FMI International (FMIJX), May 2012

By David Snowball

Objective and strategy

FMI International seeks long-term capital appreciation by investing, mainly, in a focused portfolio of large cap, non-US stocks. The Fund may invest in common and preferred stocks, convertibles, warrants, ADRs and ETFs. It targets firms with global, rather than national, footprints. They describe themselves as looking “for stocks of good businesses that are selling at value prices in an effort to achieve above average performance with below average risk.”

Adviser

Fiduciary Management, Inc., of Milwaukee, Wisconsin. FMI was founded in 1980 and is employee owned.  They manage over $14.5 billion in assets for domestic and international institutions, individual investors and RIAs through separately managed accounts and the five FMI funds.

Managers

A nine-person management team, directed by CEO Ted Kellner and Patrick English.  Mr. Kellner has been with the firm since 1980, Mr. English since 1986.  Kellner and English also co-manage FMI Common Stock (FMIMX), a solid, risk-conscious small- to mid-value fund which is closed to new investors and FMI Large Cap (FMIHX).  The team manages three other funds and nearly 900 separate accounts, valued at about $5.3 billion.

Inception

December 31, 2010.

Management’s Stake in the Fund

As of December 2011, all nine managers were invested in the fund, with substantial investments by the three senior members (in excess of $100,000) and fair-sized investments ($10,000 – $100,000) by most of the younger members.  In addition, five of the fund’s six directors had substantial investments ($50,000 and up) in the fund.  Collectively, the fund’s board and officers owned 55% of the fund’s shares.

Minimum investment

$2500 for all accounts.

Expense ratio

0.94% on assets of close to $4.1 Billion, as of July 2023. 

Comments

You would expect a lot from a new FMI fund. The other two FMI-managed funds are both outstanding.  FMI Common Stock (FMIMX), a small- to mid-cap core fund launched in 1981, has been outstanding: it has earned Morningstar’s highest designations (Five Stars and a Gold analyst rating), it’s earned Lipper’s highest designations for Total Returns and Preservation of Capital, and it has top tier returns for the past 5, 10 and 15 years.  FMI Large Cap (FMIHX), a large cap core fund launched in 2001, has been outstanding: it has earned Morningstar’s highest designations (Five Stars and a Gold analyst rating), it’s earned Lipper’s highest designations for Total Returns, Consistency and Preservation of Capital, and it has top tier returns for the past 5 and 10 years. Both are more concentrated (30-40 stocks), more conservative (both have “below average” to “low” risk scores from Morningstar), and more deliberate (turnover is less than half their peers’).

Consistent, cautious discipline is their mantra: “While past performance may not be indicative of the future, we can assure our shareholders that FMI’s investment process will remain the same as it has for over 30 years, with a steadfast focus on fundamental research and an emphasis on avoiding permanent impairment of capital.”

Since FMI International is run by the same team, using the same investment discipline, you’d have reason to expect a lot of it.  And, so far, your expectations would have been more than met.

Like its siblings, International has posted top-tier returns.  $10,000 invested at the fund’s lunch at the end of 2010 would now be worth $10,000 by the end of April 2012.  In that same period, its average peer would have lost $500.  Like its siblings, International has excelled in turbulent markets and been competitive in quickly rising ones.  At the end of March, FMI’s managers noted “Since inception, the performance of the Fund has been consistent with FMI’s long-term track record in domestic equities, generally outperforming in periods of distress, while lagging during sharp market rallies.”

It’s important to note that the FMI funds post strong absolute returns in the years in which the markets turn froth and they lag their peers.  Common Stock badly trailed its peers in four of the past 11 years (2003, 07, 10 and YTD 12) but posted an average 15.4% return in those years.  Large Cap lagged three times (2007, 10, and YTD 12) but posted 10.6% returns in those years.  For both funds, their performance in these “bad” years is better than their own overall long-term records.

A number of factors distinguish FMI from the average large cap international fund:

  1. It’s noticeably more concentrated.  The fund holds 26 stocks.80-120 would be far more typical.
  2. It has a large stake in North American stocks.  The US and Canada consume 30% of the portfolio (as of March 2012), with U.S. multinationals occupying as much space in the portfolio (19%) as SEC rules permit.  A 4% stake would be more common.
  3. It has a long holding period, about seven years, which is reflected in a 12% portfolio turnover.  60% turnover is about average.
  4. It avoids direct exposure to emerging markets.  There are no traditionally “emerging markets” stocks in the portfolio, though all of the companies in the portfolio derive earnings from the emerging markets.  It is unlikely that investors here will ever see the sort of emerging markets stake that’s typical of such funds. The managers explain that
    • the lack of good data, transparency and trust with respect to accounting, management, return on invested capital, governance, and several other factors makes it impossible for us to look at many international companies in a way that is comparable to how we operate domestically. China is an example of a country where we simply do not have enough trust and confidence in the companies or the government to invest our shareholders’ money.
    • In China there is little respect for intellectual property, and we are not surprised to see massive fraud allegations in the news with regard to Chinese equities. Investors have lost fortunes in companies such as Sino-Forest, MediaExpress, China Agritech, Rino International, and others. While there are sure to be high-quality, reliable mainland China or other emerging market businesses, for now we plan to focus on companies domiciled in developed countries, with accounting, management, and governance we can trust. As we look to invest in multinational companies that generally have a global footprint, we will get exposure to emerging markets without direct investment in the countries themselves. This will allow our shareholders to get the benefits of global diversification, but with a much greater margin of safety.
  5. The fund actively manages its currency exposure.  The managers are deeply skeptical that the euro-zone will survive and are fairly certain that the yen is “dramatically overvalued.”  As a result, they own only two stocks denominated in euros (Henkel and TNT Express) and have hedged both their euro and yen exposure.  As the managers at Tweedy, Browne have noted, the cost of those hedges reduces long-term returns by a little but short-term volatility by a lot.

On top of the manager’s stock selection skills and the fund’s distinctive portfolio, I’d commend them for a very shareholder friendly environment – from the very low expenses for such a small fund to their willingness to close Common Stock – and for really thoughtful writing.  Their shareholder letters are frequently, detailed, thoughtful and literate.  They’re a far cut above the marketing pap generated by many larger companies.  They also update the information on their website (holdings, commentaries, performance comparisons) quite frequently.

Bottom line

All the evidence available suggests that FMI International is a star in the making.  It’s headed by a cautious and consistent team that’s been together for a long while.  Expenses are low, the minimum is low, and FMI’s portfolio of high-quality multinational stocks is likely to produce a smoother, more profitable ride than the vast majority of its competitors.  Investors, and not just conservative ones, who are looking for a risk-conscious approach to international equities owe it to themselves to review this fund.

Company link

FMI International

March 31, 2023 Semi-Annual Report

RMS (a/k/a FundReveal) provides a discussion of the fund’s risk/return profile, based on their messages of daily volatility, at http://www.fundreveal.com/mutual-fund-blog/2012/05/fmjix-analysis-complementing-mutual-fund-observer-may-1-2012/

[cr2012]

LKCM Balanced Fund (LKBAX), May 2012 update

By David Snowball

Objective

The fund seeks current income and long-term capital appreciation. The managers invest in a combination of blue chip stocks, investment grade intermediate-term bonds, convertible securities and cash. In general, at least 25% of the portfolio will be bonds. In practice, the fund is generally 70% equities, though it dropped to 60% in 2008. The portfolio turnover rate is modest. Over the past five calendar years, it has ranged between 12 – 38%.

Adviser

Founded in 1979 Luther King Capital Management provides investment management services to investment companies, foundations, endowments, pension and profit sharing plans, trusts, estates, and high net worth individuals. Luther King Capital Management has seven shareholders, all of whom are employed by the firm, and 29 investment professionals on staff. As of December, 2011, the firm had about $9 billion in assets. They advise the five LKCM funds and the three LKCM Aquinas funds, which invest in ways consistent with Catholic values.

Manager

Scot Hollmann, J. Luther King and Mark Johnson. Mr. Hollman and Mr. King have managed the fund since its inception, while Mr. Johnson joined the team in 2010.

Management’s Stake in the Fund

Hollman has between $500,000 and $1,000,000 in the fund, Mr. King has over $1 million, and Mr. Johnson continues to have a pittance in the fund

Opening date

December 30, 1997.

Minimum investment

$2,000 across the board, down from $10,000 prior to October 2011.

Expense ratio

0.80%, after waivers, on an asset base of $111.3 million (as of July 17, 2023).

Comments

Our original, May 2011 profile of LKCM Balanced made two arguments.  First, for individual investors, simple “balanced” fund make a lot more sense than we’re willing to admit.  We like to think that we’re indifferent to the stock market’s volatility (we aren’t) and that we’ll reallocate our assets to maximize our prospects (we won’t).  By capturing more of the stock market’s upside than its downside, balanced funds make it easier for us to hold on through rough patches.  Morningstar’s analysis of investor return data substantiated the argument.

Second, there are no balanced funds with consistently better risk/return profiles than LKCM Balanced.  We examined Morningstar data in April 2011, looking for balanced funds which could at least match LKBSX’s returns over the past three, five and ten years while taking on no more risk.  There were three very fine no-load funds that could make its returns (Northern Income Equity, Price Capital Appreciation, Villere Balanced, and LKCM) but none that could do so with as little volatility.

We attributed that success to a handful of factors:

Quiet discipline, it seems. Portfolio turnover is quite low, in the mid-teens to mid-20s each year. Expenses, at 0.8%, are low, period, and remarkably low for such a small fund. The portfolio is filled with well-run global corporations (U.S. based multinationals) and shorter-duration, investment grade bonds.

In designating LKBAX a “Star in the Shadows,” we concluded:

This is a singularly fine fund for investors seeking equity exposure without the thrills and chills of a stock fund. The management team has been stable, both in tenure and in discipline. Their objective remains absolutely sensible: “Our investment strategy continues to focus on managing the overall risk level of the portfolio by emphasizing diversification and quality in a blend of asset classes.”

The developments of the past year are all positive.  First, the fund yet again outperformed the vast majority of its peers.  Its twelve month return, as of the end of April 2012, placed it in the top 5% of its peer group and its five year return is in the top 4%.  Second, it was again less volatile than its peers – it held up about 25% better in downturns than did its peer group.  Third, the advisor reduced the minimum initial purchase requirement by 80% – from $10,000 to $2,000. And the expense ratio dropped by one basis point.

We commissioned an analysis of the fund by the folks at Investment Risk Management Systems (a/k/a FundReveal), who looked at daily volatility and returns, and concluded :

LKBAX is a well managed Moderate Allocation fund. It has maintained “A-Best” rating over the last 5 and 1 years, and has recently moved to a “C-Less Risky” rating over the last 63 days. Its volatility is well below that of S&P 500 over these time periods.

Its Persistence Rating is 50, indicating that it has reasonable chance of producing higher than S&P 500 Average Daily Returns at lower risk. Over the last 20 rolling quarters it has moved between “A-Best” and “C-Less Risky” ratings.

