

    • Asset allocation is the single most important factor in assessing the long-term risk and return characteristics of a diversified portfolio.
    • Efficient portfolio diversification can be one way to lower a portfolio’s risk while maintaining its expected return.

I am a believer in Ed Easterling’s philosophy about secular markets. He is the founder of Crestmont Research and the author of two books on market cycles. Mr. Easterling’s philosophy is that secular bull markets are a time for a “sailing” approach (ie using low-cost index funds), and secular bear markets are a time for a “rowing” approach. Investing along with the business cycle is a form of rowing. I want a portfolio that manages risk based on the business cycle along with the philosophies of Benjamin Graham who advocated having no more than 75%, nor less than 25% allocated to stocks and Howard Marks who advocated adjusting your level of aggressiveness/defensiveness to the environment.

The following table is a good starting point for understanding investing according to the business cycle. The Mid-Cycle is typically the longest. In the current situation with near full employment, higher than normal inflation, loose monetary policy, the foundation is set for monetary tapering and rising rates shifting us into the Late Stage within the next year or two. We should be looking at what does well not only in the Middle Stage of the business cycle but also in the Late Stage with a watchful eye on the next recession.

Figure #1: Typical Business Cycle

Source: Fidelity

As we move through the business cycle we can rotate through sectors that perform well by stage as shown in Table #2. These sectors can be volatile at inflection points.

Table #2: Sector Performance by Business Cycle Stage

Source: Fidelity

The following chart from The Business Cycle Approach to Asset Allocation by Fidelity Investments quantifies how stocks, bonds, and cash perform compared to a typical portfolio of 50% stocks, 40% bonds, and 10% cash since 1950. The green bar is the average performance, the blue bar is the median performance and the blue diamond (“hit rate”) is the frequency that the asset outperforms the benchmark. Stocks outperform the benchmark portfolio by quite a bit during the Early and Mid-Cycle Stages, but not so much during the late stage. Stocks underperform during a recession.

Figure #2: Asset Class Performance Relative to 50% Stocks/40% Bonds/10%Cash

Source: Fidelity

The Figure #3 from Pring Turner Approach to Business Cycle Investing breaks out the business cycle into three stages (1-3) of contraction and Recovery (4), Middle (5), and Late (6) stages of the business cycle. Their allocation guideline begins with increasing allocations to stocks from 35% at the beginning of the contraction to 65% (buy low) as the recovery starts to gain traction and gradually reducing allocations to stocks to 35% by the late-stage (Sell High) of the business cycle. This is great for tax-advantaged accounts may increase taxes in after-tax accounts. I set my target allocation to 50% stocks, 40% bonds, and 10% cash, tilted to 65% stocks coming out of a bear market and down to 35% as the late-stage progresses.

Figure #3: Asset Allocation by Business Cycle Stage

3.   Model Portfolios at Fidelity

Key Point: I want a “Balanced” portfolio on average that ranges from “Moderate with Income” during a recession to “Growth with Income” during the Recovery Stage.

Figure #4 contains the historical return versus volatility. One has to balance life expectancy, short-term needs, and risk tolerance along with the need to save for retirement and other goals. The chart updated for the next decade or two will look dramatically different because of low-interest rates, end of quantitative easing, high valuations, COVID, and possibly inflation.

Figure #4: Target Asset Mixes Return vs Volatility

Source: Fidelity

There are many investing ideas at Fidelity to help Do-It-Yourselfers, and those trying to decide if or what type of managed account they want. Figure #5 below from Investment Strategy helps investors decide on their allocation. I want a “Balanced” portfolio on average that ranges from “Moderate with Income” during a recession to “Growth with Income” during the Recovery Stage. Bucket #1 for living expenses will be “Short-Term,” Buckets #2 & #3 (Traditional IRAs) are “Moderate”, and Bucket #5 (Fidelity Managed Roth IRA) is currently “Growth”. Model Portfolios for each of these portfolios will be shown in Section 4.

Figure #5: Target Asset Mixes

Source: Fidelity

Figure #6 is more valuable for the detail-oriented investor. While the figure includes the extreme of the 1930’s depression, it does show the potential for a balanced portfolio to have negative returns for a five-year period. I find the lowest five-year return of value. Think in terms of relativity. The “Most Aggressive” Portfolio had the lowest five-year return nearly three times worse than a “Balanced” Portfolio with 50% stocks.

Figure #6: Target Asset Mixes Returns and Drawdowns

I used Portfolio Visualizer to show Fidelity and Vanguard Balanced Funds, along with the S&P 500 (SPY), following the Great Financial Crisis. It took three years to get back to ground level for the balanced funds and five years for the S&P 500. The balanced funds had drawdowns of 32 to 40% while the S&P 500 fell over 50%. These are buying opportunities as long as the investor has funds available and fortitude. I believe that a conservative approach will outperform an aggressive approach over the next five to ten years.

Figure #7: Balance Fund Performance vs S&P 500 During the 2008 Recession

Source: Created by the Author using Portfolio Visualizer

Fidelity Fund Portfolios—Diversified has model portfolios for each of these asset allocations such as this one for the Balanced Portfolio. There are also model portfolios for income and defensive equity.

Table #3: Fidelity Balanced Model Portfolio

4.   Model Portfolios at Fidelity Institutional

Key Point: Insights can be gained into how Fidelity manages portfolios by viewing the model portfolios at Fidelity Institutional.

Fidelity Model Portfolios has links to Target Allocation, Business Cycle, Income, Equity, and Bond Models including Blended and Index Focused Models. Details of the funds in these models, as an example, can be found in Fidelity Target Allocation Blended Model Portfolios Detail as shown below.

Table #4: Fidelity Target Allocation Blended Portfolios

Source: Fidelity

5.   Fidelity Business Cycle Portfolio

Key Point: I elected to use a Fidelity Business Cycle Approach in my Roth IRA although it is very different than the one shown in this section.

Fidelity launched business cycle model portfolios in 2019. This section evaluates a Fidelity Multi-Asset Business Cycle Model Portfolio described on the Fidelity Institutional website.

The team’s current view is that we remain in a mid-cycle economic environment, where equities tend to outperform fixed income. The multi-asset model portfolios remain overweight equities and underweight fixed income. In our view, the U.S. economy and activity levels remain strong…

  • Equity allocation in the model portfolios was reduced slightly and exposure to Fixed Income (specifically Investment Grade Bonds and High Yield Bonds) was increased. The roll-off fiscal support, inflationary pressures from supply constraints and a tightening labor market, and moves toward monetary policy normalization contributed to an increased probability of late-cycle…

  • The team believes that inflation may continue to surpass expectations and increased exposure to TIPs and Commodities, which tend to perform well in environments where inflation remains elevated or increases faster than expected…

  • The replacement of sector strategies with diversified U.S. equity managers reduced the sector-risk contribution to total portfolio active risk.

The benchmark allocation between domestic and international equity will change from 60/40 to 70/30.

Table #5: Fidelity Multi-Asset Business Cycle Model Portfolio

Source: Fidelity

It is not a fair assessment to compare a portfolio with changing allocations to other funds with static allocations. That said, had it had static allocations for the past three years, its performance would have been comparable to the Fidelity Balanced Fund for the past three years which is included as a baseline fund in the table below. MFO Risk classifies it as “Aggressive” (MFO Risk =4).

Table #6: MFO Portfolio Tool with Fidelity Multi-Asset Business Cycle Model Portfolio

Source: Created by the Author Using MFO Premium portfolio analyzer

Morningstar shows the above business model portfolio to be almost 70 stocks.

Figure #8: Morningstar Analysis of Fidelity Business Cycle Model Portfolio

I will summarize my Fidelity Managed Roth IRA as having 75% stocks with 80% of the funds in three traditional Strategic Advisor Funds (domestic stock, international stock, and bonds) and with 20% in a tactical sleeve including mostly small-cap growth and emerging markets, but also a small allocation to high yield bonds. In the short time that I have had the managed account, Fidelity has only made very small changes once a month.


I reread in the latest MFO, at the end of David’s introductory letter, and there at the end is the notice of a hiatus for the newsletter. I’m sad to see him step away because he put me onto Brown Advisory and Grandeur Peaks funds which have been stellar performers for me, making up 8% of my portfolio. I hope he does periodically offer thoughts about new ideas. Of course, I’ll keep up my premium subscription.

My Friend, Dave H.

These are my sentiments as well, Dave.

These recent articles summarize my journey to transition from a working person to entering retirement in the near future. As a cancer-free cancer survivor, my primary objective is to have a financial advisor that my wife is familiar and comfortable with. I decided to use the Fidelity Wealth services to manage a portion of my portfolio to maximize risk-adjusted returns. Going through the exercise of writing this article helped me to understand the similarities and differences between how Fidelity and I invest and how to merge them into multi-strategy portfolios.

I have enjoyed writing for Mutual Fund Observer and appreciate the support, ideas, and feedback of the many readers in the discussion boards. You have made me a better investor.

To the Sweet Life – La Dolce Vita!

Fidelity and Vanguard Watchlists and Model Portfolios

I described my Traditional IRAs at Fidelity and Vanguard in Building a Multi-Strategy Portfolio – Vanguard Traditional IRA and Building a Multi-Strategy Portfolio – Fidelity Traditional IRA. I have created watchlists of 100 funds for each of the portfolios based on MFO Composite Ratings, Fund Family Rating, Lipper Overall Ratings, Reamer Ratio, and Ferguson Mega Ratio available in MFO Multi-Search. These represent nearly 200 funds in over 90 Lipper Categories. All of the funds except five have histories more than three years of age. The average Fund Family Rating from MFO is 4.4/5.0. This enables me to spend more time looking at which funds will do well going forward and less time looking for funds.

