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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-07763
LITMAN GREGORY FUNDS TRUST
(Exact name of registrant as specified in charter)
1676 N. California Blvd., Suite 500
Walnut Creek, CA 94596
(Address of principal executive offices)(Zip code)
Jeremy DeGroot
1676 N. California Blvd., Suite 500
Walnut Creek, CA 94596
(Name and Address of Agent for Service)
Registrant’s telephone number, including area code: (925) 254-8999
Date of fiscal year end: December 31
Date of reporting period: December 31, 2017
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Item 1: | Report to Shareholders. |
The following is a copy of the report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940, as amended (the “Act”):
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LITMAN GREGORY FUNDS TRUST
Annual Report
Litman Gregory Masters Equity Fund
Litman Gregory Masters International Fund
Litman Gregory Masters Smaller Companies Fund
Litman Gregory Masters Alternative Strategies Fund
December 31, 2017
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Litman Gregory Masters Funds Concept
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 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 between 18% to 25% 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.
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. |
Diversification does not assure a profit or protect against a loss in a declining market.
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This report is intended for shareholders of the funds and may not be used as sales literature unless preceded or accompanied by a current prospectus for the Litman Gregory Masters Funds. Statements and other information in this report are dated and are subject to change.
Litman Gregory Fund Advisors, LLC has ultimate responsibility for the funds’ performance due to its responsibility to oversee its investment managers and recommend their hiring, termination and replacement.
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Litman Gregory Fund Advisors’
We are deeply committed to making each Litman Gregory Masters Fund a highly satisfying long-term investment for shareholders. In following through on this commitment we are guided by our core values, which influence four specific areas of service:
First, we are committed to the Litman Gregory Masters concept.
• | We will only hire managers who we strongly believe will deliver exceptional long-term returns relative to their benchmarks. We base this belief on extremely thorough due diligence research. This not only requires us to assess their stock-picking skills, but also to evaluate their ability to add incremental performance by investing in a concentrated portfolio of their highest conviction ideas. |
• | We will monitor each of the managers so that we can maintain our confidence in their ability to deliver the long-term performance we expect. In addition, our monitoring will seek to assess whether they are staying true to their Litman Gregory Masters Funds mandate. Consistent with this mandate, we focus on long-term performance evaluation so that the Masters managers will not be distracted by short-term performance pressure. |
Second, we will do all we can to ensure that the framework within which our stock pickers do their work further increases the odds of success.
• | Investments from new shareholders in each fund are expected to be limited so that each fund’s asset base remains small enough to retain flexibility to add value. |
• | The framework also includes the diversified multi-manager structure that makes it possible for each manager to invest, when appropriate, in an opportunistic manner knowing that the potential volatility within his or her portfolio will be diluted at the fund level by the performance of the other managers. In this way, the multi-manager structure seeks to provide fund-level diversification. |
• | We will work hard to discourage short-term speculators so that cash flows into the funds are not volatile. Lower volatility helps prevent our managers from being forced to sell stocks at inopportune times or to hold excessive cash for non-investment purposes. |
Third, is our commitment to do all we can from an operational standpoint to maximize shareholder returns.
• | We will remain attentive to fund overhead, and whenever we achieve savings we will pass them through to shareholders. For example, we have had several manager changes that resulted in lower sub-advisory fees to our funds. In every case we have passed through the full savings to shareholders in the form of fee waivers. |
• | We will provide investors with a low minimum, no-load, no 12b-1 Institutional share class for all Litman Gregory Masters Funds, and a low minimum, no-load Investor share class for the Equity, International, and Alternative Strategies funds |
• | We also will work closely with our managers to make sure they are aware of tax-loss selling opportunities (only to be taken if there are equally attractive stocks to swap into). We account for partial sales on a specific tax lot basis so that shareholders will benefit from the most favorable tax treatment. The goal is not to favor taxable shareholders over tax-exempt shareholders but to make sure that the managers are taking advantage of tax savings opportunities when doing so is not expected to reduce pre-tax returns. |
Fourth, is our commitment to communicate honestly about all relevant developments and expectations.
• | We will continue to do this by providing thorough and educational shareholder reports. |
• | We will continue to provide what we believe are realistic assessments of the investment environment. |
Our commitment to Litman Gregory Masters Funds is also evidenced by our own investment. Our employees have, collectively, substantial investments in the funds, as does our company retirement plan. In addition, we use the funds extensively in the client accounts of our investment advisor practice (through our affiliate Litman Gregory Asset Management, LLC). We have no financial incentive to do so because the fees we receive from Litman Gregory Masters Funds held in client accounts are fully offset against the advisory fees paid by our clients. In fact, we have a disincentive to use the funds in our client accounts because each Litman Gregory Masters Fund is capacity constrained (they may be closed as mentioned above), and by using them in client accounts we are using up capacity for which we may not be paid. But we believe these funds offer value that we can’t get elsewhere and this is why we enthusiastically invest in them ourselves and on behalf of clients.
While we believe highly in the ability of the Funds’ sub-advisors, our commitments are not intended as guarantees of future results.
While the funds are no-load, there are management fees and operating expenses that do apply, as well as a 12b-1 fee that applies to Investor class shares. Please refer to the prospectus for further details.
Diversification does not assure a profit or protect against loss in a declining market.
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Must be preceded or accompanied by a prospectus.
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. Debt obligations of distressed companies typically are unrated, lower rated, in default or close to default and may become worthless. 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. 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 Alternative Strategies 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 absolute return strategies are not untended to outperform stocks and bonds during strong market rallies.
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.
Past performance does not guarantee future results.
Mutual fund investing involves risk; loss of principal is possible.
Performance discussions for the Equity Fund, the International Fund, and the Alternative Strategies Fund are specifically related to the Institutional share class.
Some of the comments are based on current management expectation and are considered “forward-looking statements”. Actual future results, however, may prove to be different from our expectations. You can identify forward-looking statement by words such as “estimate”, “may”, “expect”, “should”, “could”, “believe”, “plan”, and similar terms. We cannot promise future returns and our opinions are a reflection of our best judgment at the time this report is compiled.
Opinions expressed are subject to change, are not guaranteed and should not be considered recommendations to buy or sell any security.
Sharpe ratio is the measure of a fund’s return relative to its risk. The Sharpe ratio uses standard deviation to measure a fund’s risk-adjusted returns. The higher a fund’s Sharpe ratio, the better a fund’s returns have been relative to the risk it has taken on. Because it uses standard deviation, the Sharpe ratio can be used to compare risk-adjusted returns across all fund categories. The Litman Gregory Masters Alternative Strategies Fund’s Sharpe ratio ranked 1 out of 121 in its Peer Group, US OE Multialternative Morningstar Category from 10/1/2011 to 12/31/2017. Past performance is no guarantee of future results.
See pages 9, 16, and 28 for each fund’s top contributors. See pages 10, 19 and 29 for each fund’s portfolio composition. See pages 38 for the Alternative Strategies Fund’s individual strategy portfolio allocations. Fund holdings and/or sector allocations are subject to change at any time and are not recommendations to buy or sell any security.
Diversification does not assure a profit or protect against a loss in a declining market.
Leverage may cause the effect of an increase or decrease in the value of the portfolio securities to be magnified and the fund to be more volatile than if leverage was not used.
References to other mutual funds should not be interpreted as an offer of these securities.
Litman Gregory Fund Advisors LLC has ultimate responsibility for the performance of the Masters Funds due to its responsibility to oversee the investment managers and recommend their hiring, termination and replacement.
Any tax or legal information provided is merely a summary of our understanding and interpretation of some of the current income tax regulations and it is not exhaustive. Investors must consult their tax advisor or legal counsel for advice and information concerning their particular situation. Neither the Funds nor any of their representatives may give legal or tax advice.
Please see page 129 for index definitions. You cannot invest directly in an index.
Please see page 131 for industry definitions.
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Litman Gregory Masters Funds’ Performance
Average Annual Total Returns | ||||||||||||||||||||||||
Institutional Class Performance as of 12/31/2017 | 1-Year | 3-Year | 5-Year | 10-Year | 15-Year | Since Inception | ||||||||||||||||||
Litman Gregory Masters Equity Fund (12/31/96) | 21.15% | 10.01% | 14.85% | 7.15% | 8.89% | 8.43% | ||||||||||||||||||
Russell 3000 Index | 21.13% | 11.12% | 15.58% | 8.60% | 10.25% | 8.45% | ||||||||||||||||||
Morningstar Large Blend Category Average | 20.47% | 9.32% | 13.69% | 6.93% | 8.71% | 6.95% | ||||||||||||||||||
Gross Expense Ratio: 1.29% Net Expense Ratio* as of 4/30/17: 1.20% | ||||||||||||||||||||||||
Litman Gregory Masters International Fund (12/1/97) | 23.61% | 3.67% | 5.65% | 1.47% | 8.49% | 7.63% | ||||||||||||||||||
MSCI ACWI ex-U.S. Index | 27.19% | 7.83% | 6.80% | 1.84% | 8.75% | 5.76% | ||||||||||||||||||
MSCI EAFE Index | 25.03% | 7.80% | 7.90% | 1.94% | 8.11% | 5.27% | ||||||||||||||||||
Morningstar Foreign Large Blend Category Average | 25.42% | 7.49% | 7.05% | 1.46% | 7.42% | 4.71% | ||||||||||||||||||
Gross Expense Ratio: 1.29% Net Expense Ratio* as of 4/30/17: 1.06% | ||||||||||||||||||||||||
Litman Gregory Masters Smaller Companies Fund (6/30/2003) | 14.44% | 5.66% | 9.15% | 6.48% | n/a | 8.29% | ||||||||||||||||||
Russell 2000 Index | 14.65% | 9.96% | 14.12% | 8.71% | n/a | 10.31% | ||||||||||||||||||
Morningstar Small Blend Category Average | 12.39% | 8.67% | 12.88% | 7.80% | n/a | 9.65% | ||||||||||||||||||
Gross Expense Ratio: 1.68% Net Expense Ratio* as of 4/30/17: 1.26% | ||||||||||||||||||||||||
Litman Gregory Masters Alternative Strategies Fund (9/30/2011) | 4.51% | 3.49% | 4.07% | n/a | n/a | 5.30% | ||||||||||||||||||
Bloomberg Barclays Aggregate Bond Index | 3.54% | 2.24% | 2.10% | n/a | n/a | 2.53% | ||||||||||||||||||
3-Month LIBOR | 1.21% | 0.72% | 0.54% | n/a | n/a | 0.52% | ||||||||||||||||||
Morningstar Multialternative Category Average | 5.58% | 1.15% | 1.69% | n/a | n/a | 2.13% | ||||||||||||||||||
HFRX Global Hedge Fund Index | 5.98% | 1.54% | 2.13% | n/a | n/a | 2.18% | ||||||||||||||||||
Russell 1000 Index | 21.69% | 11.23% | 15.71% | n/a | n/a | 17.23% | ||||||||||||||||||
Net Expense Ratio Excluding Dividend Expense on Short Sales and Interest & | ||||||||||||||||||||||||
Borrowing Costs on Leverage Line of Credit1 as of 4/30/17: 1.47% | ||||||||||||||||||||||||
Total Net Operating Expenses2 as of 4/30/17: 1.75% | ||||||||||||||||||||||||
Gross Expense Ratio as of 4/30/17: 1.83% |
Performance quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the funds may be lower or higher than the performance quoted. To obtain the performance of the funds as of the most recently completed calendar month, please visit www.mastersfunds.com.
The performance quoted does not include a deduction for taxes that a shareholder would pay on distributions or the redemption of fund shares. Indexes are unmanaged, do not incur expenses, taxes or fees and cannot be invested in directly.
*Gross and net expense ratios are for the institutional share class per the Prospectus dated 4/30/2017. The Advisor is contractually obligated to waive management fees and/or reimburse ordinary operating expenses through 4/30/2018.
1. Does not include dividend expense on short sales of 0.19% and interest expense of 0.09%
2. The Advisor is contractually obligated to waive management fees and/or reimburse ordinary operating expenses through April 30, 2018. The total operating expense includes dividend and interest expense on short sales and interest and borrowing costs incurred for investment purposes, which are not included in the expense ratio.
MSCI index returns source: MSCI. Neither MSCI nor any other party involved in or related to compiling, computing, or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability, or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates, or any third party involved in or related to compiling, computing, or creating the data have any liability for any direct, indirect, special, punitive, consequential, or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI’s express written consent. Source note: Returns prior to 1999 are the MSCI ACWI ex-US GR index. Returns from 1999 onwards are MSCI ACWI ex-US NR index.
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The second half of 2017 capped yet another stellar year for U.S. stocks and global financial markets in general. For the full year, the S&P 500 Index gained 21.83%. Smaller-cap U.S. stocks, represented by the Russell 2000 Index, rose 14.65%. Foreign stock markets were even stronger, with the MSCI EAFE Index of developed international markets rising 25.03% (in U.S. dollar terms) and the MSCI Emerging Markets Index up 37.28%.
Core investment-grade bonds delivered positive returns as the benchmark 10-year Treasury yield ended the year little changed from where it began. The Bloomberg Barclays U.S. Aggregate Bond Index returned 3.54% for the year. However, shorter-term Treasury yields rose during the period (as the Federal Reserve raised rates three times), causing the yield curve to flatten considerably—the difference between the 10-year and 3-month Treasury yields ended the year near a 10-year low.
For the second half of the year, the Litman Gregory Masters Equity Fund and the Litman Gregory Masters Smaller Companies Fund both outperformed their index benchmarks, while the Litman Gregory Masters International Fund trailed its benchmarks. For the full year, the Equity Fund and Smaller Companies Fund performed in line with their respective larger-cap and smaller-cap index benchmarks, while the International Fund lagged. The Litman Gregory Masters Alternative Strategies Fund performed in line with its absolute risk and return objectives. The fund continues to have the highest risk-adjusted return (as measured by both the Sharpe and Sortino ratios) in its Morningstar Multialternative category, since inception. Please see the individual fund annual reports for additional details and commentary.
Thoughts on the Bigger Picture
We’re running out of superlatives to describe the U.S. stock market. This was the ninth consecutive year of positive returns for the S&P 500, tying the historic 1990s bull market and capping a truly remarkable run from the depths of the 2008–2009 financial crisis. Beyond that, 2017 stood out for its lack of market volatility or downside. It was the first year ever that the S&P 500 rose in every single month. The VIX index of expected volatility fell to an all-time low in the fourth quarter. By year-end, the market had rallied for more than 400 days without registering as little as a 3% decline—the longest such streak in 90 years of market history, according to Ned Davis Research.
The broad driver of the market’s rise for the year was rebounding corporate earnings growth, supported by solid economic data, synchronized global economic growth, still-quiescent inflation, and accommodative global monetary policies. U.S. stocks got an additional catalyst in the fourth quarter with the passage of the Republican tax plan, reflecting investors’ optimism about its potential to further boost corporate after-tax profits, at least over the shorter term. Looking ahead, the consensus outlook is for continued U.S. and global economic growth and little risk of a recession in 2018. Without a recession, an equity bear market is unlikely—although a 10% market “correction” can happen at any time, and a severe macro/geopolitical shock could cause a larger drop.
While the near-term fundamentals appear solid enough, and market price momentum is a powerful force, we remain concerned from our top-down and longer-term perspective about market valuations. History is clear that high valuations imply low future returns, when analyzed over five- to 10-year-plus time periods. Related to this, when an outlook becomes the strong consensus view, one should assume it is already discounted to a meaningful degree in current market prices. Along with many valuation indicators flashing red, investor sentiment indicators are now also hitting all-time highs.
None of this is to say the U.S. stock market can’t or won’t post another strong positive year in 2018. But our analysis suggests very low expected returns for the market index over the next five years, with a high likelihood of a bear market at some point during that period. Given this outlook, we think it is critical for investors to honestly assess their own risk tolerance and investment temperament, and to be invested in a portfolio consistent with and run by managers aligned with these personal attributes. This will enable them to remain disciplined and patient—during the good times as well as the inevitable challenging periods—meaningfully improving their odds of achieving their long-term investment goals.
Thoughts on the Funds
We want to reiterate that Litman Gregory’s top-down market and asset class views have no bearing on the Litman Gregory Masters equity funds. The funds’ positioning and exposures are entirely the result of the stock selection and investment decisions of the funds’ sub-advisors. A core principle of our funds is to select managers representing a diversity of investment approaches or “styles,” creating a well-diversified overall fund, while still getting only the managers’ highest-conviction holdings. We believe our sub-advisors are skilled stock pickers, with the ability to add value running a highly concentrated portfolio sleeve. But each manager has a distinctive investment process, and their bottom-up assessment of the reward-versus-risk within their investment universes will differ over time.
We see this currently in the Equity Fund and Smaller Companies Fund, where some of our managers are not finding many compelling investment opportunities and their cash position has built up as result, while others are fully invested
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and still finding stocks that meet their hurdle for inclusion in their Masters portfolio. With each manager sticking to their investment discipline and being highly selective, we believe their potential to outperform the index over the remainder of this market cycle and over the longer term is high, but their paths to doing so will certainly look different from each other. For example, with growth stocks experiencing an extended multiyear period of outperformance versus value, we wouldn’t be surprised to see that relative performance cycle turn in favor of our more value-oriented managers. But as always, the timing of such shifts is uncertain.
Moving to international stocks, our outlook is currently more positive than for U.S. stocks. Our top-down analysis suggests non-U.S. companies in aggregate, especially in Europe where the International Fund is significantly overweight, are under-earning relative to their long-term potential or normalized level. Unlike the United States, since the 2008 financial crisis, Europe has gone through a debt crisis, and a relatively slow banking-sector deleveraging that has crimped lending and demand. Our analysis suggests Europe’s recovery has lagged that of the United States and there is a strong case for international stocks outperforming their U.S. counterparts looking forward. Anecdotally, we see that European countries are implementing labor-market reforms and European companies are restructuring and becoming leaner—both should bode well for profits if the synchronized global economic recovery continues.
Finally, turning to the Alternative Strategies Fund, the year saw two changes to our sub-advisor lineup, with the addition of DCI in early July and the removal of Passport in late December. Founded in 2004, DCI is a corporate credit–focused investment firm that manages systematic, fundamental, quantitatively driven strategies. We are very enthusiastic about the long-short credit portfolio they are running for our fund. We believe their strategy can generate attractive risk-adjusted returns across a variety of market environments, with low volatility, low risk of significant drawdowns, and low or no correlation to the equity, high-yield, and Treasury bond markets, as well as the other strategies on the fund.
We believe there is a long-term strategic role in most balanced investor portfolios for a well-managed, all-weather, multialternative strategies fund. We think the potential benefits of such a position are particularly compelling in the current environment, given the poor expected returns implied by stretched stock market valuations and very low bond yields, not to mention a panoply of macro uncertainties, such as central bank policy unwinding (“quantitative tightening”). Over the past nine-year bull market, there has been little need for portfolio diversification beyond owning a mix of U.S. stocks and core bonds. But financial market history is a history of cycles: bull markets sow the seeds of bear markets, and vice versa; the valuation pendulum swings from one extreme to the other, driven by human herd behavior; asset classes that were once loved become hated, and vice versa.
Our Alternative Strategies Fund is not intended to track any market index. Based on each of the underlying sub-advisors’ portfolios, its current overall positioning is on the conservative side of the spectrum. But once volatility returns to the markets, we know there will be better opportunities for our managers to commit capital, and we believe they are well positioned to do so. We can’t predict exactly when, but with U.S. stock market valuations and market sentiment at or near all-time highs, we are confident our patience will be rewarded.
As always, we thank you for your confidence in the Litman Gregory Masters Funds. Our commitment and confidence is reflected in the collective personal investments in the funds by Litman Gregory principals, employees, and the funds’ trustees of over $21 million, as of December 31, 2017.
Sincerely,
Jeremy DeGroot, President and Portfolio Manager
Jack Chee, Portfolio Manager
Rajat Jain, Portfolio Manager
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Litman Gregory Masters Equity Fund Review
The Litman Gregory Masters Equity Fund returned 21.15% for 2017, in line with the 21.13% return for the Russell 3000 Index benchmark and above the 20.47% gain for the Morningstar Large Blend category. Since the fund’s inception on December 31, 1996, the fund’s 8.43% annualized return is in line with the benchmark but is well ahead of its peer group’s 6.95% return.
The Equity Fund established a strong track record during its first decade, gaining 10.12% annualized as of December 31, 2006 compared to an 8.64% annualized return for the Russell 3000 Index. However, the fund meaningfully lagged in 2006 and again in the second half of 2008 during the financial crisis. At various points in 2008, Litman Gregory made changes to the fund, including hiring three new sub-advisors and removing two managers from the fund’s lineup. In the post-2008 financial crisis period, the fund’s performance has been competitive in an environment in which indexes have been particularly difficult to beat. Since January 1st 2009, the Equity Fund has gained 15.81%, which compares favorably to the 15.44% gain for the Russell 3000 Index and very favorably against the 13.59% return of the Morningstar Large Blend category, placing the fund in the top decile of returns for the category.
Performance as of 12/31/2017 | ||||||||||||||||||||||||||||
Average Annual Total Returns | ||||||||||||||||||||||||||||
Three Month | One- Year | Three- Year | Five- Year | Ten- Year | Fifteen- Year | Since Inception | ||||||||||||||||||||||
Litman Gregory Masters Equity Fund Institutional (12/31/96) | 5.74% | 21.15% | 10.01% | 14.85% | 7.15% | 8.89% | 8.43% | |||||||||||||||||||||
Russell 3000 Index | 6.34% | 21.13% | 11.12% | 15.58% | 8.60% | 10.25% | 8.45% | |||||||||||||||||||||
Morningstar Large Blend Category* | 6.42% | 20.47% | 9.32% | 13.69% | 6.93% | 8.71% | 6.95% | |||||||||||||||||||||
Litman Gregory Masters Equity Fund Investor (4/30/2009) | 5.72% | 20.87% | 9.76% | 14.64% | n/a | n/a | 14.94% | |||||||||||||||||||||
Russell 3000 Index | 6.34% | 21.13% | 11.12% | 15.58% | n/a | n/a | 16.27% | |||||||||||||||||||||
Morningstar Large Blend Category* | 6.42% | 20.47% | 9.32% | 13.69% | n/a | n/a | 14.25% | |||||||||||||||||||||
* Although Morningstar categorizes the Equity Fund as Large Growth, we believe it is better categorized as Large Blend. |
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Performance quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the funds may be lower or higher than the performance quoted. To obtain the performance of the funds as of the most recently completed calendar month, please visit www.mastersfunds.com. As of the prospectus dated 4/30/2017, the gross and net expense ratios for the Institutional Class were 1.29% and 1.20%, respectively; and for the Investor Class were 1.54% and 1.45%, respectively. The Advisor is contractually obligated to waive management fees and/or reimburse ordinary operating expenses through April 30, 2018. All performance discussions in this report refer to the performance of the Institutional share class. |
Performance of Managers
The performance of the fund’s seven sub-advisors was mixed for the year. Four managers outperformed their respective benchmarks, one manager performed in line, and two managers underperformed. The performance of the sub-advisors ranged from 4.82% to 39.16% (returns are net of the management fee each sub-advisor charges the fund), with Sands Capital, the fund’s growth-oriented manager, generating the highest return in an environment conducive for their style of investing (the Russell 1000 Growth Index outperformed the Russell 1000 Value Index by over 16 percentage points).
Key Performance Drivers
In 2017, neither stock selection nor sector allocation had a material impact on performance relative to the benchmark; they netted out close to zero. It is important to understand that the portfolio is built stock by stock, and that sector weightings are a residual of the bottom-up fundamental stock-picking process employed by each sub-advisor. That said, we do report on the short-term relative performance of both sector weights and stock selection to help shareholders understand the drivers of recent performance. It is also important to remember that the performance of a stock over a relatively short period tells us nothing about whether it will be a successful position; that is only known at the point when the stock is sold.
From a sector perspective, the fund’s information technology average overweight (28% vs. 22%) was a leading contributor to relative performance in 2017 as the fund’s information technology names gained over 35%, reflecting the broad-based outperformance of the tech stocks held in the portfolio. These include out-of-benchmark foreign names Alibaba Group Holding and Baidu (both owned by co-managers Frank Sands, Jr. and Mike Sramek of Sands Capital), which gained 94.54% and 43.1% in 2017, respectively. Visa was another winner in the sector, gaining 47.47%. Visa was owned by both Sands and Harris Associates’ Clyde McGregor, and was the third-largest holding at year-end at over three percent of assets, resulting in a meaningful contribution to overall performance. Visa operates the world’s largest retail electronic payment network, processing more than 50% of all credit and debit transactions globally. Regarding the strong 2017 performance from the company, Sands says Visa’s business continues to benefit from the long-term secular shift from paper-based payments to electronic forms as 80% of worldwide transactions are still done in cash. In addition, over the next couple of years the Sands team anticipates a few additional percentage points of growth to come from synergies resulting
Fund Summary | 7 |
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from the company’s acquisition of Visa Europe. (Visa’s European operations had been mutually owned by European banks until Visa acquired them in 2016.) McGregor also notes the positive effects of the integration of the European business, which is progressing at a healthier pace than management anticipated. Overall, McGregor believes Visa is a well-managed company with significant competitive advantages through its deep payments network, and he remains optimistic about Visa’s expansion prospects as it capitalizes on the accelerating transition to cashless transactions. We should note that both managers have owned the stock since 2010/2011 and have an average cost of approximately $19.50. At year-end, the stock traded at $114, reflecting more than a 500% return.
Stock selection was strong in the consumer discretionary sector, with Amazon.com the leading individual contributor to performance in the period. This position gained over 55% in 2017 and is owned by Sands as well as co-managers Chris Davis and Danton Goei of Davis Advisors. The Davis team refers to Amazon as an e-commerce giant that has profoundly reshaped the retail industry over the years. They add that in addition to its retail business, Amazon has a state-of-the-art, rapidly growing web services business—Amazon Web Services (AWS)—that enables companies and other organizations to outsource their computer systems to Amazon’s digital cloud. Sands says they expect e-commerce growth to continue to outpace overall retail spending for the foreseeable future and believe Amazon should be a primary beneficiary of this global secular trend. In addition, AWS is expected to be a key player in the paradigm shift toward shared infrastructure services. Sands adds that Amazon’s recently enhanced level of financial disclosures provides increased transparency that helps strengthen the team’s conviction in the overall health and growth prospects of Amazon’s retail business and significantly raises their expectations for the long-term potential of AWS. Sands anticipates robust top-line growth, scale-based expense leverage, and a higher-margin sales mix to drive above-average revenue and earnings growth over the next five years. Sands expects that over their investment horizon, Amazon could deliver very attractive annualized earnings growth.
Another consumer discretionary position that contributed significantly to performance was Fiat Chrysler Automobiles. This name is owned by Bill Nygren of Harris Associates, and it gained over 92% in the period. Nygren says Fiat’s share price soared during the reporting period on speculation that the company was going to be sold. Headlines abounded in the third quarter regarding Fiat as an acquisition target for a Chinese original equipment manufacturer, and on rumors that Great Wall Motors was interested in buying Jeep. Nygren is unaware of any formal acquisition offers thus far and believes the company remains committed to executing its 2018 operating plan. Furthermore, Nygren says the company is showing continued strong operating performance and impressive profitability improvement. In his view, Fiat has one of the best management teams in the business with a strong track record of allocating capital efficiently. CEO Sergio Marchionne is focused on maximizing per-share value for the benefit of shareholders.
Two sectors where stock picking detracted in the period were energy and industrials, though energy was the larger detractor. The fund’s 10 energy holdings held during the year, in aggregate, underperformed the Russell 3000’s energy holdings by over 16%. The worst offenders in the portfolio included Chesapeake Energy (owned by Nygren, down over 46%), Noble Energy (owned by Dick Weiss of Wells Capital Management, down 37.6% before being sold in August), and Frank’s International (owned by Nuance’s Scott Moore, down 41.6% before being sold in September).
Despite headwinds from a challenging commodity environment and specific negative events like the devastation caused by Hurricane Harvey, Nygren’s investment thesis for Chesapeake remains intact. He is impressed by how well Chesapeake’s management team and board of directors have navigated this challenging environment. Other positives include the company’s efforts to eliminate wasteful spending by limiting capital expenditures and operating costs, as well as the management team’s shift in focus from acreage growth to returns and capital efficiency. Overall, Nygren believes the underlying company assets are high quality with significant private market value, and he remains positive about the long-term prospects for Chesapeake.
Noble Energy, an independent oil and natural gas exploration and production company, has core operations onshore in the United States (primarily in the Denver-Julesburg, or DJ, Basin and the Marcellus Shale), in the Gulf of Mexico, offshore in the eastern Mediterranean, and offshore West Africa. Weiss says the outlook for Noble is anchored on growth from its top-tier assets in the DJ Basin, Marcellus, and future offshore developments in the Mediterranean. Ultimately, the company’s growth requires a recovery in oil prices, which did not come to fruition before the stock was eliminated from the portfolio in the third quarter. Weiss saw more attractive opportunities elsewhere as the stock underperformed alongside a falling commodity price.
Moore exited Frank’s International in the third quarter after changing his longer-term view of the energy sector. He acknowledges that Frank’s was a disappointing stock and believes crude oil exploration and production companies, equipment and service companies, and refiners are all likely facing a multiyear period of competitive transition. With the combination of government-mandated bans on internal combustion engines and the potential for consumer-driven shifts to electric vehicles, Moore believes the future looks far from certain for crude oil demand growth. While Frank’s still has many of the traits Moore likes, namely a leading competitive position in a highly engineered sub-industry with net cash on the balance sheet, the potential for a competitive transition trumps the company’s current positive attributes.
In the industrials sector, General Electric (GE) was a main detractor from performance. The stock, owned by Nygren, fell by over 42% in the year. GE installed John Flannery as its new CEO in August, a move Nygren and his team applauded since they have met with him several times and respect the operational skill he has applied in other roles at the firm. In addition, Flannery is a key architect of
8 | Litman Gregory Funds Trust |
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the capital allocation changes that GE is implementing, which Nygren says are important components of his investment thesis. Nygren adds that GE has recently worked to reinvent itself and possesses a renewed focus on achieving appropriate capital returns. For example, the company revamped its variable compensation plan for thousands of employees who are now paid on factors that emphasize improving return on invested capital. Nygren says GE has been a very frustrating holding as business fundamentals have lagged expectations. However, he continues to hold the stock because he believes its price has declined more than warranted by the fundamentals.
Top 10 Individual Contributors as of the Year Ended December 31, 2017 | ||||||||||||||||||
Company Name | Fund Weight (%) | Benchmark Weight (%) | 12-Month Return (%) | Contribution to Return (%) | Economic Sector | |||||||||||||
Amazon.com Inc. | 3.17 | 1.50 | 55.03 | 1.51 | Consumer Discretionary | |||||||||||||
Visa Inc. Class A | 3.25 | 0.72 | 47.47 | 1.37 | Information Technology | |||||||||||||
Alphabet Inc. A | 3.38 | 1.09 | 32.60 | 1.04 | Information Technology | |||||||||||||
TE Connectivity Ltd. | 2.62 | 0.00 | 39.55 | 0.97 | Information Technology | |||||||||||||
Alibaba Group Holding SP | 1.40 | 0.00 | 94.54 | 0.97 | Information Technology | |||||||||||||
Fiat Chrysler Automobiles | 1.11 | 0.00 | 92.55 | 0.82 | Consumer Discretionary | |||||||||||||
Alphabet Inc. C | 2.12 | 1.09 | 35.05 | 0.70 | Information Technology | |||||||||||||
Facebook Inc. A | 1.39 | 1.41 | 53.34 | 0.65 | Information Technology | |||||||||||||
Lear Corp. | 1.77 | 0.04 | 36.58 | 0.63 | Consumer Discretionary | |||||||||||||
Oracle Corp. | 2.31 | 0.53 | 22.78 | 0.62 | Information Technology |
Portfolio contribution for a holding represents the product of the average portfolio weight and the total return earned by the holding during the period. Past performance is no guarantee of future results. Fund holdings and/or sector allocations are subject to change at any time and are not recommendations to buy or sell any security.
Top 10 Individual Detractors as of the Year Ended December 31, 2017 | ||||||||||||||||||
Company Name | Fund Weight (%) | Benchmark Weight (%) | 12-Month Return (%) | Contribution to Return (%) | Economic Sector | |||||||||||||
Chesapeake Energy Corp. | 0.67 | 0.01 | -46.24 | -0.52 | Energy | |||||||||||||
General Electric Co. | 0.82 | 0.92 | -42.73 | -0.48 | Industrials | |||||||||||||
Noble Energy Inc. | 0.46 | 0.05 | -37.55 | -0.31 | Energy | |||||||||||||
Apache Corp. | 0.74 | 0.07 | -31.27 | -0.30 | Energy | |||||||||||||
Frank’s International NV | 0.39 | 0.00 | -41.56 | -0.30 | Energy | |||||||||||||
Global Eagle Entertainment Inc. | 0.17 | 0.00 | -66.68 | -0.27 | Consumer Discretionary | |||||||||||||
Schlumberger Ltd. | 0.54 | 0.39 | -20.83 | -0.23 | Energy | |||||||||||||
Chico’s FAS Inc. | 0.51 | 0.01 | -36.50 | -0.22 | Consumer Discretionary | |||||||||||||
Diebold Nixdorf Inc. | 0.51 | 0.01 | -18.48 | -0.16 | Information Technology | |||||||||||||
Newfield Exploration Co. | 0.33 | 0.03 | -27.19 | -0.15 | Energy |
Portfolio contribution for a holding represents the product of the average portfolio weight and the total return earned by the holding during the period. Past performance is no guarantee of future results. Fund holdings and/or sector allocations are subject to change at any time and are not recommendations to buy or sell any security.
Portfolio Mix
The Equity Fund portfolio is the result of seven bottom-up stock-pickers with varying investment approaches building concentrated portfolios. Therefore, the portfolio often looks quite different from its benchmark. For example, it is common for the fund to have meaningful sector over- and underweights. At year-end, the fund was more than eight percentage points overweight to the financial sector (23.7% vs. 15.2%) and was meaningfully underweight to the health care sector (5.2% vs. 13.3%).
As for portfolio shifts during the year, there was nothing dramatic. The largest change was a 3.3 percentage point decrease to energy, while there was a 2.3 percentage point increase to industrials. Cash increased by 2.5 percentage points to 8.3% as of the end of 2017.
Over 2017, the Equity Fund’s market-cap dispersion shifted toward larger companies. Large-cap stocks (defined by Russell as companies with market caps above $29 billion) make up roughly 58% of the portfolio as of year-end (versus 49% at year-end 2016),
Fund Summary | 9 |
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while mid- and smaller-sized companies collectively account for approximately 33% of assets. The fund’s weighted-average market cap increased from $110.0 billion to $146.9 billion over the year. Foreign holdings account for approximately 16% of the portfolio, which is virtually unchanged from the start of the year.
Allocation By Sector
Fund as of 12/31/17 | Fund as of 12/31/16 | Russell 3000 as of 12/31/17 | ||||||||||
Consumer Discretionary | 17.5% | 17.7% | 12.5% | |||||||||
Consumer Staples | 2.8% | 2.2% | 7.3% | |||||||||
Energy | 3.9% | 7.3% | 5.8% | |||||||||
Finance | 23.7% | 21.6% | 15.2% | |||||||||
Health Care & Pharmaceuticals | 5.2% | 5.5% | 13.3% | |||||||||
Industrials | 11.3% | 9.1% | 10.9% | |||||||||
Information Technology | 25.4% | 27.4% | 22.8% | |||||||||
Materials | 1.9% | 2.6% | 3.4% | |||||||||
Real Estate | 0.0% | 0.0% | 3.8% | |||||||||
Telecom | 0.0% | 0.0% | 1.9% | |||||||||
Utilities | 0.0% | 0.8% | 3.0% | |||||||||
Cash Equivalents & Other | 8.3% | 5.8% | 0.0% | |||||||||
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100.0% | 100.0% | 100.0% | ||||||||||
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|
|
Fund holdings and/or sector allocations are subject to change at any time and are not recommendations to buy or sell any security.
