October 2023 IssueLong scroll reading

Briefly Noted . . .

By TheShadow

One of the two managers at Akre Focus (AKREX), Chris Cerrone, has resigned. Effective September 27, 2023, John Neff is listed as the sole manager of the consistently excellent, $13 billion large-growth fund. The fund has seen steady performance, but also steady outflows, since the retirement of founder Chuck Akre. Morningstar has placed the fund “under review,” which is certainly sensible and appropriate. That said, Mr. Neff has been co-managing the strategy since 2014. The portfolio holds fewer than 20 stocks, and the historic turnover ratio is 1%. The fund has trailed its large-growth peers on two occasions (2020 and 2023). In both cases, the market was narrow and frothy, and the fund produced entirely respectable absolute returns (20% and 10% YTD) for its investors. We do not believe that’s any immediate cause for concern.

Keith Long, co-founder and principal of Otter Creek Advisors, LLC, passed away on August 21.  The firm managed the Otter Creek Long/Short Opportunity Fund, rated five stars by Morningstar. Our condolences to his family, friends and co-workers.

The Securities and Exchange Commission has smacked a number of fund advisers for offenses of varying degrees of security. The most serious appears to concern the $70 billion DWS Funds family. The SEC found that DWS promised that the investment professionals would take into account “relevant ESG information.” They did not, and the firm has agreed to pay a $19 million fine. The SEC simultaneously found that the firm did not have adequate policies in place to avoid the risk of money laundering schemes. Other fund advisers sanctioned included William Blair, which will pay $10,000,000 for its failure to control its employees’ texting behaviors. It appears that Blair employees used their personal cell phones to text information that needed to be transmitted in a secure, monitored and archived channel. Wellesley Asset Management, the adviser to the Miller Funds, was found to have made “material misstatements and omissions in marketing materials” from 2015-2022; violations included misrepresenting its benchmark, using inconsistent methodologies, and representing hypothetical performance as actual performance. They voluntarily discontinued the practice in 2022 and will be paying a million-dollar fine.

TIAA now faces a second lawsuit over its May 29, 2023 data breach. The first suit was filed on August 8 and the second suit on August 31, both in the U.S. District Court for the Southern District of New York. The suits claim to represent the interests of 2.4 million TIAA investors. The suit alleged that TIAA allowed personal information to be “exfiltrated by unauthorized access by cybercriminals” as a result of their “impermissibly inadequate data security.”

At base, the allegation is that TIAA hired a subcontractor whose cybersecurity protections were lax and that the subcontractor had access to the files of millions of investors.

Vanguard has filed a registration statement for the Vanguard Core Bond and the Vanguard Core-Plus Bond ETFs.  Vanguard Core Bond ETF will offer exposure primarily to U.S. investment-grade securities with modest allocations to riskier sectors, such as U.S. high-yield corporates and emerging markets. Vanguard Core-Plus Bond ETF will be similarly constructed but will have the flexibility to add greater allocations in both U.S. high-yield corporates and emerging markets.  Vanguard Core Bond ETF will have an estimated expense ratio of 0.10%, while Vanguard Core-Plus Bond ETF will have an estimated expense ratio of 0.20%. Vanguard Core Bond ETF will be managed by Brian Quigley, Daniel Shaykevich, and Arvind Narayanan; Vanguard Core Bond ETF will be managed by the same trio plus Michael Chang. These groups manage the same portfolio management for their counterpart mutual funds. Vanguard intends to launch the ETFs at the end of the year.

Small Wins for Investors

Effective November 1, 2023, the shares of the GoodHaven Fund will no longer be subject to a 2.00%. We described GoodHaven’s mid-course correction in our July issue. They now boast top 1% performance YTD, for the trailing twelve months and for the past five years. In addition, they have top 10% performance for the past 36 months (as of September 2023). That’s been a remarkable and thoughtful turnaround.

Old Wine, New Bottles

AlphaCentric Strategic Income Fund is being reorganized into the AlphaCentric Strategic Real Estate Income Fund, which is scheduled to occur in November 2023

Et two, Aristotle? The five Aristotle funds have undertaken a bold rebranding. Each is removing the number two, technically “II,” from their names. Hence:

Current Fund Name New Fund Name
Aristotle Small Cap Equity Fund II Aristotle Small Cap Equity Fund
Aristotle International Equity Fund II Aristotle International Equity Fund
Aristotle Value Equity Fund II Aristotle Value Equity Fund
Aristotle/Saul Global Equity Fund II Aristotle/Saul Global Equity Fund
Aristotle Core Equity Fund II Aristotle Core Equity Fund

Touchstone Dynamic Allocation Fund will be converted into an ETF. The reorganization is expected to be completed on or about October 20

The Dustbin of History

The $56 million FPA U.S. Core Equity Fund, formerly the FPA U.S. Value Fund, which has had fewer good years than bad, will be liquidated on or about October 31.

NXG Global Clean Equity Fund will be wiped away on or about October 6.

SilverPepper, an adviser that Morningstar judges negatively (“SilverPepper fails to meet industry-standard stewardship qualities, culminating in a Low Parent Pillar rating”), has decided to liquidate its entire fund lineup. SilverPepper Commodity Strategies Global Macro Fund, SilverPepper Long/Short Emerging Markets Currency Fund, and SilverPepper Merger Arbitrage Fund will each celebrate Halloween 2023 by undergoing termination, liquidation, and dissolution.

Strategy Shares Halt Climate Change ETF will be liquidated on or about October 16.

TCW Emerging Markets Multi-Asset Opportunities and TCW Developing Markets Equity Funds will be liquidated on or about October 27.

Westwood SmallCap Growth Fund will be liquidated on or about October 20.

Ziegler FAMCO Hedged Equity Fund, which saw a catastrophic outflow at the end of summer, will be merged into DCM/INNOVA High Equity Income Innovation Fund on October 20, 2023. The previously announced plan was to do the dirty deed on September 29, but something came up.

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About TheShadow

The Shadow here! Like Mark, I’m a long-time member of the MFO community. I’ve started over 2300 discussion threads, most focusing on developments in the fund industry. I am a personal investor that was introduced to mutual funds when I was young to fund my college education. As I have grown older, I have expanded my mutual funds holdings to a point where I probably have too many; however, this year they all did extremely well due to the overall performance of the market. I work in the financial industry regulating the consumer finance industry in my state. My hope for the months ahead is that I might share word of developments in the finance industry – the comings and goings, launches and liquidations, the fun and the follies – with you.