Monthly Archives: May 2024

May 1, 2024

By David Snowball

Dear friends,

Welcome to the May issue of Mutual Fund Observer. We’re glad you’re here.

May marks the end of my 40th year of teaching at Augustana College. (And no, they’re not free of me yet. I’m back again in the fall!) It’s an amazing place that has grown a lot over the course of my career. We were founded in 1860 by educated immigrant parents who were anxious to preserve the traditions of their (Scandinavian) homelands while helping their children compete in a strange new world. We were a small school dedicated to helping the children of immigrants … and their native-born neighbors.

In 1984, when I arrived, we were “an A+ school for B+ students.” Today we’re a college that has a legitimate international draw – nearly 20% of our incoming class are international students – and an ongoing sense of social responsibility: 22% of our students come from low-income families, 22% are first-gen students, 23% are domestic students of color.

I wanted to mention all of that as a way of reassuring folks who’ve been watching news of startling protests at a handful of high-visibility colleges in the past couple of weeks. You’ve seen rowdies and buildings occupied and the insanity of sending riot police onto campuses. That’s horrifying.

But that’s not actually the life of college students across the country. At Augie and the many other schools I have contact with, life is about the rhythm of the end of an academic year. Final exams. Angst about jobs and friends and internships. Hopes for the summer and the seasons beyond. It’s about capstone presentations and Last Lectures. It’s about training Viking Pups, a student-led effort to train service, facility, and therapy dogs. It’s about a bunch of stuff that would make you insanely proud and hopeful, but which never warrants much attention.

Be of good cheer, dear readers. We are – one and all – more sensible than we’re led to believe.

In this month’s Observer

We’re packing a remarkable number of funds into just a handful of articles. Lynn Bolin looks at strategies for tax-efficient investing. The Shadow works through another dozen stories of change in the industry. And, in a first, we’ve partnered with the folks at Morningstar to think quality thoughts. I walk through “the quality anomaly,” the persistent pattern in which funds investing in high-quality stocks have both higher returns and lower volatility than the market. We recommend two funds that represent core holdings for investors interested in profiting from the quality anomaly while Robby Greengold of Morningstar offers up a dozen more that might serve to round out a portfolio. In addition, we profile one of the newer members of Rajiv Jain’s GQG family: GQG Global Quality Dividend Income Fund, a fund for equity investors facing a “higher for longer” world.

What’s in a name?

Many parents give their children names that express their hope for a bright future (“Prince”) or to help them stand apart (“X Æ A-12 Musk”), as well as to honor family traditions or long friendships (I’m named after our family doctor, for instance). There’s a rich field of research into the effects of naming, including the finding that girls with gender-neutral names (“Alex” rather than “Isabella”) are more likely to persist in, and thrive in, traditionally male-dominated fields; that easy to pronounce names are associated with greater likability and likelihood of professional advancement, while names that are seen as hyper-distinctive, hard to spell or hard to pronounce tend to be associated with exceptional life challenges.

This is my way of saying, “Sorry for ignoring you Penn Mutual AM 1847 Income Fund (PMEFX). You deserve better but, really, I thought you were some sort of insurance product. Maybe some sort of bonds-plus portfolio? “Blame it on the name.”

PMEFX was commended to me by an MFO reader, shipwreckedandalone, who wondered why we hadn’t paid attention to it. When I asked what drew their attention to the fund, they replied,

Cipolloni managed Berwyn Income before the buyout. Lee Grout had a stock-picking process at Berwyn. PMEFX uses high-yield corp credit. B and BB securities mostly. Holds nothing below B. Shorter duration. Key to strategy is to stay with smaller issues with more cash than debt on the balance sheet. Free cash flow positive holdings. Convertible bonds. He prefers bonds with change of control provisions. 33% equities. Mostly small caps. Bottom line …he prefers “yieldy” holdings bonds and stocks with income while not allowing large drawdowns which is my portfolio objective. Outperformed the iconic VWINX in every metric since inception. I also like his age…will not be retiring soon and force me to make a decision. Thank you for this website, great source of info.

Well, okay then! You had me somewhere between “Berwyn Income” and “outperformed Vanguard Wellesley Income,” a five-star, $50 billion fund.

So, let’s unpack things. There was a very distinctive boutique fund named Berwyn Income. Because it’s hard running a tiny shop, Berwyn was sold to Chartwell. The fund continued under its old name, team, and strategy. Morningstar’s Patricia Oey in 2018, after the sale of Berwyn to Chartwell but before the disappearance of the management team:

Berwyn Income is a solid option for investors comfortable with a flexible and contrarian conservative-allocation strategy. The fund has a disciplined process, below-average fees, and good downside protection.

Over Cipolloni’s tenure as manager, the fund has turned in impressive results, outpacing the allocation– 15% to 30% equity Morningstar Category by 2.7%, annualized, through November 2018. And over the past decade, the fund’s risk-adjusted returns landed in the category’s top decile. This performance was achieved through asset allocation and security selection, which illustrates the capabilities of this small team.

Investors here remain in good hands (December 7, 2018).

But not for long. In March 2016, Berwyn’s long-time adviser, Killen Group, was sold to Chartwell Investment Partners. One condition of the sale was that Mr. Cipolloni and the team remain for three years. They did. Then, three years and a day later, they left. We noted in March 2019, three months after Oey’s analysis, that

The unexplained departures of Messrs Cipolloni and Saylor from Berywn Income (BERIX) is a game-changer and a fund changer. The pair had been managing the fund together for a dozen years with a distinctive go-anywhere approach. They departed rather abruptly in February, causing Morningstar’s analysts to downgrade the fund and Morningstar to declare it to be “a new fund.”

When the team left, Chartwell chose to rename the fund Chartwell Income and incorporate two of their other strategies into the rechristened fund. Chartwell itself was sold in 2022 to Carillon Tower Advisors, which shifted its focus again. In February 2024, the fund became Carillon Chartwell Real Income, a TIPS fund. So, the ticker symbol BERIX lives on, but the old fund does not.

Except that it does, as the Penn Mutual AM 1847 Income Fund, run by the Berwyn Income team. Remarkably, it even charges a little bit less than it did years ago when it was a much larger fund. The only notable difference from the original is that 1847 can own 40% stocks rather than 30%.

Driven by a bottom-up, value-based investment process, the Fund employs a flexible asset allocation with a 40% common stock limit (at purchase) balanced with investment-grade corporates, high-yield bonds, convertible bonds, and preferred stock. The goal is to produce sustainable income and positive total returns in excess of the category average over a full investment cycle.

The managers stress their commitment to limiting downside risk, avoiding overheated sectors, and pursuing asymmetric opportunities:

our “willingness to go where we see value, move against the crowd and avoid obvious risk are other key hallmarks that guide the Fund through most market environments. This strategy requires a common sense approach to ensuring that for each investment made in the portfolio that we are getting, in our opinion, a reasonable potential return without accepting more risk than necessary. Simply put, if we do not believe we will receive an adequate amount of compensation/total return for the risk we are assuming, we will wait. And if our data shows that we are receiving a good balance of potential reward versus risk, we will act. This philosophy has helped to avoid making big mistakes by staying away from overheated/overvalued markets and investing aggressively when the odds and value are in our favor.”

The team did, indeed, excel in the face of a series of near-catastrophic years including 2008.

Since inception, the 1847 fund has outperformed Wellesley as well as both conservative and moderate Lipper peer groups. Morningstar designates it as a four-star fund.