I built a rating system based on Three Month Returns, Three Month Exponential Moving Average, Ten-Month Exponential Moving Average Trend, and Fund Flows. I also made an attempt to classify the funds according to how they perform during each phase of the business cycle. Below are the top funds by rating, excluding funds that do poorly during the Middle, Late, and Recession stages of the business cycle. In November, in the Vanguard Traditional IRA, I exchanged about a quarter of the Vanguard Commodity Strategy (VCMDX) because it has gained a lot during the past year for the Vanguard Wellington (VWELX) Fund. In the Fidelity traditional IRA, I exchanged the Fidelity Freedom 2020 (FFFDX) for the Fidelity Balanced Fund (FBALX) and consumer staples and utility funds.

Fidelity 100 Trending Funds

Vanguard 100 Trending Funds

Fidelity 100 Watchlist:


Vanguard 100 Watchlist:


After my friend’s, Dave’s, comment, I extracted top-performing funds at Brown Advisory and Grandeur Peaks to see which might make my Watchlists. The symbols shaded gray are closed to new investors. The links are to articles by David Snowball. There are two emerging market funds of interest that have relatively low exposure to China. The funds are shown in the table below with metrics for six years and ratings for the life of the fund. In order to make my Watchlists, they have to outperform another fund on a risk-adjusted basis without reducing the number of Lipper Categories tracked.

Preliminary Screen Results of Brown Advisory and Grandeur Peaks Funds for further research:




Behind the Curtain

By Edward A. Studzinski

“If you sit by the river long enough, you will get to see the bodies of your enemies float by.”

Variously attributed to Confucius, Sun Tzu, Samurai training and “Arabs.”

First, some housekeeping. As David Snowball mentioned some time ago and has confirmed recently, MFO as you know it will be going on a publishing hiatus during the New Year. My monthly contributions will also be going on that same hiatus.

As David and I have discussed his reasons for making this change, I found myself in agreement with many of them. Having been involved over the last ten years in writing monthly thought pieces for MFO, I have also reached a point where I fear that I am repeating myself. There does come a point of intellectual burnout in discussing the mutual fund industry.

Partly this is a function of demographic change in the make-up of the mutual fund investing audience. The under-40’s haven’t seen high inflation before, so don’t appreciate the effect it can have on their savings and way of life in preserving both capital and purchasing power. That same demographic is less interested in active management versus utilizing low-cost exchange-traded or passive investment funds.

In response, the industry is undergoing drastic change. As with an iceberg, much of that change is going on below the surface and not visible to current and potential investors. The industry and individual firms are doing as much as they can to ensure that only the minimal disclosure requirements are met.

I have spoken many times about the generational shift going on in mutual fund firms. Much of that is tied to firm structures as well as the deferred compensation and bonus plans for the investment professionals. On the West Coast, there are firms in the San Francisco Bay Area which face a problem of unaffordable housing costs for junior professional staff. If they have families, they must often commute long distances to get good housing, good schools, and a low crime environment. For the upper crust of those firms, they can afford to live anywhere. But with the deferred compensation or partnership payouts tied to a current book value, in a bad performance and market year, there can be a roadblock preventing people from moving out of the firm. The key question becomes one of the long-term sustainability of the investment management business while it is in that location. The solution is a general improvement in the local business climate. Or it is a relocation of the business to a more business-friendly environment to a place like Nevada or Utah.

In Boston, there is a different extreme. In another large global investment partnership, the amount of book value paid to buy into the partnership is the same amount that will be paid out from the partnership upon retiring. Other payouts for ten years are tied to a different savings/deferred compensation plan. In another large privately held investment firm in Boston, payouts upon retirement are tied to the values of the privately held shares in the firm you have accumulated over the years. In both instances, the age for “retirement” is generally age 55 plus or minus.

In Chicago, there is a variation on what journalist John Kass would call “The Chicago Way.” That is reflected in approaches to deferred compensation for key employees tied to non-compete agreements (illegal in California and generally viewed as age discrimination in New York and thus unenforceable). And, as seen in one instance in this past year, where the mutual fund’s assets under management are controlled by the firm’s parent, a firm can be forced out of business in a very short time period if the parent adopts a different corporate strategy. And at the same time, the appropriateness of Chicago as a location for investment firms as opposed to say, Florida, continues to be a subject for discussion.

Contrary to perception, people are not fungible but can and do make a difference in active management and the supporting research efforts. That is often borne out by a subsequent decline in performance as well as a departure of assets under management. And that will not change unless you are dealing with a pure, quantitative approach or a true passive approach, benchmarked tightly to an index.

That is why it is humorous to watch the pension and investment consultants try and keep their databases updated on performance and personnel in their search universe. They are always behind the eight ball as they cannot see what is going on in real-time and what had been done by whom.

The Way Forward

Most of those in the above forty categories that I talk to, look at equity valuations and are convinced that given the increasing rate of inflation which is not transitory and an inconsistent but increasingly heavy hand of government interference, things will end badly. The signs are there. We have initial public offerings of stock now selling below the offering levels. There is increasing volatility in some special purpose acquisition vehicles that have come to market. And the number of insider sales of corporate stock seems to be increasing.

I would urge caution then. One should be less concerned about the fear of missing out, which seems to drive so many investment decisions now. Rather, you should be more concerned about the danger of permanent loss of capital, which cannot be replaced once gone. As you look at your fund investments, pay attention to their portfolios because, regardless of whether they style themselves growth or value, they often own the same things. Historic drawdown patterns may not apply. What looks liquid may not be in reality if everyone tries to go out the door at once. As Buffett once said, look at what you own from the perspective of whether you would be happy owning it if the market closes for a year. You want to own real businesses run by real people, not financial engineering situations betting on the come.

Performance of FOMO, the Fear of Missing Out ETF, since inception, compared to cash

Finally, as we contemplate our (the United States) place in the world order, I am going to share a statistic that a friend in New York in a large investment firm sent me the other day. Of the “195” real countries on Planet Earth, 140 of them have apparently already signed on to the Belt and Road Initiative of China. That is the capital investment initiative across the world, but especially in emerging markets, attempting to implement a new “Silk Road” of access to natural resources and influence.

Happy New Year!


Investing in 2022: The Indolent Portfolio

By David Snowball

Each year, usually in our February issue, I walk through my portfolio. It gives some folks the shivers, and others, a nice sense of superiority. On the whole, it seemed like a good idea to accelerate the schedule this year. I’ll walk through it using the same five-part process that we’ve urged on others.

Step One: Assess my goals and resources

My overarching goal is to have a portfolio that I don’t have to pay much attention to (on average, I hold funds for more than a decade), and that doesn’t keep me up at night. That’s the “indolent” part. Beyond that, I’ve had three specific goals in investing and had three distinct portfolios.

  1. Retirement: which is unnervingly close. I wanted to be able to leave full-time teaching somewhere between 67 and 70. I’m still really good at what I do, but my department deserves the opportunity to bring in some new blood, and I’d rather leave at a point when folks regretted my departure rather than pray for it.

    Long ago, I did some simple modeling using retirement calculators from Fidelity, TIAA-CREF, and T. Rowe Price. Of them, Price’s Retirement Income Calculator, which runs a Monte Carlo simulation on your behalf, is my favorite. My intentionally modest lifestyle and stable job made aggressive saving possible. If I achieve a 6% rate of return on my portfolio, I end up with a 99% probability of meeting my financial needs for 30 years.

  2. Will’s college: he’s a senior now but needs a master’s degree to pursue counseling psychology. While he could go to Augustana tuition-free (a perk of my job), being a student in a small school where your dad is painfully well-known seemed like a recipe for distance. We started a 529 for him when he joined the family at 11 months.

  3. Peace of mind: my family was really financially insecure when I was young, which led to hard “groceries or the utility bill” sorts of questions and enormous anxiety. The prospect of ever replaying that degree of uncertainty is more than a little horrifying (note to young parents: childhood trauma is the ghost that stalks adults for decades; raise your children to be joyful and secure), so I want a substantial buffer that’s visible proof that we can handle unhappy surprises. Rather than talk about a “taxable portfolio,” with the implied emphasis on tax efficiency, I think of it in terms of personal independence.

Step Two: Create a strategic plan

By that, we mean figuring out what asset classes I want exposure to and to what degree. Ultimately, three decisions control 90% of your outcome: your asset allocation, your willingness to invest steadily, and your ability to avoid decisions driven by extremes of greed or fear. This is the point at which I tried to make the decisions that most drove the prospect of success.

  1. Retirement: 60-75% equities, with a tendency to overweight international, small, quality, and value. Valuations in the US market have been indefensible for a long while, and investors I respect and who have the freedom to choose increasingly choose to be light on the US. I invest 13% of my salary, and my college matches the majority of that.

  2. Will’s college: 100% equities tapering down to 0% equity at the point that we began paying tuition. That was Vanguard’s glidepath, and I had no reason to second guess it.

  3. Peace of mind: the goal here was consistent real returns, which is to say returns after taxes that exceeded the rate of inflation. Frankly, savings accounts nor CDs promised (guaranteed, locked in) negative real returns when inflation was 1%. As a result, I have very little in a traditional FDIC-insured deposit account.

