Effective October 15, 2020 we are merging the PartnerSelect Smaller Companies Fund into the PartnerSelect SBH Focused Small Value Fund. We believe this is the best option for shareholders.
PartnerSelect SBH Focused Small Value Fund will be the surviving fund, and shareholders of the Smaller Companies Fund will receive Institutional Class shares of the SBH Focused Small Value Fund equal to the value of their shares of the Smaller Companies Fund. We believe this will not be a taxable event for shareholders. This consolidation reflects Litman Gregory’s ongoing commitment to ensure that shareholders have access to products that are relevant, competitive, and reflect our best thinking.
The SBH Focused Small Value Fund was launched on July 31, 2020 and has the same investment objective and similar investment strategy, policy, risks, and restrictions of the Smaller Companies Fund. Furthermore, the sub-advisor of the SBH Focused Small Value Fund has successfully managed one-third of the Smaller Companies Fund for over three years. We are highly confident in the abilities of the two SBH portfolio managers, Mark Dickherber and Shaun Nicholson and we are excited to preserve shareholders’ access to their portfolio-management expertise.
More broadly, we think SBH Focused Small Value Fund exemplifies everything we have set out to do with the new PartnerSelect family. It provides shareholders access to a team in whom we have exceptionally high confidence running a distinct and compelling strategy. The strategy was created with our encouragement over six years ago and has a very successful track record. To demonstrate our commitment to preserving the manager’s ability to maintain their investment focus on a limited number of small-cap companies, capacity for this fund will be very limited. Far too often the assets under management of successful small-cap managers get too large and dilute the investment edge that led to our initial confidence.
A driving factor behind the merger is the pending retirement of one the Smaller Companies Fund’s investment managers. Dick Weiss of Wells Capital Management, who has been on the fund since its 2003 inception and generated strong absolute and relative performance, announced that he will be retiring in mid-October. We have the highest appreciation and admiration for Weiss’s years of portfolio management and we wish him the best in his retirement. However, after evaluating options, we decided not to seek a replacement for Weiss. Another important factor is that the expenses in the Smaller Companies Fund are elevated due to its small asset base. The SBH Focused Small Cap Value Fund will have lower expenses at inception and we, in partnership with SBH, have agreed to limit the expenses on the fund through at least April 2022 giving the fund’s assets time to grow.
Finally, by consolidating the two funds instead of liquidating the Smaller Companies Fund, we are also allowing shareholders to make the decision as to when to recognize their individual capital gains or losses in the fund if they choose not to remain invested. Also, by transferring accumulated capital losses and net unrealized losses in the Smaller Companies Fund to the SBH Focused Small Value Fund, we expect to preserve these tax losses into the future for the benefit of shareholders rather than lose them in a liquidation. For taxable investors the consolidated fund’s ability to offset future gains is a positive.
We encourage shareholders of the Smaller Companies Fund to maintain their investment in the SBH Focused Small Value Fund, as we ourselves will do (Litman Gregory employees and clients own a meaningful percentage of the fund). We believe the small-cap space is an area where active management can exploit pricing inefficiencies and identify compelling returns. We are extremely confident in the SBH team and encourage anyone wanting more information or having questions to contact us. We believe if you take the time to look closely at the SBH Focused Small Value you will share our confidence.