Monthly Archives: January 2023

January 1, 2023

By David Snowball

Dear friends,

Welcome to winter.

Dame Edith Sitwell, a poet and crank, observed, “Winter is the time for comfort, for good food and warmth, for the touch of a friendly hand and for a talk beside the fire: it is the time for home” (Taken Care Of: An Autobiography (1965)).

How could you not be drawn to someone who said of herself, “I am not eccentric. It’s just that I am more alive than most people. I am an unpopular electric eel set in a pond of catfish”?

Our local version of “good food and a talk beside the fire” has been enriched by the books folks have lately showered upon us:

The Revolutionary: Samuel Adams (2022), who is a mostly forgotten author of the American revolt in the 1760s,

Heirloom Fruits of America: Selections from the USDA Pomological Watercolor Collection (2020), which literally illustrates the long history of fruit-growing here,

Banned Books (2022) which takes us from “The Decameron Tales” to I Hate Men,

Rogues: True Stories of Grifters, Killers, Rebels, and Crooks (2022), which manages to suck in billionaire Stephen Cohen and tells the story of Mark Burnett’s resurrection of Donald Trump as a business icon,

My Inventions: The Autobiography of Nikola Tesla (1919), which ends with Tesla’s prophesy about AI: Machines “will ultimately be produced, capable of acting as if possessed of their own intelligence, and their advent will create a revolution.”

A Field Guide to Cheese: How to Select, Enjoy, and Pair the World’s Best Cheeses (2020) is touted as a “cheese lover’s dream,” featuring over 400 cheeses accompanied by illustrations.

Chip and I look forward to the next snow day with cheerful anticipation, dented only by the realization that our college’s adoption of electronically mediated remote work takes a lot of the fun out of being stranded at home.

This note is organized around two questions, two announcements, three remembrances, and a request. The remainder of our New Year’s issue shares: Devesh Shah’s endorsement of long-dated TIPS as an investment whose time has come, Lynn Bolin’s warning of risky times ahead and funds that might navigate them, The Shadow’s update on the industry’s hijinks – including several well-known managers whose names are being removed from funds they piloted – and Charles’s announcement of an imminent webinar for the MFO Premium-curious. My contribution will be to suggest three places to flee from and three to wander towards.

I wonder if Elon Musk follows MFO?

In cleaning the spam directory this month, I came upon an unsigned email from an untraceable anonymous account with a nonsensical name (defund blm) and a huffy defense of Elon Musk:


You wrote, “Investors have lost a cumulative $22 trillion in 2022 (with the sole bright spot being that Elon Musk has personally lost over $100 billion).”

Why is Musk losing billions supposed to be a bright spot can only be an attack on his politics and/or Twitter ownership. I was going to make a donation but won’t but since MFO obviously pushes a certain political ideology and it’s not neutral like a financial advice website should be.

Umm … howdy, sir! Glad to have you abroad.

Why is Mr. Musk’s relative decline worth noting? He’s symptomatic of a broader problem, the influence of plasticene billionaires on the lives of the rest of us. Our courts have ruled:

  1. That corporations are people,
  2. That money is speech, and
  3. That we don’t get to learn the identity of who’s speaking to us.

America’s 700 billionaires have been saying a lot lately, spending $880 million on the midterm elections. At least $300 million was channeled through untraceable “dark money” PACs. Since the task of PACs is to win elections, not to tell the truth or strengthen the country, those hundreds of millions translate into rather a lot of divisive messaging.

That class of people seems divided between the invisible (Richard Uihlein is the cycle’s #2 donor) and the iconic (George Soros is #1). There’s an entire industry built around creating those icons: heroic founders, lone-wolf geniuses, visionaries, mavericks, and saviors of the world who, just by happenstance, are rich beyond the dreams of avarice. (And who, on whole, would prefer to arrange things so that it remains that way.) The financial media – long recognized as financial pornographers – revel in the tale.

Mr. Musk has a carefully constructed myth that masks serious personality disorders. Two scholars write, “his recent behaviour belies the esteem and appeal he’s cultivated and has thrown his credibility, stability of reasoning and personal character into question.” And that was four years ago, in 2018. Mr. Musk is not unique in those flaws – imagine a heart-to-heart with Mark Zuckerberg if you dare – but he is uniquely visible. The spectacle of his flame-out at least opens the door to serious conversations about how best to rebuild a sense of shared respect and commitment to the common good.

Why does Wells Fargo have any customers left?


These people are so consistently predatory that the director of the federal Consumer Financial Protection Bureau has denounced Wells’ “rinse-repeat cycle of violating the law” and imposed nearly $4 billion in penalties. That follows the $3 billion penalty imposed by the Department of Justice and SEC two years ago. The latest crimes involve illegal repossession of people’s homes and cars, on top of profitable and illegal overdraft fees.

Ethan Wolf-Mann chronicled the complete list of Wells Fargo scandals for 2016-2019, where the firm managed a rigorous pace with nearly one scandal per month. The Congressional Research Service covers the same time range in a less engaging style. The FinanChill blog extended the scandal roster back to 2010.

The “lather-rinse-repeat” cycle mentioned above is almost reassuring in its constancy: combine rapacious impulses and a near-total disregard of the need for internal control structures, screw the people who’ve entrusted their financial security to you, get caught, flop about, then pay another couple billion in penalties while promising that this time is really is THE NEW Wells Fargo, then repeat. While other firms have been more egregious, none of them have survived.

Devesh makes better use of his free time than I do

The last book written by Thorstein Veblen (1857-1929), inventor of the term “conspicuous consumption” and author of dozens of works on economics, was not a work in economics. It was the translation of, and commentary on, The Laxdæla Saga, a 13th-century Icelandic tale of a love triangle between Guðrún Ósvífrsdóttir, Kjartan Ólafsson, and Bolli Þorleiksson. Kjartan and Bolli. (But you knew that already, didn’t you?) He seems to have translated the work in 1899, forgot about it, then remembered and published it in 1925. Described as “a lone and reluctant Viking” at war with the 20th century, he arrived at Carleton College speaking only Norwegian, learned English, Greek, and Latin there, then later Danish, Swedish, Italian, French, Spanish, Dutch … and, finally, Icelandic. He thought we needed to understand Iceland at the end of the Viking era in order to understand the rise of the modern world, so he learned Icelandic and translated the saga for our benefit.

Our colleague Devesh Shah, unlikely to be seen as a Viking, much less a lone and reluctant one, has nonetheless undertaken a similar challenge. Devesh serves as the translator for Nine Children’s Plays, written by Gujarati author, playwright, and actor Prakash Lala. Devesh notes that “Children everywhere have similar problems and questions,” which Lala has been addressing in a series of stories, including “The Emperor of Fools” and “I wish I could be a Bird,” set in India over the past quarter century. The work is available on Kindle for $9.99.

The Independent Vanguard Adviser is now live on the web

As we noted in early autumn, the publisher of The Independent Adviser for Vanguard Investors rather abruptly decided to pull the plug on the venerable and well-respected newsletter. Lewis Braham lamented, “the independent voice on the world’s largest mutual fund manager … published its last issue in October – not by choice.”

The publisher offered just that “interest has waned” without elaboration.

After some deliberation and scrabbling, Dan Wiener and Jeff DeMaso relaunched their service on a new site under a slightly changed brand: the Independent Vanguard Adviser. Dan began publishing the Independent Adviser in 1991 (Forbes dubbed it “Vanguard’s alter ego”) and holds the titles of co-editor and senior adviser now. Jeff joined the operation in 2011 and is officially the editor and founder of the new publication.

Like MFO, they accept neither advertising nor sponsorships from Vanguard, its competitors, or advisers. They’re supported by reader subscriptions (the annual fee is $175/year, with a free 30-day trial available), allowing them fairly to claim “independent, honest, unbiased coverage of all things Vanguard.”

When I asked Jeff what readers might expect at the reborn site, he offered this:

In terms of features, we offer a free weekly market (and Vanguard) update email. Premium members get much more … Model Portfolios, a Performance Review with buy/hold/sell ratings on every Vanguard fund, and at least one additional (more analytical) article each week. We also tie it all together with a monthly recap. 

Some of the topics we’ve explored so far are the death of the 60/40 portfolio (I don’t think it’s dead) and what does the yield curve inverting mean (probably a recession ahead, but timing the market is still difficult). We’ve also provided subscribers with all the details (estimated capital gain distributions) and key dates they need to navigate distribution season at Vanguard. We’ve also covered everything from Vanguard’s technology woes to new fund launches to inflation to ESG … we try to cover a lot of ground. 

In addition to Braham’s praise, in 2020, the New York Times cited the newsletter as one of three publications – alongside Morningstar’s FundInvestor – ideal for DIY investors (D.I.Y. Retirement Investors Have a Low-Cost Friend: Newsletters, 1/30/2020). A few months earlier, Kiplinger’s named it one of the four best investment newsletters (8/21/2019). Dan’s willingness to torch Vanguard’s management when it deserved to be torched has been appreciated by folks on the MFO Discussion board as they struggled to make sense of increasingly wretched customer service.

Our colleague Sam Lee wrote a fascinating piece for us in 2015, “Why Vanguard Will Take Over the World” (9/2015), which concluded with a warning:

Vanguard is eating everything. Vanguard’s rapid growth will continue for years as it benefits from three mutually reinforcing advantages: mutual ownership structure where profits flow back to fund investors in the form of lower expenses, first-mover advantage in index funds, and a powerful brand cultivated by a culture that places the investor first. Still, Vanguard may wreck its campaign of global domination in several ways, including lagging in institutional money management, incompetence, corruption, or operational failure.