  APR Max DD Sharpe ratio Ulcer Index Downside dev Yield
PMEFX 2.5 -12.4 -0.3 4.5 6.1 4.6%
Vanguard Wellesley 2.1 -14.7 -0.07 6.7 7.0 3.4
Conserv alloc 0.9 -16.8 -0.22 8.7 6.7 2.4
Moderate alloc 3.0 -19.7 0.02 9.6 8.3 2.0

On the whole, Penn Mutual AM 1847 Income Fund deserves more investor attention … and a much snappier name.

The ARK is taking on water

Apropos our discussion of quality investing, investors are increasingly voting with their feet when it comes to the high-profile / low-quality portfolios offered up by ARK Investments. Cathie Wood’s shop has seen $2.75 billion in outflows in the past 12 months including pulling “a net $2.2 billion from the six actively managed ETFs at her ARK Investment Management this year, a withdrawal that dwarfs the outflows of 2023” (“Wood’s Popular ARK Funds Sink, Investors Withdraw $2.2 Billion,” Wall Street Journal, 4/24/2024, p 1). A palindromic date: 4/24/24!

Derided as “more vulnerable than visionary” by Morningstar, her flagship fund is down 14% YTD. Its relative returns in the past five years, including 2024: top 1%, bottom 1%, bottom 1%, top 1%, bottom 1%. Morningstar’s snapshot of the quality of the stocks in the portfolio is telling:

Global X boards The Trump Train

According to Morningstar, Global X Social Media ETF (SOCL) is the fifth fund to board the Trump Train. A bit over 1% of the ETF’s portfolio is invested in Trump Media (DJT). Morningstar now estimates the stock’s fair value at $70 / share, trailing 12 month revenues of $4 million.

In celebration of two anniversaries

This month marks the 12th anniversary of the launch of the Mutual Fund Observer, a site dedicated to carrying on and building on, the tradition of FundAlarm.

We’ve been honored by the company of two-and-a-half million readers over the years, as well as by the work of a team of amazingly talented volunteers (Charles Boccadoro, maestro of MFO Premium; Ed Studzinski, curmudgeon-at-large and former co-manager of Oakmark-Balanced; Devesh Shah, co-creator of the VIX index; Lynn Bolin, retired engineer, Habitat volunteer and data maven; The Shadow, whose true identity is unknown even to those closest to them, and a dozen more) and the amiably disagreeable denizens of the MFO discussion community. Thanks, blessings, and cheers to you all.

Today also marks the one-week anniversary of Chip and my marriage. On Friday, April 26, 2024, we were married in a small civil ceremony in the company of our sons and two old friends.

Chip has been my constant companion for the past 14 years, and the source of more joy and comfort than you could imagine.

Thanks, as ever …

To our faithful Regulars and to the happy reinforcements offered by this month’s Irregulars! The rhythm of life hasn’t allowed us a honeymoon. As her college’s chief information officer and information security lead, Chip needed to attend the Educause Conference in Minneapolis this week. I tagged happily along, writing from an ancient laptop perched on a hotel room table. We’re debating whether it’s our conferencemoon or honeycon. In any case, we’re rather short on resources.

In our June issue, we’ll happily recognize this month’s supporters by name. Heck, if you’d be willing to share a selfie (or a selfie of your favorite pet), we’d include that too. And if anyone else would like to crowd that happy and generous crew, please consider supporting MFO.

In mid-May, I’ll be joining an investor retreat with the folks from FPA while Devesh meets the  Artisan gang. Let us know if there’s something you’d like us to raise with them. In June, I’ll be attending the Morningstar Investment Conference at the Navy Pier. That should be interesting. Wave if you’d like to find time to chat.

Also in June, our long-brewing article on infrastructure investing and two fund profiles!

See you then!

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Financial Planning For Tax Uncertainty

By Charles Lynn Bolin

Since retiring nearly two years ago, I have been aligning our assets with tax characteristics of our accounts following the Bucket Approach. In this article, I review the tax laws that sunset at the end of next year, President Biden’s proposed tax changes, tax characteristics of account types, and provide example funds for these accounts.


Key Points: Parts of the 2017 Tax Cut and Jobs Act will expire at the end of next year.

The Federal deficit as a percentage of gross domestic product has been increasing since the early 1970’s exasperated by the Financial Crisis and COVID Pandemic with the exception of 1997 through 2001 during Bill Clinton’s Presidency. I believe this is unsustainable and that the solution includes both constrained spending and higher taxes.

The Patriotic Millionaires point out that the 2017 Tax Cuts and Jobs Act (TCJA) “disproportionately benefited the rich, but it bears repeating because many of the provisions of the TCJA expire in 2025.” In “A Closer Look”, they state:

The TCJA implemented a number of changes to the tax code that benefited low-income households, most notably raising the standard deduction and doubling the value of the Child Tax Credit. But the fact remains that its largest provisions – among other things, slashing the corporate tax rate from 35% to 21%; reducing the top marginal individual income tax rate from 39.6% to 37%; doubling the estate tax exemption from $11 million to $22 million (for a married couple) – overwhelmingly worked in the interests of the wealthy. The end result? In 2025, the TCJA will boost after-tax incomes of households in the top 1% by 2.9%, while households in the bottom 60% will see a 0.9% increase. “

Anna Jackson wrote “7 Facts About Americans and Taxes” for the Pew Research Center saying, “A majority of Americans feel that corporations and wealthy people don’t pay their fair share in taxes, according to a Center survey from spring 2023. About six in ten U.S. adults say they’re bothered a lot by the feeling that some corporations (61%) and some wealthy people (60%) don’t pay their fair share.” About three-quarters of Democrats and Democratic-leaning independents say they’re bothered a lot by the feeling that some wealthy people (77%) don’t pay their fair share. Over forty percent of Republicans and GOP leaners say this about the wealthy.


Key Point: The Biden Administration proposes raising taxes on the ultra-wealthy to reduce inequality and the Federal deficit.

Fidelity Wealth Management writes in “The Latest Biden Tax Proposal” that the Biden Administration’s proposed tax changes “are unlikely to become law given obstacles in Congress.” They add that “it may be wise to consider certain strategies in anticipation of a future high-tax environment.” “Generally speaking, the income tax changes laid out in the budget would impact a very small number of taxpayers if they were implemented—specifically, those who earn more than $400,000 in annual income.” Fidelity lists the proposed changes:

  • The top individual income tax rate would rise to 39.6% from 37% for income above $400,000 (single filers) or $450,000 (married filing jointly).
  • The net investment income tax rate would rise to 5% from 3.8% for those earning more than $400,000 in regular income, capital gains, and pass-through business income combined. The additional Medicare tax rate for those earning more than $400,000 would also increase to 5% from 3.8%.
  • Qualified dividends and long-term capital gains would be taxed as ordinary income, plus the net investment income tax, for income that exceeds $1 million.
  • Transfers of property by gift or death would trigger a tax on the asset’s appreciated value if in excess of the applicable exclusion.
  • Roth IRA conversions would be prohibited for high-income taxpayers, and “backdoor” Roth contributions, where after-tax traditional IRA contributions can be rolled into a Roth IRA despite income limits, would be eliminated.

It is important to recognize that long-term investments have the additional benefit of stock appreciation growing tax-free until sold in addition to the lower capital gains tax rate. The US is competitive globally on taxes. According to the Tax Foundation, twelve of the countries in Western Europe have a capital gains tax rate of 26% to 42%. However, most countries use the Value Added Tax [VAT] based on consumption while the US is based more on income. A better comparison is total taxes paid as a percentage of GDP. The Tax Policy Center wrote that “In 2021, taxes at all levels of US government represented 27 percent of gross domestic product (GDP), compared with a weighted average of 34 percent for the other 37 member countries of the Organisation for Economic Co-operation and Development (OECD).” There are efforts for global tax reform and The World Economic Forum describes that “136 countries have signed a deal aimed at ensuring companies pay a minimum tax rate of 15%” in order to reduce tax avoidance.

