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Market Beating Performance Helped This Market Neutral Fund Grow Assets

Low correlation to traditional asset classes has always been one of the appealing features of alternative investments, but with the S&P 500 Index posting double-digit successive gains of 15.9%, 32.2%, and 13.6% from 2012 through 2014, low correlation hurt more alternatives than it helped. Even in 2015, a year marked by out-sized volatility, the S&P managed to eke out a modest gain of 1.36%, while most alternative categories posted losses in the aggregate. But not the LMCG Global Market Neutral Fund (MUTF: GMNIX ). Its annual gains of 4.82% in 2015 smashed the S&P 500’s returns and beat Morningstar’s Market Neutral category average by 507 basis points, and those returns followed a solid 9.99% return in 2014. Top Performance in 2015 This solid performance no doubt helped the fund attract interest from investors, pushing its assets under management (“AUM”) above $100 million by early 2016. While the fund’s 2015 performance fell a bit short of Morningstar’s Fund Manager of the Year award winner in the alternatives category, the Vanguard Market Neutral Fund (MUTF: VMNIX ), it did beat out 87% of its competitors in the market neutral category. In fact, the LMCG fund spent much less time underperforming over the course of 2015 than did the Vanguard fund. Click to enlarge “The fund has gained early traction with sophisticated advisors, who are familiar with alternative mutual funds and feel comfortable using it for a variety of goals,” said LMCG CEO Kenneth Swan, in a recent statement celebrating the milestone. “Traditional ‘low-volatility’ options such as bond funds or allocating to cash may not deliver the overall return profile these advisors are seeking. We designed this fund to offer investors a different option: to potentially generate positive returns regardless of the market’s direction.” The fund’s stock-selection process uses quantitative methodology that’s been “time-tested over 15 years and stress-tested in extreme market selloffs.” The strategy seeks capital preservation and is designed to generate positive returns in any market environment. Macro bets are avoided, and the fund does not use leverage. Volatility Likely to Continue “Equity markets could continue to be volatile in 2016,” said Gordon A. Johnson, Lead Portfolio Manager of the fund. “Our fund is designed to generate alpha on the long and short side – both domestically and internationally – and strives to provide a smoother ride for the investor whether the volatility that we are seeing continues or subsides.” The LMCG Global Market Neutral Fund is available in institutional ( GMNIX ) and investor (MUTF: GMNRX ) share classes, with respective net-expense ratios of 1.60% and 1.85%, excluding certain expenses as outlined in the prospectus. The minimum investment for GMNIX is $100,000, while the minimum for GMNRX is $2,500. Past performance does not necessarily predict future results. Jason Seagraves contributed to this article.