When he wrote that, Vanguard had vacuumed up $3 trillion in assets. Today, that total stands at $4.5 trillion. It seems like a group that warrants close attention. To date, no one’s been better at it than Dan and Jeff. There have been some bumps along the road to independence, occasioned mostly by their former publisher’s reluctance to help them transition to an independent existence by sharing, for example, subscriber information. If you’re affected by transition challenges, it would be prudent to reach out directly to them.

A quick confirmation: MFO has no financial stake in or ties with IVA; they’ve neither asked us to run nor compensated us for this notice. We’re sharing it because it’s worth knowing.

In Memoriam …

We’d like to note the passing of three memorable figures, all good people gone too soon.

Franco Harris, 72, the former Pittsburgh Steelers running back. Mr. Harris seemed the picture of health and vitality. He spent his last day chatting with strangers and the media in advance of the retirement of his number by the Steelers (only the third player in a century so honored) and celebrations surrounding the 50th anniversary of his most famous play. He came home, told his wife that he felt a bit out of breath, sat down, and never rose again.

Those of you not raised in Pittsburgh can’t quite grasp Harris’s significance to the city. NFL fans know that his “immaculate reception” play, a game-winning reception with 22 seconds left, was named the greatest play in NFL history. (Oakland Raiders fans consider it the greatest crime in the league’s history.) Few outside the city understand why Joe Greene, the greatest Steeler player ever, declared, “he taught us how to win,” and former coach Bill Cowher averred that Harris taught him “what it means to be a Pittsburgh Steeler.” His arrival was preceded by 39 years of team futility and followed by the rise of the NFL’s most iconic franchise. (The NFL offered the term “America’s team” to Steelers owner Art Rooney, Sr., who turned it down with a gruff dismissal: “we’re not America’s team, we’re Pittsburgh’s team.” The marketing slogan was bequeathed to the league’s second choice, Dallas.) Harris’s heroics and deep-seated humanity inspired the rise of Franco’s Italian Army and gave a sense of hopefulness to his adopted hometown. He was active in the city’s life and culture for the 38 years following his retirement.

Scott Minerd, 63, Guggenheim Partners global chief investment officer and long-time bodybuilder, suffered a heart attack during his regular workout. Mr. Minerd was the son of a Pennsylvania insurance salesman of modest means, worked his way up as a bond trader for Morgan Stanley, detested the insane demands, moved to California at 37 with the intent to retire … and found himself bored silly. He met the Guggenheim family in 2000, became a founding member of Guggenheim Partners, and rose to become CIO and pundit. His name often appeared on lists of “bond kings” that include Bill Gross, Dan Fuss, and Jeffrey Gundlach. Through it all, he strove to maintain balance and perspective and was celebrated for his “beautiful mind, big heart, and compassionate soul.”

Kathleen Moriarty, 69, a Chapman and Cutler partner who was instrumental in the creation of the first ETF, earning her the designation “SPDR Woman” and the sobriquet “the ETF industry’s Greatest of All Time super lawyer.” Her family has not shared information concerning her passing.

Life is uncertain, dear friends. Don’t wait until tomorrow to attempt the kindness you can do today.

Children need you, and others are willing to underwrite your generosity.

I don’t know if it’s a past life issue, a tough childhood, or something more prosaic, but I react very strongly to the prospect that children are being left cold and hungry. As we sit at the turning of the year, I’ve been particularly saddened by the events in Ukraine. Putin is no longer pursuing a war; he’s simply lashing out and crushing as many lives as he can by targeting Ukraine’s civilian utilities. UNICEF notes that essentially every child in the country is at risk:

Continuing attacks on critical energy infrastructure in Ukraine have left almost every child in Ukraine – nearly seven million children – without sustained access to electricity, heating, and water as winter deepens. (12/13/2022)

In broad climate terms, Ukraine’s winter is comparable to Chicago’s.

There is currently a 2:1 match available for contributions through the UN High Commission for Refugees, which would reach children in, and beyond Ukraine. (Charity Navigator offers a list of other highly responsible, highly effective charities in the same field.)

For folks more concerned about our own country’s children, the Donors Choose organization – which works to link individual classroom teachers in need with citizen donors – has three projects that (a) are aimed at providing food, water, or clothing to students in poor neighborhoods and (b) have a match of 2:1 or more available. If you’re willing to consider projects without a foundation’s matching grant, there are over 1400 teachers reaching out for help to keep their students warm and fed. A few of those projects expire tonight, more tomorrow, and more every day thereafter.

A quick confirmation: in the past week, Chip and I have contributed to the UNHCR and supported three classroom projects. That support does not implicate MFO’s finances; it’s personal.

Thanks, and more thanks!

First and foremost, to the 150,000 of you who read MFO this year. Your interest, as much as any direct support, keeps the lights on!

New Year’s blessings to our indispensable regulars, including the good folks at S&F Investment Advisor in lovely Encino, Wilson, Gregory, William, the other William, Brian, David, and Doug.

Our bashful mention of the possibility of a year-end contribution brought responses from a bunch of good folks. First and foremost is Joe McCollum, who shared a long and thoughtful reflection on life and personal finance over our decades together as writer and reader. His challenges, far from the trivialities of the market, are great, and we hope we can continue to offer a bit of support, cheer, and perspective as he – and you – navigate them.

Finally, to Robert M., Dick (we’re so glad you enjoy our work), Charles of Spring Lake, Thomas L., Sunny, Kevin from Brooklyn, Kevin from Chico, Donald, Mark and Sara, Mark P. (we appreciate your ongoing support), Eric G. (thanks for the note!), Joseph, and James (with a Frost quote, no less!). We thank you all.

As ever,

david's signature

Long-dated TIPS bonds: A margin of safety

By Devesh Shah

Happy New Year to everyone. May there be peace in your home, on the planet, in the stars, and in all living beings. I am very glad to share that I have recently published a book of children’s stage plays.

Growing up in Mumbai, India, I studied at a school where theatre and drama were an important part of our education. Many of our school plays were then drawn from English literature. A few years ago, I was asked to take on a project to translate nine plays written in Gujarati, my first language, to English. Acclaimed playwright Prakash Lala wanted to make his stories available to young children everywhere. The average 10-12-year-old child in India has a different upbringing than the American kid. Family, grandparents, household help, and even neighbors play a much larger role in raising the kid than we see in society here. I’ve enjoyed translating the plays, working with my own kids on editing, and recently publishing the book on Amazon. Look for the title “Nine Children’s Plays.” I hope you will read it and share it with your friends and family.

Long-dated TIPS bond prices now offer a margin of safety. I am buying.

I have been buying long-term (10-30-year maturity) TIPS bonds this month, and I’d like to share why.

In this article, I write about why Treasury Inflation Protected Securities (TIPS) are finally ready to serve their purpose of protecting against inflation. TIPS now have a high enough Real Yield to make them excellent investments. I have gone from a single-digit percentage allocation in TIPS to more than 25% of the portfolio invested in TIPS in the last few weeks.

Readers who would like to understand the Asset Allocation rationale about holding TIPS in a portfolio, the terminology and bond math of TIPS, or the difference between TIPS and Series I Bonds, might first want to read the three other articles on inflation protection I have written at MFO in the last 12-months:

Feb 2022: Thoughts on Inflation Protection

August 2022: I wish I could give you some good TIPS on beating inflation

October 2022: Series I Bonds: A Ray of Hope

Why am I so focused on TIPS? Haven’t they been a huge disappointment?

  • Viscerally, I feel the inflation monster everywhere. There is not a single service, item, or experience I am purchasing where the price is the same or lower than a few years ago. It’s a natural instinct to protect your purchasing power. TIPS are the only direct investment product linked directly to inflation. They are US Government Credit risk and priced in US Dollars. The year 2022 should have been the year of TIPS. It was not. My earlier articles talked about why TIPS would disappoint, and they indeed did. Total Returns of TIPS ETFs were down 3% for the shortest maturities to negative 32% for the longest ones.
  • Although inflation was burning in 2022, the entry price for TIPS was wrong. TIPS were too expensive coming into the year. Now, the bonds are priced much better.
  • I’ve wanted to significantly increase my exposure to TIPS because I worry that controlling inflation may be easier said than done. When the going gets tough – huge US Government interest bills, Corporate Debt servicing, financial accidents, economic downturns – Federal Reserve’s determination might waver.
  • There is also a growing din that a 2% inflation target is unnecessary. In the future, might we live in a world more corresponding to 3-4% CPI and not the 2% we are used to? If so, TIPS coupons, which reflect CPI changes, would pay higher amounts.
  • If inflation became an endemic feature, Fixed coupon bonds would suffer losses. On the other hand, TIPS bonds would hold up better, especially given their current pricing.

What’s changed about TIPS from the beginning to the end of 2022?

  • TIPS trade based on Real Yields. To understand Real Yield, please read the August MFO article. A Buyer of TIPS gets Real Yield at the time of purchase + Future CPI.
  • At this time last year, investors were paying the US Treasury to hold TIPS. Real Yields were negative. But now investors are getting paid handsomely positive Real Yields to hold TIPS.
TIPS Bond Maturity Dec 31, 2021 Dec 31, 2022 Change
5-year -1.61% 1.66% 3.27%
10-year -1.04% 1.58% 2.62%
30-year -0.44% 1.67% 2.11%
  • TIPS Real Yields have adjusted upwards, and TIPS Bonds prices have sufficiently adjusted down this year to NOW make them interesting investments. TIPS are finally ready to deliver the policy objective of protecting investors against inflation. The chart below shows the upward adjustment in Real Yields from the 2021 lows compared to almost two decades of history. The yields today are competitive.