Amongst the Moderate Allocation sector it stands out as a one of the best managed funds over the last year

Despite that, assets have barely budged – up from about $19 million at the end of 2010 to $21 million at the end of 2011.  That’s attributable, at least in part, to the advisor’s modest marketing efforts. Their website is static and rudimentary, they don’t advertise, they’re not located in a financial center (Fort Worth), and even their annual reports offer one scant paragraph about each fund:

The LKCM Balanced Fund’s blend of equity and fixed income securities, along with stock selection, benefited the Fund during the year ended December 31, 2011. Our stock selection decisions in the Energy, Consumer Discretionary, Information Technology and Materials sectors benefited the Fund’s returns, while stock selection decisions in the Healthcare and Consumer Staples sectors detracted from the Fund’s returns. The Fund continued to focus its holdings of fixed income securities on investment grade corporate bonds, which generated income for the Fund and dampened the overall volatility of the Fund’s returns during the year.

Bottom Line

LKCM Balanced (with Tributary Balanced, Vanguard Balanced Index and Villere Balanced) is one of a small handful of consistently, reliably excellent balanced funds. Its conservative portfolio will lag its peers in some years, especially those favoring speculative securities.  Even in those years, it has served its investors well: in the three years since 2001 where it ended up in the bottom quarter of its peer group, it still averaged an 11.3% annual return.  This is really a first –rate choice.

Fund website

LKCM Balanced Fund

LKCM Funds Annual Report 2022

[cr2012]

Manager changes, April 2012

By Chip

Because bond fund managers, traditionally, had made relatively modest impacts of their funds’ absolute returns, Manager Changes typically highlights changes in equity and hybrid funds.

Ticker Fund Out with the old In with the new Dt
XXXXX American Century’s Strategic Allocation funds and the firm’s Livestrong target-date series Irina Torelli, a portfolio manager on the asset-allocation team The other 26 remain 4/12
BJGQX Artio Global Equity Rudolph-Riad Younes and Dimitre Genov Keith Walter 4/12
CHASX Chase Growth Peter C. Wood retires. Edward S. Painvin, previously of Allianz-RCM 4/12
CMMZX Columbia Absolute Return Emerging Markets Macro Richard House and Agnes Belaisch, about whose performance you can say little.  Its closest competitor, Forward Credit Analysis Long/Short, has done a lot better but doesn’t focus on emerging markets. Nicholas Pifer and Jim Carlen 4/12
RFRAX Columbia Floating Rate No one, but … Ronald Launsbach joins the team 4/12
APIAX Columbia Multi-Advisor International Value Subadviser Tradewinds is out. Is this related to Dave Iben’s departure? Dimensional Fund Advisors and Mondrian Investment Partners remain as subadvisors 4/12
FIEUX Fidelity Europe Melissa Reilly Riesteard Hogan 4/12
FDEGX Fidelity Growth Strategie Steven Calhoun Chris Lee 4/12
FISEX Franklin Equity Income Frank Felicelli, manager since inception in 1988 Comanagers Alan Muschott, Ed Perks, and Matt Quinlin remain. 4/12
GCMAX Goldman Sachs Mid Cap Value Comanager Scott Carroll resigned. Other team members will assume his duties. 4/12
GIEYX GuideStone Funds International Equity Tradewinds Global Investors has been terminated as a sub-adviser, just a month after president, David Iben, announces that he’s leaving with three analysts. Ten other subadvisors remain. 4/12
ITTAX Hartford Advisers Irons and Peter Higgins, managers since 2005, are stepping down. Karen Grimes. 4/12
JFAMX JPMorgan Emerging Markets Equity Greg Mattiko Lead manager Austin Forey and comanager and CIO Richard Titherington remain on the fund 4/12
LMVTX Legg Mason Capital Management Value Trust Bill Miller leaves after 30 years.  Sad end to an overblown career. Sam Peters, his planned successor, will continue, as will assistant portfolio manager, Mary Chris Gay 4/12
MERGX Marsico Emerging Markets Charlie Wilson is the latest to leave the firm.  Wilson is the latest in a string of mid- to high-level departures Comanagers Munish Malhotra and Josh Rubin remain 4/12
MERDX Meridian Growth Founder and manager Richard Aster died on February 12, at the age of 72 from a traumatic head injury. Larry Cordisco, a former portfolio manager of Meridian Value (MVALX), returned to the firm to join William Tao.  Kevin O’Boyle, another talented returnee, will oversee research but does not carry a “manager” title 4/12
FASKX Nuveen Large Cap Value Kevin Earley and Brent Mellum Cori Johnson, Gerald Bren and Derek Sadowsky 4/12
FASEX Nuveen Mid Cap Value Kevin Earley and Brent Mellum Karen Bowie and David Chalupnik 4/12
QRAAX Oppenheimer Commodity Strategy Total Return Kevin Baum has resigned from the firm Comanager, Robert Baker, and bond component manager, Carol Wolfe, will remain. 4/12
POAGX Primecap Odyssey Aggressive Growth Howard Schow, comanager, died on Sunday, April 8, at the age of 84. Other comanagers remain. 4/12
POGRX Primecap Odyssey Growth Howard Schow Other comanagers remain. 4/12
POSKX Primecap Odyssey Stock Howard Schow Other comanagers remain. 4/12
PGCOX Putnam Global Consumer Timothy Codrington The existing comanagers remain 4/12
PHSTX Putnam Global Health Care Christopher Stevo The existing comanagers remain 4/12
EBERX Putnam Natural Resources John Morgan The existing comanagers remain 4/12
UMBWX Scout International Fund Gary Anderson Michael D. Stack 4/12
SSGFX Sextant Growth No one, but … Paul Meeks has been hired by advisor, Saturna Capital. 4/12
STRGX Stratton Multi Cap James Beers Andrew DiZio, John Affleck and Shawn Gallagher 4/12
STMDX Stratton Real Estate James Beers Andrew DiZio, John Affleck and Shawn Gallagher 4/12
PRGSX T. Rowe Price Global Stock Rob Gensler, once Price’s hottest young manager, is retiring. Dave Eiswert is taking over as manager 4/12
PRGTX T. Rowe Price Global Technology Dave Eiswert is leaving to take over PRGSX and TRGSX. Josh Spencer will move up. 4/12
TRGSX T. Rowe Price Institutional Global Equity Rob Gensler is retiring. Dave Eiswert is taking over as manager 4/12
TCOEX Tactical Offensive Equity Fund No one, but … Lui-Er Chen of Delaware Management Company is added as a sub-adviser 4/12
TFEMX Touchstone Emerging Markets Equity II Patricia Perez-Coutts Comanager, Stephen Way, will remain 4/12
TEMAX Touchstone Emerging Markets Equity Patricia Perez-Coutts Comanager, Stephen Way, will remain 4/12
BEAAX U.S Equity Alph Thomas Cole John Leonard 4/12
BNGEX UBS Global Equity Fund Nicholas Melhuish Nicholas Irish 4/12
BNVAX UBS US Equity Opportunity Thomas Cole John Leonard 4/12
BNEQX UBS US Large Cap Equit Thomas Cole John Leonard 4/12
VHCOX Vanguard Capital Opportunity Howard Schow, comanager, died on Sunday, April 8, at the age of 84. Other comanagers remain. 4/12
VPCCX Vanguard Primecap Core Howard Schow Other comanagers remain. 4/12
VPMCX Vanguard Primecap Howard Schow Other comanagers remain. 4/12
SFAAX Wells Fargo Advantage Index Asset Allocation Gregory Genung Petros Bocray 4/12
WMMFX Wilmington Multi-Manager International Fund Amanda M. Cogar All the rest remain 4/12

 

May 2012 Funds in Registration

By David Snowball

Bernzott U.S. Small Cap Value Fund

Bernzott U.S. Small Cap Value Fund will pursue long-term capital appreciation, primarily by investing in common stock of small cap US companies. They will target companies with a market capitalization of between $500 million and $5 billion. The Fund may also invest (a maximum of 20 % of assets) in real estate investment trusts (REITs) . The portfolio will be managed by Kevin Bernzott, CEO of Bernzott Capital Advisors, Scott T. Larson, CFA, CIO, and Thomas A. Derse, Senior Vice President. The team has no experience managing mutual funds but they have managed separate accounts using the same discipline since 1995.  The good news: over the past 3, 5 and 10 years, their separate accounts have beaten the Russell 2000 Value by 1-2% per year.  Bad news: the separate accounts beat their benchmark only about half the time, the number of separate accounts is down 80% from its peak, assets are down by 50%.  All of which might help explain the decision to launch this fund  The minimum investment for regular accounts is $25,000. IRA’s, Gift Accounts for minors and Automatic Investment Plans carry a minimum investment of $10,000.  The expense ratio is 0.95% after waivers.  There’s a 2% fee for redemptions before 30 days.

Contravisory Strategic Equity Fund (CSEFX)

Contravisory Strategic Equity Fund (CSEFX) seeks long-term capital appreciation. The Fund will invest at least 80% of its net assets in common stocks of companies of any market capitalization and other equity securities, including shares of exchange-traded funds (“ETFs”). Up to 20% of its net assets may also be invested in the stocks of foreign companies which are U.S. dollar denominated and traded on a domestic national securities exchange, including American Depositary Receipts (“ADRs”). The strategy is based on a proprietary quantitative/technical model, which uses internally generated research. A private database tracks over 2000 stocks, industry groups, and market sectors.  The goal is to create a portfolio which seeks capital appreciation primarily through the purchase of domestic equity securities.  The approach is designed to separate strong performing stocks from weak performing stocks within the equity markets. The Advisor will consider selling a security if it believes the security is no longer consistent with the Fund’s objective or no longer meets its valuation criteria. The fund’s management team will be headed by William M Noonan who is the president and CEO.  The minimum investment for regular and retirement accounts is $2500. There is a fee of 2.00% for redemptions within 60 days of purchase. The expense ratio is 1.51%.

The DF Dent Small Cap Growth Fund

The DF Dent Small Cap Growth Fund will seek long-term capital appreciation. To achieve this the fund will normally invest at least 80% of its net assets (plus borrowings for investment purposes) in equity securities of companies with small market capitalizations. The Fund will target U.S.-listed equity securities, including common stocks, preferred stocks, securities convertible into U.S. common stocks, real estate investment trusts (“REITs”), American Depositary Receipts (“ADRs”) and exchange-traded funds (“ETFs”). While the fund will target companies that in the Adviser’s view possess superior long-term growth characteristics and have strong, sustainable earnings prospects and reasonably valued stock prices, it   may invest in companies that do not have particularly strong earnings histories but do have other attributes that in the Adviser’s view may contribute to accelerated growth in the foreseeable future.

