Barron's: Pitching ... What It Should Be Ditching?

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Aug 10, 2015

Why recommend this serial disappointer?

There are a huge number of mutual funds and ETFs available for investors to choose from. You would expect that a product featured positively in Barron’s would be a stellar one, worthy of readers’ interest.

Take a look at this week’s selection and ask yourselves why columnist Sarah Max picked out the Litman Gregory Masters Alternative Strategies Fund (MASNX) to highlight. Here is its teaser as shown on Barron's latest issue’s index page.

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Jeremy DeGroot, the manager of this fund, apparently works hard simply picking other managers to actually invest his shareholders’ money. 100% of MASNX’s capital was allocated between five well-known managers, each utilizing a different investment philosophy.

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In theory, that could lead to superior results. That did not, however, prove to be the case over the first 46 months of operations.

The guaranteed side effect of hiring outside managers is the burden of an extra layer of fees. Not surprisingly, MASNX sports a pretty high, 1.74%, expense ratio. On Aug. 8, 2015, the benchmark 10-year U.S. Treasury Note was paying just under 2.17%. This fund’s frictional administrative costs would almost completely wipe out that kind of yield.

In a zero interest rate policy (ZIRP) world, high fees can be a major drag on results.

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MASNX’s operations began on Sept. 30, 2011, giving us a glimpse at almost four years of performance data. Barron’s was nice enough to insert a link to see all the details.

http://online.barrons.com/fund/snapshot.html?symbol=MASNX

Here are some additional important highlights taken directly from the linked information.

Did the high expenses pay dividends in terms of total return? What do you think?

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MASNX failed to keep pace with the broad market during 2012, 2013 and 2014. The chart from the September 2011, inception month indicates that it didn’t even match the low bar for its peer group. From inception through mid-year 2015, the fund had shown a lackluster 4.42% annualized after-tax return while the broad market surged.

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Are you wondering yet why Barron’s thought to praise this fund? Perhaps Barron’s was impressed by Lipper’s "Leader Scoreboard" ratings. Those scores cover five different investment attributes. The ranks run from 1 (lowest) to 5 (highest).

MASNX garnered Lipper’s top rating in "preservation." Fair enough, as the fund has not suffered any losing years.

The fund got an above-average grade for consistency. From what I can see, MASNX consistently lagged the market in a very big way.

Knowing its numbers, the fund’s higher-than-average "total return" rating remains an enigma. I wonder what it would have taken to earn a "below median" ranking.

Ditto the average score concerning "expense." Lipper did feel obligated to note the fund’s low tax efficiency without adding any fudge factor.

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There you have it. The Litman Gregory Masters Alternative Strategies Fund hasn’t done anything since inception to make me even remotely want to own it.

If you want to understand this week’s positive write-up you’ll have to ask Sarah Max to explain her reasoning.

Discloser: I have no position in MASNX