Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

In this Discussion

Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

    Support MFO

  • Donate through PayPal

Artio Funds struggling mightily, ending domestic equity efforts

edited August 2012 in Fund Discussions
We received notice Monday that Artio Funds will be ending their domestic stock fund management, copncentrating on their international and fixed-income offerings. For those investors who own Artio U.S. Smallcap (JSCAX or JSCIX), be aware of this. There was no timeline given by our contact. I think the decision had just been confirmed. The reason given is that the domestic funds had never raised enough dollars in assets to become profitable. Needless to say, we have sold out of this fund in all client accounts. I suspect that talented manager Sam Dedio will land a good gig in the near future. We certainly wish him all the best.

This caused us to probe a bit, and we discovered that Artio's so-called flagship international funds (BJBIX, JETAX, JETIX, JIEIX) have been bleeding assets like a proverbial stuck pig, if not worse. For the oldest fund BJBIX, which was originally marketed as Julis Baer International Equity Fund in 1993, and where current managers Pell and Younes came aboard in 1995, fund assets peaked in 2007 at just under $11 billion. We started using the fund in the late 1990's. Today, assets are under $1 billion. A similar disaster has occurred in the other international fund ticker symbols, but they do not have the long, storied history of BJBIX. This fund was once the best-performing international fund, but it never recovered from 2008, following that year's average numbers by really awful relative performance in 2009-2011. And year to-date it is in the bottom 10%. We exited the fund several years ago when Pell and Younes would no longer take our calls. That's usually a pretty big red flag that something is amiss.

But based on this, it would appear that Pell and Younes' purchase of Bank Julius Baer's U.S. fund management company was the beginning of the end. Interesting that M*'s Gregg Wolper still clinged to the fund's past record in commentary from last November, saying "the fund remains a solid choice". Are you kidding!? And M* assigned the fund a silver analyst rating. I have never seen Gregg so off the mark and apparently blind to the unfolding mess at Artio.

Unfortunately, we are now concerned about Artio's Total Return Bond Fund (JBGIX, BJBGX), which has a tremendous history and great management. If the asset bleed should occur there, for no other reason than perception of the future of Artio as a company, this would be a big problem for investors. We are staying in Total Return Bond for now, but we are working on an alternate strategy...just in case.

What this should remind us is that ANY fund company can make decisions that might appear unimportant at the time. But when they are added to over many years, the problems can mushroom beyond the control of any great team. We have certainly seen this with other fund companies over the years. And it also says to us that folks who rely on M* and other rating services need to do their own due diligence. The announcement from Artio came as a big surprise, especially when, upon digging deeper, it would appear the stated reason for the abrupt change may be superficial at best.

Comments

  • BobC -- thanks very much for this update. I'm in BJBHX, wife is in BJBGX. We really like the latter. Had no idea there was such a problem at ART -- I did know that their global fund never seemed to find its footing. I'd love to find a replacement for BJBGX for the Mrs. Would be terrible to see these bond funds get wiped out. Like them both. Alas, I guess this falls under the heading of "manager risk".
  • Bob, thanks for the heads up.

    This should also serve as a reminder that just because someone is a great fund manager doesn't mean that they'll be great creating or running a fund company. Very different set of issues and skill sets. You highlight one - dealing with significant outflows from a business/staffing perspective. More mundane concerns include creating and working with distribution channels, meeting payrolls, taxes, etc. (Not that long ago I quit a startup because no one outside myself had startup experience, let alone experience running a whole company, and while they were talented people, it was clear that they didn't fully appreciate the new tasks and issues involved.)

    This is why I look at any fund company started by a "hot" manager as iffy, until it proves itself - on the business side as well as on the securities selection side.
  • Other well-respected mutual fund companies also experiencing outflow as a result of internal problems and lagging performance. Brandywine funds are also struggling stemming and staff reduction, i.e. layoffs was reported lately.
  • BobC,

    Thanks for the information.

    I have been in BJBIX for many years now and about once a month when I review my asset allocation, ponder if I should sell. I have not, for four primary reasons:

    1. I need large cap blend/growth international allocation.

    2. I hold the fund in a retirement fund, thus I can't do anything with the loss (as you wrote BJBIX never recovered from 2008 plus its relative performance was horrible in 2011). It appears BJBIX's more recent problems are attributable to that it has triple the foreign large-blend category's emerging markets weighting (per M*).

    3. Besides your quote by Gregg Wolper at Morningstar, he also said in 2011 "There's reason to think the fund will regain its form. It had an outstanding run from 1995 through 2007 with the same managers and strategy in place now. And taking a thoughtful long-term approach even at the risk of short-term pain is often a recipe for investment success".

    4. I can't find out when Richard Pell and Rudolph Younes started taking "stupid pills" (possibly that was post 2008...or maybe I took them instead!). If any two fund managers had good results and a good reputation in this space, it was Pell and Younes.

    As mentioned, I am now following BJBIX (should have been doing so before and while no excuse, I was taking care of my mother full time from 2009-2011 who had AML), but it seems the damage has already been done. Yes, it is under performing in 2012, but at least it is showing positive numbers. I gather I am thinking that every cloud has a silver lining or I am still hiding my head in the sand.

    You correctly noted that BJBIX has been "bleeding assets", from around $11 billion in 2007 to $1.1 billion today (as of 6-30-12). However, through this massive decline in assets, the fund has remained closed to new investors. I find this odd and would appreciate your thoughts as to why the fund never re-opened.