Isn’t it also true that Fixed Coupon Treasury Bond Yields have also gone up in Yields? Why not invest in US Treasuries? Why bother investing in TIPS?

  • Yields (or Interest Rates) are much higher everywhere. Let’s look at the Fixed coupon Treasury Yields over the last year:
Fixed Bonds Dec 31, 2021 Dec 31, 2022
5-year 1.37% 3.99%
10-year 1.63% 3.88%
30-year 2.01% 3.97%
  • Yields for fixed coupon Treasuries are also much better than a year ago. And so are yields for municipal bonds. However, only US Government TIPS offer exposure to increasing inflation.
  • Second, taxes matter: As an individual investor residing in NY, it is better for me to hold New York municipal bonds over US Government fixed-coupon Treasuries when investing through a taxable account.
  • I like TIPS above both fixed US Treasuries and Munis because if the Federal Reserve loses control over inflation, TIPS will be the only bond of the three that will assert my purchasing power. You know where my head is at. I hope they don’t screw up, but if they do, I don’t want to go down with them.

What could go wrong with buying TIPS now?

  • I could be early. If the Federal Reserve continues to hike rates, if US fixed Treasury yields continue rising, so will TIPS Real Yields. TIPS Bonds will then decline. The question is, “Am I prepared to then increase my allocation to Bonds and TIPS?” I believe I am.
  • Inflation could collapse. In that case, my expenses would also rise at a slower rate. Also, chances are the Federal Reserve would cut interest rates, and that might actually help all kinds of longer-dated bonds due to their Duration Risk.
  • US Government Credit could become riskier. I assign that as a low-probability scenario for now.

What assets am I selling to buy TIPS now? What am I rebalancing out of?

  • This is a really good question. Every asset was down in 2022. You have to starve Peter to feed Paul. I have been lightening up on Equities across the board and using that cash to buy TIPS.
  • I feel a lot more convinced about the margin of safety in TIPS bonds today than I do for the margin of safety in any kind of Equities, including US Value stocks. I have thus been reducing exposure to US Value stocks to buy TIPS.

What are the different scenarios in buying 30-year TIPS now?

  • Base case: The Bond market currently believes CPI runs at 2.3% over 30 years, and the Real Yield is 1.65%, which means the yield to Maturity would be in the 3.95% zone. I assign this to be a 50% probability.
  • Bear case: Real Yields on the long dates TIPS goes from 1.65% to 2.5% if inflation is sticky and the Federal Reserve continues hiking. While TIPS bonds would decline by 18-20% mark-to-market, the eventual yield over the long term would be almost 5%. Current Real Yields (1.65%) + CPI (3-4%). I assign this to be a 15% scenario. Initially would hurt, but eventually, it would help.
  • Bullish case: Real yields decline back to 1% from the current 1.65%, and CPI averages at 2%. This yield decline could lead to an 18% price increase plus the CPI. I assign this a 35% probability. I will see a mark-to-market gain in TIPS prices. I would have to evaluate my view on inflation at that point.

I am sure there are more sinister bearish scenarios and more rewarding bullish scenarios, but none of these are for investors unwilling to take substantial volatility.

Why not just buy and hold the Total Bond Portfolio?

  • For a majority – maybe 97% of the investors – that Total Bond portfolio is just fine. There is no need to do anything beyond that. Intellectually honesty is important here. If I cannot stand losing money in an asset, or I am unwilling to increase my allocation when the investment goes against me, then I should not be taking a proactive risk. In such a case, benchmarking the portfolio to a simple formula is all I will ever do.
  • However, I believe that diving deep into the markets and all of the accompanying analysis is more than just about intellectual curiosity. I lead with analysis, but then I want intuition and judgment to take over the decision-making. This last bit tells me that TIPS are ok to buy now. Every morning I have walked in to find TIPS bonds lower in price, and I have been adding to the portfolio.

In Conclusion

Whether one needs to own TIPS or just the Total Bond Portfolio is up to each investor. Anytime one goes on a limb, an element of proactive risk is always introduced. I am investing in TIPS because I am willing to lock in the Real Yields of 1.65% and am interested in receiving the CPI. Furthermore, I am worried that the CPI might not decline as smoothly as the Bond market expects. For those who are willing to study TIPS and are concerned about high inflation, it would be remiss to let this opportunity slip by with inaction.

For investors interested in investing in long-dated TIPS, the best option is likely the PIMCO 15+ Year US TIPS ETF (LTPZ), with expenses of 0.20% and an effective duration of just over 20 years, compared to its peers’ six-year duration.

The Investor’s Guide to 2023: Three Opportunities to Move Toward

By David Snowball

I have no idea what the best investment of 2023 will be, and neither does anyone else. The annual exercise in futility and fantasy is well underway in the financial press and market pundit community, notwithstanding the fact that their 2022 forecasts were laughably wrong, as were their 2021, 2020, 2019 …

Section 1, The Terrified Investor

Section 2, The Exhausted Investor

Section 3, The Enterprising Investor

The Terrified Investor

If you’re obsessed about 2023, our best advice is (a) minimize your exposure to the stock market and (b) invest regularly and vigorously in short- and ultra-short bond funds. That offers the best prospect of a return of principal, if not astonishing returns on principle.

Best Short-Term and Ultra-short Term Bond Funds

Great Owl funds with the smallest drawdowns for the five-year from 1/2018-12/2022

  APR Maximum drawdown Standard deviation Sharpe ratio
RiverPark Short Term High Yield 2.13% 1.09% 1.07 0.81
Baird Ultra-Short Bond 1.51 0.92 0.78 0.30
BlackRock Ultra Short-Term Bond ETF 1.65 0.85 0.77 0.50
Ultra short average 1.19 2.34 1.37 -0.10

Source: MFO Premium fund screener

The Exhausted Investor

If you’re really tired of making these calls for yourself, or you’re unimpressed with the adviser who’s been making them for you, you have two options for simplifying your life.

Option 1: invest in a best-of-class target date fund

The target-date funds are simple creatures: they announce in advance what allocation between asset classes they intend to make and how those allocations will change over time. All target-date funds have a strategic allocation (“10 years before the target date, we’ll be 55% US stocks, 20% international stocks, and 25% bond”), while many also have a tactical allocation (a bit of room for the managers to exercise judgment: “we’ll be 55% US stocks give or take 2.5% with the option of tilting a bit toward value or small or …”).

A chunk of my retirement portfolio sits in the T. Rowe Price Retirement funds, the more aggressive of their two target-date series. Morningstar rates it as a four-star Gold fund. It’s one of only two Great Owl funds in the category, which are defined as funds with risk-adjusted performance in the top 20% of their group for the past 3-, 5-, 10- and 20-year periods. The other is Mutual of America 2030 which is primarily available through retirement plans.

Best Target-date 2030 Fund

Great Owl funds for the five-year from 1/2018-12/2022

  APR Maximum drawdown Standard deviation Sharpe ratio
T Rowe Price Retirement 2030 4.4% 22.1% 14.2% 0.22
203o group average 3.3 21.1 12.7 0.15

Source: MFO Premium fund screener

Option 2: invest in a best-of-class flexible allocation fund

Flexible allocation funds give their managers wide latitude to select both their allocation to stocks, bonds, and cash and also latitude in selecting which stocks or bonds. The idea is that if you’re going to pay for active management (a prospect that my colleague Devesh finds mostly suspect), then pay for really active management. The worst “active” managers have index-like portfolios but charge exorbitant fees. The best have a clear discipline, a long track record, and reasonable fees.

They are few and far between.

Since the value of a flexible fund is that it allows you to surrender long-term decisions, we screened for the funds with the best really long-term performance: funds that have weathered everything from the dot-com bubble to the Covid crash. There are no Great Owl funds in this group, which highlights the fact that even the best long-term strategies have fallow periods. The list below contains the flexible funds with the highest 25-year Sharpe ratios. We’ve included a pure equity index, the Vanguard Total Stock Market, for comparison. You’ll note that the top five funds have posted gains comparable to, or above, the stock market with distinctly lower volatility.

Best Flexible Portfolio Funds

Highest Sharpe ratio FP funds for the 25 years from 1/2018-12/2022

  APR Maximum drawdown Standard deviation Sharpe ratio
Bruce 11.0% -40.3 12.6 0.74
First Eagle Global 9.1 -32.6 11.3 0.65
FPA Crescent 7.9 -28.8 11.6 0.53
Leuthold Core 7.4 -36.5 10.7 0.52
BlackRock Global Allocation 7.3 -29.4 10.8 0.51
Flexible portfolio average 6.1 -37.4 11.5 0.38
Total stock market average 7.6 -50.9 16.2 0.36

Source: MFO Premium fund screener

The Enterprising Investor, or portfolio positioning for active, long-term investors

If you’re looking to reposition your portfolio for the long term – knowing that the changes might or might not blow up in the short term (since no one has a clue about what 2023 will bring) and if you believe that the price of an investment strongly influences your eventual gains, then there are three tilts to consider for the next market. We’ll start with the essential background to the past and coming markets, then introduce the tilts.

Distortions from the zero-rate environment

The zero-interest-rate markets that have persisted since the Great Financial Crisis in 2008 have produced dramatic movements in the stock market and even more dramatic price dislocations. Free money favors some investments far more than others: large firms with easy access to capital markets could buy growth using free money – sometimes paying less than zero to borrow once inflation was factored in – and use that growth to generate headlines and momentum. But it also depended on continued access to free money to support its empire of cards.