    The best way to achieve this goal was through a stock-light portfolio. There’s a wealth of research that shows a stock-heavy portfolio is prudent if and only if your goals are decades in the future. For any shorter time period, every additional increment of stock exposure reduces your portfolio’s Sharpe ratio; that is, its risk-adjusted returns. We walked through that research, most recently, in our April 2021 essay, The case for a stock-light portfolio, version 4.0. The bottom line is that from WW2 to the present, a portfolio with just 20% stocks returned 6.8% annually. That translates to receiving about 60% of the returns of an all-equity portfolio with about 25% of the volatility. My portfolio targets 50% growth (half US equities, half not) and 50% stability (half cash-like, half riskier).

    A special note to all you financial planners out there: yes, I know. Over the long run, giving up one-third of your returns can lead to a catastrophic shortfall. But, for portfolios with shorter windows, overexposure to stocks can have the same catastrophic outcomes. (And hugs to you all for the good work you do in trying to make peace of mind and a modicum of financial security possible for many folks.)

Step Three: Create a tactical plan

  1. Retirement: I’ve always been held hostage by Augustana’s retirement planning. Originally it was far too expansive – we had access to over 1000 funds and annuities with no guidance and no incentive to save – and now it’s far too restrictive. We’re down to a relative handful of funds with an unhealthy dedication to cap-weight-based passive products. Over the years, we’ve occasionally even been kicked out of funds we’d chosen; once, my largest retirement holding, TIAA-CREF Stock Account, got bounced into the Vanguard 500 fund. Ick.

    Given that, my retirement is now split between a TIAA-CREF administered account and a T. Rowe Price one to which I can no longer add. In each case, I’ve chosen to place 80% of my account in a target-date retirement fund then use other available funds to add exposure to emerging markets and, in particular, EM value equity. I balance the added volatility with small investments in market-neutral funds.

  2. Will’s college: We picked a simple age-based allocation using Vanguard funds through College Savings Iowa. Back when Ed Studzinski was co-managing Oakmark Equity & Income, we opened a separate college savings account in his fund. I contributed $100 a month while his mom, whose income was higher beta than mine, occasionally added larger chunks.

  3. Peace of mind: here’s the lineup.

      YTD return 5-year return Weight
    FPA Crescent 15.2% 9.6 20
    Grandeur Peak Global Micro Cap 16.5 19.0 18
    Seafarer Overseas Growth & Income -2.3 8.7 17.5
    T. Rowe Price Spectrum Income 2.5 4.8 7.5
    T. Rowe Price Multi Strategy Total Return -2.4 n/a 7
    Brown Advisory Sustainable Growth 30.3 27% 7
    Matthews Asian Growth & Income -0.3 8.0 6
    Palm Valley Capital 3.8 n/a 5
    RiverPark Short Term High Yield 1.8 2.0 4
    Cash 0 0 8

    The blue cells denote Great Owl funds.

    The funds on the Growth Team (65%) are FPA Crescent, Grandeur Peak Global Micro Cap, Seafarer Overseas Growth & Income, Brown Advisory Sustainable Growth, Matthews Growth & Income, and Palm Valley Capital.

    The funds on the Stability Team are (35%) T. Rowe Price Spectrum Income, T. Rowe Price Multi Strategy Total Return, RiverPark Short Term High Yield, and “cash,” which is just a TD Ameritrade money market.

    Morningstar classifies my portfolio as “moderately risky” and appropriate to those “who are concerned by volatility but not preoccupied with it.” The portfolio analyzer at MFO Premium models a 16.9% maximum drawdown and annual returns of 13.5%. Year-to-date it has returned about 12%.

    These funds reflect my personal biases. Most of the funds have phenomenally high levels of insider ownership of the fund and, in four cases, of the adviser. Most of the managers have a high level of independence in portfolio construction; they are not narrowly bound to a single niche come hell or high water. Most of them have demonstrated exceptional risk management. All communicate clearly and frequently. And many are a misfit in their Morningstar peer groups which means that their star ratings do not strike me as terribly reliable.

    Two major moves in 2020: I eliminate both my Matthews Asia Total Return (MAINX) and my Grandeur Peak Global Reach (GPROX) positions. Matthews was redeemed to help pay house-related expenses. Grandeur Peak Global Reach was eliminated because it was doing too well (20% annually) and was throwing my entire portfolio out of balance as Growth hit 75% of the portfolio and international stocks outweighed domestic by more than 2:1. The correlation tool at MFO Premium showed a correlation of 95-96 between my two Grandeur Peak funds. I chose to keep the smaller, newer, closed fund in the portfolio.

Step Four: Fund your plan automatically.

All three portfolios are on auto-pilot. 13% per month goes into retirement. $100/month into college savings. About $400/month into security though I’ve reduced the auto-investment into Growth team funds except for Palm Valley Capital (an absolute value small-cap fund that’s 80% cash) and increased it for the Stability funds. The goal is to de-risk my portfolio and move closer to the 50 / 50 target.

I’ve done the same thing with my charitable commitments. I have an automatic monthly contribution to organizations that work to preserve the environment (the Environmental Defense Fund and One Tree Planted), to support under-resourced teachers (Donor’s Choose), to defend individual rights (the ACLU), to support members of my local community (River Bend Food Bank and the Community Foundation of the Great River Bend) and to provide meaningful, reliable information to all (, Iowa Public Radio, Augustana Public Radio, A Way with Words). The contributions are not huge, but they’re absolutely reliable for the groups involved and don’t require initiative on my part.

Step Five: Go enjoy life.

I’m on it! We had a great garlic harvest this year and planted more in the fall. The house is redolent with the smell of pasta sauce and the sight of seed catalogs. Will and I are scouting grad programs for him. Chip is continuing her doctoral studies with the hope of one day being Chancellor Chip. I got a slew of new books to work through in the months ahead and am working on revising one (Miscommunication in the Workplace) and writing another (a text for my Advertising and Consumer Culture class).

What might you take away from my indolent portfolio? I don’t care about “winning.” I don’t care about “beating the market.” I don’t care about the bootless chase after “upgraded” funds. I don’t care about stars or chart-topping anything. I do rather care about people, you included. I care about my neighbors and my community. I care about the planet we’ve inherited and about the prospect that we can restore it to good health. If I’ve done my planning well, my portfolio will support me in protecting the things I care about. Now, and always.

So far, so good.

My advice is simple: do ye likewise.

MFO Premium Webinar – 2021 Year End Review

By Charles Boccadoro

On Tuesday, 4 January, we will be conducting our year-end webinar to review funds and the site. If you can make it, please join us. Register here for the morning session (11 a.m. Pacific) and/or here for the afternoon session (2 p.m. Pacific).

We will use MultiSearch Pre-Set screens and other custom criteria to review fund performance in 2021. MultiSeach is the main tool on MFO Premium.

We will also review some of the many features that have been added since the last formal webinar. These include Formatted Excel Export and numerous enhancements to MultiSearch:

  • Exponential Moving Averages
  • Momentum
  • Screen By Benchmark
  • Ferguson Mega Ratio and Yearly Ferguson Metrics Back To 2008 (via Analyze)
  • “Super Bull” Evaluation Periods
  • Decade Evaluation
  • After Tax Measures
  • Adjustable Columns
  • Early Cycles (S&P 500 Back To 1926)
  • Expanded, More Descriptive Column Headers
  • “SubFamily” Designation and SubAdviser
  • Excess Return and MAXDD In Calendar Year and Period Performance Analyze Tools
  • Expanded Bond Metrics (e.g., Effective Duration, Average Coupon)

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.

Morningstar isn’t very good at mutual funds … and that’s a good thing

By David Snowball

Running them, not assessing them.

Morningstar runs a booming, global asset management business. They have $255 billion under management and advisement (as of 9/30/21).

Of that, $50.5 billion are assets under management, primarily through their Managed Portfolios and Institutional Asset Management services.

They also have 116,627 Premium members and 17,182 Morningstar Direct licensees.

The managed portfolios traditionally used outside, actively managed funds. In 2018, Morningstar decided they could do better and launched their own family of sub-advised mutual funds to use in the service. In doing so, they severed relationships with some of the managers they’d traditionally relied on, either because the managers didn’t fit or weren’t thrilled with the prospect of substantially lower compensation for their services. In covering the launch (“The Morningstar Minute,” 5/2018), we concluded:

I hope the Morningstar funds do brilliantly well. They represent an interesting experiment, and the financial security of a lot of people rests on them. They seem thoughtfully designed, and their emphasis on cost minimization likely serves their investors’ interests. Nonetheless, the “sleeves for star managers” strategy is hard, as illustrated by the manager turnover at, and occasional liquidations of, the Litman Gregory Masters funds. The “masters” at their Smaller Companies fund (since liquidated), for instance, tend to fall from favor pretty quickly; the fund has had 20 masters since launch in 2003, with some teams out within three years.

After three years, the records for the Morningstar funds are unimpressive. Below is a simplified chart assessing each fund. The first data column is its annual performance relative to its peers; Morningstar US Equity, as an example, trails its average peer by 2.3% per year. The remaining columns reflect each fund’s quintile performance (top 20%, second 20%…) for risk-adjusted returns (Sharpe and the Ulcer Index) and volatility (downside, down market, and bear market deviations). The simplest strategy: look for blue cells, avoid red ones.

Preliminary conclusion: with the exception of Morningstar Defensive Bond (an MFO Great Owl fund) and Morningstar Total Return Bond, their funds are mediocre or worse.

And Morningstar US Equity (MSTQX)? 16 managers (Westwood, Wasatch, MFS, Diamond Hill, ClearBridge, and Easterly Partners), 3 years, returns trailing 80-90% of its peers, one star, high risk, zero manager investment.

