Terror-Free Investing edit
Monday, January 27, 2014 04:38

Tags: investing | investment strategies | iran | momentum investing | mutual funds | world economy

Many clients are concerned about the type of investments held within their mutual funds. For these clients, we might offer a "socially responsible" fund. But what does "socially responsible" mean?  Each fund will have its own particular set of screens, which may or may not agree with a particular client's requirements. Considering the costs, variability of screens and performance uncertainty, many of us simply discourage our clients from utilizing these funds. 

But, what about investments in terrorist countries?  

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Sure, we won't put our clients in a North Korea arms fund, but how about a mutual fund that invests in companies doing business in terrorist countries? According to investment advisor Mark Langerman, with the exception of his Patriot Fund, "terror-free" funds simply don't exist. 
After attending an American Israel Public Affairs Committee (AIPAC) conference in Washington DC in 2007, Langerman became aware that almost all mutual funds hold investments in companies that do business in sanctioned terrorist countries. According to Langerman:
  • Over 10% of the S&P 500 ($1.4 trillion of the market capitalization) is considered to be terror-infected stocks.
  • 8 out of the 10 sectors in the S&P 500 contain companies that operate in countries identified as State Sponsors of Terrorism.
  • Companies operating in terror states could be at risk of significant loss because of the instability in these regions.
  • As the U.S. is fighting a war on terror, some U.S. companies are providing resources that help the opposition.
Over the following couple of years, Langerman learned more about sanctions and the futility of trying to convince mutual fund managers to divest of these investments. Discovering that fund managers and separate account managers simply didn't have the ability to look into each company's business activities, Langerman hired experienced managers to build the Patriot Fund (TRFTX) - a U.S. large cap mutual fund without any investments in companies connected to U.S. designated state sponsors of terror: Iran, Syria, N. Korea, Sudan. 
Mirroring their long-successful SMA value momentum strategy, now excluding terrorist investments, Ascendant Advisors, LLC opened the Patriot Fund with Langerman in March 2012. Offering A, I and C shares, the Patriot Fund currently has investments of about $13 million. The goal of the fund is to deliver competitive returns while putting pressure on companies to stop doing business in terrorist countries. The fund has a high expense ratio of about 2 percent. In spite of this, returns have been impressive - the fourth quarter 2013 return was 11.61% and the full year 2013 return was 28.58%.
Langerman believes that terror-free investing will ultimately produce excess returns. In his opinion, these countries' economies are not sustainable since they need other countries' support in order to survive. The fund draws no distinction in terms of degree of involvement. Says Langerman, "Even small amounts of revenue ...where does it go?" 
I don't typically write about particular mutual funds. In this case, I'm doing so because of the moral dilemma. Is it right for us as advisors to promote indirect investments in terrorist countries? Should our clients be informed?  Is the Patriot Fund worth considering for clients? 
If you have clients that feel strongly about terror-free investing, you might take a look at the Patriot Fund. For me, before considering any investments for my clients, I will research the manager's track record as well as the fund's prospectus. Even assuming these pass muster, I would only use a new fund like this for clients who express a keen interest and are willing to assume the risk.  
For more information on the Patriot Fund, go to 
Energy Investing Webinar: Small Turnout But A 4.1 Rating And A Subject Some Of You Will Love To Learn More About edit
Friday, December 06, 2013 18:58

Tags: energy | investing | LPs | MLPs | oil | private deals


It was a relatively small turnout for today’s A4A with BJ Willingham. But that’s the strength of what we’re doing here on A4A. We’re covering topics in depth that are not necessarily wildly popular, but that advisors need to know about, and practitioners won’t find these highly focused looks at specific topics in financial planning anywhere else.    
One mean-spirited commenter said something about Willingham that you should ignore. But since I have never censored these comments and have never deleted any negative comments, I’m letting it go. Let me know if you think that’s the right thing to do.
For me, the best part of the session was toward the end, when Willingham talks about the long cycles that have characterized energy production and prices over the past century. That’s an original idea and makes a lot of sense.

Willingham, A Yale and Wharton graduate with a CFA and an understanding of the history of energy investing, applies three decades of experience about investing in energy deals in managing separate accounts, a long-short hedge fund, and a long-only portfolio for UHNWIs from an RIA in Houston.


Advisors with professionals credentials can see a replay of the session and get contining education credit. (Must be a member of A4A, which costs $60 a year).

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Here’s what attendees said in awarding him a 4.1 out of five rating:
  • Great!
  • One of the best I have attended due to presenter's obvious depth of knowledge in the sector.
  • The subject matter is a bit dry and if an advisor is not working in the realm of energy investing, then the information might be of limited use or applicability. However, for an advisor in this area, the topic is very timely and of great importance. Again, depending on your clientele and your business model this webinar could be of value. Thank you.
  • "Dinosaur, needs to test drive a Tesla.   Blowhard good old boy.
  • A4A can do better than this."
  • I'm prejudiced because B.J. Willingham works with us.
  • I thought it was informational, and insightful
  • A bit too much information
  • A lot of information, particularly industry-specific language or concepts, made this a bit difficult to follow. Having said that, I have had similar reactions to other energy sector presenters, so it's not so much a reflection on BJ as one of their world v. our world. :) I appreciate his efforts and will have to listen to the replay for further digestion of the information.
  • I enjoyed this and BJ did a great job without overwhelming with detail. Good pace of presentation - not too much material and the speed of presentation was good.
  • Extremely helpful
  • BJ is obviously a brilliant, knowledgeable analyst on oil and gas, but he is NOT an expert on Energy Investing broadly speaking. This should have been entitled "A Planner'sGuide to Oil and Gas Investing."
  • He went on a tangent on the topic. For a person not well versed, lost interest.
  • One of the best-extremely informative
  • Very narrow focus, not my favorite topic
  • If you are not a General Partner, then you cant take the tax deduction for IDC.
  • Idea: be a GP for year 1 and take the tax deduction, then convert your ownership to LP to reduce liability risk exposure.
  • The first MLP was Bicleye in 1982!!