In a 2019 interview, Rupal Bhansali, manager of Ariel Global, warned that “a market that’s been on steroids is now on opioids which, I believe, cannot end well.”

As money flowed to FAANGs or tech or momentum, it simultaneously flowed away from areas that are now tremendously undervalued by historical standards. Investors might want to ask whether it’s time to tilt in their direction.

Projections for a normal-rate environment

Very large long-term investors need to have a clear sense of what’s worth buying and what’s grievously overpriced. Those calculations allow them to construct long-term allocations for their major clients. While they’re not reliable sources of actual returns (that is, Fidelity’s “it’ll be 3%” actually means something like “our computer models say we have a 65% probability of stock returns between -1.0% and +5.00% with a mean value of 3%”), they’re often pretty good at signaling relative asset class performance. That is, whether domestic or international is positioned to lead by a little or a lot, and so on.

As an overview, here are the capital market assumptions used by large US investment firms for the period through 2033.

Projected 10-year asset class returns through 2033

  US equity International equity Emerging equity US bonds Commodities
BlackRock 8.8% 11.5 11.8 4.2  
BNY Mellon 5.9 5.8 7.6 1.2 3.0
Callan 6.6 6.8 6.9 1.75 2.5
Fidelity 3.0 3.7 5.1 1.9 2.1
Invesco 9.3 9.2 12.4 4.5 10.9
JPMorgan   7.8 8.9    
Research Affiliates 1.8 7.7 8.6 0.9 0.7
Schroders 8.4 7.9 11.3 4.4 4.6
Vanguard 4.4 7.1 3.5
Voya 6.8 7.3 4.0
Mean 5.38 7.48 9.08 2.93 3.97

It’s not guaranteed that the numbers between firms are perfectly comparable because not all firms specify whether their estimates are real (inflation-adjusted) or nominal. Regardless, asset class differences within each firm’s row will be comparable; that is, if Schroders projects stocks leading bonds by 400 bps, it doesn’t matter whether that’s based on real or nominal estimates.

Short version: Commodities over bonds. International over the US. Emerging over international. And, as we’ll see below, small over large, emerging over developed, value over growth.

Small cap stocks

And, particularly, small-cap value.

Morningstar’s Lauren Solberg noted in December 2022 that “For smaller-company stocks, price/earnings ratios—a widely used measure for determining the value of a stock relative to its earnings—have reached their lowest levels in two decades.” The difference in P/E ratios between small-cap and large-cap stocks – 12.6 versus 20.2 – is the greatest since 2002. (Small Cap Stocks are Really Cheap, Lauren Solberg, 12/2/2022) The almost permanently skeptical GMO allows that “small-cap stocks have become notably cheap,” and RBC’s Lori Calvasina says that at current levels, small-cap stocks are already priced at valuations that would account for “the worst that you’d expect to see in the middle of a recession.”

Virtually all of the major management firms anticipate a decade of small-cap outperformance though the magnitude of the projected differences is huge. At the low end, Callan anticipates US small to outperform US large by 20 basis points (bps); BNY Mellon gives small caps at 100 bps, while Invesco and Research Affiliates both put the small cap advantage in the 300 bps area. Bank of America estimates the gap at 400 bps.

Given that small caps are always more volatile than large caps, we searched out the funds with the best long-term risk-adjusted returns.

Best Small Cap Stock Funds

Great Owl funds with the smallest drawdowns for the 20 years from 1/2003-12/2022

  APR Maximum drawdown Standard deviation Sharpe ratio
FMI Common Stock 10.5 -42.6 16.1 0.58
Meridian Contrarian 10.1 -44.01 17.0 0.52
Kinetics Small Cap Opportunities 14.3 -67.1 22.9 0.57
FPA Queens Road Small Cap Value 9.5 -43.1 15.0 0.55

Source: MFO Premium fund screener

There are three other funds that we’ve written extensively about that deserve special attention.

The Last True Believers

Palm Valley Capital (PVCMX) is an absolute-value small-cap fund that is managed by Eric Cinnamond and Jayme Wiggins. Nominally the fund is four years old, which is wildly misleading. Mr. Cinnamond and, most recently, Mr. Wiggins have successfully pursued this strategy in four distinct mutual funds for a quarter century. The core distinction is this: the managers only buy stocks that are trading at a truly substantial discount to their fair value. If there are no appropriately priced opportunities, they invest the portfolio in cash and cash-like securities. That makes them incredibly frustrating to own when markets are soaring and they’re steadily unloading overpriced portfolio holdings in favor of cash. Indeed, Mr. Cinnamond liquidated one fund because he felt it unfair to charge investors for equity investments when only cash made sense.

The new fund is a five-star Great Owl that returned 3.2% in 2022, while its average peer lost 9.8%. That’s especially striking because the portfolio is still only 19% investing in stocks, mostly small- to micro-cap value stocks.

Disclosure: I’ve owned PVCMX since launch, and before that, I owned shares of two of the team’s earlier funds.

The Anti-momentum Index

Index Funds S&P 500 Equal Weight (INDEX) aspires to beat the index with the index. The S&P 500 index weights its holdings by each stock’s market cap; the fund’s top five holdings – Apple, Microsoft, Amazon, Google (two share classes), and Berkshire Hathaway – consume 19.5% of its portfolio. That gives the index strong biases toward size, growth, and momentum, which are sometimes profitable and sometimes not. INDEX takes a different approach and equally weights the same 500 stocks. That gives it a bias toward smaller, cheaper and steadier. They capture the advantages of passive investing, have the prospect of outperforming the S&P 500 in the long run (since 2003, the equal weight has a substantial lead on the cap-weighted version), and free themselves from dependence on big tech.

Through a thoughtful trading strategy, INDEX tends to modestly outperform its large competitor (RSP) in the long term.

Beating the index with the INDEX

Performance since INDEX inception, 4/30/2005

  APR Maximum drawdown Standard deviation Sharpe ratio
S&P 500 Equal Weight 9.24 -26.5 17.4 0.47
Multicap core peer group 7.9 -25.3 16.6 042
S&P 500 11.3 23.9 15.9 0.65

Source: MFO Premium fund screener

The World At Your Fingertips

Harbor International Small Cap (HIISX) was reborn several years ago when the team from Cedar Street Asset Management assumed control. The managers target high-quality, undervalued small-cap stocks … and they do so brilliantly.

As we noted in our August 2022 profile of the fund: “Harbor is the best international small-cap fund around. The immediately meaningful metric here is the fund’s three-year record since the current team – which itself has a solid record for longer than three years – assumed responsibility for the fund … we examined the records of all international small-cap value and core mutual funds and ETFs. In both absolute and risk-adjusted metrics, Harbor is the top-performing fund.”

36-month record (through August 2022), international small-to-mid value

  Total return Sharpe Martin Capture ratio Alpha
Harbor 7.9% – #1 0.35 – #1 0.72 – #1 1.2 – #1 4.0 – #1
ISCV peer ave. 3.2 0.12 0.25 1.0 -0.7

The Return of the Old Ways

We noticed one intriguing new fund that was slated to launch on the last day of 2022. Hunter Small Cap Value Fund is a small cap value fund run by a bunch of guys named Perkins. The fund will typically hold 30-60 small-value stocks, at least 90% of which will be domestic. For those with a long memory, Perkins was a premier small-cap value investor that was purchased by Janus, a firm not renowned for its commitment to value investing. The senior Messrs. Perkins – Tom and Bob – retired from the firm in 2018, which subsequently rebranded the funds twice. Somewhere in 2020, the younger Mr. Perkins departed as well and founded Hunter Perkins Capital Management. The new fund will be managed by all three.

Emerging markets stocks

And, particularly, emerging markets value.

After years of being neglected because of free money available in the developed markets and geopolitical instability, essentially every major professional investor has made the same two observations: EM economies are far stronger than ever (representing 45% of global GDP), and EM stock valuations are far lower, setting them up for a period of extended outperformance albeit with higher volatility. GMO’s November 2022 asset class projections for the next 5-7 years are pretty typical:

In general, value tends to outperform in rising-rate environments. David Dali, head of portfolio strategy at Matthews:

Since 1995, there have been five Federal Reserve interest rate-hiking cycles and they have all had several things in common . . .the US dollar tends to outperform both developed and emerging market currencies, and cyclical, value-oriented stocks tend to outperform growth-skewed companies. (Five reasons, 11/28/2022)

Market conditions today–with rising inflation being driven in part by higher commodities prices–have added support to many emerging markets, and not just in Asia, some of which have smaller benchmark or no benchmark representation.

Looking back 20 years, there have only been five end-of-quarter instances when the MSCI Emerging Markets Equity Index has registered a price-to-earnings (P/E) multiple of 10 times or less. The September quarter-end was one of them, with a P/E of 9.96 times. Of the prior four instances, the median index total return for the subsequent one year was 19.03% and for the subsequent two years it was 31.47%. And in all the prior cases, the five-year total returns were positive.

Best Emerging Markets Stock Funds

Great Owl funds for the ten years from 1/2013-12/2022

  APR Maximum drawdown Standard deviation Sharpe ratio
Matthews EM Small Companies 6.7 -26.0 16.3 0.36
Driehaus EM Small Cap Growth 4.5 -26.9 15.2 0.25
First Trust EM Small Cap 5.2 -40.7 20.4 0.22
Fidelity EM Discovery 3.4 -35.3 16.3 0.16
EM peer group 0.5 -41.6 18.4 0.02

Source: MFO Premium fund screener

There are three other funds that deserve special attention.