In this changing tax landscape, Fidelity Wealth Management describes six important steps to building a well-thought-out investment strategy that is flexible, suited to your unique situation, and built to withstand the most difficult market conditions.

  1. Start with a firm understanding of your goals and needs
  2. Build and maintain a well-diversified portfolio
  3. Take advantage of tax-smart investing techniques
  4. Stick to your plan and stay invested
  5. Involve your family when planning and making decisions
  6. Consider partnering with a trusted financial professional


Key Point: The Bucket Approach can be aligned to be tax-efficient.

Comments from Readers are that the Bucket Approach is too complicated or there needs to be more buckets. The quote attributed to Albert Einstein, “Make everything as simple as possible, but not simpler” is appropriate for the Bucket Approach.

Christine Benz at Morningstar wrote “The Bucket Approach to Building a Retirement Portfolio” which describes the simplistic concept of segregating assets into short-, intermediate, and long-term buckets. She goes into more detail in “The Bucket Investor’s Guide to Setting Retirement Asset Allocation” in which she provides a dose of reality:

“The preceding steps all relate to setting a retirement asset allocation for your total portfolio. But the reality of positioning your actual retirement portfolio is apt to be messier, complicated by the fact that you’re likely holding your assets in various tax silos (traditional tax-deferred accounts like IRAs, Roth accounts, and taxable accounts), each with its own withdrawal rules and tax implications.”

Ms. Benz adds the final component of withdrawal strategies and taxes in “Get a Tax-Smart Plan for In-Retirement Withdrawals” where she says, “it’s usually best to hold on to the accounts with the most generous tax treatment while spending down less tax-efficient assets.”

Finally, Ms. Benz provides some examples of tax-deferred and tax-efficient portfolios for savers and retirees in “Our Best Investment Portfolio Examples for Savers and Retirees”. In Figure #1, I compare her model portfolios for conservative investors at Vanguard. One generalization is that Bucket #1 contains cash, Bucket #2 contains mostly bonds which are taxed as ordinary income, and Bucket #3 contains mostly stock. In the MFO April Newsletter, I identified the Vanguard Tax-Managed Capital Appreciation Admiral Fund (VTCLX) to be a single long-term fund for a tax-efficient account.

Figure #1: Tax-Deferred and Tax-Efficient Model Portfolios for Vanguard Funds 

Source: Morningstar


Key Point: Investment location and withdrawal strategies can be adjusted to meet different or multiple goals taking into account taxes.

How to Make Retirement Account Withdrawals Work Best for You” by Roger Young, CFP, at T. Rowe Price Insights, is an insightful article. Mr. Young says, “Unfortunately, the conventional wisdom approach may result in income that is unnecessarily taxed at high rates. In addition, this approach does not consider the tax situations of both retirees and their heirs.”

Figure #2 shows the “Conventional Wisdom” for withdrawal strategies where one withdraws first from taxable funds, then tax-deferred fund elective withdrawals, then RMDs, and finally withdrawals from Roth IRAs. Mr. Young points out that the conventional “approach results in unnecessary taxes during years 3 through 17”.

Figure #2: Conventional Approach to Retirement Withdrawals

Source: T. Rowe Price

He also shows the tax characteristics of different types of accounts as shown in Table #1.

Table #1: Tax Characteristics of Different Assets

Source: T. Rowe Price

The article considers three objectives that retirees may have:

  1. Extending the life of their portfolio
  2. More after-tax money to spend in retirement
  3. Bequeathing assets efficiently to their heirs

While the examples may not fit everyone’s situation, the concepts can be used to personalize a financial plan.

Another way of using after-tax accounts tax efficiently is using municipal funds.  Fidelity Money Market Fund Premium Class (FZDXX) has a current annualized yield of 5.15% while Fidelity Tax-Exempt Money Market Fund Premium Class (FZEXX) has a yield of 3.76% or 27% lower than FZDXX. To be in the 2023 24% federal marginal tax bracket, one’s adjusted gross income would be between $95,376 and $182,100 for a single tax filer and $190,751 and $364,200 for married filing jointly. For income higher than these brackets, owning municipal money market and bond funds may make sense. There are other factors to consider as well.

Medicare Premiums 2024: IRMAA for Parts B and D” by Donna Levalley at Kiplinger describes how Medicare Parts B and D are increased based on income. Income from tax-exempt funds is not included in Adjusted Gross Income for federal taxes; however, they are included in Modified Adjusted Gross Income (MAGI) for Medicare Premium calculations.

Ben Geier (CEPF) wrote “IRA Required Minimum Distribution (RMD) Table for 2024” at Smart Asset describing how RMDs increase with age based on the IRS’ Uniform Lifetime Table. Required Minimum Distributions start at about 3.8% of tax-deferred assets at age 73 but increase to over 6% at age 85 which when combined with pensions, Social Security, and investment income, may push a retiree into a higher tax bracket or impact Medicare Premiums.

For those with a large percentage of assets in tax-deferred Traditional IRAs and 403b plans, the time in retirement before starting to draw Social Security and/or before RMDs start is an ideal time to convert a traditional IRA into Roth IRA while income can be kept low. In the event that the 2017 Tax Cuts and Job Act expire at the end of 2025, one may consider that there are advantages to doing a Roth Conversion while taxes are lower.


Key Point: Here is an example template for tracking the Bucket Approach for multiple account types.

Table #2 is a template that I use to help friends and family as well as myself with financial planning. It starts by listing accounts in order of withdrawals. The accounts should be aligned for risk and tax efficiency. The allocation to each bucket depends upon time horizon, amount of savings, guaranteed income, expenses, and risk tolerance.

Table #2: Author’s Financial Planning Tool Template

Source: Author

My strategy is to do moderate Roth Conversions for the next few years until RMDs begin. Bucket #1 (Living Expenses) will be replenished from Traditional IRAs in Bucket #2. I will continue to meet with my Financial Planners and adjust as justified.


Key Point: Potential funds are listed for each bucket and account type.

For those wishing to minimize taxable income, Bucket #1 might contain conservative municipal money markets and bond funds such as those shown in Table #3.

Table #3: Bucket #1 (Short Term): Tax Efficient Funds – 1 Year Metrics

Source: Author Using MFO Premium Multi-Search Tool and Lipper Global Data Feed

Tax-deferred accounts are ideal for holding tax-inefficient bonds that are taxed as ordinary income in Bucket #2. They may contain mostly tax-inefficient bond funds such as those shown in Table #4. Accounts later in the withdrawal order may have higher allocations to stocks where tax efficiency is not a priority. Fidelity Advisor funds are only available to those using their wealth management services.

Table #4: Bucket #2 (Intermediate Term): Funds for Tax Deferred Accounts – 1.5 Year Metrics

Source: Author Using MFO Premium Multi-Search Tool and Lipper Global Data Feed

Bucket #3 will have a higher allocation to stocks in tax-efficient after-tax accounts as shown in Table #5. These are usually index funds or those with low turnover. Roth IRAs are not limited to tax-efficient funds and are shown in Table #6. Roth IRAs may be ideal for actively managed funds with higher turnover and/or higher dividends.

Table #5: Bucket #3: Funds for Taxable Accounts – 5 Year Metrics  

Source: Author Using MFO Premium Multi-Search Tool and Lipper Global Data Feed

Table #6: Bucket #3: Funds for Roth Accounts – 5 Years Metrics

Source: Author Using MFO Premium Multi-Search Tool and Lipper Global Data Feed


The concepts in this article are not new. Changing my mindset from saver to retiree was new for me. I had a financial plan and worked with Financial Planners, but changes brought new enlightenment. The Planners have discussed more changes for later in the year. Financial Planning is a journey, not a destination.

