iMGP Equity Fund Manager Change Notification

iM Global Partner Fund Management, the Investment Advisor for iMGP Equity Fund, is making significant changes to the fund’s line up of Subadvisors that includes the addition of a dedicated small/mid-cap manager as well as expanding each manager’s ability to own their highest-conviction ideas globally (the fund has always had the flexibility to invest globally but it is now a formal part of its investment objective). Accordingly, the fund is being renamed iMGP Global Select effective September 30.

Effective September 30, 2022, the name of the iMGP Equity Fund will change to the iMGP Global Select Fund. The Fund’s investment objective will remain the same. iM Global Partner Fund Management, LLC will continue to serve as the Fund’s investment advisor.

While these changes are material in scope, we believe them to be consistent with the fund’s original premise when it was launched back in 1996. It is with enthusiasm and confidence that we share details and rationale behind these changes.

Current managers Sands Capital Management, Fiduciary Management, Harris Associates, and Davis Selected Advisors – all long-time Subadvisors on the fund – are being removed effective July 29, 2022. Polen Capital (both their global large-cap and SMID teams) and Scharf Investments are being added and will manage concentrated sleeves alongside Nuance Investments, who will remain on the fund.

In total the new manager line-up includes four separate strategies as outlined below:

The changes are the result of an in-depth analysis focused on configuring a combination of managers we believe to be skilled in a way that can deliver the alpha we expected when we originally launched the fund. It reflects what we’ve learned after decades of research on active managers both in terms of the skills and discipline that give a manager an edge and how to craft and oversee mandates that individually and in combination maximize the odds of success – defined as materially beating a passive benchmark after fees over the long term.

We continue to believe, as we did when the fund was launched in 1996, that allowing skilled managers to own only their highest-conviction ideas is better than owning more-diversified portfolios because owning a large number of names leads to more index-like performance. We don’t believe in paying high fees to get index-like performance.

We also continue to believe that giving highly disciplined managers latitude in the types of stocks they can own can confer an advantage over managers who are more tightly constrained to an arbitrarily-defined “style box.” Those beliefs underlay the original premise of the fund to seek skilled managers, give them broad flexibility, limit them to their highest-conviction ideas, and create diversification at the overall fund level by choosing managers with complementary styles to reduce risk.

The revised configuration of iMGP Equity Fund preserves those foundational concepts. What we will do differently going forward is reflected in how the revised Subadvisor strategies were selected, how the allocations were determined, and how we will monitor and manage those allocations in the future.

In short, we want to be sure that the overall portfolio does not include any unintentional overweights such as toward particular investment styles, market caps or industries that can be a residual aggregate effect of allowing full autonomy to individual managers to pick their best ideas. The problem with those overweights, when they do occur, is that they don’t explicitly reflect a commensurate level of conviction from any single manager. In the past we believed that allowing those overweights to occur was a form of conviction-weighting but our analysis doesn’t support that this adds value relative to the added risk. Our revised process for manager oversight takes this more explicitly into account.

As a result, we believe we can preserve the benefits of manager autonomy at the individual sleeve/strategy level, while reducing potential aggregate portfolio risks by taking a more active role than in the past toward setting and monitoring our manager allocations. We have the data, analytical tools and research capability to measure the various investment exposures across the broad portfolio. As noted, the changes we are making to the roster of Subadvisors and the initial allocations reflect that work, and going forward we expect to be more proactive in monitoring, and if need be, changing allocations to ensure the overall portfolio captures individual managers’ highest-conviction investments, while avoiding unintentional exposures that can alter the risk-return profile we seek for our shareholders.

It is also our belief that Litman Gregory becoming part of iM Global Partner in 2021 further strengthens the research capability that supports iMGP Equity Fund. Two of the new managers – Scharf Investments and Polen Capital – are independent firms in which iMGP has made minority investments. The similarity in the research approaches used by iMGP and Litman Gregory to identify skilled active investment teams is what drew the firms together. So while our confidence in the new Subadvisors’ investment capabilities is well founded and reinforced by the full due diligence process we’ve always used on all of the fund’s Subadvisors, an additional benefit is that because they are iMGP partner firms we are able to obtain lower fees and have now capped the fund’s expenses at 0.98%.

We thank those longstanding managers who will no longer be serving on the fund. We continue to have strong respect and confidence in each and appreciate their strong support of the concentrated, high-active share concept we pioneered more than 25 years ago.

Looking ahead, we maintain our strong commitment to iMGP Equity Fund and are confident the changes we are making will enable the fund to fully deliver on the promise of its innovative concept.