Seafarer Overseas Value (SFVLX) is a $70 million, five-star, Silver-rated Great Owl fund backed by Seafarer Partners who’ve always struck us as the most sensible players in the game. In our Elevator Talk with lead manager Paul Espinosa, we got a sense of his values:

I’m managing this fund for the reader you talked about, the guy who manages a diner in Montana and who’s thinking about his retirement and his family’s security. This is the core, my personal crusade, for why I want to lead this fund. Government and central bank policies penalize thrift; they’re trying to encourage price inflation through low interest rates, but this means purchasing power is declining, and many of us are having trouble retiring with dignity. What I’m truly truly trying to do here is to increase the purchasing power of a saver.

The vogue today is for relative return investing. It asks, “how did you do relative to a benchmark,” not “has your manager been helping you meet your goals?” I think of myself as a sort of absolute return investor; we’re benchmark-agnostic, our aim is to produce a minimum rate of return that allows our investors to increase their purchasing power.

His performance speaks for itself. The fund was by far the best-performing EM fund of 2022, losing less than 1% in value while its peers were trimmed by 21% on average.

Seafarer Value since inception (5/2016-12/2022)

  APR Maximum drawdown Standard deviation Sharpe ratio
Seafarer Value 6.2 -27.1 14.6 0.35
Int’l small value peer group 4.0 -33.9 17.0 0.13
EM index 4.4 -36.7 17.3 0.19

Source: MFO Premium fund screener

Disclosure: I’ve owned Seafarer Growth & Income, Value’s older sibling, since launch, and before that, I owned shares of Andrew Foster’s earlier fund. Of special interest is the fact that Lydia So, who managed Matthews EM Small Companies to absolutely peer-tromped performance, has now joined the Seafarer Partners.

Much has been made of the problems posed by the Chinese regime as President Xi pursues a fundamental power grab that carries enormous risk. In consequence, several well-respected firms have just launched, or are just about to launch, funds designed to invest in emerging markets but not in China. Those include:

Matthews Emerging Markets ex China Active ETF, launching later this month, has the opportunity to invest in “every country in the world except the United States, Australia, Canada, Hong Kong, Israel, Japan, New Zealand, Singapore and most of the countries in Western Europe” and, of course, China. The fund will be managed by John Paul Lech and Alex Zarechnak, who are also responsible for Matthews Emerging Markets Equity Fund, which holds a 10% China stake against its peers’ average of 26%. Since its launch in April 2020, that fund is up 27%, while its peers and index are up about 11%. More recently, they’ve run the ETF version of the strategy.

BlackRock Emerging Markets ex-China Fund will fish in the same waters. It’s led by Chris Colunga, who manages BlackRock’s Emerging Europe fund, which is available only to non-US investors.

Value stocks

And, particularly, deep value.

It’s well known that value has lagged growth for a decade, driven by the inevitable consequences of a zero-rate / zero-inflation environment. That market has now expired, leaving value stocks trading at epic discounts to their own historical averages.

2022 saw a dramatic reversal. The Vanguard Value Index (VIVAX) dropped 2.5%, while its sibling Vanguard Growth Index (VIGRX) fell 34%. Their Small Cap Value Index Fund (VISVX) dropped 9.5%, while the Small Cap Growth Index Fund (VISGX) fell 29%. Value and growth tend to trade off market leadership, with one style easily capable of besting the other for five years or more. The chart below, from Dimensional Advisers, shows value outperformance both in the aggregate (about 400 bps since 1927) and annually (the yellow bars). In particular, you might note the pattern of the high inflation period of the 1970s and early 1980s.

The question is whether the recent outperformance by value is a head fake or the beginning of a period of extended dominance. GMO is clearly in the latter camp, arguing that growth stocks are still ridiculously expensive by historical standards (after the 2022 bloodbath, they still sport valuations higher than they have 88% of the time over the last half century) and value stocks are still ridiculously cheap by those same standards (lower than they’ve been 89% of the time).

The same pattern extends to the European markets (in the bottom 4% of their historical range) and the emerging markets (bottom 10%).

The problem is that not all parts of the “value” market are equally attractive. GMO breaks the market into “shallow value” and “deep value” cohorts. Because the whole US market remains expensive by historical standards, stocks barely into the cheapest half of an overpriced market are no bargain at all. The cheapest 20% of the market is incredibly cheap: the deep value stocks are in the lowest 8% of their historic range, and the shallow value stocks just above them are in the 86% of their range. What does that mean? In order for both sets to regress to the 50th percentile – that is, to be priced in a purely ordinary manner – the deep-value stocks would need to grow by 600%, and the shallow-value stocks would need to decline by 42%. “A value strategy in the US,” they suggest, “should be avoiding the ‘shallow value’ stocks that are mildly cheap relative to the market and focusing solely on the ‘deep value’ quintile.” By their estimation, the deep value might outperform the shallow value by 400 bps, and even the shallow value will outperform growth.

Most stocks that are deeply discounted have earned those discounts. They represent the securities of fundamentally flawed, mismanaged firms that consistently lose money; they are The Zombies. Because deep value stocks have been the worst possible niche in the market – “Deep value stocks were both the worst performing cohort from 2007-2020 and the group that didn’t have particularly obvious compelling attractions beyond their cheapness” (GMO) – every deep value fund has a miserable trailing record.

Funds with deep-value portfolios

  Portfolio 2022 returns
Aegis Value 64 deep value small- to micro-cap stocks, 2% cash, a market cap of $440M 10.5%, top 1% of small-value funds
The Cook & Bynum Fund Nine value stocks from small to large cap, 6% cash, 70% invested in Latin America 9.3%, top 1% among … emerging markets funds? A passion for South American Coca Cola
Pinnacle Value 49 deep-value microcap stocks, 35% cash, a median market cap of $170M 1.1%, top 2% of its peer group
Towle Deep Value 27 deep value small cap stocks, 10% cash, a median market cap of $2.5B -2.2%, top 10% of its peer group
LSV Value Equity 178 deep-value mid-cap stocks, fully invested, market cap of$22.5B. The managers are famous quants and behavioral researchers; Morningstar gushes about it. -6%, middling for a large-cap value fund

Bottom line

Life’s uncertain, a reality that’s maddening for some and exhilarating for others. A fundamental choice you face is how you’ll face the uncertainty in the market and how much of your life you want to spend worrying about it. We don’t pretend to have solutions, just perspectives. Begin by asking, “am I the Terrified One, the Exhausted One, or the Enterprising One?” and begin exploring the path laid out for each.

We wish you well.

The Investor’s Guide to Speculation: Three Opportunities to Pass On

By David Snowball

The central function of financial innovation seems to be to separate you from your wealth. There are some honorable exceptions – low-cost broad-based index funds surely among them – but those are exceptional. Recently bright people, some with incredibly flexible moral standards, have offered you new opportunities to enrich them. The appeal of each of these hustles is the same: it’s different this time! We’ve got the secret! And we’re willing to let you in on it.

Here are three examples of things you don’t need.

Non-fungible tokens

Or, more accurately, the brilliant digital innovation that follows NFTs on the front pages of every financial website and newsfeed in the world.

NFTs are digital files that, in theory, are capable of being owned, even if others have what appear to be identical copies of them. One advocate explains it this way:

Sales history for this NFT: minted 5/1/2021 and sold 78 times since. Opened at $2,220; sold in Jan. 2022 for $238,015 and Jan. 2023 for $96,779.

NFTs are designed as way for digital files to be secured in a way that ensures ownership and creates scarcity. Like physical art an NFT can be sold but the artist can retain the copyright, or they can offer it to the buyer, or decide the on a percentage of secondary sales an owner can have. (What are NFTs?)

Some continue to sell for tens of thousands of dollars, but so many have crashed so completely (posting “heartbreaking losses in value”) that there’s now a marketplace for dead NFTs. The only bright side of huge investment losses is the ability to use those losses to offset taxable gains elsewhere in your portfolio, thereby reducing your taxes.

Here’s the problem: you can’t realize the loss unless there’s someone who will buy the scrap from you. Enter Unsellable, which is willing to offer you a penny for your NFT if you pay the … well, about 400 times that much to take it off your hands.

NFT advocates remain upbeat about the future of their product, which means they remain upbeat about the prospect of separating credulous investors from their wealth. I would decline the opportunity.

Fine Art for the Masses

Rich people are different from you and me. They buy stuff we’re not able to. Good stuff. Hedge funds. (Which are mostly disasters.) Farmland. (Which was a great investment before it became a liquid investment class.) Small islands. (Ranging in price from a couple million to a few hundred million, they’re the ultimate illiquid holding.) Fine art. (Salvator Mundi, the da Vinci painting that recently sold for $450 million and which, as it turns out, might not actually be a da Vinci painting. But it looks good over the couch regardless.)

For the latter, at least, there’s now a way for little guys to get a piece of the action. MasterWorks invites you “to join an exclusive community investing in blue-chip art.” (Sidenote: if it was exclusive, they wouldn’t be inviting in the likes of you and me.) They promise a blue-chip portfolio of contemporary art, an asset class that has returned 13.8% over the past 25 years against the S&P 500’s 10.2% return. Art rises in periods of high inflation and is uncorrelated to stocks.

What possible catch might there be? First, the fund charges a 1.5% annual management fee and keeps 20% of profits, the very structure that doomed most hedge funds to mediocrity. Second, there’s no guarantee that you’ll be able to sell your shares on the secondary market at anything like their nominal value; MasterWorks plans to invest in “artists with momentum” and hold their works for 3-10 years. If you need the money sooner, you’re dependent on the secondary market.