By Market Capitalization | By Domicile | |
Market Capitalization: Micro-Cap < $981 million Small-Cap $981 million - $4.4 billion Small/Mid-Cap $4.4 billion - $10.6 billion Mid-Cap $10.6 billion - $29.4 billion Large-Cap > $29.4 billion
Totals may not add up to 100% due to rounding |
10 | Litman Gregory Funds Trust |
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Closing Thoughts
The Litman Gregory Masters Equity Fund now has a 21-year track record. Over that span, there have been periods of strong absolute and relative performance, as well as periods of underperformance. Over trailing time periods, the fund’s annualized performance is mostly in line with or slightly behind its Russell 3000 benchmark.
Looking forward, we believe the markets may be heading into an environment where stock picking will matter more to investment returns. Since the 2008 financial crisis, owning a broad index of stocks has been sufficient. The Russell 3000 has had nine consecutive calendar years of gains, with an annualized return of 17.5%. This is well above the 11.95% average return since its January 1979 inception. In addition to strong returns, we have recently seen unusually low market volatility. We don’t believe this combination of high returns and low volatility is sustainable. The case for stock picking further improves if we consider that correlations across stocks have been declining recently, while the dispersion of individual stock returns has increased. This provides a more fertile environment for stock pickers to add value over the index. A less uniform market means that sectors and stocks move more independently, leading to idiosyncratic stock-picking opportunities, and opportunities for outperformance.
Our goal, as has always been the case, is to identify a small number of highly skilled stock-pickers who we believe can add value through a concentrated portfolio of only their best ideas. Ongoing due diligence of our managers is critical to our process, and our goal is to continually retest our thesis for each sub-advisor. This re-testing involves frequent contact with managers—either at their office, via conference calls, or by spending several hours with them in our office. The primary goal is to assess whether the teams are executing their investment process, upon which our confidence is based. This involves having detailed stock discussions where we want to understand why a stock qualifies as a best idea, as well as the risks to that business. We also walk through mistakes to understand lessons learned. During periods of underperformance, our contact will intensify, and the longer that underperformance persists, the more frequent the contact. Other reasons for contact can include changes to the investment team, unusual portfolio activity, and the introduction of new strategies, which can dilute the team’s focus. A goal of our work is to avoid emotional or knee-jerk reactions to changes, such as a personnel departure or small changes to the process, or an unsatisfying stretch of underperformance. Our objective is to allow sufficient time for performance to improve in the case of managers in whom we retain high confidence and to replace managers when we believe there is a process breakdown or when negative organizational changes occur that erode our confidence in a manager’s ability to outperform.
Sticking to this process—remaining disciplined in our execution of it—we believe that the fund can outperform its benchmark over a full market cycle. We continue to work hard to ensure that the fund is well positioned for success over the medium and longer term.
Thank you for your continued trust and confidence.
Fund Summary | 11 |
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Litman Gregory Masters Equity Fund Managers
INVESTMENT MANAGER | FIRM | TARGET MANAGER ALLOCATION | MARKET CAPITALIZATION OF COMPANIES IN PORTFOLIO | STOCK-PICKING STYLE | BENCHMARK | |||||
Christopher Davis Danton Goei | Davis Selected Advisers, L.P. | 15% | Mostly large companies | Blend | S&P 500 Index | |||||
Pat English Andrew Ramer | Fiduciary Management, Inc. | 15% | All sizes | Blend | S&P 500 Index | |||||
Bill Nygren | Harris Associates L.P. | 15% | Mostly large- and mid-sized companies | Value | Russell 3000 Value Index | |||||
Clyde McGregor | Harris Associates L.P. | 15% | All sizes, but mostly large- and mid-sized companies | Value | Russell 3000 Value Index | |||||
Scott Moore | Nuance Investments, LLC | 10% | All sizes | Value | Russell 3000 Value Index | |||||
Frank Sands, Jr. A. Michael Sramek | Sands Capital Management, LLC | 17% | All sizes, but mostly large- and mid-sized companies | Growth | Russell 1000 Growth Index | |||||
Richard Weiss | Wells Capital Management, Inc. | 13% | All sizes, but mostly small- and mid-sized companies | Blend | Russell 2000 Index |
Equity Fund Value of Hypothetical $100,000
The value of a hypothetical $100,000 investment in the Litman Gregory Masters Equity Fund from December 31, 1996 to December 31, 2017 compared with the Russell 3000 Index and Morningstar Large Blend Category.
The hypothetical $100,000 investment at fund inception includes changes due to share price and reinvestment of dividends and capital gains. The chart does not imply future performance. Indexes are unmanaged, do not incur fees, expenses or taxes, and cannot be invested in directly.
12 | Litman Gregory Funds Trust |
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Litman Gregory Masters Equity Fund
SCHEDULE OF INVESTMENTS IN SECURITIES at December 31, 2017
Shares | Value | |||||||
COMMON STOCKS: 91.7% | ||||||||
Consumer Discretionary: 17.5% | ||||||||
10,075 | Amazon.com, Inc.* | $ | 11,782,410 | |||||
28,000 | Cheesecake Factory, Inc. (The) | 1,349,040 | ||||||
227,000 | Chico’s FAS, Inc. | 2,002,140 | ||||||
55,000 | Comcast Corp. - Class A | 2,202,750 | ||||||
29,500 | Dollar General Corp. | 2,743,795 | ||||||
18,112 | Expedia,Inc. | 2,169,274 | ||||||
219,308 | Fiat Chrysler Automobiles N.V.* | 3,912,455 | ||||||
124,600 | General Motors Co. | 5,107,354 | ||||||
152,500 | Global Eagle Entertainment, Inc.* | 349,225 | ||||||
37,300 | Lear Corp. | 6,589,418 | ||||||
124,000 | Liberty Interactive Corp. QVC Group - Class A* | 3,028,080 | ||||||
111,800 | MGM Resorts International | 3,733,002 | ||||||
15,025 | Netflix, Inc.* | 2,884,199 | ||||||
2,050 | Priceline Group, Inc. (The)* | 3,562,367 | ||||||
39,200 | Starbucks Corp. | 2,251,256 | ||||||
29,000 | TJX Cos., Inc. (The) | 2,217,340 | ||||||
104,000 | Twenty-First Century Fox, Inc. - Class A | 3,591,120 | ||||||
|
| |||||||
59,475,225 | ||||||||
|
| |||||||
Consumer Staples: 2.8% | ||||||||
10,730 | Colgate-Palmolive Co. | 809,579 | ||||||
15,267 | Diageo Plc - ADR | 2,229,440 | ||||||
23,000 | Henkel AG & Co. KGaA | 2,765,174 | ||||||
10,905 | Kimberly-Clark Corp. | 1,315,797 | ||||||
25,382 | Procter & Gamble Co. (The) | 2,332,098 | ||||||
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9,452,088 | ||||||||
|
| |||||||
Energy: 3.9% | ||||||||
39,260 | Apache Corp. | 1,657,558 | ||||||
490,000 | Chesapeake Energy Corp.* | 1,940,400 | ||||||
7,300 | Concho Resources, Inc.* | 1,096,606 | ||||||
283,870 | Encana Corp. | 3,783,987 | ||||||
13,800 | Pioneer Natural Resources Co. | 2,385,330 | ||||||
61,400 | RSP Permian, Inc.* | 2,497,752 | ||||||
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| |||||||
13,361,633 | ||||||||
|
| |||||||
Financials: 23.7% | ||||||||
145,000 | Ally Financial, Inc. | 4,228,200 | ||||||
28,665 | American Express Co. | 2,846,721 | ||||||
47,500 | American International Group, Inc. | 2,830,050 | ||||||
117,000 | Bank of America Corp. | 3,453,840 | ||||||
134,445 | Bank of New York Mellon Corp. (The) | 7,241,208 | ||||||
28 | Berkshire Hathaway, Inc. - Class A* | 8,332,800 | ||||||
24,000 | Berkshire Hathaway, Inc. - Class B* | 4,757,280 | ||||||
63,500 | Blackstone Group L.P. (The) | 2,033,270 | ||||||
90,040 | Capital One Financial Corp. | 8,966,183 | ||||||
55,300 | Citigroup, Inc. | 4,114,873 | ||||||
3,584 | Everest Re Group Ltd. | 792,996 | ||||||
6,700 | Fairfax Financial Holdings Ltd. | 3,553,278 | ||||||
31,500 | FirstCash, Inc. | 2,124,675 | ||||||
26,400 | HDFC Bank Ltd. - ADR | 2,684,088 | ||||||
22,030 | JPMorgan Chase & Co. | 2,355,888 | ||||||
3,454 | Markel Corp.* | 3,934,555 | ||||||
21,022 | MetLife, Inc. | 1,062,873 | ||||||
14,025 | Northern Trust Corp. | 1,400,957 | ||||||
42,500 | PacWest Bancorp | 2,142,000 | ||||||
86,000 | Sterling Bancorp | 2,115,600 |
Shares | Value | |||||||
Financials (continued) | ||||||||
11,828 | Travelers Cos., Inc. (The) | $ | 1,604,350 | |||||
14,837 | UMB Financial Corp. | 1,067,077 | ||||||
109,480 | Wells Fargo & Co. | 6,642,152 | ||||||
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80,284,914 | ||||||||
|
| |||||||
Health Care: 5.2% | ||||||||
22,483 | Abbott Laboratories | 1,283,105 | ||||||
22,000 | Alexion Pharmaceuticals, Inc.* | 2,630,980 | ||||||
4,499 | Becton Dickinson & Co. | 963,062 | ||||||
19,000 | Celgene Corp.* | 1,982,840 | ||||||
53,500 | Cerner Corp.* | 3,605,365 | ||||||
11,850 | Illumina, Inc.* | 2,589,106 | ||||||
7,650 | Regeneron Pharmaceuticals, Inc.* | 2,876,094 | ||||||
46,056 | Smith & Nephew Plc - ADR | 1,612,421 | ||||||
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17,542,973 | ||||||||
|
| |||||||
Industrials: 11.3% | ||||||||
41,500 | Adecco Group AG | 3,175,923 | ||||||
204,800 | Arconic, Inc. | 5,580,800 | ||||||
65,500 | CH Robinson Worldwide, Inc. | 5,835,395 | ||||||
115,000 | General Electric Co. | 2,006,750 | ||||||
21,500 | Honeywell International, Inc. | 3,297,240 | ||||||
20,697 | Hub Group, Inc. - Class A* | 991,386 | ||||||
130,600 | Johnson Controls International Plc | 4,977,166 | ||||||
55,900 | Oshkosh Corp. | 5,080,751 | ||||||
36,000 | PACCAR, Inc. | 2,558,880 | ||||||
9,395 | Rockwell Collins, Inc. | 1,274,150 | ||||||
29,320 | United Technologies Corp. | 3,740,352 | ||||||
|
| |||||||
38,518,793 | ||||||||
|
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Information Technology: 25.4% | ||||||||
28,500 | Accenture Plc - Class A | 4,363,065 | ||||||
24,000 | Akamai Technologies, Inc.* | 1,560,960 | ||||||
28,375 | Alibaba Group Holding Ltd. - ADR* | 4,892,701 | ||||||
10,795 | Alphabet, Inc. - Class A* | 11,371,453 | ||||||
6,476 | Alphabet, Inc. - Class C* | 6,776,486 | ||||||
12,425 | Baidu, Inc. - ADR* | 2,910,059 | ||||||
140,900 | CommScope Holding Co., Inc.* | 5,330,247 | ||||||
69,353 | CSRA, Inc. | 2,075,042 | ||||||
26,350 | Facebook, Inc. - Class A* | 4,649,721 | ||||||
22,900 | MasterCard, Inc. - Class A | 3,466,144 | ||||||
68,000 | NCR Corp.* | 2,311,320 | ||||||
67,000 | Oracle Corp. | 3,167,760 | ||||||
15,300 | Red Hat, Inc.* | 1,837,530 | ||||||
39,125 | salesforce.com, Inc.* | 3,999,749 | ||||||
23,600 | ServiceNow, Inc.* | 3,077,204 | ||||||
96,000 | TE Connectivity Ltd. | 9,123,840 | ||||||
90,005 | Visa, Inc. - Class A | 10,262,370 | ||||||
25,575 | Workday, Inc. - Class A* | 2,602,001 | ||||||
71,500 | Zendesk, Inc.* | 2,419,560 | ||||||
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86,197,212 | ||||||||
|
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Materials: 1.9% | ||||||||
40,000 | Agnico Eagle Mines Ltd. | 1,847,200 | ||||||
173,500 | Potash Corp. of Saskatchewan, Inc. | 3,582,775 | ||||||
6,368 | Praxair, Inc. | 985,002 | ||||||
|
| |||||||
6,414,977 | ||||||||
|
| |||||||
| TOTAL COMMON STOCKS | 311,247,815 | ||||||
|
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The accompanying notes are an integral part of these financial statements.
Schedule of Investments | 13 |
Table of Contents
Litman Gregory Masters Equity Fund
SCHEDULE OF INVESTMENTS IN SECURITIES at December 31, 2017 (Continued)
Principal Amount | Value | |||||||
SHORT-TERM INVESTMENTS: 8.2% | ||||||||
REPURCHASE AGREEMENTS: 8.2% | ||||||||
$27,911,000 | FICC, 0.20%, 12/29/2017, due 01/02/2018 [collateral: par value $24,195,000, U.S. Treasury Bond, 3.625%, due 08/15/2043, value $28,496,418] (proceeds $27,911,620) | $ | 27,911,000 | |||||
|
| |||||||
| TOTAL SHORT-TERM INVESTMENTS | 27,911,000 | ||||||
|
| |||||||
| TOTAL INVESTMENTS | 339,158,815 | ||||||
|
| |||||||
Other Assets in Excess of Liabilities: 0.1% | 377,477 | |||||||
|
| |||||||
Net Assets: 100.0% | $339,536,292 | |||||||
|
|
Percentages are stated as a percent of net assets.
ADR | American Depositary Receipt. |
L.P. | Limited Partnership. |
* | Non-Income Producing Security. |
The accompanying notes are an integral part of these financial statements.
14 | Litman Gregory Funds Trust |
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Litman Gregory Masters International Fund Review
The Litman Gregory Masters International Fund gained 23.61% in 2017, while its benchmarks, the MSCI ACWI ex USA Index and the MSCI EAFE Index rose 27.19% and 25.03%, respectively. The fund also trailed its average peer (up 25.42%) in the Morningstar Foreign Large Blend Category.
December 2017 marked the 20th anniversary of the Litman Gregory Masters International Fund. We are pleased that the fund has returned 7.63% since its inception on December 1, 1997. This return is nicely ahead of the MSCI ACWI ex USA Index return of 5.76%, the MSCI EAFE Index return of 5.27%, and the Morningstar Foreign Large Blend Category return of 4.71%. This long-term record, in our opinion, is a validation of the Masters Funds concept and our belief that concentration in the right hands can add significant value.
Performance as of 12/31/2017 | ||||||||||||||||||||||||||||
Average Annual Total Returns | ||||||||||||||||||||||||||||
Three Month Return | One- Year | Three- Year | Five- Year | Ten- Year | Fifteen- Year | Since Inception | ||||||||||||||||||||||
Litman Gregory Masters International Fund Institutional Class (12/1/1997) | 2.69% | 23.61% | 3.67% | 5.65% | 1.47% | 8.49% | 7.63% | |||||||||||||||||||||
MSCI ACWI (ex- U.S.) Index | 5.00% | 27.19% | 7.83% | 6.80% | 1.84% | 8.75% | 5.76% | |||||||||||||||||||||
MSCI EAFE Index | 4.23% | 25.03% | 7.80% | 7.90% | 1.94% | 8.11% | 5.27% | |||||||||||||||||||||
Morningstar Foreign Large Blend Category Average | 3.95% | 25.42% | 7.49% | 7.05% | 1.46% | 7.42% | 4.71% | |||||||||||||||||||||
Litman Gregory Masters International Fund Investor Class (4/30/2009) | 2.66% | 23.36% | 3.42% | 5.38% | n/a | n/a | 8.30% | |||||||||||||||||||||
MSCI ACWI (ex- U.S.) Index | 5.00% | 27.19% | 7.83% | 6.80% | n/a | n/a | 9.36% | |||||||||||||||||||||
MSCI EAFE Index | 4.23% | 25.03% | 7.80% | 7.90% | n/a | n/a | 9.55% | |||||||||||||||||||||
Morningstar Foreign Large Blend Category Average | 3.95% | 25.42% | 7.49% | 7.05% | n/a | n/a | 9.22% | |||||||||||||||||||||
Performance quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the funds may be lower or higher than the performance quoted. To obtain standardized performance of the funds, and performance as of the most recently completed calendar month, please visit www.mastersfunds.com. As of the prospectus dated 4/30/2017, the gross and net expense ratios for the Institutional Class were 1.29% and 1.06%, respectively; and for the Investor Class were 1.54% and 1.31%, respectively. The Advisor is contractually obligated to waive management fees through April 30, 2018. All performance discussions in this report refer to the performance of the Institutional share class. |
MSCI index returns source: MSCI. Neither MSCI nor any other party involved in or related to compiling, computing, or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability, or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates, or any third party involved in or related to compiling, computing, or creating the data have any liability for any direct, indirect, special, punitive, consequential, or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI’s express written consent. Source note: Returns prior to 1999 are the MSCI ACWI ex-US GR index. Returns from 1999 onwards are MSCI ACWI ex-US NR index.
Performance of Managers
In 2017, of the five sub-advisors who were on the fund for the full year, one sub-advisor outperformed their benchmark, one sub-advisor matched the return of their benchmark, and the three other sub-advisors trailed their respective benchmarks (one lagged by only 30 basis points). The year-to-date performance of these five sub-advisors ranged from 15.79% to 28.63% (returns are net of the management fee each sub-advisor charges the fund). A sixth manager, David Marcus of Evermore Global Advisors, joined the fund in March 2017 and is outperforming his benchmark.
While we have certainly been disappointed with performance in the past few years, our focus remains on generating better-than-average long-term performance. There are three sub-advisors that have been on the fund for at least five years, and each of them has outperformed their respective benchmarks since they joined the fund. Net of their sub-advisor fee, outperformance ranges from 1.59% to 2.73% annualized.
Key Performance Drivers
Below we discuss some of the key drivers of both absolute and relative performance. It is important to understand that the portfolio’s sector and country weightings are a residual of the bottom-up, fundamental stock-picking process employed by each sub-advisor. That said, we do report on the relative performance contributions from stock selection, as well as sector and country weightings, to help shareholders better understand drivers of performance.
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In 2017, sector allocation and region allocation both hurt returns relative to the benchmark. In such a strong up market, even a below-average cash position of about 3.5% detracted from returns. From a sector standpoint, being underweight to the information technology sector (4.94% vs. 11.44% for the index at year-end) was the largest detractor as the sector rose nearly 50%.
The fund’s relative underweight to emerging-market countries also hurt returns (the fund’s primary benchmark has emerging-market exposure). The top-performing region in 2017 was developing Asian countries. Some of the fund’s positions in this region performed well, such as JD.com, which was up over 60% in 2017. However, the relative underweight to the region was a headwind for returns.
The strong performance of the fund’s financial holdings led to a positive selection effect last year. Lloyds Banking Group was among the top contributors in 2017. Additionally, non-benchmark positions also contributed positively to returns, such as B2 Holding and Israel Discount Bank.
Top 10 Contributors as of the Year Ended December 31, 2017 | ||||||||||||||||||||
Company Name | Fund Weight (%) | Benchmark Weight (%) | 12-Month Return (%) | Contribution to Return (%) | Country | Economic Sector | ||||||||||||||
Vivendi SA | 4.53 | 0.14 | 40.16 | 1.93 | France | Consumer Discretionary | ||||||||||||||
ASML Holding NV | 2.53 | 0.29 | 59.20 | 1.48 | Netherlands | Information Technology | ||||||||||||||
Wynn Macau Ltd. | 1.44 | 0.02 | 94.79 | 1.18 | Hong Kong | Consumer Discretionary | ||||||||||||||
Aena SA | 1.27 | 0.05 | 45.87 | 1.05 | Spain | Industrials | ||||||||||||||
Lloyds Banking Group PLC | 3.31 | 0.29 | 25.68 | 0.97 | United Kingdom | Financials | ||||||||||||||
Las Vegas Sands Corp. | 2.54 | 0.00 | 34.85 | 0.89 | United States | Consumer Discretionary | ||||||||||||||
Carlsberg A/S B | 2.29 | 0.06 | 41.97 | 0.88 | Denmark | Consumer Staples | ||||||||||||||
Don Quijote Holdings Co. | 2.15 | 0.00 | 38.91 | 0.87 | Japan | Consumer Discretionary | ||||||||||||||
Barratt Developments PLC | 1.14 | 0.04 | 60.59 | 0.80 | United Kingdom | Consumer Discretionary | ||||||||||||||
CNH Industrial NV | 1.42 | 0.07 | 55.75 | 0.79 | Netherlands | Industrials |
Portfolio contribution for a holding represents the product of the average portfolio weight and the total return earned by the holding during the period. Past performance is no guarantee of future results. Fund holdings and/or sector allocations are subject to change at any time and are not recommendations to buy or sell any security.
Top 10 Detractors as of the Year Ended December 31, 2017 | ||||||||||||||||||||
Company Name | Fund Weight (%) | Benchmark Weight (%) | 12-Month Return (%) | Contribution to Return (%) | Country | Economic Sector | ||||||||||||||
Altice NV A | 2.26 | 0.04 | -52.58 | -1.80 | Netherlands | Consumer Discretionary | ||||||||||||||
Teva Pharmaceutical Industries Ltd. | 0.42 | 0.13 | -46.14 | -0.46 | Israel | Health Care | ||||||||||||||
Frontline Ltd. | 0.75 | 0.00 | -33.32 | -0.45 | Bermuda | Energy | ||||||||||||||
Shire PLC | 3.17 | 0.25 | -9.91 | -0.35 | United Kingdom | Health Care | ||||||||||||||
Schlumberger Ltd. | 1.29 | 0.00 | -18.67 | -0.31 | United States | Energy | ||||||||||||||
Inmarsat PLC | 1.49 | 0.01 | -17.06 | -0.27 | United Kingdom | Telecommunications | ||||||||||||||
Scorpio Bulkers Inc. | 0.63 | 0.00 | -20.44 | -0.24 | Monaco | Industrials | ||||||||||||||
Fibra Uno Administracion SA de CV Series 11 | 0.13 | 0.02 | -12.21 | -0.09 | Mexico | Real Estate | ||||||||||||||
Telecom Italia SPA | 1.07 | 0.05 | -5.51 | -0.09 | Italy | Telecommunications | ||||||||||||||
Grupo Televisa SAB | 0.97 | 0.06 | -10.10 | -0.05 | Mexico | Consumer Discretionary |
Portfolio contribution for a holding represents the product of the average portfolio weight and the total return earned by the holding during the period. Past performance is no guarantee of future results. Fund holdings and/or sector allocations are subject to change at any time and are not recommendations to buy or sell any security.
As has been the case the last couple of years, the consumer discretionary sector is the fund’s largest sector overweight at year-end. This sector performed a couple of percentage points better than the broader index, and the fund’s consumer discretionary holdings performed slightly better than those in the index. This resulted in positive attribution from both a sector allocation and stock selection standpoint. The fund’s largest holding, Vivendi, resides in this sector and is currently owned by three sub-advisors (Lazard Asset Management, Evermore, and Northern Cross). Vivendi stock was up over 40% last year and was the top contributor to performance.
Vivendi is a French-headquartered media and telecom conglomerate. David Marcus says under Vivendi chairman Vincent Bolloré’s continued strong leadership, the company has been transformed into a leaner, more focused media and telecom company. A combination of asset sales and strong cash flows in recent years have transformed the company’s balance sheet from a massive net
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debt position to a net cash position. Marcus believes that Vivendi is still in the midst of its transformation. The company understands that both telecom and media-related businesses are going through radical and rapid shifts whose outcomes remain uncertain. In this environment, Mr. Bolloré is pushing to leverage the deep content Vivendi owns through as many different channels as possible.
Marcus views Vivendi as a holding company with a collection of core and non-core assets that will continue to be opportunistic in acquiring undervalued assets, some of which will be restructured and sold, and others that will be restructured and retained. While many investors are unhappy that Mr. Bolloré is not extremely communicative or transparent regarding Vivendi’s goals and strategy, Marcus believes that his history of value creation and old school approach of “doing and not talking much” will continue to accrete real value for shareholders.
The largest detractor last year also came from the consumer discretionary sector. Altice, owned by Vinson Walden of Thornburg Investment Management, is a Netherlands-domiciled holding company that operates as a multinational cable, fiber, telecommunications, and content provider and media company. The position was the largest positive contributor in 2016 but was a significant detractor to performance during the second half of 2017. Because this stock had an outsized impact on performance, we will spend more time than typical discussing this name, including bringing to light Walden’s original investment thesis, thought process as the stock corrected, and viewing of the investment case looking forward.
Walden says they reviewed Altice during its 2013 IPO, and although they did not participate, they continued to watch the company. Then from Altice’s share price peak in mid-2015, the shares declined approximately 60% into December 2015, when Walden initiated a position in Altice. He says the decline had three main causes: (1) a scare in the U.S. and European corporate debt markets; (2) Altice’s failed bid to acquire Bouygues, a French telecom company; and (3) several short-sale reports questioning Altice’s operational practices and accounting.
Walden saw the shares’ late 2015 decline as an opportunity to invest because the valuation adequately compensated for the risks in the debt markets and the questions about competition to their business in France. And based on their analyses, Walden and team were able to discount the negative conclusions in the short-sale reports. Beyond valuation, his assessment of Altice’s durable competitive position and its path to success were also positive. The investment thesis was predicated on the following:
1. | Solid potential for organic growth in the business and attractive cost restructuring opportunities from recent acquisitions in France and the United States |
2. | Commitment by the company to use cash flow to pay down debt, which would allow value to accrue to equity investors |
3. | Opportunity to compound investor capital, as over time, Altice could potentially resume its pursuit of attractive and accretive acquisitions |
During 2016 and the first half of 2017, Altice’s operational performance was in line with Walden’s expectations. It continued to deliver cost restructuring and service improvements across Europe, enhanced its debt service capabilities and maintained a balanced debt maturity profile, and completed acquisitions (and restructuring) in the United States, which created valuable scale. In mid-2017, Altice IPO’d a minority stake in its U.S. operations to create a currency for additional mergers and acquisitions. The share price rebounded with all these positive developments.
However, in November 2017, Altice reported third quarter 2017 results that raised market concerns regarding its ability to improve performance in its home market of France, market its services effectively in Portugal, and deploy capital productively in the United States. This drove a substantial decline in the shares, where a moderate reduction in fundamental metrics was exacerbated by the company’s perceived high debt load.
Since Walden’s original purchase, he says the business is larger and more profitable, but he acknowledges the recent rate of growth and, importantly, poor management execution was disappointing. To drive improvement, the company pushed out Group CEO Michel Combes on November 10, 2017. Founder Patrick Drahi returned as president, and Dexter Goei returned as Group CEO (he’d shifted to driving acquisition integration efforts at Altice USA).
Walden says he and his team have thoroughly reviewed the causes of the disappointments and have spoken with management several times since the selloff began. Because of this mis-step, management now needs to focus more on reducing debt and less on expansion (i.e., their degrees of freedom are reduced somewhat). This in turn has caused Walden to lower his target price for Altice in his base-case scenario, although, depending upon how well management executes, his previous target price expectations may still be met. As is often the case, Walden believes the markets over-reacted to this short-term disappointment, and when we met him in December he saw nearly 100% upside to his lowered price target estimate.
Addressing leverage concerns other investors have with respect to Altice, Walden says there is an ample coverage cushion for earnings before interest, taxes, depreciation, and amortization (EBITDA) to pay interest expense, so he does not see a material risk of default. Altice and its subsidiaries have no large debt maturities until 2021 and have the capacity to pay down debt by €1 billion (or more) each year until then. In addition, the company is likely to dispose of one to three smaller operating assets and use the proceeds to accelerate debt payment.
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Walden adds they know and respect Altice’s “new” management (which is really the old management team that built the company) and believe the management team is strong and capable enough to improve operational execution, which is what precipitated the sharp correction in Altice’s stock.
Also within the consumer discretionary sector, two casino operators, Las Vegas Sands and Wynn Macau, were among the top contributors in 2017. Las Vegas Sands, owned by Northern Cross, returned nearly 35% last year. Wynn Macau, which is owned by Walden, increased by nearly 95% in 2017. Both companies control and operate casino properties in Macau. Gaming growth in Macau drove strong performance last year. According to Northern Cross, following a bottom in 2016, gross gaming revenue expanded 19% in 2017, driven by both the high-end and mass markets. Northern Cross says they owned Las Vegas Sands because the company has a dominant position in Macau (in terms of hotel rooms, tables, and convention space) and is thus best positioned to benefit from its transition to a more sustainable model, away from high-end VIP customers playing on credit and toward more mass-market and upper-end cash-based players. On the other hand, Walden says Wynn Macau maintains particularly strong brand equity with VIP gamblers in China. This also makes the properties aspirational destinations for mass-market gamblers visiting Macau. In late 2016, Wynn Macau opened its newest property, the Wynn Palace on the Cotai Strip, and consequently the company had the opportunity to grow market share in addition to benefiting from a healthier overall market.
Energy holdings detracted from performance last year. David Marcus of Evermore Global owns a position in Frontline, a tanker vessel owner and operator with a fleet of more than 60 vessels on the water and an aggregate capacity of approximately 11 million deadweight tons. Shares fell sharply in the fourth quarter, as Marcus says the company reported weaker than expected third quarter earnings. The weak quarter was attributed to the company keeping a disciplined commercial approach during a seasonally weak quarter by not accepting unreasonably low fixtures from charterers resulting in extended waiting times. Management implicitly believes (as does Marcus) that the inflection point is near and therefore the company has decided to have a higher exposure to crude spot rates. Marcus believes the market is currently too pessimistic about the prolonged OPEC (Organization of the Petroleum Exporting Countries) production cuts and the implications for demand growth. Importantly, they believe the dynamics on the supply side are now favorably underpinned by the substantial drop in new orders, slippage in deliveries, and the overall aging fleet and new regulations, which is leading to increased scrapping and decreased supply.
Schlumberger, owned by Northern Cross, was another energy holding that was a headwind to performance. The company remains a best-in-class franchise, according to the team, but the recovery in oil and gas capital expenditures has been pushed back, driven by the resilience of supply in both North America and from large mega projects funded at much higher oil prices but just now coming into production. As oil companies remain resolute that they will not increase capital expenditures, analysts have pushed out the earnings recovery for Schlumberger and the stock has suffered. Northern Cross thinks that over time the oil and gas industry will be even more reliant on Schlumberger technology and that this will drive growth in earnings power even if overall industry capital expenditure does not return to prior peak levels. They remain highly confident that Schlumberger’s long-term earnings power is much higher than what is currently priced in by the market.
Portfolio Mix
Please see below for sector, regional, and market-cap allocations as of year-end.
The International Fund is built bottom-up and can at times look very different from its benchmark. As we have stated in earlier reports, we believe this is key to generating excess long-term returns. If we aren’t willing to look much different than the benchmark, we shouldn’t expect to achieve returns much different from the benchmark.
Over the last 12 months, the overall portfolio mix changed modestly. Noteworthy items include the following:
• | The fund remains heavily overweight to the consumer discretionary sector. This is the largest active weight versus the benchmark (30.1% versus 11.3%, respectively). Vivendi is the largest position within this sector as of the end of 2017. As previously mentioned, three sub-advisors currently have a position in this stock. |
• | Energy exposure crept up last year and is now at 5% (compared to 6.7% in the benchmark). This is up from having no direct exposure at the end of 2015 and just one name in 2016. As of the end of 2017, three energy holdings were purchased in the last 12 months. |
• | Exposure to European companies remains the largest regional overweight for the fund. However, exposure to European-domiciled companies did fall year over year. At the end of 2016, the fund’s allocation to this region was 75.3%, whereas it is now down to 68.8%. |
• | Small-cap and mid-cap exposure within the fund increased over the year. A major reason for this was the addition of David Marcus to the fund last year. Marcus is an all-cap deep-value manager, but he has an emphasis on small- and mid-cap stocks. |
• | As of the end of 2017, 3.7% of the fund’s foreign currency exposure was being hedged, primarily against the Euro currency. At the end of 2016, 4.1% of the fund’s currency exposure was hedged, consisting mostly of hedges protecting against British pound depreciation. |
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By Sector
Sector Allocation | ||||||||||||
Fund as of 12/31/17 | Fund as of 12/31/16 | iShares MSCI ACWI ex- U.S. as of 12/31/17 | ||||||||||
Consumer Discretionary | 30.1% | 32.0% | 11.3% | |||||||||
Consumer Staples | 9.0% | 10.0% | 9.6% | |||||||||
Energy | 5.0% | 2.1% | 6.7% | |||||||||
Finance | 18.9% | 19.2% | 22.9% | |||||||||
Health Care & Pharmaceuticals | 8.6% | 11.4% | 7.7% | |||||||||
Industrials | 12.8% | 10.7% | 11.7% | |||||||||
Information Technology | 4.9% | 6.4% | 11.4% | |||||||||
Materials | 2.8% | 3.2% | 8.0% | |||||||||
Real Estate | 1.4% | 0.0% | 3.1% | |||||||||
Telecom | 3.6% | 3.7% | 4.1% | |||||||||
Utilities | 0.0% | 0.0% | 2.8% | |||||||||
Cash Equivalents & Other | 2.8% | 1.3% | 0.5% | |||||||||
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By Region
Regional Allocation | ||||||||||||
Fund as of 12/31/17 | Fund as of 12/31/16 | iShares MSCI ACWI ex- U.S. as of 12/31/17 | ||||||||||
Africa | 0.0% | 0.0% | 1.7% | |||||||||
Australia/New Zealand | 1.0% | 1.7% | 4.8% | |||||||||
Asia (ex Japan) | 11.6% | 7.3% | 21.4% | |||||||||
Japan | 8.2% | 6.8% | 16.5% | |||||||||
Western Europe & UK | 68.8% | 75.3% | 44.2% | |||||||||
Latin America | 1.6% | 1.0% | 2.9% | |||||||||
North America | 4.2% | 5.2% | 7.3% | |||||||||
Middle East | 1.8% | 1.4% | 0.6% | |||||||||
Cash Equivalents & Other | 2.8% | 1.3% | 0.5% | |||||||||
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100.0% | 100.0% | 100.0% | ||||||||||
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Fund holdings and/or sector allocations are subject to change at any time and are not recommendations to buy or sell any security.
