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looking for the board member who was interested in LDVAX

Hi, guys.

It's possible that a couple posts and/or discussion threads have disappeared without anyone intending them to. That might be an issue with the board software (glitches happen) or it might be an unintended consequence of our occasion clean-up of posts with no activity. In any case, we haven't been intentionally deleting anyone (despite the occurrence of a couple snipe-and-snark exchanges).

Dennis Baran, in particular, was concerned that a poster had inquired about LDVAX, which I understand to be the Leland Thomson Reuters Venture Capital Index fund. Dennis had done some considerable digging, as is his wont, then discovered the original thread had gone missing. Please, if you were the person with the interest, would you either connect with Dennis via private message or (better yet) make a quick, public post expressing your interest? Dennis will then have a way to share his findings.

Wishing you all the best!

Comments

  • I believe this is the post you are referring to...
    https://mutualfundobserver.com/discuss/discussion/54889/leland-funds-ldvax

    Perhaps the MFO search tool only looks at the body of the post and not the title.
  • Dolphin: Thanks for finding this poster!. I'm able to message him and give him some detailed info about this fund class but more importantly more about Leland's approach in the alt space, comparisons to other aggressive funds, analysis of the VC/PE benchmarks from Refinitiv, some charts, and discussion with the fund's adviser. Dennis Baran
  • edited January 16
    openice said:

    Dolphin: Thanks for finding this poster!. I'm able to message him and give him some detailed info about this fund class but more importantly more about Leland's approach in the alt space, comparisons to other aggressive funds, analysis of the VC/PE benchmarks from Refinitiv, some charts, and discussion with the fund's adviser. Dennis Baran

    Can you post that "detailed info" here?

  • The original post on LDVAX went into The Bullpen, where it may have gone unseen. I'm glad the topic has been brought back because I'd like to know what the three brainy managers have cooked up to produce such fine returns. A glance at their portfolio shows the "usual suspects" found in many growth funds, but there must be some "alt" sauce in there somewhere that I don't see. I echo @stillers query.
  • The Leland Reuters Family consists of three funds: Thomson Reuters Venture Capital Index Fund, Thomson Reuters Private Equity Buyout Index Fund, and Real Asset Opportunities Fund.

    We’ll focus on the first of these.

    Objective and Strategy

    It’s complicated.

    First, the TR Venture Capital Research Index looks at 22,000 U.S. firms and all of the VC/PE deals that occurred over the previous quarter, analyzes them, and places them in the seven sectors that comprise the index to see how these companies are performing and estimates their value using data stemming from IPOs, stock buybacks, and surveys.

    Then, the TR Venture Capital Index (TR VC Index) seeks to replicate that risk/ return profile of the TR VC Research Index by using the same process to identify a set of publicly listed assets that when properly weighted replicate the returns of the TR VC Research Index.

    Rather than investing in venture capital/private equity companies directly, the TR VC Index seeks to replicate the industry’s returns by constructing a portfolio of liquid, U.S. large cap, listed equities, (e.g., Apple, Dow Chemical, Berkshire Hathaway Inc.).

    This portfolio is designed to mirror the characteristics and returns of the VC/PE markets, which is tracked and calculated by Refinitiv in the Venture Capital Research Index.

    Additionally, it uses economic factors and market indicators to calculate optimal asset weights and modifies the portfolio over time to reflect changes in the venture capital universe. Small leverage is commonly used so that the tracking portfolio’s risk loadings match those of the VC/PE industry in aggregate.

    The Leland Thomson Reuters Venture Capital Index Fund acquired all of the assets and liabilities of the MPS Thomson Reuters Venture Capital Fund (the "Predecessor Fund") in a tax-free reorganization on September 24, 2015. (SAI)

    Adviser: Good Harbor® Financial, LLC develops and manages a comprehensive suite of investment solutions designed to fit into a wide range of portfolios for institutions, private investors and their financial advisors. Based in Chicago, the firm provides actively managed access to a broad range of global capital markets.

