Tag Archives: mutual funds

Fund Watch: New Long/Short Fund, Liquidation Of Risk Parity Fund

In this abbreviated edition of Fund Watch, we look at one new fund in registration: the Brown Advisory Equity Long Short Fund; and a fund in liquidation: the Parametric Balanced Risk Fund. New Long/Short Fund in Registration Brown Advisory Funds filed paperwork with the SEC on August 14 announcing its plan to launch the Brown Advisory Equity Long Short Fund. The fund, which is expected to debut 75 days after the filing date (roughly October 28), will be managed by the Brown Advisory equity research team, led by the firm’s head of investments Paul J. Chew. The Brown Advisory Equity Long Short Fund’s objective will be to provide long-term capital appreciation. Its investment strategy involves buying stocks the advisory team deems undervalued, and short-selling stocks the team thinks are overvalued. Under normal circumstances, the fund’s net-long exposure is expected to range from 30% to 80%. Its “flexible equity” strategy will invest across market capitalizations, sectors, and geographic markets. Shares of the new fund will be available in investor-, institutional-, and advisor-class shares, with respective net-expense ratios of 2.09%, 2.24%, and 2.49%. The minimum initial investment will be $5,000 for investor-class shares, $1 million for institutional shares, and $2,000 for advisor-class shares. Liquidation of Balanced Risk (“Risk Parity”) Fund According to paperwork filed with the SEC on August 11, the Board of Trustees of the Eaton Vance Growth Trust voted to liquidate the Parametric Balanced Risk Fund (MUTF: EAPBX ) at an August 10 meeting. The fund will cease taking investments from new shareholders on August 21 and is expected to be fully liquidated by August 28. The Parametric Balanced Risk Fund, which debuted less than two years ago, generated one-year returns of -8.74% through July 31, ranking in the bottom 3% of funds in its Morningstar category. From its September 25, 2013 inception through the August 11, 2015 board meeting that sealed its fate, the fund lost about 4% of its value, with a $10,000 investment at its inception falling to a value of $9,601.23, according to Morningstar.

Volatility Is An Asset Class That Can Be Sold As Well As Bought

By DailyAlts Staff The CBOE Volatility Index more than tripled during the course of trading on August 24, 2015 – an all-time record. On that same day, the S&P 500 fell nearly 4%, while the Barclays U.S. Aggregate Bond Index gained a miniscule 0.03%, demonstrating the ineffectiveness of the standard two asset class portfolio diversification model. Puny bond yields provide little cushion for broad market selloffs, which has led many investors to turn to alternative strategies and asset classes, including volatility itself. This is the subject of a new white paper from Allianz Global Investors (“Allianz GI”): Volatility as an Asset Class . Volatility: Realized vs. Implied The paper’s author, Dr. Bernhard Brunner, is Allianz GI’s Head of Analytics and Derivative. He begins by discussing the difference between realized volatility – the standard deviation of logarithmized returns; and implied volatility – that which is measured by the CBOE Volatility Index (VIX). Realized volatility is typically less than implied volatility, and this means buying implied volatility, such as through VIX futures, comes with a volatility risk premium . Thus, while the negative correlation between equities and equity volatility makes buying implied volatility seem like a good portfolio diversifier, the consistent volatility risk premium makes it even more attractive to sell volatility, according to Dr. Brunner. Variance Swaps In addition to taking short positions in VIX futures or ETPs that track volatility, investors can also sell volatility through so-called variance swaps . Variance swaps are traded “OTC” (“over the counter”), but swaps on equity indexes such as the S&P 500 and EuroStoxx 50 are highly liquid nonetheless. And while VIX futures may have considerable variance from realized volatility, variance swaps can be structured so their payoff is exactly equal to the difference between realized and implied variances, thereby constituting a more precise definition of the volatility risk premium. Allianz GI’s Approach Allianz GI has developed an index to earn the volatility risk premium by systematically selling variance swaps on the S&P 500 and EuroStoxx 50. Its investment approach is governed by specific rules and based on the following characteristics of volatility as an asset class: (click to enlarge) Volatility always reverts to its long-term mean; Volatility tends to bounce briefly when the stock market slumps, followed by lengthier downward trends; and Volatility forms volatility clusters. Volatility offers a lot of promise as an asset class, based on its portfolio-diversification advantages. Most notably, volatility has what Dr. Brunner describes as an “immunity to interest trends,” which makes it virtually unique among investible assets, and particularly attractive in the current investment environment. For more information, download a pdf copy of the white paper . Share this article with a colleague