The Fund’s portfolio will be managed by Matthew F. Dent and Bruce L. Kennedy, II, each a Vice President of D.F. Dent who are jointly responsible for the day-to-day management of the Fund.The minimum investment for both standard and retirement account is $2500.00. The redemption Fee ( within 60 days of purchase ) is 2.00%. There is an expense ratio of 1.10%

Jacobs Broel Value Fund

Jacobs  Broel Value Fund seeks long-term capital appreciation, and will invest in securities of companies of any market capitalization that the “Adviser” believes are undervalued. The Fund may invest in publicly traded equity securities, including common stocks, preferred stocks, convertible securities, and similar instruments of various issuers. The Adviser will focus on identifying companies that have good long-term fundamentals (e.g., financial condition, capabilities of management, earnings, new products and services) yet whose securities are currently out of favor with the majority of investors. The Fund will typically hold between 15-30 securities. The number of securities held by the Fund may occasionally exceed this range depending on market conditions. The Fund may, at times, hold up to 25% of its assets in cash. Up to a total of 25% of its assets may be invested in other investment companies, including exchange-traded funds and closed-end funds.  The fund is managed by Peter S. Jacobs and Jesse M. Broel. Mr. Jacobs is President and Chief Investment Officer of the Adviser and Mr. Broel is Portfolio Manager and Chief Operating Officer of the Adviser. The minimum investment is $5000.00 for regular accounts and $1000.00 for IRAs. There is a redemption fee of 2.99% ( funds held 90 days or less) and the expense ratio is 1.48%

Kellner Merger Fund

Kellner Merger Fund will seek positive risk-adjusted absolute returns with low volatility.  The Fund invests primarily  in equity securities of U.S. and foreign companies that are involved in publicly announced mergers, takeovers, tender offers, leveraged buyouts, spin-offs, liquidations and other corporate reorganizations.  The types of equity securities in which the Fund may invest include common stocks, preferred stocks, limited partnerships, and master limited partnerships  of any size market capitalization. George A. Kellner (Founder & Chief Executive Officer) and Christopher Pultz (Managing Director) are the portfolio managers.  The minimum initial investment is $2000 for regular accounts, reduced to $100 for retirement accounts or those set up with automatic investment plans.  The expense ratio, after a fee waiver, will be 2.00%.

Logan Capital International Fund

Logan Capital International Fund will pursue long-term growth of capital and income.  They’ll invest primarily in dividend-paying, large-cap stocks (or ADRs) in developed foreign markets.  Among their other tools: up to 20% emerging markets, up to 15% in ETFs, up to 10% in options and up to 10% short.  Marvin I. Kline and Richard E. Buchwald of Logan Capital will manage the fund.  The team manages about a quarter billion in separately managed accounts, but there is no public report of their composite performance.  The minimum initial investment is $5000, reduced to $1000 for IRAs.  The expense ratio is 1.5%.  There’s a 1% redemption fee on shares held less than six months.

Logan Capital Large Cap Core Fund

Logan Capital Large Cap Core Fund will pursue long-term capital appreciation.  They’ll invest primarily in US stocks, with permissible capitalizations between $500 million and about $500 billion.  The anticipate 50-60% growth and 40-50% value, which they define as financially stable, high dividend yielding companies.  The managers combine macroeconomic projections with fundamental and technical analysis. Among their other tools: up to 20% international, up to 15% in ETFs, up to 10% in options and up to 10% short.  Al Besse, Stephen S. Lee and Dana H. Stewardson of Logan Capital will manage the fund.  The team manages almost two billion in separately managed accounts, but there is no public report of their composite performance. The minimum initial investment is $5000, reduced to $1000 for IRAs.  The expense ratio is 1.5%.  There’s a 1% redemption fee on shares held less than six months.

Logan Capital Large Cap Growth Fund

Logan Capital Large Cap Growth Fund will pursue long-term capital appreciation.  They’ll invest primarily in US stocks, with permissible capitalizations between $500 million and about $500 billion. The managers combine macroeconomic projections with fundamental and technical analysis. Among their other tools: up to 20% international, up to 15% in ETFs, up to 10% in options and up to 10% short.  Al Besse, Stephen S. Lee and Dana H. Stewardson of Logan Capital will manage the fund. The team manages almost two billion in separately managed accounts, but there is no public report of their composite performance.  The minimum initial investment is $5000, reduced to $1000 for IRAs.  The expense ratio is 1.5%.  There’s a 1% redemption fee on shares held less than six months.

Logan Capital Small Cap Growth Fund

Logan Capital Small Cap Growth Fund will pursue long-term capital appreciation.  They’ll invest primarily in US stocks, with permissible capitalizations between $20 million and about $4 billion. The managers combine macroeconomic projections with fundamental and technical analysis. Among their other tools: up to 20% international, up to 15% in ETFs, up to 10% in options and up to 10% short.  Al Besse, Stephen S. Lee and Dana H. Stewardson of Logan Capital will manage the fund. The team manages almost two billion in separately managed accounts, but there is no public report of their composite performance.  The minimum initial investment is $5000, reduced to $1000 for IRAs.  The expense ratio is 1.5%.  There’s a 1% redemption fee on shares held less than six months.

Longboard Managed Futures Strategy Fund

Longboard Managed Futures Strategy Fund, Class N shares, will seek positive absolute returns.  The Fund will hold a mix of fixed-income securities and futures and forward contracts.  Like other managed futures funds, it will invest globally in equities, energies, interest rates, grains, meats, soft commodities (such as sugar, coffee, and cocoa), currencies, and metals sector.  It may offer some emerging markets exposure. The fund will be managed by a team headed by Longboard’s CEO, Cole Wilcox.  Mr. Wilcox ran a managed futures hedge fund for Blackstar Funds, LLC, for eight years.  There’s no publicly-available record of that fund’s performance.  The minimum initial investment is $2500.  Expenses will start at 3.24% plus a 1% fee of shares held for fewer than 30 days.  The fund expects to launch in June, 2012.

Manning & Napier Strategic Income, Conservative

Manning & Napier Strategic Income, Conservative (“S” class shares) will be managed against capital risk and its secondary objective is to generate income and pursue capital growth. This will be a fund of Manning and Napier funds, with a flexible but conservative asset allocation.  It targets 15%-45% in equities (via Dividend Focus and Real Estate) and 55%-85% in bonds (through Core Bond and High Yield Bond).  The allocation will be adjusted based on the team’s reading of market conditions and valuations of the different asset classes.   It will be managed by the same large team that handles Manning’s other funds.  The expense ratio is set at 1.06% and the minimum initial investment is $2000.  The minimum is waived for accounts set up with an automatic investing plan.

Manning & Napier Strategic Income, Moderate

Manning & Napier Strategic Income, Moderate (“S” class shares) will pursue capital growth with the secondary objectives of generating income and managing capital risk. . This will be a fund of Manning and Napier funds, with a flexible asset allocation in the same range as most “moderate target” funds.  It targets 45%-75% in equities (via Dividend Focus and Real Estate) and 25%-55% in bonds (through Core Bond and High Yield Bond). The allocation will be adjusted based on the team’s reading of market conditions and valuations of the different asset classes.  It will be managed by the same large team that handles Manning’s other funds.  The expense ratio is set at 1.03% and the minimum initial investment is $2000.  The minimum is waived for accounts set up with an automatic investing plan.

Northern Multi-Manager Global Listed Infrastructure Fund

Northern Multi-Manager Global Listed Infrastructure Fund will seek total return through both income and capital appreciation. To achieve its objectives the Fund will invest, under normal circumstances, at least 80% of its net assets in securities of infrastructure companies listed on a domestic or foreign exchange. The Fund invests primarily in equity securities, including common stock and preferred stock, of infrastructure companies. The Fund will invest at least 40%, and may invest up to 100%, of its net assets in the securities of infrastructure companies economically tied to a foreign (non-U.S.) country, including emerging and frontier market countries. The Fund may invest in  infrastructure companies of all capitalizations. For a company to be considered it must derive at least 50% of its revenues or earnings from, or devotes at least 50% of its assets to, infrastructure-related activities. The Fund defines “infrastructure” as the systems and networks of energy.  The fund will be managed by Christopher E. Vella, CFA, who is a Senior Vice President and Chief Investment Officer. The management team also includes Senior Vice President Jessica K. Hart. The minimum initial investment is $2,500 in the Fund ($500 for an IRA; $250 under the Automatic Investment Plan; and $500 for employees of Northern Trust and its affiliates). There is a redemption fee of 2.00% (within 30 days of purchase), and the expense ratio is 1.10%

RiverNorth / Manning & Napier Equity Income Fund

RiverNorth / Manning & Napier Equity Income Fund (“R” class shares) will pursue overall total return consisting of long term capital appreciation and income. The advisor will allocate the fund’s assets between two distinct strategies, either one of which might hypothetically receive 100% of the fund’s assets.  One strategy is a Tactical Closed-End Fund Equity (managed by RiverNorth)  and the other is a Dividend Focus (managed by Manning & Napier). The amount allocated to each of the principal strategies may change depending on the adviser’s assessment of market risk, security valuations, market volatility, and the prospects for earning income and total return.   At base, you’re buying two very good funds,  RiverNorth Core Opportunity (RNCOX) and Manning & Napier Dividend Focus (MNDFX), in a single package and allowing the managers to decide how much go place in each strategy.  The RiverNorth sleeve and the fund’s asset allocation decisions are handled by Patrick Galley and Stephen O’Neill who also run RiverNorth Core Opportunity, and the M&N sleever is run by the team that runs all of the M&N funds. The expense ratio is not yet set.  The minimum initial investment is $5000 for regular accounts and $1000 for retirement accounts.

Swan Defined Risk Fund

Swan Defined Risk Fund seeks income and growth of capital. To achieve this the fund will invest primarily in: exchange-traded funds (“ETFs”) that invest in equity securities that are represented in the S&P 500 Index and/or individual sectors of the S&P 500 Index, exchange-traded long-term put options on the S&P 500 Index for hedging purposes, and buying and selling exchange-traded put and call options on various equity indices to generate additional returns. The fund will target equity securities of large capitalization (over $5 billion) US companies through ETFs, but it may also have small investments in equity securities of smaller and foreign companies through sector-based or S&P 500 Index ETFs. The adviser employs a proprietary “Defined Risk Strategy” (“DRS”) to select Fund investments.  Randy Swan, CPA, President of the adviser (and the creator of the DRS system back in 1997 ) serves as the portfolio manager. The minimum investment is $5000.00 and there is a redemption fee of 1.00% ( 30 days). The expense ratio is 1.80%.

Counterparties – Financial News Aggregator

By Junior Yearwood

Counterparties.com is a new Reuters website that is edited by Felix Salmon and Ryan McCarthy. Ryan McCarthy is also a deputy editor at Reuters.com. Prior to working at Reuters he held the position of business editor at the Huffington Post. Felix Salmon is a UK native with a knack for getting attention, as with recent suggestion that The New York Times might choose to sell some of their information, before publishing it, to hedge funds.  In addition to blogging for Thomson Reuters, he’s written for Euromoney magazine and the Bridge News Service, created the Economonitor blog for Roubini Global and the Market Movers blog for Portfolio.com.  Like me, they both Tweet: @felixsalmon and @ mccarthyryanj.