By Asset Class | By Market Capitalization | |
Market Capitalization: Developed Markets Small-Cap < $5.5 billion Developed Markets Large and Mid-Cap > $5.5 billion
* Totals may not add up to 100% due to rounding |
Market Capitalization: Small-Cap < $5.5 billion Mid-Cap $5.5 billion - $15 billion Large-Cap > $15 billion |
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Taxes
Masters’ International realized taxable gains in 2017. However, the fund has a sizable tax-loss carry-forward that more than offset these gains so there was no capital gain distribution in 2017. At the end of the year, the tax-loss carry-forward remained sizable at over 11% of net assets and will be used to offset future realized capital gains. We view this as a significant benefit for taxable shareholders over the next year and possibly beyond.
Closing Thoughts
The Litman Gregory Masters International Fund was launched 20 years ago with a simple premise: identify the best stock pickers we can find and provide them with an environment where their primary focus is to generate great long-term performance and managing short-term underperformance or tracking error versus benchmarks is not at all a consideration. While recent performance has been disappointing, the fund’s long-term track record and batting average over rolling periods remains strong, as the chart below shows.
Data as of 12/31/17
Past performance is no guarantee of future results, which may vary.
Source: Litman Gregory
The fund’s superior batting average over longer periods is first and foremost a function of picking skilled stock pickers based on extremely thorough due diligence. Of the 14 managers ever hired for the fund, 11 have outperformed their benchmarks, while one currently in the fund is matching its benchmark (behind by 21 basis points to be precise). Of the two that have underperformed, one is no longer with the fund while another has been on the fund less than two years—too short a period to evaluate performance, especially for a portfolio of 15 or fewer stocks. Second, over the past 20 years, managers have added significant value by focusing on only their highest-conviction ideas. Finally, our ongoing due diligence on managers to retain confidence in their ability to generate superior performance has also been key. This monitoring process intensifies when we go through a stretch of underperformance, as we have recently.
To cite a few examples, in 2017 we had lengthy discussions with each senior member of Harris Associates’ international team that supports David Herro in running his International Fund portfolio and came away extremely impressed with the overall quality of the
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team and consistency with which they are executing their investment discipline. We also met with the three portfolio managers at Northern Cross and the analyst team in their Boston offices and came away with renewed confidence in how decisions are made in our portfolio, the team dynamics, and their investment edge.
As such, we have extremely high confidence in all six sub-advisors in the fund. When our confidence in a sub-advisor is reaffirmed, we stick with them. There are a number of studies that show top-performing managers go through inevitable periods of underperformance, and it’s normal for managers to underperform for as long as three years before going on to outperform.
We will end with some thoughts on the investment opportunity set we see outside the United States. Our top-down analysis suggests non-U.S. companies in aggregate, especially in Europe where the fund is significantly overweight, are underearning relative to their long-term potential or normalized level. Unlike the United States, since the financial crisis, Europe has gone through a debt crisis and a relatively slow banking-sector deleveraging that has crimped lending and demand. Our analysis suggests Europe’s recovery has lagged that of the United States and there is a strong case for international stocks outperforming their U.S. counterparts looking forward. (Of course, there are no guarantees that this will indeed happen.) Anecdotally, we see that European countries are implementing labor-market reforms and European companies are restructuring and becoming leaner—both should bode well for profits if the synchronized global economic recovery we are seeing continues.
On company-level restructuring, David Marcus of Evermore best articulates the opportunity when he says, “I started investing in Europe about 25 years ago when I worked for renowned value investor Michael Price. Many parts of Europe, namely the Nordic region, endured panic and crisis during the 1990s, but it turned out to be an excellent time to invest in the region for the discerning investor. While Europe’s crisis may have passed a few years ago, I continue to see the same variety of opportunities in Europe today that I saw back then, as European-domiciled companies are transforming their businesses by engaging in an unprecedented level of operational and financial restructurings, including asset sales, spinoffs, and mergers. These are some of the catalysts we look for in our search for misunderstood, under-researched, and undervalued special situation investment opportunities. Throughout 2017, we had over 300 touches with corporate management teams of predominantly European companies; there is a level of confidence and excitement by corporate management teams that I have not seen in many years. We remain optimistic that this exuberance will translate into the creation of significant value for shareholders.”
We remain committed to executing the Masters Funds concept with exceptional discipline and rigor and generating strong absolute and relative performance over the next 10 years and beyond. We thank shareholders for their trust and confidence and will continue to work hard to earn it.
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Litman Gregory Masters International Fund Managers
INVESTMENT MANAGER | FIRM | TARGET MANAGER ALLOCATION | MARKET CAPITALIZATION OF COMPANIES IN PORTFOLIO | STOCK-PICKING STYLE | BENCHMARK | |||||
David Marcus | Evermore Global Advisors | 16.67% | All Sizes | Value | MSCI World ex U.S. Value Index | |||||
David Herro | Harris Associates L.P. | 16.67% | All sizes, but mostly large- and mid-sized companies | Value | MSCI World ex U.S. Value Index | |||||
Mark Little | Lazard Asset Management, LLC | 16.67% | All sizes | Blend/Relative Value | MSCI All Countries World Free ex U.S. Index | |||||
Howard Appleby Jean-Francois Ducrest Jim LaTorre | Northern Cross, LLC | 16.67% | Mostly large- and mid-sized companies | Blend | MSCI All Countries World Free ex U.S. Index | |||||
Fabio Paolini Benjamin Beneche | Pictet Asset Management, Ltd. | 16.67% | All sizes | Blend | MSCI EAFE Index | |||||
Vinson Walden | Thornburg Investment Management, Inc. | 16.67% | All sizes | Eclectic, may invest in traditional value stocks or growth stocks | MSCI All Countries World Free ex U.S. Index |
International Fund Value of Hypothetical $100,000
The value of a hypothetical $100,000 investment in the Litman Gregory Masters International Fund from December 1, 1997 to December 31, 2017 compared with the MSCI ACWI ex-U.S. Index and Morningstar Foreign Large Blend Category.
The hypothetical $100,000 investment at fund inception includes changes due to share price and reinvestment of dividends and capital gains. The chart does not imply future performance. Indexes are unmanaged, do not incur fees, expenses or taxes, and cannot be invested in directly.
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Litman Gregory Masters International Fund
SCHEDULE OF INVESTMENTS IN SECURITIES at December 31, 2017
Shares | Value | |||||||
COMMON STOCKS: 97.2% | ||||||||
Australia: 1.0% | ||||||||
2,200,375 | Incitec Pivot Ltd. | $ | 6,700,238 | |||||
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Belgium: 3.7% | ||||||||
184,847 | Anheuser-Busch InBev S.A. | 20,659,607 | ||||||
351,247 | Fagron* | 4,819,746 | ||||||
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25,479,353 | ||||||||
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Bermuda: 3.4% | ||||||||
1,294,663 | Frontline Ltd.(a) | 5,942,503 | ||||||
860,818 | Teekay LNG Partners L.P. | 17,345,483 | ||||||
|
| |||||||
23,287,986 | ||||||||
|
| |||||||
Canada: 0.5% | ||||||||
1,344,300 | Bombardier, Inc. - Class B* | 3,253,898 | ||||||
|
| |||||||
China: 3.0% | ||||||||
36,538 | Baidu, Inc. - ADR* | 8,557,565 | ||||||
280,812 | JD.com, Inc. - ADR* | 11,631,233 | ||||||
|
| |||||||
20,188,798 | ||||||||
|
| |||||||
Denmark: 2.9% | ||||||||
99,884 | Carlsberg A/S - Class B | 11,985,374 | ||||||
51,799 | Nilfisk Holding A/S* | 3,039,325 | ||||||
88,315 | Novo Nordisk A/S - Class B | 4,755,090 | ||||||
|
| |||||||
19,779,789 | ||||||||
|
| |||||||
Finland: 1.9% | ||||||||
234,185 | Sampo Oyj - Class A | 12,890,784 | ||||||
|
| |||||||
France: 12.3% | ||||||||
193,562 | AXA S.A. | 5,748,353 | ||||||
145,400 | BNP Paribas S.A. | 10,864,734 | ||||||
9,953 | Bollore S.A.* | 54,444 | ||||||
1,978,100 | Bollore S.A. | 10,766,963 | ||||||
43,101 | Essilor International Cie Generale d’Optique S.A. | 5,955,312 | ||||||
54,823 | Orpea | 6,478,164 | ||||||
77,104 | Safran S.A. | 7,944,419 | ||||||
1,353,920 | Vivendi S.A. | 36,479,808 | ||||||
|
| |||||||
84,292,197 | ||||||||
|
| |||||||
Germany: 6.7% | ||||||||
37,485 | Allianz SE | 8,601,748 | ||||||
131,972 | AURELIUS Equity Opportunities SE & Co. KGaA | 9,038,735 | ||||||
77,815 | Bayer AG | 9,697,605 | ||||||
128,200 | Daimler AG | 10,907,566 | ||||||
68,901 | SAP SE | 7,741,314 | ||||||
|
| |||||||
45,986,968 | ||||||||
|
| |||||||
Greece: 1.1% | ||||||||
599,607 | OPAP S.A. | 7,560,129 | ||||||
|
| |||||||
Hong Kong: 6.4% | ||||||||
1,424,000 | CK Hutchison Holdings Ltd. | 17,877,951 | ||||||
3,377,840 | MGM China Holdings Ltd. | 10,217,299 | ||||||
3,736,000 | New World Development Co. Ltd. | 5,613,123 | ||||||
3,193,100 | Wynn Macau Ltd. | 10,060,037 | ||||||
|
| |||||||
43,768,410 | ||||||||
|
| |||||||
Israel: 1.8% | ||||||||
4,196,364 | Israel Discount Bank Ltd. - Class A* | 12,224,572 | ||||||
|
|
Shares | Value | |||||||
Italy: 1.3% | ||||||||
10,536,793 | Telecom Italia SpA* | $ | 9,114,218 | |||||
|
| |||||||
Japan: 8.2% | ||||||||
152,100 | CyberAgent, Inc. | 5,939,982 | ||||||
319,892 | Don Quijote Holdings Co. Ltd. | 16,720,855 | ||||||
401,500 | Japan Tobacco, Inc. | 12,929,840 | ||||||
75,800 | SoftBank Group Corp. | 5,987,640 | ||||||
109,100 | Toyota Motor Corp. | 6,985,371 | ||||||
206,961 | Universal Entertainment Corp. | 7,581,553 | ||||||
|
| |||||||
56,145,241 | ||||||||
|
| |||||||
Mexico: 1.6% | ||||||||
2,470,700 | Fibra Uno Administracion S.A. de C.V. | 3,659,271 | ||||||
398,946 | Grupo Televisa SAB - ADR | 7,448,322 | ||||||
|
| |||||||
11,107,593 | ||||||||
|
| |||||||
Monaco: 0.9% | ||||||||
818,588 | Scorpio Bulkers, Inc. | 6,057,551 | ||||||
|
| |||||||
Netherlands: 9.8% | ||||||||
660,283 | Altice NV - Class A* | 6,921,063 | ||||||
100,868 | ASML Holding N.V. | 17,534,392 | ||||||
618,400 | CNH Industrial N.V. | 8,283,878 | ||||||
175,499 | EXOR N.V. | 10,778,485 | ||||||
255,517 | NN Group N.V. | 11,070,415 | ||||||
499,836 | OCI N.V.* | 12,633,843 | ||||||
|
| |||||||
67,222,076 | ||||||||
|
| |||||||
Norway: 1.5% | ||||||||
3,040,299 | B2Holding ASA(a) | 7,759,983 | ||||||
545,987 | Borr Drilling Ltd.* | 2,304,723 | ||||||
|
| |||||||
10,064,706 | ||||||||
|
| |||||||
South Korea: 1.6% | ||||||||
44,674 | Hyundai Mobis Co. Ltd.* | 10,981,859 | ||||||
|
| |||||||
Spain: 3.7% | ||||||||
79,142 | Aena SME S.A.(b) | 16,053,780 | ||||||
1,023,255 | Codere S.A.*(a) | 9,257,315 | ||||||
|
| |||||||
25,311,095 | ||||||||
|
| |||||||
Switzerland: 3.9% | ||||||||
43,400 | Cie Financiere Richemont S.A. | 3,930,772 | ||||||
451,960 | Credit Suisse Group AG* | 8,047,501 | ||||||
3,699,800 | IWG Plc | 12,880,300 | ||||||
9,330 | Kuehne & Nagel International AG | 1,649,341 | ||||||
|
| |||||||
26,507,914 | ||||||||
|
| |||||||
Taiwan: 0.6% | ||||||||
988,000 | Merida Industry Co. Ltd. | 4,140,808 | ||||||
|
| |||||||
United Kingdom: 15.7% | ||||||||
135,078 | Coca-Cola European Partners Plc | 5,391,234 | ||||||
285,612 | Diageo Plc | 10,473,047 | ||||||
496,962 | GlaxoSmithKline Plc | 8,807,108 | ||||||
1,436,365 | Informa Plc | 13,999,516 | ||||||
1,473,265 | Inmarsat Plc | 9,780,894 | ||||||
251,897 | Liberty Global Plc - Series C* | 8,524,195 | ||||||
20,847,938 | Lloyds Banking Group Plc | 19,127,106 | ||||||
351,459 | Shire Plc | 18,264,693 | ||||||
753,200 | Standard Chartered Plc* | 7,941,470 | ||||||
35,200 | Willis Towers Watson Plc | 5,304,288 | ||||||
|
| |||||||
107,613,551 | ||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Schedule of Investments | 23 |
Table of Contents
Litman Gregory Masters International Fund
SCHEDULE OF INVESTMENTS IN SECURITIES at December 31, 2017 (Continued)
Shares | Value | |||||||
COMMON STOCKS (CONTINUED) | ||||||||
United States: 3.7% | ||||||||
242,770 | Las Vegas Sands Corp. | $ | 16,870,087 | |||||
128,621 | Schlumberger Ltd. | 8,667,769 | ||||||
|
| |||||||
25,537,856 | ||||||||
|
| |||||||
| TOTAL COMMON STOCKS | 665,217,590 | ||||||
|
| |||||||
Principal Amount | ||||||||
SHORT-TERM INVESTMENTS: 2.6% | ||||||||
REPURCHASE AGREEMENTS: 2.6% | ||||||||
$17,771,000 | FICC, 0.20%, 12/29/2017, due 01/02/2018 [collateral: par value $645,000, U.S. Treasury Note, 2.375%, due 08/15/2024, value $651,927, par value $14,855,000, U.S. Treasury Bond, 3.625%, due 08/15/2043, value $17,495,941] (proceeds $17,771,395) | 17,771,000 | ||||||
|
| |||||||
| TOTAL SHORT-TERM INVESTMENTS | 17,771,000 | ||||||
|
| |||||||
| TOTAL INVESTMENTS | 682,988,590 | ||||||
|
| |||||||
Other Assets in Excess of Liabilities: 0.2% | 1,451,348 | |||||||
|
| |||||||
Net Assets: 100.0% | $684,439,938 | |||||||
|
|
Percentages are stated as a percent of net assets.
ADR | American Depositary Receipt. |
L.P. | Limited Partnership. |
* | Non-Income Producing Security. |
(a) | Illiquid securities at December 31, 2017, at which time the aggregate value of these illiquid securities is $22,959,801 or 3.4% of net assets. |
(b) | Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers or in a public offering registered under Securities Act of 1933. |
CURRENCY ABBREVIATIONS:
CHF | Swiss Franc |
EUR | Euro |
GBP | British Pound |
USD | U.S. Dollar |
The accompanying notes are an integral part of these financial statements.
24 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Masters International Fund
SCHEDULE OF FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS at December 31, 2017
At December 31, 2017, the Fund had the following forward foreign currency exchange contracts:
Asset Derivatives | Liability Derivatives | |||||||||||||||||||||||||||
Counterparty | Settlement Date | Fund Receiving | U.S. $ Value at December 31, 2017 | Fund Delivering | U.S. $ Value at December 31, 2017 | Unrealized Appreciation | Unrealized Depreciation | |||||||||||||||||||||
State Street Bank and Trust Company | 1/23/2018 | USD | $ | 5,100,837 | GBP | $ | 5,222,109 | $ | — | $ | (121,272 | ) | ||||||||||||||||
1/24/2018 | EUR | 4,413,156 | USD | 4,326,865 | 86,291 | — | ||||||||||||||||||||||
1/24/2018 | USD | 21,483,239 | EUR | 21,809,026 | — | (325,787 | ) | |||||||||||||||||||||
3/21/2018 | USD | 2,428,082 | CHF | 2,379,155 | 48,927 | — | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
$ | 33,425,314 | $ | 33,737,155 | $ | 135,218 | $ | (447,059 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
Schedule of Investments | 25 |
Table of Contents
Litman Gregory Masters Smaller Companies Fund Review
The Litman Gregory Masters Smaller Companies Fund returned 14.44% in 2017, roughly in line with the 14.65% return for the fund’s Russell 2000 Index benchmark but ahead of the 12.39% return for the Morningstar Small Blend category.
Near the end of the second quarter, long-time sub-advisor FPA was replaced with Segall Bryant & Hamill (SBH), also a value-oriented manager. The sub-advisor change closely coincided with the fund suffering its worst three-year trailing performance relative to the benchmark since its 2003 inception. This three-year period has weighed heavily on longer-term trailing performance numbers, which is disappointing. Prior to this three-year period, the fund was in line with, or ahead of the benchmark over trailing periods. But since the mid-year manager change, performance has been encouraging, with the fund outperforming both its benchmark and peer group by 139 basis points (bps) and 175 bps, respectively. We remain diligent in setting the fund up for success.
As for SBH, their sleeve is co-managed by Mark Dickherber and Shaun Nicholson. Dickherber and Nicholson seek to identify companies that have the potential for significant improvement in return on invested capital (ROIC). We have been impressed with the co-managers for several years. We believe their edge lies in their focus on identifying the potential for significant improvement in a company’s return on invested capital, and more specifically, positive change with respect to company management’s capital allocation decisions, which is often a precursor to sustainably higher levels of profitability. We are particularly excited to have the team manage a very focused portfolio of only their highest-conviction stocks for the fund. For more details on their investment process, we direct you to our website www.mastersfunds.com.
Performance as of 12/31/2017 | ||||||||||||||||||||||||
Average Annual Total Returns | ||||||||||||||||||||||||
Three Month | One- Year | Three- Year | Five- Year | Ten- Year | Since Inception | |||||||||||||||||||
Litman Gregory Masters Smaller Companies Fund (6/30/03) | 6.95% | 14.44% | 5.66% | 9.15% | 6.48% | 8.29% | ||||||||||||||||||
Russell 2000 Index | 3.34% | 14.65% | 9.96% | 14.12% | 8.71% | 10.31% | ||||||||||||||||||
Morningstar Small Blend Category | 3.52% | 12.39% | 8.67% | 12.88% | 7.80% | 9.65% | ||||||||||||||||||
Performance quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the funds may be lower or higher than the performance quoted. To obtain standardized performance of the funds, and performance as of the most recently completed calendar month, please visit www.mastersfunds.com. As of the prospectus dated 4/30/2017, the gross and net expense ratios for the Smaller Companies Fund were 1.68% and 1.26%, respectively. The Advisor is contractually obligated to waive management fees and/or reimburse ordinary operating expenses through April 30, 2018. |
Performance of Managers
Each of the fund’s three current sub-advisors outperformed their respective benchmarks in 2017. Dick Weiss of Wells Capital gained 24.22% (net of advisory fees), strongly outperforming the 14.65% return for his Russell 2000 benchmark. Jeff Bronchick of Cove Street gained 11.34% (net of fees), meaningfully outperforming the 7.84% return for the small-cap value index. During SBH’s six months on the fund (late June through December), they posted a return of 15.65% (net of fees) versus the 7.26% return for Russell 2000 Value Index). Longer term, Weiss, who has been on this fund since its June 2003 inception, is outperforming by a comfortable margin over this period. Bronchick is performing roughly in line during his 10.5 years on the fund. We are confident that SBH will outperform over a market cycle.
Key Performance Drivers
In most time periods, stock selection is the primary driver of the fund’s relative performance, with sector allocation playing a secondary role. In 2017, stock selection contributed strongly to relative performance but was offset by negative sector allocation effects. At the stock level, one of the biggest contributions was the fund’s sole telecom holding, Millicom International Cellular, which is owned by Bronchick and gained 67.04% during the year. (The stock is discussed in detail below.) Health care and financial holdings were also meaningful contributors. Within health care, Haemonetics was the biggest winner, gaining 44.48% in 2017. The stock was owned by Weiss the whole year, while SBH added the stock when they were hired; the stock gained roughly 24% during their six-month holding period. Allocation-wise, the fund’s average overweight to the struggling energy sector proved most costly. Virtually all of this negative sector effect came in the first half of the year when FPA had 24% of their portfolio sleeve in energy stocks. (Energy stocks were down roughly 29% in the first half of the year.) All of FPA’s energy holdings were sold when they were removed from the fund in late June, and the fund’s overall energy weight dropped from 10% to less than 2%. An average cash position of over 13% in a strong-performing small-cap market also weighed on relative performance.
26 | Litman Gregory Funds Trust |
Table of Contents
As is always the case, at the stock level there were noteworthy contributors and detractors in the period. Immediately below are manager commentaries on why these stocks were purchased and remain in a high-conviction portfolio. We should remind investors that in the short term, the performance of a stock does not determine whether a position will be successful or not; that is only known when the stock is sold.
Millicom International Cellular was the top individual contributor to fund performance in the period, gaining 67.0%. This telecom company, owned by Cove Street Capital’s Jeffrey Bronchick, is the leading cable and wireless provider in Colombia and Central America, and is not in the Russell 2000 Index. Bronchick says the company is refocusing on its leadership position in the quickly growing cable triple play market in Colombia—while shedding valuable but disparate African media assets, as well as other assets such as cell phone towers—under the direction of a CEO who hails from Liberty Global. Over the year, results were mostly in line with Bronchick’s expectations, but shares increased due to another divestment announcement. Focusing on the long term, Bronchick still sees a severely undervalued stock that is continuing to develop into a premier Latin American cable/telecom player and is approaching a crossover point where its legacy voice revenues will be eclipsed by new cable and 4G customers. At the end of the period, Millicom was the fund’s third-largest holding and one of two foreign holdings.
Within health care the standout performer was Haemonetics, which was up 44.5% for the year. This name is owned by both Weiss and the SBH team, and was a top-10 fund holding (2.71% of assets) at year-end. Haemonetics designs, manufactures, markets, and services blood processing systems. Its products are divided into four categories: Plasma, Blood Center, Hospital, and Software Solutions. Weiss says optimism around new products and potential earnings power have led the stock to perform well over the past quarter and much of the year. Currently, Weiss places a private market value of around $80 on Haemonetics, and at year-end, the stock traded around $58. Dickherber and Nicholson of SBH say their thesis is centered around the company’s new management continuing to employ its ROIC-focused turnaround, which has been showing solid results such as an improving ROIC profile and a new product strategy that could prove to be a significant revenue and ROIC driver over the next several years. The new product strategy focuses on more efficient plasma methods and data-rich software that can better manage demands as well as provide information for customers to improve their own ROIC.
Within industrials, SBH-owned Spartan Motors gained 90.4% in the six months since the stock was purchased in the portfolio. SBH’s original thesis for owning Spartan was a new management team’s rapid change of focus on ROIC and working capital improvements—factors Dickherber and Nicholson believe were entirely underappreciated by the market. The company’s execution of ROIC and working capital improvements has potentially allowed them to take further advantage of the tremendous tailwinds in their end markets, which is anchored by the e-commerce boom. At this point, SBH still believes Spartan is in the early innings of creating value, and they view operational improvements as being only about half realized. They continue to believe the stock has significant upside from current levels.
Among detractors, Wesco Aircraft Holdings, another industrials name, fell nearly 23% since being added to the fund by Bronchick in the second quarter. The company distributes aerospace bearing products and provides supply chain management services to the aerospace industry in North America and internationally. Bronchick says Wesco’s new CEO has had to unwind the previous CEO’s operational mistakes, while attempting to solve poor execution issues on one of their smaller business segments. While already suffering from low expectations, the company’s margins surprised further to the downside, with the turnaround taking a heavy toll on what were previously respectable margins in Bronchick’s view. In addition, the company experienced negative growth in their core distribution business with apparent share loss to their major competitor. However, Bronchick says his team’s research indicates that Wesco’s core business is intact and customers are still beholden to the services the company provides. Bronchick continues to see significant potential upside in the stock with very unassuming growth and margin targets.
By far the most significant individual detractor was Cherokee, a fashion and lifestyle company owned by Bronchick. The stock fell nearly 82% in the period. Besides needing to navigate a difficult retail environment, Cherokee has also struggled to manage an acquisition by not successfully scaling up the financial and back office operations required. Bronchick notes that subsequently, these internal issues led to the company being late on reporting to the SEC and being unable to stay current with its lending covenants. Cherokee has addressed these issues, but Bronchick says concerns persist. He believes Cherokee is focused intently on improving financial controls and making other requisite changes. Bronchick expects clarity and profits in 2018, or he says he will likely exit the position.
Cimarex Energy, the fund’s only remaining energy name was also a significant detractor. This position, held by Weiss since 2013, fell almost 10% in 2017. Cimarex is an independent oil and gas exploration and production company. Its activities include drilling, completing, and operating wells. Its projects cover the Permian Basin and the Cana-Woodford in Oklahoma, Texas, and New Mexico. Weiss says the company has been impacted by falling oil prices but is well positioned longer term due to improving drill techniques and one of the lower breakeven points within the industry. Weiss’s original thesis revolved around the company’s improving technology for drilling wells, which he believes should lead to higher returns in a flat oil market. More recently, the stock started to rebound as the oil price moved higher due to global growth and increased demand. Currently, Weiss assigns a private market value for the company near $180, a significant premium to its $122 share price at year-end.
Fund Summary | 27 |
Table of Contents
Top 10 Individual Contributors as of the Year Ended December 31, 2017 | ||||||||||||||||||
Company Name | Fund Weight (%) | Benchmark Weight (%) | 12-Month Return (%) | Contribution to Return (%) | Economic Sector | |||||||||||||
Millicom International Cellular SA | 4.78 | 0.00 | 67.04 | 2.29 | Telecommunications | |||||||||||||
Haemonetics Corp. | 2.80 | 0.12 | 44.48 | 1.65 | Health Care | |||||||||||||
Spartan Motors Inc. | 1.20 | 0.02 | 90.40 | 1.50 | Industrials | |||||||||||||
Heritage-Crystal Clean Inc. | 3.27 | 0.01 | 38.54 | 1.20 | Industrials | |||||||||||||
Etsy Inc. | 1.59 | 0.08 | 73.60 | 1.17 | Information Technology | |||||||||||||
Integer Holdings Corp. | 2.31 | 0.07 | 53.82 | 1.16 | Health Care | |||||||||||||
Western Digital Corp. | 1.84 | 0.00 | 29.28 | 1.05 | Information Technology | |||||||||||||
GTT Communications Inc. | 0.97 | 0.05 | 72.93 | 1.05 | Information Technology | |||||||||||||
Avid Technology Inc. | 2.77 | 0.01 | 22.50 | 0.78 | Information Technology | |||||||||||||
Viasat Inc. | 4.93 | 0.18 | 13.03 | 0.76 | Information Technology |
Portfolio contribution for a holding represents the product of the average portfolio weight and the total return earned by the holding during the period. Past performance is no guarantee of future results. Fund holdings and/or sector allocations are subject to change at any time and are not recommendations to buy or sell any security.
Top 10 Individual Detractors as of the Year Ended December 31, 2017 | ||||||||||||||||||
Company Name | Fund Weight (%) | Benchmark Weight (%) | 12-Month Return (%) | Contribution to Return (%) | Economic Sector | |||||||||||||
Cherokee Inc. | 2.07 | 0.00 | -81.90 | -3.11 | Consumer Discretionary | |||||||||||||
Cimarex Energy Co. | 2.89 | 0.00 | -9.97 | -0.79 | Energy | |||||||||||||
Avnet Inc. | 1.11 | 0.00 | -18.91 | -0.53 | Information Technology | |||||||||||||
Wesco Aircraft Holdings Inc. | 2.49 | 0.03 | -22.92 | -0.50 | Industrials | |||||||||||||
The E W Scripps Co. Class A | 1.09 | 0.06 | -13.50 | -0.47 | Consumer Discretionary | |||||||||||||
Range Resources Corp. | 0.57 | 0.00 | -37.53 | -0.46 | Energy | |||||||||||||
Patterson-UTI Energy Inc. | 0.66 | 0.00 | -25.69 | -0.44 | Energy | |||||||||||||
Rowan Companies PLC | 0.44 | 0.04 | -35.84 | -0.43 | Energy | |||||||||||||
Babcock & Wilcox Enterprises Inc. | 0.96 | 0.02 | -31.04 | -0.42 | Industrials | |||||||||||||
Noble Energy Inc. | 0.78 | 0.00 | -21.46 | -0.41 | Energy |
Portfolio contribution for a holding represents the product of the average portfolio weight and the total return earned by the holding during the period. Past performance is no guarantee of future results. Fund holdings and/or sector allocations are subject to change at any time and are not recommendations to buy or sell any security.
Portfolio Mix
As is typically the case, with its high active share (over 98%) the Litman Gregory Masters Smaller Companies Fund portfolio’s exposures are quite different from its Russell 2000 Index benchmark. There were some noteworthy changes in portfolio composition since the start of the year, most of which are attributable to replacing FPA with SBH. These include a reduction in the energy, consumer discretionary, and information technology sectors, which declined 8.0%, 6.2%, and 6.0%, respectively.
At the end of the period, industrials was the most significant sector overweight at 23.9% versus 15.5% for the benchmark. The fund’s largest sector underweights are health care and financials. The fund’s weighting to financials was 10.4% versus 18.0% for the benchmark. At the end of the period the fund had no exposure to real estate (REITs), while the benchmark had a 6.7% allocation. The fund’s cash allocation decreased slightly from 13.4% at the start of the year to 10.2% on December 31, 2017.
The fund’s weighted-average market capitalization decreased from $5.4 billion at the beginning of the year to $3.4 billion at the end of the period. This decline in market cap can be traced to the manager change; SBH’s portfolio holdings, on average, are much smaller than those previously held by FPA. For example, five of SBH’s 12 holdings are less than $1 billion in market cap, whereas FPA had only one holding below this level.
The fund remains sufficiently diversified by investment style across the three managers. With 41 stocks, we believe the portfolio is well-diversified in terms of holdings and sector exposures.
28 | Litman Gregory Funds Trust |
Table of Contents
By Sector
Sector Allocation | ||||||||||||
Fund as of 12/31/17 | Fund as of 12/31/16 | Russell 2000 Index as of 12/31/17 | ||||||||||
Consumer Discretionary | 14.0% | 23.4% | 12.6% | |||||||||
Consumer Staples | 0.0% | 0.0% | 2.8% | |||||||||
Energy | 2.2% | 10.2% | 3.9% | |||||||||
Finance | 10.4% | 10.4% | 18.0% | |||||||||
Health Care & Pharmaceuticals | 6.9% | 4.0% | 15.1% | |||||||||
Industrials | 25.7% | 12.9% | 15.5% | |||||||||
Information Technology | 16.3% | 21.0% | 16.6% | |||||||||
Materials | 9.5% | 1.3% | 4.5% | |||||||||
Real Estate | 0.0% | 0.0% | 6.7% | |||||||||
Telecom | 4.8% | 3.4% | 0.8% | |||||||||
Utilities | 0.0% | 0.0% | 3.5% | |||||||||
Cash Equivalents & Other | 10.2% | 13.4% | 0.0% | |||||||||
|
|
|
|
|
| |||||||
100.0% | 100.0% | 100.0% | ||||||||||
|
|
|
|
|
|
Fund holdings and/or sector allocations are subject to change at any time and are not recommendations to buy or sell any security.
By Market Capitalization | By Domicile | |
Market Capitalization: Micro-Cap < $981 million Small-Cap $981 million - $4.4 billion Small/Mid-Cap $4.4 billion - $10.6 billion Mid-Cap $10.6 billion - $29.4 billion Large-Cap > $29.4 billion Totals may not add up to 100% due to rounding |
|
Closing Thoughts
As we mentioned in the opening of this report, we remain focused on positioning the fund for success. To that end, we are excited about the inclusion of SBH. Our confidence is rooted in nearly four years of ongoing due diligence with the team, and includes closely monitoring the performance and portfolio construction of a more concentrated separate account that they have managed for over three years. We think a concentrated portfolio of companies that they believe will benefit most from significant improvement in return on invested capital will be successful over time.
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Given the replacement of FPA with SBH, we thought it was worth reiterating our approach to selecting sub-advisors. Ongoing due diligence is a critical part of our process, and our goal is to continually retest our thesis for each sub-advisor. This re-testing involves frequent contact with managers—either at their office, via conference calls, or by spending several hours with them in our office. The primary goal is to assess whether the teams are executing their investment process, upon which our confidence is based. This involves having detailed stock discussions where we want to understand why a stock qualifies as a best idea, as well as the risks to that business. We also walk through mistakes to understand lessons learned. During periods of underperformance, our contact will intensify, and the longer that underperformance persists, the more frequent the contact. Other reasons for contact can include changes to the investment team, unusual portfolio activity, and the introduction of new strategies, which can dilute the team’s focus. A goal of our work is to avoid emotional or knee-jerk reactions to changes, such as a personnel departure or small changes to the process, or an unsatisfying stretch of underperformance. Our objective is to allow sufficient time for performance to improve in the case of managers in whom we retain high confidence, and to replace managers when we believe there is a breakdown of process or when negative organizational changes occur that erode our confidence in a manager’s ability to outperform.
Sticking to this process—remaining disciplined in our execution of it—we believe that the fund’s performance can improve when compared to the benchmark, and we are encouraged by the recent outperformance since the mid-year sub-advisor change. We continue to work hard to ensure that the fund is well positioned for success over the medium and longer term.
Thank you for your continued trust and confidence.
30 | Litman Gregory Funds Trust |
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Litman Gregory Masters Smaller Companies Fund Managers
INVESTMENT MANAGER | FIRM | TARGET MANAGER ALLOCATION | MARKET CAPITALIZATION OF COMPANIES IN PORTFOLIO | STOCK-PICKING STYLE | BENCHMARK | |||||
Jeff Bronchick | Cove Street Capital, LLC | 33-1/3% | Small- and mid-sized companies | Value | Russell 2000 Value Index | |||||
Mark Dickherber & Shaun Nicholson | Segall Bryant & Hamill | 33-1/3% | Small- and mid-sized companies | Value | Russell 2000 Value Index | |||||
Richard Weiss | Wells Capital Management, Inc. | 33-1/3% | Small- and mid-sized companies | Blend | Russell 2000 Index |
Smaller Companies Fund Value of Hypothetical $10,000
The value of a hypothetical $10,000 investment in the Litman Gregory Masters Smaller Companies Fund from June 30, 2003 to December 31, 2017 compared with the Russell 2000 Index and Morningstar Small Blend Category.
The hypothetical $10,000 investment at fund inception includes changes due to share price and reinvestment of dividends and capital gains. The chart does not imply future performance. Indexes are unmanaged, do not incur fees, expenses or taxes, and cannot be invested in directly.
