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Alternative Mutual Funds on the Move

As alternative mutual funds are maturing, some of the key players are undergoing some serious transformations. In some cases, these changes are clearly to the benefit of shareholders, while for others, the jury is still out.

Josh Charney, 09/20/2012

Arbitrage's Move Toward Independence
Arbitrage Fund ARBFX has shuffled its board of trustees, dropping an interested person (Joel C. Ackerman) and adding an independent member (Robert P. Herrmann, chairman and CEO of Discovery Data, a financial services industry data provider). With this change, four of the five board members are now independent. The fund also added an independent advisor, Burton Lehman, to the board. Morningstar believes that an independent board offers the most shareholder-friendly experience.

The fund's old board, led by lead portfolio manager John S. Orrico, has demonstrated shareholder friendliness throughout the years, however. Fees have come down (the R share class is now 1.52%, down from 1.95% in 2009), and the fund has closed more than once (in 2004 and in July 2010) due to capacity constraints. The board should consider closing the fund again, as this smaller-capitalization merger arbitrage strategy's assets have grown to $3.2 billion, an all-time high.

MainStay Takes Marketfield
Contingent upon a shareholder vote, Marketfield MFLDX will be reorganizing under the MainStay platform and will change its name to MainStay Marketfield. The reorganization means that MainStay (and its board) becomes the advisor for the fund, having full jurisdiction over fees and subadvising relationships. Marketfield Asset Management remains the fund’s subadvisor, but the fund's operations management will land squarely in the hands of MainStay. 

Of course, these changes are not without increases in fees. Current shareholders will be moved to the new Institutional share class, which will keep the same expense ratio, but new investors looking for direct access to the I shares will have to pony up a $5 million minimum. The new A share class will charge a 12b-1 fee of 0.25%, increasing the expense ratio to 1.83% from 1.56%. 

A Better Future for Guggenheim Managed Futures?
Guggenheim Managed Futures Strategy RYMTX is changing its investment strategy after more than three years of dismal performance. Since its 2007 inception, the fund has tracked the S&P Diversified Trends Indicator Index (S&P DTI), which takes long and short positions in interest rates, currency, and commodity futures contracts according to a seven-month exponential moving average price indicator. This index posted 8.4% returns in 2008, but between December 2008 and June 2012, it lost 25%, almost double that of the average managed futures fund. 

The board voted on Aug. 21, 2012, to move approximately 20% of the fund into a global managed futures trading strategy. The global managed futures component will largely be based off of Guggenheim Global Managed Futures Strategy GISQX, a trend-following strategy that invests in global equity, sovereign debt, interest rates, currency, and commodity markets. Though the new fund launched in May of this year, it has slightly outpaced the average managed futures fund, as well as the DTI. Only time will tell if this move is a prudent one for the fund. 

Calamos in the Black
As of Aug. 31, 2012, Nick Calamos, co-CIO and portfolio manager on every Calamos fund, stepped down and relinquished his day-to-day duties at Calamos in order to pursue personal interests. Gary Black, founder of Black Capital LLC and former CEO of Janus, will join John P. Calamos, Sr. as co-CIO. Calamos Investments acquired Black Capital, which runs a long-short equity hedge fund and is in the process of launching a long-short equity mutual fund. Calamos currently offers only one alternative mutual fund, Calamos Market Neutral Income CVSIX, a 4-star fund in the market-neutral category. Nick Calamos will continue to serve on the board of directors.

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Josh Charney is an alternative investments analyst at Morningstar.
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