Presentation

Counterparties.com is part of the Reuters network, and that connection is reflected in the site’s slick design and corporate feel.   The design and layout is crisp, smooth and professional. I particularly liked the background color choices. The top and bottom zones are done in a muted red while the main body is in plain white. It has the effect of clearly demarcating the main body of content from the secondary zones. It is a simple design choice that has a big effect, and shows the importance of a good design team.

Content is presented in four distinct segments.  The top row contains four featured stories. Each contains a prominently displayed picture, a rewritten headline of the story, a link to the website and another link to a discussion board.

There are two columns in the main body.  The main body of the website is divided into two parts the right side is a narrow column that is divided into three sections. The wide left hand column contains what the editors’ describe as the day’s best stories. The presentation is information-rich:

Each story has a clickable tag (“deals”).  Click and you get an index of all stories in that category.  There’s a linked title (“Twitter made”) and source (venturebeat.com).  There are links to discuss or Tweet the article.  Each entry ends with a Tweet about the article or with a link to a related story.   The second story is presented with a small favicon or avatar and a one sentence headline that you can click to get the full story. The articles are divided into sections that are clearly separated and easy to differentiate.

The narrower right hand column contains The River and The Browser.  The River contains “stories we love,” and are sometimes presented in a lighthearted manner.  The teaser to one River story declares, “It’s about more than underwear, it’s about redefining what it means to be made in America (4/26).” Unlike the main stories, The River’s presentation is understated: source, category, and teaser. Below The River there are links to “stuff we’re not linking to” and a tally of the sites they most frequently link to (New York Times, Bloomberg, Wall Street Journal, Reuters) and then a feed from a website called The Browser.  Its editors note, “The Browser is not a news website. Our priority is to curate writing of lasting value – whatever its length or form.”  During my visit, the feed highlighted stories on intolerance in Saudi textbooks, Gerard Mercator’s 500th birthday and why thinking in a foreign language makes for better decisions.

The site suffers from three small design weaknesses:

  • There is no clear pattern of story assignment, so there’s no quick way to find stories on a particular subject (e.g., breaking news).  It’s not clear if the stories on the top bar are simply the most recent.
  • Of greater concern was the fact that clicking a link (in both Firefox and Chrome) did not cause a new tab to open, instead the link caused the page to open in the existing tab. That may not be of any concern to some but be prepared to hit the back button often if you don’t have a preview plug-in installed in your browser. You can, of course, right-click and choose new tab but that’s unnecessarily clunky.
  • “Stuff We’re Not Linking To” seems to  add a bit more clutter than value.  The “links we’re not linking to” are undefined.  It’s not immediately clear how relevant the section is.

The overall presentation and layout is excellent and navigation is simple and quick.  The editors inform us that the website is still evolving and they are working  towards improving the overall experience.

Content

Counterparties contains links to content that has been chosen by its editors. The curated links represent a subset of a larger pool of articles. Seventy five percent of this larger set are links that have been manually chosen by the editors and twenty five percent have been suggested by Percolate which is a customizable recommendation engine. In addition to links to current news articles, readers have access to an extensive archive of previous content. There are also links to content from The Browser which is a separate website. The website is updated daily

Selection Criteria

The editors Ryan McCarthy and Felix Salmon choose the links that they recommend on the site. Here is what they say about their selection process. “Counterparties combines our own judgment — what we find interesting, overlooked and important — with the recommendation engine created by our friends at Percolate. That engine regularly monitors all the blogs and Twitter feeds that Felix follows, and keeps an eye out for stories it thinks we’ll find most interesting. The stories we love go into The River, on the right of the page; we’ll move the best to the site’s main section, on the left.”

Quality of Sources

Most of the links that are featured in the main section to the left come from the major players in the industry. In fact the entire top five top sources linked to are industry heavyweights. They also occasionally feature stories from smaller sources and also financial blogs. The fact that the majority of their links are from long standing and well respected sources means that the quality of the content is high. What is refreshing is that the quality of the lessor known sources generally matches that of the major players. A good case in point was a blog entry by one of the investors of Instagram who was responding to criticisms levied against him and his group. Never mind that they are set to make some $78,000,000 from their initial investment of $250,000.

The Human Touch

While  an automatically recommended list of links that is generated by Percolate account for a quarter of the links available to them, the editors manually choose the ones that make it to the site. This best of both worlds approach seems to work well but as is shown by the prevalence of links from major entities, it may have the effect of eliminating content from lesser known sources.

The Bottom Line

With the might of Reuters and the talent of Felix Salmon and Ryan McCarthy behind it Counterparties is the closest thing to curated news nirvana that I have come across so far. Slick professional presentation coupled with a fresh feel, eclectic coverage and great quality adds up to a winner. They may be the new kids on the block, but if they keep their standards to the level they are at now and continue to improve they should be here for a long, long time.

[cr2012]

May 2012 – Financial news aggregators

By Junior Yearwood

We all know the importance of accurate, current and relevant financial news. Even more than the news, we need some perspective on the news, some ability to separate important information from background noise and to place that information in a meaningful context. That responsibility has traditionally fallen to journalists, financial and otherwise.

For anyone attempting to make sense of a day’s (or week’s or year’s) events, the problem is not a shortage of stuff to drawn on. Quite the opposite: the problem is that absolute torrent of information that pummels us. By way of simple example, Google News tracks 25,000 publications (including 4,500 English-language news sites) daily.

One answer is to turn to a trusted, professional source for all your news: Reuters, Dow-Jones, the New York Times, the Financial Times and a few others have long and distinguished records.  But each has its own limits, biases and idiosyncrasies. In response, more and more readers have come to rely on news feeds and news aggregators.

News aggregators do not create news. They collect news from various third party sources, but they “choose to aggregate, to pass along, to recommend, to sort, involves normative evaluation of content,” note long-time journalists, Bill Kovach of The New York Times and Tom Rosenstiel of The Los Angeles Times (Blur: How to Know What’s True in the Age of Information Overload, Bloomsbury: 2010).  Ideally, they then present it in an easily accessible format to readers. That can make them an excellent choice for quickly accessing relevant and important financial information.

The problem is that there are too many news aggregators and too little quality control. Some like Google, automatically pull links from a multitude of online sources and then present those that contain specific keywords and have been read by the largest number of people. They are driven by algorithms that choose sites automatically based on hits, clicks, keywords and trends. These sites process of  millions of data points and use complicated mathematical formulae to decide which stories to present to you. Another approach targets a set of predetermined feeds. For these news aggregators the “source” might be more important than the story.

What we have searched for is what Kovach and Rosenstiel term the “smart aggregator,” a financial news aggregator who understands what its purpose is. These websites understand that investors want a place where they can quickly and easily go through the important financial headlines of the day, and just as easily click through to the stories that they choose.  They understand that what is popular is not always relevant or useful and they take the time to properly separate the wheat from the chaff. Essentially what we sought were financial news aggregators that have an element of human curation.

How did we identify the web’s best financial news aggregators?  Simple: we identified as many as we could and then test drove each one during the week of April 23-27, 2012.  In reviewing each site, we applied the same criteria:

    • were the aggregated sources diverse?
    • were the aggregated sources reliable?
    • did the story coverage and selection represent intelligent priorities?
    • was the site efficiently constructed and easy to navigate, and ideally,
    • was there a discernible human presence, or voice, in the process?

Two stood out, while a dozen were more trouble than they were worth.

Abnormal Returns

Abnormal Returns is likely the web’s most-celebrated financial news aggregator.  Like the Observer, Abnormal Returns is an independent publication; that is, it’s not part of a larger media entity.  In six years, its daily linkfest and “forecast-free” ethos has made it a daily destination for thousands.

Counterparties

Counterparties are “the other guys” in every financial transaction, the buyer when you’re a seller, the insurer when you’re the insured.  On the web, Counterparties is a young, human-curated news aggregator.  Part of the Thomson Reuters empire, its eclectic, lively and sharply-done.

Sites that made us go “hmmmm.” There were two other sites that offered important, provocative and/or diverting content, but which did not rise to the level of our top two.  Nonetheless we’d like to commend the two of them for your consideration.

Smart Brief

Smart Brief is less a news aggregator than a newsletter aggregator.  The editors write that “[t]he premise behind SmartBrief is simple: there’s too much information out there and too little time in the day to read it all. Our editors hand-pick the most relevant and important news from all over, summarize it, link to the original sources and deliver it — for FREE — in one-stop-shop e-newsletters.”  Some of the newsletters are produced by trade associations (New York Society of Security Analysts) for more-or-less targeted audiences (from “retirement savings community” to “operations and finance professionals”).  The newsletters update between daily and bi-weekly.

Fark

Fark is another of those sites that David, our esteemed publisher, likes and that I just shake my head at.  (But hey, he’s the boss so …) Fark, which advertises “Real News, Real Funny” describes itself as  “a news aggregator and an edited social networking news site. Every day Fark receives 2,000 or so news submissions from its readership, from which we hand-pick the funny and weird notable news — and not-news — of the day. “  The site has been around since 2000 and posts 6-10 business stories a day.  You can get a sense of their editorial sensibilities by looking at two of their top stories from April 27: “New Woolrich designer clothes that conceal firearms will no longer have your wife asking if the Glock makes her butt look big” (CBS News) and a Reuters story on the effect of Amazon’s earnings announcement on the equities market.

As always, not only could we be wrong, we’d be delighted to be proven wrong.  If you’ve found a better aggregator or you’ve found a serious error with one of our choices, write me  If you can show us a better mousetrap, we’ll include it and we’ll highlight that in David’s next column.  We’ll also give you public credit for your find and we’ll offer you a chance to contribute to the rewrite.

As always, I’d love to hear your ideas for “best of” focuses in the months ahead or for particular websites.  Write me! Remember time is money, why not take a few minutes to read this month’s feature? It just might help you avoid the multitude of aggregators who do little more than steal your time, and have more to do with racking up page hits than providing relevant and useful information.

Abnormal Returns – Financial News Aggregator

By Junior Yearwood

Abnormal Returns is a widely-touted finance and investing blog that aggregates news stories from the blogosphere and the mainstream media. The six-year-old website has been celebrated as “the linkfest against which all others should be judged in the financial blogosphere” (Joshua Brown in The Christian Science Monitor) and one of “the best of the blogs” (Minyanville).  Its editor, Tadas Viskanta, is one of “the finance people you have to follow on Twitter” (Business Insider) and “a lot smarter than you are” (The Globe and Mail).  Mr. Viskanta describes himself as “a private investor” with an MBA from The University of Chicago. In the 1990s he co-authored, with colleagues from First Chicago and Duke University, a series of journal articles on global investing.  HIs most widely-cited works deal with international equity correlations and various classes of risk factors.  His most recent work, Abnormal Returns: Winning Strategies from the Frontlines of the Investing Blogosphere (McGraw-Hill, 2012), came out in mid-April.