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Litman Gregory Masters Smaller Companies Fund
SCHEDULE OF INVESTMENTS IN SECURITIES at December 31, 2017
Shares | Value | |||||||
COMMON STOCKS: 89.8% | ||||||||
Consumer Discretionary: 14.0% | ||||||||
3,731 | Buffalo Wild Wings, Inc.* | $ | 583,342 | |||||
115,768 | Cherokee, Inc.* | 219,959 | ||||||
69,600 | EW Scripps Co. (The) - Class A* | 1,087,848 | ||||||
13,250 | Foot Locker, Inc. | 621,160 | ||||||
51,476 | MDC Partners, Inc. - Class A* | 501,891 | ||||||
52,984 | Playa Hotels & Resorts N.V.* | 571,697 | ||||||
11,500 | Shutterfly, Inc.* | 572,125 | ||||||
37,000 | TEGNA, Inc. | 520,960 | ||||||
|
| |||||||
4,678,982 | ||||||||
|
| |||||||
Energy: 2.2% | ||||||||
6,150 | Cimarex Energy Co. | 750,362 | ||||||
|
| |||||||
Financials: 10.4% | ||||||||
24,300 | AllianceBernstein Holding L.P. | 608,715 | ||||||
16,287 | Bank of NT Butterfield & Son Ltd. (The) | 591,055 | ||||||
12,728 | Lakeland Financial Corp. | 617,181 | ||||||
40,500 | Leucadia National Corp. | 1,072,845 | ||||||
23,469 | Seacoast Banking Corp. of Florida* | 591,653 | ||||||
|
| |||||||
3,481,449 | ||||||||
|
| |||||||
Health Care: 6.9% | ||||||||
15,576 | Haemonetics Corp.* | 904,654 | ||||||
14,150 | Integer Holdings Corp.* | 640,995 | ||||||
13,851 | Orthofix International N.V.* | 757,650 | ||||||
|
| |||||||
2,303,299 | ||||||||
|
| |||||||
Industrials: 25.7% | ||||||||
13,000 | Avis Budget Group, Inc.* | 570,440 | ||||||
28,522 | Axon Enterprise, Inc.* | 755,833 | ||||||
13,250 | Delta Air Lines, Inc. | 742,000 | ||||||
10,114 | ESCO Technologies, Inc. | 609,368 | ||||||
13,850 | Gardner Denver Holdings, Inc.* | 469,931 | ||||||
70,352 | Great Lakes Dredge & Dock Corp.* | 379,901 | ||||||
44,000 | Heritage-Crystal Clean, Inc.* | 957,000 | ||||||
17,000 | HNI Corp. | 655,690 | ||||||
26,936 | Quanex Building Products Corp. | 630,302 | ||||||
56,677 | Spartan Motors, Inc. | 892,663 | ||||||
33,031 | SPX Corp.* | 1,036,843 | ||||||
120,000 | Wesco Aircraft Holdings, Inc.* | 888,000 | ||||||
|
| |||||||
8,587,971 | ||||||||
|
| |||||||
Information Technology: 16.3% | ||||||||
163,985 | Avid Technology, Inc.* | 883,879 | ||||||
11,256 | CommVault Systems, Inc.* | 590,940 | ||||||
21,250 | Etsy, Inc.* | 434,563 | ||||||
18,100 | GTT Communications, Inc.* | 849,795 | ||||||
39,000 | MAM Software Group, Inc.* | 296,010 | ||||||
25,800 | Sabre Corp. | 528,900 | ||||||
25,000 | ViaSat, Inc.* | 1,871,250 | ||||||
|
| |||||||
5,455,337 | ||||||||
|
| |||||||
Materials: 9.5% | ||||||||
16,467 | Bemis Co., Inc. | 786,958 | ||||||
39,975 | Innophos Holdings, Inc. | 1,868,032 | ||||||
5,850 | Reliance Steel & Aluminum Co. | 501,871 | ||||||
|
| |||||||
3,156,861 | ||||||||
|
| |||||||
Telecommunication Services: 4.8% | ||||||||
23,600 | Millicom International Cellular S.A. | 1,590,876 | ||||||
|
| |||||||
| TOTAL COMMON STOCKS | 30,005,137 | ||||||
|
|
Principal Amount | Value | |||||||
SHORT-TERM INVESTMENTS: 10.3% | ||||||||
REPURCHASE AGREEMENTS: 10.3% | ||||||||
$3,427,000 | FICC, 0.20%, 12/29/2017, due 01/02/2018 [collateral: par value $2,980,000, U.S. Treasury Bond, 3.625%, due 08/15/2043, value $3,509,788] (proceeds $3,427,076) | $ | 3,427,000 | |||||
|
| |||||||
| TOTAL SHORT-TERM INVESTMENTS | 3,427,000 | ||||||
|
| |||||||
| TOTAL INVESTMENTS | 33,432,137 | ||||||
|
| |||||||
Liabilities in Excess of Other Assets: (0.1)% | (37,111 | ) | ||||||
|
| |||||||
Net Assets: 100.0% | $33,395,026 | |||||||
|
|
Percentages are stated as a percent of net assets.
L.P. | Limited Partnership. |
* | Non-Income Producing Security. |
The accompanying notes are an integral part of these financial statements.
32 | Litman Gregory Funds Trust |
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Litman Gregory Masters Alternative Strategies Fund Review
The Litman Gregory Masters Alternative Strategies Fund (Institutional Share Class) gained 4.51% in 2017. During the same period, 3-month LIBOR gained 1.21%, the Morningstar Multialternative Category gained 5.58%, and the Bloomberg Barclays U.S. Aggregate Bond Index gained 3.54%.
Performance as of 12/31/2017 | ||||||||||||||||||||
Average Annual Total Returns | ||||||||||||||||||||
Three Month Return | One Year | Three- Year | Five-Year | Since Inception 9/30/2011 | ||||||||||||||||
Litman Gregory Masters Alternative Strategies Fund Institutional Class | 0.67% | 4.51% | 3.49% | 4.07% | 5.30% | |||||||||||||||
Litman Gregory Masters Alternative Strategies Fund Investor Class | 0.52% | 4.14% | 3.24% | 3.82% | 5.05% | |||||||||||||||
Bloomberg Barclays U.S. Aggregate Bond Index | 0.39% | 3.54% | 2.24% | 2.10% | 2.53% | |||||||||||||||
3-Month LIBOR | 0.34% | 1.21% | 0.72% | 0.54% | 0.52% | |||||||||||||||
Morningstar Multialternative Category | 1.73% | 5.58% | 1.15% | 1.69% | 2.13% | |||||||||||||||
HFRX Global Hedge Fund Index | 1.50% | 5.98% | 1.54% | 2.13% | 2.18% | |||||||||||||||
Russell 1000 Index | 6.59% | 21.69% | 11.23% | 15.71% | 17.23% | |||||||||||||||
SEC 30-Day Yield1 as of 12/31/17: Institutional: 1.60% Investor: 1.35% |
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Unsubsidized SEC 30-Day Yield2 as of 12/31/17: Institutional: 1.51% Investor: 1.26% |
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1. The 30-day SEC Yield is computed under an SEC standardized formula based on net income earned over the past 30 days. It is a “subsidized” yield, which means it includes contractual expense reimbursements, and it would be lower without those reimbursements. |
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2. The unsubsidized 30-day SEC Yield is computed under an SEC standardized formula based on net income earned over the past 30 days. It excludes contractual expense reimbursements, resulting in a lower yield. |
|
EXPENSE RATIOS as of 4/30/2017 | MASFX | MASNX | ||||||
Net Expense Ratio (%) Excluding Dividend Expense on Short Sales and Interest & Borrowing Costs on Leverage Line of Credit3 | 1.47 | 1.72 | ||||||
Total Operating Expenses (%)4 | 1.75 | 2.00 | ||||||
Gross Expense Ratio (%) | 1.83 | 2.08 | ||||||
3. Does not include dividend expense on short sales of 0.19% and Interest, Commitment Fees and other Borrowing Costs of 0.09% |
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4. The Advisor is contractually obligated to waive management fees and/or reimburse ordinary operating expenses through April 30, 2018. The total operating expense includes dividend and interest expense on short sales and interest and borrowing costs incurred for investment purposes, which are not included in the expense limitation. |
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Performance quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the funds may be lower or higher than the performance quoted. To obtain standardized performance of the funds, and performance as of the most recently completed calendar month, please visit www.mastersfunds.com. Investment performance reflects fee waivers in effect. In the absence of such waivers, total return would be reduced. All performance discussions in this report refer to the performance of the Institutional share class. |
Since its inception on September 30, 2011, the fund’s annualized return is 5.30% with a volatility (standard deviation) of 3.10% and a beta to the stock market of 0.25. This return is toward the lower end of what we think is a reasonable expected-return range for the fund over the long term (full market cycles). Meanwhile, the fund’s volatility has been well below our expected range of 4% to 8%. On a risk-adjusted-return basis, we are particularly pleased with the fund’s results. It has the highest Sharpe and Sortino ratios within its Morningstar Multialternative peer group category. And it has more than doubled the total return of both its Morningstar category and the HFRX Global Hedge Fund Index, with comparable volatility and beta, since inception.
Fund Summary | 33 |
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The “Risk/Return Statistics” table below provides some of the key performance metrics we track for the fund and its benchmarks.
Litman Gregory Masters Alternative Strategies Fund Risk/Return Statistics 12/31/17 | ||||||||||||||||
MASFX | Bloomberg Barclays Agg Bond | Russell 1000 | Morningstar Multi-Alternatives Category | |||||||||||||
Annualized Return | 5.30 | 2.53 | 17.23 | 2.13 | ||||||||||||
Total Cumulative Return | 38.09 | 16.92 | 170.08 | 14.06 | ||||||||||||
Annualized Std. Deviation | 3.10 | 2.69 | 10.32 | 3.09 | ||||||||||||
Sharpe Ratio (Annualized) | 1.60 | 0.85 | 1.58 | 0.62 | ||||||||||||
Beta (to Russell 1000) | 0.25 | -0.03 | 1.00 | 0.26 | ||||||||||||
Correlation of MASFX to… | 1.00 | -0.12 | 0.79 | 0.81 | ||||||||||||
Worst Drawdown | -6.94 | -4.52 | -12.41 | -8.21 | ||||||||||||
Worst 12-Month Return | -4.49 | -2.47 | -7.21 | -6.08 | ||||||||||||
% Positive 12-Month Periods | 88.06% | 82.09% | 95.52% | 77.61% | ||||||||||||
Upside Capture (vs. Russell 1000) | 30.64 | 8.27 | 100.00 | 21.69 | ||||||||||||
Downside Capture (vs. Russell 1000) | 27.64 | -8.30 | 100.00 | 41.67 | ||||||||||||
Since inception (9/30/11) | ||||||||||||||||
Worst Drawdown based on weekly returns | ||||||||||||||||
Past performance is no guarantee of future results |
Portfolio Commentary
Performance of Managers
For the year, all the managers produced positive returns. FPA’s Contrarian Opportunity strategy gained 10.61%. The DoubleLine Opportunistic Income strategy gained 4.94%. Water Island’s Arbitrage and Event-Driven strategy gained 4.89%. The Loomis Sayles Absolute-Return Fixed-Income strategy rose 3.50%. Passport Capital’s Long-Short Equity strategy gained 1.96%. In late December, we removed Passport from the fund. DCI’s Long-Short Credit strategy, which we added to the fund in July, produced a 1.04% return for the partial year. (All returns are net of the management fee each sub-advisor charges the fund.)
Key performance drivers and positioning by strategy
DCI: As a reminder, DCI’s Long-Short Credit strategy uses systematic, quantitative, fundamental credit selection models to construct a long-short portfolio focused on idiosyncratic credit risk. The strategy incorporates both a credit default swap (CDS) long-short sleeve and a corporate bond sleeve with interest rate and credit beta hedges. For the period since DCI’s inception on the fund in early July 2017, performance was modestly positive in both the CDS and bond sleeves. As expected, the various strategy components have low cross-correlations and are not overly driven by market beta or other macro themes.
For the period, the CDS sleeve generated modest gains as profits in the consumer, telecom, utilities, and banking sectors were somewhat offset by losses in insurance, hospital, energy, and equipment names. Short positions in highly levered telecom companies Windstream and Frontier Communications were the biggest gainers. Long positions in MBIA (which was hit by the U.S. hurricane damage) and Community Health were the biggest losers. The bond sleeve gained on long positions in high-quality names in the energy, materials, technology, and consumer sectors, which were somewhat offset by losses in telecoms. Valeant Pharmaceuticals International and Calumet Specialty Products Partners were the biggest gainers, while Intelsat and Netflix were the biggest losers.
The strategy hedges were a net drag for the period. The interest rate hedge paid off as yields rose. However, credit spreads steadily tightened and the credit hedge performed worse than expected as investors especially bid up synthetic credit exposure into the year-end (on the margin hurting the strategy’s CDX hedge, compared to its cash bond longs).
Overall, strategy performance has been acceptable but somewhat below long-term expectations. Positioning continues to seek out the best credit-selection opportunities and has been relatively stable, although with a bit less conviction of late. Longs in consumer goods (such as housing and autos) against shorts in telecom are the most notable sector view, while the strategy has taken profits on its retail shorts, with offsetting reductions in hospital and equipment names. Looking forward, the opportunity set for performance gains in the new year looks promising, with the potential to generate better absolute returns when volatility increases from its historic lows. Please see DCI’s commentary on page 39 for more details on their outlook and positioning.
DoubleLine: The DoubleLine Opportunistic Income strategy produced a solid absolute return and outperformed the Bloomberg Barclays U.S. Aggregate Bond Index return for the year. In aggregate, both agency and non-agency residential mortgage-backed securities (RMBS) sectors contributed positively to performance. Within agency RMBS, fixed-rate collateralized mortgage obligations (CMOs) were the best performers as prices increased. Longer-duration assets such as inverse interest-only securities underperformed due to the selloff in rates. Returns were positive across the credit spectrum within non-agency RMBS. Alt-A securities were the best performing within the sector. Jumbo 2.0 securities had the smallest positive return as this sector is less credit
34 | Litman Gregory Funds Trust |
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sensitive and therefore did not benefit from the same magnitude of spread tightening. Other structured credit sectors including collateralized loan obligations (CLOs), commercial mortgage-backed securities (CMBS), and asset-backed securities (ABS) were also accretive to performance as valuations increased during the year. Non-structured credit sectors such as municipals and high-yield, which remain a smaller portion of the overall portfolio, detracted from performance primarily due to weakening valuations on Puerto Rico municipals after Hurricane Maria in September, as the ultimate resolution of the debt restructuring amid a humanitarian disaster became less clear, both in terms of timing and recovery value for creditors.
The strategy remains balanced in terms of its return drivers, with credit-sensitive sectors (primarily non-agency RMBS) accounting for nearly 70% of the portfolio, balanced by mostly longer-duration, interest rate–sensitive agency securities (approximately 18%) and cash. The cash position at year-end was about 13%, but we view that as artificially high due to the year-end reallocation of capital between sub-advisors that had yet to be fully deployed; without the reallocation, cash levels remained in the low single digits as a percentage of assets. The portfolio ended the year with a calculated duration of 4.2 years and a yield to maturity of 3.8%. DoubleLine notes that the flattening of the Treasury yield curve and spread tightening in credit sectors during the year create a challenging environment for identifying attractive new risk-adjusted investment opportunities. For additional details on DoubleLine’s portfolio positioning and outlook, please read their commentary on page 39.
FPA: The top five contributors to the FPA Contrarian Opportunity strategy’s performance for the year were Oracle, Bank of America, Microsoft, Arconic, and Citigroup. These stocks accounted for roughly one-third of the strategy’s total return. The largest detractors from performance were the Naspers/Tencent pair trade, General Electric, American International Group, Esterline Technologies, and WPP. FPA’s stock selection added value relative to the index, but their large cash position (averaging around 37% during the year) was obviously a huge drag on performance in a year when the market was up over 20%. As portfolio manager Steven Romick writes in FPA’s commentary on page 40, “An investor has two choices: wait for opportunity, then invest, or invest regardless of opportunity. We select the former, as we always have. … The cash we carry is hopefully a down payment on higher future returns, both relative (in a market selloff) and absolute (as sidelined capital gets put into play).”
At year-end, the portfolio’s gross long exposure to equities had increased to 68% (from 54% at the end of the first half), with 23% in foreign stocks. Net equity exposure increased as well, to 59%. Credit holdings are 6% of assets. Corporate bonds were reduced, while FPA added a small position in Puerto Rico municipal bonds at deeply distressed prices. Financials remains the largest sector concentration at approximately 21%, with no material changes to the large- and mega-cap banking and insurance names comprising the largest positions. Technology maintains its place as the second-biggest sector exposure, climbing to 13% as FPA added to some top holdings (most notably Alphabet) late in the fourth quarter, following the passage of the tax cut, and established a new position in Expedia. The managers also added to a number of energy positions on the long side and increased short positions in a small number of companies whose businesses are being disrupted by technology. The portfolio’s cash position was reduced to 34% due to the additions to the portfolio noted above. While it is encouraging to see the managers find new opportunities worthy of committing capital, the portfolio is still quite conservatively positioned, given the large cash balance, high-quality nature of many holdings, and stub/pair trades, which are less directional in nature.
Loomis Sayles: The positive performance of the Loomis Sayles Absolute-Return Fixed-Income strategy was mostly generated from exposures to securitized credit, as well as high-yield and investment-grade corporate bonds. Beyond that, emerging markets, bank loans, and global rates also contributed to absolute return. Gains from these holdings more than offset losses from their currency positions, risk management tools, and equity holdings.
Securitized assets, particularly CMBS and non-agency RMBS holdings, contributed to performance during the year, as fundamentals remained stable across all sectors. As spreads tightened during the period, all asset classes posted positive returns as sentiment remained positive. High-yield corporate bonds aided return as spreads tightened during the year, despite brief periods of volatility. Individual energy, consumer non-cyclical, and capital goods names benefited performance the most. On the investment-grade side, performance was boosted as spreads tightened during the year and ended the period at multiyear tights. Most of the positive performance came from energy, electrical, and communications names. Emerging-market exposure also bolstered return, as the sector benefited from the weakening dollar, a rebound in corporate profits, and improving gross domestic product (GDP) growth.
Currency positioning weighed on performance as the dollar weakened versus most developed market currencies, prior to a rebound in the fourth quarter on the back of tax reform and the prospect of future Federal Reserve (Fed) rate hikes. Many of Loomis’s positions were offset against long pairs, which mitigated the downside impact. Nonetheless, exposure to some currencies, namely short positions in the euro, Canadian dollar, and Taiwanese dollar detracted. The portfolio’s risk management tools, primarily through the usage of equity index futures and options and interest rate futures, detracted from return. Loomis continues to use these tools seeking to limit the strategy’s downside.
At year-end, the portfolio’s empirical key rate duration (sensitivity to changes in Treasury yields) remained very low, at roughly one year. During the year, as yields declined and spreads tightened, net exposure to high-yield and investment-grade corporate bonds declined meaningfully, ending the period at 7.5% and 8.7%, respectively. The largest net exposures remained in securitized credit at 24.7%, followed by bank loans at 10.0%. Please see Loomis Sayles’s commentary on page 43 for more details on their outlook and positioning.
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Water Island: The performance of the Water Island Arbitrage and Event-Driven strategy was driven by gains in all three of its sub-strategies (merger arbitrage, credit opportunities, and equity special situations), with merger arb accounting for nearly half the total return, followed by equity special situations. The top contributor for the year was the merger-arbitrage investment in Qualcomm’s pending acquisition of NXP Semiconductors. NXP has traded through the current deal price in anticipation of an improved offer from Qualcomm. Shareholder pressure from activists has held the stock well above the $110 price. Water Island continues to expect shares of NXP to trade through the offer price as we move closer to the expected first quarter 2018 close. The largest detractor was AT&T’s planned acquisition of Time Warner Cable. During the fourth quarter, the deal’s path to completion hit a roadblock as the U.S. Department of Justice (DOJ) sued to block the merger, citing concerns that it would harm consumers and competition. The DOJ’s lawsuit is an unprecedented departure from past treatment of vertical mergers and acquisitions (M&A), where the businesses being combined don’t compete. The news caused the deal spread to widen significantly, generating losses in the portfolio. A resolution to the ongoing legal battle will likely take four to six months. Water Island continues to maintain exposure to the position as they believe AT&T has a strong case, though they have implemented hedges in an attempt to mitigate any potential further losses should the DOJ prevail.
The past year proved interesting for merger arbitrage. Many assumed the Trump administration would be pro-business and anti-regulation, but such tendencies were not evenly applied, with the DOJ’s action on the AT&T/Time Warner Cable deal a particular surprise. Water Island believes there are several companies planning large vertical mergers waiting on the sidelines until they see which side prevails in the DOJ/AT&T saga. Another notable trend was longer regulatory timelines positively impacting certain deals in sectors that rallied significantly. With extended timelines and target companies’ peer universes trading up, the risk/reward profile of arbitrage spreads improved due to stronger downside mitigation, allowing arbitrage investors to be more aggressive when warranted. The terms at which deals were originally struck also may no longer have made sense, leading to expectations of topping bids or shareholder activism. Such situations provided opportunity to generate incremental returns with low risk, a trend that will likely continue as long as the stock market rally persists.
The current spread environment has remained largely unchanged from 2016 and 2017. Given the Fed raised interest rates a full 100 basis points from December 2016 to December 2017, one might have expected a subsequent widening in merger-arbitrage spreads. That said, the extremely low levels of volatility in 2017 have conspired to keep spreads largely unchanged. Unless volatility increases, continued Fed rate hikes may not have a material impact on merger-arbitrage spreads. In equity special situations, re-ratings and transformational M&A situations drove returns for much of the year in the portfolio. Yet in the fourth quarter—following an underwhelming first nine months—speculative M&A situations were the key contributor, likely due to greater clarity on tax reform. Now that business-friendly tax reform has passed, Water Island anticipates improved offers for M&A targets and a healthy volume of speculative situations in the year ahead. They are equally optimistic about M&A-related opportunities in credit going forward but do not anticipate a meaningful allocation to deep-value situations near term given the extremely low default rates. The credit portfolio remains conservative in positioning, with a short-duration profile to be able to take advantage of the inevitable correction in credit markets.
At year-end, the portfolio’s gross exposures to each sub-strategy were as follows: merger arbitrage at 63% (49% long and 14% short), equity special situations at 36% (20% long and 16% short), and credit opportunities at 13% (12% long and 1% short). Please see Water Island’s commentary on page 44 for more details on their outlook and positioning.
Strategy Allocations
The fund remains weighted according to our strategic target allocation: 25% to DoubleLine; 19% each to DCI, Loomis Sayles, and Water Island; and 18% to FPA. We use the fund’s daily cash flows to bring the manager allocations toward their targets when differences in shorter-term relative performance cause divergences.
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Current Target Strategy Allocations
As of December 31, 2017
Source: Litman Gregory
Closing Thoughts
At the end of the fourth quarter, we removed Passport from the fund. The decision was fairly straightforward, as the firm was changing materially and closing their flagship hedge fund to concentrate on what we considered more niche strategies. The Alternative Strategies Fund’s new target weightings are 25% to DoubleLine; 19% each to DCI, Loomis Sayles, and Water Island; and 18% to FPA. Our decision on the new allocations reflects our high conviction in each manager/strategy and our desire to maintain a relatively balanced allocation that we believe should provide good results over time and across a range of macro and market scenarios, rather than being optimized or continuously tweaked for what may appear to be the most likely scenario at any point in time (at the potential cost of significantly worse results if markets follow a different path). As we have conveyed previously, we believe it is quite difficult to consistently predict macroeconomic outcomes, and even then, financial markets may react in surprising ways even if one’s macro prediction is correct. On rare occasions, if we see an extremely compelling investment return opportunity, we may tactically overweight a manager/strategy to further benefit from it. (We have done this once so far in the fund’s life.) Our managers also have significant flexibility within their mandates to vary their portfolio and risk exposures, driven by their assessment of the reward-versus-risk within their investment universes.
However, we do make distinctions in strategic target weightings based on the differing return profiles and other characteristics of the sub-advisor strategies. As such, we have given DoubleLine the largest allocation based on the strategy’s strong returns and low historical and expected correlation with other sub-advisors and equity markets. The other sub-advisors have performed within our range of expectations and we are very satisfied with the overall portfolio. FPA’s contribution to the fund’s volatility is somewhat higher than other managers’ individual contributions, which is expected given their equity-oriented strategy. This volatility contribution (and higher correlation with equity markets) is what leads us to essentially equal-weight FPA with the other three sub-advisors, despite our expectation for FPA to produce among the highest long-term absolute returns.
We continue to evaluate new strategies and managers, but as we have always said, we don’t feel the need to “check a box” in every alternative category, so we are not devoting all our energy searching for a long/short equity manager as an explicit replacement for Passport. Our goal is always to find high-conviction strategies that complement each other and aggregate to a portfolio that can meet the fund’s objectives. If and when we find a long/short equity manager we think is distinctive and also fits well in the portfolio, we will add it, but it’s definitely far from our exclusive focus.
Fund performance was fine in 2017 but nothing to write home about compared to exuberant equity markets. This is to be expected, as the fund is not designed, nor are our managers inclined, to try to keep up with levitating markets at the expense of discipline and risk management. The fund is not intended to track any market index, and given its relatively conservative positioning, we are satisfied with the performance on the year, although we always hope to do better. Once volatility returns to the markets, we know better opportunities for our managers to commit capital will come, and we believe they are well positioned to do so. We can’t predict exactly when, but with U.S. stock valuations and market sentiment at or near all-time highs, we are confident our patience will be rewarded.
As always, we thank you for your continued trust and confidence.
Jeremy DeGroot, Portfolio Manager and Chief Investment Officer
Jason Steuerwalt, Senior Research Analyst
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Sub-Advisor Portfolio Composition as of December 31, 2017
(Exposures may not add up to total due to rounding)
DCI Long-Short Credit Strategy
Bond Portfolio Top Ten Sector Long Exposures as of 12/31/17
Consumer Discretionary | 15.2% | |||
Energy | 9.8% | |||
Technology | 8.1% | |||
Materials | 7.3% | |||
Consumer Non-Discretionary | 6.6% | |||
Investment Vehicles / REITs | 4.9% | |||
General | 4.3% | |||
Media | 4.3% | |||
Transportation | 3.6% | |||
Pharmaceuticals | 3.4% |
DCI combined CDS + cash bond portfolio gross exposures:
Long | 237% | |||
Short | -168% |
DoubleLine Opportunistic Income Strategy
Sector Exposures as of 12/31/17
Cash | 13.6% | |||
Government | 1.2% | |||
Agency Inverse Floaters | 3.3% | |||
Agency Inverse Interest-Only | 3.6% | |||
Agency CMO | 7.6% | |||
Agency PO | 2.3% | |||
Collateralized Loan Obligations | 1.3% | |||
Commercial MBS | 1.3% | |||
ABS | 5.1% | |||
High-Yield | 0.1% | |||
Municipals | 1.5% | |||
Non-Agency Residential MBS | 59.2% | |||
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TOTAL | 100.0% | |||
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FPA Contrarian Opportunity Strategy
Asset Class Exposures as of 12/31/17
U.S. Stocks | 44.5% | |||
Foreign Stocks | 25.3% | |||
Bonds | 5.9% | |||
Options | -0.2% | |||
Other Asset-Backed | 0.5% | |||
Limited Partnerships | 0.4% | |||
Exchange Traded Funds | -0.8% | |||
Short Sales | -9.4% | |||
Cash | 33.8% | |||
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TOTAL | 100.0% | |||
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Sector Exposures | FPA Strategy | Russell 3000 Index | ||||||
Consumer Discretionary | 8.7% | 12.6% | ||||||
Consumer Staples | 0.6% | 7.3% | ||||||
Energy | 1.3% | 5.8% | ||||||
Finance | 20.8% | 15.2% | ||||||
Health Care | 2.9% | 13.3% | ||||||
Industrials | 10.4% | 10.9% | ||||||
Materials | 2.4% | 3.4% | ||||||
Real Estate | 0.0% | 3.8% | ||||||
Technology | 13.1% | 22.8% | ||||||
Telecom | 0.0% | 1.9% | ||||||
Utilities | 0.0% | 3.0% | ||||||
ETFs | -0.8% | 0.0% | ||||||
Cash | 33.8% | 0.0% | ||||||
Other | 6.8% | 0.0% | ||||||
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TOTAL | 100.0% | 100.0% | ||||||
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Loomis Sayles Absolute Return Fixed-Income Strategy
Strategy Exposures as of 12/31/17
Long Total | Short Total | Net Exposure | ||||||||||
Securitized | 25.4% | -0.7% | 24.7% | |||||||||
High-Yield Corporate | 10.2% | -2.8% | 7.5% | |||||||||
Bank Loans | 10.0% | 0.0% | 10.0% | |||||||||
Investment-Grade Corp. | 8.7% | 0.0% | 8.7% | |||||||||
Dividend Equity | 9.7% | -4.5% | 5.2% | |||||||||
Convertibles | 3.5% | 0.0% | 3.5% | |||||||||
Emerging Market | 7.9% | -3.5% | 4.5% | |||||||||
Global Credit | 1.4% | 0.0% | 1.4% | |||||||||
Currency | 9.8% | -10.2% | -0.4% | |||||||||
Risk Management | 0.5% | -3.3% | -2.8% | |||||||||
Global Rates | 44.5% | -19.4% | 25.1% | |||||||||
Subtotal | 131.6% | -44.3% | 87.3% | |||||||||
Cash & Equivalents | 16.3% | 0.0% | 16.3% |
Water Island Arbitrage and Event-Driven Strategy
Sub-Strategy Exposures as of 12/31/17
Long | Short | Net | ||||||||||
Equity Merger Arbitrage | 48.9% | -14.4% | 34.6% | |||||||||
Equity Special Situations | 19.8% | -15.6% | 4.2% | |||||||||
Credit Opps/Special Sits | 11.9% | -0.7% | 11.2% | |||||||||
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Total | 80.6% | -30.7% | 49.9% | |||||||||
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Litman Gregory Masters Alternative Strategies Fund
Subadvisor Commentaries
DCI, Long-Short Credit Commentary
The DCI Long-Short Credit strategy was up 1.04% (net) in 2017, having gone live in July. The strategy uses systematic bottom-up credit selection models to construct long-short portfolios focused on idiosyncratic credit risk. The strategy runs a CDS sleeve based on the universe of liquid 5-year credit derivatives and a Bond sleeve based on the liquid universe of U.S. corporate bonds. Both portfolios are driven by credit fundamentals and seek outperformance from exposure (long or short) to credits that are mispriced by the market. The mispricing measures are derived from rigorous proprietary models of individual name-level corporate profitability and default probability. Risk controls are instituted as part of the systematic portfolio construction process and residual risks to credit beta and interest rates are reduced via programmatic hedging.
Account performance in the second half of 2017 was modestly positive in both the CDS and Bond sleeves. The various strategy components, as expected, have shown themselves to be nicely diversified from each other and not overly sensitive to moves in the market’s risk appetite or other macro themes.
Credit markets in 2017 were marked by a relentless tightening of spreads as the strong global economy and healthy corporate profits kept default risk low and risk appetite well bid. Capping off a year marked by sustained economic improvement in the Eurozone and ongoing positivity in the key U.S. production and labor markets, investors received a further boost at year-end as the U.S. significantly reduced the corporate tax rate. Cross-sectional credit returns were reasonably dispersed, even as credit spreads and index volatility were low, as the market consistently discriminated harshly between winners and losers. High yield credits out-performed on the rally, which was led by the transports, financials, and materials sectors, while technology, consumer facing, and leveraged telecom were market laggards. Fundamental news dominated as the market rewarded earnings beats and punished misses. The strengthening of oil prices, on the Organization of the Petroleum Exporting Countries (OPEC) supply discipline and a stronger demand side, helped support energy credits.
Against this backdrop, however, DCI’s proprietary credit-selection models struggled for traction in the second half, with the portfolios registering a greater number than usual of both big winners and big losers. The CDS sleeve generated steady, but modest, gains as profits in the consumer goods, telecom, utilities, and banking sectors were somewhat offset by losses in insurance, hospital, energy, and equipment names. Short positions in Windstream and Frontier were the biggest gainers, followed by longs in Hertz and Freeport, while long positions in MBIA (which was hit by the U.S. hurricane damage) and Community Health were the biggest losers. The portfolio had been profitably short the most highly levered telecom names for most of 2017 as those firms came under cash-flow pressure with disappointing subscriber results. We took partial profits on
this position at the end of the year and have moved into more-mainstream telecom shorts, such as Sprint. The other big 2017 portfolio view from the short side—short retailers—has likewise come in as that sector has turned around its recent performance. The portfolio has consistently been long consumer durables—such as housing and autos—and so now favors the consumer outright. Hence, entering 2018, the sleeve’s well-matched long-short portfolio continues to be tilted into higher quality firms (as reflected by DCI’s default risk measures) with a modest overweight in attractively priced consumer discretionary exposures offset by net short exposure to telecom firms.
The Bond sleeve gained on long positions in high-quality names in the energy, materials, technology, and consumer sectors, which were somewhat offset by losses in telecoms. Valeant, NRG, and Calumet Specialty were the biggest gainers, while Intelsat and Netflix were the biggest losers. Entering 2018, the sleeve’s positioning remains focused on high-quality firms in the consumer, equipment, technology, materials, and pharma sectors.
The strategy hedges were a net drag for the year. Our rates protection paid off as yields climbed higher into the year end on the improving labor market and steady pace of Fed normalization. Credit protection, however, was unusually costly as credit spreads steadily tightened. The credit hedge performed worse than expected as investors especially bid up synthetic credit exposure into the year end.
Looking forward, the opportunity set for performance gains in 2018 looks promising. Credit differentiation is elevated, suggesting that the strategy can deliver performance regardless of the benign market environment. The decline in December hedge performance was somewhat technical, indicating some opportunity for positive mean reversion in early 2018. And our experience running the proprietary credit selection models continues to point to robust all-weather performance.
DoubleLine, Opportunistic Income Commentary
2017 Sector Commentary and Attribution
For the 12-month trailing period ending December 31, 2017, the Litman Gregory Opportunistic Income portfolio outperformed the Barclays U.S. Aggregate return of 3.54%. In aggregate, both Agency and Non-Agency RMBS sectors contributed positively to performance. Within Agency RMBS, Fixed-Rate CMOs were the best performers as prices increased. Longer duration assets such as inverse interest-only securities underperformed due to the sell-off in rates. Returns were positive across the credit spectrum within non-Agency RMBS. Alt-A securities were the best performing within the sector. Jumbo 2.0 securities had the smallest positive return as this sector is less credit sensitive and therefore did not benefit from the same magnitude of spread tightening. Other structured credit sectors including CLOs, CMBS and ABS were also accretive to performance as valuations increased during the year. Non-structured credit sectors such as Municipals and High Yield, which remain a
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smaller portion of the overall portfolio, detracted from performance primarily due to weakening valuations on Puerto Rico Municipals after Hurricane Maria in September.
Current Portfolio Positioning and Outlook
The two major themes over the past year affecting the DoubleLine-Litman Gregory portfolio in particular—and fixed income markets in general—was the flattening of the U.S. Treasury yield curve, and spread tightening in risk products. So-called “bear flattening” occurred, with the 2-year portion of the U.S. Treasury curve up 69 basis points (bps) and the 10-year portion down 4 bps. Spreads tightened significantly across securitized credit, with lesser credits the biggest beneficiaries of the risk-on move in everything with a risk premium.
This was not confined to fixed income, as the broader rally in global equities reflected similar sentiment. While these two conditions presented a challenging investment environment for identifying new opportunities, we continued to position the portfolio defensively from a duration standpoint, while maintaining our overall strategy to buy the cheapest risk-adjusted cashflows across the securitized space.