Lest you think that Lipper or MFO is somehow biased, here is Morningstar’s own assessment of their funds.

If we grabbed a hundred random samples of nine funds each, we would expect to see three-, four-, or five-star funds in the average sample. Morningstar has one. You’d also predict three one- and two-star funds. Morningstar offers five.

Let’s be blunt: if fund ratings are reliable, you would have been much better off picking funds at random than entrusting your money to Morningstar.

There are two useful conclusions

  1. All strategies embed assumptions about markets. When the assumptions are wrong, the strategy falters. Most investors assume that stock prices follow earnings: companies that make more see their stock prices rise. True in the long term, often false in the short term. In mid2020, there was a strong inverse correlation between earnings and stock price: companies that earned the most saw prices fall. In the fourth quarter of 2020, small caps with no earnings – pretty much the junkiest slice of the domestic equity market – rose by more than 40%. Failure doesn’t require the managers to be wrong; it just requires them to be out-of-step.

    Some managers are, of course, wrong. A lot. When we set the MFO Premium screener for the worst-case (trailing your peers for 1-, 3-, 5- and 10-year periods with extremely high expenses and intolerable risk), you end up with a list of 20 funds – some with hundreds of millions in assets – that you’d never want to own.

    In crazy markets, the sanest investors are the hardest hit.

    Traditionally markets embraced and then wrung out the crazies on a seven-year cycle. The Fed’s impulse to protect us by propping up markets has likely delayed, but not prevented, the next cataclysmic reckoning.

  1. The best informed and best-resourced professionals cannot assemble star portfolios consistently. Morningstar can’t. Litman Gregory couldn’t. FundX can’t, consistently.

    I can’t. In all likelihood, you can’t. So stop obsessing about it.

You can make good decisions which strengthen your financial prospects. We’ve consistently argued that it’s a simple four-step process:

  1. Determine your goals and resources. Why are you investing? When will you need the money? Reasonable goals might be having enough ready cash to get by for several months if you had no income, a college savings portfolio that might allow your child to graduate with under $20,000 in debt (depending on who’s calculating it, the average undergraduate college debt is $30,000-40,000 with an average monthly payment of $400 for a decade), or a retirement portfolio that could replace half of your current income.
  2. Set up a strategic plan: an allocation that gives you the best chance of getting there. In general, investing more than 50% of your portfolio in risk assets (aka stocks) or more than 0.1% of your portfolio in damned silly trinkets (cryptocurrencies, NTFs, fractional ownership of fine art, blank check SPACs) is a bad idea unless your willingness to stick with a losing investment spans a period of decades. We’re not making this up. There are 300+ stock funds that took more than ten years to recover from their worst stumble.
  3. Set up a tactical plan: a limited number of funds and ETFs to bring the strategic plan to life. Our criteria have always been the same: managers who’ve proved themselves across a variety of market conditions, whose strategy makes enough sense that you can explain it to your spouse, a profound risk consciousness, and a deep personal investment in the funds they offer.
  4. Fund your plan automatically. The traditional set-aside for retirement was 10% of your income; my college’s consultants claim that any reasonable chance of success requires something closer to 20%. No one will ever do that if it takes an act of will on the 1st of each month. An automatic investing plan saves you.
  5. Go enjoy life. After all, isn’t that the purpose of the money? To make a good life possible, not to become your life. Read a book (15-30 minutes a day thwarts both dementia and depression!). Get in the habit of starting each day with a bit of coffee and a bit of journaling. Say something nice to the first person you see, every day. Spend as much time as humanly possible away from screens and with nature … or friends, pets, children, community.

And when you do, thank Morningstar for helping you think more clearly about it all!

Launch Alert: Grandeur Peak Global Explorer

By David Snowball

On December 16, 2021, Grandeur Peak Global Advisors launched its 10th fund, Grandeur Peak Global Explorer (GPGEX). The fund will pursue long-term capital appreciation through investments in a global portfolio of micro- to mid-cap stocks. Because of its focus on tiny names, the adviser has set a strategy capacity of $35 million for the fund and will close it rather than compromise the ability to execute the strategy.

As a practical matter, Global Explorer pursues Global Reach’s strategy with a management twist. The fund has six named managers, many of them relatively young. Rather than organizing the management committee around five sector teams, it’s organized around seven regional ones. 

The argument is that, especially in dealing with microcap names with low visibility outside of their home country, there are intrinsic advantages to developing exceeding deep ties in a region. The folks at Grandeur note,

We’ve spent several years working to identify what we call, Friends of the Industry, or the asset managers in each country with whom we might collaborate. We’ve had a handful of analysts do in-country exchanges, all in an effort to build better in-country expertise. Grandeur has encouraged its team to relocate and spend a meaningful amount of time living overseas in their target geographies. Our hope is that we continue to build this hands-on, on-the-ground, geography expertise across our entire team.

There is a lot of interaction between the various sector and region teams.

The team approach allows for a weekly meeting to share ideas, debate the valuations, opportunities, and relative weighting of each geography’s tranche, so the give and take of that exchange is seen as a benefit and represents our multiple minds approach as a firm.

For some of the newer PMs, this Fund represents a chance to lead in their assigned geography. Our Geography PMs are responsible for knowing and sharing research on economic, political, and financial risks faced by their geographies.

The bottom line seems to be that the managers will share many of the same insights but might pursue different strategies for executing them.

The Global Reach and Global Explorer strategies are core to our broad screening process. Every listed company gets screened at least twice a year, once from a sector perspective and once from the geography. 

As an example, the PM for Japan may have a universe that is filled with a large number of micro-cap companies. Perhaps it’s hard to pick which single company is differentiated enough to be the clear winner, so rather than take that risk, he might utilize a basket approach and own 3-4 names at a 25 bps weight rather than one position at 1% weight.  If this were a group of convenience stores, the Consumer PM for the Global Reach Fund might be screening for an investment in convenience stores but could own 3-4 high conviction ideas across all geographies. The result might be a similar list of names, but the weightings and risk management are different based on the geography and the results of our bottom-up screening. It’s possible over time that the Global Reach and Global Explorer Funds look less like each other if there develops a stronger geography bias. 

Two things that we think we think.

First, in general, your portfolio would really benefit from holding one Grandeur Peak fund.

We’ve pulled the record since inception for every Grandeur Peak fund from the MFO Premium screener. On both an absolute return and risk-adjusted return basis, every Grandeur Peak fund beats its peers … by a lot. The blue cells are places where a fund has a top 20% ranking since inception, and green is the top 40%. Out of 27 cells, 25 are distinctly peer beating.

    APR APR  vs  Peer APR  Rating Sharpe  Rating Ulcer  Rating Age yr AUM  $M
Global Opportunities Global SMID 16.5 +4.9 5 5 2 10.1 1,055
International Opportunities International SMID Growth 14.5 +4.7 5 5 2 10.1 1,003
Global Reach Global SMID 15.4 +4.4 5 5 1 8.4 429
Emerging Markets Opportunities Emerging Markets 8.8 +4.2 5 5 1 7.9 632
Global Stalwarts Global SMID 18.9 +5.8 5 5 1 6.2 466
International Stalwarts International SMID Growth 18.8 +8.0 5 5 1 6.2 2,262
Global Micro Cap Global SMID 17.3 +4.7 5 5 3 6.1 71.1
Global Contrarian Global SMID 24.7 +3.2 4 4 3 2.2 94.4
US Stalwarts Large-Cap Growth 62.3 +14.7 5 5 1 1.7 166

The Ulcer Index, like the Sharpe ratio, is a measure of risk-adjusted returns. The distinction of the Ulcer Index is that it measures the depth and duration of drawdowns; in general, funds that fall sharply and stay down give their investors ulcers. Funds that fall less and recover faster do not. That describes Grandeur Peak, which means that the funds have been easy to own.

In general, your portfolio would not particularly benefit from holding two.

Top-notch team. Clear, coherent discipline. With two exceptions, a strong focus on micro- to mid-cap caps. Given that, you’d expect a high correlation between the funds, and that’s what Grandeur Peak offers.

20-month correlations

Grandeur Peak’s youngest funds, other than Global Explorer, has a 20-month track record and so we’ll start there to get an overview of the degree to which the funds mimic one another’s performance.

International Opportunities GPIIX 1.00 0.98 0.99 0.92 0.98 0.96 0.96 0.89 0.89
Global Opportunities GPGIX 0.98 1.00 0.99 0.92 0.97 0.95 0.97 0.89 0.93
Global Reach GPRIX 0.99 0.99 1.00 0.93 0.98 0.95 0.98 0.89 0.93
Emerging Markets Opportunities GPEIX 0.92 0.92 0.93 1.00 0.91 0.91 0.89 0.86 0.82
International Stalwarts GISYX 0.98 0.97 0.98 0.91 1.00 0.91 0.98 0.86 0.91
Global Micro Cap GPMCX 0.96 0.95 0.95 0.91 0.91 1.00 0.89 0.90 0.84
Global Stalwarts GGSYX 0.96 0.97 0.98 0.89 0.98 0.89 1.00 0.85 0.97
Global Contrarian GPGCX 0.89 0.89 0.89 0.86 0.86 0.90 0.85 1.00 0.79
US Stalwarts GUSYX 0.89 0.93 0.93 0.82 0.91 0.84 0.97 0.79 1.00

*Note: Correlation based on evaluation period of 20 months (GUSYX).

Five-year correlations

Seven of the nine funds have records of five years or more but even in this longer comparison, the same pattern holds.

