By David Snowball

On November 1, 2018, the Board of Trustees of the Centaur Total Return Fund announced an epochal change: Zeke Ashton, Centaur Fund’s longest-tenured manager and one of its four founding managers, had notified the Board that he intended to resign after a run of 13.5 years. The Board announced an interim management agreement, effective November 15, 2018, under which DCM Advisors, LLC, would assume responsibility for the fund.

While the fund will, under the interim agreement, pursue Centaur’s “current investment objective and strategies,” the presence of a new management team and the imminence of a new strategy makes this, for all practical purposes, a new fund.  It may grow into a splendid option, but it should not be judged based on its performance prior to November 15, 2018.

Here’s what we know.

1. 1. 1. Unchanged objectives: the fund “seeks maximum total return through a combination of capital appreciation and current income.” The new managers aver that that will not change, and they anticipate maintaining a risk profile that is roughly comparable to the fund’s historic norm.

      2. New management team: Vijay Chopra will be primarily responsible for the fund’s equity investments, while Greg Serbe will have primary responsibility for the fund’s fixed-income positions.

         Dr. Chopra has had an incredibly rich career. He’s been an equity manager for Lebenthal Asset Management, Roosevelt Investments, Mesirow Financial, Bear Stearns Asset Management, VKC Investments (his own firm), Jacobs Levy Equity Management, Deutsche Asset Management, State Street Global Advisors, Bankers Trust. He has, on several occasions, managed or co-managed multi-billion dollar portfolios: $4.5 bill at Deutsche and $13.0 billion at Jacobs Levy.

         Mr. Serbe was chief investment officer with Lebenthal Asset Management, was the tax-exempt and money-market investments CIO for Mitchell Hutchins Asset Management, and had stints with First National Bank of Chicago and Provident Management. Mr. Serbe managed mutual funds while employed at Mitchell Hutchins and Lebenthal.

      3. New strategy: Mr. Ashton was an equity investor with an absolute value discipline; that is, he would prefer to be 100% invested in equities but would not buy stocks that were, by his lights, overpriced. As a result, the Centaur portfolio often had huge cash holdings – 40-60% of assets – as he waited to find attractively valued investments. The new strategy is an overtly “balanced” one, with a typical allocation of 60% stocks to 40% bonds and cash.

         Dr. Chopra allows that the portfolio will likely range between 50-70% equities, depending on market conditions. His discipline encourages him to watch Fed policies as a signal for whether to pursue a risk-on or risk-off allocation. He anticipates changes that might occur monthly or quarterly. The fund might typically hold 30-50 equity positions, close to equally-weighted. They’ll use risk-optimization software to help control risk concentrations; that is, the software will help monitor sector, industry, market caps, and other sorts of risk-related exposures that might inadvertently build in the portfolio.

         Mr. Serbe’s investment universe is investment grade fixed-income, including corporates, Treasuries, agency debt (for example, bonds issued by Ginnie Mae, Fannie Mae and Freddie Mac), and taxable munis. He starts with an analysis of the yield curve, that is, the difference in yield between short-term and longer-date debt, to find where they’re receiving the best compensation for the additional risks that longer-dated issues carry.  Mr. Serbe notes, “to me, it’s very exciting”

   While the managers have a wealth of experience and they manage global equity SMAs, they have not managed a “balanced” SMA portfolio. They anticipate that it will not be their last, as they look for opportunities to both grow Centaur’s assets (now under $20 million) organically and acquire other small funds.

   We wish them well.

   Centaur’s minimum initial investment is $1,500. The fund is available for purchase through 31 brokerages, including major platforms such as ETrade, Fidelity, JPMorgan, Schwab, T. Rowe Price, TD Ameritrade, and Vanguard.  A proxy statement being sent to shareholders to approve the new investment advisory agreement also caps the fund’s normal expenses at 1.50% of assets, down from 1.95% currently. The proxy closes at the end of February 2019. The fund’s website remains a work in progress.