Lipper U.S. Weekly Fund Flows: A Tale Of 2 Cities

By Tom Roseen During the fund-flows week ended January 27, 2016, markets continued their wild swings upon hearing conflicting market and economic news throughout the week. On Thursday, January 21, U.S. stocks got a shot in the arm, fueled by a rally in oil prices, despite news that crude inventories had risen the prior week, that weekly initial jobless claims had risen to their highest level since July, and that the Philadelphia Federal Reserve Bank’s manufacturing index remained in negative territory for the fifth month in a row. Hints of more stimuli by the European Central Bank and news that China’s central bank had injected more cash into the country’s financial system helped markets gain some footing. On Friday all three major U.S. indices posted their first week of plus-side returns for 2016 after oil prices rose to their highest levels in nearly two weeks and after a report showed that North American oil rigs’ output had declined slightly. Market participants cheered news that preliminary readings of the purchasing managers’ index were on the rise and that December existing-home sales rose a whopping 14.7%. Unfortunately, another major rout in oil prices weighed heavily on the markets on the following Monday, sending the Dow Jones Industrial Average down by triple digits as investors began to look for clues on the Fed’s outlook after the FOMC meeting adjourned on Wednesday. Nonetheless, U.S. markets rose once again after witnessing another rebound in oil prices and after learning about strong earnings reports from bellwether firms Sprint (NYSE: S ), P&G (NYSE: PG ), and 3M (NYSE: MMM ). The U.S. market shrugged off another round of large declines in China’s Shanghai Composite and cheered news that November U.S. home prices rose at their fastest pace in 16 months and that January’s consumer confidence index beat expectations. Despite the Fed leaving rates unchanged after its January FOMC meeting, some investors worried that it had left the door open for a March interest rate increase, even though it acknowledged that economic growth had slowed. That led the U.S. markets to suffer yet another round of declines on Wednesday. A rise in oil and news that new home sales had rebounded in December weren’t enough to push the markets higher. While investors were net purchasers of fund assets (including those of conventional funds and exchange-traded funds [ETFs]), injecting a net $16.6 billion for the fund-flows week ended January 27, the headline numbers were a little misleading. As might be expected, given the recent volatility, investors turned their backs on equity funds, redeeming $1.2 billion net for the week, but they padded the coffers of money market funds (+$13.9 billion), taxable bond funds (+$3.3 billion), and municipal bond funds (+$0.6 billion). For the first week in four equity ETFs witnessed net inflows, taking in $3.9 billion. Despite concerns over the FOMC announcement, authorized participants (APs) were net purchasers of domestic equity ETFs (+$3.8 billion), injecting money into that group also for the first week in four. They also padded-for the first week in three-the coffers of nondomestic equity ETFs (but only to the tune of +$107 million). Perhaps as a result of the strengthening oil prices and better-than-expected earnings news from stalwart U.S. firms, APs turned their attention to some big-name ETFs, with the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) (+$3.5 billion), the iShares Russell 2000 ETF (NYSEARCA: IWM ) (+$2.7 billion), and the iShares MSCI Japan ETF (NYSEARCA: EWJ ) (+$0.7 billion) attracting the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum the iShares Russell 1000 Growth ETF (NYSEARCA: IWF ) (-$0.7 billion) experienced the largest net redemptions, while the iShares MSCI Emerging Markets ETF (NYSEARCA: EEM ) (-$0.5 billion) suffered the second largest redemptions for the week. For the seventh week in a row APs padded the coffers of government/Treasury funds, injecting $3.7 billion for the week, their largest net inflows since February 4, 2015. Once again, in contrast to equity ETF investors, for the fourth week in a row conventional fund (ex-ETF) investors were net redeemers of equity funds, redeeming $5.1 billion from the group. Domestic equity funds, handing back $4.9 billion, witnessed their twelfth consecutive week of net outflows, despite posting a weekly return of 1.35%. Meanwhile, their nondomestic equity fund counterparts witnessed $0.2 billion of net outflows-suffering net redemptions for the first week in three. On the domestic side investors lightened up on large-cap funds and equity income funds, redeeming a net $2.3 billion and $1.0 billion, respectively, for the week. On the nondomestic side global equity funds witnessed $1.2 billion of net outflows, while international equity funds attracted some $1.0 billion. For the twelfth consecutive week taxable bond funds (ex-ETFs) witnessed net outflows, handing back a little over $2.6 billion for the week. Corporate investment-grade debt funds suffered the largest redemptions for the week, witnessing net outflows of $2.1 billion (for their tenth consecutive week of net redemptions), while corporate high-yield funds witnessed the second largest net redemptions (-$0.7 million). Despite the Fed’s leaving the door open for a March rate hike, bank rate funds-handing back some $0.7 billion for the week-experienced their twenty-seventh consecutive week of net outflows. In a flight to safety investors injected net new money into government mortgage funds (+$0.6 billion), government/Treasury and mortgage funds (+$0.4 billion), and government/Treasury funds (+$0.1 billion) for the week. For the seventeenth week in a row municipal bond funds (ex-ETFs) witnessed net inflows, taking in $502 million this past week.

There’s The Time Value Of Money – And There’s The Value Of Your Time

An underappreciated benefit of low-cost, index-based investing is the modest time involved. That is, in comparison to the time commitment associated with individual stock-picking or some other variant of active investment management. The low-cost, index-based approach gives an investor more time to enjoy other pursuits. Such as time with family and friends, a good book, music, charitable and civic activities, hobbies (what’s a hobby?)… and on occasion a nice glass of wine. Active investment management in contrast goes hand-in-hand with consistent if not constant dedication to general economic news, industry-specific business news, and company-specific news. Attention to all the topics, risks, and developments described in detail in Securities and Exchange Commission filings or other disclosure documents that few investors read in time-consuming detail. Attention that’s paid by oneself or by compensating another to pay that attention. (It’s commonly forgotten that the word “pay” in the phrase “pay attention” is literal. One pays with one’s time, a precious, perishable, and irretrievable item. A costly item.) “Found time” via indexing has value of course. Value that may be hard to quantify, but quantification matters little. Please remember this: the average human life span is less than one million hours. Concern yourself not with Chinese export trends and currency manipulation, Midwest factory capacity utilization, Janet Yellen’s disposition, Vladmir Putin’s territorial ambitions of the month, Apple’s iPhone sales during the most recently concluded quarter, the price of oil, or the like. Or whether that company of which you hold many shares of stock will successfully bid that contract, win that lawsuit, or get that drug approved. Instead, relax. Yes, index-based investing consumes time – just not much. For example, a little time is involved in prudent rebalancing. That’s time well spent. As is time taking advantage of opportunities to reduce one’s investment costs, as cost pressures on investment managers of all stripes continue to lower costs. And with “robo-advisors” and their increasingly sophisticated auto-pilot portfolios sprouting like weeds these days, the time commitment to be a responsible low-cost, index-based investor decreases even more. Unless an investor consumes the greater part of daily economic news for enjoyment or as a hobby – and seems that’s a tall order with today’s information proliferation – what’s not to like about time saved? Especially when coupled with low-cost, index-based investing that can be expected, as empirical studies time and again show, to yield higher risk-adjusted net returns.