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CMG Capital Launches Global Macro Strategy Fund

CMG hit the market last month with its third alternative mutual fund: The CMG Global Macro Strategy Fund (MUTF: PEGAX ). The fund pursues its investment objective of capital appreciation by investing in global currency, government bond and equity markets. CMG Capital Management’s President and Chief Compliance Officer PJ Grzywacz and Head of Due Diligence and Investment Research Michael Hee are responsible for the day-to-day operations of the fund as its portfolio managers. Multi-Factor Approach CMG’s new fund combines a global macro strategy with a fixed-income strategy. The global macro strategy uses multiple factors and quantitative techniques to analyze macroeconomic and financial indicators to determine long and short positions to capture returns related to trends in currency exchange rates, equity indices and government bonds. The fixed-income strategy invests in investment-grade bonds and is designed to generate interest income, capital appreciation, and diversify returns from those of the global macro strategy. The fund’s strategy is “global” in that, under normal circumstances, it invests at least 40% of its assets in companies domiciled outside the United States. While the global macro strategy seeks exposure to foreign currency, equity index and government bond-linked securities, funds, and/or derivatives, it achieves these exposures by investing in limited partnerships, limited liability companies, pooled investment vehicles, and underlying funds. These underlying funds may include currency-, equity-, and government-bond-linked ETFs, mutual funds, futures, and swap contracts. Fund Details The CMG Global Macro Strategy Fund is “non-diversified,” which means it can invest a greater percentage of its assets in one issuer than a “diversified” fund can. Shares of the CMG Global Macro Strategy Fund are available in A (PEGAX) and I (MUTF: PEGMX ) classes. Investment management fees are 1.00%. The A shares have a 2.85% net-expense ratio and a $5,000 minimum initial investment. The I shares have a 2.60% net-expense ratio and a $15,000 minimum initial investment. For more information, view the fund’s prospectus . Jason Seagraves contributed to this article.

A Fund Selection Case Study

Recently, we received an inquiry as to why we did not use more Fidelity funds for the 401(k) plans that we manage. Specifically, we were asked why we did not include the Fidelity Select Biotech Portfolio (MUTF: FBIOX ), which has done well recently. We’ve written about how to select securities , but in this article, we are going to apply those principles to the process of selecting a specific fund for a specific sector of the economy . The decision is which fund we should select to represent healthcare. We use the Vanguard Health Care Fund (MUTF: VGHAX ), which is comprised of 82 different stocks. FBIOX is made up of 262 holdings. This measure would favor the Fidelity fund. Having more holdings is a sign of diversification for the fund. There is no such thing as over diversified , more holdings is better. For both of these funds, the top ten holdings of each fund represent 41% of the fund’s assets. This is not as diversified as it could be, but they are comparable in this way. Foreign stocks represent about 10% of FBIOX and about 20% of VGHAX. Neither of these percentages matter to our definition of the Healthcare sector, but if we were specifically targeting or avoiding foreign stocks with the sector, it would be relevant. Both funds have a 14-year track record. Fourteen years may seem long but is still an insufficient time period for long-term investing statistics. Even the S&P 500 is flat or down for a decade about 6% of the time. The fact that both healthcare funds more than doubled the return of the S&P 500 over this time period is not an indication that they will perform this way going forward. With those caveats in mind, here is how each fund performed. VGHAX had a better return over the fund’s histories. The return was both smoother and superior. A $10,000 investment in VGHAX grew to $45,335 vs. $43,435 for the Fidelity fund. Click to enlarge We specifically do not use how many Morningstar stars a fund has received. Morningstar themselves have done the analysis to show that selecting funds with low expense ratios is a better method of predicting superior future performance. The Vanguard fund has an expense ratio of 0.29% while the Fidelity fund has an expense ratio of 0.74%. This 0.45% difference in expense ratio is a hurdle that the Fidelity fund has to work to overcome. Yet when you compare the average annualized return of the two funds, it appears that the Fidelity fund has simply underperformed the Vanguard fund by the difference in expense ratios. Click to enlarge A final measurement is to see if the Vanguard fund had a superior return by taking additional risks. Risk is usually measured by measuring the standard deviation of annual returns. For the Vanguard fund, the standard deviation of its annual returns was 15.34% while the Fidelity fund’s standard deviation was 22.75%. Click to enlarge The Fidelity fund’s greater volatility is probably a result of having a larger percentage of its investments in mid and small-cap funds. The Fidelity fund has 47% of its holdings in large cap funds while the Vanguard fund has 89% in large cap. Mid and small-cap companies exhibit greater volatility even when you are diversified among hundreds of smaller holdings. Even though these two funds have very similar long-term returns, in the short term, they can be very different. Every month the delta between the return of each fund can be 10% or more in either direction. Here is a graph showing how much VGHAX outperformed or underperformed FBIOX each month. Click to enlarge We do look at a fund ranking system put out by the Center for Fiduciary Studies at fi360.com . Fi360 ranks funds from zero (best) to 100 (worst) within each sector. VGHAX has a three-year average ranking of 10, and FBIOX has 26. One of the fi360 criteria is that the fund’s Sharpe ratio must score in the top 50% of its peer group. Sharpe ratio is a measure of the historical return per amount of risk taken. The Fidelity fund scores poorly for having taken additional risk but not achieve a sufficient return to justify the risk taken. Other criterion used by fi360 include having 80% of its assets actually being invested in the target sector or style, a three-year track history, 75-million under management, and most importantly a relatively low expense ratio. These criteria provide a simple short example of how we go about fund selection and why we selected VGHAS over FBIOX for the 401(k) plans we manage.

2015 Asset Class Performance — Indexes, Sectors, Bonds, Commodities, Countries And Currencies

Monday marks the first day of trading in 2016, but before moving on, below is a look at the performance of various asset classes (price change, not total return) for the full year 2015 using key ETFs traded on U.S. exchanges. While December ended up solidly in the red for U.S. equities, if it weren’t for a strong Q4, major indices would have finished much deeper in negative territory than they did. Growth ETFs outperformed value ETFs by a wide margin in 2015, while large-caps outperformed small-caps as well. Looking at the ten S&P 500 sectors, we saw gains for Consumer Discretionary, Consumer Staples, Health Care and Technology, and losses for Financials, Industrials, Materials, Telecom and Utilities. Energy was in its own category altogether with a decline of 23.8%. For two years in a row now, the Energy sector has underperformed the S&P 500 by more than 20 percentage points. That has only happened to a sector versus the market five other times. Outside of the U.S., Brazil finished down the most with a decline of 43.45%. Canada was actually the second worst of the country ETFs shown with a decline of 25.5%. Japan was the biggest gainer at +7.83%. The broad commodities ETF ended 2015 down 27.59%, led lower by oil and natural gas. Gold and silver didn’t help either, though, as both fell 10%+. Finally, Treasury ETFs all closed lower than where they started the year, although on a total return basis they were slightly positive. Best of luck to all for a prosperous 2016!