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*
-18.06%
Nav*
$7.35, -0.03
Inception
January 24, 2011
Cusip
14949P505
Benchmark
ICE BoAML 3-Month US TBill
Minimum Investment
$5,000
Sales Charge
None
Net Expense Ratio
1.77%
Gross Expense Ratio
2.00%
*As of October 17, 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-3.8%-15.8%-14.5%-3.9%-2.6%0.6%
ICE BoAML 3-Month US TBill0.6%1.8%2.4%1.5%1.0%0.6%
QTDYTD1 year3 years5 yearsSince inception
Fund-3.8%-15.8%-14.5%-3.9%-2.6%0.6%
ICE BoAML 3-Month US TBill0.6%1.8%2.4%1.5%1.0%0.6%
QTDYTD1 year3 years5 yearsSince inception
Fund-3.8%-15.8%-14.5%-3.9%-2.6%0.6%
ICE BoAML 3-Month US TBill0.6%1.8%2.4%1.5%1.0%0.6%
QTDYTD1 year3 years5 yearsSince inception
Fund-3.8%-15.8%-14.5%-3.9%-2.6%0.6%
ICE BoAML 3-Month US TBill0.6%1.8%2.4%1.5%1.0%0.6%
2018201720162015201420132012
Fund8.9%-8.3%11.0%-5.4%-0.3%12.0%-3.9%
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
8.9%-8.3%11.0%-5.4%-0.3%12.0%-3.9%
1.9%0.9%0.3%0.0%0.0%0.1%0.1%

Portfolio (as of September 30, 2019)

Benchmark: MSCI World
Position Details
Fund
Cash39,086,082
Market value (long)62,591,904
Market value (short)-62,417,152
Net positional value174,751
NAV39,260,833
Fund
Net exposure0.45%
Leverage3.18
Long positions 89
Short positions 132
Total221
Fund Characteristics
Long portfolioShort portfolioBenchmark
No. of exposures 89 132 1650
Weighted avg. market cap (US $MM)$54,793$10,517$152,644
FY2 price/earnings9.716.315.3
Price/book value1.41.62.4
Return on equity (%)18.26.419.5

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
Roche Holding AG3.21%
Koninklijke VolkerWessels NV3.19%
Genworth Mi Canada3.19%
Manulife Financial3.16%
Brixmor Property Group, Inc.3.15%
British American Tobacco plc3.14%
SSE Plc3.13%
FirstEnergy Corp.3.12%
Daily Mail & General Trust Plc3.12%
KDDI Corp.3.10%
Top 10 Short Exposures
CompanyEnding weight
CoreSite Realty Corp.-3.25%
Umicore-3.22%
Beazley Plc-3.19%
Bâloise Holding AG-3.14%
Aqua America, Inc.-3.13%
Markel Corp.-3.06%
Bayerische Motoren Werke AG-3.02%
Houlihan Lokey, Inc.-3.02%
AusNet Services Ltd.-3.02%
Daimler AG-2.93%
Sector Exposure
SectorLong exposureShort exposureNet exposure
Communication Services13.6%-6.2%7.48%
Health Care12.2%-7.3%4.93%
Industrials26.6%-22.1%4.54%
Information Technology19.0%-15.1%3.92%
Energy8.3%-7.0%1.37%
Consumer Discretionary14.5%-14.3%0.14%
Materials10.7%-12.7%-1.96%
Financials31.7%-35.6%-3.91%
Consumer Staples4.0%-8.9%-4.87%
Utilities9.9%-15.1%-5.19%
Real Estate8.8%-14.4%-5.57%
Country Exposure
CountryLong exposureShort exposureNet exposure
China8.5%-2.5%5.96%
Canada13.5%-8.3%5.15%
Switzerland8.2%-3.4%4.80%
Japan22.4%-18.1%4.31%
United Kingdom17.1%-13.4%3.73%
Netherlands3.2%0.0%3.19%
Sweden3.0%0.0%3.03%
Italy2.0%0.0%1.95%
New Zealand1.5%-0.3%1.21%
Austria1.1%0.0%1.09%
South Korea10.3%-9.9%0.32%
Israel0.0%-0.2%-0.24%
Spain0.0%-0.7%-0.73%
Belgium1.8%-3.2%-1.42%
Portugal0.0%-2.1%-2.08%
France3.1%-5.8%-2.76%
Norway0.0%-3.1%-3.10%
Singapore1.1%-4.6%-3.59%
Hong Kong0.0%-4.8%-4.78%
Australia2.5%-7.6%-5.03%
Germany4.0%-9.0%-5.06%
United States56.2%-61.3%-5.07%
Regional Allocation
Long exposureShort exposureNet exposure
Europe - Other28.4%-19.9%8.5%
North America69.7%-69.6%0.1%
Developed Middle East0.0%-0.2%-0.2%
Pacific46.3%-47.9%-1.6%
Euro15.1%-20.9%-5.8%