Presentation

Abnormal Returns has a clean, content-focused layout. Across the top there’s the site banner, with a search box and rudimentary site navigation.  Below the banner and site navigation links the page is separated into two sections.  The left column contains the current content; the right column has the archives and a smattering of ads.

The content on the left side is presented as a scrollable list of links, grouped into categories. The lists always begin with the quote of the day and the chart of the day and sometimes a video of the day. These are followed by the actual links to the news that you are looking for.  Each link includes a concise summary of the story: “Should investors bother with long/short equity mutual funds? <link>”

The simple layout makes navigation a breeze.  With no unnecessary graphics to distract me I was able to quickly scan the short summaries and decide whether to click through or move on to the next item. Generally I enjoyed the minimalist uncluttered feel.  The site suffers from three small design weaknesses:

  • At times it is difficult to identify the different categories when quickly scanning through since they are only separated by a heading that was underlined and in bold font (ETFs). The font type was the same so when quickly scrolling up or down the list at times I missed a heading completely.  That was a minor issue though and only occurred when I sped through the page.
  • Of greater concern was the fact that clicking a link (in both Firefox and Chrome) did not cause a new tab to open, instead the link caused the page to open in the existing tab. That may not be of any concern to some but be prepared to hit the back button often if you don’t have a preview plug-in installed in your browser. You can, of course, right-click and choose new tab but that’s unnecessarily clunky.
  • The function of “The Latest” is muddy.  It appears to exactly duplicate the “Recent Posts” list in the adjacent column, and therefore add little value to the site.

Content

Abnormal Returns provides links to news, commentary and information that was created by members of the financial blogosphere, as well as financial and investing news, articles, and occasional videos from the mainstream media and commercial websites.  The website is updated daily, and there are also links to archived material and recent posts that you may have missed.

Selection criteria

In a wide ranging interview that was published on Covestor, Mr. Viskanta states that the links he recommends contains elements of commentary and analysis. He also stated that they should have some lasting value. He is clear that the links represents material that he personally finds interesting and useful.

Quality of sources

The links that appear on Abnormal Returns are selected from a wide range of sources. After test driving the site I was impressed by the diversity.  While many (if not most) of the article links were from the financial blogosphere, there were many articles that came from  established and well respected industry heavyweights such as The Wall Street Journal, Bloomberg and The Economist. In the Covestor interview Mr. Viskanta explains that his links are curated from a variety of sources including emailed content, his personal newsfeed, Twitter and StockTwits.

The Human Touch

Every link in the daily updated content is human-selected; there is no element of mechanical aggregation in the selection process.

The Bottom Line

Technically speaking Abnormal Returns may be better described as a curated financial news blog. We decided to include it on our list because it is one of the best options for any investor looking for a website that provides important, topical and useful news and commentary from a wide cross-section of sources. Also weighing in on the decision was the reputation of the site founder and the generally high quality of the material that the site recommends. Overall we think that Abnormal Returns ranks as one of the best collections useful finance and investing news and commentary. The layout is simple and easy to navigate and its text heavy presentation means that you will spend more time getting useful information and less time being distracted.

[cr2012]

 

April 1, 2012

By David Snowball

Dear friends,

Are you feeling better?  2011 saw enormous stock market volatility, ending with a total return of one-quarter of one percent in the total stock market.  Who then would have foreseen Q1 2012: the Dow and S&P500 posted their best quarter since 1998.  The Dow posted six consecutive months of gains, and ended the quarter up 8%.  The S&P finished up 12% and the NASDAQ up 18% (its best since 1991).

Strong performance is typical in the first quarter of any year, and especially of a presidential election year.  Investors, in response, pulled $9.4 billion out of domestic equity funds and – even with inflows into international funds – reduced their equity investments by $3.2 billion dollars.  They fled, by and large, into the safety of the increasingly bubbly bond market.

It’s odd how dumb things always seem so sensible when we’re in the midst of doing them.

Do You Need Something “Permanent” in your Portfolio?

The title derives from the Permanent Portfolio concept championed by the late Harry Browne.  Browne was an advertising executive in the 1960s who became active in the libertarian movement and was twice the Libertarian Party’s nominee for president of the United States.  In 1981, he and Terry Coxon wrote Inflation-Proofing Your Investments, which argued that your portfolio should be positioned to benefit from any of four systemic states: inflation, deflation, recession and prosperity.  As he envisioned it, a Permanent Portfolio invests:

25% in U.S. stocks, to provide a strong return during times of prosperity.

25% in long-term U.S. Treasury bonds, which should do well during deflation.

25% in cash, in order to hedge against periods of recession.

25% in precious metals (gold, specifically), in order to provide protection during periods of inflation.

The Global X Permanent ETF (PERM) is the latest attempt to implement the strategy.  It’s also the latest to try to steal business from Permanent Portfolio Fund (PRPFX) which has drawn $17.8 billion in assets (and, more importantly from a management firm’s perspective, $137 million in fees for an essentially passive strategy).  Those inflows reflect PRPFX’s sustained success: over the past 15 years, it has returned an average of 9.2% per year with only minimal stock market exposure.

PRPFX is surely an attractive target, since its success not attributable to Michael Cuggino’s skill as a manager.  His stock picking, on display at Permanent Portfolio Aggressive Growth (PAGRX) is distinctly mediocre; he’s had one splendid year and three above-average ones in a decade.  It’s a volatile fund whose performance is respectable mostly because of his top 2% finish in 2005.  His fixed income investing is substantially worse.  Permanent Portfolio Versatile Bond (PRVBX) and Permanent Portfolio Short Term Treasury (PRTBX) are flat-out dismal.  Over the past decade they trail 95% of their peer funds.  All of his funds charge above-average expenses.  Others might conclude that PRPFX has thrived despite, rather than because of, its manager.

Snowball’s annual rant: Despite having received $48 million as his investment advisory fee (Mr. Cuggino is the advisor’s “sole member,” president and CEO), he’s traditionally been shy about investing in his funds though that might be changing.  “As of April 30, 2010,” according to his Annual Report, “Mr. Cuggino owned shares in each of the Fund’s Portfolios through his ownership of Pacific Heights.” A year later, that investment is substantially higher but corporate and personal money (if any) remain comingled in the reports.  In any case, he “determines his own compensation.”  That includes some portion of the advisor’s profits and the $65,000 a year he pays himself to serve on his own board of trustees.  On the upside, the advisor has authorized a one basis point fee waiver, as of 12/31/11.  Okay, that’s over.  I promise I’ll keep quiet on the topic until the spring of 2013.

It’s understandable that others would be interested in getting a piece of that highly-profitable action.  It’s surprising that so few have made the attempt.  You might argue that Hussman Strategic Total Return (HSTRX) offers a wave in the same direction and the Midas Perpetual Portfolio (MPERX), which invests in a suspiciously similar mix of precious metals, Swiss francs, growth stocks and bonds, is a direct (though less successful) copy.  Prior to December 29, 2008, MPERX (then known as Midas Dollar Reserves) was a government money market fund.  That day it changed its name to Perpetual Portfolio and entered the Harry Browne business.

A simple portfolio comparison shows that neither PRPFX nor MPERX quite matches Browne’s simple vision, nor do their portfolios look like each other.

  Permanent Portfolio Permanent ETF Perpetual Portfolio targets
Gold and silver 24% 25% 25
Swiss francs 10%  – 10
Stocks 25% 25% 30
          Aggressive growth           16.5           15           15
          Natural resource companies           8           5           15
          REITs           8           5  
Bonds 34% 50% 35
          Treasuries, long term           ~8           25  
          Treasuries, short-term           ~16           25  
          Corporate, short-term           6.5  –  
       
Expense ratio for the fund 0.77% 0.49% 1.35%

Should you invest in one, or any, of these vehicles?  If so, proceed with extreme care.  There are three factors that should give you pause.  First, two of the four underlying asset classes (gold and long-term bonds) are three decades into a bull market.  The projected future returns of gold are unfathomable, because its appeal is driven by psychology rather than economics, but its climb has been relentless for 20 years.  GMO’s most recent seven-year asset class projections show negative real returns for both bonds and cash.  Second, a permanent portfolio has a negative correlation with interest rates.  That is, when interest rates fall – as they have for 30 years – the funds return rises.  When interest rates rise, the returns fall.  Because PRPFX was launched after the Volcker-induced spike in rates, it has never had to function in a rising rate environment.  Third, even with favorable macro-economic conditions, this portfolio can have long, dismal stretches.  The fund posts its annual returns since inception on its website.  In the 14 years between 1988 and 2001, the fund returned an average of 4.1% annually.  During those same years inflation average 3% annually, which means PRPFX offered a real return of 1.1% per year.

And, frankly, you won’t make it to any longer-term goal with 1.1% real returns.

There are two really fine analyses of the Permanent Portfolio strategy.  Geoff Considine penned “What Investors Should Fear in the Permanent Portfolio” for Advisor Perspectives (2011) and Bill Bernstein wrote a short piece “Wild About Harry” for the Efficient Frontier (2010).

RiverPark Funds: Launch Alert and Fund Family Update

RiverPark Funds are making two more hedge funds available to retail investors, folks they describe as “the mass affluent.”  Given the success of their previous two ventures in that direction – RiverPark/Wedgewood Fund (RWGFX) and RiverPark Short Term High Yield (RPHYX, in which I have an investment) – these new offerings are worth a serious look.

RiverPark Long/Short Opportunity Fund is a long/short fund that has been managed by Mitch Rubin since its inception as a hedge fund in the fall of 2009.  The RiverPark folks believe, based on their conversation with “people who are pretty well versed on the current mutual funds that employ hedge fund strategies” that the fund has three characteristics that set it apart:

  • it uses a fundamental, bottom-up approach
  • it is truly shorting equities (rather than Index ETFs)
  • it has a growth bias for its longs and tends to short value.

Since inception, the fund generated 94% of the stock market’s return (33.5% versus 35.8% for the S&P500 from 10/09 – 02/12) with only 50% of its downside risk (whether measured by worst month, worst quarter, down market performance or max drawdown).

While the hedge fund has strong performance, it has had trouble attracting assets.  Morty Schaja, RiverPark’s president, attributes that to two factors.  Hedge fund investors have an instinctive bias against firms that run mutual funds.  And RiverPark’s distribution network – it’s most loyal users – are advisors and others who are uninterested in hedge funds.  It’s managed by Mitch Rubin, one of RiverPark’s founders and a well-respected manager during his days with the Baron funds.  The expense ratio is 1.85% on the institutional shares and 2.00% on the retail shares and the minimum investment in the retail shares is $1000.  It will be available through Schwab and Fidelity starting April 2, 2012.

RiverPark/Gargoyle Hedged Value Fund pursued a covered call strategy.  Here’s how Gargoyle describes their investment strategy:

The Fund invests all of its assets in a portfolio of undervalued mid- to large-cap stocks using a quantitative value model, then conservatively hedges part of its stock market risk by selling a blend of overvalued index call options, all in a tax-efficient manner. Proprietary tools are used to maintain the Fund’s net long market exposure within a target range, allowing investors to participate as equities trend higher while offering partial protection as equities trend lower.

Since inception (January 2000), the fund has posted 900% of the S&P500’s returns (150% versus 16.4%, 01/00 – 02/12).  Much of that outperformance is attributable to crushing the S&P from 2000-2002 but the fund has still outperformed the S&P in 10 of 12 calendar years and has done so with noticeably lower volatility.  Because the strategy is neither risk-free nor strongly correlated to the movements of the stock market, it has twice lost a little money (2007 and 2011) in years in which the S&P posted single-digit gains.

Mr. Schaja has worked with this strategy since he “spearheaded a research effort for a similar strategy while at Donaldson Lufkin Jenrette 25 years ago.”  Given ongoing uncertainties about the stock market, he argues “a buy-write strategy, owning equities and writing or selling call options on the underlying portfolio offers a very attractive risk return profile for investors. . . investors are willing to give up some upside, for additional income and some downside protection.  By selling option premium of about 1 1/2% per month, the Gargoyle approach can generate attractive risk adjusted returns in most markets.”

The hedge fund has about $190 million in assets (as of 02/12).  It’s managed by Joshua Parker, President of Gargoyle, and Alan Salzbank, its Managing Partner – Risk Management.  The pair managed the hedge fund since inception (including of its predecessor partnership since its inception in January 1997).  The expense ratio is 1.25% on the institutional shares and 1.5% on the retail shares and the minimum investment in the retail shares is $1000.  The challenge of working out a few last-minute brokerage bugs means that Gargoyle will launch on May 1, 2012.

Other RiverPark notes:

RiverPark Large Growth (RPXFX) is coming along nicely after a slow start. It’s a domestic, mid- to large-cap growth fund with 44 stocks in the portfolio.  Mitch Rubin, who managed Baron Growth, iOpportunity and Fifth Avenue Growth as various points in his career, manages it. Its returns are in the top 3% of large-growth funds for the past year (through March 2012), though its asset base remains small at $4 million.

RiverPark Small Cap Growth (RPSFX) continues to have … uh, “modest success” in terms of both returns and asset growth.  It has outperformed its small growth peers in six of its first 17 months of operation and trails the pack modestly across most trailing time periods. It’s managed by Mr. Rubin and Conrad van Tienhoven.

RiverPark/Wedgewood Fund (RWGFX) is a concentrated large growth fund which aims to beat passive funds at their own game.  It’s been consistently at or near the top of the large-growth pack since inception.  David Rolfe, the manager, strikes me as bright, sensible and good-humored and the fund has drawn $200 million in assets in its first 18 months of operation.

RiverPark Short Term High Yield (RPHYX) pursues a distinctive, and distinctly attractive, strategy.  He buys a bunch of securities (called high yield bonds among them) which are low-risk and inefficiently priced because of a lack of buyers.  The key to appreciating the fund is to utterly ignore Morningstar’s peer rankings.  He’s classified as a “high yield bond fund” despite the fact that the fund’s objectives and portfolio are utterly unrelated to such funds.  It’s best to think of it as a sort of cash-management option.  The fund’s worst monthly loss was 0.24% and its worst quarter was 0.07%.   As of 3/28/12, the fund’s NAV ($10.00) is the same as at launch but its annual returns are around 4%.

Finally, a clarification.  I’ve fussed at RiverPark in the past for being too quick to shut down funds, including one mutual fund and several actively-managed ETFs.  Matt Kelly of RiverPark recently wrote to clear up my assumption that the closures were RiverPark’s idea:

Adam Seessel was the sub-adviser of the RiverPark/Gravity Long-Biased Fund. . . Adam became friendly with Frank Martin who is the founder of Martin Capital Management . . . a year ago, Frank offered Adam his CIO position and a piece of the company. Adam accepted and shortly thereafter, Frank decided that he did not want to sub-advise anyone else’s mutual fund so we were forced to close that fund.

Back in 2009, [RiverPark president Morty Schaja] teamed up with Grail Advisers to launch active ETFs. Ameriprise bought Grail last summer and immediately dismissed all of the sub-advisers of the grail ETFs in favor of their own managers.

Thanks to Matt for the insight.

FundReveal, Part 2: An Explanation and a Collaboration

For our “Best of the Web” feature, my colleague Junior Yearwood sorts through dozens of websites, tools and features to identify the handful that are most worth your while.  On March 1, he identified the low-profile FundReveal service as one of the three best mutual fund rating sites (along with Morningstar and Lipper).  The award was made based on the quality of evidence available to corroborate a ratings system and the site’s usability.

Within days, a vigorous and thoughtful debate broke out on the Observer’s discussion board about FundReveal’s assumptions.  Among the half dozen questions raised, two in particular seemed to resonate: (1) isn’t it unwise to benchmark everything – including gold and short-term bond funds – against the risk and return profile of the S&P 500?  And (2) you assume that past performance is not predictive, but isn’t your system dependent on exactly that?

I put both of those questions to the guys behind FundReveal, two former Fidelity executives who had an important role to play in changing the way trading decisions were made and employees rewarded.  Here’s the short version of their answers.  Fuller versions are available on their blog.

(1) Why does FundReveal benchmark all funds against the S&P? Does the analysis hold true if other benchmarks are used?

FundReveal uses the S&P 500 as a single, consistent reference for comparing performance between funds, for 4 of its 8 measures. The S&P also provides a “no-brainer” alternative to any other investments, including mutual funds. If an investor wishes to participate in the market, without selecting specific sectors or securities, an S&P 500 index fund or ETF provides that alternative.

Four of FundReveal’s eight measurements position funds relative to the index. Four others are independent of the S&P 500 index comparison.

An investor can compare a fund’s risk-return performance against any index fund by simply inserting the symbol of an index fund that mimics the index. Then the four absolute measures for a fund (average daily returns, volatility of daily returns, worst case return and number of better funds) can be compared against the chosen index fund.

ADR and Volatility are the most direct and closest indicators of a mutual fund’s daily investment and trading decisions. They show how well a fund is being managed. High ADR combined with low Volatility are indicators of good management. Low ADR with high Volatility indicates poor management.

(2) Why is it that FundReveal says that past total returns are not useful in deciding which funds to invest in for the future? Why do your measures, which are also calculated from past data, provide insight into future fund performance?

Past total returns cannot indicate future performance. All industry performance ratings contain warnings to this effect, but investors continue using them, leading to “return chasing investor behavior.”

[A conventional calculations of total return]  includes the beginning and ending NAV of a fund, irrespective of the NAVs of the fund during the intervening time period. For example, if a fund performed poorly during most of the days of a year, but its NAV shot up during the last week of the year, its total return would be high. The low day-to-day returns would be obscured. Total Return figures cannot indicate the effectiveness of investment decisions made by funds every day.

Mutual funds make daily portfolio and investment decisions of what and how much to hold, sell or buy. These decisions made by portfolio managers, supported by their analysts and implemented by their traders, produce daily returns: positive some days, and negative others. Measuring their average daily values and their variability (Volatility) gives direct quantitative information about the effectiveness of the daily investment decisions. Well managed funds have high ADR and low Volatility. Poorly managed funds behave in the opposite manner.

I removed a bunch of detail from the answers.  The complete versions of the S&P500 benchmark and past performance as predictor are available on their blog.

My take is two-fold: first, folks are right in criticizing the use of the S&P500 as a sole benchmark.  An investor looking for a conservative portfolio would likely find himself or herself discouraged by the lack of “A” funds.  Second, the system itself remains intriguing given the ability to make more-appropriate comparisons.  As they point out in the third paragraph, there are “make your own comparison” and “look only at comparable funds” options built into their system.

In order to test the ability of FundReveal to generate useful insights in fund selection, the Observer and FundReveal have entered into a collaborative arrangement.  They’ve agreed to run analyses of the funds we profile over the next several months.  We’ll share their reasoning and bottom line assessment of each fund, which might or might not perfectly reflect our own.  FundReveal will then post, free, their complete assessment of each fund on their blog.  After a trial of some months, we’re hoping to learn something from each other – and we’re hoping that all of our readers benefit from having a second set of eyes looking at each of these funds.

Both the Tributary and Litman Gregory profiles include their commentary, and the link to their blog appears at the end of each profile.  Please do let me know if you find the information helpful.

Lipper: Your Best Small Fund Company is . . .

GuideStone Funds.

GuideStone Funds?

Uhh … Lipper’s criterion for a “small” company is under $40 billion under management which is, by most standards, not small.  Back to GuideStone.

From their website: “GuideStone Funds, a controlled affiliate of GuideStone Financial Resources, provides a diversified family of Christian-based, socially screened mutual funds.”

Okay.  In truth, I had no prior awareness of the family.  What I’ve noticed since the Lipper awards is that the funds have durn odd names (they end in GS2 or GS4 designations), that the firm’s three-year record (on which Lipper made their selection) is dramatically better than either the firm’s one-year or five-year record.  That said, over the past five years, only one GuideStone fund has below-average returns.

Fidelity: Thinking Static

As of March 31, 2012, Fidelity’s Thinking Big viral marketing effort has two defining characteristics.  (1) it has remained unchanged from the day of its launch and (2) no one cares.  A Google search of the phrase Fidelity  +”Thinking Big” yields a total of six blog mentions in 30 days.

Morningstar: Thinking “Belt Tightening”

Crain’s Chicago Business reports that Morningstar lost a $12 million contact with its biggest investment management client.  TransAmerica Asset Management had relied on Morningstar to provide advisory services on its variable annuity and fund-of-funds products.  The newspaper reports that TransAmerica simplified things by hiring Tim Galbraith, Morningstar’s director of alternative investments, to handle the work in-house.  TransAmerica provided about 2% of Morningstar’s revenue last year.

Given the diversity of Morningstar’s global revenue streams, most reports suggest this is “unfortunate” rather than “terrible” news, and won’t result in job losses.  (source: “Morningstar loses TransAmerica work,” March 27 2012)

James Wang is not “the greatest investor you’ve never heard of”

Investment News gave that title to the reclusive manager of the Oceanstone Fund (OSFDX) who was the only manager to refuse to show up to receive a Lipper mutual fund award.  He’s also refused all media attempts to arrange an interview and even the chairman of his board of trustees sounds modestly intimidated by him.  Fortune has itself worked up into a tizzy about the guy.