International Opportunities GPIIX 1.00 0.98 0.99 0.93 0.98 0.96 0.97
Global Opportunities GPGIX 0.98 1.00 0.99 0.92 0.97 0.96 0.98
Global Reach GPRIX 0.99 0.99 1.00 0.93 0.98 0.96 0.98
Emerging Markets Opportunities GPEIX 0.93 0.92 0.93 1.00 0.92 0.91 0.90
International Stalwarts GISYX 0.98 0.97 0.98 0.92 1.00 0.92 0.98
Global Micro Cap GPMCX 0.96 0.96 0.96 0.91 0.92 1.00 0.92
Global Stalwarts GGSYX 0.97 0.98 0.98 0.90 0.98 0.92 1.00


Here’s the simplified version.

  Range of 5-year correlations
International Opportunities 96 – 99
Global Opportunities 92 – 99
Global Reach 93 – 99
Emerging Markets Opportunities 90 – 93
International Stalwarts 92 – 98
Global Micro Cap 91 – 92
Global Stalwarts 90 – 97

The bottom line is that the funds with the global micr0- to mid-cap emphasis are individually excellent but not sufficiently differentiated to warrant the inclusion of a second fund. Two younger funds, Global Contrarian (with since inception correlations of 75-90) and US Stalwarts (with a large-cap focus and half of its correlations in the 70s and 80s), are arguable exceptions to the rule.

Global Explorer is not.

Bottom line: if you’re a long-term investor with a reasonable tolerance for short-term volatility and you don’t already own a Grandeur Peak fund, Global Explorer should go on your due diligence list. But, given the $35 million strategy capacity, plan on doing your diligence sooner than later.

The minimum initial investment in the fund is $1,000, and the expense ratio is capped at 1.25%. The fund’s homepage is understandably thin on content, but Grandeur has a richness of content across the site.

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 24 new products in the pipeline, most of which will launch in March 2022.

Including in the funds in registration are funds that are being converted from open-end funds to ETFs and those which have been purchased by new advisers, often with minor tweaks. Two funds in the latter camp which I didn’t bother to lay out below, are AXS Income Opportunities Fund (formerly Orinda Income Opportunities Fund) and AXS Large Cap Theta Fund (formerly Arin Large Cap Theta Fund).

If I wanted to add funds to a “check back in after launch list,” I would include Artisan Value Income (the theme is not rockin’ and rollin’ at their current charge, but Artisan rarely goofs up with new fund launches) and Holbrook Structured Income Fund (based on the stellar performance of the manager’s other fund, Holbrook Income).


AdvisorShares DRONELIFE ETF, an actively managed ETF, seeks capital appreciation. The plan is to invest in companies – including car parts companies or retail stores – involved in the drone economy. The fund will be managed by Dan S. Ahrens. Its opening expense ratio has not been disclosed.

American Century Small Cap Dividend Fund

American Century Small Cap Dividend Fund will seek capital growth with a secondary emphasis on income. The plan is to invest in small and mid-cap stocks (the maximum market cap is $25 billion) which are undervalued but have the prospect for dividend growth. The fund will be managed by Jeff John and Ryan Cope. Its opening expense ratio will be 1.09% for Investor shares, and the minimum initial investment will be $2,500.

Andurand Energy Transition Strategy ETF

Andurand Energy Transition Strategy ETF, an actively managed ETF, seeks total return. The plan is to pursue attractive risk-adjusted returns by investing in commodity futures contracts and exchange-traded commodity-linked instruments. The fund will be managed by Pierre Andurand. Its opening expense ratio has not been disclosed.

Artisan Value Income Fund

Artisan Value Income Fund will seek to provide total return through a combination of income and capital appreciation. The plan is to construct a diversified portfolio of equity securities across a broad capitalization range. The team seeks to invest in companies that are undervalued, in solid financial condition, and have attractive business economics. The “income” part comes from a mix of dividends, investments in preferred and convertible shares, and derivatives. The fund will be managed by Thomas Reynolds, Daniel Kane, and Craig Inman. The team also manages Artisan Midcap Value which recently lost its long-time lead manager, James Kieffer. Its opening expense ratio for Investor shares is 1.01%, and the minimum initial investment will be $1,000.

Avantis Responsible Emerging Markets Equity ETF

Avantis Responsible Emerging Markets Equity ETF, an actively managed ETF, seeks long-term capital growth. The plan is to invest in small capitalization, high profitability, or value EM companies that pass a bunch of exclusionary screens (no pot, no coal, no corrupt managers…). The fund will be managed by a team led by Eduardo Repetto, Chief Investment Officer for American Century’s Avantis ETF division. Its opening expense ratio has not been disclosed.

BlackRock Impact Municipal Fund  

BlackRock Impact Municipal Fund will seek tax-free income while supporting projects that generate positive social and environmental impacts. The fund will be managed by a three-person team. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $1,000.

Brown Advisory Sustainable International Leaders Fund

Brown Advisory Sustainable International Leaders Fund will seek long-term capital appreciation by investing primarily in international equities. The plan is to target leaders within their industry or country who use sustainability in a positive way to compound a competitive advantage and have strong ESG risk management practices. The fund will be managed by Priyanka Agnihotri. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $100.

Columbia Seligman Semiconductor Technology ETF  

Columbia Seligman Semiconductor Technology ETF, an actively managed, non-transparent ETF, seeks capital appreciation. The plan is to buy 30-50 semiconductor stocks. The fund will be managed by Paul Wick and his team. Mr. Wick has been managing tech and communication investments for Seligman for 34 years. Its opening expense ratio has not been disclosed.

Fairlead Tactical Sector Fund

Fairlead Tactical Sector Fund (MACD), an actively managed ETF, seeks capital appreciation with limited drawdowns. It’s the usual promise of using rigorous technical analysis to switch from a risk-on investment in equity ETFs to a risk-off commitment to gold and Treasury ETFs. The fund will be managed by Katie Stockton, CMT. Its opening expense ratio has not been disclosed.

Fidelity Global Macro Opportunities Fund

Fidelity Global Macro Opportunities Fund will seek total return. It’s a fund-of-funds that will “invest the fund’s assets based on themes that provide asymmetric payoffs driven by market divergence versus secular, cyclical, and geopolitical trends.” They can also leverage, up or down, and invest in commodities through a subsidiary in the Cayman Islands. (I nod, pretending that I have the slightest clue about what they’re up to other than chanting, “trust us. We’re Fidelity, we run funds, and We Know Things.” The fund will be managed by Jordan Alexiev. Its opening expense ratio has not been disclosed, nor has the minimum initial investment. The same prospectus unveils Fidelity Risk Parity Fund, to be managed by Avishek Hazrachoudhury.

Global Beta China Green Bond ETF

Global Beta China Green Bond ETF, an actively managed ETF, seeks yield and capital appreciation. The plan is to invest in the debt securities issued by Chinese corporations that finance environmentally beneficial projects. The fund will be managed by Justin and Vincent Lowry of Global Beta Advisors. Its opening expense ratio has not been disclosed.

Holbrook Structured Income Fund

Holbrook Structured Income Fund will seek current income and the opportunity for capital appreciation to produce a total return. The plan is to invest in structured income products, primarily commercial and residential mortgage-backed securities, collateralized loan obligations, and other asset-backed fixed-income securities. The fund will be managed by Scott Carmack, Portfolio Manager and Chief Executive Officer, and Ethan Lai. Mr. Carmack also manages the five-star Holbrook Income fund which was featured in our “Terrific Twos” essay on outstanding younger funds. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $2,500.

IQ Winslow Large Cap Growth ETF

IQ Winslow Large Cap Growth ETF, an actively managed ETF, seeks long-term growth of capital. The plan is a pretty conventional “seek high-quality companies with good ESG records” sort of thing. They target domestic stocks with a market cap over $4 billion; for this fund, those apparently qualify as “large caps” while other funds in registration this month classify the same securities as “small cap.” The fund will be managed by a team from Winslow Capital Management. This appears to be the four-star Nuveen Winslow Large-Cap Growth ESG Fund (NWCAX) packaged as an ETF. Its opening expense ratio has not been disclosed, though the “A” shares of the fund charge 0.90%. In an illustration of the meaninglessness of language, the same prospectus also covers the IQ Winslow Ultra Large Cap ETF. The difference between a small cap, a large cap, and an ultra-large cap? Zero. Both prospectuses set an identical small cap floor of $4 billion for their smallest acquisitions.

KraneShares Global Carbon Transformation ETF

KraneShares Global Carbon Transformation ETF, an actively managed ETF, seeks long-term capital growth. The plan is to invest in companies designated “Carbon Emissions Reducers.” If your oil company says it’s going to reduce its carbon footprint, it’s eligible for inclusion. The fund will be managed by Luke Oliver. Its opening expense ratio has not been disclosed.

MDP Low Volatility Fund

MDP Low Volatility Fund will seek to provide capital appreciation and mitigate volatility by combining index investments and index options to capture long-term, risk-adjusted returns. The fund will be managed by Dennis Davitt and Michael McCarthy. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $2,500.

Papi’s Money ETF

Papi’s Money ETF, an actively managed ETF, seeks long-term capital appreciation. The plan is to invest in companies that “PAPI’s Money Advisor, LLC dba PAPI’s Money [believes] are best poised for rapid, disruptive growth.” Much hand-waving about core innovators, satellite innovators, and disruptive event ETFs follows, though there’s no evidence provided which shows that they’ve ever actually managed to make money (sometimes revealed in sections on “separately managed account composites”). The fund will be managed by Ryan Urban. Mr. Urban is Co-Founder of Wunderkind, a very fine marketing software firm. Its opening expense ratio has not been disclosed.