    Moving forward, what impact do you (and others) feel the notice you received will have on BJBIX specifically? It is conceivable that it can allow Pell and Younes to revert back to doing what they DID best; concentrating on international equities? Or am I hiding my head deeper in the sand?

    Mona



  • Reply BobC: When selling total out of a MF, do you dump everything at one time or take a certain % from each account & dollar cost out so to speak? I would think the total amount of assets would have something to do with the selling technic.

    Derf
  • Reply to @Mona:

    I'll try to address some of your items, but in different sequence.

    4. Until a year or so ago, most of the emerging market exposure in this fund came from Eastern Europe. That made this fund unique, and the managers do seem to have a good grasp of that part of the world. For instance, I spot checked a couple of semi-annual reports:

    April 2007: Russia 4.1%, Poland 4.0%, Hungary 3.1%, Czech Republic 1.6%, Romania (technically a frontier market) 1.3%, Ukraine (frontier) 1.2%, Turkey 1.1%, Serbia (frontier) 1.0%, Cyprus (not classified by MSCI) 0.9%, Bulgaria (frontier) 0.5%. Europe: 18.8%. There are smatterings of EM outside of Europe: Mexico 0.9%, China 0.5%, Korea 0.4%, Venezuela (not classified by MSCI) 0.3%, etc. Mostly Europe.

    April 2010: European countries: Russia 6.1%, Czech Republic 2.0%, Poland 1.7%, Ukraine 1.2%, Hungary 1.0%, Ukrane 1.2%, Romania 0.9%, Bulgaria 0.8%, Serbia 0.3% , Georgia (not classified by MSCI) 0.3%. Total 15.5%. Outside of Europe: China 2.6%, Mexico 1.9%, Korea 1.3%, S. Africa 1.1%, Brazil 0.9%, Lebanon 0.2%, Venezuela 0.2%, Thailand 0.2%, Indonesia 0.1%, India 0.1%, Zambia 0.1%. Still mostly Europe.

    now (M*): Emerging Europe 8.3%, Emerging Asia 10.6%, Africa/Middle East 3.3%.

    That strikes me as a big shift. Maybe they're doing the same things worldwide, and their approach is universal, or maybe one needs to understand markets individually. I don't know, but it is possible they're having problems outside of Europe (which they may have gotten into because of bloat, or because they didn't see Europe going anywhere, or ...).

    3. 4+ years of bottom half (usually bottom third) performance after many years of top half (usually top quintile) performance is a lot of pain - not exactly what I'd call short-term pain. YMMV.

    1. If one feels that good funds, sticking to their knitting, will come around (#4 thesis), then D&C International (DODFX) seems like a more attractive alternative. Better performance, half the cost, similar EM exposure.

    2. I'll try commenting more later. Short story - people with a losing investment in a taxable account often keep it on the theory that "as soon as I break even I'll sell", even though the alternative probably would have done much better in the meantime. Same here. The money is gone, the question is what is the better place to invest the current value - in BJBIX or something else?
  • Reply to @Derf: Good question, Derf. Generally speaking, for a situation like this, we sell all holdings in a fund in one day, if possible. For example, we may have 200 individual clients accounts at Schwab that are held in 5 master accounts. It is easy to do a block trade for all JSCAX holdings in each master. The software brings up each account that holds it, and we have the option of "un-selecting" any account we do not want to sell. If we have a specific fund for a swap, we can code it in at the same time. It is a great system.

    For those clients who own the fund with a custodian other than Schwab, we do individual trades. But those are few in number. The SEC is very fussy (and rightly so) about getting sales done at the same NAV, whenever possible. Playing favorites with clients is a big no-no.
  • Reply to @msf: I would move on, and not wait to do so. There is no indication that the horrible performance numbers will improve any time soon. And if Artio Funds is truly having financial problems, this could eventually be a disaster. You do not want to be among the last to exit a fund.

    Take a look at Harbor International, Sextant International, Ivy International Growth, Ivy International Core Equity, First Eagle Overseas, even ETF index fund EFA. Some of these might not be available with your IRA's custodian. Don't get hung up on style boxes, especially when it comes to international and emerging market funds.
  • Hey Bob- Thanks for the heads-up. Been watching BJBGX ever since opening the Schwab account, but didn't see anything there that wasn't already happening in some of my other funds. One less to think about.

    Regards- OJ
  • Reply to @BobC:

    BobC, thanks for the information!

    This particular retirement account that holds BJBIX is at Schwab, so I will look to see if the funds you mention are on the Schwab platform. If you (or anyone else) thinks of a replacement fund for BJBIX on the Schwab platform, I would appreciate your mentioning it.

    msf, thanks for your detailed insight and I look forward to your further comments.

    Mona

  • Reply to @Mona: Mona, a quick screen for NTF and A shares at NAV for Schwab retail shows Harbor HIINX, Sextant SSIFX, First Eagle SGOVX all available. Of the three, I like First Eagle's very cautious approach (they always keep about 10% in gold bullion). Harbor is the more aggressive and has higher risk numbers accordingly. Sextant is a fund that has been under everyone's radar. Small assets, very low risk, out-performs in bear markets, under-performs in strong intl markets. I'd suggest First Eagle. We use it as a core hold in many of our client accounts and have used it for many years. And while it may lag a bit in bull markets, it has been solid gold in sell-offs.
  • Reply to @BobC: Bob, for the record, what do "fund crashes" look like? If you're the last to exit a fund do you end up getting shares redeemed for less than NAV?

    Shame what's happening at Artio.
Sign In or Register to comment.