Composition changes within Agency and non-Agency RMBS sector allocations lengthened the portfolio’s duration by about half a year to 4.2, compared to the benchmark’s duration of 6 years. Agency RMBS makes up 17% of the portfolio, and the sub-allocation to Z tranches increased due to new purchases. Inverse interest-only security exposure decreased after some sales. Non-Agency RMBS comprises 59% of the portfolio, and proceeds of legacy fixed-rate securities that paid off throughout the year were reinvested to other legacy non-Agency RMBS bonds. The net result of trading within this space was an increase of 12% to the sector.
Other securitized credit sectors make up 8% of the portfolio compared with 6% last year. ABS had an increased presence in the portfolio due to new purchases in renewables, student loans, and franchise leases. We’ve added to equity CLO positions as we find this trade attractive due to favorable structural developments within this asset class, as debt spreads continue to re-price. CMBS continued to grow within the portfolio with additions coming from tranches of newer issue conduit deals. The allocation to Puerto Rico Municipals decreased from 4% to 1.5% (due to price declines and portfolio asset growth).
Cash and government securities increased 3% to make up the remaining 15%. The higher cash position at the beginning of 2018 should allow us to deploy capital at a more opportune time in the market. We will likely continue expanding our securitized credit investments outside of single-family residential MBS, while using our Agency exposure as barbell to risk-off events in the market.
FPA, Contrarian Opportunity Commentary
Introduction
December capped a banner year for the S&P 500. For the first time ever, it delivered a positive return in every month, setting more than four dozen new records along the way.
The FPA Contrarian Opportunity strategy returned 5.11% in the second half of 2017, net of fees. This compares to the S&P 500’s 11.42% return and the MSCI ACWI’s 11.21% return in the same period. For the full year, the portfolio returned 10.61% compared to 21.83% for the S&P 500 and 23.97% for the MSCI ACWI.
Portfolio Commentary
The top five performing positions added 3.91% to our full year return while the bottom five detracted 1.88%.1 General Electric (GE) cost the portfolio 0.58% last year and warrants a longer discussion that we include in the Investing section below.
Winners | Losers | |
Oracle | Naspers/Tencent paired trade | |
Bank of America | General Electric | |
Microsoft | American International Group | |
Arconic | Esterline Technologies | |
Citigroup | WPP |
Not much in the way of news influenced the returns of the other investments amongst the winners and losers.
Our bread and butter—value stocks—continue to lag the overall market. Value stocks trailed the S&P 500 by 6.47% and the S&P 500 Growth index by 12.08%, their worst calendar year performance since 1999.
What has proven more important than our security selection over this market cycle is that the exposure to long equities and other risk assets has been too low in retrospect. There is no hiding from the fact that this underweighting has reduced the benefits of the excellent performance of our long book. In our efforts to deliver equity rates of return while avoiding a permanent impairment of capital, we generally err on the side of caution. That said, when opportunities once again reveal themselves, please know we are ready to take advantage of them.
Markets and Economy
We are bottom-up investors who work to build a strong understanding of businesses and industries. We decide what companies we would like to own and the market decides if it would like to offer them to us at a price that provides an attractive risk/reward. Once we identify a business we would like to see in our portfolio, we await a time it might reasonably be delivered to us.
1 | Reflects the top contributors and top detractors to the portfolio’s performance based on contribution to return for the year. |
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The macro picture is only an afterthought. The larger environment might help explain why we buy more or less of something but it certainly does not drive the portfolio’s overall exposure. Understanding where the world is and the prices markets are offering us for the assets we’d like to own helps to explain the portfolio’s positioning.
We lack any ability to prognosticate, but here’s what we know...
Global stock markets have not been inexpensive enough for a number of years to offer the potential for high single-digit rates of return and are now trading at new highs. We continue to believe there isn’t enough of a margin of safety2 to warrant a fully-invested portfolio. Stocks that were not inexpensive before are even less so now with U.S. large cap valuations valued in the 97th percentile and global stocks in the somewhat more attractive 77th percentile. Government bond prices are close to all-time highs despite yields being off the bottom. Corporate bond yields are also near their all-time lows. High-yield corporate bonds hardly offer much more return and carry more risk. If history is any guide and defaults and recoveries reach past levels, then the expected return of U.S. junk bonds would be less than one percent better than U.S. Treasuries while European junk yields would be negative. There are more levered companies now than there have ever been. The levered companies are, on average, carrying more debt than in the past and with reduced investor protection (e.g., weaker covenants).
Even though stocks can rerate faster and give back the gains more quickly than they were made, we have no idea when a downturn might come. It could be tomorrow, next month or sometime in the coming years. When we think about what could change, we appreciate that more things might happen than will happen. We also appreciate that we cannot identify all that could go wrong.
After Bull Market Year 8 ended in 2016, we talked about how complacency leads investors to believe they have a greater risk tolerance. Now, after Bull Market Year 9, we’re beginning to see a level of excitement that reflects something more akin to risk ignorance, which has led us to a lower-than-average exposure to risk assets.
Investing In A WTF World
My mother recently asked me what WTF means. I told her, “Wow, that’s fantastic!” Now she uses it all the time. For the purpose of the following discussion, we will go with her definition although fantastic might mean something dramatically different to each of us.
Man invented the wheel about 6,000 years ago. People could begin to move themselves and their belongings around more easily. Once you had a wheel, your life was better, more productive and you couldn’t imagine life without it. The first time someone saw it, he or she probably had one of my mother’s WTF moments. Fantastic in one generation becomes ordinary in the next and may even foment further innovation.
My slow appreciation that accelerating change could challenge some of the less dynamic businesses of our more traditional value investments was an error of omission. I say “my” rather than “our” because on our team, I was probably the most entrenched philosophically. Fortunately, co-portfolio manager Mark Landecker exhibited greater flexibility and, over the last number of years, has helped move our portfolio more in the direction of reasonably priced, higher quality, growing companies.
Traditional value investing—buying a business or asset at a discount that offers the potential for upside appreciation while providing downside protection—isn’t what it used to be. First, good historic returns for value investors attracted a lot of capital that arbitraged inefficiencies from the market. Then the world began to change ever more quickly. New and rapidly improving technology has created new businesses, harming old ones in the process. Life-altering inventions have allowed us to connect digitally professionally and personally, farm more, live longer and better, drive cleaner and not get lost along the way.
2 | Buying with a “margin of safety,” a phrase popularized by Benjamin Graham and Warren Buffett, is when a security is purchased for less than its estimated value. This helps protect against permanent capital loss in the case of an unexpected event or analytical mistake. A purchase made with a margin of safety does not guarantee the security will not decline in price. |
3 | Vijay Govindarajan, Anup Srivastava. “Strategy When Creative Destruction Accelerates”, September 7, 2016 |
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Accelerating change swirls around us, placing us in a middle of a vortex that is not without investment implications. The existential risk to corporations is greater than it has ever been. Businesses are disappearing and corporate lifespans are getting shorter, as can be seen in the following mortality chart3.
Likelihood of Surviving the First 5 Years of Exchange Listing
In the late 1970s and early 1980s, the average company had been in the S&P 500 for almost 40 years. Now, however, many relatively young businesses have disrupted the economics of their older brethren. Innosight, a management consulting firm, published a study that suggests that the average lifespan of a company in the S&P 500 index is expected to hit a new low of 12-13 years.4
Investing
A case in point is GE. It is the only company currently listed in the Dow Jones Industrial Index that was included in the original 1896 index. One can only wonder if its Dow days are numbered.
Our investment in GE was a disappointment. We sold our last shares of GE earlier this month.
We expected that GE’s pivot away from financial services and towards industrial businesses would result in a stronger and more valuable enterprise. The company did materially shrink its exposure to the finance business but what emerged was a company with too much dependence on its legacy power generation business (and questionable accounting). We reduced our position at a nice gain but were slow to recognize the magnitude of these issues, which GE amplified by its generally poor corporate governance and an entitled corporate culture. Subsequent losses on our remaining stake wiped out our initial profit.
When we model a company’s potential outcomes, we do not try to predict earnings this year or next, let alone this quarter. We build a low, base and high case. We make investments in those businesses that should offer a reasonable rate of return in our base case, have upside to the high case and the low case should not be too bad. Furthermore, we expect the base or high cases to be more likely than the low case.
In our low case for GE, we did not expect the massive losses from an insurance business that the company exited in the mid-2000s. Nor did we account for what is tantamount to accounting fraud: the mismarked book of power projects.
Despite GE’s horrific results, the portfolio did not lose much money in this investment.
A small comfort but minimizing the downside is indeed the point of being a value investor. However, the S&P 500 has appreciated more than 45% since our original 2015 GE purchase. We certainly could (and should) have had that money invested in something else that could have participated along with it.
A good investor must always understand the competitive pressures from existing and new businesses and technologies but we would argue that it holds even greater importance today. We have evolved to recognize that many of the better investment opportunities have seen the margin of safety shift from the balance sheet to the business. A business that can increase its free cash flow over time and appropriately reinvest or distribute that cash flow might afford greater downside protection than another business that could be liquidated at a premium to its current market price but whose cash flow is not growing and, worse, could shrink if it finds itself faced with new, more innovative competition. We face the daily choice of change or decay. We opt for the former. Whereas we once might have been more willing to buy mediocre businesses at unbelievable prices, we are committed to buying good businesses at great prices and great businesses at good prices.
Current portfolio examples of such are Analog Devices, Alphabet (Google’s parent), Microsoft, TE Connectivity, Thermo Fisher Scientific, and Baidu. We purchased these companies at inexpensive multiples and held them despite higher multiples due to their long runways for growth, unlike other companies that we have been quicker to sell.
As we pointed out earlier and as has been the case for far too long, such assets and businesses are not inexpensive. This has not, of course, stopped the inexorable march to new market highs.
4 | Scott D. Anthony, S. Patrick Viguerie and Andrew Waldeck. “Corporate Longevity: Turbulence Ahead for Large Organizations” Innosight, Spring 2016 |
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We still find time to allocate resources and capital to more commercial opportunities. We find disillusion not far from our shores in Puerto Rico. During the quarter, we began to establish a position in debt issued in and by the Commonwealth through Puerto Rico General Obligation (GOs) bonds and the territory’s sewer and water systems. In our view, the deeply discounted prices more than compensate for over-encumbered balance sheets and all too real challenges following Hurricane Maria. While highly uncertain, we are optimistic that recoveries can meaningfully exceed our cost under either consensual or court-directed resolution.
Closing
The market is a pendulum that swings back and forth. It will come back our way as it always does. An investor has two choices: wait for opportunity, then invest, or invest regardless of opportunity. We select the former, as we always have. There can be a cost to waiting. It might mean underperformance for a spell. It might mean losing assets under management. Although uncomfortable at times, we have experienced and expect to continue to experience both.
The cash we carry is hopefully a down payment on higher future returns, both relative (in a market sell-off) and absolute (as sidelined capital gets put into play).
Success will come to those with a compass. We know our true north and move in that direction each day.
Respectfully submitted,
Steven Romick
Portfolio Manager
January 22, 2018
Loomis Sayles, Absolute-Return Fixed Income Commentary
Market Conditions
Risk assets rallied during the period, fueled by improving fundamentals across the globe. Performance was broadly positive across many asset classes, led by U.S. and global equities. Local-currency emerging market debt was a pocket of weakness as the U.S. dollar bounced back, but year-to-date performance remained strong.
High yield credit was a leading asset class throughout the period, benefiting from the “risk-on” environment and the search for yield. Improving corporate profits around the globe provided an additional tailwind to the sector.
After trending lower for much of the year, the U.S. dollar staged a small rally towards the end of the period. As a result, many developed and emerging markets saw some weakness after generating strong year-to-date gains. Emerging market countries continued to benefit from improving corporate health and economic growth.
Portfolio Review
With an annual gross return of 3.91%, the portfolio outperformed its benchmark, the three-month LIBOR Index, which returned 1.21%. The portfolio’s positive performance was mostly generated from our exposures to securitized and both high yield and investment grade corporate bonds. Beyond that, emerging markets, bank loans and global rates all contributed to absolute return. These gains more than offset losses from our currency positions, risk management tools and equity ideas.
Securitized assets, particularly our CMBS and Non-Agency RMBS holdings, contributed to performance during the period as fundamentals remained stable, across all sectors. As spreads tightened during the period, all asset classes posted positive returns as sentiment remained positive.
High yield corporate bonds aided return as spreads tightened during the year mixed in brief periods of volatility. While risk appetite remained strong for most of the period, concerns surrounding the impact of the tax reform on high yield companies, the age of the credit cycle and Fed policy led to increased volatility. While a decent carry environment persists given the likelihood of tax and economic reforms in the U.S., weak year-to-date fund flows may be indicating investor uneasiness. Individual energy, consumer non-cyclical and capital goods benefitted performance the most.
Investment grade corporate bonds boosted performance as spreads tightened during the year and ended the period near multi-year tights. The risk-on tone remained in place for most of the period as solid economic numbers, stronger oil prices and further clarity that the tax plan provided support. Most of the positive contribution came from energy, electric and communications names.
Emerging market exposure also bolstered return as the space produced strong results during the period. While on-going geopolitical uncertainty continued to add volatility in certain pockets, leading investors to trim risk positions and lock in profits ahead of the year ahead, the sector benefitted from the weakening dollar, a rebound in corporate profits and improving GDP growth. Exposure to the energy, capital goods and consumer non-cyclical space led the contribution to performance.
Currency positioning weighed on performance as the dollar weakened versus most currencies of developed countries. Prior to the rebound in the dollar during the fourth quarter on the backs of tax reform and the prospect of future Fed rate hikes, the currency exhibited weakness for much of the year as investors focused on accelerating non-U.S. growth, notably in the euro area and emerging markets and a string of weak U.S. inflation readings. Many of our positions were offset against long pairs, which mitigated the downside impact.
Nonetheless, exposure to some currencies, namely short positions in the euro, Canadian dollar and Taiwan dollar diminished return.
The portfolio’s risk management tools, primarily through the usage of equity index futures and options and interest rate
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futures, detracted from return. Most of the decline can be attributed to our short hedges in the S&P 500, Russell 2000 and Financial SPDR as equity markets rallied during the period. Furthermore, various positions in U.S. interest rate futures weighed on performance as we looked to hedge the impact of movements in the yield curve. We continue to use these tools seeking to limit our downside.
Outlook
Given the great deal of uncertainty around the neutral rate, the Fed ought to be wary of hiking the Fed Funds rate too quickly into a low and flattening yield curve. We still see two rate hikes in 2018, which is below market consensus. The recent curve flattening probably has much to do with the recent “supply shock” from Treasury’s refunding announcement, however price action has also been consistent with the notion that the Fed Funds rate is presently not far from a neutral setting.
Our bottom-up view points to increased stability in 2018 as the average time on the credit cycle has been extended and commodity centric industries are now in recovery or on the brink of recovery phase. Outlook for synchronized global growth and rising global profits are key themes that should support spreads over the next year. U.S. tax reform, while largely priced in, should also provide support.
Growth in emerging markets has picked up and is expected to continue improving. While inflation trends are mixed, external balance and fiscal positions are improving. The improvement in global trade has had positive implications on open economies. Additionally, the tail wind from commodities is expected to carry over into 2018. Meanwhile, European fundamentals improved throughout 2017 and remain notably better positioned than in the U.S. with improving balance sheets with declining leverage. We remain cautious on potential releveraging but are not overly concerned at this point due to improving growth outlooks.
Water Island Capital, Arbitrage and Event Driven Commentary
A backdrop of steady economic growth, the prospect (and ultimate passage) of a massive tax bill, and the continued perception of a business-friendly administration led gains across multiple asset classes in 2017. The U.S. interest rate term structure flattened during the year as the Federal Reserve raised short-term rates while inflation stayed benign, leading to minimal movement in the 10-Year U.S. Treasury bond. The high yield credit market exhibited strong performance, and equities notched their ninth straight year of gains in one of the least volatile years for equity markets in decades. Within this environment, our event-driven strategy—which is designed to generate returns from the outcomes of specific idiosyncratic corporate events, rather than the direction of overall credit or equity markets—performed as expected, with each of our three sub-strategies (merger arbitrage, equity special situations, and credit opportunities) contributing positive performance.
The top contributor in the portfolio over the course of the year was our merger arbitrage investment in Qualcomm’s pending
acquisition of NXP Semiconductors. In October 2016, Qualcomm (QCOM)—a U.S. telecommunications equipment provider—entered into a definitive agreement to acquire NXP Semiconductors (NXPI)—a Netherlands-based provider of mixed-signal semiconductor solutions—for $47 billion. NXPI shareholders and the investment community more broadly viewed Qualcomm’s offer as underwhelming at the time the deal was announced, and the semiconductor index has appreciated significantly since then. Given the fact that shareholders believe NXPI could trade above Qualcomm’s offer on its own, NXPI has traded through the current deal price in anticipation of an improved offer from QCOM. Shareholder pressure from activists (such as Elliott, who believes the true value of NXPI is $135 on a standalone basis) has held the stock well above the $110 price. We continue to expect shares of NXPI to trade through the offer price as we move closer to the expected Q1 2018 close.
Conversely, the largest detractor in the portfolio was AT&T’s planned acquisition of Time Warner. In October 2016, AT&T—a U.S. telecommunications company—entered into a definitive agreement to acquire Time Warner—a U.S. diversified media and entertainment communications company—for $108 billion. This transaction exemplifies the shifts occurring across the media and telecommunications industries, and marks AT&T’s desire to add valuable content properties to its already-formidable distribution network. During the quarter, the deal’s path to completion hit a roadblock as the U.S. Department of Justice (DOJ) sued to block the merger, citing concerns that it would harm consumers and competition. The DOJ’s lawsuit is an unprecedented departure from past treatment of vertical mergers and acquisitions (M&A), where the businesses being combined don’t compete. The news caused the deal spread to widen significantly, generating losses in the portfolio. A resolution to the ongoing legal battle will likely take four to six months. We continue to maintain exposure to the position as we believe AT&T has a strong case, though we have implemented hedges in an attempt to mitigate any potential further losses should the DOJ prevail.
2017 proved an interesting year for merger arbitrage. While we entered the year with a new political administration that many expected to be pro-business and anti-regulation, any such tendencies were certainly not extended to all comers. The Committee on Foreign Investment in the United States (CFIUS), which is responsible for reviewing foreign investments in U.S. companies from a national security perspective, provided a fair amount of regulatory interference in U.S.-targeted cross-border transactions. Perhaps most surprising—given decades of precedent in vertical mergers—was the DOJ’s aforementioned attempt to block AT&T’s acquisition of Time Warner in court. Such capricious behavior only serves to emphasize the importance of understanding not only the fundamental value of the companies involved in a transaction, but also their businesses, the competitive universe, and the regulatory environment. In the months to come, we do not expect CFIUS intervention to subside. As for the DOJ and AT&T, we believe a number of companies planning large, vertical mergers are waiting on the sidelines until they see which side is victorious.
44 | Litman Gregory Funds Trust |
Table of Contents
We witnessed another notable trend thanks to the strong performance of equity markets over the course of the year. Longer regulatory timelines impacted certain deals in sectors that experienced significant rallies. With the durations of these deals extended and their peer universes trading up, some developments emerged. First, the risk/reward profile of arbitrage spreads improved due to better downside, allowing us to be more aggressive in our positioning when warranted. Second, the terms at which deals were originally struck may no longer have made sense, leading to expectations of topping bids or shareholder activism, which can provide opportunities to generate incremental returns.
In our credit opportunities sleeve, returns for the year were balanced amongst idiosyncratic situations in merger-related bonds, long/short relative value plays, and other catalyst-driven investments. For our equity special situations team, re-ratings and transformational M&A situations drove returns for much of the year, while in Q4 (following an underwhelming first nine months) speculative M&A situations were the key contributor. We believe this shift was largely due to greater clarity on tax reform.
These changes to corporate tax rates are a key reason we are particularly constructive on the environment for M&A activity in 2018. Lower tax rates and the deployment of repatriated cash should benefit multi-national companies in technology, biotech, pharma, and industrials. With respect to leverage buyouts (LBO) and new limitations on interest deductibility, we may see a decline in pure financial buyout transactions characterized by
extreme leverage; however, as private equity (PE) firms increase their reach into various industries, many PE-led deals could become more strategic by combining the newly-acquired asset with a similar company already in the PE firm’s portfolio. Such strategies create synergies and a lower leverage profile compared to traditional LBOs. In all, we believe tax reform can be a significant driver of both speculative and definitive M&A opportunities that may benefit all three of our sub-strategies.
In our credit sleeve, we also foresee volatility and out-of-favor sectors leading to long/short relative value opportunities. In telecom and media, for example, steep competition and consumer preference for cord-cutting are driving volatility and opportunity. In the hospital and healthcare sectors, we see continuing changes in Medicare, Medicaid, and the Affordable Care Act as the leading catalysts for volatility. We also expect continued pressure on retailers and supermarkets due to increasing online penetration and pricing pressure.
With numerous catalyst on the horizon, we believe 2018 will be an exciting and profitable year for our strategy. Yet as always, we maintain a healthy degree of caution—particularly as the historic bull markets in both credit and equities continue to age, and the likelihood of a correction inches ever higher. As such, we intend to remain disciplined in our approach, conducting deep dive analysis to understand the valuation and rationale behind transactions, attempting to anticipate unexpected hurdles, and executing on our risk management process as we strive to deliver on our investment mandate.
Fund Summary | 45 |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund Managers
INVESTMENT MANAGER | FIRM | TARGET MANAGER ALLOCATION | Strategy | |||
Stephen Lealhofer Tim Kasta Richard Donick Paul Harrison Bin Zeng Adam Dwinells | DCI, LLC | 19% | Long-Short Credit | |||
Jeffrey Gundlach | DoubleLine Capital LP | 25% | Opportunistic Income | |||
Steven Romick Brian Selmo Mark Landecker | First Pacific Advisors, LLC | 18% | Contrarian Opportunity | |||
Matt Eagan Kevin Kearns Todd Vandam | Loomis Sayles & Company, LP | 19% | Absolute-Return Fixed Income | |||
John Orrico Todd Munn Roger Foltynowicz Gregg Loprete | Water Island Capital, LLP | 19% | Arbitrage |
Alternative Strategies Fund Value of Hypothetical $100,000
The value of a hypothetical $100,000 investment in the Litman Gregory Masters Alternative Strategies Fund from September 30, 2011 to December 31, 2017 compared with the Bloomberg Barclays U.S. Aggregate Bond Index
The hypothetical $100,000 investment at fund inception includes changes due to share price and reinvestment of dividends and capital gains. The chart does not imply future performance. Indexes are unmanaged, do not incur fees, expenses or taxes, and cannot be invested in directly.
46 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF INVESTMENTS IN SECURITIES at December 31, 2017
Shares | Value | |||||||
COMMON STOCKS: 24.8% | ||||||||
Consumer Discretionary: 5.1% | ||||||||
1,997 | Aptiv Plc | $ | 169,406 | |||||
294,871 | Caesars Entertainment Corp.*(a) | 3,730,118 | ||||||
64,517 | CalAtlantic Group, Inc.(a) | 3,638,114 | ||||||
1,571 | Churchill Downs, Inc. | 365,572 | ||||||
9,593 | Comcast Corp. - Class A | 384,200 | ||||||
133,507 | Delphi Technologies Plc*(a) | 7,005,112 | ||||||
3,605 | Dunkin’ Brands Group, Inc. | 232,414 | ||||||
12,079 | Eldorado Resorts, Inc.* | 400,419 | ||||||
10,434 | EW Scripps Co. (The) - Class A* | 163,083 | ||||||
41,350 | Expedia, Inc. | 4,952,490 | ||||||
155,218 | Federal-Mogul Holdings LLC*(b) | 1,552,180 | ||||||
4,319 | General Motors Co. | 177,036 | ||||||
21,024 | Gray Television, Inc.* | 352,152 | ||||||
5,012 | Hilton Worldwide Holdings, Inc. | 400,258 | ||||||
378 | Home Depot, Inc. (The) | 71,642 | ||||||
94,659 | Jack in the Box, Inc.(a) | 9,286,994 | ||||||
10,591 | Kabel Deutschland Holding AG | 1,384,717 | ||||||
4,993 | Leoni AG | 374,517 | ||||||
3,459 | McDonald’s Corp. | 595,363 | ||||||
59,306 | Naspers Ltd. - Class N | 16,521,898 | ||||||
41,557 | Nexeo Solutions, Inc. Founders Shares*(b)(c) | 169,803 | ||||||
2,486 | Papa John’s International, Inc. | 139,489 | ||||||
126,829 | Porsche Automobil Holding SE - (Preference Shares) | 10,640,063 | ||||||
13,542 | Red Rock Resorts, Inc. - Class A | 457,927 | ||||||
118,370 | Regis Corp.* | 1,818,163 | ||||||
239,504 | Rent-A-Center, Inc.(a) | 2,658,494 | ||||||
3,108 | Restaurant Brands International, Inc. | 191,080 | ||||||
88,995 | Sky Plc* | 1,218,326 | ||||||
83,025 | Starz Acquisition LLC - Class A*(b) | 3,282,178 | ||||||
23,265 | TEGNA, Inc. | 327,571 | ||||||
129,900 | Time Warner, Inc. | 11,881,953 | ||||||
308,024 | Tribune Media Co. - Class A | 13,081,779 | ||||||
8,235 | Twenty-First Century Fox, Inc. - Class A | 284,355 | ||||||
2,598 | Walt Disney Co. (The) | 279,311 | ||||||
12,805 | Wendy’s Co. (The) | 210,258 | ||||||
17 | WLRS Fund I LLC(b)(c) | 118,848 | ||||||
304,290 | WPP Plc | 5,519,935 | ||||||
|
| |||||||
104,037,218 | ||||||||
|
| |||||||
Consumer Staples: 0.4% | ||||||||
5,772 | Altria Group, Inc. | 412,179 | ||||||
35,378 | Bunge Ltd.(a) | 2,373,156 | ||||||
653 | Constellation Brands, Inc. - Class A | 149,256 | ||||||
773 | Costco Wholesale Corp. | 143,871 | ||||||
1,190 | Estee Lauder Cos., Inc. (The) - Class A | 151,416 | ||||||
22,076 | Lenta Ltd. - GDR*(b)(d) | 128,482 | ||||||
7,113 | Mondelez International, Inc. - Class A | 304,436 | ||||||
3,912 | PepsiCo, Inc. | 469,127 | ||||||
3,882 | Procter & Gamble Co. (The) | 356,678 | ||||||
83,252 | Refresco Group N.V.(d) | 1,981,776 | ||||||
404,307 | Safeway Casa Ley CVR*(b)(c) | 187,032 | ||||||
404,307 | Safeway PDC LLC CVR*(b)(c) | 0 | ||||||
35,690 | Unilever N.V. | 2,014,759 | ||||||
|
| |||||||
8,672,168 | ||||||||
|
|
Shares | Value | |||||||
Energy: 0.8% | ||||||||
30,004 | Anadarko Petroleum Corp. | $ | 1,609,414 | |||||
12,996 | Canadian Natural Resources Ltd. | 465,499 | ||||||
842 | Chevron Corp. | 105,410 | ||||||
22,072 | Dommo Energia S.A. - ADR | 5,408 | ||||||
63,470 | Encana Corp. | 846,055 | ||||||
12,505 | Energy XXI Gulf Coast, Inc.* | 71,779 | ||||||
1,028 | EQT Corp. | 58,514 | ||||||
3,005 | Exxon Mobil Corp. | 251,338 | ||||||
257,870 | Gazprom PJSC - ADR | 1,137,207 | ||||||
2,645 | Halliburton Co. | 129,261 | ||||||
117,622 | Jagged Peak Energy, Inc.* | 1,856,075 | ||||||
29,570 | Lukoil PJSC - ADR | 1,704,710 | ||||||
12,610 | Occidental Petroleum Corp. | 928,853 | ||||||
51,913 | Parsley Energy, Inc. - Class A* | 1,528,319 | ||||||
31,250 | PDC Energy, Inc.* | 1,610,625 | ||||||
116,050 | Rosneft Oil Co, PJSC - GDR | 579,089 | ||||||
21,083 | SandRidge Energy, Inc.* | 444,219 | ||||||
1,644 | Schlumberger Ltd. | 110,789 | ||||||
799,040 | Surgutneftegas OJSC - (Preference Shares) | 389,557 | ||||||
903 | Valero Energy Corp. | 82,995 | ||||||
87,986 | Whiting Petroleum Corp.* | 2,329,869 | ||||||
2,367 | Williams Cos., Inc. (The) | 72,170 | ||||||
|
| |||||||
16,317,155 | ||||||||
|
| |||||||
Financials: 3.9% | ||||||||
189,050 | Ally Financial, Inc. | 5,512,698 | ||||||
40,998 | American Express Co. | 4,071,511 | ||||||
159,320 | American International Group, Inc.(a) | 9,492,286 | ||||||
67,040 | Aon Plc(a) | 8,983,360 | ||||||
348,040 | Bank of America Corp.(a) | 10,274,141 | ||||||
7,415 | BB&T Corp. | 368,674 | ||||||
2,316 | Chubb Ltd. | 338,437 | ||||||
181,120 | CIT Group, Inc.(a) | 8,916,538 | ||||||
115,040 | Citigroup, Inc.(a) | 8,560,126 | ||||||
5,506 | CME Group, Inc. | 804,151 | ||||||
57,930 | Groupe Bruxelles Lambert S.A. | 6,267,473 | ||||||
10,619 | Intercontinental Exchange, Inc. | 749,277 | ||||||
6,957 | JPMorgan Chase & Co. | 743,982 | ||||||
313,650 | Leucadia National Corp.(a) | 8,308,588 | ||||||
77,930 | LPL Financial Holdings, Inc. | 4,452,920 | ||||||
4,377 | MetLife, Inc. | 221,301 | ||||||
4,327 | PacWest Bancorp | 218,081 | ||||||
2,194 | PNC Financial Services Group, Inc. (The) | 316,572 | ||||||
5,915 | Wells Fargo & Co. | 358,863 | ||||||
|
| |||||||
78,958,979 | ||||||||
|
| |||||||
Health Care: 1.9% | ||||||||
59,872 | Advanced Accelerator Applications S.A. - ADR*(a) | 4,886,753 | ||||||
18,758 | Aetna, Inc. | 3,383,756 | ||||||
385,450 | Air Methods Corp.*(b) | 4,143,588 | ||||||
3,649 | Allergan Plc | 596,903 | ||||||
9,087 | Bayer AG | 1,136,184 | ||||||
33,882 | Becton Dickinson & Co. | 7,252,752 | ||||||
4,082 | Bristol-Myers Squibb Co. | 250,145 | ||||||
210,004 | Chelsea Therapeutics International Ltd.*(b)(c) | 0 | ||||||
2,794 | Eli Lilly & Co. | 235,981 | ||||||
6,597 | Envision Healthcare Corp.* | 227,992 |
The accompanying notes are an integral part of these financial statements.
Schedule of Investments | 47 |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF INVESTMENTS IN SECURITIES at December 31, 2017 (Continued)
Shares | Value | |||||||
COMMON STOCKS (CONTINUED) | ||||||||
Health Care (continued) | ||||||||
4,152 | Medtronic Plc | $ | 335,274 | |||||
150,890 | Mylan N.V.* | 6,384,156 | ||||||
112,505 | NxStage Medical, Inc.* | 2,725,996 | ||||||
94,231 | Paratek Pharmaceuticals, Inc.* | 1,686,735 | ||||||
16,372 | Pfizer, Inc. | 592,994 | ||||||
21,190 | Thermo Fisher Scientific, Inc.(a) | 4,023,557 | ||||||
2,040 | UnitedHealth Group, Inc. | 449,738 | ||||||
2,446 | Zoetis, Inc. | 176,210 | ||||||
|
| |||||||
38,488,714 | ||||||||
|
| |||||||
Industrials: 2.7% | ||||||||
309,440 | Arconic, Inc.(a) | 8,432,240 | ||||||
1,346 | Boeing Co. (The) | 396,949 | ||||||
2,928 | CSX Corp. | 161,069 | ||||||
3,951 | Delta Air Lines, Inc. | 221,256 | ||||||
6,955 | Donaldson Co., Inc. | 340,447 | ||||||
2,248 | Dover Corp. | 227,026 | ||||||
36,810 | Esterline Technologies Corp.*(b) | 2,749,707 | ||||||
565 | FedEx Corp. | 140,990 | ||||||
5,309 | Flowserve Corp. | 223,668 | ||||||
5,442 | Fortive Corp. | 393,729 | ||||||
120,600 | General Cable Corp.(a) | 3,569,760 | ||||||
155,440 | General Electric Co. | 2,712,428 | ||||||
2,315 | Honeywell International, Inc. | 355,028 | ||||||
2,002 | Illinois Tool Works, Inc. | 334,034 | ||||||
41,970 | Jardine Strategic Holdings Ltd. | 1,661,173 | ||||||
791,770 | Meggitt Plc | 5,164,684 | ||||||
1,037 | Middleby Corp. (The)* | 139,943 | ||||||
5,089 | Nexans S.A. | 312,704 | ||||||
302,344 | Nexeo Solutions, Inc.*(b) | 2,751,330 | ||||||
7,078 | NKT A/S* | 323,758 | ||||||
10,887 | Norfolk Southern Corp. | 1,577,526 | ||||||
57,551 | Orbital ATK, Inc. | 7,567,957 | ||||||
444 | Raytheon Co. | 83,405 | ||||||
75,110 | Rush Enterprises, Inc. - Class A* | 3,816,339 | ||||||
17,500 | Sound Holding FP Luxemburg*(b)(c) | 429,622 | ||||||
86,772 | United Technologies Corp.(a) | 11,069,504 | ||||||
6,971 | Welbilt, Inc.* | 163,888 | ||||||
3,709 | Xylem, Inc. | 252,954 | ||||||
|
| |||||||
55,573,118 | ||||||||
|
| |||||||
Information Technology: 7.0% | ||||||||
4,476 | Alphabet, Inc. - Class A* | 4,715,018 | ||||||
4,488 | Alphabet, Inc. - Class C* | 4,696,243 | ||||||
239,694 | Altaba, Inc.*(a) | 16,742,626 | ||||||
64,540 | Analog Devices, Inc. | 5,745,996 | ||||||
6,332 | Apple, Inc. | 1,071,564 | ||||||
2,436 | Automatic Data Processing, Inc. | 285,475 | ||||||
26,050 | Baidu, Inc. - ADR* | 6,101,171 | ||||||
126,679 | BroadSoft, Inc.*(a) | 6,954,677 | ||||||
224,960 | Cisco Systems, Inc.(a) | 8,615,968 | ||||||
176,633 | Conduent, Inc.*(a) | 2,854,389 | ||||||
9,193 | Cypress Semiconductor Corp. | 140,101 | ||||||
28,746 | Gemalto N.V. | 1,710,714 | ||||||
122,690 | Microsoft Corp.(a) | 10,494,903 | ||||||
317,601 | NXP Semiconductors N.V.*(a) | 37,187,901 | ||||||
320,497 | Oracle Corp.(a) | 15,153,098 |
Shares | Value | |||||||
Information Technology (continued) | ||||||||
62,305 | QUALCOMM, Inc.(a) | $ | 3,988,766 | |||||
90,840 | TE Connectivity Ltd.(a) | 8,633,434 | ||||||
7,290 | Teradyne, Inc. | 305,232 | ||||||
1,167,786 | Worldpay Group Plc(d) | 6,729,617 | ||||||
|
| |||||||
142,126,893 | ||||||||
|
| |||||||
Materials: 1.0% | ||||||||
36,730 | Akzo Nobel N.V. | 3,224,463 | ||||||
18,679 | Alcoa Corp.* | 1,006,238 | ||||||
62,180 | Axalta Coating Systems Ltd.* | 2,012,145 | ||||||
3,671 | DowDuPont, Inc. | 261,449 | ||||||
4,633 | Huntsman Corp. | 154,232 | ||||||
88,960 | MMC Norilsk Nickel PJSC - ADR | 1,682,233 | ||||||
66,108 | Monsanto Co.(a) | 7,720,092 | ||||||
181,110 | Owens-Illinois, Inc.*(a) | 4,015,209 | ||||||
2,151 | WestRock Co. | 135,965 | ||||||
|
| |||||||
20,212,026 | ||||||||
|
| |||||||
Real Estate: 0.6% | ||||||||
173,557 | BUWOG AG* | 5,998,941 | ||||||
74,312 | JBG SMITH Properties*(a) | 2,580,856 | ||||||
39,569 | Macerich Co. (The) | 2,598,892 | ||||||
|
| |||||||
11,178,689 | ||||||||
|
| |||||||
Telecommunication Services: 0.7% | ||||||||
3,691 | AT&T, Inc. | 143,506 | ||||||
258,394 | Avaya Holdings Corp.* | 4,534,808 | ||||||
74,909 | CenturyLink, Inc. | 1,249,482 | ||||||
48,974 | Straight Path Communications, Inc. - Class B*(a) | 8,902,983 | ||||||
|
| |||||||
14,830,779 | ||||||||
|
| |||||||
Utilities: 0.7% | ||||||||
1,323 | American Electric Power Co., Inc. | 97,333 | ||||||
794,806 | Calpine Corp.* | 12,025,415 | ||||||
35,700 | Dynegy, Inc.* | 423,045 | ||||||
7,677 | Exelon Corp. | 302,550 | ||||||
2,414 | NextEra Energy, Inc. | 377,043 | ||||||
|
| |||||||
13,225,386 | ||||||||
|
| |||||||
| TOTAL COMMON STOCKS | 503,621,125 | ||||||
|
| |||||||
RIGHTS/WARRANTS: 0.0% | ||||||||
20,008 | Avaya Holdings Corp. (Expiration date 12/15/22)*(c) | 0 | ||||||
13,685 | Halcon Resources Corp. (Expiration date 09/09/20)* | 9,717 | ||||||
|
| |||||||
| TOTAL RIGHTS/WARRANTS | 9,717 | ||||||
|
| |||||||
PREFERRED STOCKS: 0.2% | ||||||||
Consumer Staples: 0.1% | ||||||||
Bunge Ltd. | ||||||||
11,000 | 4.875%, 12/01/2165(e) | 1,144,440 | ||||||
|
| |||||||
Energy: 0.0% | ||||||||
Chesapeake Energy Corp. | ||||||||
506 | 5.750%, 08/15/2166(e) | 313,720 | ||||||
|
|
The accompanying notes are an integral part of these financial statements.