PGIM Floating Rate Income ETF

PGIM Floating Rate Income ETF, an actively managed ETF, seeks to maximize current income. The plan is to invest in floating-rate loans and other floating-rate debt securities. The fund will be managed by a five-person PGIM team. Its opening expense ratio has not been disclosed.

Preferred-Plus ETF

Preferred-Plus ETF, an actively managed ETF, seeks to provide income. The plan is to invest in some combination of preferred securities and credit spread options on an S&P 500. This represents a conversion of the Preferred-Plus Fund to an ETF form. The fund has substantially outperformed its preferred stock peer group since its launch at the end of 2018. The fund will be managed by JR Humphreys and Dave Gilreath. Its opening expense ratio has not been disclosed.

Thrivent Small-Mid Cap ESG ETF

Thrivent Small-Mid Cap ESG ETF, an actively managed ETF, seeks long-term capital growth. The plan is to invest in small and mid-sized companies with strong growth prospects, high-quality management, solid financials, and a sustainable long-term business model. The fund will be managed by Matthew D. Finn and Charles R. Miller. Its opening expense ratio has not been disclosed.

Voya Small Cap Growth Fund

Voya Small Cap Growth Fund will seek capital appreciation. The plan is to invest in companies with the potential for superior earnings growth and sustainable valuations. This used to be the four-star TCM Small Cap Growth Fund. The fund will be managed by its previous managers, a four-person team headed by Richard Johnson. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $250,000 – which is to say, 100x its current minimum.

William Blair Small Cap Value Fund

William Blair Small Cap Value Fund will seek long-term capital appreciation. The plan is to invest in undervalued small caps which have leading market share positions, shareholder-oriented management, and strong balance sheet and cash flow ratios. Previously this was the institutional ICM Small Company Portfolio, which changed in July 2021 when Blair acquired ICM. The fund will be managed by William V. Heaphy, CFA, and Gary J. Merwit. Its opening expense ratio has not been disclosed, and the minimum initial investment is $2500.

Manager Changes, December 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. For instance, over the past ten years, 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 top returning 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 37 funds with changes in their management teams. The most eye-catching is the dismissal of PIMCO from its role in sub-advising Harbor Bond. For years, PIMCO Total Return (PTTRX) was the biggest, meanest, surest-bet around with $300 billion in assets … and Harbor Bond was its low fee, low minimum, no-load clone. Times change.

Ticker Fund Out with the old In with the new Dt
VEGA AdvisorShares STAR Global Buy-Write Robert Kellogg and Rebecca Valdez no longer serve as portfolio managers of the fund. Kenneth Hyman continues to serve as a portfolio manager. 12/21
BSVIX Baird Equity Opportunity Michelle Stevens is no longer listed as a portfolio manager for the fund. Joseph Milano now manages the fund. 12/21
BXMIX Blackstone Alternative Multi-Strategy Cerberus Sub Advisory and Luminus Management no longer serve as sub-advisors to the fund. Nineteen sub-advisors remain. 12/21
BUFMX Buffalo Mid Cap Chris Carter is no longer a portfolio manager of the fund. Doug Cartwright and Craig Richard join Josh West in managing for the fund. 12/21
CVMAX Calvert Emerging Markets Equity No one, but… Effective January 4, 2022, Vivek Bhutoria joins Kunjal Gala as a portfolio manager of the fund. 12/21
CSIGX Carillon Scout International Effective March 2022, Michael Stack and Angel Lupercio will no longer manage the fund. David Vaughn, Alex Turner, and Gashi Zengeni will now serve as portfolio managers of the fund. 12/21
IGR CBRE Global Real Estate Portfolio Effective January 2022, T. Ritson Ferguson will retire and no longer serve as a portfolio manager of the fund. Effective on or about January 1, 2022, it is expected that Kenneth Weinberg will serve as a portfolio manager of the fund. 12/21
CCGSX Chautauqua Global Growth Brian Beitner announced his intent to retire on December 31, 2022. Jesse Flores, Haicheng Li, and Nathaniel Verlarde will remain. 12/21
CCWSX Chautauqua International Growth Brian Beitner announced his intent to retire on December 31, 2022. Jesse Flores, Haicheng Li, and Nathaniel Verlarde will remain. 12/21
QWVPX Clearwater Core Equity Effective January 1, 2022, Ronen Israel no longer serves as a portfolio manager of the fund. John Huss and Nathan Sosner will now serve as portfolio managers of the fund. 12/21
CDAZX Columbia Multi-Manager Directional Alternative Strategies No one, but… Effective January 1, 2022, John Huss joins Michele Aghassi, Dennis Bein, Eric Connerly, Harindra Silva, Joseph Feeney, Andrea Frazzini, Lars Nielsen, and Ronen Isreal in managing the fund. 12/21
CMLIX Congress Large Cap Growth No one, but… Effective January 1, 2022, Matthew Lagan joins Daniel Lagan as a portfolio manager of the fund. 12/21
CGCAX Cushing Global Clean Equity Jerry Swank will retire and no longer serve as a portfolio manager of the fund. Saket Kumar, Hari Kusumakar, and Alex Palma will continue to serve as portfolio managers of the fund. 12/21
NXGAX Cushing NextGen Infrastructure Jerry Swank will retire and no longer serve as a portfolio manager of the fund. Saket Kumar, Hari Kusumakar, and Alex Palma will continue to serve as portfolio managers of the fund. 12/21
TILDX DCM/INNOVA High Dividend Income Innovation No one, but… Marc Rappaport joins Vijay Chopra as a co-portfolio manager of the fund. 12/21
FSDAX Fidelity Select Defense and Aerospace Portfolio Jonathan Siegmann will no longer serve as a portfolio manager of the fund. Chad Colman and Clayton Pfannenstiel will serve as portfolio managers of the fund. 12/21
FSAEX Fidelity Series All-Sector Equity Chip Perrone will no longer serve as a portfolio manager of the fund. Steven Kaye, Douglas Simmons, Pierre Sorel, Robert Stansky, Brian Lempel, John Mirshekari, Jody Simes, Ashley Fernandes, and Melissa Reilly remain. 12/21
FBLEX Fidelity Series Stock Selector Large Cap Value Chip Perrone will no longer serve as a portfolio manager of the fund. Jordan Michaels joins Matthew Friedman, John Mirshekari, Laurie Mundt, John Sheehy, and Pierre Sorel in managing the fund. 12/21
HABDX Harbor Bond Effective February 2, 2022, PIMCO will no longer serve as sub-advisor to the fund. Effective February 2, 2022, Income Research + Management will serve as sub-advisor to the fund. 12/21
AGGAX Invesco Global Growth Matthew Dennis, Ryan Amerman, Mark Jason, and Mark McDonnell are no longer listed as portfolio managers for the fund. John Delano will now manage the fund. 12/21
JEMMX John Hancock Emerging Markets Equity No one, but… Effective January 2022, Kathryn Langridge will return from leave and join Philip Ehrmann and Talib Saifee in managing the fund. 12/21
LEQAX LoCorr Dynamic Equity Jia Ye will no longer serve as a portfolio manager of the fund. Jon Essen, Scott Billings, Thomas Billings, Eric F. Billings, Eric P. Billings, Andrew Kurita, Sean Katof, and Dori Levanoni will continue to manage the fund. 12/21
VCRIX MainStay CBRE Global Infrastructure T. Ritson Ferguson will no longer serve as a portfolio manager of the fund. Joseph Smith, Jeremy Anagnos, Daniel Foley, and Hinds Howard will continue to manage the fund. 12/21
CLARX MainStay CBRE Real Estate T. Ritson Ferguson will no longer serve as a portfolio manager of the fund. Jonathan Miniman, Joseph Smith, and Kenneth Weinberg remain. 12/21
CSHZX MainStay Cushing MLP Premier Jerry Swank will no longer serve as a portfolio manager of the fund. John Musgrave will remain as the sole portfolio manager of the fund. 12/21
NMANX Neuberger Berman Mid Cap Growth Portfolio No one, but… Jennifer Blachford joins Kenneth Turek, Chad Bruso, and Trevor Moreno to serve as a portfolio manager of the fund. 12/21
ADVNX North Square Strategic Income No one, but… Brandon Bajema joins John Cassady III,  David Withrow, Michael Martin, Jason Schwartz, and Julia M. Batchenko as a portfolio manager of the fund. 12/21
PUBAX PIMCO Dynamic Bond  Mohsen Fahmi will retire and no longer serve as a portfolio manager of the fund. Marc Seidner, Daniel Ivascyn, and Mohit Mittal continue to manage for the fund. 12/21
PRDAX Principal Diversified Real Assets No one, but… Wellington Management Company joins the cavalcade of sub-advisors to the fund. 12/21
GDIIX RNC Genter Dividend Income James Barber is no longer listed as a portfolio manager of the fund. David Klatt and David Pescherine will continue to manage the fund. 12/21
BAEIX Sterling Capital Equity Income George Shipp is no longer listed as a portfolio manager of the fund. Charles Wittmann joins Adam Bergman in managing the fund. 12/21
BOPAX Sterling Capital Special Opportunities George Shipp is no longer listed as a portfolio manager of the fund. Daniel Morral joins Joshua Haggerty as a portfolio manager of the fund. 12/21
TICGX Templeton International Climate Change Marten Bloemen is no longer listed as a portfolio manager for the fund. Lauran Halpin joins Craig Cameron, Tina Sadler, and Herbert Arnett as a portfolio manager of the fund. 12/21
ASHR Xtrackers Harvest CSI 300 China A-Shares Hubert Shek is no longer listed as a portfolio manager of the fund. Vicky Hsu joins Kevin Sung in managing the fund. 12/21
ASHS Xtrackers Harvest CSI 500 China A-Shares Small Cap Hubert Shek is no longer listed as a portfolio manager of the fund. Vicky Hsu joins Kevin Sung in managing the fund. 12/21


Briefly Noted

By David Snowball


As part of Heartland Advisors’ succession plan, founder William (“Bill”) J. Nasgovitz intends to transfer a controlling interest in Heartland Advisors to Will Nasgovitz, the Chief Executive Officer of Heartland Advisors, in 2022. The elder Mr. Nasgovitz launched the firm, and the Heartland Value Fund, in 1984. The younger Mr. Nasgovitz joined the firm in 2006 and co-manages the Heartland Value and Mid Cap Value funds.