Finally, fine art doesn’t actually make much money. RBC Wealth Management published a report on fine art as an investment class. Their conclusion was that (a) it was subject to fads and whim – contemporary art is all the rage now, but in a few years …? – and (b) it has long-term returns below the stock market’s.

Data shows that equities perform better than art over the long term. Over the past 20 years, the Mei Moses World All Art Index posted a compounded annual return of 5.3 percent versus 8.3 percent for the S&P 500 Total Return Index. That gap narrows over the past 50 years: the All Art Index returned 7.9 percent vs. 9.7 percent for the S&P Index.

Similarly, a 2013 Stanford Graduate School of Business study found that art investments don’t substantially improve the risk-return profile of a traditional portfolio. It found that the average annual return of paintings sold at auction from 1972 to 2010 was 3.5 percentage points lower than thought after adjusting for art that sold more frequently and at higher prices.

That is, the performance of “the index” is puffed up by the repeated, escalating sales of just a few super-hot pieces.


Augustana College is located in Rock Island, Illinois, an unassuming river town that was the epicenter of national financial instability in 19th century America. If only we had a nice cryptocurrency exchange, we could repeat the feat – and repeat it for the exact same reason – in the 21st century.

For 150 years of America’s history – from the mid-18th to late 19th century – virtually all of our money was funny money, sketchy scrip that offered more aesthetic than financial appeal. In pre-revolutionary America we were, in theory, using British money … but that meant that we were dependent on the British treasury to mint and ship enough coin to meet our needs. They did not. Early fans of financial engineering found a workaround: banks and businesses would simply print paper money carrying the face value of British coins. In theory, a bank with ₤100 of gold in its vault could issue an equivalent amount of paper pence, ha’pence, tuppence, and thruppence.

The suspicion, of course, was that a bank with rather less than ₤100 of gold might still have issued ₤100 of dodgy scrip, which made people reluctant to accept the money at face value.

The problem escalated after we won independence and didn’t have the vast British treasury to back our currency. (Reportedly, the folks in post-Brexit England have stumbled upon that same epiphany: sometimes, your grand political gestures really come back to bite you in the bum. The Guardian, 12/2/22, offered a sad piece on that slowly dawning realization: “As reality does its work, even those previously sympathetic to the Brexit cause look at it through new eyes. Suddenly the various stats that were once a blur begin to form a pattern.”) Without a national currency backed by a national treasury, money became almost entirely de-fi. That is, the US experienced the “decentralized finance” model celebrated by crypto-evangelists. Hundreds of banks printed their own currency, or, more correctly, hundreds of banks turned to The Rock Island National Bank of Rock Island to print their currency for them.

Pittsburgh beer lovers might celebrate Iron City dollars, courtesy of Rock Island.

Chip, whose academic career included a stint as one of the Fighting Tigers of Cobleskill, wanted us to share this Rock Island artwork with you as well.

The label “national currency” was … shall we say, aspirational? But then again, so was the term “bank.”

The two problems with private currency are strikingly modern: (1) people didn’t trust it, and (2) people were right not to trust it. A merchant in Cleveland might value a Cobleskill dollar at $.80 even if they didn’t doubt the First National Bank of Cobleskill, while a more skeptical soul in Baltimore might offer just $.60 for it. Since banks were neither insured nor regulated, they failed with some regularity, and their failures often created a contagion across the sector. When a bank failed, all of its currency became worthless, and all of its depositors’ accounts went to zero.

The first major American depression, called the Panic of 1819, lasted until 1821. The Panic of 1837 was the second-longest American depression, lasting roughly six years until 1843, with effects ranging from suicides to bank collapses. The Panic of 1857 triggered a stock market collapse and the liquidation of 900 mercantile firms and lasted until 1859.

The Federal Reserve picks up the summary for the period from the Civil War until the creation of the Federal Reserve:

Between 1863 and 1913, eight banking panics occurred in the money center of Manhattan. The panics in 1884, 1890, 1899, 1901, and 1908 were confined to New York and nearby cities and states. The panics in 1873, 1893, and 1907 spread throughout the nation. Regional panics also struck the midwestern states of Illinois, Minnesota, and Wisconsin in 1896; the mid-Atlantic states of Pennsylvania and Maryland in 1903; and Chicago in 1905. (Banking Panics of the Gilded Age)

We offer this extended history for the benefit of those who think events like the FTX collapse and the evaporation of trillions of value in the cryptocurrency markets are just “growing pains” that will soon pass. The mess created by private money in the 19th century lasted … well, a century and wasn’t resolved until the federal government stepped in and nationalized the issuance of currency, regulated banks, and created deposit insurance. From 2008 through 2015, for example, more than 500 US banks failed, but their depositors were protected by government insurance.

In short, the history of decentralized finance is a history of wild instability and failure. While you might hope “it’s different this time,” you need to be able to offer a concrete reason for why the problems of decentralization can be overcome. The government can’t come riding to your rescue, and some economists strongly argue that it shouldn’t even try: “let crypto burn” is, in their minds, far safer for the economy than letting crypto creep into the real economy.

Here’s the most responsible strategy for folks speculating in cryptocurrencies: in setting up your portfolio, enter the value of your crypto account at zero and keep it there. Crypto criminals stole $2 billion from accounts in 2022; Bitcoin dropped 60% in the year. The crypto universe lost over a trillion, and you’re heir to all of that. So recognize that $50,000 spent on any one of the 10,000 currencies in circulation might well be $50,000 flushed down the drain. If that’s appalling on the face, don’t buy it.

Bottom line

Desperate people do stupid things. Unscrupulous – and sometimes just careless – people help them do it. The most common “stupid thing” is believing in magical solutions to long-standing problems. NFTs were one. Crypto trading is surely another.

Don’t do that.

Don’t become “desperate people.” Live modestly. Invest regularly. Keep down your expenses, both personal (SUVs? Really? To go to the mall?) and portfolio. Gloat more about the money you’ve saved than the money you’ve spent. Plan for modest real returns in a diversified portfolio. Put down your phone. Get outside. Remember how to cook. Celebrate time with family.

Do that.

MFO Premium Webinar, 2022 Year End Review

By Charles Boccadoro

On Friday, 6 January, we will be conducting our year-end webinar to review funds and MFO Premium. If you can make it, please join us by registering here. There will be just one session this year: 9 a.m. Pacific (noon Eastern).

We will use MultiSearch Pre-Set screens and other custom criteria to review fund performance in 2022. MultiSeach is the site’s main tool, enabling searches with numerous screening criteria. We will also demo some of the many features across the site.

MFO Premium includes the following suite of search tools, several with free access (emboldened below):

  • MultiSearch
  • Great Owls
  • Fund Alarm (Three Alarm and Honor Roll)
  • Averages
  • Dashboard of Profiled Funds
  • Dashboard of Launch Alerts
  • Portfolios
  • Quick Search
  • Fund Family Scorecard

The site also enables the following analyses:

  • Charts
  • Compare
  • Correlation
  • Rolling Averages
  • Trend
  • Ferguson Metrics
  • Calendar Year and Period Performance

MFO Charts, as described here, was a significant upgrade this year.

Hope you can join us in the New Year!

Fortune favors the prudent

By Charles Lynn Bolin

(And by implication, frowns on celebrity endorsements)

Happy New Year! I wish everyone a prosperous 2023. It is that time of year again when investment companies, analysts, and pundits create outlooks for the coming year. The quote attributed to Dwight D. Eisenhower that “Plans are useless, but planning is indispensable,” is applicable as there are risks to the outlook, which is the first section in this article. The second section is my outlook and strategy for 2023. The final section is the outlook from the Federal Reserve, The Conference Board, and Vanguard. Links to other outlooks are included in the Appendix.

Thanks to the notice by David Snowball, I have become a premium subscriber to The Independent Vanguard Adviser. I use the Bucket Approach with several portfolios managed by financial advisors. I also follow a personalized Vanguard approach which is a low-cost Do-It-Yourself approach compared to higher-cost management services. “Keep it Simple.

Risks to outlooks

Most of the outlooks that I reviewed include a mild to moderate recession with short-term bonds doing well as the Federal Reserve raises the Federal Funds rate in the first quarter, with longer duration high-quality bonds performing well as interest rates plateau in the second quarter, and equities doing well in the second half of the year as the economy starts to recover from the recession. This is my base case, but what could go wrong?

The following figure shows real (inflation-adjusted 2020 Q1=100) Corporate Profits After Taxes (blue line) are trending lower. Real Personal Income (red line) is not keeping up with inflation. Real Personal Savings (green line) has declined below the pre-pandemic level as consumers dip into savings and inflation takes a bite. Credit card delinquency (purple line) is on the rise. Risks created by the bursting of the credit bubble will not be fully realized until the recession is underway.

Figure #1: Economic Indicators

Source: Created by the Author Using the St. Louis Federal Reserve FRED Database

Lance Roberts with Real Investment Advice believes that “disinflation risk is Wall Street’s blind spot.” His reasoning is that there will be a long lag in growth as the pandemic-era stimulus is depleted. He shows that the median 2023 Target for the S&P 500 on Wall Street is 4,000, with a range of 3,675 to 4,500. Mr. Roberts shows a range of possible outcomes based on earnings and valuations, most of which fall well below the median Wall Street estimate. In “Valuation Math Suggests Difficult Markets in 2023” at Seeking Alpha, Mr. Roberts estimates that without a recession, the S&P500 may fall 12.5% below current levels, while in a “mild recession,” the S&P500 may fall 22.5%. In the case of a severe recession, the S&P500 could fall another 40% from current levels.