48 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF INVESTMENTS IN SECURITIES at December 31, 2017 (Continued)
Shares | Value | |||||||
PREFERRED STOCKS (CONTINUED) | ||||||||
Industrials: 0.1% | ||||||||
Element Communication Aviation | ||||||||
170 | 12.000%, 03/16/2040(b)(c) | $ | 1,683,512 | |||||
|
| |||||||
| TOTAL PREFERRED STOCKS | 3,141,672 | ||||||
|
| |||||||
EXCHANGE-TRADED FUNDS: 0.2% | ||||||||
45,712 | Financial Select Sector SPDR Fund | 1,275,822 | ||||||
27,355 | Industrial Select Sector SPDR Fund(a) | 2,069,953 | ||||||
8,787 | Powershares QQQ Trust Series 1 | 1,368,663 | ||||||
|
| |||||||
| TOTAL EXCHANGE-TRADED FUNDS | 4,714,438 | ||||||
|
| |||||||
Principal Amount^ | ||||||||
ASSET-BACKED SECURITIES: 6.7% | ||||||||
AASET Trust | ||||||||
$314,985 | Series 2017-1A-A | 316,395 | ||||||
Aergen SICB LLC | ||||||||
1,752,500 | 1.000%, 03/01/2049(b)(c)(f) | 1,646,058 | ||||||
AIM Aviation Finance Ltd. | ||||||||
1,038,039 | Series 2015-1A-B1 | 1,017,165 | ||||||
554,189 | Series 2015-1A-C1 | 512,592 | ||||||
AIMCO CLO | ||||||||
500,000 | Series 2014-AA-SUB | 269,406 | ||||||
Ajax Mortgage Loan Trust | ||||||||
562,064 | Series 2016-B-A | 562,712 | ||||||
353,341 | Series 2016-C-A | 356,725 | ||||||
148,389 | Series 2017-A-A | 148,983 | ||||||
480,000 | Series 2017-B-A | 479,999 | ||||||
Ally Auto Receivables Trust | ||||||||
1,430,000 | Series 2017-4-A3 | 1,419,057 | ||||||
American Express Credit Account Master Trust | ||||||||
800,000 | Series 2017-8-A | 800,604 | ||||||
American Homes 4 Rent | ||||||||
875,000 | Series 2014-SFR2-E | 978,468 | ||||||
600,000 | Series 2014-SFR3-E | 677,133 | ||||||
845,000 | Series 2015-SFR1-E | 921,001 | ||||||
AmeriCredit Automobile Receivables | ||||||||
162,000 | Series 2015-4-D | 164,413 |
Principal Amount^ | Value | |||||||
Ameriquest Mortgage Securities Trust | ||||||||
$18,495,568 | Series 2006-M3-A2C | $ | 8,541,601 | |||||
Ascentium Equipment Receivables Trust | ||||||||
95,000 | Series 2017-2A-C | 94,383 | ||||||
Babson CLO Ltd. 2014-III | ||||||||
1,000,000 | Series 2014-3A-D2 | 1,004,475 | ||||||
1,000,000 | Series 2014-3A-E2 | 1,005,133 | ||||||
Bayview Opportunity Master Fund IIIa Trust | ||||||||
328,259 | Series 2017-RN7-A1 | 328,422 | ||||||
638,217 | Series 2017-RN8-A1 | 638,607 | ||||||
Bayview Opportunity Master Fund IIIb Trust | ||||||||
72,058 | Series 2017-RN2-A1 | 72,428 | ||||||
Bayview Opportunity Master Fund IVb Trust | ||||||||
201,437 | Series 2017-NPL1-A1 | 202,183 | ||||||
464,711 | Series 2017-NPL2-A1 | 464,525 | ||||||
Blackbird Capital Aircraft Lease Securitization Ltd. | ||||||||
329,948 | Series 2016-1A-A | 342,237 | ||||||
306,380 | Series 2016-1A-B | 307,301 | ||||||
CAM Mortgage Trust | ||||||||
1,820 | Series 2016-1-A | 1,825 | ||||||
545,000 | Series 2016-1-M | 538,393 | ||||||
Capital One Multi-Asset Execution Trust | ||||||||
1,595,000 | Series 2016-A1-A1 | 1,602,846 | ||||||
CarMax Auto Owner Trust | ||||||||
950,000 | Series 2017-4-A2B | 950,330 | ||||||
Chesapeake Funding II LLC | ||||||||
705,000 | Series 2017-4A-A2 | 706,114 | ||||||
CIG Auto Receivables Trust | ||||||||
161,927 | Series 2017-1A-A | 161,707 | ||||||
Citibank Credit Card Issuance Trust | ||||||||
1,470,000 | Series 2017-A8-A8 | 1,456,903 |
The accompanying notes are an integral part of these financial statements.
Schedule of Investments | 49 |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF INVESTMENTS IN SECURITIES at December 31, 2017 (Continued)
Principal Amount^ | Value | |||||||
ASSET-BACKED SECURITIES (CONTINUED) | ||||||||
CLUB Credit Trust | ||||||||
$332,191 | Series 2017-P1-A | $ | 332,074 | |||||
Coinstar Funding LLC | ||||||||
5,074,500 | Series 2017-1A-A2 | 5,276,431 | ||||||
Colony American Finance Ltd. | ||||||||
480,000 | Series 2015-1-D | 508,137 | ||||||
230,000 | Series 2016-1-C | 232,253 | ||||||
Colony American Homes | ||||||||
620,000 | Series 2014-1A-E | 624,204 | ||||||
490,000 | Series 2015-1A-E | 494,897 | ||||||
685,000 | Series 2015-1A-F 1 mo. LIBOR + 3.650% | 690,040 | ||||||
CPS Auto Receivables Trust | ||||||||
845,000 | Series 2016-B-E 8.140%, 05/15/2023(d) | 906,539 | ||||||
CPS Auto Trust | ||||||||
220,000 | Series 2017-D-D 3.730%, 09/15/2023(d) | 218,561 | ||||||
CSAB Mortgage-Backed Trust | ||||||||
1,857,684 | Series 2006-2-A6B 5.700%, 09/25/2036(g) | 380,443 | ||||||
Diamond Resorts Owner Trust | ||||||||
276,409 | Series 2017-1A-C 6.070%, 10/22/2029(d) | 274,796 | ||||||
DT Auto Owner Trust | ||||||||
175,000 | Series 2014-3A-D 4.470%, 11/15/2021(d) | 177,154 | ||||||
370,000 | Series 2015-2A-D 4.250%, 02/15/2022(d) | 376,304 | ||||||
930,000 | Series 2016-1A-D 4.660%, 12/15/2022(d) | 947,168 | ||||||
830,000 | Series 2016-2A-D 5.430%, 11/15/2022(d) | 854,306 | ||||||
Earnest Student Loan Program LLC | ||||||||
13,000 | Series 2016-D-R 0.000%, 01/25/2041(d) | 1,103,310 | ||||||
Fifth Third Auto Trust | ||||||||
475,000 | Series 2017-1-A2B 1.627%, 04/15/2020(h) 1 mo. USD LIBOR + 0.150% | 475,220 | ||||||
Five Guys Holdings, Inc. | ||||||||
344,138 | Series 2017-1A-A2 4.600%, 07/25/2047(d) | 353,658 | ||||||
Flagship Credit Auto Trust | ||||||||
300,000 | Series 2016-3-E 6.250%, 10/15/2023(d) | 311,306 | ||||||
Ford Credit Auto Owner Trust | ||||||||
1,825,000 | Series 2017-C-A2B 1.597%, 09/15/2020(h) 1 mo. USD LIBOR + 0.120% | 1,826,947 |
Principal Amount^ | Value | |||||||
GCAT LLC | ||||||||
$492,341 | Series 2017-2-A1 3.500%, 04/25/2047(d)(g) | $ | 494,108 | |||||
296,975 | Series 2017-3-A1 3.352%, 04/25/2047(d)(g) | 297,903 | ||||||
91,461 | Series 2017-4-A1 3.228%, 05/25/2022(d)(g) | 91,712 | ||||||
Global Container Assets 2014 Holdings Ltd. | ||||||||
720,887 | Series 2014-1-C 6.000%, 01/05/2030(b)(c)(d) | 508,226 | ||||||
289,764 | Series 2014-1-D 7.500%, 01/05/2030(b)(c)(d) | 83,510 | ||||||
1,185,000 | Series 2014-1-E 0.000%, 01/05/2030(b)(c)(d) | 0 | ||||||
Global Container Assets Ltd. | ||||||||
246,672 | Series 2015-1A-B 4.500%, 02/05/2030(b)(d) | 237,094 | ||||||
GSAA Home Equity Trust | ||||||||
745,790 | Series 2006-10-AF5 6.448%, 06/25/2036(g) | 386,482 | ||||||
Harbour Aircraft Investments Ltd. | ||||||||
1,682,025 | Series 2017-1-C 8.000%, 11/15/2037 | 1,678,372 | ||||||
Hertz Vehicle Financing LLC | ||||||||
365,000 | Series 2017-2A-A 3.290%, 10/25/2023(d) | 366,093 | ||||||
Honda Auto Receivables Owner Trust | ||||||||
440,000 | Series 2017-3-A3 1.790%, 09/20/2021 | 436,861 | ||||||
InSite Issuer LLC | ||||||||
3,500,000 | Series 2016-1A-C 6.414%, 11/15/2046(d) | 3,587,402 | ||||||
Invitation Homes Trust | ||||||||
780,000 | Series 2015-SFR1-E 5.660%, 03/17/2032(d)(h) 1 mo. LIBOR + 4.200% | 792,353 | ||||||
485,000 | Series 2015-SFR3-E 5.210%, 08/17/2032(d)(h) 1 mo. LIBOR + 3.750% | 493,421 | ||||||
JP Morgan Mortgage Acquisition Trust | ||||||||
1,000,000 | Series 2007-CH1-AF5 4.969%, 11/25/2036(g) | 985,397 | ||||||
Labrador Aviation Finance Ltd. | ||||||||
6,598,958 | Series 2016-1A-B1 5.682%, 01/15/2042(d) | 6,651,834 | ||||||
Lehman XS Trust | ||||||||
3,000,000 | Series 2005-6-3A3A 5.760%, 11/25/2035(g) | 2,078,480 | ||||||
1,193,319 | Series 2006-8-3A3 5.227%, 06/25/2036(g) | 1,165,479 | ||||||
Master Asset-Backed Securities Trust | ||||||||
12,914,266 | Series 2006-NC3-A3 1.652%, 10/25/2036(h) 1 mo. USD LIBOR + 0.100% | 8,382,547 | ||||||
Mosaic Solar Loans LLC | ||||||||
2,200,000 | Series 2017-2A-B 4.770%, 09/20/2042(d) | 2,216,322 | ||||||
Motor Plc | ||||||||
835,000 | Series 2017-1A-A1 2.082%, 09/25/2024(d)(h) 1 mo. USD LIBOR + 0.530% | 835,539 |
The accompanying notes are an integral part of these financial statements.
50 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF INVESTMENTS IN SECURITIES at December 31, 2017 (Continued)
Principal Amount^ | Value | |||||||
ASSET-BACKED SECURITIES (CONTINUED) | ||||||||
Neuberger Berman CLO XVI-S Ltd. | ||||||||
$ 500,000 | Series 2017-16SA-E 1.000%, 01/15/2028(d)(h) 3 mo. USD LIBOR + 5.400% | $ | 500,000 | |||||
Neuberger Berman Loan Advisers CLO 26 | ||||||||
1,000,000 | Series 2017-26A-INC 0.000%, 10/18/2030(d)(f)(i) | 897,661 | ||||||
NextGear Floorplan Master Owner Trust | ||||||||
710,000 | Series 2016-1A-A1 3.177%, 04/15/2021(d)(h) 1 mo. LIBOR + 1.700% | 721,197 | ||||||
220,000 | Series 2017-2A-A1 2.157%, 10/17/2022(d)(h) 1 mo. LIBOR + 0.680% | 220,548 | ||||||
Nissan Auto Lease Trust | ||||||||
1,175,000 | Series 2017-B-A2B 1.687%, 12/16/2019(h) 1 mo. USD LIBOR + 0.210% | 1,175,651 | ||||||
Nissan Auto Receivables Owner Trust | ||||||||
960,000 | Series 2017-B-A2B 1.577%, 05/15/2020(h) 1 mo. USD LIBOR + 0.100% | 959,926 | ||||||
1,395,000 | Series 2017-C-A2B 1.547%, 10/15/2020(h) 1 mo. USD LIBOR + 0.070% | 1,395,179 | ||||||
Oak Hill Advisors Residential Loan Trust | ||||||||
357,562 | Series 2017-NPL1-A1 3.000%, 06/25/2057(d)(g) | 357,941 | ||||||
808,754 | Series 2017-NPL2-A1 3.000%, 07/25/2057(d)(g) | 809,752 | ||||||
840,000 | Series 2017-NPL2-A2 4.875%, 07/25/2057(d)(g) | 837,512 | ||||||
Octagon Investment Partners XXI Ltd. | ||||||||
1,000,000 | Series 2014-1A-C 5.063%, 11/14/2026(d)(h) 3 mo. USD LIBOR + 3.650% | 1,004,630 | ||||||
1,000,000 | Series 2014-1A-D 8.013%, 11/14/2026(d)(h) 3 mo. USD LIBOR + 6.600% | 1,001,360 | ||||||
OneMain Financial Issuance Trust | ||||||||
3,080 | Series 2014-2A-A 2.470%, 09/18/2024(d) | 3,085 | ||||||
1,120,000 | Series 2014-2A-D 5.310%, 09/18/2024(d) | 1,132,060 | ||||||
875,000 | Series 2015-2A-D 5.640%, 07/18/2025(d) | 873,499 | ||||||
675,000 | Series 2015-3A-B 4.160%, 11/20/2028(d) | 687,691 | ||||||
1,000,000 | Series 2016-1A-C 6.000%, 02/20/2029(d) | 1,034,023 | ||||||
Ows Structured Asset Trust | ||||||||
160,105 | Series 2016-NPL1-A1 3.750%, 07/25/2056(d)(g) | 161,501 |
Principal Amount^ | Value | |||||||
Park Place Securities, Inc. | ||||||||
$8,000,000 | Series 2005-WHQ1-M5 2.677%, 03/25/2035(h) 1 mo. USD LIBOR + 1.125% | $ | 7,980,270 | |||||
Preston Ridge Partners Mortgage LLC | ||||||||
1,112,942 | Series 2017-2A-A1 3.500%, 09/25/2022(d)(g) | 1,112,501 | ||||||
315,000 | Series 2017-2A-A2 5.000%, 09/25/2022(d)(g) | 307,995 | ||||||
402,772 | Series 2017-3A-A1 3.470%, 11/25/2022(d)(f) | 402,367 | ||||||
120,000 | Series 2017-3A-A2 5.000%, 11/25/2022(d)(f) | 117,028 | ||||||
RCO Mortgage LLC | ||||||||
1,151,219 | Series 2017-1-A1 3.375%, 08/25/2022(d)(g) | 1,154,916 | ||||||
Rise Ltd. | ||||||||
301,688 | Series 2014-1-A 4.750%, 01/31/2021(f) | 300,180 | ||||||
Santander Retail Auto Lease Trust | ||||||||
1,395,000 | Series 2017-A-A2B 1.771%, 03/20/2020(d)(h) 1 mo. USD LIBOR + 0.270% | 1,395,352 | ||||||
Shenton Aircraft Investment I Ltd. | ||||||||
724,330 | Series 2015-1A-A 4.750%, 10/15/2042(d) | 750,918 | ||||||
Sierra Timeshare Receivables Funding LLC | ||||||||
50,078 | Series 2013-1A-A 1.590%, 11/20/2029(d) | 50,052 | ||||||
118,087 | Series 2013-3A-A 2.200%, 10/20/2030(d) | 117,899 | ||||||
SLM Private Credit Student Loan Trust | ||||||||
503,000 | Series 2003-A-A3 4.010%, 06/15/2032(h) 28 day ARS | 502,799 | ||||||
1,250,000 | Series 2003-B-A3 4.040%, 03/15/2033(h) 28 day ARS | 1,249,500 | ||||||
SMB Private Education Loan Trust | ||||||||
365,000 | Series 2017-B-A2B 2.101%, 10/15/2035(d)(h) 1 mo. USD LIBOR + 0.750% | 366,820 | ||||||
SoFi Professional Loan Program LLC | ||||||||
34,152 | Series 2014-B-A1 2.802%, 08/25/2032(d)(h) 1 mo. USD LIBOR + 1.250% | 34,577 | ||||||
520,616 | Series 2016-A-B 3.570%, 01/26/2038(d) | 518,859 | ||||||
133,000 | Series 2017-F-R1 0.000%, 01/25/2041(d) | 7,853,055 | ||||||
Soundview Home Loan Trust | ||||||||
7,578,807 | Series 2007-OPT3-2A3 1.732%, 08/25/2037(h) 1 mo. USD LIBOR + 0.180% | 7,410,232 | ||||||
Sprite Cayman | ||||||||
905,000 | Series 2017-1-B 5.750%, 12/15/2037(d) | 890,869 | ||||||
Sunset Mortgage Loan Co. LLC | ||||||||
190,355 | Series 2015-NPL1-A 4.459%, 09/18/2045(d)(g) | 190,822 |
The accompanying notes are an integral part of these financial statements.
Schedule of Investments | 51 |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF INVESTMENTS IN SECURITIES at December 31, 2017 (Continued)
Principal Amount^ | Value | |||||||
ASSET-BACKED SECURITIES (CONTINUED) | ||||||||
Terwin Mortgage Trust | ||||||||
$1,175,976 | Series 2006-3-2A2 1.762%, 04/25/2037(d)(h) 1 mo. USD LIBOR + 0.210% | $ | 1,161,267 | |||||
THL Credit Wind River CLO Ltd. | ||||||||
2,000,000 | Series 2014-2A-INC 0.000%, 01/15/2031(d) | 767,672 | ||||||
Tidewater Sales Finance Master Trust | ||||||||
565,000 | Series 2017-AA-A 4.550%, 04/15/2021(b)(d) | 562,969 | �� | |||||
Toyota Auto Receivables Owner Trust | ||||||||
1,470,000 | Series 2017-C-A2B 1.557%, 07/15/2020(h) 1 mo. USD LIBOR + 0.080% | 1,469,308 | ||||||
1,575,000 | Series 2017-D-A2B 1.527%, 08/17/2020(h) 1 mo. USD LIBOR + 0.050% | 1,574,729 | ||||||
Verizon Owner Trust | ||||||||
620,000 | Series 2017-3A-A1B 1.771%, 04/20/2022(d)(h) 1 mo. USD LIBOR + 0.270% | 621,751 | ||||||
Veros Automobile Receivables Trust | ||||||||
349,111 | Series 2017-1-A 2.840%, 04/17/2023(d) | 348,521 | ||||||
VOLT LIV LLC | ||||||||
228,294 | Series 2017-NPL1-A1 3.500%, 02/25/2047(d)(g) | 229,195 | ||||||
865,000 | Series 2017-NPL1-A2 6.000%, 02/25/2047(d)(g) | 870,156 | ||||||
VOLT LV LLC | ||||||||
297,632 | Series 2017-NPL2-A1 3.500%, 03/25/2047(d)(g) | 299,464 | ||||||
VOLT LVI LLC | ||||||||
546,520 | Series 2017-NPL3-A1 3.500%, 03/25/2047(d)(g) | 550,229 | ||||||
760,000 | Series 2017-NPL3-A2 5.875%, 03/25/2047(d)(g) | 764,044 | ||||||
VOLT LXI LLC | ||||||||
168,513 | Series 2017-NPL8-A1 3.125%, 06/25/2047(d)(g) | 169,003 | ||||||
VOLT LXIII LLC | ||||||||
320,000 | Series 2017-NP10-A1 3.000%, 10/25/2047(d)(g) | 319,882 | ||||||
VOLT XL LLC | ||||||||
295,000 | Series 2015-NP14-A2 4.875%, 11/27/2045(d)(g) | 294,997 | ||||||
WAVE Trust | ||||||||
352,728 | Series 2017-1A-B 5.682%, 11/15/2042(d) | 352,724 | ||||||
Westlake Automobile Receivables Trust | ||||||||
205,000 | Series 2017-1A-D 3.460%, 10/17/2022(d) | 205,965 | ||||||
World Financial Network Credit Card Master Trust | ||||||||
1,610,000 | Series 2015-A-A 1.957%, 02/15/2022(h) | 1,611,381 | ||||||
|
| |||||||
| TOTAL ASSET-BACKED SECURITIES | 135,476,491 | ||||||
|
|
Principal Amount^ | Value | |||||||
BANK LOANS: 1.8% | ||||||||
1011778 B.C. Unlimited Liability Co. | ||||||||
$ 124,061 | 3.819%, 02/16/2024 1 mo. LIBOR + 2.250% | $ | 124,160 | |||||
AES Corp. | ||||||||
1,119,022 | 3.454%, 05/24/2022 3 mo. LIBOR + 2.000% | 1,123,106 | ||||||
Almonde, Inc. | ||||||||
663,338 | 4.979%, 06/13/2024 3 mo. LIBOR + 3.500% | 665,938 | ||||||
Altice Financing S.A. | ||||||||
430,000 | 4.112%, 01/05/2026 3 mo. LIBOR + 2.750% | 422,153 | ||||||
Altice US Finance I Corp. | ||||||||
77,647 | 3.819%, 07/28/2025 1 mo. LIBOR + 2.250% | 77,469 | ||||||
AMC Entertainment, Inc. | ||||||||
89,325 | 3.727%, 12/15/2023 1 mo. LIBOR + 2.250% | 89,437 | ||||||
Aramark Services, Inc. | ||||||||
570,000 | 3.569%, 03/11/2025 1 mo. LIBOR + 2.000% | 573,654 | ||||||
Axalta Coating Systems US Holdings, Inc. | ||||||||
270,764 | 3.693%, 06/01/2024 3 mo. LIBOR + 2.000% | 272,195 | ||||||
Bass Pro Group, LLC | ||||||||
997,500 | 6.569%, 09/25/2024 1 mo. LIBOR + 5.000% | 996,253 | ||||||
BCP Raptor, LLC | ||||||||
616,900 | 5.729%, 06/24/2024 3 mo. LIBOR + 4.250% | 620,759 | ||||||
Belron S.A. | ||||||||
�� | 200,000 | 3.892%, 11/07/2024 3 mo. LIBOR + 2.500% | 202,344 | |||||
BWAY Holding Co. | ||||||||
1,059,675 | 4.599%, 04/03/2024 3 mo. LIBOR + 3.250% | 1,065,445 | ||||||
California Resources Corp. | ||||||||
442,000 | 0.000%, 11/08/2022(j) | 441,171 | ||||||
Camelot UK Holdco Ltd. | ||||||||
424,278 | 4.819%, 10/03/2023 1 mo. LIBOR + 3.250% | 427,386 | ||||||
Cavium, Inc. | ||||||||
204,513 | 3.819%, 08/16/2022 1 mo. LIBOR + 2.250% | 205,152 | ||||||
CBS Radio, Inc. | ||||||||
288,675 | 4.172%, 11/17/2024 3 mo. LIBOR + 2.750% | 290,630 | ||||||
Change Healthcare Holdings, Inc. | ||||||||
647,697 | 4.319%, 03/01/2024 1 mo. LIBOR + 2.750% | 649,601 | ||||||
ClubCorp Club Operations, Inc. | ||||||||
318,262 | 4.943%, 09/18/2024 3 mo. LIBOR + 3.250% | 319,978 | ||||||
Consolidated Communications, Inc. | ||||||||
343,710 | 4.570%, 10/04/2023 1 mo. LIBOR + 3.000% | 338,597 | ||||||
CSC Holdings, LLC | ||||||||
119,102 | 3.741%, 07/17/2025 1 mo. LIBOR + 2.250% | 118,813 |
The accompanying notes are an integral part of these financial statements.
52 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF INVESTMENTS IN SECURITIES at December 31, 2017 (Continued)
Principal Amount^ | Value | |||||||
BANK LOANS (CONTINUED) | ||||||||
Dell, Inc. | ||||||||
$ 825,000 | 3.320%, 09/07/2021 1 mo. LIBOR + 1.750% | $ | 825,743 | |||||
Donnelley Financial Solutions, Inc. | ||||||||
177,286 | 4.552%, 10/02/2023 1 mo. LIBOR + 3.000% | 178,616 | ||||||
Engility Corp. | ||||||||
277,254 | 4.819%, 08/12/2023 1 mo. LIBOR + 3.250% | 280,330 | ||||||
Engineered Machinery Holdings, Inc. | ||||||||
32,092 | 4.943%, 07/19/2024 3 mo. LIBOR + 3.250% | 32,152 | ||||||
246,863 | 4.943%, 07/19/2024 3 mo. LIBOR + 3.250% | 247,326 | ||||||
Envision Healthcare Corp. | ||||||||
262,350 | 4.570%, 12/01/2023 1 mo. LIBOR + 3.000% | 263,388 | ||||||
First DataCorp. | ||||||||
171,835 | 3.802%, 07/08/2022 1 mo. LIBOR + 2.250% | 172,147 | ||||||
GFL Environmental, Inc. | ||||||||
212,313 | 4.443%, 09/29/2023 3 mo. LIBOR + 2.750% | 213,639 | ||||||
GTT Communications, Inc. | ||||||||
188,100 | 4.875%, 01/09/2024 1 mo. LIBOR + 3.250% | 189,668 | ||||||
Hanesbrands, Inc. | ||||||||
310,000 | 3.227%, 12/15/2024 3 mo. LIBOR + 1.750% | 311,648 | ||||||
Harbor Freight Tools USA, Inc. | ||||||||
371,202 | 4.819%, 08/18/2023 1 mo. LIBOR + 3.250% | 374,176 | ||||||
HD Supply, Inc. | ||||||||
450,459 | 4.193%, 10/17/2023 3 mo. LIBOR + 2.500% | 454,587 | ||||||
Hyperion Insurance Group Ltd. | ||||||||
382,305 | 5.063%, 12/13/2024 3 mo. LIBOR + 3.500% | 383,499 | ||||||
Klockner-Pentaplast of America, Inc. | ||||||||
827,925 | 5.943%, 06/30/2022 3 mo. LIBOR + 4.250% | 837,367 | ||||||
MA FinanceCo. LLC | ||||||||
35,446 | 4.319%, 06/21/2024 1 mo. LIBOR + 2.750% | 35,520 | ||||||
McAfee LLC | ||||||||
807,975 | 6.069%, 09/30/2024 1 mo. LIBOR + 4.500% | 806,533 | ||||||
NeuStar, Inc. | ||||||||
463,838 | 5.147%, 08/08/2024 3 mo. LIBOR + 3.750% | 468,998 | ||||||
Plastipak Packaging, Inc. | ||||||||
134,663 | 4.450%, 10/14/2024 3 mo. LIBOR + 2.750% | 135,571 | ||||||
Ply Gem Industries, Inc. | ||||||||
135,929 | 4.693%, 02/01/2021 3 mo. LIBOR + 3.000% | 137,089 | ||||||
Post Holdings, Inc. | ||||||||
512,425 | 3.820%, 05/24/2024 1 mo. LIBOR + 2.250% | 514,897 |
Principal Amount^ | Value | |||||||
Presidio, Inc. | ||||||||
$969,978 | 4.585%, 02/02/2022 3 mo. LIBOR + 3.250% | $ | 974,828 | |||||
977,668 | 6.750%, 02/02/2022 3 mo. PRIME + 2.250% | 982,556 | ||||||
Quikrete Holdings, Inc. | ||||||||
649,038 | 4.319%, 11/15/2023 1 mo. LIBOR + 2.750% | 651,141 | ||||||
Quintiles IMS, Inc. | ||||||||
309,225 | 3.693%, 01/17/2025 3 mo. LIBOR + 2.000% | 311,020 | ||||||
Rackspace Hosting, Inc. | ||||||||
277,904 | 4.385%, 11/03/2023 3 mo. LIBOR + 3.000% | 278,155 | ||||||
Radiate Holdco LLC | ||||||||
844,144 | 0.000%, 02/01/2024(j) | 839,096 | ||||||
Seattle Spinco, Inc. | ||||||||
239,374 | 4.319%, 06/21/2024 1 mo. LIBOR + 2.750% | 239,873 | ||||||
Sedgwick Claims Management Services, Inc. | ||||||||
305,000 | 0.000%, 02/26/2021(j) | 303,506 | ||||||
Sedgwick, Inc. | ||||||||
543,620 | 0.000%, 03/01/2021(j) | 544,640 | ||||||
Serta Simmons Bedding LLC | ||||||||
612,579 | 9.407%, 11/08/2024 1 mo. LIBOR + 8.000% | 527,584 | ||||||
Southcross Energy Partners L.P. | ||||||||
169,390 | 5.943%, 08/04/2021 3 mo. LIBOR + 4.250% | 166,849 | ||||||
Sprint Communications, Inc. | ||||||||
913,100 | 4.125%, 02/02/2024 1 mo. LIBOR + 2.500% | 913,899 | ||||||
Surgery Center Holdings, Inc. | ||||||||
768,075 | 4.820%, 09/02/2024 1 mo. LIBOR + 3.250% | 761,354 | ||||||
Team Health Holdings, Inc. | ||||||||
1,131,658 | 4.319%, 02/06/2024 1 mo. LIBOR + 2.750% | 1,104,786 | ||||||
TransDigm, Inc. | ||||||||
93,074 | 4.319%, 05/14/2022 1 mo. LIBOR + 2.750% | 93,449 | ||||||
669,002 | 4.319%, 06/09/2023 1 mo. LIBOR + 2.750% | 670,764 | ||||||
144,275 | 4.693%, 08/22/2024 1 mo. LIBOR + 3.000% | 145,127 | ||||||
Truck Hero, Inc. | ||||||||
985,137 | 5.642%, 04/21/2024 3 mo. LIBOR + 4.000% | 986,526 | ||||||
Uber Technologies | ||||||||
1,122,939 | 5.552%, 07/13/2023 1 mo. LIBOR + 4.000% | 1,131,502 | ||||||
Unitymedia Finance LLC | ||||||||
1,130,000 | 3.727%, 09/30/2025 1 mo. LIBOR + 2.250% | 1,132,548 | ||||||
UPC Financing Partnership | ||||||||
439,474 | 3.977%, 01/15/2026 1 mo. LIBOR + 2.500% | 439,841 | ||||||
USI, Inc. | ||||||||
1,099,634 | 4.693%, 05/16/2024 3 mo. LIBOR + 3.000% | 1,099,634 |
The accompanying notes are an integral part of these financial statements.