One of the items on my Colorado Bucket List is to visit Yellowstone Park. I have now booked that trip and am busy planning my next adventure on what to see and do. In the past month, I have taken a day trip to a nature area and another to the Drala Mountain Center. Life in retirement is great!

GQG Global Quality Dividend (GQFPX / GQFIX)

By David Snowball

Objective and strategy

The strategy is to assemble a portfolio of 35-70 stocks. The target universe is high-quality, dividend-paying securities of U.S. and non-U.S. companies, including those in emerging market countries. GQG Partners primarily relies on fundamental, rather than quantitative, research to evaluate each business based on financial strength, sustainability of earnings growth, and quality of management. The investment strategy is quality first; from the pool of firms that meet its quality standards, it goes looking for undervalued companies with substantial dividends. GQG is more typically a value than a growth investor.

As of May 2024, the fund owns 45 stocks with an average market cap of $150 billion. About 30% of the portfolio are US companies, 5% resides in cash and the remainder in international stocks. Its direct US exposure is about 60% of its peers and its emerging markets exposure (about 25%) is about ten times its peer average.


GQG Partners. GQG stands for Global Quality Growth, which represents a sort of touchstone for founder Rajiv Jain. Mr. Jain managed 15 funds with $50 billion in assets for the 100-year-old Swiss firm Vontobel before leaving to start his own firm in 2016. Headquartered in Ft. Lauderdale, Florida, but listed on the Australian Stock Exchange, GQG has seen meteoric growth driven both by faith in Mr. Jain’s abilities and by consistently top-tier performance by every one of the firm’s strategies. The firm now has 195 associates and manages $143 billion in assets. They advise six US funds and sub-advise two others, while also providing separately managed accounts and collective investment trusts for European and other investors. As of May 1, 2024, every fund, either for US or European investors, that is eligible for a Morningstar rating, has earned five stars.


Rajiv Jain, Brian Kersmanc, Sudarshan Murthy and Siddharth Jain. Rajiv Jain is the firm’s founder, CIO, and lead portfolio manager. Mr. Kersmanc joined GQG in 2016 as a senior investment analyst. Prior to that, he had six years at Jennison Associates. Mr. Murthy also joined GQG as an analyst in 2016 after spending five years at Matthews International Capital. Siddharth Jain joined the firm in 2021 after spending a year at Warburg Pincus. He is a graduate of the University of Chicago.

Strategy capacity and closure

By Mr. Jain’s calculation, there are no practical capacity constraints as the strategy tends to hold highly liquid mega-cap names such as AstraZeneca, Philip Morris, and Coca-Cola.

Management’s stake in the fund

Mr. Jain has invested over $1 million in this fund and, indeed, in each of GQG’s funds. His comanagers have no recorded stake in this fund, though they have invested in their firm’s flagship Emerging Markets fund.

Opening date

June 30, 2021

Minimum investment

$2500 for Investor shares, $500,000 for Institutional shares

Expense ratio

0.79% for Investor shares and 0.68% for Institutional shares on assets of $115 million (as of April 2024)


GQG Quality Dividend Income is designed as a core holding driven by three distinctive concerns: quality first, buying at a fair price, and finding sustainable dividend income. While the fund is young, the strategy is long-tested, and it has performed well in the not-quite-three years of its existence. Since Quality Dividend represents the income-rich end of Quality Equity’s investing universe, we’ve included both that fund and Quality Dividend’s peer group for comparison.

Performance, October 2021 – March 2024

  APR Sharpe ratio Ulcer index Max drawdown Standard dev Downside dev Batting average Yield
GQG Partners Global Quality Dividend Income 11.06% 0.53 4.31 -15.03 14.67 9.32 .670 3.53
GQG Partners Global Quality Equity 15.81 0.76 5.88 -17.98 16.54 9.94 .600 1.17
Global Equity Income 5.10 0.0 9.04 -21.54 16.26 11.08 .500 3.26

How do you read that table?

APR / annual percentage return means total raw returns. Quality Dividend more than doubles its peer group average, though investing in more established companies meant that it trailed its five-star sibling by a bit.

Sharpe ratio and Ulcer index are measures of risk-adjusted returns. The Ulcer Index incorporates the depth and duration of a fund’s maximum drawdown in its calculation. A higher Sharpe ratio signals higher risk-adjusted returns while a lower Ulcer index signals … well, smaller ulcers. Quality Dividend leads both its sibling and its peer group here, as it does in every subsequent measure of volatility.

Maximum drawdown, standard deviation, and downside (or “bad”) deviation measure a fund’s volatility. In each case, smaller is better.

Batting average represents the percentage of months in which a fund leads its peer group. Quality Dividend beat its peers 67% of the time while Quality Equity built a strong record against a different peer group, winning in 60% of months.

The short-term record is great but the question is, are there reasons for long-term investors to find the fund appealing? There are three arguments for considering GQG Quality Dividend Income Fund as a core holding, most especially for folks interested in income and stability as much as total return.

One, investing in quality stocks purchased at reasonable prices is a good idea. “Quality” tries to capture the notion that a firm’s earnings are not a flash-in-the-pan phenomenon where some happy combination of circumstances led to a windfall. Quality stocks are those that compound wealth steadily, consistently, and predictably over long periods. The GQG Partners argue that assessments of quality must be forward-looking (what will a firm do over the next five years?) rather than the backward-looking (what did the firm do over the past five years?) strategy embedded in many passive or smart beta funds.

One key element of a forward-looking assessment is stronger free cash flow margins (the percentage of total corporate revenue that’s free cash flow) than their peers “demonstrating some type of competitive moat around their businesses, which helps us gain conviction in their ability to sustain their dividends.” Other measures are consistent earnings growth, stable margins, little or no debt, and lots of dry powder.

The research is painfully clear: across different industries, time periods, and countries, high-quality stocks achieve the impossible: they produce both higher total returns and lower volatility than the market as a whole. Their advantage is particularly dramatic in falling markets, a phenomenon we examined in greater depth in “The Quality Anomaly,” May 2024.

Two, investing in dividend-paying stocks is a good idea. In ebullient, rising markets, investors tend to bid up the price of sketchy stocks in the ill-founded belief that they’ve found The Next Big Thing and are going to ride it to the moon. In less hospitable markets, however, dividend-paying stocks can provide crucial advantages for investors. Our current reality is dominated by abnormally high and “sticky” rates of inflation. In response, the Federal Reserve has reiterated a ”higher for longer” mantra; instead of the six to seven interest rate cuts that investors anticipated at the beginning of 2024, we may see no cuts at all. Optimists now hope for two small reductions. That’s a problem for leveraged companies that have experienced negative cash flows and are living on their lines of credit. That credit has become dramatically more expensive and less available. At the same time, high interest rates make Treasury bonds an attractive alternative to stocks.

GQG argues that these companies, which it designates “long duration stocks,” act just like long duration bonds in a high inflation, high-interest rate environment: they fall.

In contrast, quality firms with sustainable dividends offer several real advantages. First, dividends can add up to real money. Over the past 120 years, dividends have accounted for fully half of the market’s total gains. Currently, Global Quality Dividend Income’s portfolio generates a 3.38% yield. Dividends have fallen out of favor primarily because a “lower for longer” interest rate regime, which MFO terms “The Great Distortion,” rewarded stupid risk-taking and financial games. Dividend-paying companies tended to be less given to such games.