Nonetheless, the combination of “reclusive” and an outstanding five-year record still don’t add up to “the greatest investor you’ve never heard of.”  Since you read the Observer, you’ve surely heard of him, repeatedly.  As I’ve noted in a February 2012 story:

  1. the manager’s explanation of his investment strategy is nonsense.  He keeps repeating the magic formula: IV = IV divided by E, times E.  No more than a high school grasp of algebra tells you that this formula tells you nothing.  I shared it with two professors of mathematics, who both gave it the technical term “vacuous.”  It works for any two numbers (4 = 4 divided by 2, times 2) but it doesn’t allow you to derive one value from the other.
  2. the shareholder reports say nothing. The entire text of the fund’s 2010 Annual Report, for example, is three paragraph.  One reports the NAV change over the year, the second repeats the formula (above) and the third is vacuous boilerplate about how the market’s unpredictable.
  3. the fund’s portfolio turns over at triple the average rate, is exceedingly concentrated (20 names) and is sitting on a 30% cash stake.  Those are all unusual, and unexplained.

That’s not evidence of investing genius though it might bear on the old adage, “sometimes things other than cream rise to the top.”

Two Funds and Why They’re Really Worth Your While

Each month, the Observer profiles between two and four mutual funds that you likely have not heard about, but really should have.

Litman Gregory Masters Alternative Strategies (MASNX): Litman Gregory has assembled four really talented teams (order three really talented teams and “The Jeffrey”) to manage their new Alternative Strategies fund.  It has the prospect of being a bright spot in valuable arena filled with also-ran offerings.

Tributary Balanced, Institutional (FOBAX): Tributary, once identified with First of Omaha bank and once traditionally “institutional,” has posted consistently superb returns for years.  With a thoughtfully flexible strategy and low minimum, it deserves noticeably more attention than it receives.

The Best of the Web: A Week of Podcasts

Our second “Best of the Web” feature focuses on podcasts, portable radio for a continually-connected age.  While some podcasts are banal, irritating noise (Junior went through a month’s worth of Advil to screen for a week’s worth of podcasts), others offer a rare and wonderful commodity: thoughtful, useful analysis.

In “A Week of Podcasts,” Junior and I identified four podcasts to help power you through the week, three to help you unwind and (in an exclusive of sorts) news of Chuck Jaffe’s new daily radio show, MoneyLife with Chuck Jaffe.

We think we’ve done a good and honest job but Junior, especially, would like to hear back from readers about how the feature works for you and how to make it better, about sites we’ve missing and sites we really shouldn’t miss.  Drop us a line, we read and appreciate everything and respond to as much as we can.

Briefly noted . . .

Seafarer Overseas Growth and Income (SFGIX), managed by Andrew Foster, is up about 3% since its mid-February launch.  The average diversified emerging markets fund is flat over the same period.  The fund is now available no-load/NTF at Schwab and Scottrade.  For reasons unclear, the Schwab website (as of 3/31/12) keeps saying that it’s not available.  It is available and the Seafarer folks have been told that the problem lies in Schwab’s website, portions of which only update once a month. As a result, Seafarer’s availability may not be evident until April 11..

On the theme of a very good fund getting dramatically better, Villere Balanced Fund (VILLX) has reduced its capped expense ratio from 1.50% to 0.99%.  While the fund invests about 60% of the portfolio in stocks, its tendency to include a lot of mid- and small-cap names makes it a lot more volatile than its peers.  But it’s also a lot more rewarding: it has top 1% returns among moderate allocation funds for the past three-, five- and ten-year periods (as of 3/30/2012).  Lipper recently recognized it as the top “Mixed-Asset Target Allocation Growth Fund” of the past three and five years.

Arbitrage Fund (ARBFX) reopened to investors on March 15, 2012. The fund closed in mid-2010 was $2.3 billion in assets and reopened with nearly $3 billion.  The management team has also signed-on to subadvise Litman Gregory Masters Alternative Strategies (MASNX), a review of which appears this month.

Effective April 30, 2012, T. Rowe Price High Yield (PRHYX, and its advisor class) will close to new investors.  Morningstar rates it as a Four Star / Silver fund (as of 3/30/2012).

Neuberger Berman Regency (NBRAX) has been renamed Neuberger Berman Mid Cap Intrinsic Value and Neuberger Berman Partners (NPNAX) have been renamed Neuberger Berman Large Cap Value.  And, since there already was a Neuberger Berman Large Cap Value fund (NVAAX), the old Large Cap Value has now been renamed Neuberger Berman Value.  This started in December when Neuberger Berman fired Basu Mullick, who managed Regency and Partners.  He was, on whole, better than generating high volatility than high returns.  Partners, in particular, is being retooled to focus on mid-cap value stocks, where Mullick tended to roam.

American Beacon announced it will liquidate American Beacon Large Cap Growth (ALCGX) on May 18, 2012 in anticipation of “large redemptions”. American Beacon runs the pension plan for American Airlines.  Morningstar speculates that the termination of American’s pension plan might be the cause.

Aberdeen Emerging Markets (GEGAX) is merging into Aberdeen Emerging Markets Institutional (ABEMX). Same managers, same strategies.  The expense ratio will drop substantially for existing GEGAX shareholders (from 1.78% to 1.28% or so) but the investment minimum will tick up from $1000 to $1,000,000.

Schwab Premier Equity (SWPSX) closed at the end of March as part of the process of merging it into Schwab Core Equity (SWANX).

Forward is liquidating Forward International Equity Fund, effective at the end of April.  The combination of “small, expensive and mediocre” likely explains the decision.

Invesco has announced plans to merge Invesco Capital Development (ACDAX) into Invesco Van Kampen Mid Cap Growth (VGRAX) and Invesco Commodities Strategy (COAAX) Balanced-Risk Commodity Strategy (BRCAX).  In both mergers, the same management team runs both funds.

Allianz is merging Allianz AGIC Target (PTAAX) into Allianz RCM Mid-Cap (RMDAX), a move which will bury Target’s large asset base and modestly below-average returns into Mid-Cap’s record of modestly above-average returns.

ING Equity Dividend (IEDIX) will be rebranded as ING Large Cap Value.

Lord Abbett Mid-Cap Value (LAVLX) has changed its name to Lord Abbett Mid-Cap Stock Fund at the end of March.

Year One, An Anniversary Celebration

With this month’s issue, we celebrate the first anniversary of the Observer’s launch.  I am delighted by our first year and delighted to still be here.  The Internet Archive places the lifespan of a website at 44-70 days.  It’s rather like “dog years.”  In “website lifespan years,” we are actually celebrating something between our fifth and eighth anniversary.  In truth, there’s no one we’d rather celebrate it with that you folks.

Highlights of a good year:

  • We’ve seen 65,491 “Unique Visitors” from 103 countries. (Fond regards to Senegal!).
  • Outside North America, Spain is far and away the source of our largest number of visits.  (Gracias!)
  • Junior’s steady dedication to the site and to his “Best of the Web” project has single-handedly driven Trinidad and Tobago past Sweden to 24th place on our visitor list.  His next target: China, currently in 23rd.
  • 84 folks have made financial contributions (some more than once) to the site and hundreds of others have used our Amazon link.   We have, in consequence, ended our first year debt-free, bills paid and spirits high.  (Thanks!)
  • Four friends – Chip, Anya, Accipiter, and Junior – put in an enormous number of hours behind the scenes and under the hood, and mostly are compensated by a sense of having done something good. (Thank you, guys!)
  • We are, for many funds, one of the top results in a Google search.  Check PIMCO All-Asset All-Authority (#2 behind PIMCO’s website), Seafarer Overseas Growth & Income (#4), RiverPark Short Term High Yield (#5), Matthews Asia Strategic Income (#6), Bretton Fund (#7) and so on.

That reflects the fact that we – you, me and all the folks here – are doing something unusual.  We’re examining funds and opportunities that are being ignored almost everywhere else.  The civility and sensibility of the conversation on our discussion board (where a couple hundred conversations begin each month) and the huge amount of insight that investors, fund managers, journalists and financial services professionals share with me each month (you folks write almost a hundred letters a month, almost none involving sales of “v1agre”) makes publishing the Observer joyful.

We have great plans for the months ahead and look forward to sharing them with you.

See you in a month!

 

Manager changes, March 2012

By Chip

Because bond fund managers, traditionally, had made relatively modest impacts of their funds’ absolute returns, Manager Changes typically highlights changes in equity and hybrid funds.