Schedule of Investments | 53 |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF INVESTMENTS IN SECURITIES at December 31, 2017 (Continued)
Principal Amount^ | Value | |||||||
BANK LOANS (CONTINUED) | ||||||||
USS Ultimate Holdings, Inc. | ||||||||
$ 54,893 | 5.319%, 08/25/2024 1 mo. LIBOR + 3.750% | $ | 55,328 | |||||
UTZ Quality Foods LLC | ||||||||
375,000 | 5.011%, 11/21/2024 1 mo. LIBOR + 3.500% | 378,399 | ||||||
Veritas Bermuda Ltd. | ||||||||
2,525,780 | 6.193%, 01/27/2023 3 mo. LIBOR + 4.500% | 2,534,999 | ||||||
Virgin Media Bristol LLC | ||||||||
770,000 | 3.977%, 01/15/2026 1 mo. LIBOR + 2.500% | 770,870 | ||||||
Walter Investment Management Corp. | ||||||||
210,082 | 5.319%, 12/18/2020 1 mo. LIBOR + 3.750% | 201,483 | ||||||
Weight Watchers International, Inc. | ||||||||
1,620,000 | 6.230%, 11/29/2024 1 mo. LIBOR + 4.750% | 1,632,830 | ||||||
Zayo Group, LLC | ||||||||
363,863 | 3.802%, 01/19/2024 1 mo. LIBOR + 2.250% | 365,497 | ||||||
Ziggo Secured Finance Partnership | ||||||||
1,124,514 | 3.977%, 04/15/2025 1 mo. LIBOR + 2.500% | 1,117,019 | ||||||
|
| |||||||
| TOTAL BANK LOANS | 37,242,238 | ||||||
|
| |||||||
CONVERTIBLE BONDS: 0.7% | ||||||||
Communications: 0.1% | ||||||||
DISH Network Corp. | ||||||||
600,000 | 2.375%, 03/15/2024(d) | 577,875 | ||||||
1,165,000 | 3.375%, 08/15/2026 | 1,270,578 | ||||||
Finisar Corp. | ||||||||
780,000 | 0.500%, 12/15/2036 | 727,350 | ||||||
Liberty Media Corp. | ||||||||
160,000 | 2.250%, 09/30/2046 | 167,400 | ||||||
|
| |||||||
2,743,203 | ||||||||
|
| |||||||
Consumer, Cyclical: 0.0% | ||||||||
Navistar International Corp. | ||||||||
302,000 | 4.500%, 10/15/2018 | 312,759 | ||||||
442,000 | 4.750%, 04/15/2019 | 480,122 | ||||||
|
| |||||||
792,881 | ||||||||
|
| |||||||
Consumer, Non-cyclical: 0.2% | ||||||||
BioMarin Pharmaceutical, Inc. | ||||||||
360,000 | 1.500%, 10/15/2020 | 428,175 | ||||||
565,000 | 0.599%, 08/01/2024 | 564,294 | ||||||
Flexion Therapeutics, Inc. | ||||||||
70,000 | 3.375%, 05/01/2024(d) | 85,225 | ||||||
Horizon Pharma Investment Ltd. | ||||||||
465,000 | 2.500%, 03/15/2022 | 434,194 | ||||||
Insulet Corp. | ||||||||
60,000 | 1.375%, 11/15/2024(d) | 60,937 | ||||||
Intercept Pharmaceuticals, Inc. | ||||||||
540,000 | 3.250%, 07/01/2023 | 432,000 | ||||||
Macquarie Infrastructure Corp. | ||||||||
1,025,000 | 2.000%, 10/01/2023 | 984,000 |
Principal Amount^ | Value | |||||||
Consumer, Non-cyclical (continued) | ||||||||
Neurocrine Biosciences, Inc. | ||||||||
$ 1,020,000 | 2.250%, 05/15/2024(d) | $ | 1,304,962 | |||||
Teladoc, Inc. | ||||||||
235,000 | 3.000%, 12/15/2022(d) | 265,403 | ||||||
|
| |||||||
4,559,190 | ||||||||
|
| |||||||
Diversified: 0.0% | ||||||||
RWT Holdings, Inc. | ||||||||
130,000 | 5.625%, 11/15/2019 | 131,625 | ||||||
|
| |||||||
Energy: 0.1% | ||||||||
Chesapeake Energy Corp. | ||||||||
$440,000 | 5.500%, 09/15/2026(d) | 402,875 | ||||||
Nabors Industries, Inc. | ||||||||
615,000 | 0.750%, 01/15/2024(d) | 472,781 | ||||||
SM Energy Co. | ||||||||
140,000 | 1.500%, 07/01/2021 | 137,638 | ||||||
Whiting Petroleum Corp. | ||||||||
230,000 | 1.250%, 04/01/2020 | 212,750 | ||||||
|
| |||||||
1,226,044 | ||||||||
|
| |||||||
Financial: 0.1% | ||||||||
Hercules Capital, Inc. | ||||||||
315,000 | 4.375%, 02/01/2022(d) | 324,647 | ||||||
iStar, Inc. | ||||||||
565,000 | 3.125%, 09/15/2022(d) | 563,587 | ||||||
Walter Investment Management Corp. | ||||||||
340,000 | 4.500%, 11/01/2019(k) | 37,400 | ||||||
|
| |||||||
925,634 | ||||||||
|
| |||||||
Industrial: 0.1% | ||||||||
Echo Global Logistics, Inc. | ||||||||
235,000 | 2.500%, 05/01/2020 | 243,813 | ||||||
Greenbrier Cos., Inc. (The) | ||||||||
345,000 | 2.875%, 02/01/2024(d) | 412,706 | ||||||
Hornbeck Offshore Services, Inc. | ||||||||
2,500,000 | 1.500%, 09/01/2019 | 1,887,500 | ||||||
Tutor Perini Corp. | ||||||||
190,000 | 2.875%, 06/15/2021 | 210,425 | ||||||
|
| |||||||
2,754,444 | ||||||||
|
| |||||||
Technology: 0.1% | ||||||||
Cypress Semiconductor Corp. | ||||||||
115,000 | 4.500%, 01/15/2022 | 151,225 | ||||||
Evolent Health, Inc. | ||||||||
180,000 | 2.000%, 12/01/2021 | 169,650 | ||||||
Rovi Corp. | ||||||||
225,000 | 0.500%, 03/01/2020 | 212,906 | ||||||
Verint Systems, Inc. | ||||||||
370,000 | 1.500%, 06/01/2021 | 361,213 | ||||||
|
| |||||||
894,994 | ||||||||
|
| |||||||
| TOTAL CONVERTIBLE BONDS | 14,028,015 | ||||||
|
| |||||||
CORPORATE BONDS: 22.3% | ||||||||
Basic Materials: 1.5% | ||||||||
Ashland LLC | ||||||||
3,035,000 | 4.750%, 08/15/2022 | 3,163,987 | ||||||
Braskem Netherlands Finance B.V. | ||||||||
595,000 | 3.500%, 01/10/2023(d) | 585,778 |
The accompanying notes are an integral part of these financial statements.
54 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF INVESTMENTS IN SECURITIES at December 31, 2017 (Continued)
Principal Amount^ | Value | |||||||
CORPORATE BONDS (CONTINUED) | ||||||||
Basic Materials (continued) | ||||||||
Celulosa Arauco y Constitucion S.A. | ||||||||
$ 615,000 | 5.500%, 11/02/2047(d) | $ | 641,138 | |||||
Chemours Co. (The) | ||||||||
2,154,000 | 5.375%, 05/15/2027 | 2,234,775 | ||||||
Constellium N.V. | ||||||||
2,282,000 | 6.625%, 03/01/2025(d) | 2,410,362 | ||||||
Fibria Overseas Finance Ltd. | ||||||||
720,000 | 4.000%, 01/14/2025 | 714,150 | ||||||
Gerdau Trade, Inc. | ||||||||
845,000 | 4.875%, 10/24/2027(d) | 842,507 | ||||||
Glencore Finance Canada Ltd. | ||||||||
200,000 | 4.250%, 10/25/2022(d) | 209,788 | ||||||
Glencore Funding LLC | ||||||||
100,000 | 2.875%, 04/16/2020(d) | 100,427 | ||||||
IAMGOLD Corp. | ||||||||
2,000,000 | 7.000%, 04/15/2025(d) | 2,070,000 | ||||||
Kaiser Aluminum Corp. | ||||||||
2,146,000 | 5.875%, 05/15/2024 | 2,285,490 | ||||||
Kraton Polymers LLC/Kraton Polymers Capital Corp. | ||||||||
3,350,000 | 7.000%, 04/15/2025(d) | 3,601,250 | ||||||
Mexichem SAB de C.V. | ||||||||
400,000 | 4.000%, 10/04/2027(d) | 397,000 | ||||||
PolyOne Corp. | ||||||||
3,346,000 | 5.250%, 03/15/2023 | 3,538,395 | ||||||
Resolute Forest Products, Inc. | ||||||||
1,000,000 | 5.875%, 05/15/2023 | 1,038,750 | ||||||
Stillwater Mining Co. | ||||||||
325,000 | 6.125%, 06/27/2022(d) | 330,808 | ||||||
Suzano Austria GmbH | ||||||||
550,000 | 5.750%, 07/14/2026(d) | 598,455 | ||||||
United States Steel Corp. | ||||||||
4,294,000 | 6.875%, 08/15/2025 | 4,503,547 | ||||||
Vale Overseas Ltd. | ||||||||
630,000 | 6.250%, 08/10/2026 | 731,430 | ||||||
Versum Materials, Inc. | ||||||||
235,000 | 5.500%, 09/30/2024(d) | 252,038 | ||||||
|
| |||||||
30,250,075 | ||||||||
|
| |||||||
Communications: 2.3% | ||||||||
Clear Channel Worldwide Holdings, Inc. | ||||||||
3,630,000 | 7.625%, 03/15/2020 | 3,571,012 | ||||||
Cox Communications, Inc. | ||||||||
400,000 | 4.700%, 12/15/2042(d) | 387,788 | ||||||
765,000 | 4.500%, 06/30/2043(d) | 720,473 | ||||||
DISH DBS Corp. | ||||||||
1,425,000 | 5.875%, 11/15/2024 | 1,392,938 | ||||||
840,000 | 7.750%, 07/01/2026 | 886,200 | ||||||
Grupo Televisa SAB | ||||||||
9,270,000 (MXN) | 7.250%, 05/14/2043 | 359,974 | ||||||
GTT Communications, Inc. | ||||||||
960,000 | 7.875%, 12/31/2024(d) | 1,015,200 | ||||||
Hughes Satellite Systems Corp. | ||||||||
2,000,000 | 6.625%, 08/01/2026 | 2,100,000 | ||||||
Millicom International Cellular S.A. | ||||||||
1,350,000 | 5.125%, 01/15/2028(d) | 1,356,750 |
Principal Amount^ | Value | |||||||
Communications (continued) | ||||||||
NBCUniversal Enterprise, Inc. | ||||||||
$ 520,000 | 5.250%, 12/31/2049(d)(e) | $ | 553,800 | |||||
Netflix, Inc. | ||||||||
5,703,000 | 4.375%, 11/15/2026 | 5,603,197 | ||||||
Oi S.A. | ||||||||
2,765,000 (BRL) | 9.750%, 09/15/2016(d)(k) | 252,673 | ||||||
Quebecor Media, Inc. | ||||||||
4,775,000 | 5.750%, 01/15/2023 | 5,085,375 | ||||||
Qwest Capital Funding, Inc. | ||||||||
1,217,000 | 6.875%, 07/15/2028 | 1,052,705 | ||||||
Sirius XM Radio, Inc. | ||||||||
5,658,000 | 5.000%, 08/01/2027(d) | 5,700,435 | ||||||
Telenet Finance Luxembourg Notes S.a.r.l. | ||||||||
1,600,000 | 5.500%, 03/01/2028(d) | 1,605,648 | ||||||
Time Warner Cable, Inc. | ||||||||
780,000 | 4.500%, 09/15/2042 | 734,462 | ||||||
Time, Inc. | ||||||||
4,009,000 | 5.750%, 04/15/2022(d) | 4,199,427 | ||||||
VeriSign, Inc. | ||||||||
5,440,000 | 4.750%, 07/15/2027 | 5,589,600 | ||||||
ViaSat, Inc. | ||||||||
3,810,000 | 5.625%, 09/15/2025(d) | 3,857,625 | ||||||
|
| |||||||
46,025,282 | ||||||||
|
| |||||||
Consumer, Cyclical: 4.7% | ||||||||
Air Canada 2015-2 Class B Pass Through Trust | ||||||||
1,737,195 | 5.000%, 06/15/2025(d) | 1,827,356 | ||||||
Alimentation Couche-Tard, Inc. | ||||||||
845,000 | 2.074%, 12/13/2019(d)(h) 3 mo. USD LIBOR + 0.500% | 845,755 | ||||||
Allison Transmission, Inc. | ||||||||
760,000 | 4.750%, 10/01/2027(d) | 766,650 | ||||||
American Airlines 2017-1B Class B Pass Through Trust | ||||||||
1,005,000 | 4.950%, 08/15/2026 | 1,055,451 | ||||||
Beazer Homes USA, Inc. | ||||||||
3,100,000 | 6.750%, 03/15/2025 | 3,282,125 | ||||||
1,500,000 | 5.875%, 10/15/2027(d) | 1,511,250 | ||||||
Century Communities, Inc. | ||||||||
930,000 | 5.875%, 07/15/2025 | 936,975 | ||||||
Constellation Merger Sub, Inc. | ||||||||
420,000 | 8.500%, 09/15/2025(d) | 411,600 | ||||||
Dana Financing Luxembourg S.a.r.l. | ||||||||
3,000,000 | 5.750%, 04/15/2025(d) | 3,168,750 | ||||||
Fiat Chrysler Automobiles N.V. | ||||||||
3,850,000 | 5.250%, 04/15/2023 | 4,040,190 | ||||||
FirstCash, Inc. | ||||||||
1,500,000 | 5.375%, 06/01/2024(d) | 1,571,250 | ||||||
GLP Capital L.P./GLP Financing II, Inc. | ||||||||
2,000,000 | 5.375%, 04/15/2026 | 2,150,000 | ||||||
H&E Equipment Services, Inc. | ||||||||
5,305,000 | 5.625%, 09/01/2025(d) | 5,556,987 | ||||||
JC Penney Corp., Inc. | ||||||||
5,274,000 | 5.650%, 06/01/2020 | 4,832,302 | ||||||
KFC Holding Co./Pizza Hut Holdings LLC/Taco Bell of America LLC | ||||||||
3,250,000 | 4.750%, 06/01/2027(d) | 3,331,250 |
The accompanying notes are an integral part of these financial statements.
Schedule of Investments | 55 |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF INVESTMENTS IN SECURITIES at December 31, 2017 (Continued)
Principal Amount^ | Value | |||||||
CORPORATE BONDS (CONTINUED) | ||||||||
Consumer, Cyclical (continued) | ||||||||
Latam Airlines 2015-1 Pass Through Trust | ||||||||
$ 2,090,556 | 4.500%, 08/15/2025 | $ | 2,074,877 | |||||
Lennar Corp. | ||||||||
3,000,000 | 4.500%, 04/30/2024 | 3,083,400 | ||||||
2,000,000 | 4.750%, 11/29/2027(d) | 2,069,600 | ||||||
Men’s Wearhouse, Inc. (The) | ||||||||
1,500,000 | 7.000%, 07/01/2022 | 1,513,200 | ||||||
Meritor, Inc. | ||||||||
2,750,000 | 6.250%, 02/15/2024 | 2,908,125 | ||||||
Neiman Marcus Group Ltd. LLC | ||||||||
5,940,000 | 8.000%, 10/15/2021(d) | 3,446,388 | ||||||
PulteGroup, Inc. | ||||||||
4,500,000 | 5.000%, 01/15/2027 | 4,719,375 | ||||||
Regal Entertainment Group | ||||||||
3,005,000 | 5.750%, 03/15/2022 | 3,106,419 | ||||||
2,154,000 | 5.750%, 06/15/2023 | 2,237,468 | ||||||
859,000 | 5.750%, 02/01/2025 | 884,770 | ||||||
Rite Aid Corp. | ||||||||
9,104,000 | 9.250%, 03/15/2020 | 9,250,119 | ||||||
Ruby Tuesday, Inc. | ||||||||
5,628,000 | 7.625%, 05/15/2020 | 5,778,268 | ||||||
Scientific Games International, Inc. | ||||||||
5,800,000 | 6.625%, 05/15/2021 | 6,017,500 | ||||||
Scotts Miracle-Gro Co. (The) | ||||||||
2,000,000 | 5.250%, 12/15/2026 | 2,100,000 | ||||||
Six Flags Entertainment Corp. | ||||||||
900,000 | 5.500%, 04/15/2027(d) | 933,750 | ||||||
Tesla, Inc. | ||||||||
780,000 | 5.300%, 08/15/2025(d) | 747,825 | ||||||
Toll Brothers Finance Corp. | ||||||||
3,000,000 | 4.875%, 03/15/2027 | 3,120,000 | ||||||
TRI Pointe Group, Inc. | ||||||||
3,600,000 | 5.250%, 06/01/2027 | 3,697,020 | ||||||
William Lyon Homes, Inc. | ||||||||
525,000 | 5.875%, 01/31/2025 | 537,469 | ||||||
Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp. | ||||||||
1,500,000 | 5.250%, 05/15/2027(d) | 1,522,500 | ||||||
|
| |||||||
95,035,964 | ||||||||
|
| |||||||
Consumer, Non-cyclical: 3.2% | ||||||||
BRF GmbH | ||||||||
1,310,000 | 4.350%, 09/29/2026(d) | 1,273,307 | ||||||
BRF S.A. | ||||||||
1,200,000 (BRL) | 7.750%, 05/22/2018(d) | 360,857 | ||||||
Brink’s Co. (The) | ||||||||
1,450,000 | 4.625%, 10/15/2027(d) | 1,424,625 | ||||||
Cencosud S.A. | ||||||||
1,045,000 | 4.375%, 07/17/2027(d) | 1,035,595 | ||||||
DaVita, Inc. | ||||||||
4,000,000 | 5.000%, 05/01/2025 | 4,008,800 | ||||||
Gilead Sciences, Inc. | ||||||||
1,655,000 | 1.845%, 03/20/2019(h) 3 mo. USD LIBOR + 0.220% | 1,656,537 | ||||||
1,655,000 | 1.875%, 09/20/2019(h) 3 mo. USD LIBOR + 0.250% | 1,657,503 |
Principal Amount^ | Value | |||||||
Consumer, Non-cyclical (continued) | ||||||||
Great Lakes Dredge & Dock Corp. | ||||||||
$ 1,113,000 | 8.000%, 05/15/2022 | $ | 1,170,041 | |||||
Grifols S.A. | ||||||||
1,010,000 (EUR) | 3.200%, 05/01/2025(d) | 1,237,088 | ||||||
Grupo Bimbo SAB de C.V. | ||||||||
1,685,000 | 4.700%, 11/10/2047(d) | 1,706,416 | ||||||
HealthSouth Corp. | ||||||||
2,000,000 | 5.750%, 11/01/2024 | 2,055,000 | ||||||
2,858,000 | 5.750%, 09/15/2025 | 2,986,610 | ||||||
JBS USA LLC/JBS USA Finance, Inc. | ||||||||
730,000 | 7.250%, 06/01/2021(d) | 745,513 | ||||||
805,000 | 5.750%, 06/15/2025(d) | 778,838 | ||||||
Kindred Healthcare, Inc. | ||||||||
2,754,000 | 8.750%, 01/15/2023 | 2,933,010 | ||||||
Lamb Weston Holdings, Inc. | ||||||||
4,000,000 | 4.625%, 11/01/2024(d) | 4,140,000 | ||||||
Live Nation Entertainment, Inc. | ||||||||
3,000,000 | 4.875%, 11/01/2024(d) | 3,082,500 | ||||||
Pilgrim’s Pride Corp. | ||||||||
2,850,000 | 5.750%, 03/15/2025(d) | 2,953,313 | ||||||
3,000,000 | 5.875%, 09/30/2027(d) | 3,097,500 | ||||||
Polaris Intermediate Corp. | ||||||||
1,060,000 | 8.500%, 12/01/2022(d)(l) PIK rate 9.250% | 1,102,400 | ||||||
Post Holdings, Inc. | ||||||||
1,500,000 | 5.750%, 03/01/2027(d) | 1,530,000 | ||||||
Rent-A-Center, Inc. | ||||||||
354,000 | 6.625%, 11/15/2020 | 339,840 | ||||||
3,923,000 | 4.750%, 05/01/2021 | 3,726,850 | ||||||
Teleflex, Inc. | ||||||||
2,000,000 | 4.875%, 06/01/2026 | 2,075,000 | ||||||
4,000,000 | 4.625%, 11/15/2027 | 4,049,200 | ||||||
Teva Pharmaceutical Finance Netherlands III B.V. | ||||||||
445,000 | 4.100%, 10/01/2046 | 340,138 | ||||||
United Rentals North America, Inc. | ||||||||
700,000 | 5.500%, 05/15/2027 | 738,500 | ||||||
4,800,000 | 4.875%, 01/15/2028 | 4,836,000 | ||||||
Valeant Pharmaceuticals International, Inc. | ||||||||
320,000 (EUR) | 4.500%, 05/15/2023(d) | 347,352 | ||||||
180,000 | 5.875%, 05/15/2023(d) | 167,400 | ||||||
3,950,000 | 6.125%, 04/15/2025(d) | 3,629,062 | ||||||
2,250,000 | 9.000%, 12/15/2025(d) | 2,350,575 | ||||||
Weight Watchers International, Inc. | ||||||||
1,960,000 | 8.625%, 12/01/2025(d) | 2,053,100 | ||||||
|
| |||||||
65,588,470 | ||||||||
|
| |||||||
Energy: 3.2% | ||||||||
Antero Midstream Partners L.P./Antero Midstream Finance Corp. | ||||||||
1,986,000 | 5.375%, 09/15/2024 | 2,055,510 | ||||||
Bellatrix Exploration Ltd. | ||||||||
1,840,000 | 8.500%, 05/15/2020(d) | 1,748,000 | ||||||
Bristow Group, Inc. | ||||||||
640,000 | 6.250%, 10/15/2022 | 527,200 |
The accompanying notes are an integral part of these financial statements.
56 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF INVESTMENTS IN SECURITIES at December 31, 2017 (Continued)
Principal Amount^ | Value | |||||||
CORPORATE BONDS (CONTINUED) | ||||||||
Energy (continued) | ||||||||
California Resources Corp. | ||||||||
$ 23,000 | 5.000%, 01/15/2020 | $ | 21,390 | |||||
92,000 | 5.500%, 09/15/2021 | 83,260 | ||||||
1,332,000 | 8.000%, 12/15/2022(d) | 1,103,895 | ||||||
23,000 | 6.000%, 11/15/2024 | 16,100 | ||||||
Calumet Specialty Products Partners L.P./Calumet Finance Corp. | ||||||||
3,760,000 | 6.500%, 04/15/2021 | 3,760,000 | ||||||
2,579,000 | 7.750%, 04/15/2023 | 2,604,790 | ||||||
Cenovus Energy, Inc. | ||||||||
820,000 | 5.400%, 06/15/2047 | 866,142 | ||||||
CNX Resources Corp. | ||||||||
1,300,000 | 8.000%, 04/01/2023 | 1,396,850 | ||||||
Continental Resources, Inc. | ||||||||
2,000,000 | 4.500%, 04/15/2023 | 2,045,000 | ||||||
Cosan Luxembourg S.A. | ||||||||
455,000 | 7.000%, 01/20/2027(d) | 491,400 | ||||||
Diamond Offshore Drilling, Inc. | ||||||||
1,750,000 | 7.875%, 08/15/2025 | 1,837,500 | ||||||
Diamondback Energy, Inc. | ||||||||
3,850,000 | 4.750%, 11/01/2024 | 3,883,687 | ||||||
2,950,000 | 5.375%, 05/31/2025 | 3,049,562 | ||||||
Eclipse Resources Corp. | ||||||||
1,495,000 | 8.875%, 07/15/2023 | 1,541,719 | ||||||
EnLink Midstream Partners L.P. | ||||||||
1,480,000 | 6.000%, 12/15/2022(e)(f) 3 mo. USD LIBOR + 4.110% | 1,422,395 | ||||||
Geopark Ltd. | ||||||||
255,000 | 6.500%, 09/21/2024(d) | 262,247 | ||||||
Halcon Resources Corp. | ||||||||
813,000 | 6.750%, 02/15/2025(d) | 849,585 | ||||||
McDermott International, Inc. | ||||||||
8,500,000 | 8.000%, 05/01/2021(d) | 8,779,225 | ||||||
MEG Energy Corp. | ||||||||
900,000 | 6.375%, 01/30/2023(d) | 769,500 | ||||||
2,190,000 | 7.000%, 03/31/2024(d) | 1,858,762 | ||||||
NGPL PipeCo LLC | ||||||||
150,000 | 4.375%, 08/15/2022(d) | 153,094 | ||||||
250,000 | 4.875%, 08/15/2027(d) | 260,313 | ||||||
305,000 | 7.768%, 12/15/2037(d) | 377,438 | ||||||
OGX Austria GmbH | ||||||||
795,000 | 8.500%, 06/01/2018(b)(c)(d)(k) | 16 | ||||||
600,000 | 8.375%, 04/01/2022(b)(c)(d)(k) | 66 | ||||||
PBF Holding Co. LLC/PBF Finance Corp. | ||||||||
1,500,000 | 7.250%, 06/15/2025 | 1,578,750 | ||||||
Petrobras Global Finance B.V. | ||||||||
966,000 | 5.299%, 01/27/2025(d) | 970,105 | ||||||
1,150,000 | 5.999%, 01/27/2028(d) | 1,154,312 | ||||||
2,035,000 | 5.625%, 05/20/2043 | 1,826,189 | ||||||
940,000 | 7.250%, 03/17/2044 | 979,950 | ||||||
Petroleos Mexicanos | ||||||||
4,100,000 (MXN) | 7.650%, 11/24/2021(d) | 199,589 | ||||||
Rowan Cos., Inc. | ||||||||
1,450,000 | 7.375%, 06/15/2025 | 1,482,625 |
Principal Amount^ | Value | |||||||
Energy (continued) | ||||||||
SRC Energy, Inc. | ||||||||
$ 1,685,000 | 6.250%, 12/01/2025(d) | $ | 1,731,337 | |||||
Tennessee Gas Pipeline Co. LLC | ||||||||
325,000 | 7.000%, 03/15/2027 | 387,406 | ||||||
Transcanada Trust | ||||||||
4,170,000 | 5.300%, 03/15/2077(f) 3 mo. USD LIBOR + 3.208% | 4,308,131 | ||||||
Transocean, Inc. | ||||||||
1,400,000 | 7.500%, 01/15/2026(d) | 1,437,170 | ||||||
Vine Oil & Gas L.P./Vine Oil & Gas Finance Corp. | ||||||||
840,000 | 8.750%, 04/15/2023(d) | 816,900 | ||||||
Whiting Petroleum Corp. | ||||||||
345,000 | 6.625%, 01/15/2026(d) | 352,331 | ||||||
WPX Energy, Inc. | ||||||||
4,774,000 | 6.000%, 01/15/2022 | 5,012,700 | ||||||
YPF S.A. | ||||||||
840,000 | 6.950%, 07/21/2027(d) | 893,760 | ||||||
YPF Sociedad Anoniima | ||||||||
780,000 | 25.458%, 07/07/2020(d)(h) BADLARPP + 4.000% | 764,322 | ||||||
|
| |||||||
65,660,223 | ||||||||
|
| |||||||
Financial: 2.7% | ||||||||
AerCap Ireland Capital DAC/AerCap Global Aviation Trust | ||||||||
2,000,000 | 3.950%, 02/01/2022 | 2,063,190 | ||||||
Ambac Assurance Corp. | ||||||||
1,987,504 | 5.100%, 06/07/2020(d) | 2,558,911 | ||||||
American Equity Investment Life Holding Co. | ||||||||
2,950,000 | 5.000%, 06/15/2027 | 3,062,406 | ||||||
Ardonagh Midco 3 Plc | ||||||||
1,775,000 (GBP) | 8.375%, 07/15/2023(d) | 2,447,761 | ||||||
375,000 | 8.625%, 07/15/2023(d) | 390,000 | ||||||
Banco Hipotecario S.A. | ||||||||
12,745,000 (ARS) | 23.708%, 01/12/2020(d)(h) BADLARPP + 2.500% | 702,998 | ||||||
12,020,000 (ARS) | 25.938%, 11/07/2022(d)(h) BADLARPP + 4.000% | 669,035 | ||||||
Banco Macro S.A. | ||||||||
7,805,000 (ARS) | 17.500%, 05/08/2022(d) | 405,046 | ||||||
Banco Supervielle S.A. | ||||||||
15,000,000 (ARS) | 26.500%, 08/09/2020(d)(h) BADLARPP + 4.500% | 839,944 | ||||||
Citibank N.A. | ||||||||
3,290,000 | 1.860%, 09/18/2019(h) 3 mo. USD LIBOR + 0.260% | 3,296,264 | ||||||
Citigroup, Inc. | ||||||||
1,855,000 | 2.140%, 01/10/2020(h) 3 mo. USD LIBOR + 0.790% | 1,866,557 | ||||||
Credit Acceptance Corp. | ||||||||
1,235,000 | 7.375%, 03/15/2023 | 1,299,837 | ||||||
Echo Brickell | ||||||||
218,275 | 10.000%, 04/17/2018(b)(c) | 218,275 | ||||||
Enova International, Inc. | ||||||||
1,260,000 | 9.750%, 06/01/2021 | 1,338,750 | ||||||
Equinix, Inc. | ||||||||
2,500,000 | 5.375%, 05/15/2027 | 2,681,250 |
The accompanying notes are an integral part of these financial statements.
Schedule of Investments | 57 |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF INVESTMENTS IN SECURITIES at December 31, 2017 (Continued)
Principal Amount^ | Value | |||||||
CORPORATE BONDS (CONTINUED) | ||||||||
Financial (continued) | ||||||||
Financiera de Desarrollo Territorial S.A. Findeter | ||||||||
6,675,000,000 (COP) | 7.875%, 08/12/2024(d) | $ | 2,297,663 | |||||
Howard Hughes Corp. (The) | ||||||||
2,750,000 | 5.375%, 03/15/2025(d) | 2,825,625 | ||||||
Icahn Enterprises L.P./Icahn Enterprises Finance Corp. | ||||||||
1,950,000 | 6.250%, 02/01/2022 | 1,998,750 | ||||||
830,000 | 6.375%, 12/15/2025(d) | 832,158 | ||||||
Intesa Sanpaolo SpA | ||||||||
3,800,000 | 5.710%, 01/15/2026(d) | 4,009,689 | ||||||
iStar, Inc. | ||||||||
3,609,000 | 6.000%, 04/01/2022 | 3,744,337 | ||||||
2,100,000 | 5.250%, 09/15/2022 | 2,118,375 | ||||||
JPMorgan Chase & Co. | ||||||||
2,260,000 | 2.161%, 06/01/2021(h) 3 mo. USD LIBOR + 0.680% | 2,273,797 | ||||||
MGIC Investment Corp. | ||||||||
222,000 | 5.750%, 08/15/2023 | 243,367 | ||||||
MGM Growth Properties Operating Partnership L.P./MGP Finance Co-Issuer, Inc. | ||||||||
2,320,000 | 5.625%, 05/01/2024 | 2,482,400 | ||||||
Muse Residences | ||||||||
1,252,702 | 11.750%, 08/05/2018(b)(c) | 1,252,702 | ||||||
Rialto Holdings LLC/Rialto Corp. | ||||||||
1,169,000 | 7.000%, 12/01/2018(d) | 1,177,767 | ||||||
SLS Hotel | ||||||||
138,726 | 9.750%, 11/20/2018(b)(c) | 138,726 | ||||||
Starwood Property Trust, Inc. | ||||||||
4,300,000 | 5.000%, 12/15/2021 | 4,472,000 | ||||||
Walter Investment Management Corp. | ||||||||
1,300,000 | 7.875%, 12/15/2021(k) | 793,000 | ||||||
|
| |||||||
54,500,580 | ||||||||
|
| |||||||
Industrial: 2.2% | ||||||||
Ball Corp. | ||||||||
4,150,000 | 5.250%, 07/01/2025 | 4,528,687 | ||||||
Bombardier, Inc. | ||||||||
366,000 | 7.750%, 03/15/2020(d) | 394,823 | ||||||
6,360,000 | 8.750%, 12/01/2021(d) | 7,011,900 | ||||||
100,000 | 5.750%, 03/15/2022(d) | 98,500 | ||||||
100,000 | 6.000%, 10/15/2022(d) | 98,750 | ||||||
700,000 | 6.125%, 01/15/2023(d) | 689,500 | ||||||
1,600,000 | 7.500%, 03/15/2025(d) | 1,620,480 | ||||||
Caterpillar Financial Services Corp. | ||||||||
1,650,000 | 1.777%, 09/04/2020(h) 3 mo. USD LIBOR + 0.290% | 1,652,183 | ||||||
Cemex SAB de C.V. | ||||||||
960,000 | 6.125%, 05/05/2025(d) | 1,026,720 | ||||||
CNH Industrial N.V. | ||||||||
2,500,000 | 4.500%, 08/15/2023 | 2,606,700 | ||||||
Covanta Holding Corp. | ||||||||
800,000 | 5.875%, 07/01/2025 | 806,000 |
Principal Amount^ | Value | |||||||
Industrial (continued) | ||||||||
Crown Americas LLC/Crown Americas Capital Corp. V | ||||||||
$ 3,500,000 | 4.250%, 09/30/2026 | $ | 3,456,250 | |||||
Embraer Netherlands Finance B.V. | ||||||||
310,000 | 5.050%, 06/15/2025 | 330,150 | ||||||
575,000 | 5.400%, 02/01/2027 | 621,719 | ||||||
Embraer Overseas Ltd. | ||||||||
325,000 | 5.696%, 09/16/2023(d) | 356,688 | ||||||
Hornbeck Offshore Services, Inc. | ||||||||
186,000 | 5.875%, 04/01/2020 | 125,085 | ||||||
287,000 | 5.000%, 03/01/2021 | 152,110 | ||||||
Leonardo US Holdings, Inc. | ||||||||
438,000 | 6.250%, 01/15/2040(d) | 509,722 | ||||||
Louisiana-Pacific Corp. | ||||||||
2,000,000 | 4.875%, 09/15/2024 | 2,070,000 | ||||||
OSX 3 Leasing B.V. | ||||||||
1,216,328 | 13.000%, 03/20/2015(b)(d)(k) | 389,225 | ||||||
Owens-Brockway Glass Container, Inc. | ||||||||
2,770,000 | 5.875%, 08/15/2023(d) | 2,989,869 | ||||||
Terex Corp. | ||||||||
3,550,000 | 5.625%, 02/01/2025(d) | 3,714,187 | ||||||
TransDigm, Inc. | ||||||||
3,500,000 | 6.500%, 05/15/2025 | 3,587,500 | ||||||
400,000 | 6.375%, 06/15/2026 | 405,000 | ||||||
XPO Logistics, Inc. | ||||||||
5,500,000 | 6.125%, 09/01/2023(d) | 5,836,875 | ||||||
|
| |||||||
45,078,623 | ||||||||
|
| |||||||
Technology: 1.3% | ||||||||
CDK Global, Inc. | ||||||||
7,000,000 | 4.875%, 06/01/2027(d) | 7,105,000 | ||||||
CDW LLC/CDW Finance Corp. | ||||||||
2,000,000 | 5.000%, 09/01/2025 | 2,080,000 | ||||||
Dell International LLC/EMC Corp. | ||||||||
4,020,000 | 6.020%, 06/15/2026(d) | 4,439,772 | ||||||
Entegris, Inc. | ||||||||
1,370,000 | 4.625%, 02/10/2026(d) | 1,397,400 | ||||||
j2 Cloud Services LLC/j2 Global Co-Obligor, Inc. | ||||||||
2,985,000 | 6.000%, 07/15/2025(d) | 3,156,638 | ||||||
MSCI, Inc. | ||||||||
965,000 | 4.750%, 08/01/2026(d) | 1,015,663 | ||||||
Quintiles IMS, Inc. | ||||||||
| 970,000 (EUR) | 3.250%, 03/15/2025(d) | 1,206,217 | |||||
Sensata Technologies UK Financing Co. Plc | ||||||||
5,155,000 | 6.250%, 02/15/2026(d) | 5,631,837 | ||||||
|
| |||||||
26,032,527 | ||||||||
|
| |||||||
Utilities: 1.2% | ||||||||
AmeriGas Partners L.P./AmeriGas Finance Corp. | ||||||||
2,200,000 | 5.500%, 05/20/2025 | 2,233,000 | ||||||
1,500,000 | 5.750%, 05/20/2027 | 1,522,500 | ||||||
Emera US Finance L.P. | ||||||||
5,770,000 | 3.550%, 06/15/2026 | 5,796,759 | ||||||
Empresas Publicas de Medellin ESP | ||||||||
| 2,500,000,000 (COP) | 8.375%, 11/08/2027(d) | 867,964 | |||||
Enel SpA | ||||||||
2,400,000 | 8.750%, 09/24/2073(d)(f) USD 5 year swap rate + 5.880% | 2,991,000 |
The accompanying notes are an integral part of these financial statements.