To put this into perspective, the following figure compares the current bear market to the bursting of the Technology Bubble. The 2001 recession was “predicted” seven months in advance by Mr. Market, which continued to fall for sixteen months after the recession ended as valuations normalized. Bear markets can be more severe than the associated recession.

Figure #2: Comparison of 2000 and 2021 Bear Markets

Source: Created by the Author Using the St. Louis Federal Reserve FRED Database

Starting valuations are one of the determining factors of the severity of the bear market. Below is my composite of six valuation techniques where minus one is very unfavorable and positive one is very favorable. The bear market of 2022 brought equity valuations down, but they are still elevated for the current landscape. Valuations at the start of 2023 are no bargain.

Figure #3: Author’s Valuation Indicator

Source: Created by the Author

Doug Noland provides a detailed and comprehensive summary of immediate market conditions and risks in his Weekly Commentary on Seeking Alpha. In this Commentary, Mr. Noland covers global risks, including inflation, monetary tightening, hawkish shift by the Bank of Japan, cryptocurrency collapse, Russian war on Ukraine, deglobalization, military buildups, and Covid. He describes domestic risks, including high private debt levels, rising borrowing costs, earnings shocks, labor strikes, layoffs, lower bonuses, falling residential sales, and high outflows from equity and higher-risk credit.

To get a sense of what can go very wrong, read Megathreats by Nouriel Roubini, who describes ten interconnected threats: Debt Crises; Public and Private Failures; Demographic Time Bomb, Credit Boom-Bust Cycle; Stagflation; Currency Meltdowns and Financial Instability; New Cold War and the end of Globalization; Artificial Intelligence Technology Revolution; and Climate Change. He is well known for predicting the severity of the 2007 housing crisis and the ensuing financial crisis. Mr. Roubini is a professor at New York University’s Stern School of Business and served from 1998 to 2000 in the White House and in the US Treasury.

Prudent Investors should “maintain a margin of safety” and “beware of false prophets.”

My outlook and strategy for 2023

My starting 2023 outlook and strategy are as follows:

  • The Federal Funds rate will rise close to 5% by the end of the first quarter of 2023. I plan to match Treasuries with anticipated spending and withdrawal needs for the next several years. Two advantages of owning Treasuries directly are that they are low risk and not callable when rates fall.
  • The 10-year Treasury will rise toward 4% but will end 2023 near 3.5% as bond investors anticipate rates to fall. I plan on increasing duration with Total Bond Funds, Investment Grade funds, and inflation-protected bond funds during the second and third quarters.
  • As short-term Treasuries and CDs mature, I expect to increase my allocation to equities in the second half of the year with a tilt toward value and internationally developed equities.
  • I tentatively plan a Roth Conversion and combining a small, conservative savings plan with a more aggressive Roth IRA in the second or third quarter of 2023 with the effect of increasing allocations to equities.
  • I expect to end 2023 overweight in bonds because of locking in higher yields and expected lower long-term returns in equities. Deferring Social Security until age seventy results in my allocations to equity increasing over time as savings are used to cover some expenses.

I updated my Investment Model below with a few new indicators and techniques. My target allocation to risk assets (blue-shaded area) ranges between 35% and 65% and is currently 35% because of slowing growth, risks, and higher bond yields. Allocations to cash and short-term fixed income are at the maximum of 35% (green-shaded area) because interest rates have been rising and bond values falling. My approach has been influenced by or reflects the philosophies of The Intelligent Investor by Benjamin Graham; Mastering the Market Cycle by Mark Howards; Nowcasting The Business Cycle by James Picerno, Conquering the Divide by James B. Cornehlsen and Michael J. Carr, and Vanguard’s Time-Varying Asset Allocation Model [TVAA], among others. 

Figure #4: Author’s Investment Model Allocation

Source: Created by the Author

The following table contains my short list of mostly Fidelity and Vanguard intermediate bond funds that have low investments in junk-rated bonds (high yield). Yields are attractive. I have invested small amounts into Fidelity Investment Grade Bonds (FBNDX) and Vanguard Total Bond Market (VBTLX) and anticipate increasing allocations during the second quarter of 2023, as well to municipal bond funds for the tax benefits.

Table #1: Author’s Select List of Bond Funds for 2023

Source: Created by the Author Using Mutual Fund Observer MultiSearch

I favor actively managed global mixed asset funds, which have a tilt toward foreign-developed economies where valuations are lower. I like the more conservative Vanguard Global Wellesley Income Fund (VGYAX) starting in 2023 and increasing allocations to the more moderate Vanguard Global Wellington Fund (VGWLX) as the recession progresses.

I maintain allocations to the Columbia Thermostat Fund (Morningstar links: CTFAX / COTZX). As of November, it had an allocation to stocks of about 20%. Its current strategy to allocate between stocks and bonds is shown in the following table. If the S&P500 ends 2023 between 3,500 and 4,000, the fund will have between 20% and 35% allocated to stocks. In the event of a severe bear market, Threadneedle may allocate more than 75% to equities.

Table #2: Columbia Thermostat Allocation Schedule

Selected investment community outlooks

Federal Reserve:

From Chris Anstey, “Still Hawkish, Still Battling Markets: New Economic Daily” at Bloomberg, the following chart shows the Federal Reserve’s December Dot Plot Median (green line) where the Federal Funds rate rises over 5% next year and falling to 4% in 2024 which is still higher than the market anticipates (gray line). Bond market investors underestimate the Fed’s resolve to contain inflation. Since the Fed’s announcement on December 14th, long-term interest rates have risen. I expect this trend to continue as the Fed raises the Fed Funds rate. I currently favor the middle of the yield curve.

Figure #5: The Fed’s December Dot Plot

Source: Chris Anstey, “Still Hawkish, Still Battling Markets: New Economic Daily,” Bloomberg, December 15, 2022

The Conference Board:

  • We expect the US economy to go into recession as we enter 2023…
  • We expect inflation to remain above pre-pandemic trends for several years, if not longer…
  • We do not expect interest rates to fall until 2024 or later…
  • Following our expectation of near-zero growth in 2023, we expect US real GDP growth to recover in 2024. However, over the next decade, growth will be somewhat muted relative to pre-pandemic trends.
  • Disruptions brought about by the pandemic will have lasting effects on the drivers of US growth ahead, and there will be smaller contributions from labor, reflecting an aging demographic…

(Research Report, “Navigating the Economic Storm,” The Conference Board, November 22, 2022)


Vanguard expects GDP growth of around 0.25% over the course of 2023, inflation won’t reach 2% until 2024 or 2025, the Federal Funds rate to rise to 4.5% and remain there for the next twelve months before falling, and the 10-year yield to peak around recent highs of 4% to 4.3%. They suggest a tilt toward fixed income, value over growth, and Global ex-US equities. Vanguard advocates a balanced approach to investing, and one uses a time-varying asset allocation [TVAA] model described below.

TVAA methodology is appropriate for investors who are willing to take on active risk in the form of “model forecast risk.” For investors whose objectives and risk tolerances make it prudent to consider adjusting their asset allocations when market conditions materially change, the VAAM [Vanguard Asset Allocation Model], combined with time-varying VCMM [Vanguard Capital Markets Model] asset returns, provides a consistent and holistic way to analyze the trade-offs in time-varying portfolio solutions.

…In short, the TVAA [time-varying asset allocation] portfolio is inclined toward reducing equity risk because of the compressed equity risk premium and reallocating it toward fixed income with a credit tilt.

(Vanguard Research, “Vanguard Economic and Market Outlook For 2023: Beating Back Inflation”, Vanguard)


Caution is warranted for Prudent Investors entering 2023. My expectation is for a moderate recession, but I have a more pessimistic view of the stock market. “Hope for the best, but prepare for the worst.” It is worth remembering the adage, “Don’t fight the Fed!” My approach is to have Treasury and CD ladders mature regularly and to make small decisions as the year progresses, and “never catch a falling knife!”

Best Wishes for a prosperous 2023.

Appendix: Investment community outlooks

Allianz Global Investors: “2023 Outlook: Ready for Reset”, Allianz Global Investors, November 16, 2022.

Bank of America: “BofA Global Research Offers Economic and Market Outlook for 2023, Calling for Markets to Turn “Risk-On” Mid-Year,” Cision PR Newswire, December 12, 2022.

Blackrock: BlackRock Investment Institute, “2023 Global Outlook”, BlackRock

Charles Schwab: Schwab Center for Financial Research, “2023 Market Outlook: Cross Currents”, Charles Schwab, December 12, 2022.

Columbia Threadneedle Investments: William Davies, “2023 Chief Investment Officer Outlook”, Seeking Alpha, December 21, 2022.

Goldman Sachs: Economic Research, “2023 US Economic Outlook: Approaching a Soft Landing”, Goldman Sachs, November 18, 2022.

Morgan Stanley: Morgan Stanley Research, “2023 Global Investment Outlook: A Year for Yield”, Morgan Stanley, November 22, 2022.

Morningstar: Dave Sekera (CFA), “Where to Invest in Bonds in 2023”, Morningstar, December 14, 2022.

Nuveen: Global Investment Committee, “2023 GIC Outlook: Peaks and Valleys”, Nuveen, December 7, 2022.

Briefly Noted . . .

By TheShadow

Disruptors disrupted: the suite of Fidelity Disruptive funds is being converted to ETFs in June 2023. 

The funds are approaching their three-year anniversary, but only one has reached to $100 million AUM threshold. Fidelity offers that the conversion might provide “lower net expenses, additional trading flexibility, increased portfolio holdings transparency, and the potential for enhanced tax efficiency.”

