Our full alpha-generating capabilities, seeking lower volatility or no equity market correlation

The Fund takes long and short exposures in common and preferred stocks of companies located primarily in developed countries outside the US and of companies in the US. To obtain exposure to long and short positions in securities, the Fund enters into one or more total return equity swap agreements. Although the Fund is permitted to take direct long and short positions in securities, other than swap agreements, it does not currently intend directly to purchase or sell securities or directly to hold short positions in securities. The Investment Adviser integrates fundamental and quantitative research to manage the Fund’s long exposures (the “long portfolio” of the Fund). The Investment Adviser uses its quantitative investment strategy designed to identify short exposures that it expects to underperform the MSCI World Index to manage the Fund’s short exposures (the “short portfolio” of the Fund). The Fund’s investment objective is to seek long-term growth of capital with low or no correlation to the MSCI World Index.

YTD Return*
-16.89%
Nav*
$7.53, +0.02
Inception
January 24, 2011
Cusip
14949P406
Benchmark
ICE BoAML 3-Month US TBill
Minimum Investment
$1,000,000
Sales Charge
None
Net Expense Ratio
1.52%
Gross Expense Ratio
1.81%
*As of September 13, 2019

Strategy overview

The portfolio managers discuss our Global Absolute Return Fund strategy.

Portfolio managers

Chief Executive Officer
Fundamental Portfolio Manager
President
Head of Fundamental Research
Fundamental Portfolio Manager
Fundamental Portfolio Manager
Fundamental Portfolio Manager
Fundamental Portfolio Manager
Fundamental Portfolio Manager
Fundamental Portfolio Manager
Fundamental Portfolio Manager
Head of Quantitative Research
Quantitative Portfolio Manager
Quantitative Portfolio Manager
Quantitative Portfolio Manager

Performance

QTDYTD1 year3 years5 yearsSince inception
Fund-5.2%-16.9%-12.3%-4.1%-2.4%0.6%
ICE BoAML 3-Month US TBill0.4%1.6%2.4%1.5%0.9%0.6%
QTDYTD1 year3 years5 yearsSince inception
Fund-5.2%-16.9%-12.3%-4.1%-2.4%0.6%
ICE BoAML 3-Month US TBill0.4%1.6%2.4%1.5%0.9%0.6%
QTDYTD1 year3 years5 yearsSince inception
Fund-6.0%-12.4%-2.4%-1.8%-1.2%1.3%
ICE BoAML 3-Month US TBill0.6%1.2%2.3%1.4%0.9%0.6%
QTDYTD1 year3 years5 yearsSince inception
Fund-6.0%-12.4%-2.4%-1.8%-1.2%1.3%
ICE BoAML 3-Month US TBill0.6%1.2%2.3%1.4%0.9%0.6%
2018201720162015201420132012
Fund9.0%-8.2%11.2%-5.2%0.1%12.5%-3.7%
ICE BoAML 3-Month US TBill1.9%0.9%0.3%0.0%0.0%0.1%0.1%
Fund
ICE BoAML 3-Month US TBill
2018201720162015201420132012
9.0%-8.2%11.2%-5.2%0.1%12.5%-3.7%
1.9%0.9%0.3%0.0%0.0%0.1%0.1%

Portfolio (as of August 31, 2019)

Benchmark: MSCI World
Position Details
Fund
Cash41,241,360
Market value (long)60,514,676
Market value (short)-62,702,767
Net positional value-2,188,091
NAV39,053,269
Fund
Net exposure-5.60%
Leverage3.16
Long positions 90
Short positions 124
Total214
Fund Characteristics
Long portfolioShort portfolioBenchmark
No. of exposures 90 124 1650
Weighted avg. market cap (US $MM)$55,124$10,757$149,970
FY2 price/earnings9.616.314.9
Price/book value1.31.62.4
Return on equity (%)17.27.019.6

A “weighted average” measures a characteristic by the market capitalization of each stock. Price/book ratio is the weighted average of the price/book ratios of all the stocks in a portfolio. The P/B ratio of a company is calculated by dividing the market price of its stock by the company’s per-share book value. The price/earnings ratio is the weighted average of the price/earnings ratios of the stocks in a portfolio. The FY2 P/E ratio is a forward P/E ratio using a next-twenty-four months EPS estimate in the denominator. Return on equity is calculated by taking a year's worth of earnings and dividing them by the average shareholder equity for that year.

