Tag Archives: marketplace

July 2015, Funds In Registration

First Western Short Duration High Yield Credit Fund First Western Short Duration High Yield Credit Fund will seek a high level of current income and capital growth. The plan is to invest in a global portfolio of junk bonds and floating rate senior secured loans. The fund will be managed by Steven S. Michaels. The minimum initial investment is $1,000. The opening expense ratio for retail shares will be 1.2%. RiverNorth Marketplace Lending Fund RiverNorth Marketplace Lending Fund will seek “a high level of total return, with an emphasis on current income.” The plan is to invest in “loans to consumers, small- and mid-sized companies and other borrowers originated through online platforms.” That is, they’ll subscribe to loans through peer-to-peer lenders such as Lending Tree and Prosper.com. They urge you to think of this as a fund that might fit into the “high yield / speculative income” slot in your portfolio. They also, rightly, raise two red flags: (1) no one has ever done this before and so there’s no established market for trading these shares, which might well make them illiquid for rather longer than you like and (2) this is structured as a closed-end fund but will likely function as an interval fund; that is, you might have to request redemption of your shares then wait for a redemption window. That’s akin to the practice in hedge funds, since they also make money from the mispricing of illiquid investments. The fund will be managed by Philip K. Bartow and Patrick W. Galley. Mr. Bartow just joined RiverNorth after serving as “Principal at Spring Hill Capital, where he focused on analyzing and trading structured credit, commercial mortgage and asset-backed fixed income investments.” Mr. Galley is RiverNorth’s Alpha male. Details like purchase requirements and expenses have yet to be worked out. RQSI Small Cap Hedged Equity Fund RQSI Small Cap Hedged Equity Fund will seek total return with lower volatility than the overall equity market. The plan is to invest in a diversified portfolio of U.S. small cap stocks and ADRs, when they need exposure to a foreign stock, which will be selected using the Ramsey Quantitative Systems, Inc. quantitative system. The manager will use options, futures and ETFs to hedge the portfolio. The fund will be managed by Benjamin McMillan, formerly a manager for Van Eck Global’s Long/Short Equity Index Fund. The minimum initial investment is $2,500. The opening expense ratio will be 1.56% for retail shares. T. Rowe Price Emerging Markets Value Stock Fund T. Rowe Price Emerging Markets Value Stock Fund will pursue long term growth of capital. The fund will invest in “stocks of larger companies that are undervalued in the view of the portfolio manager using various measures.” The fund will be managed by Ernest Yeung. Mr. Yeung joined T. Rowe in 2003. Price describes him as having “joined the Firm in 2003 and his investment experience dates from 2001. He has served as a portfolio manager with the Firm throughout the past five years.” He’s also described as a “sector expert” on Asian media and telecomm stocks. I can, however, only find a four month fill-in stint as manager of T. Rowe Price New Asia Fund (MUTF: PRASX ) . Presumably he’s been managing something other than mutual funds and has done it well enough to satisfy Price. The opening expense ratio, after waivers, will be 1.5%. The minimum initial investment will be $2,500, reduced to $1,000 for tax-advantaged accounts. The prospectus is dated August 24, 2015 which suggests the launch date. Thornburg Better World Fund Thornburg Better World Fund will seek long-term capital growth. The plan is to invest in international “companies that demonstrate one or more positive environmental, social and governance characteristics.” They can also hold fixed income securities, but that’s clearly secondary. The fund will be managed by Rolf Kelly, who has been with Thornburg since 2007. Before that, he was a “reservoir engineer” for an oil company. The minimum initial investment is $5,000, reduced to $2,000 for various tax-advantaged accounts. The opening expense ratio is 1.83% for “A” shares, which also carry an avoidable 4.5% load. United Income and Art Fund United Income and Art Fund will seek income with long-term capital appreciation as a secondary objective. The plan is to invest in equity and fixed-income mutual funds (based on “performance, risk, draw downs, portfolio holdings, turnover, and potential concentration risk – easy peasy!) and up to 15% in potentially illiquid “art companies,” plus long and short ETFs for hedging. The fund will be managed by Doran Adhami and Itay Vinik of United Global Advisors. Mr. Adhami was a Vice President of Investments for UBS from 2005-13; Mr. Vinik was an intern there and is now, with “approximately three years” of industry experience, United Global’s CIO. He also helps manage the Ace of Swords Fund . The minimum initial investment is $500. The opening expense ratio has not been released; the existence of a 2% redemption fee and a 0.25% 12(b)1 fee have been established. Zevenbergen Genea Fund Zevenbergen Genea Fund will seek long-term capital appreciation. The plan is to invest in the stocks of 15-40 firms which are “benefitting from advancements in technology.” I’m certain that’s not nearly as dumb as it sounds. International exposure would come mostly through ADRs. The fund will be managed by Nancy Zevenbergen, Brooke de Boutray, and Leslie Tubbs. The adviser has about $2.4 billion in assets under management and all of the managers have experience as portfolio managers at regional banks. The minimum initial investment is $2,500. The opening expense ratio is 1.40%. Zevenbergen Growth Fund Zevenbergen Growth Fund will seek long-term capital appreciation. The plan is to invest in 30-60 industry leaders, described as firms which seek to invest in industry leaders with “strong competitive positioning.” International exposure would come mostly through ADRs. The fund will be managed by Nancy Zevenbergen, Brooke de Boutray, and Leslie Tubbs. The adviser has about $2.4 billion in assets under management and all of the managers have experience as portfolio managers at regional banks. The minimum initial investment is $2,500. The opening expense ratio is 1.3%.

