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About the Funds

Investment Philosophy: Alternative Strategies Fund

The Alternative Strategies Fund was created based on the following fundamental beliefs:

First, Litman Gregory believes it is possible to identify investment managers who will deliver superior long-term performance relative to their passive benchmarks and peer groups. This belief is based on Litman Gregory’s extensive experience evaluating managers and mutual funds on behalf of their clients.  The five managers in this fund were chosen for their specialized and demonstrated expertise, as well as for their complementary, non-correlated investment approaches.

Second, not only do we want high-quality managers, but we want to offer access to them at an acceptable cost. We spent the last couple of years engaged in research to find the right mix of managers we believe can deliver on both fronts.  

Third, this fund doesn’t seek to simply replicate what each manager is already doing elsewhere, but to bring investors additional value-add through flexibility, concentration, and the ability to be more opportunistic.

The Litman Gregory Masters Alternative Strategies Fund Concept

The Alternative Strategies Fund is a multi-manager fund that combines alternative and absolute-return-oriented strategies chosen based on Litman Gregory’s conviction that each individual strategy is compelling and that collectively the overall fund portfolio is well diversified. This fund is intended to complement traditional stock and bond portfolios by offering diversification, seeking to reduce volatility, and to potentially enhance returns relative to various measures of risk.

This fund will contain many risk-control factors including the selection of strategies that seek lower risk exposure than conventional stock or stock-bond strategies, the risk-sensitive nature of the managers, the skill of the managers, and the overall strategy diversification.

Typically, each manager will run approximately 17% of the portfolio, but Litman Gregory may tactically alter the managers’ allocations to attempt to take advantage of particularly compelling opportunities for a specific strategy or to further manage risk. We will have a high hurdle for making a tactical allocation shift and don’t expect such top-down shifts to happen frequently.

Selection Criteria — What Makes a Manager an Alternative Strategies Fund Candidate?

The managers in this fund were chosen for their specialized and demonstrated expertise, as well as for their complementary, non-correlated investment approaches.

We looked for skilled managers who either 1) ran strategies that we believed were low risk and not strongly correlated with traditional financial assets (especially stocks) or 2) had the ability to take on more risk but had a strongly risk averse mindset and approach with an emphasis on preservation of capital and a track record consistent with that objective. We also wanted managers willing to be opportunistic and take somewhat more risk at times when valuations suggest that risk should be well rewarded.  Other factors we considered included enthusiasm for being part of this fund, how the strategies complemented each other, a long history, and reasonable fees.

We narrowed our list down to five managers/firms who ran different types of strategies and who each had a combination of experience, expertise, performance track record, a risk-averse mindset or investment philosophy, strong focus on risk management, and reasonable fees. We then did intensive additional due diligence on these managers to assess whether we could gain confidence that they would be able to deliver on their risk/return objectives for these strategies and what they would bring to our fund that would be different and value-added.  We believe we have achieved that goal with each manager.

Investment Philosophy: The Equity Funds

Our equity funds are based on two fundamental beliefs:

First, it is possible to identify investment managers who will deliver superior long-term performance relative to their passive benchmarks and peer groups. This belief is based on our extensive experience evaluating stock pickers and mutual funds on behalf of our investment management clients.

Second, that most stock pickers have an unusually high level of conviction in only a small number of stocks and that a portfolio limited to these stocks will, on average, outperform a more diversified portfolio over a market cycle. However, most stock pickers typically manage portfolios that are diversified beyond these highest-conviction holdings in order to reduce risk and to facilitate the management of the larger amounts of money they oversee.

The Concept Behind Our Equity Funds

Based on the above beliefs, these funds seek to isolate the stock-picking skills of a group of highly regarded investment managers. To meet this objective, the funds are designed with both risk and return in mind, placing particular emphasis on the following factors:

  • We only choose stock pickers we believe to be exceptionally skilled.
  • Each stock picker runs a very concentrated sub-portfolio of not more than 15 of his or her “highest-conviction” stocks. 
  • Although each manager’s portfolio is concentrated, our equity funds seek to manage risk partly by building diversification into each fund.
    • The Equity and International funds offer diversification by including managers with differing investment styles and market-cap orientations.
    • The Smaller Companies Fund brings together managers who use different investment approaches, though each focuses on the securities of smaller companies.
  • We believe that excessive asset growth often results in diminished performance.  Therefore, each fund may close to new investors at a level that Litman Gregory believes will preserve each manager’s ability to effectively implement the Litman Gregory Masters Funds concept.  If more sub-advisors are added to a particular fund, the fund’s closing asset level may be increased.

