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Category Economy cars
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Created 2019-02-16
Owner freemexy
Title Manager Switch, Impending Distribution Spark Change in Bucket Portfolios
Description Manager Switch, Impending Distribution Spark Change in Bucket Portfolios The firm announced it was replacing longtime subadvisor Northern Cross with Marathon Investment Management at Harbor International (HIINX), a holding in my Model Bucket Portfolios for retired investors. Additionally--and relatedly-Harbor expects the fund to make a capital gains distribution of between $23 and $27 per share later this year. That amounts to a whopping 37% of the fund's current net asset value.SMB Gateway The fund has seen staggering redemptions amounting to an estimated $27 billion over the past three years, and those redemptions are likely the biggest driver of the distribution. (Senior analyst Kevin McDevitt discussed the news here.) When funds see outflows of that magnitude, that often forces management to sell long-held, highly appreciated positions, which in turn results in capital gains distributions. My Model Bucket Portfolios are geared toward investors' tax-deferred accounts, such as IRAs, and I've developed a separate set of Bucket portfolios geared toward retired investors' taxable assets. Additionally, Harbor International hasn't been officially downgraded by Morningstar's analyst team; the fund is currently under review, and a new rating should be available soon. Nonetheless, the combination of recent news prompted me to swap Harbor International for a different international fund for the Bucket portfolios: American Funds International Growth and Income (IGIFX). After consulting with our analyst team, I decided that that fund's value tilt and focus on dividends makes it a good fit for the Bucket portfolios, which are geared toward people who are already retired. And while some investors assume that American Funds are only available with sales charges, that's no longer the case: The F1 share class of the firm's funds is available without a load or transaction fee through major brokerage firms likeSchwab and Fidelity, and Vanguard. Harbor International has detracted from the portfolios' performance since their launch six years ago, underperforming both the foreign large-blend category average as well as the MSCI ACWI Ex-US Index during that time frame. But that's a fairly short time period by which to judge, especially given that the Northern Cross team in charge maintained an extremely long-term mindset for their investments. (Portfolio turnover was typically very low.) And in any case, the international-stock position in my Model Bucket Portfolios isn't huge, ranging from 15% for the Aggressive version to 10% for the Moderate portfolio to just 7% for the Conservative one. Thus, I was comfortable standing pat with the fund for the portfolios, despite the underperformance. Nonetheless, McDevitt had been keeping an eye on its volatility, as well as the fact that the fund hadn't distinguished itself on the performance front since longtime manager Hakan Castegren died in 2010. In a research report from October 2017, he noted that noted that some of management's opportunistic bets had weighed on performance, including an ill-fated bet on basic materials stocks. The fund was downgraded to Silver from Gold at that time.
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