Why The Best-Performing ETF Isn’t Always The Best Choice

By Andy Rachleff We get a lot of questions about why we choose certain exchange-traded funds in our portfolios and not others. Often, readers of our blog will point out that this or that ETF has outperformed one of the ETFs we recommend for our portfolios. We love getting feedback, but in this case, our readers are failing to see the forest for the trees. Specifically, they’re evaluating things in isolation, when what matters is how a particular ETF works in a portfolio. Sports fans know this idea well. Teams will sign players with superstar statistics, only to see their overall team performance suffer, as the player doesn’t mesh well with others. Conversely, teams may add role players, only to see their team overall performance soar. The same is true in portfolios: What matters is not just the returns of an individual ETF, but its relationship to the other funds in the portfolio. When Is A Hot Performing Fund A Bad Idea? When you construct a portfolio using Modern Portfolio Theory, you’re required to estimate three things: The expected returns of each asset class in the portfolio. The expected volatility of each asset class in the portfolio. The correlations between each asset class in the portfolio. Let’s imagine you have two portfolios, each of which owns 4 funds. Portfolio 1 holds funds A, B, C and D, while Portfolio 2 holds funds A, B, C and E. Over a one-year time period, we expect to see the following returns and volatility for each fund. (click to enlarge) As a stand-alone investment for a risk-tolerant investor, fund D appears very attractive: It has the highest expected return. But you also have to consider volatility and correlations when determining which ETFs will maximize the risk adjusted return for the overall portfolio. In this case fund D is reasonably correlated to the other funds, whereas fund E is entirely uncorrelated. It marches to its own drummer. (click to enlarge) If you run these portfolios through an optimizer, it will spit out the mix of assets that maximizes the portfolio’s return for every level of risk/volatility. The graph below displays the expected return at every level of risk for three different portfolios: One with just funds A, B and C (red line), one with A, B, C and Fund D (green line) and one with A, B, C and Fund E (blue line). In every case, the portfolio containing Fund E delivers more return per unit of risk than the competing portfolios – despite the fact that Fund D has a higher expected return than Fund E. (click to enlarge) The only case that can be made for the portfolio containing fund D is for investors that are extraordinarily risk-tolerant and searching out the highest absolute return. But even portfolios that are nearly 100% concentrated in fund D barely outperform our A/B/C/E portfolio (and certainly fail on a risk-adjusted basis). At Wealthfront, we evaluate ETFs in the context of their position in a portfolio. That places extra emphasis on funds with low correlations to other funds, and funds that can deliver consistent strong risk-adjusted returns. In a future post, we’ll discuss why we generally favor Vanguard ETFs over their competitors. But even with our overall predilection for Vanguard products, the important thing is the same: All selections must be made in the context of an overall portfolio. Even if that means you leave a hot-performer by the wayside. Disclosure The information provided here is for educational purposes only. Nothing in this article should be construed as a tax advice, solicitation or offer, or recommendation, to buy or sell any security. There is a potential for loss as well as gain. Actual investors on Wealthfront may experience different results from the results shown. Past performance is no guarantee of future results. Andy is Wealthfront’s co-founder and its first CEO. He is now serving as Chairman of Wealthfront’s board and company Ambassador. A co-founder and former General Partner of venture capital firm Benchmark Capital, Andy is on the faculty of the Stanford Graduate School of Business, where he teaches a variety of courses on technology entrepreneurship. He also serves on the Board of Trustees of the University of Pennsylvania and is the Vice Chairman of their endowment investment committee. Andy earned his BS from the University of Pennsylvania and his M.B.A. from Stanford Graduate School of Business.