Selection Criteria — What Makes an Manager a Candidate for Our Equity Funds?

Litman Gregory believes that superior investment managers exhibit most of the following characteristics.

  • Consistently above-average intermediate and long-term performance relative to an appropriate benchmark index and peer group. Litman Gregory maintains its own database and has developed proprietary software to measure and analyze performance over various periods.
  • A well-defined investment process that is executed with discipline. Discipline refers to the commitment to in-depth research to support each and every decision and also to an unwavering commitment to the manager’s process and circle of competence. This combination of sound process and discipline helps to minimize decision errors by the manager.
  • The confidence and ability to think and act independently.
  • The intellectual honesty to realize a mistake, learn from it and move on.
  • A passion for stock picking that results in the drive to work harder and more creatively in order to gain an edge.
  • A focus on the job of stock picking and portfolio management. Litman Gregory seeks investment managers who have attempted to mitigate non-investment distractions by delegating most business management and marketing duties.

Litman Gregory and its affiliated companies have extensive experience evaluating investment advisory firms using the above criteria, and they believe that each of the investment managers selected for the funds exhibits most of the qualities mentioned above. Moreover, specific to Litman Gregory Masters Funds, Litman Gregory evaluates each manager’s ability and inclination to run a concentrated portfolio and his or her enthusiasm for the opportunity.

Stay Informed

The Litman Gregory Masters Funds monthly email provides investors a way to stay in touch with us and receive information regarding the funds and investment principles in general. Topics may include updates on the funds and managers, further insights into Litman Gregoryʼs processes, and commentary on various aspects of investing.

DISCLOSURE

The funds’ investment objectives, risks, charges, and expenses must be considered carefully before investing. The summary and statutory prospectuses contain this and other important information about the investment company, and may be obtained by calling 1‐800‐960‐0188, or visiting www.mastersfunds.com. Read them carefully before investing.

Diversification does not assure a profit nor protect against loss in a declining market.

Mutual fund investing involves risk. Principal loss is possible. Each of the funds may invest in foreign securities. Investing in foreign securities exposes investors to economic, political, and market risks and fluctuations in foreign currencies. Each of the funds may invest in the securities of small companies.

Small‐company investing subjects investors to additional risks, including security price volatility and less liquidity than investing in larger companies.

The International Fund will invest in emerging markets. Investments in emerging market countries involve additional risks such as government dependence on a few industries or resources, government‐imposed taxes on foreign investment or limits on the removal of capital from a country, unstable government, and volatile markets.

The Alternative Strategies Fund will invest in debt securities and derivatives. Investments in debt securities typically decrease when interest rates rise. This risk is usually greater for longer‐term debt securities. Investments in mortgage‐backed securities include additional risks that investor should be aware of including credit risk, prepayment risk, possible illiquidity, and default, as well as increased susceptibility to adverse economic developments. Investments in lower‐rated and non‐rated securities present a greater risk of loss to principal and interest than higher‐rated securities.

Derivatives may involve certain costs and risks such as liquidity, interest rate, market, credit, management, and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested. The fund may make short sales of securities, which involves the risk that losses may exceed the original amount invested. Merger arbitrage investments risk loss if a proposed reorganization in which the fund invests is renegotiated or terminated.

Investments in emerging market countries involve additional risks such as government dependence on a few industries or resources, government-imposed taxes on foreign investment or limits on the removal of capital from a country, unstable government and volatile markets.

Multi-investment management styles may lead to higher transaction expenses compared to single investment management styles. Outcomes depend on the skill of the sub-advisors and advisor and the allocation of assets amongst them.

Litman Gregory Fund Advisors, LLC is ultimately responsible for the performance of the funds due to its responsibility to oversee the investment sub‐advisors and recommend their hiring, termination and replacement.

The Litman Gregory Masters Funds are distributed by ALPS Distributors, Inc.