Holdings are subject to change.

Top 10 Long Exposures
CompanyEnding weight
Genworth Mi Canada3.61%
Zimmer Biomet Holdings, Inc.3.59%
FirstEnergy Corp.3.43%
Sabre Corp.3.31%
Brixmor Property Group, Inc.3.30%
Novartis AG3.25%
KDDI Corp.3.25%
Microsoft Corp.3.22%
Roche Holding AG3.12%
Alaska Air Group, Inc.3.08%
Top 10 Short Exposures
CompanyEnding weight
SiteOne Landscape Supply, Inc.-3.69%
Kansai Paint Co., Ltd.-3.55%
Cellnex Telecom SA-3.49%
Aqua America, Inc.-3.49%
Markel Corp.-3.33%
Premium Brands Holdings-3.31%
Keikyu Corp.-3.29%
Cboe Global Markets, Inc.-3.23%
Beazley Plc-3.20%
Électricité de France SA-3.16%
Sector Exposure
SectorLong exposureShort exposureNet exposure
Health Care12.9%-6.9%6.05%
Information Technology17.0%-13.3%3.68%
Communication Services12.6%-9.4%3.21%
Energy8.9%-5.8%3.10%
Consumer Discretionary14.6%-12.8%1.84%
Materials11.8%-12.9%-1.13%
Industrials22.4%-24.0%-1.58%
Real Estate8.1%-10.4%-2.28%
Consumer Staples4.7%-10.0%-5.25%
Utilities10.5%-16.0%-5.51%
Financials31.5%-38.9%-7.35%
Country Exposure
CountryLong exposureShort exposureNet exposure
Canada13.9%-8.1%5.83%
China8.3%-2.4%5.81%
Switzerland8.4%-2.7%5.66%
United Kingdom14.8%-10.2%4.67%
Sweden3.0%0.0%3.03%
Netherlands2.7%0.0%2.71%
New Zealand1.6%-0.3%1.29%
Austria1.1%0.0%1.11%
Italy0.6%0.0%0.56%
South Korea9.9%-10.2%-0.36%
Germany5.7%-6.3%-0.58%
Japan19.6%-20.4%-0.82%
Portugal0.0%-2.1%-2.15%
Norway0.0%-2.4%-2.43%
Belgium0.0%-2.7%-2.69%
France3.0%-6.1%-3.14%
Spain0.0%-4.2%-4.17%
United States58.6%-62.9%-4.26%
Singapore1.0%-5.8%-4.80%
Hong Kong0.0%-5.2%-5.22%
Australia2.9%-8.2%-5.29%
Regional Allocation
Long exposureShort exposureNet exposure
Europe - Other26.2%-15.3%10.9%
North America72.5%-70.9%1.6%
Euro13.0%-21.4%-8.4%
Pacific43.2%-52.6%-9.4%

Commentary (As of August 31, 2019)

Highlights

  • Equity markets contracted in August in a global “risk off” wave, exacerbated by increased trade tensions, recessionary fears, and sinking global bond yields.
  • With approximately one third of global bonds (European and Japanese sovereign, corporate, and mortgage) trading at negative yields, the bond market appears to be signaling an excess of savings versus available low/no risk assets. Fiscal spending, as an anti-recessionary tool, will likely lead to considerably more sovereign debt issuance, driving interest rates back into positive territory.
  • According to our estimates, many of the cheap stocks we find most compelling from a fundamental perspective have a recession (trade war, disorderly Brexit, etc.) already discounted in their share prices. Faced with an actual recession, we believe share prices for these cheap cyclical stocks with superior financial strength will likely start to anticipate and discount a subsequent economic recovery.

Portfolio attribution

Equity markets contracted in August in a global “risk off” wave, exacerbated by increased trade tensions, recessionary fears, and sinking global bond yields. The top performing markets in our investable universe were Denmark, Switzerland, Japan, Canada, and the Netherlands. The worst performing markets were Hong Kong, New Zealand, Singapore, Belgium, and Austria. The best performing sectors in the World Index were utilities, real estate, and consumer staples. The worst performing sectors were energy, financials, and materials.