Current Mutual Funds New ETFs Conversion Dates
Fidelity Disruptive Automation Fund Fidelity Disruptive Automation ETF June 9, 2023
Fidelity Disruptive Communications Fund Fidelity Disruptive Communications ETF June 9, 2023
Fidelity Disruptive Finance Fund Fidelity Disruptive Finance ETF June 9, 2023
Fidelity Disruptive Medicine Fund Fidelity Disruptive Medicine ETF June 9, 2023
Fidelity Disruptive Technology Fund Fidelity Disruptive Technology ETF June 9, 2023
Fidelity Disruptors Fund Fidelity Disruptors ETF June 16, 2023

J.P. Morgan Asset Management has filed SEC filings to convert four mutual funds into ETFs. The four J.P. Morgan funds being converted are the Limited Duration Bond Fund, the High Yield Municipal Fund, the Sustainable Municipal Income Fund, and the Equity Focus Fund. The two municipal funds are scheduled to be converted on July 14, 2023, while the remaining two funds are scheduled for conversion on July 28, 2023.

Mirae Asset Discovery Funds is reorganizing two mutual funds into exchange-traded funds. Its Emerging Markets Fund and Emerging Markets Great Consumer Fund will be reorganized into the Global X Emerging Markets ETF and Global X Emerging Markets Great Consumer ETF, respectively. If the reorganizations are approved by shareholders, the reorganizations are expected to occur on or about April 14, 2023.

T. Rowe Price has filed a registration filing for five transparent exchange-traded funds (ETFs). The five funds, T. Rowe Price Core Equity ETF, T. Rowe Price Growth ETF, T. Rowe Price International Equity ETF, T. Rowe Price Small-Mid Cap ETF, and T. Rowe Price Value ETF, are scheduled to launch on March 1, 2023. These ETFs will be actively managed. Presently, T. Rowe Price has a total of ten ETFs. Five of the ten ETFs are equity strategies, while the remaining five are bond strategies. The expense ratios and management were not disclosed in the SEC filings.

Vanguard Short-Term Tax-Exempt Bond ETF is in registration. The fund is planned to launch in the first quarter of 2023. The ETF is intended for investors seeking to generate tax-exempt yield in their portfolios while minimizing interest rate sensitivity. The ETF will have an estimated expense ratio of 0.07%, compared to 0.54% for the average short-term bond fund. The portfolio manager will be Stephen M. McFee.

Small Wins For Investors

Primecap Odyssey Aggressive Growth Fund, rated three stars by Morningstar, has reopened to new investors effective December 15. The fund has been soft-closed since January 2014. According to CityWire, the fund reopened due to:

… after existing shareholders pulled more money from the strategy last month than at any time in nearly a decade …In November alone, investors yanked $362 million, the fund’s largest single month of redemptions over at least the past 10 years.

Kopernik Global All-Cap Fund, rated five stars by Morningstar, will reopen to new investors effective January 3, 2023.

Old Wine, New Bottles

Eaton Vance is planning to reorganize three of its funds, Eaton Vance Special Equities Fund, Eaton Vance Global Small-Cap Equity Fund, and Eaton Vance Focused Global Opportunities Fund, into a newly formed series of the Calvert Funds. The reorganizations are expected to be completed during the third quarter of 2023.

First Eagle Fund of America will change its name to First Eagle Rising Dividend Fund on or about March 1, 2023. There will be some changes to the investment policy and strategy as well.

The Harbor High Yield Fund is being reorganized into the Harbor Scientific Alpha High-Yield ETF. The reorganization is expected to occur on or about the close of business on February 24, 2023.

Following Mr. Miller’s exit, Miller Opportunity Trust Fund changed its name to Opportunity Trust, effective December 19.

Parnassus Endeavor Fund changed its name to the Parnassus Value Equity Fund effective December 30.

Vanguard Short-Term Tax-Exempt Fund will change its name to Vanguard Ultra-Short-Term Tax-Exempt Fund, effective on or about February 28, 2023.

Off to the Dustbin of History

abrdn Emerging Markets Debt Fund will cease to exist on or about February 16, 2023.

Alger Weatherbie Enduring Growth Fund will be liquidated on or about March 23, 2023.

Amberwave Invest USA JSG ETF will be liquidated on January 20, 2023. The “JSG” was “jobs, security, and growth.”

AQR International Equity Fund will liquidate on or about January 27, 2023.

Columbia Acorn USA is slated to merge into Columbia Acorn “in the second quarter of 2023.”

Eaton Vance Emerging Markets Debt Fund will disappear on or about January 20, 2023.

Franklin FTSE Russia ETF will be liquidated. The ETF was approved to be liquidated on July 20, 2022. However, the SEC granted exemptive relief to suspend the right of redemption and, if necessary, to postpone the date of the payment of redemption proceeds until the fund completed the liquidation of its portfolio. The ETF may make one or more liquidating distributions. It is possible that the liquidation of the fund will take an extended period of time if circumstances involving Russian securities do not improve.

Franklin International Small Cap Fund will be liquidated on or about February 23, 2023.

Three Great Lakes Advisors funds were merged into two Cambiar funds on December 12, 2022. Great Lakes Disciplined Equity and Large Cap Value were both absorbed into Cambiar Opportunity (four-star, $325 million), while Small Cap Opportunity was merged into Cambiar Small Cap (three-star, $98 million). The funds had net assets of just $66 million and were a distinct afterthought in Great Lake’s $9 billion portfolio. Cambiar is a Denver-based “relative value” investment management firm with a billion in AUM, but it has seen over $500 million in outflows during 2022. Lipper categorizes Cambiar Opportunity as a multi-cap value fund that pretty consistently, though modestly, tops its peers. Small Cap is undistinguished.

IQ S&P High Yield Low Volatility Bond ETF, IQ Hedge Long/Short Tracker ETF, IQ Hedge Event-Driven Tracker ETF, IQ Hedge Macro Tracker ETF, and IQ Hedge Market Neutral Tracker ETF have been slated for liquidation on February 7, 2023.

Putnam PanAgora Risk Parity Fund crosses the final frontier on January 26, 2023

Virtus Seix Short-Term Bond Fund, Virtus Seix Short-Term Municipal Bond Fund, Virtus Seix U.S. Mortgage Fund, and Virtus Silvant Small-Cap Growth Stock Fund were liquidated effective December 16.

Wagner Select Fund will be reorganized into the Wagner Acorn Fund in the second quarter of 2023.

WCM International Long-Term Growth Fund will be liquidated on or about January 20, 2023. There’s a certain amount of irony to giving a long-term growth fund just 15 months before pulling the plug. An experienced team and a Morningstar Gold q-rating couldn’t save it in the face of a 40% drawdown and bottom 2% performance in 2022.

Manager changes

Tocqueville is out at the American Beacon Tocqueville International Value Fund, effective January 20, 2023, and EAM Global Investors is in. The fund is a large-cap offering which Morningstar affirms is “a solid offering on all fronts.” The fund’s new name, American Beacon EAM International Small Cap Fund, will reflect the change in advisor and strategy, which is apt to come with at least modest tax consequences since the current portfolio is just 4% small cap, but it also has only modest embedded capital gains. Similarly, Sound Point is out at American Beacon Sound Point Floating Rate Income Fund. First Eagle Alternative Credit assumes responsibility for the renamed American Beacon FEAC Floating Rate Income Fund on December 31, 2022.

William Miller III will no longer serve as the portfolio manager of both the Miller Opportunity Trust Fund and the Miller Income Fund, effective December 30.

Effective December 31, 2022, Larry Cordisco is no longer a portfolio manager of the Osterweis Fund or for Osterweis Growth & Income. Mr. Cordisco has been the firm’s co-CIO for core equity strategies for the past four years, and his LinkedIn profile now describes him as a “digital health founder” and co-founder of qlaro whose motto is “cancer is complex, we bring clarity.” Qlaro is an app that helps cancer patients sort through their treatment options; Mr. Cordisco’s bio there notes that he’s had to manage the care of family members with cancer three different times.” We wish him, his family, and his enterprise well. The Osterweis Fund is now managed by John Osterweis, Gregory Hermanski, and Nael Fakhry. The Osterweis Growth & Income Fund is under the care of a large team led by John Osterweis, Carl Kaufman, Gregory Hermanski, and Nael Fakhry, with Eddy Vataru, James Callinan, and Venkatesh Reddy chipping in. It’s a good group.

PIMCO Diversified Income Fund and PIMCO Low Duration Income Fund have tweaked their management teams to uncertain effect following two manager departures. Scott Mather took a leave of absence from managing Low Duration in October 2022 and retired in December. Jerome Schneider stays in place on the two-star Low Duration fund and is joined by three PIMCO veterans: Jelle Brons, Daniel Hyman, and Marc Seidner. Eve Tournier, the longest-tenured manager on Diversified Income, has departed, with Morningstar suggesting that she’s been gradually stepped back from the management. Effective December 6, 2022, Regina Borromeo and Charles Watford joined the team of Daniel Ivascyn, Alfred Murata, and Sonali Pier. Ms. Pier has been recognized as the winner of the 2021 U.S. Morningstar Award for Investing Excellence in the Rising Talent category.

On December 8, North Star Investment Management became the advisor to the Walthausen Small Cap Value Fund, rated three stars by Morningstar, effective December 15. North Star Investment Management manages the North Star Micro Cap Fund, the North Star Dividend Fund, the North Star Opportunity Fund, and the North Star Bond Fund. Gerard S.E. Heffernan Jr. had been the manager of the Walthausen Small Cap Value Fund since 2018, succeeding John Walthausen, who retired on July 30, 2021. Peter Gottlieb and Eric Kuby will be the new portfolio managers of the fund.