Best And Worst Q3’15: Mid Cap Value ETFs, Mutual Funds And Key Holdings

Summary The Mid Cap Value style ranks seventh in Q3’15. Based on an aggregation of ratings of 15 ETFs and 141 mutual funds. SYLD is our top-rated Mid Cap Value ETF and HAMVX is our top-rated Mid Cap Value mutual fund. The Mid Cap Value style ranks seventh out of the 12 fund styles as detailed in our Q3’15 Style Ratings for ETFs and Mutual Funds report. It gets our Neutral rating, which is based on an aggregation of ratings of 15 ETFs and 141 mutual funds in the Mid Cap Value style as of July 20, 2015. See a recap of our Q2’15 Style Ratings here. Figures 1 and 2 show the five best and worst-rated ETFs and mutual funds in the style. Not all Mid Cap Value style ETFs and mutual funds are created the same. The number of holdings varies widely (from 39 to 559). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Mid Cap Value style should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2. Figure 1: ETFs with the Best & Worst Ratings – Top 5 (click to enlarge) * Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings Four ETFs are excluded from Figure 1 because their total net assets (TNA) are below $100 million and do not meet our liquidity minimums. Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5 (click to enlarge) * Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings The Nationwide Herndon Mid Cap Value Fund ( NWWQX , NWWPX , NWWNX ) is excluded from Figure 2 because its total net assets are below $100 million and do not meet our liquidity minimums. The Cambria Shareholder Yield ETF (NYSEARCA: SYLD ) is the top-rated Mid Cap Value ETF and the Harbor Mid Cap Value Fund (MUTF: HAMVX ) is the top-rated Mid Cap Value mutual fund. SYLD earns a Very Attractive rating and HAMVX earns a Neutral rating. The RevenueShares Mid Cap Fund ETF (NYSEARCA: RWK ) is the worst-rated Mid Cap Value ETF and the Touchstone Mid Cap Value Fund (MUTF: TCVAX ) is the worst-rated Mid Cap Value mutual fund. RWK earns a Neutral rating and TCVAX earns a Very Dangerous rating. The Gap, Inc. (NYSE: GPS ) is one of our favorite stocks held by Mid Cap Value funds and earns our Very Attractive rating. Since 2008, the company has grown after-tax profit ( NOPAT ) by 5% compounded annually. The company currently earns a top-quintile return on invested capital ( ROIC ) of 16%, which is up from 12% in 2008. Operating efficiency has improved and the NOPAT margin has risen from 7% in 2012 to the current 9%. Despite these improvements, the stock remains undervalued. At the current price of $37/share, Gap has a price to economic book value ( PEBV ) of 0.9. This ratio implies that the market expects the company’s profits to permanently decline by 10%. If Gap can grow NOPAT by just 3% for the next five years , the stock is worth $48/share – a 50% upside. Navios Maritime Holdings, Inc. (NYSE: NM ) is one of our least favorite stocks held by Mid Cap Value funds and earns our Dangerous rating. Since 2011, the company’s NOPAT has declined by 23% compounded annually. ROIC halved from 6% to a bottom-quintile 3% over the same time period. In addition, Navios’ free cash flow yield is a subpar -3%. The market has not yet caught on to Navios’ poor underlying fundamentals, and the stock remains overvalued. To justify its current price of $3/share, the company must grow NOPAT by 7% compounded annually for the next 11 years . This level of NOPAT growth might not seem like much, but considering the recent trend of declining profits and that Navios has only grown NOPAT once in consecutive years in its history, we believe expectations in the current stock price are overly optimistic. Figures 3 and 4 show the rating landscape of all Mid Cap Value ETFs and mutual funds. Figure 3: Separating the Best ETFs From the Worst Funds (click to enlarge) Sources: New Constructs, LLC and company filings Figure 4: Separating the Best Mutual Funds From the Worst Funds (click to enlarge) Sources: New Constructs, LLC and company filings D isclosure: David Trainer and Max Lee receive no compensation to write about any specific stock, style, style or theme. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.