Fund Out with the old In with the new Dt
American Beacon Treasury Inflation Protected Securities (ATPIX) William Quinn Seven comanagers remain. 3/12
Ariel Appreciation(CAAPX) Matthew Sauer is leaving to join Lateef Investment Management and perhaps help with the erratic Lateef Fund (LIMAX) John Rogers and Timothy Fidler will remain as comanagers. 3/12
BlackRock High Yield Bond (BHYAX) No one, but … Charlie McCarthy is a new comanager. 3/12
Buffalo China (BUFCX) No one, but … Yulin Li has been added as a comanager. 3/12
Davis Financial (RPFGX) Charles Cavanaugh is stepping down. Lead manager, Kenneth Feinberg, remains. 3/12
Dreyfus/Standish Fixed Income (SDFIX) Peter Vaream is out The rest of the comanagers remain
Fidelity Advisor Stock Selector Mid Cap (FMCDX) Comanager Michael Valentine Rayna Lesser 3/12
Fidelity Inflation-Protected Bond (FINPX) No one, but … Franco Castagliuolo joins the team. 3/12
Fidelity Series Inflation-Protected Bond Index (FSIPX) No one, but … Alan Bembenek will be a new comanager. 3/12
Fidelity Series Small Cap Opportunities No one, but … Eirene Kontopoulos joins the team 3/12
Fidelity Stock Selector Small Cap (FDSCX) No one, but … Eirene Kontopoulos joins the team 3/12
Fidelity Total International Equity (FTIEX) Robert von Rekowsky Ashish Swarup joins the existing managers, Jed Weiss and Alexander Zavratsky 3/12
GE Institutional Small-Cap Equity (GSVIX) Jeffrey Schwartz Marc Shapiro joins the remaining subadvisors 3/12
Hartford Advisers (ITTAX) Steven Irons Karen Grimes 3/12
Henderson International Opportunities(HFOAX) Iain Clark will no longer manage as of April 4, 2012. The eight other managers remain. 3/12
Invesco High Income Municipal (AHMAX) Gerard Pollard and Franklin Ruben The current comanagers remain. 3/12
Invesco Van Kampen High Yield Municipal (ACTHX) Gerard Pollard and Franklin Ruben The current comanagers remain. 3/12
JPMorgan Intrepid America (JIAAX) Christopher Blum, who has been appointed the head of global equity solutions at JP Morgan’s asset management division. Dennis Ruhl and Pavel Vaynshtok will be added as comanagers. 3/12
JPMorgan Intrepid Growth (JIGAX) Christopher Blum Dennis Ruhl and Pavel Vaynshtok 3/12
JPMorgan Intrepid Multi Cap (JICAX) Christopher Blum Dennis Ruhl 3/12
JPMorgan Intrepid Value (JIVAX) Christopher Blum Dennis Ruhl and Pavel Vaynshtok 3/12
Lazard U.S. Equity Value (LEVIX) Nicholas Sordoni, J. Richard Tutino Jr, and Ronald Temple as of May 31, 2012 Christopher Blake will join the management team 3/12
Legg Mason Batterymarch Global Equity (CFIPX) Adam Petryk is no longer the manager, but remains at the firm. No one new. 3/12
Legg Mason Batterymarch International Equity(LGIEX) Adam Petryk No one new. 3/12
Legg Mason Batterymarch S&P 500 Index (SBSPX) Adam Petryk No one new. 3/12
Legg Mason Batterymarch U.S. Small Cap Equity (LMSIX) Adam Petryk No one new. 3/12
Legg Mason Western Asset Strategic Income (SDSAX) No one, but … Christopher Orndoff joined the management team 3/12
Loomis Sayles Small Cap Value (LSCRX) No one, but … Jeffrey Schwartz joins Joseph Gatz as a comanager 3/12
MFS Massachusetts Investors Trust (MITTX), which has been around since 1924 and has seen several management changes in that time Nicole Zatlyn, comanager since 2005, steps down. Comanager, Kevin Beatty, will be joined by Ted Maloney 3/12
Natixis U.S. Multi-Cap Equity (NEFSX) No one, but … Jeffrey Schwartz joins Joseph Gatz as a comanager 3/12
Northern Enhanced Large Cap (NOLCX) Joseph Wolfe The other managers remain. 3/12
Northern Large Cap Value (NOLVX) Stephen Atkins The other managers remain. 3/12
Nuveen Tradewinds Global All-Cap (NWGAX) David Iben leaves to join Vinik Asset Management Emily Alejos and Drew Thelen will take over. 3/12
Nuveen Tradewinds Global Flexible Allocation(NGEAX) Iben and Isabel Satra are . . . yes. You guessed it, off to Vinik Asset Management Analyst Ariane Mahler will join the remaining manager, Michael Hart 3/12
Nuveen Tradewinds Global Resources(NTGAX) Iben, Crespo, and Gregory Padilla all going to Vinik Asset Management There hasn’t been a new manager announced yet. 3/12
Nuveen Tradewinds International Value(NAIGX) Alberto Jimenez Crespo follows Iben to Vinik Asset Management Peter Boardman remains as the sole manager. 3/12
Nuveen Tradewinds Value Opportunities (NVOAX) David Iben leaves to join Vinik Asset Management Two analysts, Joann Barry and Rowe Michels, will take the helm. 3/12
Old Mutual Focused (OBFVX), now re-named Touchstone Focused Longtime manager Jerome Heppelmann is being replaced as part of Touchstone’s acquisition of 17 Old Mutual Funds. Fort Washington Investment Advisors 3/12
Principal Large Cap Value III (PLVIX) No one, but … Todd Williams joined the team 3/12
Principal Small Cap Value II (PPVIX) No one, but … Joseph Chi, Jed Fogdall, and Henry Gray joined the team 3/12
Prudential High-Yield (PBHAX) No one, but … Ryan Kelly has been added as portfolio manager. 3/12
Scout Global Equity Fund William B. Greiner has resigned as CIO of Scott Investments and is no longer lead manager. Gary Anderson and James A. Reed II will serve as co-lead portfolio managers. 3/12
Sentinel Balanced(SEBLX) No one, but . . . Dan Manion will become the lead manager, joined by Jason Doiron. 3/12
Sentinel Government Securities (SEGSX) No one, but . . . Jason Doiron joins. 3/12
Sentinel International Equity (SWRLX). Stacey Ho is stepping down The rest of the team remains. 3/12
Sentinel Short Maturity Government(SSIGX) No one, but . . . Jason Doiron joins. 3/12
Sentinel Sustainable Growth Opportunities (WAEGX), re-named as Sentinel Sustainable Mid Cap Opportunities on March 29, 2012. Comanagers Elizabeth Bramwell and Kelli Hill are stepping down, Bramwell for retirement. Betsy Pecor, Carole Hersam, and Matthews Spitznagle 3/12
Wells Fargo Global Opportunities(EKGAX) Francis Claro has left the firm. A small fund shop now owned by Wells Fargo, EverKey. 3/12
Westwood Balanced (WHGBX) Susan Byrne.  Byrne really has had a remarkable life, by the way. The rest of the team remains in place with Byrne as a mentor and guide. 3/12
Westwood Large Cap Value (WHGLX) Susan Byrne The rest of the team remains in place with Byrne as a mentor and guide. 3/12

 

Tributary Balanced (FOBAX), April 2012

By David Snowball 

This profile has been updated. Find the new profile here.

Objective and Strategy

Tributary Balanced Fund seeks capital appreciation and current income. They allocate assets among the three major asset groups: common stocks, bonds and cash equivalents. Based on their assessment of market conditions, they will invest 25% to 75% of the portfolio in stocks and convertible securities, and at least 25% in bonds. The portfolio is typically 70-75 stocks from small- to mega-cap and turnover is about half of the category average.  They currently hold about 50 bonds.

Adviser

Tributary Capital Management.  At base, Tributary is a subsidiary of First National Bank of Omaha and the Tributary funds were originally branded as the bank’s funds.  Tributary advises seven mutual funds, as well as serving high net worth individuals and institutions.  As December 31, 2011, they had about $1.1 billion under management.

Managers

Kurt Spieler and John Harris.  Mr. Spieler is the lead manager and the Managing Director of Investments for the advisor.  In that role, he develops and manages investment strategies for high net worth and institutional clients. He has 24 years of investment experience in fixed income, international and U.S. equities including a stint as Head of International Equities for Principal Global Investors and President of his own asset management firm.  Mr. Harris is a Senior Portfolio Manager for the advisor.  He joined Tributary in 2007 and this fund’s team in 2010.  He has 18 years of investment management experience including analytical roles for Principal Global Investors and American Equity Investment Life Insurance Company.

Management’s Stake in the Fund

Mr. Spieler has over $100,000 in the fund.  Mr. Harris has $10,000 in the fund, an amount limited by his “an interest in a more aggressive stock allocation.”

Opening date

August 6, 1996

Minimum investment

$1000, reduced to $100 for accounts opened with an automatic investing plan.

Expense ratio

1.22%, after a minor waiver, on $59 million in assets (as of 2/29/12).

Comments

Tributary Balanced does what you want to “balanced” fund to do.  It uses a mix of stocks and bonds to produce returns greater than those associated with bonds with volatility less than that associated with stocks.   Morningstar’s “investor returns” research supports the notion that this sort of risk consciousness is probably the most profitable path for the average investor to follow.

What’s remarkable is how very well, very quietly, and very consistently Tributary achieves those objectives.  The fund has returned 7.6% per year for the past decade, 50% better than its peer group, but has taken on no additional risk to achieve those returns.  Its Morningstar profile, as of 3/28/12, looks like this:

 

Rating

Returns

Risk

Returns relative to peers
Past three years

* * * * *

High

Average

Top 1%
Past five years

* * * * *

High

Average

Top 1%
Past ten years

* * * * *

High

Average

Top 2%
Overall

* * * * *

High

Average

n/a

Its Lipper rankings, as of 3/28/12, parallel Morningstar’s:

 

Total return

Consistency

Preservation
Past three years

* * * * *

* * * * *

* * * *
Past five years

* * * * *

* * * * *

* * * *
Past ten years

* * * * *

* * * * *

* * *
Overall

* * * * *

* * * * *

* * * *

We commissioned an analysis of the fund by the folks at Investment Risk Management Systems (a/k/a FundReveal), who looked at daily volatility and returns, and concluded “FOBAX is a well-managed, safe, low risk Moderate Allocation fund.

  • Its low volatility, high return performance is visible in cumulative 5 year, latest cumulative one year and latest quarter analysis results.
  • Its Persistence Rating (PR) is 60, indicating that it has maintained an “A-Best” rating over most of last 20 quarters.
  • This is also evident from the rolling 20 quarters Risk-Return ratings which have been between “A-Best” and “C-Less Risky.”

Our bottom line opinion is that FOBAX seems to be one of the better managed funds in the Moderate Allocation class.”

SmartMoney provides a nice visual representation of the risk-return relationships of funds.  Below is the three-year scatterplot for the balanced fund universe.  In general, an investor wants to be as near the upper-left corner (universe returns, zero risk) as possible.  There are three things to notice in this graph:

  1. Three funds form the group’s northwest boundary; that is, three that have a distinguished risk-return balance.  They are Tributary, Vanguard Balanced Index (VBINX) which is virtually unbeatable and Calvert Balanced (CSIFX) which provides middling returns with quite muted risk.
  2. The only funds with higher returns (Fidelity Asset Manager 85% FAMRX and T. Rowe Price Personal Strategy Growth TRSGX than Tributary have far higher stock allocations (around 85%), far higher volatility and took 70% greater losses in 2008.
  3. Ken Heebner is sad.  His CGM Mutual (LOMMX) is the lonely little dot in the lower right.

To what could we attribute Tributary’s success? Mr. Spieler claims three sources of alpha, or positive risk-adjusted returns.  They are:

  1. They have a flexible asset allocation, which is driven by a macro-economic assessment, profit analysis and valuation analysis.  In theory the fund might hold anywhere between 25-75% in equities though the actual allocation tends to sit between 50-70%.
  2. Stock selection tends to be opportunistic.  The portfolio tilts toward growth stocks and the managers are particularly interested in emerging markets growth stocks.  The neat trick is they pursue their interest without investing in foreign stocks by looking for US firms whose earnings benefit from emerging markets operations.  Pricesmart PSMT, for example, has 100% of its operations in South America while Cognizant Technology Solutions CTSH is a play on outsourcing to South Asia.  They’re also agnostic as to market cap.  Measured by the percentage of earnings from international sources, Tributary offers considerable international exposure.  They etimate that 48% of revenues of for their common stock holdings are from international sales. That compares to an estimated 42% of international sales for the S&P 500.
  3. Fixed-income selection is sensitive to duration targets and unusual opportunities. About 20% of the portfolio is invested in taxable municipal bonds, such as the Build America Bonds.  Those were added to the portfolio when irrational fear gripped the fixed income market and investors were willing to sell such bonds as a substantial discount in order to flee to the safety of Treasuries.  Understanding that the fundamentals behind the bonds were solid, the managers snatched them up and booked a solid profit.

The managers are also risk-conscious, which is appropriate everywhere and especially so in a balanced fund.  The stock portfolio tends to be sector-neutral, and the number of names (typically 70-75) was based on an assessment of the amount of diversification needed for reasonable risk management.

Bottom Line

The empirical record is pretty clear.  Almost no fund offers a consistently better risk-return profile.  While it would be reassuring to see somewhat lower expenses or high insider ownership, Tributary has clearly earned a spot on the “due diligence” list for any investor interested in a hybrid fund.

Fund website

Tributary Funds.  FundReveal’s complete analysis of the fund is available on their blog.

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