(PUB) Investing 2015

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FPA US Value Makes Huge Payout
We knew that FPA US Value FPPFX was going to
make a big capital gains payout, but at $38/share and
79% of net asset value, it was even bigger than we
expected. The fund changed strategies and managers,
and it had a huge potential capital gains exposure
because it hadn’t had much in inflows in years. FPA
signaled the tax bill was coming by shutting the
fund to new investors, a shareholder-friendly move to
avoid having new shareholders get hit with a tax bill.
The fund was formerly named FPA Perennial.
Here’s what Dan Culloton wrote in June: “Wholesale
changes to this fund triggered its downgrade from
Silver (to Neutral): It’s getting a new, unproven
manager, an expanded strategy, and a new name.
The changes are likely to trigger big portfolio moves
and capital gains distributions. It’s too early to tell
how it will work out.”
SEC Fines First Eagle
The SEC fined First Eagle funds nearly $40 million
for “improperly using mutual fund assets to pay
for the marketing and distribution of fund shares.”
“An SEC investigation found that First Eagle and FEF
unlawfully caused the First Eagle Funds to pay
nearly $25 million for distribution-related services,
rather than making the payments out of the firms’
own assets (known as ‘revenue sharing’). Such
payments can only come from fund assets pursuant
to a written Rule 12b-1 plan that is approved by a
fund’s board.”
As a result, we lowered our parent rating of First Eagle
to Neutral from Positive. Here is Greg Carlson’s take:
“Two issues have led to a downgrade of First Eagle’s
Parent rating to Neutral. First, on Sept. 21, 2015,
the SEC said the firm would pay nearly $40 million to
settle charges that First Eagle improperly used fund
assets to pay for distribution and marketing. Second,
the majority of the firm is set to be acquired by two
Fund Manager Changes Fund News
Calamos Growth CVGRX Change: Negative Date: 09/01/2015
Co-CIO Gary Black left Calamos three years after joining the firm. The situation is similar to that of Janus
where Black arrived to fix a problem firm but left after a few years as both sides were ready to move on. Black
was one of five comanagers listed on the fund. Calamos added Michael Roesler to replace Black as the fifth
manager. Our Take: It isn’t pretty. Performance was mediocre over Black’s tenure, and his departure leaves a
void in upper management.
Fidelity Small Cap Discovery FSCRX Change: Neutral Date: 03/14/2016
Chuck Myers will take a six-month leave of absence. Derek Jansen will fill in while he is gone. Jansen runs
Fidelity Small Cap Value FCPVX, where he worked with Myers before replacing Myers there. Our Take:
For a low-turnover fund, we don’t see much risk in Myers taking six months off. We will watch closely, though,
to be sure he comes back on time. Usually managers come back after leaves of absence and pick up right
where they left off, but occasionally they decide not to come back.
Matthews Pacific Tiger MAPTX Change: Negative Date: 09/09/2015
Comanager In-Bok Song left to work as an analyst at Thornburg. This follows Richard Gao’s departure in July
2015. Our Take: Although Song was not the lead, her departure along with Gao’s led us to lower the fund’s
rating to •. As the rating implies, we still think the fund is in good hands. Sharat Shroff has experience
and a track record at Matthews that inspires confidence. The fund recently reopened because of outflows
seen at most Asia funds.
Oppenheimer Developing Markets ODMAX Change: Positive Date: 09/09/2015
John Lech was added as a comanager for Justin Leverenz. Lech has been with Oppenheimer since 2008. Our
Take: Leverenz is still very much in charge, but Oppenheimer is trying to make supporting managers and
possible successors more visible to quell concerns about key-man risk. We’ll be interested to see how much
authority Lech has over the portfolio, but in the meantime we are maintaining our •rating.
USAA International USIFX Change: Change: Neutral Date: 08/28/2015
USAA has hired Lazard Asset Management and Wellington Management and given them 15% each to manage.
MFS managers Marcus Smith and Daniel Ling will still guide 70% of the fund. Our Take: This is only a slight
negative as Wellington and Lazard are solid managers. MFS has done such a good job that we’d rather not see
them diluted, but they are still having quite an impact at 70%. We are maintaining our ´ rating.
Vanguard Windsor II VWNFX Change: Negative Date: 01/01/2016
Longtime lead manager James Barrow will retire. Comanagers Jeff Fahrenbruch and David Ganucheau will
replace him. The two have been comanagers since 2013, and eight years ago Vanguard had said they would
eventually succeed Barrow. Barrow will continue to manage Vanguard Selected Value VASVX. Our Take: We
knew Barrow would retire in the relatively near future, so this is not a surprise. Still, Barrow’s outstanding
record makes this a real loss. His replacements are seasoned but do not have long track records of their own.
We have lowered our rating to ´from •.
Wasatch Small Cap Growth WAAEX Change: Neutral Date: 02/01/2016
Jeff Cardon will step down as lead portfolio manager of this fund and CEO of Wasatch Advisors. He will
remain a comanager on the fund. JB Taylor will take over Cardon’s role as both CEO and lead manager
on the fund at that time. Our Take: This looks like a gradual evolution. We are maintaining our Πrating
but will watch closely to see how involved Cardon is. On the plus side, Taylor has a strong record, too.