A Boutique and its Parent Parade Their Precocious Toddler
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Wednesday, April 24, 2013

A Boutique and its Parent Parade Their Precocious Toddler

Like any parent of a precocious toddler, mutual fund firms love to parade their products once they hit the all-important three-year point.

Watch this toddler's kick, though.

Recently, David Schulz, president of Convergence Investment Partners, and Jennifer Rhodus national sales director at Convergence's parent Montage Investments, went on a three-day roadshow in New York to trumpet the Core Plus Fund, which turned three at the end of last year it was launched on December 29, 2009.

According to a company spokesperson, Schulz and Rhodus "spent a jammed-packed three days in New York meeting with advisors from UBS and Morgan Stanley, as well as various RIAs and members of the media."

But during this playdate, the proud parents were able brag a bit about this preschooler.

Since starting the fund three years ago, Convergence’s trailing three-year standing in Morningstar rankings in the Large Blend Category was the top 3 percent. It generated a 5-Star rating out of 1,474 funds.

Lipper, meanwhile, gave the fund a "5" in total return and consistent return, and a "4" for preservation.

The fund has outperformed the market every year since inception with the standout being 2011, when 85 percent of managers lost to their benchmarks. Convergence beat the market that year by 280 basis points.

Schulz recently explained to MFWire the significance of these rankings in the young fund rat race.
You have to get through these fiduciary checkoff boxes. Once you get any ranking, any third part ranking or endorsement, that helps a lot. People pay attention.
The fund is marketed as a "core plus" strategy, with a few twists.

The fund generally holds over 230 separate positions in a long and short portfolios, picking stocks from the top 1500 companies out of the Russell 3000.

The secret sauce of the fund, according to Schulz, is how the fund tracks and adjusts to shifting investor preferences during the course of a market cycle.

"We measure how investor preferences shift through the market cycle. These preferences change from each point in time because of everything that is going on in the market. At one point, it could be price, while at another it could be growth or low risk, and so on," Schulz said.

For example, the model for the long portfolio would measure what attributes investors are rewarding in the current market environment and then adjust factor weights by industry group to reflect these changing preferences.

The short portfolio, on the other hand, changes weights by measuring the attributes that are being punished by the market. "What our model does is we measure statistically what preferences and what attributes the market is rewarding and from that we change the weighting in our model," Schulz said.

The goal for now, keep pushing to get the fund on more platforms, of course. Meanwhile, Montage works on growing its sales army.

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