Three, trusting in Rajiv Jain and his team is a particularly good idea. It’s hard to overstate the strength of the case for Mr. Jain and his discipline. He initiated the Quality Growth strategy while working at Vontobel from 1994-2016. In writing about the launch of the Global Quality Dividend Income Fund three years ago, we noted:

It is fair to describe his career to date as “spectacularly successful.” Over a ten-year period, Mr. Jain’s Vontobel fund posted the highest returns among diversified E.M. equity funds, suffered the smallest maximum drawdown, had the second-lowest volatility, and tied for the lowest downside volatility (a variation of standard deviation focusing on “bad” volatility) which led to the group’s second-highest Sharpe ratio (the industry’s most widely-used measure of risk-adjusted returns).

Currently, all three of the firm’s older funds have five-star ratings as does every eligible European product. Every GQG fund has outperformed its peers, by an average of 400 bps, since inception, and has done some with lower volatility. In all likelihood, the three dividend income funds will receive the same recognition from Morningstar this summer.

Bottom Line

If you believe that we’re suddenly going to wake up to discover that the happy days of zero inflation, zero interest rates, and a Fed promise never to let the markets fall have returned, you should probably go speculate on low-quality, high-volatility sexy stocks. If you believe that you need to invest against the prospect that markets are going to be marked by persistent if not crippling inflation, significant interest rates, and inconsistent growth, you should probably invest in high-quality stocks with sustainably high dividend income. You’ll earn higher total returns over time, suffer less volatility, and enjoy an actual cash stream from your portfolio.

If that prospect intrigues you, no one has done it better for longer than GQG. They warrant your attention.

Fund website

GQG Partners Global Quality Income Fund

The Quality Anomaly

By David Snowball

There’s so much we can’t explain:

What’s the universe made of? (Hint: it doesn’t actually seem to be “matter and energy”)

What lives in the ocean’s “twilight zone”? (“It’s remote. It’s deep. It’s dark. It’s elusive. It’s temperamental,” according to Woods Hole … perhaps the most mysterious and vital space on the planet)

What killed Venus? (The planet, not the goddess. Best guess is that it once had a water ocean and now has a 900-degree surface temp … almost hot enough for Florida to grant heat breaks to workers!)

Who thought it was a good idea to cast John Wayne as … Genghis Khan? (The Conqueror, 1956, was filmed on a fallout-contaminated set near a nuclear bomb testing range and featured lines like “I feel this Tartar woman is for me, and my blood says, take her. There are moments for wisdom and moments when I listen to my blood; my blood says, take this Tartar woman.”)

Why do humans have such big butts? (No other mammal managed the feat.)

How does Tylenol kill pain? (And why does it induce crazy risk-taking behavior?)

Why do investors prefer low-return / high-volatility stocks to their opposites?

The Quality Anomaly

In dissecting the drivers of investment performance, researchers point to a set of six or seven factors that explain what’s happening. Momentum. Value/growth. High/low volatility. Small cap/large cap.

By far the most powerful and puzzling of the factors is Quality. Morningstar’s Ben Johnson (2019) described it as “the fuzziest factor you will find in the investing world.” Ben Inker, head of asset allocation at GMO (2023) called it “the weirdest market inefficiency in the world.”

The broadest sense of a quality company is one that uses its resources prudently: quality companies tend to have little or no debt, substantial free cash flows, steady and predictable earnings, and perhaps high returns on equity. Passive strategies and many active ones have a strong backward focus: they limit themselves to firms that have bright pasts, without actively inquiring about their future prospects.

Nonetheless, the evidence is compelling that high-quality stocks purchased at reasonable prices (Mr. Buffett’s “wonderful companies at fair prices” ideal) are about the closest thing to a free lunch in the investing world. In general, you have to pay for your lunch one way or another. The only rationale for buying crazy-volatile investments (IPOs, for instance) is the prospect of crazy-high returns. The only rationale for buying modest returns (three-month T-bills) is the promise of low volatility.

With quality stocks purchased at a reasonable price (call it QARP), that tradeoff does not occur. QARP stocks offer both higher long-term returns and lower volatility than run-of-the-mill equities. GMO’s research bears this out across a span of three decades:

  • High-quality stocks offer 60% higher returns and 30% lower volatility than low-quality stocks.
  • High-quality cyclical stocks offer 200% of the returns with 30% lower volatility than low-quality cyclicals.
  • High-quality small-cap stocks offer 150% of the return of low-quality ones with 30% less volatility.
  • High-quality value stocks offer 150% of the returns of low-quality ones with 30% less volatility.
  • High-quality (BB) junk bonds offer 300% of the returns and 50% lower volatility than low-quality (CCC) junk bonds.

(Source: GMO, “The Quality Anomaly,”2023, exhibits 1-3, 5 and 6. In each case we approximated percentage values from their graphs)

Other researchers find an identical pattern in emerging Europe and in emerging markets generally: “The quality basket generated a compounded annual return of 15.0% as compared to 8.4% for MSCI EFM Standard index. What is more, annualized standard deviations of monthly returns were lower for the quality basket at 14.2% as compared to 23.4% for the benchmark index” (Ramraika and Trivedi, “High Quality Stocks in Emerging Markets,” 2015). In “most [world] regions and dimensions … our quality factor delivers a statistically significant alpha that cannot be explained by loadings on conventional equity factors such as market, value, size, and momentum (Amundi Institute research team, “Revisiting Quality Investing,” 2024).

There is no clear explanation for why quality is so widely, badly, and consistently mispriced. Some people claim that “quality” wins just because it’s a characteristic of the tech sector (not true: since it also holds in the old school cyclical companies, too) or that it wins because of the power of mega-cap monopolies (not true: since it also holds in small caps) or that it wins because growth companies are all shiny (likewise, not true: the relationship holds among value companies, too). In short, pretty much everywhere we look quality wins but sketchy stocks draw attention. The best that GMO’s Tom Hancock and Lucas White could come up with is, “investors routinely overpay for the exciting lottery ticket prospects of speculative, junky business models while neglecting the tangible but boring attributes of Quality” (“The Quality Spectrum,” 2023). Mr. Inker laments, “I have trouble coming up with anything at all plausible that doesn’t come to down ‘investors are weirdly stupid.’”

But not always. Quality tends to lag, however, during the mid-to-late phases of a bull market as investors (bless their hearts) start treating low-quality / high-beta stocks as lottery tickets. For visual learners, here’s the performance of a variety of funds that hold high-quality stocks. We’re charting performance since inception. The first data column shows how they’ve performed against their peers (+2% means, for instance, that the fund has outperformed its peers by 200 bps/year). The next three columns illustrate how the fund performed in the long-term (MFO rating), during months when the market was falling (down capture rating), and during months when the market was rising (up capture rating). Here’s the key: blue/green = good, red/pink/orange = bad.

Lifetime performance for select quality funds, through March 2024


Without exception, these high-quality portfolios crushed their peers in the long term and crushed their peers when markets were at their worst. In rising markets, they made strong absolute gains while still trailing the vast majority of their quality-agnostic peers.

Quality wins over complete market cycles, in part by crushing the performance of low-quality stocks when the bad times hit. GMO’s Ben Inker notes “high-quality stocks outperform low-quality stocks in down months by over three times the amount they underperform in up months!” Indeed, high-quality companies use crises to their advantage: they tend to be debt-free and cash-rich, so that they can move opportunistically in crises when lesser companies are folding.

Finally, price matters. Overpaying for a quality company cuts your returns and reduces your margin of safety. GMO has tracked the relative outperformance of quality stocks against the broader market back to 1928, then pulled out the performance of the cheapest half of the quality universe for the same period. The difference is dramatic.

The short version: quality wins. Quality at a reasonable price wins by a lot.