On the continuing theme of “rules are for the little people,” the Wall Street Journal reports

Sens. Pat Toomey (R., Pa.) and Cynthia Lummis (R., Wyo.) sit on the powerful Senate Banking Committee and have been advocates for a light government touch toward the growing—and largely unchecked—cryptocurrency market.

They also own cryptocurrency assets. Ms. Lummis’s roughly $250,000 of bitcoin makes her the most heavily invested U.S. lawmaker in the digital asset. Mr. Toomey has smaller holdings in crypto-related investment vehicles. Together they are the only two senators with such investments… (“Only Two Senators Own Crypto Assets. Both Are Shaping the Industry’s Rules,” 12/20/21).

To be clear, such investments do not violate any laws or the Senate’s own rules, as long as the senators disclose them. At yet, as with our earlier reports on dozens of members of Congress failing to disclose their stock trading and members of the Federal Reserve’s Board of Governors playing the bond market, it’s hard to imagine that having a vested financial interest in the outcome of your deliberations makes it easier to be clear-eyed and impartial.

Cohanzick has shuffled the deck. David Sherman, president of Cohanzick Asset Management and manager of two exceptional RiverPark funds, has entered an agreement whereby his CrossingBridge division will merge with Enterprise Diversified, Inc. The two will form a new, publicly-traded company named ENDI. ENDI owns Willow Oak, and Willow Oak provides back-office support to a handful of small, value-oriented hedge funds.

Cohanzick will become the controlling shareholder of the new company, with the prospect of inheriting some useful tax losses to carry forward and gaining from the appreciation of the new company’s stock. They will, in turn, be able to leverage their logistical abilities to strengthen Willow Oak. From an outside investor’s perspective, it’s pretty much a non-event.

Briefly Noted . . .

Thanks, as ever, to The Shadow for a rich collection of leads!

FPA launched its first ETF, FPA Global Equity ETF, on December 17, 2021. Stephen Romick and his team lead the fund, and it uses the Contrarian Value Equity strategy that’s also embodied in FPA Crescent. The ETF charges 0.49% and, unlike Crescent, is committed to being more-or-less fully invested all the time.

JP Morgan joins the conversion parade. Sometime “in the first half of 2022,” JP Morgan anticipates converting four mutual funds to ETFs.

Predecessor Fund Fund
JPMorgan Inflation Managed Bond Fund JPMorgan Inflation Managed Bond ETF
JPMorgan International Research Enhanced Equity Fund JPMorgan International Research Enhanced Equity ETF
JPMorgan Market Expansion Enhanced Index Fund JPMorgan Market Expansion Enhanced Equity ETF
JPMorgan Realty Income Fund JPMorgan Realty Income ETF

Similarly, BrandywineGLOBAL — Dynamic US Large Cap Value Fund and the Martin Currie International Sustainable Equity Fund are converting into the BrandywineGLOBAL Dynamic US Large Cap Value ETF and the Martin Currie International Sustainable Equity ETF, respectively. Both funds are parts of Franklin Templeton, which has $1.5 trillion in AUM and around 55 other ETFs. Between them, the two funds carry $250 million in assets.

BlackRock has an owie. Assets in BlackRock’s iShares ESG MSCI EM Leaders ETF (LDEM) lost 91% of its investments in the days just before Christmas (Sydney Maki, A 91% asset plunge hits a BlackRock fund of sustainable EM stocks, 12/29/2021). In case you’re wondering what that might look like on your Bloomberg terminal:

The fund invests in mid- to large-cap, ESG-screened EM stocks. It’s dirt cheap (16 bps) and has posted index-like performance since inception. It hasn’t been making money (6% total over two years, -1.8% in 2021), but neither has its asset class. Morningstar warns that it carries more stock-specific risk (28% of the portfolio is in its top 10 names) and more risk related to substantial investments in state-owned enterprises than most. The best explanation for the collapse is the withdrawal of a huge pension fund in Finland, which provided much of the seed capital for the fund at launch.

Speaking of owies. Despite a multitude of warnings, here at MFO, at Morningstar, and elsewhere, investors absolutely poured money into the ARKK Innovation ETF in December 2020 and January 2021. The warnings were pretty straightforward: (1) you can’t buy last year’s returns, so don’t let those sway your decisions, (2) ARK was wildly understaffed and inundated (net $20 billion in 2020) with dumb money, and (3) manager Cathy Woods has a consistent long-term boom-and-crash track record, with the boom having just occurred.

Good news for investors committing their money on December 1st: you’re only down 13% since then. Less good news for folks who made ARKK one of their New Years 2020 resolutions: you’re down 24%. Folks who gave shares as a Valentine’s Day present? They’re underwater by 39%. On the bright side, at least they didn’t spend the money on a near-suicidal gesture, like:


Conestoga Capital Advisors has converted a relatively young hedge fund into a micro-cap mutual fund, Conestoga Micro Cap Fund. The LP averaged 38.42% per year in 2019-2020, substantially all of which was generated by 2020’s 75% return. The fund will be managed by David Neiderer and Joseph F. Monahan. Mr. Monahan co-manages their four-star Conestoga Small Cap (CCASX) and SMid Cap (CCSMX) funds. Mr. Neiderer is an equity analyst on both funds. The expense ratio for Investor shares is 1.50%, and the minimum initial investment is $2,500.

CLOSINGS (and related inconveniences)

The only ones we’ve spotted seem to be precursors to liquidation rather than celebrations of success and unmanageable affluence.


As of February 28, 2022, the Aberdeen Global Equity Fund’s name will be abrdn Emerging Markets ex-China Fund. That’s because unpronounceable gimmicks are always helpful in conveying a fund’s identity and establishing market presence. The sequence of corporate names: Julius Baer begat Artio, Artio begat Aberdeen, Aberdeen begat abrdn.

Effective December 16, 2021, Capital Link NextGen Protocol ETF became Capital Link Global Fintech Leaders ETF. At the same time Capital Link NextGen Vehicles & Technology ETF became Capital Link Global Green Energy Transport and Technology Leaders ETF, but there’s no particular gain – in clarity or otherwise – from the change. In each case, it’s a passive ETF tracking an obscure index, but at least now you can tell what on earth the NextGen Protocol thing is up to.

Following M&A activity on the part of the parent companies of the Chartwell and Carillion Funds, the names of all of the Chartwell funds will soon be one word longer.

Target Funds Acquiring Funds
Chartwell Income Carillon Chartwell Income
Chartwell Mid Cap Value Carillon Chartwell Mid Cap Value
Chartwell Small Cap Growth Carillon Chartwell Small Cap Growth
Chartwell Small Cap Value Carillon Chartwell Small Cap Value
Chartwell Short Duration Bond Carillon Chartwell Short Duration Bond
Chartwell Short Duration High Yield Carillon Chartwell Short Duration High Yield

Clarion Global Real Estate Portfolio has become the CBRE Global Real Estate Portfolio.

As of February 23, 2022, First Trust CEF Income Opportunity ETF drops the “CEF” bit and becomes First Trust Income Opportunities ETF. Currently, the fund invests in closed-end funds but plans to add ETFs as a second option, hence the broader name. It’s been a bit streaky, but it’s not clear that adding more options is the answer.

On February 14, 2022, the iClima Distributed Renewable Energy Transition Leaders ETF will change its name to the iClima Distributed Smart Energy ETF. Simultaneously, the iClima Global Decarbonization Transition Leaders ETF becomes the iClima Climate Change Solutions ETF.

On the theme of codifying stupid, immemorable fund names, the Litman Gregory Masters Funds, which became the uninspired PartnerSelect Funds, have now become the unpronounceable and inexplicable iMGP Funds.

Current Name New Name (effective 12/16/2021)
PartnerSelect Equity iMGP Equity
PartnerSelect International iMGP International
PartnerSelect Alternative Strategies iMGP Alternative Strategies
PartnerSelect High Income Alternatives iMGP High Income Alternatives
PartnerSelect SBH Focused Small Value iMGP SBH Focused Small Value
PartnerSelect Oldfield International Value iMGP Oldfield International Value
iM Dolan McEniry Corporate Bond iMGP Dolan McEniry Corporate Bond
iM DBi Managed Futures Strategy ETF iMGP DBi Managed Futures Strategy ETF
iM DBi Hedge Strategy ETF iMGP DBi Hedge Strategy ETF

On March 1, 2022, iShares Global Green Bond ETF becomes iShares USD Green Bond ETF. My best understanding is that the fund moves from a dollar-hedged global bond portfolio to a dollar-denominated one. Subsequently, the expense ratio drops by 5 bps.

