June 1, 2020

By David Snowball

Dear friends,

Welcome to summer.

All of us hope that it’s not going to be a long, hot one.

Some months it’s easy to write a welcome note, some months not. This is one of those latter times. Over the night just passed there were ongoing instances of “civil unrest” (the police chief’s term) with a caravan of 100 cars proceeding from one shopping plaza to the next. Four people – including a police officer simply driving his car – were shot; two, not including the officer, died. Many of the caravanning cars bore Minnesota plates. That followed a Continue reading →

Not So Welcome Back ZIRP

By Charles Boccadoro

June begins the fourth month with yield on the 10-year US Treasury Note below 1%. Dating back to 1926, the yield has never been below 1%.

Since the Federal Reserve implemented its Zero Interest Rate Policy (ZIRP) in December 2008 to help combat the Great Financial Crisis (GFC), the yield has remained below 3% 113 of 138 months … or more than 80% of the time. The goal of 3% level seems to have become something of a new normal. It used to be more like 5%, the long-time average.

The last time the 10-year yielded below Continue reading →

Rules Based Investing – Rule #6 Develop a Simple Investment Process Based on Rules and Guidelines

By Charles Lynn Bolin

Wow! What a year it has been so far! Coronavirus is at the top of the list. For me personally, there was a diagnosis, uncertainty, denial, surgery, and then recovery. After recovery, I took an assignment involving significant travel with less time to spend researching and investing for a couple of months followed by lots of free time. These two life events did not impact how I invest as much as the last rule, to “Develop a Simple Investment Process Based on Rules and Guidelines”. First, I wanted portfolios that were stable enough that I would be comfortable holding them unattended for months at a time during a bear market. For this reason, I created three relatively simple model portfolios that I follow with Continue reading →

The Mice that Roared: How Two Small Funds Threaten to Disrupt Two Large Industries

By David Snowball

On May 15, 2020, an unassuming filing with revolutionary potential appeared in the Securities and Exchange Commission’s EDGAR database. It was an N-1A, initial prospectus, filing for two ETFs: SmartETFs Dividend Builder ETF and SmartETFs Asia Pacific Dividend Builder ETF. Both unremarkably offered “to provide investors with dividend income and long-term capital growth.”

The real news appeared on Continue reading →

What We Do Not Know!

By Edward A. Studzinski

“Pessimist: one who, when he has the choice of two evils, chooses both.”

                    Oscar Wilde

One wonders what fifty years down the road, people will say about this period and how we as a nation dealt with the challenges with which we were presented.

In this country, we have had the conflict between states that never really closed but recommended social distancing and states that fully locked down and shut-in their residents and shut down their economies. In the latter case, the initial goal was Continue reading →

Launch Alert: ClearBridge Focus Value ETF (CFCV)

By David Snowball

On May 27, 2020, ClearBridge Investments launched ClearBridge Focus Value ETF (CFCV), one of the first active, non-transparent ETFs launched under the so-called Precidian protocol.

Precidian Investments, like ClearBridge, is an affiliate of Legg Mason. Legg paid $25 million in January 2020 to acquire the majority ownership of Precidian. It had been a minority owner since 2016. Precidian received approval from the SEC for a process that allows fund managers to evade the traditional ETF rule requiring constant, real-time portfolio transparency. Precidian now licenses its “technologies” to other advisers, allowing them to offer active funds with limited portfolio visibility.

ClearBridge Investments, a 50-year-old firm, manages $120 billion in assets. It merged in 2013 with Legg Mason Capital Management. Each of Legg’s nine affiliates managers – including Royce and Brandywine – maintains its investment autonomy while Legg handles marketing and distribution.

Sometime in the third quarter of 2020, Franklin Resources will complete Continue reading →

Launch Alert: Jensen Global Quality Growth

By David Snowball

On April 15, 2020, Jensen Investment Management launched the Jensen Global Quality Growth Fund (JGQSX).  This new fund is a global version of Jensen Quality Growth: the same discipline, same managers. Jensen Quality Growth Fund (JENSX) is, at least from the perspective of those who look at long-term accomplishments, one of the best domestic large-cap core funds in existence.

What do they do? Continue reading →

great horned owl

KL Allocation Fund (GAVAX/GAVIX)

By David Snowball

Objective and strategy

The fund is trying to grow capital, with the particular goal of beating the MSCI All Country World Index over the long term while maintaining an emphasis on capital preservation. The fund allocates assets between stocks (10-90%), fixed-income securities (10-90%), and cash depending on market conditions. The equity portion of the portfolio is invested in stocks of firms that they designate as “knowledge leaders.” Knowledge Leaders are a group of the world’s leading innovators with deep reservoirs of intangible capital. These companies often possess competitive advantages such as strong brand, proprietary knowledge, or a unique distribution mechanism. Knowledge Leaders are largely Continue reading →

old license plates on a wall

Funds in Registration

By David Snowball

The Securities and Exchange Commission, by law, gets between 60 and 75 days to review proposed new funds before they can be offered for sale to the public. Each month, Funds in Registration gives you a peek into the new product pipeline. Most funds currently in registration are in a scramble to launch by June 30th with the hope that having a “standard reporting period” to share with investors sooner. In a remarkable surge, we found 31 active funds and ETFs in registration, some quite notable. Expect them to launch by the end of July 2020.

The number of ESG-themed funds in the pipeline continues to grow. This month’s crop includes a couple of passive ETFs, SPDR [S&P 500 ESG] ETF and JPMorgan Carbon Transition U.S. Equity ETF, as well as Continue reading →

old alarm clock

Manager Changes, May 2020

By Chip

Fund managers matter, sometimes more than others. As more teams adopt the mantra “we’re a team,” if only as window-dressing, more and more manager changes are reduced to “one cog out, one cog in.” Nonetheless, we know that losing funds with new managers tend to outperform losing funds that hold onto their teams, while the opposite is true for winning funds. Strong funds with stable teams and stable assets outperform strong funds facing instability (Bessler, et al, 2010). Because of the great volatility of their asset class, equity managers matter rather more than fixed-income investors. (Sorry guys.)

And so each month we track Continue reading →

fountain pen writing a note

Briefly Noted

By David Snowball

Updates

Index Funds S&P 500 Equal Weight NoLoad Fund (INDEX, cool ticker) passed its fifth anniversary on April 30, 2020. It’s no secret that traditional US stock indexes are becoming more and more concentrated in just a few mega-cap names. Ten percent of the S&P 500 is invested in just two stocks (Microsoft and Apple) and 20% of the entire index is held in five stocks (adding Amazon, Facebook, and Alphabet). That’s great if you want concentrated exposure, in particular to mega-cap tech.

There’s an alternative: place an equal amount in each of the S&P 500 stocks. In INDEX, for example, Apple is 0.21% of the portfolio rather than 5.09%. The resulting portfolio is Continue reading →