Options for Adding Quality to your portfolio

MFO identified several exceptional high-quality funds that might allow you to take advantage of this investing anomaly. We focused on two of the most distinguished families whose work combined commitments to both quality and value.  (We also partnered with the folks at Morningstar to seek their help in identifying funds in a variety of niches that might help diversify your portfolio.)

MFO commends:

GMO US Quality Equity ETF (QLTY), a newly launched, actively managed ETF, that operates with the same discipline and same management team as the $10 billion, five-star Great Owl GMO Quality (QGETX) fund. GMO grounds its Quality Strategy in the work done by its founders in the 1970s and formalized in 2004.

In 2004, GMO launched the Quality Strategy with the mandate to own attractively valued stocks within the quality universe. The creation of the strategy was the culmination of decades of GMO research on quality business models. While the strategy’s origins date back to GMO’s earliest days, our process continues to evolve to ensure sustained relevance as well as our investment edge.

Since its launch in November 2023, the ETF has actually outperformed its elder sibling, returning 17.0% to QGETX’s 15.3%. The ETF, which charges 0.50% for its services, has quickly gathered $600 million in assets, a win that portends additional GMO ETF launches. (Full disclosure: Chip, MFO’s cofounder, added QLTY to her personal portfolio shortly after its launch.)

GQG Partners US Select Quality Equity (GQEPX), which launched in 2018, is managed by the GQG team headed by Rajiv Jain. Mr. Jain is among the world’s most successful equity investors, having built a huge following at Vontobel before moving to found GQG: Global Quality Growth. The core discipline is the same across all of their strategies:

GQG’s investment philosophy is rooted in the belief that earnings drive stock prices.

The pursuit of durable earnings ignores the idea of traditional growth and value investing and instead focuses on finding companies we believe have the highest probability of compounding capital over the next five years. This investment style focused on high-quality, durable businesses, is considered by GQG to be more suitably named as “Forward-Looking Quality”.

The firm launched its now-$20 billion Emerging Markets Equity fund initially then added US Select Quality Equity and Global Select Quality Equity about five years ago. All have consistently earned five-star ratings from Morningstar, all have finished in the top 1-2% for total returns in their Morningstar peer groups over the past five years, and all outperformed their Lipper peer groups by an average of 500 bps per year. Both US Select and Global Select earned MFO’s Great Owl designation for consistently top-tier risk-adjusted performance.  Those have been complemented by three quality + dividend funds launched just under three years ago, each of which has also easily outpaced their peers. In short, GQG gets it right consistently, over time and across global markets.

GMO and GQG might represent a rock-solid core for an investor’s portfolio. We reached out to Morningstar, asking for their take on the highest quality equity funds that a quality-sensitive investor might add to such a portfolio. Robby Greengold, a Morningstar strategist, offered a dozen possibilities. He explained his strategy this way:

I selected these funds for the relatively high-quality metrics of their portfolios (e.g., high-profit margins, low debt) and Morningstar Medalist Ratings (one of the fund’s share classes must receive either a Bronze, Silver, or Gold Morningstar Medalist Rating, which express our conviction in the fund’s ability to outperform on a risk-adjusted basis over a full market cycle). The funds needed to be covered by one of Morningstar’s analysts, and the analysts needed to explicitly point out that the fund deliberately targets high-quality stocks.

Herewith are a dozen quality funds with Morningstar’s take on them and our occasional asides.


Morningstar’s take

MFO’s gloss

Boston Trust Walden Small Cap Fund (BOSOX), small cap blend

This team focuses on identifying well-managed small-cap firms with sustainable and predictable earnings profiles that also have reasonable valuations. This strategy also has a sustainability mandate, screening out firms deriving significant revenue from alcohol, coal mining, gaming, factory farming, weapons, tobacco, and prison operations (though not fossil fuels). 70-100 names in the portfolio.

Where the approach really shines is in risk management. The team has a quality focus and is valuation-conscious … to a portfolio that consistently ranks among the least-volatile options in the small-blend category, an impressive feat considering its minimal cash stakes.

It’s a great small-cap core fund with a ticker celebrated by readers in New England. It also closed to new investors in March 2023.

Royce Small-Cap Special Equity Fund (RYSEX), small cap value

This strategy has a conservative, risk-aware approach. Managers Charlie Dreifus and Steven McBoyle rely on research and a healthy dose of accounting cynicism to find small caps whose financial reports are free from earnings manipulation. Dreifus and McBoyle hunt for clean balance sheets, low debt, high returns on invested capital, and growing free cash flow that exceeds earnings.

The managers will sit on cash, which often reaches double digits, creating a buffer in downturns but a drag when stocks rise.

 35-55 names, low turnover. the fund often has a lot in micro-caps.

The lead manager, Mr. Dreifus, has been investing for 55 years, is 80 years old, and has no plans for retiring. Mr. McBoyle is about 20 years his junior and has a long tenure with Royce. Still …

MFS International Equity Fund (MIEIX), large blend.

The managers rely on broad and thorough bottom-up research and a disciplined focus on moderately growing, established companies with shares trading at decent prices.

The managers rely on their own research and that of MFS’ big and experienced fundamental research team to find growing companies with competitive advantages and management teams that encourage predictable earnings and cash flows, healthy balance sheets, and strong returns on capital. The managers concentrate further up the market-cap ladder than most foreign large-blend and large-growth peers, so the portfolio’s average market cap is typically higher than the category norm.

$20 billion in AUM with major inflows in 2023-24. Stable two-person management team. About 75 large cap stocks with really low turnover.

John Hancock Funds International Growth Fund (GOIOX), large growth

Lead manager John Boselli and his team focus on companies with high organic growth rates, low share prices relative to free cash flow, and most importantly, quality business models. They also like companies that return capital to shareholders via share repurchases and dividends and shun those with the worst earnings revisions.

They emphasize industry fundamentals, growth and stability, free cash flow generation, capital allocation, incentive compensation, and valuation surprises.

The fund continues to be managed by Wellington Management, but long-time lead manager John Boselli retired at the end of 2023. He was, by all accounts, a superstar and recipient of several “Manager of the Year” awards. His two co-managers, who were added in August 2021, now have sole responsibility.

Artisan Global Value Fund (ARTGX), large value

This team is composed of value investors who emphasize quality firms with financial strength and shareholder-oriented management. They leverage qualitative and quantitative screens to narrow the investment universe to a manageable level [and] shun firms with poor accounting and corporate governance standards, as well as those operating in markets with inadequate laws and regulations.

It invests in firms of all sizes that trade at discounts to their intrinsic value estimates, although the focus is overwhelmingly on large-cap stocks.

40–60 stocks, with position sizes weighted by conviction. Commensurate with management’s long-term mindset, portfolio turnover is typically below 30%. When the managers can’t find opportunities that meet their strict standards, cash can build up to 15% of assets.

Our last profile update was a decade ago, reflecting a downside of our focus on newer, smaller distinctive funds. We reviewed the fund repeatedly when it fell within our ambit and concluded, in our last review, “We reiterate our conclusion from 2008, 2011 and 2012: ‘there are few better offerings in the global fund realm.’”

This fund and its sibling International Value were originally managed by David Samra and Daniel O’Keefe. In 2018, they decided to divide their charges with Mr. Samra leading International Value and Mr. O’Keefe leading this fund. Over the past six years, International Value has handily outperformed its peers while Global Value has barely kept pace with them.


FMI International Fund (FMIJX), large blend

FMI International isn’t your typical foreign large-blend Morningstar Category offering, but it is top-notch.

It looks for companies with durable business models and strong management that generate superior profitability through a full economic cycle.

The fund’s policy of hedging non-U.S. currency exposure highlights management’s focus on underlying business fundamentals.