The Fund takes long and short notional exposures to securities under swap agreements. We use a combination of fundamental and quantitative inputs to select exposures for the long portfolio of the Fund, while we use primarily quantitative inputs to select exposures for the short portfolio. Our fundamental inputs reflect the risk-adjusted total return potential of stocks favored by our fundamental research team. Our quantitative inputs include signals that seek long (short) positions in stocks which we believe are undervalued (overvalued) and have improving (deteriorating) earnings growth dynamics, positive (negative) technical price movements, and superior (inferior) quality of earnings. During the month of August, our growth and technical factor categories demonstrated predictive power. Stocks with improving earnings growth dynamics outperformed those with worsening dynamics, and stocks with positive technical indicators outperformed those with negative technical indicators. However, stocks with cheap valuations underperformed those with expensive valuations, contrary to expectations. Stocks demonstrating higher earnings quality performed in line with those having lower earnings quality.

Investment outlook

August market performance indicates overwhelming risk aversion as investors have crowded their buying into supposed growth and economically defensive stocks, especially those poised to benefit from ever-falling interest rates (real estate and utilities, for example). US stocks and the US dollar have attracted global capital flows, pushing the US equity market valuation premium relative to MSCI EAFE markets to a 20-year high. The selling pressure on economically cyclical stocks has placed what we believe is a fundamentally unjustifiable valuation discount on economic risk. According to our estimates, many of the cheap stocks we find most compelling from a fundamental perspective have a recession (trade war, disorderly Brexit, etc.) already discounted in their share prices. Faced with an actual recession, we believe share prices for these cheap cyclical stocks with superior financial strength will likely start to anticipate and discount a subsequent economic recovery. From a risk factor perspective, the earnings yield spread (top minus bottom quintile) for value and cyclicality factors in both MSCI EAFE and MSCI ACWI markets has eclipsed all historical levels except for the 2008 GFC. Using earnings yield spreads in MSCI ACWI markets, growth factor “expensiveness” has surpassed historical levels, except during the late 1990s TMT bubble (technology-media-telecoms).

On an aggregate long/short portfolio basis, we are maintaining a near market-neutral posture, with -5.24% net exposure overall (long exposures minus absolute value of short exposures). Consistent with our goal of delivering low equity market sensitivity, we target a zero expected beta to the World Index. On an aggregate basis, our largest net biases by sector are toward health care and information technology, where we have significant positive net exposure, and against financials and utilities, where we have meaningful negative net exposure. By geography, we are net biased toward Canada and China, and biased against Australia and Hong Kong. Gross exposure (leverage) for the Fund is 315% (3.15x) as of August 31, 2019.

The market commentary expresses the portfolio managers’ views as of the date of this report and should not be relied on as research or investment advice regarding any stock. These views and the Fund holdings and characteristics are subject to change. There is no guarantee that any forecasts made will come to pass. Any securities identified and described in this report do not represent all of the securities purchased, sold or recommended for client accounts. The reader should not assume that an investment in the securities identified was or will be profitable. Diversification does not protect against market loss. Current and future holdings are subject to risk. International and emerging markets investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from social, economic or political instability in other nations. Emerging markets and smaller companies involve additional risks and higher volatility. : The Fund uses swap agreements to obtain long and short exposures to securities. Swaps are derivatives which involve the use of leverage and the Fund uses significant leverage. Leverage is speculative and can magnify any losses. Short positions will lose money if the price of the underlying security increases, and losses on shorts are therefore potentially unlimited. The Fund is not appropriate for all investors.

Distributions

DividendsShort-term capital gainsLong-term capital gains
2018$0.8783$0.0000$0.0000
2017$0.0000$0.0000$0.0000
2016$1.0925$0.0000$0.0000
2015$0.3858$0.0000$0.0000
2014$0.0000$0.0000$0.0000
2013 $0.433 $0.000 $0.000
2012 $0.280 $0.000 $0.000
2011 $0.101 $0.305 $0.000

Distributions are per share. Distribution amounts are based on gains and losses realized and income earned by the Fund through October 31 (or earlier under certain circumstances).

Documents

Fund information:

Forms: