Litman Gregory Masters High Income Alternatives Fund
Litman Gregory Masters High Income Alternatives FundMAHIX, MAHNX - Open for Investment on 9/28/2018
The Litman Gregory Masters High Income Alternatives Fund (the "High Income Alternatives Fund") seeks to generate a high level of current income from diverse sources, consistent with the goal of capital preservation over time. Capital appreciation is a secondary objective.
Key Fund Attributes/Characteristics
The fund is sub-advised by skilled, experienced managers executing differentiated income-oriented strategies focused on non-traditional and/or less efficient market areas. The fund seeks to generate high current income relative to the Bloomberg Barclays Aggregate U.S. Bond Index, with volatility that is typically less than high-yield bond indexes.
We have designed the fund to provide each manager with a high degree of flexibility to implement their strategies. The multi-manager structure allows each sub-advisor to take full advantage of compelling opportunities in their pursuit of high income, while achieving broad diversification at the overall fund level.
- Access to alternative sources of income that investors may not otherwise own
- Seeks high level of income without taking unnecessary risk or reaching for yield
- Leverages Litman Gregory’s expertise investing in income-generating strategies beyond traditional core fixed-income
- Leverages Litman Gregory’s access to top-tier investment managers
The fund’s role in a portfolio
The fund is best viewed as a complement to traditional fixed income allocations, seeking a goal of returns significantly higher than core fixed income with low correlation and less interest rate sensitivity, but higher volatility.* The fund can serve as part of an investor’s diversified fixed income allocation, or as part of an alternative strategies allocation.
Strategy: Alternative Equity Income
Target Allocation: 15%
The strategy invests in specialty income-generating public securities, primarily business development companies (BDCs), mortgage real estate investment trusts (mREITs), master limited partnerships (MLPs) and related infrastructure corporations, and selectively in credit-based closed end funds (CEFs) trading at discounts to net asset value and other opportunistic income investments. The long-term average sector allocations (exclusive of opportunistic positions) are expected to be approximately 60% to BDCs, and 20% each to mREITs and MLPs, although the portfolio managers have significant latitude to over- or underweight sectors based on their assessment of the risks and opportunities within their investment universe.
Brown Brothers Harriman (BBH)
Strategy: Credit Value
Target Allocation: 32.5%
An absolute-return-oriented strategy that can invest across a wide variety of sectors, but will primarily hold asset-backed and corporate securities. The emphasis is expected to be on A/BBB-rated asset-backed securities, and BBB/BB-rated corporate securities, as these ratings segments have historically offered attractive risk-adjusted returns, along with low default rates, and limited drawdowns. Should opportunities arise in lower-quality segments, the strategy has the flexibility to invest in those securities, though the sub-advisor will rarely own CCC-rated or distressed securities. The portfolio is built from the bottom-up, i.e., value opportunities drive portfolio construction. To qualify for the portfolio, credits need to be able to withstand a wide range of economic conditions, be well-managed, have an appropriate capital structures, have adequate transparency, and be attractively valued. The portfolio is relatively concentrated (approximately 80 holdings) in opportunities believed to offer the best risk-adjusted returns. The sub-advisor may invest in U.S. Treasury futures to manage duration, which allows security selection to be managed independent of portfolio duration.
Target Allocation: 32.5%
An unconstrained, income-focused strategy that seeks attractive risk-adjusted returns in all market environments. It is not constrained by duration and has the flexibility to invest across the fixed-income market, including, but not limited to, corporate bonds, loans and loan participations, structured finance investments, U.S. government and agency, mezzanine and preferred securities and convertible securities. The strategy has the flexibility to move up and down in credit-quality, and across issuers’ capital structure. The majority of the portfolio will be in securities and sectors not held in traditional core bond indexes. The strategy’s asset allocation is constantly evaluated from a number of levels including a top-down view, bottom-up credit perspectives, and a dedicated portfolio construction group. These groups continually work together to identify the best relative values in the market based on their macroeconomic views and credit market conditions. One of the main dials utilized in managing the portfolio’s risk, is credit exposure. In strong markets, exposure to credit risk will increase, as will exposure to credit sectors with greater beta, and vice versa.
Strategy: Option Income
Target Allocation: 20%
The strategy writes out-of-the-money put options on U.S. stock indices, primarily the S&P 500® Index and the Russell 2000® Index, and invests the collateral in a portfolio of short-duration U.S. government securities. Income comes from both the receipt of option premia, as well as from interest earned on the collateral. The team diversifies the option portfolio across multiple dimensions (e.g., strike price, expiration date) to reduce path dependency and manage risk, while also attempting to increase capital efficiency in rising equity markets by buying back low-value options and recycling the proceeds into new higher-premium positions.
Monthly and Quarterly Performance as of 12/31/2018
|Average Annual Total Return|
|Monthly and Quarterly Performance as of 12/31/2018||One Month||Year to Date||12 Month Total Return||3 Year Average||5 Year Average||Since Inception 9/28/18|
Litman Gregory Masters High Income Alternatives Fund (Institutional Class 9/28/18)
Litman Gregory Masters High Income Alternatives Fund (Investor Class 9/28/18)
Bloomberg Barclays Aggregate Bond Index
HFRX Fixed Income – Credit Index
ICE BofAML U.S. High Yield TR USD Index
|Distribution and or Service (12b-1) Fees||None||0.25%|
|Total Annual Fund Operating Expenses||1.10%||1.35%|
|Fee Waiver and/or Expense Reimbursement2||0.12%||0.12%|
|Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2||0.98%||1.23%|
1 - “Other Expenses” have been estimated for the current fiscal year. Actual expenses may be different.
2 - The expense ratios can be found in the most recent Summary Prospectus (9/7/2018). The Advisor has contractually agreed to limit the Fund’s operating expenses (including management fees payable to Litman Gregory but excluding any taxes, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, borrowing costs (including commitment fees), dividend expenses, acquired fund fees and expenses and extraordinary expenses such as but not limited to litigation costs) through April 30, 2020.
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the fund may be lower or higher than the performance quoted. Investment performance reflects fee waivers in effect. In the absence of such waivers, total return would be reduced. Short term performance is not a good indication of the fund’s future performance and should not be the sole basis for investing in the fund.
The Litman Gregory Masters High Income Alternatives Fund will launch on September 28, 2018. Fund data will be posted mid-January 2019.