The Real Problem with Morningstar’s Star Rating

By Samuel Lee

Last week the Wall Street Journal published a story slamming Morningstar (“The Morningstar Mirage”), arguing the firm’s star ratings were virtually useless as predictors of performance. The Journal showed that both five-star funds and one-star funds regressed toward the mean over time. But it overstated its case because the funds didn’t regress all the way: five-star funds ended up doing much better than one star funds three, five and even ten years on. The pattern is striking: higher stars predicted higher future star ratings over all the Continue reading →

Fall Frolics

By Edward A. Studzinski

“Maybe this world is another planet’s hell.”

                                 Aldous Huxley

Investment Committees and Performance

We are at that point in time when investment returns trickle in from the endowments of schools and other not-for-profit organizations for their fiscal years ending June 30, 2017. In terms of preliminary numbers, the top ten college/university endowments had total returns Continue reading →

Launch Alert: Northern Funds U.S. Quality ESG Fund (NUESX)

By David Snowball

On October 02, 2017, Northern Trust Asset Management launched Northern U.S. Quality ESG Fund.  It strikes me as a particularly interesting fund which combines two separately valuable commitments in a single low-cost platform.

The case for investing in high quality companies is almost definitional. No sensible person buys low quality anything when, for about the same price, they can get a high quality alternative. The key is having a viable definition of “quality” and a clear sense of how much of a premium a quality company might charge. Northern has done a Continue reading →

Launch Alert: American Beacon Shapiro Equity Opportunities Fund (SHXPX) and American Beacon Shapiro SMID Cap Equity Fund (SHDPX) Investor Class

By Dennis Baran

On September 12, 2017, American Beacon launched two funds using Shapiro Capital Management, an institutional, value-oriented firm, as its sub-advisor. This alert focuses on the Equity Opportunities Fund, its all-cap value product. The SMID fund applies the same strategy in the mid cap space.

Established in 1990, Shapiro is known for deep fundamental research and concentrated portfolios. As of 2017, its managers — Samuel Shapiro, Michael McCarthy, Louis Shapiro, and Harry Shapiro — have 141 years of collective investment experience and head a team without turnover for 27 years, a continuity that confirms their ability to outperform their peers Continue reading →

Predicting 2017’s Capital Gain Distributions

By Mark Wilson

Warren Buffet once quipped: “Forecasts usually tell us more of the forecaster than of the forecast.”  This is one reason I hesitate to forecast what we might see this year for capital gains distributions from mutual funds.  Nonetheless, I’ll reveal a little about myself and will make an educated guess.

Looking Back

I don’t track absolute dollars of fund distributions, but for the Continue reading →

Elevator Talk: Sean Stannard-Stockton, Ensemble Fund (ENSBX)

By David Snowball

Since the number of funds we can cover in-depth is smaller than the number of funds worthy of in-depth coverage, we’ve decided to offer one or two managers each month the opportunity to make a 200 word pitch to you. That’s about the number of words a slightly-manic elevator companion could share in a minute and a half. In each case, I’ve promised to offer a quick capsule of the fund and a link back to the fund’s site. Other than that, they’ve got 200 words and precisely as much of your time and attention as you’re willing to share. These aren’t endorsements; they’re opportunities to learn more.

The conventional wisdom is that passive investing, particularly Continue reading →

great horned owl

Fuller & Thaler Behavioral Small-Cap Equity (FTHNX), November 2017

By David Snowball

Objective and strategy

FTHNX pursues long-term capital appreciation. The managers invest in a diversified US small cap equity portfolio. The managers seek out stocks where other investors are likely to make behavioral mistakes. If they conclude that an investor mistake is likely and the company has solid fundamentals, the portfolio managers generally buy the stock. They sell when the misbehavior has run its course, which tends to lead to a high turnover portfolio. That said, they do not automatically buy or sell based on a single security’s characteristics; they impose a risk management overlay that helps control exposures to sectors, size, and other characteristics. The fund currently holds Continue reading →

old license plates on a wall

Funds in Registration

By David Snowball

A great month, especially if you’re rich. AQR has two new bonds funds tagged for $1,000,000 and $5,000,000 minimums. DFA has registered to launch Emerging Markets Sustainability Core 1 Portfolio and Global Core Plus Fixed Income Portfolio, kept so far from the hoi polloi that they don’t even list investment minimums. Rather, we suppose, like the restaurants that don’t list prices on the menu. Likewise, the Martin Currie Emerging Markets SMA Shares Fund will only be available to Legg Mason’s SMA customers. Joel Greenblatt has filed his latest fund, Gotham 500 Plus Fund, with a quarter million dollar minimum. It’ll invest long in large caps and long/short in small- to mid-caps. 17 of his 19 other funds have peer-beating returns since inception. RMB International Small Cap Fund has a $100,000 minimum for now, though an Investor class might come along one day. The advisor has no other international funds; remember, these used to be the Burnham Funds. The RQSI GAA Systematic Global Macro Fund will set you back 2.48% and $5,000,000. Continue reading →

old alarm clock

Manager changes, October 2017

By Chip

It’s a strange month. At one level, several exceedingly capable managers have been shown the door but at another level, almost no managers have been shown the door. We recorded fewer than 40 partial or complete manager changes this month, about 40% below what’s “normal.” At the same time, fund liquidations are at a multi-year low. Only 23 traditional mutual funds left us, one third of which came from a single firm. The quiet is curious. It might signal a bottoming-out in the industry, or might simply be an anomalous stay of execution for dozens of funds and managers. We’ll keep an eye out. Continue reading →

fountain pen writing a note

Briefly Noted …

By David Snowball


The $12 million Global Strategic Income Fund (VEEEX) has a couple upgrades planned for the next month. “These changes included the appointment of a new adviser and sub-adviser to the Fund; revisions to the Fund’s investment objective; revisions to the Fund’s investment strategy; a change to the name of the Fund; changes to certain service provider agreements; and the addition of new share classes as well as the conversion of Class C Shares into Class A Shares.” Nominally the current version of the fund had a global, all-asset strategy; practically, it was a global equity fund with a 30-day SEC yield of 0.00%. The new fund will be Continue reading →