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Third Avenue Bond Fund in Liquidity Crunch
Third Avenue took the extraordinary step of preventing
redemptions or purchases in its Focused Credit Fund.
The firm said it was unable to meet growing redemp-
tions because it held some illiquid low-quality
energy bonds. The fund lost
30%
in
2015
as its empha-
sis on low-quality energy bonds hurt it badly. That
figure compares with a much more modest
4%
loss for
the typical high-yield fund in
2015
.
The news put high-yield funds under pressure, but we
don’t expect that many other high-yield funds will face
such a severe liquidity crunch. The Third Avenue fund
had much greater issue concentration, much more in
unrated bonds, and much more in very low-quality
bonds than is typical for a high-yield fund. A prolonged
oil-price slump will put pressure on all high-yield
funds, but we don’t see any of the bigger mainstream
high-yield funds as being in the same boat.
Third Avenue’s move did have some immediate fallout:
•
The
SEC
stepped in to review the situation, and it
insisted that Third Avenue continue to quote a daily
net asset value on its fund. (Third Avenue had
stopped quoting a
NAV
as part of its plan to gradually
liquidate the portfolio.)
•
Third Avenue parted ways with
CEO
David Barse, who
played a key role in launching the fund.
•
Morningstar downgraded Third Avenue’s Parent rating
to Negative from Neutral.
•
Morningstar downgraded
Third Avenue Real Estate
Value
TAREX
to Silver from Gold.
•
Morningstar downgraded
Fairholme Focused Fund
FOCIX
to Neutral from Bronze because of concerns
about the concentration of the portfolio. The fund is not
under any redemption pressure at the moment,
however, and actually had strong returns in
2015
.
Fund Manager Changes
Fund News
Fidelity Small Cap Discovery FSCRX
Impact: 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 him 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.
Janus High-Yield JAHYX and Janus Flexible Bond JAFIX
Impact: Negative Date: 03/31/2016
Gibson Smith is leaving Janus. Comanager Darrell Waters will take over as lead manager.
Our Take:
We have
placed the funds under review as this is a big blow to two appealing funds. Smith built up Janus’ bond effort
over the past 12 years and was vital to the team.
MainStay ICAP International ICEUX
Impact: Negative Date: 09/30/2016
Lead manager Jerry Senser will retire at the end of September 2016. The firm named Tom Cole co-chief
investment officer and said Matthew Swanson will step down to focus on U.S. strategies.
Our Take:
Senser
has led ICAP since Rob Lyons’ death in 2007. We’ve lowered our rating to
ˇ
from
´
.
Matthews Pacific Tiger MAPTX
Impact: 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.
Thornburg International Value
Impact: Negative Date: 12/31/2016
Wendy Trevisani gave up her comanager duties on the fund in April 2014 and left the firm in early 2015. Bill
Fries will give up his comanager position on this fund at the end of 2016. Lei Wang is staying put, and he
now has 10 years of experience as a comanager here as well as two decades of investment experience overall.
Di Zhou, who became a comanager on this fund on Dec. 8, 2015, has spent 13 years in the investment field,
including 14 months as an associate manager here.
Our Take:
Two thirds of the three-person team that owns
this fund’s long-term record will be gone at the end of 2016, so we have lowered our Morningstar Analyst
Rating to Neutral.
Vanguard Energy VGENX
Impact: Negative Date: 06/01/2016
Lead manager Karl Bandtel of Wellington Management will retire. Vanguard named Greg LeBlanc, also of
Wellington, comanager of the fund and said he will become the lead manager when Bandtel retires.
Our Take:
Bandtel has a strong track record, so he will be missed. The fund is Under Review.
Vanguard Windsor II VWNFX
Impact: 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
Impact: 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. J.B. 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
Œ
rating
but will watch closely to see how involved Cardon is. On the plus side, Taylor has a strong record, too.