    Managers

    Neil R. Peplinski, CFA. Managing Partner, Good Harbor Financial LLC, worked as a portfolio manager for Allstate Investments overseeing a $400 million portfolio of collateralized debt obligations. Neil earned his MBA with High Honors from The University of Chicago Booth School of Business. He also holds a MSEE in Electromagnetics from The University of Michigan, and a BSEE in Electromagnetics from Michigan Technological University where he graduated summa cum laude.

    David Armstrong, portfolio manager. He is primarily responsible for working with advisory firms and investors to understand tactical asset allocation as they assess Good Harbor and its investment strategies. With 28 years of professional experience, David’s previous companies include Honeywell, RR Donnelley and Oracle. Prior to joining Good Harbor, he was a director of research conducting analysis on the nature and structure of competition in the credit card market for financial firms. David earned his MBA from the University of Chicago Booth School of Business and a BA from Knox College.

    Yash Patel, CFA, Chief Operating Officer, has served as a Portfolio Manager since March 2010 at Good Harbor Financial and also serves as its Chief Operating Officer. Yash brings 14 years of professional experience to the firm. His responsibilities include the management and leadership of operations, technology, trading, and portfolio management. Prior to joining Good Harbor Financial, Yash was a quantitative equity analyst for Allstate Investments, developing and implementing model-driven trading strategies. Previous to that, he worked and consulted for hedge funds including Bridgewater Associates and Citadel Investment Group. Yash earned an MBA with Honors from The University of Chicago Booth School of Business and a BS CSE from The Ohio State University.

    Managements stake in the fund

    As of 9/30/18 (the latest available), Mr. Peplinski owns between $100,001-500,000 amount of the VC fund; Mr. Armstrong $10,001-50,000; Mr. Patel $1,000-10,000.

    None of the five trustees own shares of the fund.

    Opening dates

    LDVIX 10/2/2014; LDVAX Class A 10/2/2014; LDVAX w/load 10/2/2014; LDVCX 9/23/2015

    Expense ratios LDVIX 1.51; LDVCX 2.51; LDVAX 1.76

    Minimum investment

    LDVIX $250K Regular, IRA; LDVCX Regular $2,500, IRA $1,000; LDVAX Regular $2,500, IRA $1,000

    The funds have limited brokerage availability. All are NTF at TD; Fidelity LDVAX TF;
    Schwab LDVIX Institutional Class $100K Regular, IRA; LDVAX $100, Regular, IRA

    Other Facts

    As of 12/31/19, the AUM of the Leland Thomson Reuters Venture Capital Index Fund was $122,987,322. According to M*, the fund currently has $141.7M in assets.

    The firm reports turnover for the Leland Funds on a fiscal year basis (9/30). For FY ending 9/30/2019, the turnover for the Leland Thomson Reuters Venture Capital Index Fund was 115%. It was 47% in 2018 (9/30).

    The prospectus states that typically the TO is over 100%.

    AUM at the firm on 9/30/19 was $280.4M EOY, a decline from $440M from the previous EOY.

    The overall AUM decline is mostly due to outflows in their Good Harbor Tactical Core US strategy (both in the mutual fund version and SMA). There have also been outflows in the Leland Real Asset Opportunities Fund as well.

    Here is the link of the fund’s holdings that seek to track the Index.

    http://www.lelandfunds.com/wp-content/uploads/2020/01/2019_12_Leland-TR-VC-Index-Fund-Holdings.pdf

    Performance information of the Index:

    https://www.refinitiv.com/content/dam/marketing/en_us/documents/fact-sheets/venture-capital-index-fact-sheet.pdf

    Comments

    The gentleman who asked about the fund mentioned the three-year performance of LDVAX, a 5.75% load fund.

    I’ve chosen to cite the I class LDVIX and C class LVDCX and the Primecap POAGX, the aggressive mid-cap fund with a stellar record since its inception in 1984 and currently closed with $6B in assets. Like the Leland funds, POAGX is concentrated in tech and healthcare.

    Also, he also owned POAGX but sold it in 12/2018.

    How have these funds performed?

    As of 1/16/20, the dollar value of LDVIX is $24,670, LDVCX $23,979, and POAGX $15,709 at M*.