They typically shy away from firms with high debt levels but will buy those whose steady cash flows can support their leverage.

Annual portfolio turnover has been below most foreign large-blend Morningstar Category peers.

The team’s pickiness and valuation sensitivity show in the strategy’s high-conviction portfolio, which also stands out. It currently holds only 40 stocks, which is less than half the roughly 100-stock peer median.

We profiled this fund shortly after launch, predicting “All the evidence available suggests that FMI International is a star in the making.  It’s headed by a cautious and consistent team that’s been together for a long while.  Expenses are low, the minimum is low, and FMI’s portfolio of high-quality multinational stocks is likely to produce a smoother, more profitable ride than the vast majority of its competitors.”

Ten years later the only thing to add is “Yep, nailed it.”

JPMorgan Emerging Markets Equity Fund (JMIEX), emerging markets

The approach favors quality growth companies. The team seeks firms that boast quality franchises, consistent earnings streams, and solid returns on equity.

They conduct in-depth fundamental research on prospective ideas and assign five-year expected return targets. Analysts also classify stocks on their coverage lists as premium, quality, or standard, according to the firm’s strategic classification framework, which is based on a 98-point questionnaire. Premium and quality names operate in attractive industries with limited external risks and possess strong balance sheets, good management teams, and solid cash-flow-generation prospects while trading names lack sustainable competitive advantages. The vast majority of assets are allocated to premium and quality names, with trading names making up only a small portion. The team’s valuation framework helps to ensure managers pay the right price for the opportunity, although they are prepared to pay up for quality and growth.

The fund’s performance has been no better than “okay” for a long while, perhaps reflecting a willingness to pay more for stocks and to stress valuations less. Relative to its peers and benchmark, the portfolio has stronger growth but also – by virtually every measure – higher valuations.

One-, three- and five-year returns are relatively weak, and you need to go out to the 10- and 15-year windows to see strong performance.

GQG Partners Emerging Markets Equity Fund (GQGRX), emerging markets

Lead manager Rajiv Jain continues to rely on the same creative and successful “quality growth” approach here that he has used since the late 1990s.

He wants reliably growing companies, but only if they’re on solid financial footing and have demonstrated the ability to weather slow economies. Sectors or countries can be heavily overweight or underweight. Though Jain typically has held stocks for many years, he’ll change direction quickly and decisively if he considers it appropriate. A few years ago he sharply reduced his stake in the consumer staples sector when he saw conditions becoming more challenging, and then increased it again in the past couple of years as the metrics changed. And from early 2021 to late 2022, the fund’s energy stake soared, while the technology stake plummeted.

Jain and his team focus on big companies and look for high returns on equity and assets and low to moderate leverage. Then they use fundamental analysis to research future growth opportunities, estimate risks, analyze the accounting to ensure its accuracy and transparency, and then estimate a reasonable price. Four former journalists use their investigative skills to seek information or trends that might not be apparent in the numbers.

The strategy is moderately concentrated, with 50-70 holdings and substantial (4% to 8%) weightings in the top stocks.

In the seven years since its launch, GQGRX has been one of the top ten EM funds or ETFs in existence. It has the fourth-highest returns of any diversified EM fund (5.4% APR) but, more importantly, the best Sharpe ratio (a measure of risk-adjusted returns). Across a variety of risk measures, including downside deviation and bear market deviation, It’s clearly a top 10 performer.

This reflects Mr. Jain’s discipline: forward-looking quality is the first screen, valuation is the second, and everything else trails.

T. Rowe Price International Discovery Fund (PRIDX), small/mid growth

The managers focus on companies with market caps between $500 million and $5 billion with compelling business models and the ability to generate returns above the cost of capital.

They seek shareholder-oriented management teams with good capital allocation skills. They favor firms in industries that are growing faster than the overall economy, that are addressing unmet needs and adding value for customers, and that have rational competitive structures.

The managers employ this discipline with an appealing mix of bolder and tamer traits. On the bolder side, they readily invest in stocks in the developing world that meet their criteria and regularly build moderate country and sector overweightings. On the reserved side, they pay a lot of attention to valuations, spread the portfolio across 200-250 names, and move at a measured pace.

This approach provides ample upside potential without assuming excessive risk, and it has earned good long-term results at a European smaller-cap offering for non-U.S. investors as well as this strategy.

Snowball holds about 2% of his retirement portfolio in PRIDX, a position built decades ago under manager Justin Thomson who guided the fund for 22 years.

T Rowe Price does an exceptional job in managing manager turnover, in part because they have a strong, team-oriented culture. New manager Ben Griffiths has been with the firm since 2006 and has managed a small cap fund for European investors since 2016.

The fund has not been a disappointment under his watch, but neither has it been compelling. Over the past four years, the fund has outperformed its Lipper peer group by 0.1% per year with precisely the same Sharpe ratio (0.46).

Fidelity International Discovery (FDKFX), large growth

Manager Bill Kennedy wants to own growing companies, but he isn’t going to pay any price for them. He looks for companies with strong three- to five-year earnings prospects, responsible management teams, solid balance sheets, and large potential markets. But he wants to own firms that are trading at attractive valuations. While a lot of category rivals got swept up in the market euphoria of 2020 and 2021, buying up high-multiple, low-quality names, Kennedy stayed true to his approach. In fact, during those two years, his portfolio looked cheaper versus peers than ever before, as he did not follow the crowd into the more-speculative waters.

Mr. Kennedy has managed the fund since its inception (2006) and has invested more than a million of his own money in it.

Fidelity Diversified International (FKIDX)

Manager Bill Bower’s investment process has several strengths. He looks for stocks with long-term earnings growth potential, durable business models, and deep competitive advantages. Bower is willing to pay a modest premium for these desired characteristics, but not as much as many foreign large-growth category peers, highlighting his valuation sensitivity.

He will also allocate a small portion of assets to shorter-term, opportunistic ideas that may not have durable growth prospects but are still compelling.

Mr. Bower has been managing the fund since 2001 and has invested more than a million of his own money in it. The portfolio holds about 140 names with modest turnover.

The fund tends to have returns in the top third of its peers

Fidelity Overseas Fund (FOSFX), large growth

Manager Vince Montemaggiore employs a sensible approach with a dual focus on quality and valuation, though quality comes first. Without it, he won’t own a company, no matter how cheap it may seem. To him, quality means having a unique edge, like, among others, high barriers to entry, a low-cost advantage, or high switching costs. Ideally, the company has high recurring revenues and low debt levels.  He wants to own those stocks that are trading at 15% or more discounts to his estimated intrinsic value.


Seafarer Overseas Growth and Income Fund (SIGIX), emerging markets

The team has always focused on firms with durable growth prospects and reliable income streams while considering cash flows, balance sheets, operating histories, liquidity, and valuations.

The process is risk-conscious, distinctive, and attractive. The team still pursues companies with durable growth prospects and reliable income streams, invests broadly across the market-cap spectrum, and readily permits its security selection to result in atypical country and sector weightings.

One of the core holdings in Snowball’s portfolio, with FPA Crescent.

Manager Andrew Foster’s hope is to outperform his benchmark (the MSCI EM index) “slowly but steadily over time.” His strategy is grounded in the structural realities of the emerging markets.

A defining characteristic of emerging markets is that their capital markets (including banks, brokerages, and bond and stock exchanges) cannot be counted on to operate. In consequence, you’re best off with firms who won’t need to turn to those markets for capital needs. Seafarer targets (1) firms that can grow their top line steadily in the 7-15% per annum range and (2) those that can finance their growth internally.

Seafarer tries to marry that focus on sustainable moderate growth “with some current income, which is a key tool to understanding quality and valuation of growth.”