Commentary (As of September 30, 2019)

Highlights

  • After contracting in July and August, developed equity markets rebounded in September, likely responding to a significant move upward in global bond yields. In September, momentum-driven “quality-growth” stocks ceded market leadership to stocks with strong value and cyclicality characteristics.
  • With low-to-no cost of financing, governments in Europe and elsewhere may decide to amplify fiscal spending. Without fiscal intervention, a vicious cycle of nil return in savings forces aging European and Japanese populations to save even more, adding to demand for fixed income, and pushing interest rates lower.
  • Stock markets have a history of discounting future events long before they occur. We suggest that most cyclical stocks priced in a recession by the end of August and are now moving upward on the hint of fiscal spending and recovery.

Portfolio attribution

After contracting in July and August, developed equity markets rebounded in September, likely responding to a significant move upward in global bond yields after a precipitous 2019 decline. Importantly, in September, momentum-driven “quality-growth” stocks ceded market leadership to stocks with strong value and cyclicality characteristics. The top performing markets in our investable universe were Israel, Japan, Sweden, the United Kingdom, and Spain. The worst performing markets were Denmark, Hong Kong, China, South Korea, and New Zealand. The best performing sectors in the World Index were financials, energy, and utilities. The worst performing sectors were health care, communication services, and consumer staples.

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 September, our value and financial strength factor categories demonstrated predictive power. Stocks with cheap valuations outperformed those with expensive valuations and stocks demonstrating higher earnings quality outperformed those having lower earnings quality. However, returns to our growth and technical factors were negative as stocks with improving earnings growth dynamics underperformed those with worsening dynamics, and stocks with positive technical indicators underperformed those with negative technical indicators, in each case contrary to expectations.

Investment outlook

We believe that fundamentals do prevail over the long-term…it is just very difficult to know when the market will turn. September witnessed a chain reaction of cheap stocks, often in cyclical industries, attracting bargain hunting – which, in turn, attracted more buying. Stock markets have a history of discounting future events long before they occur. We suggest that most cyclical stocks priced in a recession by the end of August and are now moving upward on the hint of fiscal spending and recovery. As part of our fundamental research process, our team has intensified efforts to get managements to commit to specific plans to improve earnings and returns on capital. We are holding company managements’ collective “feet to the fire,” measuring their progress and holding them accountable to their operational restructuring plans.

On an aggregate long/short portfolio basis, we are maintaining a near market-neutral posture, with 0.88% 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 communications services and health care, where we have significant positive net exposure, and against real estate and utilities, where we have meaningful negative net exposure. By geography, we are net biased toward China and Canada, and biased against the United States and Australia. Gross exposure (leverage) for the Fund is 318% (3.18x) as of September 30, 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$0.8637$0.0000$0.0000
2017$0.0000$0.0000$0.0000
2016$1.0639$0.0000$0.0000
2015$0.3553$0.0000$0.0000
2014$0.0000$0.0000$0.0000
2013 $0.412 $0.000 $0.000
2012 $0.258 $0.000 $0.000
2011 $0.094 $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: