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Grandeur Peak Advisors is closing several of their funds

edited February 18 in Fund Discussions
https://www.sec.gov/Archives/edgar/data/915802/000139834421003172/fp0062329_497.htm

497 1 fp0062329_497.htm


FINANCIAL INVESTORS TRUST: GRANDEUR PEAK FUNDS

GRANDEUR PEAK EMERGING MARKETS OPPORTUNITIES FUND
GRANDEUR PEAK GLOBAL MICRO CAP FUND
GRANDEUR PEAK GLOBAL OPPORTUNITIES FUND
GRANDEUR PEAK INTERNATIONAL OPPORTUNITIES FUND
GRANDEUR PEAK INTERNATIONAL STALWARTS FUND
(Each, a “Fund,” and together, the “Funds”)

SUPPLEMENT DATED FEBRUARY 12, 2021 TO THE SUMMARY PROSPECTUS AND PROSPECTUS OF THE FUNDS DATED AUGUST 31, 2020, AS SUPPLEMENTED FROM TIME TO TIME

Effective as of the close of business on February 26, 2021, the Grandeur Peak Global Opportunities Fund, Grandeur Peak International Opportunities Fund, Grandeur Peak International Stalwarts Fund and Grandeur Peak Global Micro Cap will no longer accept purchases, from new or existing investors, through financial intermediaries unless the purchase is part of:

●a retirement plan which held the Fund prior to this closure,

●an automatic reinvestment of a distribution made by the Fund, or

●a de minimis annual rebalancing approved by a member of the Grandeur Peak client team.

Also, effective as of the close of business on February 26, 2021, the Grandeur Peak Emerging Markets Opportunities Fund will close to new investors seeking to purchase shares of the Fund through third party intermediaries subject to certain exceptions for financial advisors with an established position in the Fund and participants in certain qualified retirement plans with an existing position in the Fund.

The Funds remain open to purchases from existing investors, and to new investors who purchase directly from Grandeur Peak Funds.

The Funds retain the right to make exceptions to any Fund closure or limitation on purchases.

INVESTORS SHOULD RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE

Comments

  • edited February 18
    Just received an email from GP. Here is the email:

    February 12, 2021

    Dear Fellow Shareholders,

    With the continued strength of global markets and the performance of the Grandeur Peak Funds, we find it necessary to announce the following fund closures effective as of market close on Friday, February 26, 2021.

    Moving to Hard Closure[1]:

    Grandeur Peak Global Opportunities Fund (GPGOX/GPGIX)

    Grandeur Peak International Opportunities Fund (GPIOX/GPIIX)

    Grandeur Peak International Stalwarts Fund (GISOX/GISYX)

    Grandeur Peak Global Micro Cap Fund (GPMCX)

    Moving to Soft Closure[2]:

    Grandeur Peak Emerging Markets Opportunities Fund (GPEOX/GPEIX)

    As you know, we carefully review capacity at both the strategy and firm level. We are committed to keeping our investment strategies nimble to fully pursue their investment objectives without being encumbered by their individual asset base or the firm’s collective assets. Achieving performance for our clients remains our paramount objective as always.

    Funds Remaining Open:

    Grandeur Peak Global Reach Fund (GPROX/GPRIX)

    Grandeur Peak Global Stalwarts Fund (GGSOX/GGSYX)

    Grandeur Peak Global Contrarian Fund (GPGCX)

    Grandeur Peak US Stalwarts Fund (GUSYX)

    Thank you for your continued trust. If you have any questions, don’t hesitate to reach out to me or a member of our Client Relations Team.





    [1]"Hard Closure": means that these Funds will no longer accept purchases, from new or existing investors, through financial intermediaries unless the purchase is part of: (1) a retirement plan which held the Fund prior to this closure, (2) an automatic reinvestment of a distribution made by the Fund, or (3) a de minimis annual rebalancing approved by a member of the Grandeur Peak client team. The Funds will remain open to purchases from existing investors, and to new investors who purchase directly from Grandeur Peak Funds. The Funds retain the right to make exceptions to any Fund closure or limitation on purchases.

    [2] "Soft Closure" means that the Fund will close to new investors seeking to purchase shares of the Fund through third-party intermediaries subject to certain exceptions for financial advisors with an established position in the Fund and participants in certain qualified retirement plans with an existing position in the Fund. The Fund will remain open to purchases from existing investors, and to new investors who purchase directly from Grandeur Peak Funds. The Funds retain the right to make exceptions to any Fund closure or limitation on purchases.
  • That should tell me something about current valuations.
  • Here's the entire letter including footnotes:
    https://www.grandeurpeakglobal.com/documents/grandeurpeakglobal-pr-20210212.pdf

    I might call it a demisemi-hard closure. The hard closed funds will remain open for for two more weeks, and when they do close they'll remain open to direct investments including new accounts.
  • Not to quarrel with accepted wisdom, nevertheless I wonder if GP could show shareholders what advantage it has been to them to close only to re-open several of the funds. When I look at GPIOX and GPGOX, the ones I used to own, I see AUM south of $1B, holdings shading towards mid-cap of 191 and 166 stocks respectively, and no one stock representing more than 2.56% of the fund. Couldn’t the managers add new money to existing positions without throwing things off kilter? ISTM, that money sloshing around because of closure announcements causes more headaches than a steady stream of new regular purchases. I know that I have read of SC funds losing their mojo because the managers could not deal with lots of new money. If GP were running concentrated portfolios of 25-40 SMID stocks, timely closures might be called for. I own BCSIX that has been closed for some time, but I don’t really know if closing helped me. Other members might know of funds whose closings and re-openings amounted to more than management suddenly realizing that a closed fund ain’t making enough dough for the firm. Hope I’m not being quarrelsome.
  • msf
    edited February 14
    It's not a matter of how diversified a fund is but how much of a stock the fund, or more broadly the management company, owns. A fund could grow 10x its size and not throw itself off kilter. It could simply buy 10x as much of everything.

    As an absurd example, consider a hypothetical fund with 20% in each of the FAANG stocks. Highly concentrated, yet it would have no problem taking in tons of cash, because it wouldn't have an impact on the stocks it held.

    GPIOX and GPGOX each hold about 3/4% of Metropolis Healthcare. Not enough to move the needle, but GP as a whole has a fascination with this company. Should GP sour on the company, it might try to unload its 13% ownership. Regarding Dechra Pharmaceuticals, GP holds almost 1/4 of the company.

    It's different when a large fund complex owns a sizeable percentage of a company, e.g. Fidelity (FMR) owns nearly 1/5 of Dechra. But that's spread over more funds with more varied objectives (albeit virtually all growth-oriented).

    BCSIX has been soft closed since Oct 18, 2013. IMHO that's more a way of limiting hot money than it is to slow the growth of the fund. Forcing new investors to buy directly from Grandeur Peak similarly serves as an obstacle to traders. But additionally, GP's refusal to take money from existing investors through third parties will slow inflows in a way that BCSIX's soft close does not. IMHO the two sets of closures are not that similar.

    I share some of your cynicism when it comes to management motives generally in closing funds. Ages ago I read a paper or two on how fund companies optimize profits by closing their funds late enough to allow the garnering of significant AUM, but not too late as to so harm their funds' performance as to induce outflows. Funds' performances were nevertheless harmed to some extent by delaying closures to optimize profits rather than performance. (FMAGX is a poster child for funds that close too late.)

    BCOIX played the same game as GP - announcing its closing two weeks before it took effect.
    https://www.sec.gov/Archives/edgar/data/869351/000120928613000420/e1326.htm

    In contrast, when Vanguard announces a fund is closing, it closes that day.
  • Grandeur Peaks funds focus on the mid- and small-cap stocks. Unlike the large cap stocks, there are limit on how much stocks one can own before pushing the price up (or down) in a meaningful way. The situation would be even more pronounce in microcap stocks.

    GP face two choices if GP let the funds open, they face two choices. If GP want own stocks in the same range of %, they need to buy many new stocks that may dilute their best ideas. The other choice is buy larger cap stocks with new $ that results in market cap creeping upward away from the charter of the fund. In the longer term, the fund performs quite different from the original benchmark.
  • edited February 14
    GPMCX was started will around 25 Million AUM. Inception was around 10/2015. Total assets now around 55.9 million. Seems that closing this fund has worked.
    Stay safe, Derf
  • Stock picking in smaller cap universe is tough since many companies don't have good balance sheets. Here is where active managed funds excel over indexing. Grandeur Peaks is a solid company. My only complain is their fees could be a bit more competitive.
  • @msf makes valid points regarding GP’s exposure to certain favorite stocks and the difference between BCISX and GP funds. BCSIX now holds $8B+ spread among 41 positions, holds no international stocks, and is a different animal from any GP fund. Probably due to its growth, BCSIX is no longer a SCG fund, but MCG. When I first bought it, this was not the case. I have never been able to figure out why the Brown Capital method does not work for their MCG fund, BCMSX, a true plodder. If BCSIX can’t stay above the thirtieth percentile in its category, it might be an indication that it’s no longer the winner it once was. I don’t want to sell BCSIX, but I’m adding any new dollars to Driehaus if I want true SCG coverage. I think BCSVX, which has $ I used to have in Grandeur Peak, continues to be a great foreign growth offering.
  • Hi, guys.