We have profiled SIGIX but would also commend the younger Seafarer Overseas Value for your consideration.


Briefly Noted

By TheShadow

Fidelity Investments is planning to charge a $100 servicing fee when placing buy orders on exchange-traded funds issued by nine firms. The new servicing charge, which may be imposed on ETFs issued by Simplify Asset Management, AXS Investments, Day Hagan, Sterling Capital, Cambiar, Regents Park, Rayliant, Adaptive, and Running Oak, is set to take effect on June 3. The new fee will apply to ETFs that do not participate in a maintenance arrangement with Fidelity.  Fidelity may update its “Surcharge-Eligible ETF” list again.    

Poster Rforno noted that Calamos Investments LLC announced the launch of 12 structured protection exchange-traded funds which seek to provide 100% protection and equity upside to a predetermined cap over one-year outcome periods (before fees and expenses). The ETFs are designed to offer capital-protected exposures to the S&P 500, Nasdaq-100, and Russell 2000 benchmarks, making it the most comprehensive lineup of its kind. The first listing, Calamos S&P 500® Structured Alt Protection ETF – May (ticker: CPSM), is anticipated to launch May 1st with an upside cap range of 9.20% – 9.65%. The ETFs will be managed by Calamos’ Eli Pars, Co-CIO, Head of Alternative Strategies and Pars’ Alternatives team

All 12 Calamos Structured Protection ETFs will have an annual expense ratio of 0.69%. Potentially interested parties might want to read Devesh Shah’s series on options-based funds since those offer a serious caveat about what happens when you expect magic.

Victory Capital has agreed to acquire Amundi US with Victory Capital.  Victory Capital is a global asset manager headquartered in San Antonio. Much of their business model centers on acquiring other managers who then operate as semi-autonomous divisions. One recent acquisition was USAA Asset Management. Victory now has over $175 billion in assets under management (as of March 31, 2024). The firm offers access to its strategies through open-end funds, exchange-traded funds, separately managed accounts, collective investment trusts (CITs, a European analog of mutual funds), and 529 plans.

Amundi, meanwhile, is Europe’s largest asset management firm with €2.2 trillion in AUM, 100 million clients in 35 countries, and a strong ESG commitment. In short, this is no small deal.

Under the proposed transaction:

  • Amundi US would be combined into Victory Capital in exchange for a 26.1% economic stake for Amundi in Victory Capital, with no cash payment involved. Amundi would become a strategic shareholder of Victory Capital with two of its representatives joining the Victory Capital Board of Directors when the transaction closes.
  • Both parties would simultaneously enter into 15-year reciprocal distribution agreements.

Under these proposed distribution agreements:

  • Amundi would be the distributor of Victory Capital’s investment offering outside of the US. This would allow Victory Capital to further expand its reach beyond the US through Amundi’s global client base, which would benefit from Victory Capital’s deep investment expertise and strong investment performance track record across a wider range of US-manufactured solutions.
  • Victory Capital would become the distributor of Amundi’s non-US manufactured products in the US. As a result, Amundi would gain access to an expanded distribution platform in the US, while providing Victory Capital’s clients with its wide range of high-performing non-US investment capabilities.

Small Wins for Investors

The TCW Group has filed initial registration filings for the two new active fixed-income exchange-traded funds (ETFs):

TCW Multisector Credit Income ETF, which may invest in fixed-income securities of any type, credit quality, currency, domicile, or maturity. “Credit” in a name is usually a signal for a substantial exposure to non-investment-grade securities, for whom creditworthiness rather than interest rates are the primary risk. The fund will be managed by  Jerry Cudzil, Brian Gelfand, Christopher Hays, Steven Purdy, and David  Robbins. The guys represent a variety of fixed-income specialties at the firm.

TCW AAA CLO Bond ETF, which will invest in a portfolio composed of U.S. dollar-denominated AAA-rated collateralized loan obligations. The fund will be managed by Bryan Whalen, Elizabeth Crawford, Peter Van Gelderen, and Palak Pathak. Mr. Whalen is their fixed-income CIO. Mr. Van Gelderen joined the group in 2023 from American Century Investments. He and Ms Crawford co-lead the securitized products group. Expenses have not yet been disclosed.

Old Wine, New Bottles

“Effective on the Effective Date” (thanks, guys!), the name of the AAM/Bahl & Gaynor Income Growth Fund will change to Bahl & Gaynor Income Growth Fund. The management fee

Fort Pitt Capital Total Return Fund is migrating to the North Square Investments Trust. Same investment objective and strategies, adviser, and management team.

On around June 3, 2024, iShares Factor US Growth Style ETF becomes iShares MSCI USA Quality GARP ETF. A substantial portfolio evolution will follow, shifting from mid- to large-cap growth stocks to mid- to large-cap growth stocks “exhibiting favorable value and quality characteristics.” As currently constituted, the ETF has a great record (five stars at Morningstar, top 2% returns over the past three years, Great Owl at MFO with returns exceeding its peers by nearly 800 bps annually), and no assets ($48 million). As reconstituted, the fund will have dramatically lower expenses (15 bps) and a nice niche.

On June 18, 2024, Neuberger Berman Short Duration Bond Fund becomes Neuberger Berman Short Duration Income ETF. The ETF will operate with the expense ratio of the current fund’s Institutional share class.

The TCW Group has filed filings for the conversion of four active income funds into ETFs. Shareholders will prospectus/related information concerning the conversions; the conversions do not require shareholder approval.

  • MetWest Flexible Income Fund, converting to TCW Flexible Income ETF
  • MetWest Floating Rate Income Fund, converting to TCW Senior Loan ETF
  • MetWest Investment Grade Credit Fund, converting to TCW Investment Grade ETF
  • TCW High Yield Bond Fund, converting to TCW High Yield Bond ETF

Off to the Dustbin of History

abrdn Emerging Markets Sustainable Leaders Fund will merge into the abrdn Emerging Markets ex-China Fund on or about June 21, 2024.

Angel Oak Financials Income Impact Fund will be liquidated on or about May 24.

Brookfield Real Assets Securities Fund was liquidated on April 30, 2024.

The DCM/INNOVA High Equity Income Innovation Fund (TILDX) has terminated the public offering of its shares and will discontinue its operations effective May 24, 2024. It’s poignant just because it’s the shell of a once-great fund. Tilson Dividend begat Centaur Total Return, the two prior owners of the TILDX ticker, with Centaur being a purely splendid tiny fund that investors seemed not to embrace because its strategy wasn’t narrow enough for them and its advisor wasn’t grand enough in scale or ambition.

Defiance Israel Fixed Income ETF will be liquidated on or about May 24.

FlexShares ESG & Climate Emerging Markets Core Index Fund was liquidated on April 23, 2024.

Liquidation of Global X MSCI Next Emerging & Frontier ETF has been rescheduled “in order to facilitate the orderly unwinding of the Fund’s underlying assets and their conversion into U.S. dollars.” Said orderliness will now transpire on May 17, 2024.

IQ U.S. Small Cap ETF underwent liquidation and dissolution on April 29, 2024.

Navigator Equity Hedged Fund will close and liquidate on May 24, 2024.

Opportunistic Trader ETF (WZRD) will cast a disappearing spell on or about May 9.

PMC Core Fixed Income and Diversified Equity Funds, institutional and advisor share classes, will liquidate on or about May 31.

Polen Emerging Markets ex China Growth ceased its business, liquidated its assets, and generally passed away on April 23, 2024.

Polen Global Smid Company Growth Fund will be liquidated on or about May 23.

ProShares S&P 500 Bond ETF was liquidated on April 22, 2024.

Redwood Managed Volatility Portfolio will be liquidated and dissolved on or about June 21, 2024.