Should You Make Chemical Enhancements To Your Portfolio?

By Todd Rosenbluth Most diversified index-based materials products have significant exposure to the chemicals industry, though the weightings can be different. For example, chemicals comprised approximately 70% of the S&P 500 Materials Index as of late June. Meanwhile, the S&P 500 Equal Weight Materials index had a 54% weighting in chemicals, with more exposure in containers & packaging companies. As such we think investors need to understand what drives the industry. S&P Capital IQ thinks cost saving efforts can spur the chemicals industry to higher earnings per share (EPS) growth levels in 2016, after expected growth of less than 10% in 2015. We see industry revenues growing slightly and at a slower pace over the next few years. Our profit and revenue growth forecasts are tied to the likelihood of a steadily improving U.S. macroeconomic environment, mostly offset by a stronger U.S. dollar, significantly lower oil prices, and slowing economic growth in China. The chemicals industry is comprised of five sub-industries: specialty chemicals, diversified chemicals, fertilizer & agricultural chemicals, industrial gases, and commodity chemicals. According to S&P Capital IQ equity analyst Christopher Muir, revenues of specialty chemicals companies are mostly influenced by volumes, while commodity chemicals companies face significant threats to revenue per share from changes in commodity prices for their products or raw materials. For fertilizer & agricultural chemicals companies, prices of the products will likely affect fertilizer revenue per share, while agricultural chemicals, including specialty seeds, are more-specialized products, which are driven by volumes. Industrial gas companies are likely to see a mix of volumes and prices driving revenues. In the fourth quarter of 2014 and first quarter of 2015, a rise in the value of the dollar versus other currencies had a negative effect on revenue per share, but a fall in the dollar index would be a positive in the second half of 2015 and in 2016. Specialty chemicals companies and divisions spend money and time developing new products. In most cases, Muir noted these new products are highly specialized to suit the end user, and as a result are often sold at much higher margins than their less specialized counterparts are, helping operating margin. S&P Capital IQ recently published an Industry Survey that reviews the drivers of the chemicals industry. This report along with S&P Capital IQ stock and ETF reports tied to materials sector can be found on MarketScope Advisor. Disclosure: © S&P Dow Jones Indices LLC 2015. Indexology® is a trademark of S&P Dow Jones Indices LLC (SPDJI). S&P® is a trademark of Standard & Poor’s Financial Services LLC and Dow Jones® is a trademark of Dow Jones Trademark Holdings LLC, and those marks have been licensed to S&P DJI. This material is reproduced with the prior written consent of S&P DJI. For more information on S&P DJI and to see our full disclaimer, visit www.spdji.com/terms-of-use .