The Securities and Exchange Commission, by law, gets between 60 and 75 days to review proposed new funds before they can be offered for sale to the public. Each month we survey actively managed funds and ETFs in the pipeline. Summer is a slow time for new fund launches, with the pipeline filling up in November in anticipation of reaching the market by December 30.
Many new funds, like many existing funds, are bad ideas. (Really, you want an ETF that invests in a single AI stock?) Most will flounder in rightful obscurity. That said, each month brings some promising options that investors might choose to track.
Two, or perhaps two point five, to add to your radar:
Fund One: Genoa Opportunistic Income ETF
Genoa Opportunistic Income ETF (XFIX) will try to maximize total return, including both income and appreciation, by identifying undervalued and opportunistic sectors and securities in the U.S. fixed-income markets. The fund is actively managed and will charge 0.45%. The strategy is opportunistic and largely unconstrained – bonds, commercial paper, derivatives, preferred, and convertible shares are all fair game – except that it is capped at 20% non-investment grade and 20% muni bonds. It will be managed by Peter Baden, Chief Investment Officer of Genoa Asset Management, Justin Hennessy, and Marcin Zdunek of North Slope Capital.
In general, I would shy away from funds whose investment pitch comes down to “trust us.” That said, Messrs Baden and Hennessy also run the f/m Genoa Opportunistic Income strategy for private clients. As of their 3/31/2023 fact sheet, the strategy has steadily outperformed the aggregate bond market over extended periods.
The rank column is expressed as a percentile; over the past 10 years, it is in the top 10% of comparable separately managed accounts while year-to-date through 3/31 it is in the bottom 27%. Other data in the factsheet show five-year risk metrics that are broadly favorable to the broad bond markets.
Fund Two: Dynamic Alpha Macro Fund
The Dynamic Alpha Macro Fund (DYMAX) intends to pursue above-market returns. “Macro” refers to major macroeconomic themes such as growth rates, interest rates, and inflation that help shape the portfolio. Approximately 50% of the portfolio will be invested in domestic stocks (via ETFs which will be split 40% growth, 40% high div, and 20% “broad market”) and 50% in a futures trading strategy. That strategy, currently embodied in a hedge fund, will opportunistically target six asset classes: currencies, debt, equities, energy, metals, and agriculture. The strategy holds both long and short positions.
The fund’s expenses are high (2.39% Investor, 1.99% Institutional) but the Institutional class carries a prospectus minimum of $1,000.
The equity strategy will be managed primarily by Bradley Barrie and the futures strategy by David Johnson. Mr. Barrie has earned his CFP and ChFC credentials, is the founder of the fund’s adviser and, in 2017, founded Dynamic Alpha Group which assisted financial advisors with investment portfolio creation and management. Mr. Johnson manages the GCM hedge fund which, de facto, represents 50% of the portfolio. Mr. Johnson began his career at NASA as a systems engineer on the Space Shuttle program and worked for 22 years at Honeywell Space System as an engineer and manager. You might be surprised as to how many investment managers are trained in engineering, mathematics, or computer science rather than in traditional finance programs. Both managers are Star Trek fans and have met Captain Kirk personally.
I spoke with the team for the better part of an hour in June 2023. They make sensible arguments – that in investing, the whole can be greater than the sum of its parts if the parts are (a) separately attractive and (b) uncorrelated – and claim that Mr. Johnson’s hedge fund has a substantial and impressive performance record. They are working with two sets of compliance teams to figure out how much of that information they can share and with whom. It’s possible, for example, that they’ll be forbidden from sharing with poor unsophisticated “retail” investors but permitted to provide substantiation to sophisticated advisors and other professionals.
They have concluded that the hedge fund strategy on its own is likely “too spicy” for either the average retail investor or average advisor, but that the blend of the two strategies would be much more palatable. In the ideal world, they might aspire to produce – over reasonable time periods – something near or above the returns of the S&P 500 with 50% of the downside. They recognize the work of the Standpoint Multi-Asset Fund team, about whom we’ve written (Standpoint Multi-Asset Fund: Forcing Me to Reconsider, 2021), as representative of the potential of the blended strategy.
We’ll be interested to see what performance data they’re permitted by regulators to share.
While they understood the general marketing attractiveness of launching this strategy in an ETF wrapper, their strategy is not well fit to the disclosure and reporting requirements even of a semi-transparent ETF.
The fund’s expenses are high (2.39% Investor / 1.99% Institutional), which is typical of such strategies. What is not typical is that the Institutional class has a $1,000 minimum.
That makes the appeal of the Investor class a bit fuzzy to me, but we take wins where we can get them.
Almost making the cut: Polen Capital Global Growth ETF
Polen Capital Global Growth ETF (PCGG) will be the ETF version of the Polen Growth Growth Fund. It will be a non-diversified, actively-managed exchange-traded fund holding 25 to 40 large-cap stocks, including those in emerging markets. Same management team, and they integrate “material environmental, social, and governance (ESG) factors” into their evaluation of a company’s long-term financial sustainability.
Since its inception, the fund has sort of smoked the competition.
Comparison of Lifetime Performance (Since 201501)
| Annual returns | Max Drawdown | Standard deviation | Downside deviation | Ulcer Index |
Sharpe Ratio |
|
| Polen Global Growth | 10.4% | -35.6 | 15.9 | 10.7 | 10.7 | 0.58 |
| Global Large-Cap Growth Category Average | 9.0 | -35.5 | 17.3 | 11.5 | 11.3 | 0.46 |
Source: MFO Premium fund screener
There are two yellow flags that made me hesitate. First, the robo-Morningstar recently downgraded the fund’s rating from “neutral” to “negative.” I am skeptical of the robo-judgment but I also realize that it’s incorporating data points that might be material but might not yet be immediately apparent to me. Second, the fund’s three- and five-year record against its peers substantially lags its long-term record.
Polen generally is very, very solid. I’d be hopeful about the ETF and hopeful for the prospect of less-expensive access to the strategy. I say “hopeful” because ETFs are generally marketed on price, but the draft prospectus does not list an expense ratio yet.