    I wanted to follow up with the GP folks before sharing anything. Exchanged notes with their president yesterday, and we've just sent this note to the folks on MFO's mailing list. I wanted to share if with you against the prospect that any of it is interesting to you.

    David

    - - - - -
    On February 12, Grandeur Peak announced their intention to institute a "hard close" for four funds and a soft close on one fund. A hard close is one that stops additional purchases by both new and existing shareholders; a soft close stops new investors from opening accounts. The funds affected are:

    Hard closed: Global Opportunities, International Opportunities, International Stalwarts and Global Micro Cap.

    Soft closed: Emerging Markets Opportunities.

    Each of the affected funds returned between 30-50% in 2020; Global Micro Cap and Emerging Markets have already posted double-digit returns for 2021. The hard closed funds all have four star ratings from Morningstar and are MFO Honor Roll funds; in addition, International Stalwarts is an MFO Great Owl which signals consistently first-tier risk-adjusted returns.

    The public explanation was "we carefully review capacity at both the strategy and firm level. We are committed to keeping our investment strategies nimble to fully pursue their investment objectives without being encumbered by their individual asset base or the firm’s collective assets."

    I asked president Eric Huefner to talk a bit about the necessity to close a $60 million fund and the oddity of hard-closing one of their least capacity-constrained funds. He noted that Global Micro Cap closed on the day it was launched but has doubled in size in the past 12 months. That's due to modest inflows, "sticky" investors and a 50% return in 2020. Grandeur's goal is "total investment flexibility in the micro-cap arena"

    The Stalwarts funds were created, primarily, to serve the needs of investment advisors who had worked with Grandeur for years but found that Grandeur's "core" funds were now closed and, hence, inaccessible to new clients. The suite of Stalwarts funds were designed to give investors access to Grandeur's style through funds that targeted slightly larger (hence, more liquid) stocks. The hope was that those funds would not have to close as quickly as the small- and micro-cap focused core funds. I asked about what had happened to limit capacity. Mr. Huefner noted that total capacity for the Stalwarts strategy - funds + SMAs, US/global/international - was in the $5-7 billion range with International having more assets than the other two combined. "We soft closed the Int’l Stalwarts strategy in June [but] the AUM in the International Stalwarts strategy has still grown more than 40% since then. Given the continuing rapid growth, it felt necessary to close it in order to preserve space for our other Stalwarts strategies."

    If you believe that the market will continue on its recent trajectory, dominated by US large tech stops, then there's nothing much you need to do. If you believe that the market might be rotating in response to a new administration, a new environment or simple exhaustion, you might anticipate international outperforming domestic, developing outperforming developed, small outperforming large. These funds are at the vanguard of investing in those style.

    Possible responses to their closing:

    Check your target asset allocation, whether for the individual fund or the asset class it represents. Consider whether you want to make an additional allocation now, in an admittedly pricey market, to bring your investment in line with your target.

    In my case, Global Micro Cap is my third-largest holding and represents 15% of my portfolio. As much as I'm delighted by its performance - 18% annually since launch - it would be hard for me to justify allocating more there now.

    Consider alternative GP funds as options. The young Global Contrarian fund has an R-squared of 97 against Global Micro Cap. Both have substantial micro cap exposure (about 40%) with Contrarian's stocks being a bit larger and noticeably lower priced than Micro Caps.

    Similarly, Global Stalwarts has a correlation to International Stalwarts of 98 and a nearly identical Sharpe ratio, annual return and maximum drawdown. Global is about 55% international.