Energy Investments Are Proliferating But Advisors Should Be Very Cautious edit
Friday, December 06, 2013 11:57

Tags: energy | investing | oil

With tax rates raising for the first time in many years and a secular trend in which energy demand is outstripping supply, direct investments, IPOs and other energy investments are springing up and that is likely to accelerate. Be very cautious.  

B.J. Willingham, who attended Yale and Wharton before embarking on a 35-year career as a portfolio manager and specializing in energy investing, says the world is in the middle of a “super-cycle” in energy prices, which lasts 10 or 15 years. It’s being driven by accelerating demand from less-developed countries, like China.

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According to Willingham, who is our speaker at at recent A4A webinar, the previous energy super-cycle was from 1970 to 1982. Two super-cycles occurred before that. One in the 1950s following World War II and rebuilding of Europe and in the 1920s, following the advent of the automobile.
Willingham, a CFA charterholder, says energy price cycles last a long time because it takes many years for capital to pour into the energy sector and build the capacity allowing energy supply to catch up with demand. “Once you’re well into the cycle, and people see handsome returns in the energy sector,” he says, “you start getting lots of investment opportunities pitched to the public.”
At the session today, Willingham will talk about how advisors can separate out the good energy investments from the bad ones.
This session is what A4A is all about, by the way. I asked some advisors for names of energy experts a few months ago because the trend toward higher taxes made it more likely that such deals would start popping up again. (I was around in the 1980s for the last cycle of bad deals.) Willingham, who manages separate accounts, a hedge fund and a long-only portfolio for UHNWIs and clients of advisors, says just this week two advisors contacted him asking him to look at direct energy deals. He urges caution on these deals, saying most of the direct investments are bad.


Placemark Investments Launches New Integration of Research and Analytics Available Through UMA Marketplace edit
Monday, October 21, 2013 13:38

Placemark Investments announced today that it is launching a new integration with AdvisoryWorld Financial Technologyanabling advisors to build portfolio solutions using AdvisoryWorld research and analytics.

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Within Placemark's UMA Marketplace platform, an advisor can directly access hypothetical illustrations and detailed analytics from AdvisoryWorld.  For advanced and custom analytical reports, advisors can also access client portfolios from UMA Marketplace on AdvisoryWorld's platform. UMA Marketplace has over 500 SMA managers offering more than 1,800 strategies.

Placemark, which manages more than $12 billion in assets, develops wealth management solutions including Unified Managed Account programs and other portfolio management outsourcing solutions, enabling Registered Investment Advisors to scale their business and focus on growth objectives. AdvisoryWorld is a data and analytics tool.   


Nine Funds Taxed As Regulated Investment Companies That Try To Keep Up To 25% Of Assets In Favorably-Taxed Master Limited Partnerships edit
Tuesday, September 24, 2013 17:48

A small number of open- and closed-end mutual funds and exchange-traded funds invest in master limited partnerships. Although all of them are regulated investment companies (RICs), most flunk the tax test to qualify for tax treatment as funds and they end up being taxed as corporations.
That’s because, according to Internal Revenue Code Section 851(b)(3)(B), a fund can't own more than 25% in MLPs and receive the tax treatment of a fund or ETF.
However, a small subset of these MLP funds strive to pass the tax test accorded funds while providing the maximum exposure allowed under law to MLPs.
Bob Gordon mentioned in a webinar last week that he had a list of nine MLP funds that try to avoid exceeding the 25% threshold, and his list is presented below.These nine funds try to invest up to 25% in MLPs but do not exceed the 25% limitation to avoid being taxed a corporations. 
Gordon, founder of 21st Securities, says two are ETFs, two are closed-end funds, and five are traditional open-end mutual funds, adding that all nine issue 1099s—not K-1s. The list of funds:
Cushing Renaissance Advantage Fund
Eagle MLP Strategy Fund (EGLAX)
Famco MLP & Energy Income Fund
Tortoise MLP & Pipeline-Inv
Cohen & Steers Mlp Income An
Salient MLP & Energy Infrast
First Trust North American E
Transamerica MLP & Ener-A
Global X MLP & Energy Infras
Gordon’s webinar can be replayed by A4A members, and you can receive CFP, CIMA or CPWA CE credit. Gordon provided a number of ways to minimize taxation by investing in the right kind of securities, showing, for example, how you can even a plain-vanilla S&P 500 investment can be purchased in several different ways and some ways receive more favorable tax treatment.   

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