Litman/Gregory Fund Advisors
are searching for a new sub-adviser to absorb the excess flows that may result from the re-opening of its Masters' Select International Fund
Net redemptions have caused the fund, which was closed in 2004 as it reached $1 billion in assets, to re-open. Performance is said not to be the cause of the net redemptions.
Effective September 12, 2007, Litman/Gregory Fund Advisors has
re-opened the Masters' Select International Fund. Originally launched
on December 1, 1997, the fund closed to most new shareholders on
October 27, 2004 when it reached $1 billion in assets.
We are re-opening the fund in response to a lengthy period of
shareholder redemptions-in 12 of the past 15 months the fund has
experienced net redemptions. This has occurred despite the fund's
strong performance both relative to benchmarks and its peer group (see
table at the end of this announcement), and is partly the result of
the lack of inflows to offset naturally occurring redemptions. We
believe net outflows are not in the best interests of existing
shareholders because they force trading that results in additional
transaction costs and can trigger taxable gains.
positive cash flows give the sub-advisors an opportunity to reposition
their portfolios by regularly providing fresh cash that can be
deployed into their most attractive holdings. Without positive cash
flows this would have to be achieved by liquidating existing positions.
Following Masters' Select International's initial close three years
ago, at first there were strong cash flows from existing shareholders.
Because the flexibility of our small-cap and all-cap managers can be
impacted by too much asset growth, we realized we could be forced to
"hard close" - meaning that even existing fund shareholders wouldn't
be able to add to their holdings. For that reason we began looking for
an additional sub-advisor who would be able to absorb the bulk of the
excess flows so that a hard close would not be necessary. We have
written about this idea in several shareholder reports, and noted that
it would require finding a manager who meets the very high standards
we have set for Masters' managers, and whose investment style does not
materially alter the generally neutral overall style of the fund.
Despite the recent redemption history we remain concerned that a
period of strong flows from existing shareholders could happen again,
possibly necessitating a hard close. Though this is not an issue now,
we have continued to look for an additional sub-advisor and expect to
make an announcement in the very near future.
But for now, because we believe the ideal cash-flow situation for
Masters' Select International is characterized by small positive
flows, the concern is the need to stem the existing outflows. For this
reason we believe re-opening the fund is the right thing to do. If
this results in inflows that are too strong over a sustained period we
will partially or fully close the fund again.
Some shareholders may wonder why we would re-open the fund given an
asset base that is quite a bit higher than it was when we closed the
fund (appreciation has been the primary driver of the asset growth).
Though the fund's asset base is small compared to many other
successful and established international funds, we remain sensitive to
When we originally closed the fund we anticipated continued asset
growth from appreciation and small asset inflows from existing
shareholders. The negative flows over the past 15 months led us to
revisit capacity discussions with our sub-advisors. The backdrop for
these discussions was our objective to maximize long-term returns and
our unwillingness to risk performance in exchange for more assets.
Based on these discussions, we believe that the fund can handle
approximately $10 million per month of net inflows on average (or, on
a temporary basis, a somewhat larger number if we add another
sub-advisor). This amounts to about 6% growth in the fund's asset
base per year. Sub-advisors with less capacity are targeted at a lower
allocation of fund assets and will receive a smaller portion of these
inflows (consistent with their already existing target allocations).
The absolute dollar amount they would receive if the fund is
experiencing flows at this level would be well within their limits.
For now, the fund will remain open unless, in the judgment of
Litman/Gregory in conjunction with feedback from the fund's
sub-advisors, cash inflows reach a level that could be detrimental to
As always, we appreciate your confidence in investing with us in the
Masters' Select Funds, and we will continue to focus on our goal of
delivering superior long-term returns for all of the Masters' Select
Past performance is not a guarantee of future returns. The investment
return and principal value of an investment will fluctuate so 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. To obtain the performance as of the most
recently ended calendar quarter, please visit www.mastersfunds.com.
The Fund imposes a 2% redemption fee on shares held less than 180
days. Performance does not reflect the redemption fee. If reflected,
performance would be lower.
Morningstar, Inc is an independent mutual fund research and rating
service. Each Morningstar category represents a universe of funds
with similar investment objectives. Rankings for the periods shown
are based on fund total returns with dividends and distributions
reinvested and do not reflect sales charges. The highest percentile
rank is 1 and the lowest is 100.
Must be preceded or accompanied by a prospectus.
Gross expense ratios are per the Prospectus dated April 30, 2007. Net
expense ratios are per the Semi-Annual Report dated June 30, 2007.
Through December 31, 2007, Litman/Gregory has contractually agreed to
waive a portion of its advisory fees effectively reducing total
advisory fees to approximately 0.97% of the Fund's average daily net
Mutual fund investing involves risk. Principal loss is possible. The
Fund may invest in foreign securities. Investing in foreign securities
exposes investors to economic, political and market risks and
fluctuations in foreign currencies. The Fund may invest in smaller
companies, which involve additional risks such as limited liquidity
and greater volatility.
Litman/Gregory Fund Advisors, LLC has ultimate responsibility for the
performance of the Masters' Select Funds due to its responsibility to
oversee the Funds' investment managers and recommend their hiring,
termination and replacement.
S&P Citigroup PMI Global (ex US) Index is a broad based index that
represents the largest 80% of investable companies in 52 developed &
emerging market countries.
Cash flow measures the cash generating capability of a company by
adding non-cash charges (e.g., depreciation) and interest expense to
Masters' Select Funds are distributed by Quasar Distributors, LLC.
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