    Consider Rondure, Wasatch and Seven Canyons funds as options. All four families are driven by Wasatch alumni. While they have very distinctive perspectives and strengths, all have a shared perspective on global small- and micro-cap investing and a respect for their investors as partners. By way of example, Rondure New World (four star, $250 million) has an R-squared of 95 against Emerging Markets Opportunities and Wasatch EM Small Cap (four star, $520 million) has an R-squared of 93. These are all very solid advisors with investor-centered cultures and strong records, though not identical strategies. Between them, 11 of their 24 eligible funds (those with records of three years or more) have earned an MFO Great Owl designation.
  • "[1]"Hard Closure": means that these Funds will no longer accept purchases, from new or existing investors, through financial intermediaries unless the purchase is part of: (1) a retirement plan which held the Fund prior to this closure, (2) an automatic reinvestment of a distribution made by the Fund, or (3) a de minimis annual rebalancing approved by a member of the Grandeur Peak client team. The Funds will remain open to purchases from existing investors, and to new investors who purchase directly from Grandeur Peak Funds. The Funds retain the right to make exceptions to any Fund closure or limitation on purchases.

    So it appears one can still buy directly through the fund , YES or NO ?
    Derf
  • edited February 18
    @Derf

    I thought several of the funds were going to be "hard closed" to all investors. After reading the footnotes, it appears that the funds are closing primarily through financial intermediaries. This should signal to potential investors/existing investors that these funds may close at any time. At least by leaving the funds open through GP allows GP to control and monitor incoming monies into these funds.
  • @Derf
    Amy Johnson, MBA, CFP(R)
    Sr. Manager, Client Relations
    801-384-0044

    has been very helpful and quick to answer investor questions. She also has an email, which may be on the Grandeur Peak site.
  • I've dealt with Amy a few years back & found her to be very helpful. Thanks @InformalEconomist.
    Stay Safe, Derf
  • Sorry for the delayed note. Tuesdays and Thursdays are my heavy teaching days; unlike many places, we continue to teach in-person though that occasionally requires turning some very odd spaces into classrooms. I'm mostly wedged in the far enough of the Library's reference and reading room, which is big enough to safely accommodate the 30 kids in each of my classes. (Though the acoustics are odd, the light sort of bleaches out my video screen and it feels a bit like having class in a restaurant.)

    Spoke with Mr. Huefner again. Direct investors can continue to invest even in a hard closed fund, though Mr. Huefner notes that the amount of money directly invested "is a pretty small component" of the funds' assets. All retail investors in Global Micro Cap had to be direct but advisors were allowed to use intermediaries, so the closure stops them (and their potentially large inflows) from further investment.

    David
  • Not only can direct investors continue to invest in the funds, but direct investors can begin investing in new accounts. Not exactly what one usually means by closing a fund, whether soft or hard. Which is why these terms were footnoted in the shareholder letter.

    Thank you Lewis Carroll.

    The footnotes say the same thing that you were told. M* supposedly tags such funds as "limited" access, i.e. "limited to certain classes of investors", neither open nor closed.
  • BenWP said:

    @msf makes valid points regarding GP’s exposure to certain favorite stocks and the difference between BCISX and GP funds. BCSIX now holds $8B+ spread among 41 positions, holds no international stocks, and is a different animal from any GP fund. Probably due to its growth, BCSIX is no longer a SCG fund, but MCG. When I first bought it, this was not the case. I have never been able to figure out why the Brown Capital method does not work for their MCG fund, BCMSX, a true plodder. If BCSIX can’t stay above the thirtieth percentile in its category, it might be an indication that it’s no longer the winner it once was. I don’t want to sell BCSIX, but I’m adding any new dollars to Driehaus if I want true SCG coverage. I think BCSVX, which has $ I used to have in Grandeur Peak, continues to be a great foreign growth offering.

    Would you suggest a ticket for the Driehaus Fund? What do you think of GRANDEUR PEAK Funds, especially GLOBAL MICRO CAP FUND ?

  • The two Driehaus funds I own are DVSMX and DSMDX, both run by the the managers who have made the closed Driehaus Micro Cap fund a success. These funds are volatile, dropping as much as 4% per day when the markets nosedive. I have no clue as to their future success, but I do believe the technology and health sectors in which the managers have invested up to this point have a bright future.

    I used to own GPMCX and GPGCX, but I now hold only GUSYX which has done well. I can’t understand GP’s reasoning for holding so many securities in a given fund. They say they comb the world for the best companies at good prices, which is fine, but I prefer more concentration. @msf has commented on the concentration in certain favorite stocks. I may have missed it, but I have seen no explanation from GP as to how their analysts can be traveling these days to keep tabs on several hundred companies overseas. Professor Snowball has spoken very highly of GP and his commitment to the firm.
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