    As of 1/16/20, LDVIX has gained 9.56%, LDVCX 9.57%, and LDVAX 9.59%. All have 5* ratings for overall performance at M*.

    While these funds have some significant headwinds, their performance to date has managed to overcome them. Additionally, if one looks at MFOP for the three-year metrics that the gentleman cited ending 12/31/19, you'll see this:

    LDVIX MAXDD 12/18 -23.1; Recovery Rtg. 1 (Best) 7 mo.; Sharpe Ratio 1.38 5 (Best); Martin Ratio 5.13; Ulcer Index 6.3

    LDVCX MAXDD 12/18 -22.3; RR 1 (Best) 7 mo., SR 1.33 1.33 (Best); MR 4.85; UI 6.4

    POAGX MAXDD 12/18 -22.3; RR 5 (Worst) 16+ mo.; SR 0.73 (Worst 1); MR 1.69; UI 8.1

    The overall success of these funds may result primarily from the ability of the managers in the alternative class space to match the performance of their bogy with well-chosen public companies.

    I do not own this fund and won't be buying it.

    I researched this fund because a board member asked for information about it, I had already been researching it at MFOP, and because he had received no replies, I wanted to
    contact him.

    I’d like to thank everyone who participated in the search for this gentleman and hope that what I have written may be of some value.

  • Sorry but clicking on the links for me cancels my entire commentary. They worked fine in preview.
  • @openice. Links work just fine for me.
  • Charles:
    Links work just fine for me.
    Thank you!
  • I am the board member that brought this up. I connected with Dennis and reviewed the information compiled. This is an excellent review of an interesting fund.
  • I may be slow, so help me out. LDVAX aims to replicate an index by taking positions in companies not in the index. I get CAPE and MOAT, which I own, because they invest in stocks that are part of their relative indices. CAPE does it indirectly through instruments I don't fully understand, but MOAT defines its index members quarterly and buys equal weights of the components. Both CAPE and MOAT do really well matched against SPY and I sometimes trade in and out of these ETFs depending on market conditions. I don't understand how LDVAX's managers can examine VC/PE activity for the previous quarter and translate those findings into buys or sells of companies not the subject of the activity. I recognize that existing listed companies might be receiving new infusions of capital though VC/PE, thereby making them candidates for purchase. However, for start-ups or brand new ideas, there won't be a listed stock and, more importantly, if the newby has some truly revolutionary idea or technology, there won't be a similar stock to buy. I can't argue with LDVAX's results, but they need to be put in the context of a perfect recent market environment for growth and an apparent need to trade furiously. S/T CG have risen over the fund's three-year history, so there are tax consequences. I'm hoping a board member understands better than I what the secret sauce is that juices the returns. My problem may be that I'm like the HS football team I played on: we were small, but we were slow.
  • @BenWP

    Ben: The “secret sauce” that you are looking for is a calculation that’s IP (intellectual property), and so Refinitiv is unable to disclose more than what is publicly available (PE Research Methodology and VC Research Methodology) to avoid any duplication effort.

    This calculation is not even available to the managers of the fund.

    The funds are not investing in VC/PE start-ups, IPOs or in venture capital backed and privately held companies.

    But looking at private deals and their valuation, the TR Research Index (TRVC) uses proprietary econometric models like swaps, leverage, and beta matching to find public companies within the sectors, weights, and liquidity to construct the TR Venture Capital Index (TRVCI Index), which the fund is trying to track.

    The managers are not picking these names.

    The beta adjustments are driven by the consensus forecast of 20 proprietary models.

    The sector beta refinement matches beta at the sector level, tightens the tracking to the two portfolios, and thereby offsets in aggregate that the net adjustment at the portfolio level is effectively zero.

    When I wrote in my previous commentary, “The overall success of these funds may result primarily from the ability of the managers in the alternative class space to match the performance of their bogy with well-chosen public companies,” I was addressing you personally because you raised a very important issue.

    What I’ve added now may be of some value. If you have additional questions, you might speak with the Leland team directly.