Effective on February 25, 2022, Laudus International MarketMasters Fund becomes the Schwab International Opportunities Fund. On the same day, Laudus U.S. Large Cap Growth Fund becomes Schwab Select Large Cap Growth Fund.

Effective February 1, 2022, Northern Short-Intermediate Tax‑Exempt Fund becomes the Limited Term Tax‑Exempt Fund, and Northern Short-Intermediate U.S. Government Fund will be renamed Limited Term U.S. Government Fund. The changes are, so far as we can tell, purely cosmetic.

Prudential Financial took a half-step back from their embrace of unexplained acronyms, replacing QMA with Quant Solutions in the names of a dozen funds and ETFs. So, for example, PGIM QMA International Equity Fund becomes PGIM Quant Solutions International Equity Fund. Now, if they’d do a quick gut check and dump PGIM in favor of Prudential, it would be a win all the way around.

Effective December 13, 2021, William Blair Short-Term Bond Fund became William Blair Short Duration Bond Fund, and William Blair Ultra-Short Bond Fund was re‑named William Blair Ultra-Short Duration Bond Fund.


The Board of Directors has approved a plan of liquidation for the AC Alternatives Market Neutral Value Fund. Under the plan, the liquidation date of the fund will be March 11, 2022. Over ten years, the fund has returned 0.7% annually, making it slightly less profitable than a lemonade stand, though slightly more profitable than the average market-neutral fund. While money poured in in late 2015 and 2016, the fund has been leaking assets for years and stands at just over $35 million.

Callin’ off the wedding: “At a meeting held on December 16, 2021, the Board of Trustees of Allspring Funds Trust unanimously approved the termination of the Amended and Restated Agreement and Plan of Reorganization with respect to the merger of each Allspring Target Date Fund into a corresponding Allspring Dynamic Target Date Fund and the abandonment of the Reorganizations.”

On December 17, 2021, the minuscule, two-star AXS Aspect Core Diversified Strategy Fund was swallowed by its tiny, three-star sibling AXS Chesapeake Strategy Fund. The funds’ five managers have, collectively, zero invested in either fund. You might take that as their recommendation.

On December 10, 2021, the BMO – originally, Bank of Montreal – funds were either merged into comparable Columbia funds or were simply rebranded as Columbia’s.

BMO Fund Corresponding Acquiring Fund
BMO Pyrford International Stock Columbia Pyrford International Stock
BMO LGM Emerging Markets Equity Columbia Emerging Markets
BMO Short-Tax Free Columbia Short Term Municipal Bond
BMO Short-Term Income Columbia Short Term Bond
BMO Intermediate Tax-Free Columbia Intermediate Municipal Bond
BMO Strategic Income Columbia Strategic Income
BMO Core Plus Bond Columbia Total Return Bond

BNY Mellon Ultra Short Income Fund was liquidated on December 21, 2021. If you have a BNY Mellon adviser, they should have already told you that your balance was shifted to the Dreyfus Government Cash Management Fund.

On December 15, 2021, the Boston Partners Global Equity Advantage Fund was liquidated after 2.5 years (it was launched on my birthday in 2019, woohoo!), presumably for mediocre performance and mediocre asset gathering.

Carillon Scout International Fund becomes Carillon ClariVest International Stock Fund on or about July 16, 2022. That entails both a new team, which comes on board in March 2022, and a new strategy … which is to say, Scout International vanishes, and a new fund inherits its record.

On February 22, 2021, Cavanal Hill Active Core Fund will be liquidated.

“During the first quarter of 2022,” Change Finance U.S. Large Cap Fossil Fuel Free ETF will merge into the AXS Change Finance ESG ETF.

Fidelity Select Air Transportation Portfolio was eaten by Fidelity Select Transportation right around Thanksgiving, 2021.

Effective December 7, 2021, FS Long/Short Equity Fund was hard-closed. While a liquidation was not announced, a $4.5 million dollar fund with an atrocious record (and no inside ownership) is not likely to be closing in order to stanch the tidal wave of new money.

On or about February 11, 2022, Goldman Sachs Alternative Premia Fund takes a dirt nap. The decision occurred “after careful consideration of a number of factors,” none of which are explained in the death notice. I’m guessing that the tendency to generate long-term returns under 1% per year and the subsequent reluctance of investors to negative real returns were factors.

iShares iBonds 2021 Term High Yield and Income ETF was liquidated effective December 20, 2021.

Here’s one for fans of Nicholas Cage movies and dark conspiracies in general. The tiny, five-star John Hancock Retirement Income 2040 Fund is slated to be liquidated in spring. Here’s the official explanation:

continuation of the fund is not in the best interests of the fund or its shareholders as a result of factors or events adversely affecting the fund’s ability to conduct its business and operations in an economically viable manner. As of the close of business on or about April 22, 2022, there are not expected to be any shareholders in the fund, and the fund will be liquidated on such date.

“There are not expected to be any shareholders.” If I owned shares now, I think I’d be worried about what Hancock knows that I don’t.

In a more benign development, on December 10, 2021, John Hancock Short Duration Credit Opportunities Fund merged into their five-star Opportunistic Fixed Income Fund.

Effective December 27, 2021, Muzinich High Income Floating Rate Fund closed to new purchases, whether from existing or new investors. The fund has faithfully tracked the Credit Suisse Leveraged Loan Index since inception but has drawn just $33 million in assets. The inference is that the closure precedes a death notice, though that’s not confirmed.

SGI Conservative Fund was liquidated on December 30, 2021.

VanEck NDR Managed Allocation Fund will be disallocated and dissolved on or about January 19, 2022.

The Younger Defenders

By David Snowball

A handful of young funds, by luck or design, have managed the rare feat of peer beating returns since inception with risk-rated, risk-adjusted returns (MFO rating, Ulcer rating) and risk metrics (downside deviation, bear market deviation, down market deviation).

The US stock market is approaching the most extreme valuation levels of the past 150 years, at least as measured by the Schiller 10 year PE ratio.

Investors leery of the state of the market might cast an eye in their direction.

Cells marked in blue represent the top 20% performance, while green is the next highest 20%.

      APR vs peers MFO DSD Bear Down market Ulcer rating
BlackRock China A Opportunities CHILX China Region +12.9 5 1 1 2 1
Castle Tandem TANDX Multi-Cap Core -4.6 5 1 1 1 1
Palm Valley Capital PVCMX Small-Cap Growth -10.2 5 1 1 1 1
Alger Mid Cap Focus AFOZX Mid-Cap Growth +13.9 5 1 1 1 1
Franklin Templeton Clarion Partners Real Estate Income Inc CPREX Real Estate +5.4 5 1 1 1 1
Innovator Growth-100 Power Buffer ETF – October NOCT Options Arbitrage / Strategies +3.8 5 1 1 1 1
Reynders McVeigh Core Equity ESGEX Multi-Cap Growth +2.9 5 1 2 2 1
Lazard International Quality Growth Portfolio ICMPX International Multi-Cap Growth +3.8 5 1 2 2 1
Fidelity Founders FIFNX Multi-Cap Growth +3.1 5 1 2 2 1
Federated Hermes International Developed Equity HIEIX International Multi-Cap Core +3.7 5 1 2 2 1
Wasatch International Select WGISX International Multi-Cap Growth +4.4 5 1 2 2 1

A note about the two laggards: Palm Valley Capital Fund (PVCMX) is sitting at 80% cash right now, while Castle Tandem (TANDX) is at 30%. Both are run by teams of absolute value investors: folks who believe in owning great stocks, but only when they’re rationally priced. Having concluded that they’re not, both teams are waiting with piles of cash for the inevitable panic.

Full disclosure: Snowball purchased shares of Palm Valley in his personal portfolio at the fund’s launch and has been slowly adding to the position.

Life in the Jungle: Terrific at Two, Dead at Four

By David Snowball

Our last review of “the Terrific Twos” ran in January 2019. We highlighted 10 funds. Here’s what became of them.

Four of the ten were liquidated: Ladder Select Bond (LSBIX), which earned fours stars but never drew over $20 million; BlackRock Emerging Markets Equity Strategies (BEFAX) died in April 2020; WisdomTree Dynamic Long/Short US Equity (DYLS) was liquidated in May 2020 as part of a long and painful housecleaning at WisdomTree; and State Street Disciplined Global Equity (SSHAX) became Defensive Global Equity, drew little interest, trailed a world stock index, then liquidated on May 14, 2021

Four of the ten grew into outstanding performers: Holbrook Income (HOBIX), a five-star fund with $670 million; Catalyst/Millburn Hedge Strategy (MBXAX) earned four stars and quickly grew to $3.2 billion; Cognios Large Cap Growth (COGEX) became F/m Investments Large Cap Focused (IAFLX), a four-star fund with $90 million and Cognios Large Cap Value became AXS Alternative Value Fund (COGVX), a four-star fund with $1.6 million. The latter two were the long portion of the Cognios Market Neutral which itself became AXS Market Neutral (COGIX).

You might note that six of the eight funds had their fates controlled by market forces rather than investment performance: Cognios spun off its funds but continues to sub-advise them because it couldn’t generate traction in the market and the four liquidated funds were all deemed unprofitable.

The remaining two funds are decent performers whose tiny asset bases will eventually kill them: Guggenheim Diversified Income (GUDPX) is a three-star fund with $9 million in assets and which has been housed in three different Morningstar peer groups while Columbia Sustainable International Equity Income ETF (ESGN) is a three-star ESG fund with a Silver rating from Morningstar, low beta … and just $5 million in assets.