Most mutual funds based in Orange County yielded a very good 2017 indeed.
“Our portfolio optimization fund had a great year,” said Carleton Muench, vice president of investment oversight and a portfolio manager at Newport Beach-based Pacific Life Insurance Co.
All of the 38 funds tracked by the Business Journal reported a positive year. Twenty three topped their benchmarks, and 14 finished in the top 25 quartile, according to Morningstar.
Six funds beat the 22% total return of the S&P 500.
Separately, Newport Beach-based Pacific Investment Management Co., also known as PIMCO, reported that 99 of its 101 mutual funds posted positive returns (see separate story, this page).
The 38 funds, except for PIMCO, are relatively small, most with fewer than $100 million in assets. They collectively manage about $1 billion. Typical funds are part of wealth management firms that invest billions of dollars for clients, usually in other funds or investments.
One of the most impressive performances was the 21.2% return of Irvine-based Affinity Investment Advisors’ Small Cap fund (AISQX). While it has a relatively small amount of assets—$9.4 million—it beat its small-blend category by 8.86 percentage points to gain a No. 3 Morningstar ranking.
“Undervalued companies that had strong fundamentals did really well, and that spanned a lot of sectors,” said founder and portfolio manager Greg Lai, explaining his fund’s performance. He named industries such as homebuilding, regional banks and biotechnology.
“Active managers will generally beat the passive,” said Lai, whose Irvine-based firm has $1.1 billion in assets under management. “Small cap is where you’ll see that.”
He said Affinity will launch an exchange-traded fund in a few weeks that uses Smart Beta to invest globally.
PacLife
Pacific Life funds gained three of the top 10 spots.
Muench’s fund, which manages $350 million, reported a 19.2% return, beating its category by 0.75 percentage points and its moderate target risk total return benchmark by 4.50 percentage points, according to Morningstar. The fund performed well because managers allocated a higher percentage to equities, 90%, particularly in foreign markets where the decline of the U.S. dollar aided the return, Muench said.
“The big driver was equity allocation,” he said. “2017 was a favorable year for stocks globally. We see the opportunity continuing in 2018.”
The biggest return was reported by WCM Investment Management’s International Small Cap Growth, which reported a 42.4% return, beating its category by 6.16 percentage points and ranking No. 7, according to Morningstar.
Its biggest holdings as of Sept. 30 were Start Today Co. Ltd., a Japanese internet retail firm, and Nihon M&A Center Inc., a Japanese mergers and acquisitions brokerage.
Three of the four best-performing funds belonged to WCM, a Laguna Beach-based firm with $14 billion in assets under management. Messages left for co-owners Paul Black and Kurt Winrich weren’t returned.
Schiff Again
Taking third place was EP Emerging Markets Small Companies (EPASX), which belongs to the Peter Schiff-founded Euro Pacific Capital Inc. in Newport Beach. EP returned 34.4% and beat its category by 3.91 percentage points. It received a 53 ranking last year.
One fund falling back to earth was Schiff’s EuroPac International Value Fund (EPIVX). Even though it returned 15.1%, the fund, which has Newport Beach operations, declined from first place on the Morningstar ranking in 2016 to No. 92. The big reason for the downfall was underperformance of its category by seven percentage points after beating it by 14.7% in 2016.
The fund, which invests in undervalued companies in foreign countries, typically does best with a falling dollar, which did decline about 10% last year.
During an interview last April with the Business Journal, Schiff, who hosts his own radio show, predicted a major disaster similar to 2008 in coming years.
AFAM Capital, an Aliso Viejo company that publishes one of the nation’s preeminent stock newsletters, reported a 17.8% return on its Al Frank Fund Class (VALUX), which beat its category by 1.88 percentage points and gave it a No. 30 ranking. It ranked No. 11 on the Business Journal’s list, just missing the top 10.
Last June, the Business Journal profiled portfolio manager John Buckingham, editor of the Prudent Speculator, which last year Barron’s proclaimed “The Little Newsletter that Crushed the Market” during its 40-year history of predictions.