  • Thanks, @openice. You'd previously said was complicated, yet you've done well to enlighten me. It would be instructive to see how the Leland funds weather an ugly downdraft that sends high-flying growth stocks tumbling. The fund looks to have a 73% allocation to Technology. I don't shy away from innovative funds. DSEEX/DSENX has been the subject of a fair amount of criticism on this board, but that hasn't deterred some of us (namely @davidmoran) from adding to our positions. Thanks again for your valuable contributions.
  • Forgive me if I'm repeating a piece of the puzzle that's already been stated but I think the Venture Capital Fund is leveraged a bit more than 2:1 and that's what's driving the outsized returns, that's the secret sauce. I haven't quite figured out how they managed to only lose 22 or 23% at the end of 2018 but I guess that suggests they did a good job picking stocks or they cut their leverage in between public reporting dates and we can't see that anywhere. At the end of Q3 2018 they were something like 217% long and at the end of Q4 2018 they were more like 270% long, which is probably why they recovered from the drawdown so quickly.

    M* reports the portfolio exposures incorrectly because they account for the swaps the fund uses in the "other" investments but they don't account for the notional value of those swaps. M* counts the fund's asset allocation to these swaps based on the profit or loss the fund has on the swaps but the notional value is what really matters, not just the profit or loss. You can see the notional values of the swaps by looking at the fund's quarterly schedule of portfolio holdings at sec.gov/edgar.

    Just my humble opinion but because of the leverage the Leland fund uses you can't really do a performance comparison with the Primecap fund, which uses no leverage, and call it apples to apples. I'm also not sure what you intended to compare, @openice, because POAGX started in 2004, not 1984 (that was Vanguard Primecap, VPMCX), POAGX has more than $10 billion of AUM, VPMCX has more like $69 billion, and I can't figure out what period of time your performance figures relate to, the roughly 9.5% for each of the 3 funds you were comparing. It doesn't seem to be the 3 years I thought you were suggesting for either POAGX or VPMCX.

  • Sorry, one more piece may be worth adding. The majority of their leverage is coming from an index swap. So they're just adding exposure to a few indices, like the S&P 500 and the Nasdaq 100 on top of their disclosed holdings and that more than doubles their exposure to equities. They also have a swap as of 9/30/19 that gives them exposure to 14 stocks where the value of that exposure adds another 50% or so of their NAV to holdings they already have at much lower exposures.

    One quick and simple example as of 9/30/19. The fund directly owns 8,068 shares of Mastercard, which they show as a little more than 2% of NAV, but in one of their swaps they hold 16,000 shares of Mastercard which roughly doubles their exposure without disclosing it directly and their index swaps would again indirectly increases the fund's holdings of Mastercard based on the stock's weighting in the indexes)
  • @LLJB You're right about the inception of POAGX, and so that's a mistake. Thanks for pointing that out.

    As far as the 3yr. comparison of the Leland fund and POAGX, I wanted to use an aggressive growth fund to show the performance record of both funds. I didn't intend to make an apples-to apples comparison because I understand the differences between these funds.

    I appreciate your looking into the swaps of the fund and giving us that insight.
  • edited January 22
    Help me connect a few dots, is Dennis Barran = @openice ?

    For me, just reading and trying to understand, the fund seems like a 'great until it's not' fund. There have been several leveraged funds acclaimed here over the years but most if not all don't sustain and disappear over time. I hope this one is different and has the magic formula, but alas, not for me.
  • @LLJB

    I contacted the compliance officer at Leland and asked him to address the fund's use of swaps, leverage, the 4Q18 MAXDD, and your example of the Mastercard swap, from the information you cited earlier.

    His response: "Unfortunately, I can’t disclose any information beyond what is already publicly available. This includes the leverage ratios and specific holdings in the swaps."

    I'd like to make clear that I did not doubt what you said about these issues. I was trying to see if I could get more information but wasn't successful.

    So as it stands now, what you wrote is the best information we can get about issues like swaps et. alia., and as far as I'm concerned, that's good enough for me.

    IIRC, you have written about swaps before, perhaps one regarding DSEEX, and some have complimented you about it.

    (FWIW) for the year ended September 30, 2019, the Venture Capital Index Fund had realized losses of $3,446,758 from swap contracts.















  • LDVAX is up 10% YTD. I'm afraid, very afraid.
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