58 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF INVESTMENTS IN SECURITIES at December 31, 2017 (Continued)
Principal Amount^ | Value | |||||||
CORPORATE BONDS (CONTINUED) | ||||||||
Utilities (continued) | ||||||||
Infraestructura Energetica Nova SAB de C.V. | ||||||||
$ 535,000 | 3.750%, 01/14/2028(d) | $ | 529,115 | |||||
330,000 | 4.875%, 01/14/2048(d) | 318,038 | ||||||
NGL Energy Partners L.P./NGL Energy Finance Corp. | ||||||||
920,000 | 5.125%, 07/15/2019 | 938,400 | ||||||
25,000 | 6.875%, 10/15/2021 | 25,625 | ||||||
1,685,000 | 7.500%, 11/01/2023 | 1,748,187 | ||||||
1,585,000 | 6.125%, 03/01/2025 | 1,553,300 | ||||||
NRG Energy, Inc. | ||||||||
5,700,000 | 6.625%, 01/15/2027 | 6,056,250 | ||||||
|
| |||||||
24,580,138 | ||||||||
|
| |||||||
| TOTAL CORPORATE BONDS | 452,751,882 | ||||||
|
| |||||||
GOVERNMENT SECURITIES & AGENCY ISSUE: 3.5% | ||||||||
Argentina POM Politica Monetaria | ||||||||
| 10,815,000 (ARS) | | Series POM 28.750%, 06/21/2020(h) | 623,775 | ||||
Malaysia Government Bond | ||||||||
| 15,710,000 (MYR) | | Series 0517 3.441%, 02/15/2021 | 3,896,600 | ||||
Mexican Bonos | ||||||||
| 32,500,000 (MXN) | | Series M 5.750%, 03/05/2026 | 1,464,326 | ||||
Provincia de Buenos Aires | ||||||||
| 72,825,000 (ARS) | | 26.955%, 05/31/2022(h) BADLARPP + 3.830% | 4,055,407 | ||||
810,000 | 5.750%, 06/15/2019(d) | 841,185 | ||||||
625,000 | 7.875%, 06/15/2027(d) | 695,200 | ||||||
Republic of Poland Government Bond | ||||||||
| 40,105,000 (PLN) | 2.500%, 07/25/2027 | 10,808,727 | |||||
Republic of South Africa Government Bond | ||||||||
| 57,275,000 (ZAR) | | 8.750%, 01/31/2044 | 4,167,956 | ||||
| 63,335,000 (ZAR) | 8.750%, 02/28/2048 | 4,636,301 | |||||
United States Treasury Note | ||||||||
10,000,000 | 1.250%, 06/30/2019(a) | 9,912,500 | ||||||
25,000,000 | 1.875%, 12/31/2019 | 24,994,629 | ||||||
6,000,000 | 1.625%, 11/15/2022 | 5,847,773 | ||||||
|
| |||||||
| TOTAL GOVERNMENT SECURITIES & AGENCY | 71,944,379 | ||||||
|
| |||||||
LIMITED PARTNERSHIPS: 0.1% | ||||||||
1,300,000 | U.S. Farming Realty Trust II L.P.(b)(c) | 1,392,777 | ||||||
|
| |||||||
| TOTAL LIMITED PARTNERSHIPS | 1,392,777 | ||||||
|
|
Principal Amount^ | Value | |||||||
MORTGAGE-BACKED SECURITIES: 18.3% | ||||||||
Adjustable Rate Mortgage Trust | ||||||||
$ 77,253 | Series 2004-4-3A1 3.539%, 03/25/2035(f) | $ | 75,971 | |||||
383,639 | Series 2005-1-3A1 3.334%, 05/25/2035(f) | 388,031 | ||||||
2,851,614 | Series 2005-2-6M2 2.532%, 06/25/2035(h) 1 mo. USD LIBOR + 0.980% | 2,776,666 | ||||||
493,858 | Series 2006-1-2A1 4.381%, 03/25/2036(f) | 415,396 | ||||||
American Home Mortgage Investment Trust | ||||||||
472,849 | Series 2006-1-11A1 1.608%, 03/25/2046(h) 1 mo. USD LIBOR + 0.280% | 456,887 | ||||||
Banc of America Alternative Loan Trust | ||||||||
101,882 | Series 2003-8-1CB1 5.500%, 10/25/2033 | 104,263 | ||||||
803,411 | Series 2006-7-A4 5.998%, 10/25/2036(g) | 491,292 | ||||||
Banc of America Funding Trust | ||||||||
159,053 | Series 2004-B-4A2 3.487%, 11/20/2034(f) | 157,953 | ||||||
52,326 | Series 2005-5-1A1 5.500%, 09/25/2035 | 55,140 | ||||||
101,192 | Series 2005-7-3A1 5.750%, 11/25/2035 | 107,098 | ||||||
201,799 | Series 2006-6-1A2 6.250%, 08/25/2036 | 195,168 | ||||||
1,184,304 | Series 2006-7-T2A3 5.695%, 10/25/2036(f) | 1,091,995 | ||||||
398,191 | Series 2006-A-4A1 3.604%, 02/20/2036(f) | 385,080 | ||||||
559,258 | Series 2006-B-7A1 3.559%, 03/20/2036(f) | 527,523 | ||||||
4,538,889 | Series 2007-1-TA4 6.090%, 01/25/2037(g) | 4,187,323 | ||||||
119,432 | Series 2007-4-5A1 5.500%, 11/25/2034 | 122,443 | ||||||
4,109,760 | Series 2010-R5-1A3 6.000%, 10/26/2037(d)(f) | 3,683,735 | ||||||
1,047,910 | Series 2010-R9-3A3 5.500%, 12/26/2035(d) | 911,967 | ||||||
Banc of America Mortgage Trust | ||||||||
38,519 | Series 2005-A-2A1 3.456%, 02/25/2035(f) | 38,432 | ||||||
415,357 | Series 2005-I-4A1 3.389%, 10/25/2035(f) | 409,309 | ||||||
BCAP LLC Trust | ||||||||
189,887 | Series 2007-AA2-22A1 6.000%, 03/25/2022 | 188,914 | ||||||
309,654 | Series 2010-RR6-6A2 9.300%, 07/26/2037(d)(f) | 282,505 | ||||||
3,864,471 | Series 2011-R11-2A4 5.500%, 12/26/2035(d) | 3,283,403 | ||||||
3,963,722 | Series 2013-RR1-4A3 6.404%, 08/26/2037(d)(f) | 3,999,192 | ||||||
Bear Stearns Adjustable Rate Mortgage Trust | ||||||||
6,013,481 | Series 2005-12-25A1 2.675%, 02/25/2036(f) | 5,033,959 | ||||||
Bear Stearns Asset-Backed Securities I Trust | ||||||||
652,699 | Series 2006-AC1-1A1 6.250%, 02/25/2036(g) | 524,334 |
The accompanying notes are an integral part of these financial statements.
Schedule of Investments | 59 |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF INVESTMENTS IN SECURITIES at December 31, 2017 (Continued)
Principal Amount^ | Value | |||||||
MORTGAGE-BACKED SECURITIES (CONTINUED) | ||||||||
Chase Mortgage Finance Trust | ||||||||
$ 4,297,063 | Series 2007-S2-1A9 6.000%, 03/25/2037 | $ | 3,813,180 | |||||
2,111,643 | Series 2007-S3-1A15 6.000%, 05/25/2037 | 1,795,054 | ||||||
ChaseFlex Trust | ||||||||
1,791,093 | Series 2007-3-2A1 1.852%, 07/25/2037(h) 1 mo. USD LIBOR + 0.300% | 1,699,888 | ||||||
CIM Trust | ||||||||
6,000,000 | Series 2016-1RR-B2 8.264%, 08/26/2055(d)(f) | 5,598,600 | ||||||
10,000,000 | Series 2016-2RR-B2 9.747%, 02/25/2056(d)(f) | 9,153,230 | ||||||
10,000,000 | Series 2016-3RR-B2 11.015%, 02/27/2056(d)(f) | 8,988,460 | ||||||
7,860,000 | Series 2017-3-B2 10.608%, 01/27/2057(d)(f) | 8,761,617 | ||||||
Citicorp Mortgage Securities Trust | ||||||||
3,988,617 | Series 2006-7-1A1 6.000%, 12/25/2036 | 3,598,370 | ||||||
Citigroup Mortgage Loan Trust, Inc. | ||||||||
292,757 | Series 2005-5-2A2 5.750%, 08/25/2035 | 236,374 | ||||||
4,778,565 | Series 2005-5-3A2A 3.319%, 10/25/2035(f) | 3,755,508 | ||||||
919,438 | Series 2009-6-8A2 6.000%, 08/25/2022(d)(f) | 968,615 | ||||||
4,530,145 | Series 2011-12-1A2 3.456%, 04/25/2036(d)(f) | 3,622,628 | ||||||
Citimortgage Alternative Loan Trust | ||||||||
403,276 | Series 2006-A5-1A13 2.002%, 10/25/2036(h) 1 mo. USD LIBOR + 0.450% | 327,047 | ||||||
396,863 | Series 2006-A5-1A2 4.998%, 10/25/2036(h)(m) 1 mo. USD LIBOR + 6.550% | 65,119 | ||||||
683,900 | Series 2007-A4-1A13 5.750%, 04/25/2037 | 650,444 | ||||||
350,178 | Series 2007-A4-1A6 5.750%, 04/25/2037 | 333,054 | ||||||
3,258,062 | Series 2007-A6-1A5 6.000%, 06/25/2037 | 3,005,647 | ||||||
COMM Mortgage Trust | ||||||||
100,000 | Series 2013-LC13-D 5.042%, 08/10/2046(d)(f) | 98,569 | ||||||
1,634,513 | Series 2014-UBS4-E 3.750%, 08/10/2047(d) | 1,092,412 | ||||||
1,868,035 | Series 2014-UBS4-F 3.750%, 08/10/2047(d) | 933,754 | ||||||
3,502,605 | Series 2014-UBS4-G 3.750%, 08/10/2047(b)(d) | 906,764 | ||||||
7,000 | Series 2014-UBS4-V 0.000%, 08/10/2047(b)(c)(d)(f) | 0 | ||||||
1,000,000 | Series 2015-CR26-E 3.250%, 10/10/2048(d) | 640,645 | ||||||
1,000,000 | Series 2015-CR26-F 3.250%, 10/10/2048(d) | 576,169 |
Principal Amount^ | Value | |||||||
$ 510,000 | Series 2016-SAVA-C 4.432%, 10/15/2034(d)(h) 1 mo. LIBOR + 3.000% | $ | 512,287 | |||||
Countrywide Alternative Loan Trust | ||||||||
198,646 | Series 2003-22CB-1A1 5.750%, 12/25/2033 | 204,572 | ||||||
64,812 | Series 2003-9T1-A7 5.500%, 07/25/2033 | 66,149 | ||||||
728,806 | Series 2004-13CB-A4 0.000%, 07/25/2034(n) | 614,423 | ||||||
71,570 | Series 2004-14T2-A11 5.500%, 08/25/2034 | 74,978 | ||||||
162,732 | Series 2004-16CB-1A1 5.500%, 07/25/2034 | 167,808 | ||||||
181,575 | Series 2004-16CB-3A1 5.500%, 08/25/2034 | 186,892 | ||||||
64,989 | Series 2004-28CB-5A1 5.750%, 01/25/2035 | 65,208 | ||||||
313,044 | Series 2004-J10-2CB1 6.000%, 09/25/2034 | 325,773 | ||||||
70,799 | Series 2004-J3-1A1 5.500%, 04/25/2034 | 72,054 | ||||||
60,316 | Series 2005-14-2A1 1.762%, 05/25/2035(h) 1 mo. USD LIBOR + 0.210% | 57,787 | ||||||
7,857,818 | Series 2005-64CB-1A10 5.750%, 12/25/2035 | 7,938,879 | ||||||
162,085 | Series 2005-J1-2A1 5.500%, 02/25/2025 | 165,213 | ||||||
3,373,937 | Series 2006-13T1-A13 6.000%, 05/25/2036 | 2,742,412 | ||||||
548,816 | Series 2006-31CB-A7 6.000%, 11/25/2036 | 473,625 | ||||||
5,304,738 | Series 2006-36T2-2A1 6.250%, 12/25/2036 | 3,848,924 | ||||||
449,903 | Series 2006-J1-2A1 7.000%, 02/25/2036 | 189,690 | ||||||
278,053 | Series 2007-16CB-2A1 2.002%, 08/25/2037(h) 1 mo. USD LIBOR + 0.450% | 153,118 | ||||||
80,517 | Series 2007-16CB-2A2 41.649%, 08/25/2037(h) 1 mo. USD LIBOR + 54.583% | 166,588 | ||||||
541,235 | Series 2007-19-1A34 6.000%, 08/25/2037 | 442,721 | ||||||
1,660,801 | Series 2007-20-A12 6.250%, 08/25/2047 | 1,406,793 | ||||||
487,924 | Series 2007-22-2A16 6.500%, 09/25/2037 | 348,554 | ||||||
4,512,885 | Series 2007-HY2-1A 3.340%, 03/25/2047(f) | 4,182,315 | ||||||
3,117,446 | Series 2007-HY7C-A4 1.782%, 08/25/2037(h) 1 mo. USD LIBOR + 0.230% | 2,840,492 | ||||||
760,055 | Series 2008-2R-2A1 6.000%, 08/25/2037(f) | 577,339 | ||||||
4,759,654 | Series 2008-2R-4A1 6.250%, 08/25/2037(f) | 4,050,538 | ||||||
Countrywide Home Loan Mortgage Pass-Through Trust | ||||||||
98,017 | Series 2004-12-8A1 3.740%, 08/25/2034(f) | 96,729 |
The accompanying notes are an integral part of these financial statements.
60 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF INVESTMENTS IN SECURITIES at December 31, 2017 (Continued)
Principal Amount^ | Value | |||||||
MORTGAGE-BACKED SECURITIES (CONTINUED) | ||||||||
Countrywide Home Loan Mortgage Pass-Through Trust (Continued) | ||||||||
$ 13,475 | Series 2004-HYB4-2A1 3.492%, 09/20/2034(f) | $ | 13,150 | |||||
93,770 | Series 2004-HYB8-4A1 3.088%, 01/20/2035(f) | 93,705 | ||||||
110,769 | Series 2005-21-A17 5.500%, 10/25/2035 | 105,923 | ||||||
901,339 | Series 2005-23-A1 5.500%, 11/25/2035 | 847,116 | ||||||
564,569 | Series 2005-HYB8-4A1 3.355%, 12/20/2035(f) | 543,373 | ||||||
4,285,198 | Series 2006-9-A1 6.000%, 05/25/2036 | 3,635,918 | ||||||
223,082 | Series 2007-10-A5 6.000%, 07/25/2037 | 195,833 | ||||||
1,057,648 | Series 2007-13-A5 6.000%, 08/25/2037 | 942,636 | ||||||
Credit Suisse First Boston Mortgage Securities Corp. | ||||||||
68,012 | Series 2003-27-4A4 5.750%, 11/25/2033 | 70,462 | ||||||
77,022 | Series 2003-AR26-7A1 3.538%, 11/25/2033(f) | 77,814 | ||||||
50,211 | Series 2003-AR28-4A1 3.613%, 12/25/2033(f) | 50,540 | ||||||
2,885,894 | Series 2005-10-10A3 6.000%, 11/25/2035 | 1,764,664 | ||||||
1,568,169 | Series 2005-11-7A1 6.000%, 12/25/2035 | 1,361,049 | ||||||
Credit Suisse Mortgage-Backed Trust | ||||||||
1,072,119 | Series 2006-6-1A10 6.000%, 07/25/2036 | 910,605 | ||||||
842,620 | Series 2007-1-4A1 6.500%, 02/25/2022 | 389,839 | ||||||
97,811 | Series 2007-2-2A5 5.000%, 03/25/2037 | 96,617 | ||||||
585,905 | Series 2010-7R-4A17 6.000%, 04/26/2037(d)(f) | 565,926 | ||||||
2,358,089 | Series 2011-17R-1A2 5.750%, 02/27/2037(d) | 2,447,901 | ||||||
1,200,000 | Series 2014-USA-E 4.373%, 09/15/2037(d) | 1,077,795 | ||||||
Deutsche Mortgage and Asset Receiving Corp. | ||||||||
3,749,690 | Series 2014-RS1-1A2 7.151%, 07/27/2037(d)(f) | 3,382,138 | ||||||
Deutsche Mortgage Securities, Inc. Mortgage Loan Trust | ||||||||
246,589 | Series 2004-4-7AR1 1.902%, 06/25/2034(h) 1 mo. USD LIBOR + 0.350% | 233,911 | ||||||
212,730 | Series 2006-PR1-3A1 10.056%, 04/15/2036(d)(h) 1 mo. USD LIBOR + 12.124% | 211,911 | ||||||
DSLA Mortgage Loan Trust | ||||||||
184,203 | Series 2005-AR5-2A1A 1.825%, 09/19/2045(h) 1 mo. USD LIBOR + 0.330% | 153,490 |
Principal Amount^ | Value | |||||||
Dukinfield Plc | ||||||||
| 517,214 (GBP) | | Series 2-A 1.763%, 12/20/2052(h) 3 mo. GBP LIBOR + 1.250% | $ | 709,673 | |||
Eurosail-UK Plc | ||||||||
| 187,965 (GBP) | | Series 2007-2X-A3C 0.670%, 03/13/2045(h) 3 mo. GBP LIBOR + 0.150% | 249,083 | ||||
Federal Home Loan Mortgage Corp. REMICS | ||||||||
984,473 | Series 3118-SD 5.223%, 02/15/2036(h)(m) 1 mo. LIBOR + 6.700% | 161,443 | ||||||
351,273 | Series 3301-MS 4.623%, 04/15/2037(h)(m) 1 mo. LIBOR + 6.100% | 49,452 | ||||||
477,284 | Series 3303-SE 4.603%, 04/15/2037(h)(m) 1 mo. LIBOR + 6.080% | 68,494 | ||||||
310,235 | Series 3303-SG 4.623%, 04/15/2037(h)(m) 1 mo. LIBOR + 6.100% | 48,542 | ||||||
154,312 | Series 3382-SB 4.523%, 11/15/2037(h)(m) 1 mo. LIBOR + 6.000% | 16,282 | ||||||
444,810 | Series 3382-SW 4.823%, 11/15/2037(h)(m) 1 mo. LIBOR + 6.300% | 66,587 | ||||||
165,600 | Series 3384-S 4.913%, 11/15/2037(h)(m) 1 mo. LIBOR + 6.390% | 17,896 | ||||||
277,670 | Series 3384-SG 4.833%, 08/15/2036(h)(m) 1 mo. LIBOR + 6.310% | 38,272 | ||||||
2,901,478 | Series 3404-SA 4.523%, 01/15/2038(h)(m) 1 mo. LIBOR + 6.000% | 471,511 | ||||||
260,471 | Series 3417-SX 4.703%, 02/15/2038(h)(m) 1 mo. LIBOR + 6.180% | 30,398 | ||||||
132,595 | Series 3423-GS 4.173%, 03/15/2038(h)(m) 1 mo. LIBOR + 5.650% | 13,289 | ||||||
1,270,068 | Series 3423-TG 0.350%, 03/15/2038(h)(m) 1 mo. LIBOR + 6.000% | 12,728 | ||||||
4,018,539 | Series 3435-S 4.503%, 04/15/2038(h)(m) 1 mo. LIBOR + 5.980% | 550,469 | ||||||
161,748 | Series 3445-ES 4.523%, 05/15/2038(h)(m) 1 mo. LIBOR + 6.000% | 16,519 | ||||||
561,288 | Series 3523-SM 4.523%, 04/15/2039(h)(m) 1 mo. LIBOR + 6.000% | 78,174 | ||||||
351,037 | Series 3560-KS 4.923%, 11/15/2036(h)(m) 1 mo. LIBOR + 6.400% | 52,924 | ||||||
293,145 | Series 3598-SA 4.873%, 11/15/2039(h)(m) 1 mo. LIBOR + 6.350% | 36,107 | ||||||
235,673 | Series 3641-TB 4.500%, 03/15/2040 | 251,736 |
The accompanying notes are an integral part of these financial statements.
Schedule of Investments | 61 |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF INVESTMENTS IN SECURITIES at December 31, 2017 (Continued)
Principal Amount^ | Value | |||||||
MORTGAGE-BACKED SECURITIES (CONTINUED) | ||||||||
Federal Home Loan Mortgage Corp. REMICS (Continued) | ||||||||
$1,000,166 | Series 3728-SV 2.973%, 09/15/2040(h)(m) 1 mo. LIBOR + 4.450% | $ | 74,980 | |||||
353,223 | Series 3758-S 4.553%, 11/15/2040(h)(m) 1 mo. LIBOR + 6.030% | 56,806 | ||||||
1,845,488 | Series 3770-SP 5.023%, 11/15/2040(h)(m) 1 mo. LIBOR + 6.500% | 179,751 | ||||||
435,083 | Series 3815-ST 4.373%, 02/15/2041(h)(m) 1 mo. LIBOR + 5.850% | 59,941 | ||||||
901,477 | Series 3859-SI 5.123%, 05/15/2041(h)(m) 1 mo. LIBOR + 6.600% | 165,769 | ||||||
310,125 | Series 3872-SL 4.473%, 06/15/2041(h)(m) 1 mo. LIBOR + 5.950% | 44,448 | ||||||
233,219 | Series 3900-SB 4.493%, 07/15/2041(h)(m) 1 mo. LIBOR + 5.970% | 29,704 | ||||||
30,651 | Series 3946-SM 10.269%, 10/15/2041(h) 1 mo. LIBOR + 14.700% | 38,843 | ||||||
1,509,181 | Series 3957-DZ 3.500%, 11/15/2041 | 1,525,764 | ||||||
1,447,610 | Series 3972-AZ 3.500%, 12/15/2041 | 1,452,072 | ||||||
5,170,331 | Series 3984-DS 4.473%, 01/15/2042(h)(m) 1 mo. LIBOR + 5.950% | 740,903 | ||||||
4,457,691 | Series 4223-AT 3.000%, 07/15/2043(h) 1 mo. LIBOR + 30.000% | 4,100,080 | ||||||
2,596,932 | Series 4229-MS 5.115%, 07/15/2043(h) 1 mo. LIBOR + 7.700% | 2,558,342 | ||||||
4,895,061 | Series 4239-OU 0.000%, 07/15/2043(n) | 3,526,335 | ||||||
4,412,216 | Series 4291-MS 4.423%, 01/15/2054(h)(m) 1 mo. LIBOR + 5.900% | 711,203 | ||||||
4,695,787 | Series 4302-GS 4.673%, 02/15/2044(h)(m) 1 mo. LIBOR + 6.150% | 786,136 | ||||||
4,668,515 | Series 4314-MS 4.623%, 07/15/2043(h)(m) 1 mo. LIBOR + 6.100% | 594,729 | ||||||
8,334,527 | Series 4657-VZ 3.000%, 02/15/2047 | 7,694,122 | ||||||
Federal Home Loan Mortgage Corp. Structured Agency Credit Risk Debt Notes | ||||||||
149,005 | Series 2014-DN2-M2 3.202%, 04/25/2024(h) 1 mo. USD LIBOR + 1.650% | 151,314 | ||||||
620,000 | Series 2015-DNA1-M2 3.402%, 10/25/2027(h) 1 mo. USD LIBOR + 1.850% | 635,311 |
Principal Amount^ | Value | |||||||
Federal National Mortgage Association REMICS | ||||||||
$ 495,740 | Series 2003-84-PZ 5.000%, 09/25/2033 | $ | 532,688 | |||||
1,497,293 | Series 2005-42-SA 5.248%, 05/25/2035(h)(m) 1 mo. LIBOR + 6.800% | 157,919 | ||||||
3,289,092 | Series 2006-92-LI 5.028%, 10/25/2036(h)(m) 1 mo. LIBOR + 6.580% | 577,629 | ||||||
848,046 | Series 2007-39-AI 4.568%, 05/25/2037(h)(m) 1 mo. LIBOR + 6.120% | 130,864 | ||||||
259,751 | Series 2007-57-SX 5.068%, 10/25/2036(h)(m) 1 mo. LIBOR + 6.620% | 41,644 | ||||||
70,613 | Series 2007-68-SA 5.098%, 07/25/2037(h)(m) 1 mo. LIBOR + 6.650% | 6,905 | ||||||
109,507 | Series 2008-1-CI 4.748%, 02/25/2038(h)(m) 1 mo. LIBOR + 6.300% | 12,681 | ||||||
2,590,320 | Series 2008-33-SA 4.448%, 04/25/2038(h)(m) 1 mo. LIBOR + 6.000% | 361,593 | ||||||
130,447 | Series 2008-56-SB 4.508%, 07/25/2038(h)(m) 1 mo. LIBOR + 6.060% | 17,378 | ||||||
5,521,404 | Series 2009-110-SD 4.698%, 01/25/2040(h)(m) 1 mo. LIBOR + 6.250% | 839,258 | ||||||
119,768 | Series 2009-111-SE 4.698%, 01/25/2040(h)(m) 1 mo. LIBOR + 6.250% | 12,170 | ||||||
364,425 | Series 2009-86-CI 4.248%, 09/25/2036(h)(m) 1 mo. LIBOR + 5.800% | 42,551 | ||||||
185,916 | Series 2009-87-SA 4.448%, 11/25/2049(h)(m) 1 mo. LIBOR + 6.000% | 20,788 | ||||||
141,153 | Series 2009-90-IB 4.168%, 04/25/2037(h)(m) 1 mo. LIBOR + 5.720% | 14,918 | ||||||
227,619 | Series 2010-11-SC 3.248%, 02/25/2040(h)(m) 1 mo. LIBOR + 4.800% | 17,361 | ||||||
128,987 | Series 2010-115-SD 5.048%, 11/25/2039(h)(m) 1 mo. LIBOR + 6.600% | 15,748 | ||||||
5,232,545 | Series 2010-123-SK 4.498%, 11/25/2040(h)(m) 1 mo. LIBOR + 6.050% | 895,420 | ||||||
1,801,775 | Series 2010-134-SE 5.098%, 12/25/2025(h)(m) 1 mo. LIBOR + 6.650% | 191,311 | ||||||
329,455 | Series 2010-15-SL 3.398%, 03/25/2040(h)(m) 1 mo. LIBOR + 4.950% | 37,676 | ||||||
176,214 | Series 2010-9-GS 3.198%, 02/25/2040(h)(m) 1 mo. LIBOR + 4.750% | 14,229 |
The accompanying notes are an integral part of these financial statements.
62 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF INVESTMENTS IN SECURITIES at December 31, 2017 (Continued)
Principal Amount^ | Value | |||||||
MORTGAGE-BACKED SECURITIES (CONTINUED) | ||||||||
Federal National Mortgage Association REMICS (Continued) | ||||||||
$ 6,420 | Series 2011-110-LS 7.379%, 11/25/2041(h) 1 mo. LIBOR + 10.100% | $ | 7,851 | |||||
475,150 | Series 2011-111-VZ 4.000%, 11/25/2041 | 480,567 | ||||||
1,735,230 | Series 2011-141-PZ 4.000%, 01/25/2042 | 1,797,797 | ||||||
245,802 | Series 2011-5-PS 4.848%, 11/25/2040(h)(m) 1 mo. LIBOR + 6.400% | 21,308 | ||||||
1,077,393 | Series 2011-63-AS 4.368%, 07/25/2041(h)(m) 1 mo. LIBOR + 5.920% | 161,104 | ||||||
3,093,292 | Series 2011-93-ES 4.948%, 09/25/2041(h)(m) 1 mo. LIBOR + 6.500% | 534,771 | ||||||
2,209,161 | Series 2012-106-SA 4.608%, 10/25/2042(h)(m) 1 mo. LIBOR + 6.160% | 364,887 | ||||||
11,100,940 | Series 2013-109-BO 0.000%, 07/25/2043(n) | 7,484,717 | ||||||
2,039,223 | Series 2013-15-SC 3.827%, 03/25/2033(h) 1 mo. LIBOR + 5.460% | 1,864,964 | ||||||
5,787,725 | Series 2013-51-HS 3.537%, 04/25/2043(h) 1 mo. LIBOR + 5.400% | 4,914,157 | ||||||
8,030,434 | Series 2013-53-ZC 3.000%, 06/25/2043 | 7,641,626 | ||||||
3,711,610 | Series 2013-67-NS 3.672%, 07/25/2043(h) 1 mo. LIBOR + 6.000% | 3,194,480 | ||||||
5,721,720 | Series 2013-74-HZ 3.000%, 07/25/2043 | 5,350,860 | ||||||
5,631,742 | Series 2014-50-WS 4.648%, 08/25/2044(h)(m) 1 mo. LIBOR + 6.200% | 841,487 | ||||||
10,729,209 | Series 2016-72-ZG 3.000%, 10/25/2046 | 10,084,742 | ||||||
First Horizon Alternative Mortgage Securities Trust | ||||||||
1,062,676 | Series 2006-FA6-1A4 6.250%, 11/25/2036 | 855,760 | ||||||
398,117 | Series 2007-FA4-1A7 6.000%, 08/25/2037 | 303,688 | ||||||
First Horizon Asset Securities, Inc. | ||||||||
269,169 | Series 2006-1-1A10 6.000%, 05/25/2036 | 243,618 | ||||||
3,244,076 | Series 2007-5-A1 6.250%, 11/25/2037 | 2,720,796 | ||||||
GMACM Mortgage Loan Trust | ||||||||
431,201 | Series 2005-AR1-3A 3.889%, 03/18/2035(f) | 436,261 | ||||||
302,661 | Series 2005-AR4-3A1 3.997%, 07/19/2035(f) | 293,714 |
Principal Amount^ | Value | |||||||
Government National Mortgage Association | ||||||||
$ 904,806 | Series 2007-21-S | $ | 140,311 | |||||
332,033 | Series 2008-69-SB | 62,531 | ||||||
389,248 | Series 2009-104-SD | 69,268 | ||||||
84,174 | Series 2010-98-IA | 9,378 | ||||||
822,808 | Series 2011-45-GZ | 858,602 | ||||||
264,406 | Series 2011-69-OC | 219,814 | ||||||
5,366,514 | Series 2011-69-SC | 590,392 | ||||||
811,938 | Series 2011-89-SA | 94,801 | ||||||
6,681,108 | Series 2012-135-IO 0.603%, 01/16/2053(f)(m) | 235,251 | ||||||
4,238,281 | Series 2013-102-BS 4.649%, 03/20/2043(h)(m) 1 mo. LIBOR + 6.150% | 586,252 | ||||||
6,289,810 | Series 2014-145-CS 4.109%, 05/16/2044(h)(m) 1 mo. LIBOR + 5.600% | 961,589 | ||||||
4,352,366 | Series 2014-156-PS 4.749%, 10/20/2044(h)(m) 1 mo. LIBOR + 6.250% | 664,655 | ||||||
7,018,001 | Series 2014-5-SA 4.049%, 01/20/2044(h)(m) 1 mo. LIBOR + 5.550% | 996,085 | ||||||
6,774,974 | Series 2014-58-SG 4.109%, 04/16/2044(h)(m) 1 mo. LIBOR + 5.600% | 965,334 | ||||||
7,037,243 | Series 2014-76-SA 4.099%, 01/20/2040(h)(m) 1 mo. LIBOR + 5.600% | 959,406 | ||||||
7,446,648 | Series 2014-95-CS 4.759%, 06/16/2044(h)(m) 1 mo. LIBOR + 6.250% | 1,151,019 | ||||||
GS Mortgage Securities Trust | ||||||||
75,000 | Series 2014-GC26-D 4.510%, 11/10/2047(d)(f) | 65,776 | ||||||
113,000 | Series 2015-GC28-D 4.327%, 02/10/2048(d)(f) | 91,056 | ||||||
GSR Mortgage Loan Trust | ||||||||
52,731 | Series 2005-4F-6A1 6.500%, 02/25/2035 | 52,907 | ||||||
1,074,069 | Series 2005-9F-2A1 6.000%, 01/25/2036 | 913,901 | ||||||
258,505 | Series 2005-AR4-6A1 3.522%, 07/25/2035(f) | 260,409 | ||||||
432,998 | Series 2005-AR6-4A5 3.525%, 09/25/2035(f) | 437,576 | ||||||
378,048 | Series 2006-7F-3A4 6.250%, 08/25/2036 | 257,433 |
The accompanying notes are an integral part of these financial statements.
Schedule of Investments | 63 |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF INVESTMENTS IN SECURITIES at December 31, 2017 (Continued)
Principal Amount^ | Value | |||||||
MORTGAGE-BACKED SECURITIES (CONTINUED) | ||||||||
GSR Mortgage Loan Trust (Continued) | ||||||||
$ 854,907 | Series 2006-8F-2A1 6.000%, 09/25/2036 | $ | 807,161 | |||||
HarborView Mortgage Loan Trust | ||||||||
198,572 | Series 2003-2-1A 2.235%, 10/19/2033(h) 1 mo. USD LIBOR + 0.740% | 193,996 | ||||||
402,383 | Series 2004-11-2A2A 2.135%, 01/19/2035(h) 1 mo. USD LIBOR + 0.640% | 373,483 | ||||||
11,165,754 | Series 2006-8-1A1 1.711%, 07/21/2036(h) 1 mo. USD LIBOR + 0.200% | 8,655,214 | ||||||
7,145,251 | Series 2007-7-2A1B 2.552%, 10/25/2037(h) 1 mo. USD LIBOR + 1.000% | 5,781,407 | ||||||
Impac Secured Assets Trust | ||||||||
10,306,342 | Series 2007-2-1A1C 1.932%, 05/25/2037(h) 1 mo. USD LIBOR + 0.380% | 8,792,027 | ||||||
IndyMac INDA Mortgage Loan Trust | ||||||||
421,576 | Series 2006-AR3-1A1 3.658%, 12/25/2036(f) | 405,869 | ||||||
IndyMac INDX Mortgage Loan Trust | ||||||||
326,729 | Series 2004-AR12-A1 2.332%, 12/25/2034(h) 1 mo. USD LIBOR + 0.780% | 303,007 | ||||||
930,870 | Series 2004-AR6-4A 3.671%, 10/25/2034(f) | 950,895 | ||||||
270,776 | Series 2004-AR7-A5 2.772%, 09/25/2034(h) 1 mo. USD LIBOR + 1.220% | 248,475 | ||||||
190,095 | Series 2005-16IP-A1 2.192%, 07/25/2045(h) 1 mo. USD LIBOR + 0.640% | 184,166 | ||||||
447,342 | Series 2005-AR11-A3 3.340%, 08/25/2035(f) | 408,340 | ||||||
1,006,004 | Series 2006-AR2-2A1 1.762%, 02/25/2046(h) 1 mo. USD LIBOR + 0.210% | 881,772 | ||||||
3,472,580 | Series 2006-AR5-2A1 3.418%, 05/25/2036(f) | 3,146,394 | ||||||
5,620,198 | Series 2006-R1-A3 3.368%, 12/25/2035(f) | 5,428,225 | ||||||
2,004,003 | Series 2007-AR5-2A1 3.502%, 05/25/2037(f) | 1,863,646 | ||||||
JP Morgan Chase Commercial Mortgage Securities Trust |
| |||||||
62,000 | Series 2006-LDP9-AMS 5.337%, 05/15/2047 | 62,115 | ||||||
64,201 | Series 2007-LDPX-AM 5.464%, 01/15/2049(f) | 64,456 | ||||||
660,000 | Series 2015-SGP-D 5.977%, 07/15/2036(d)(h) 1 mo. LIBOR + 4.500% | 668,656 | ||||||
JP Morgan Mortgage Trust | ||||||||
91,492 | Series 2003-A2-3A1 3.104%, 11/25/2033(f) | 88,495 | ||||||
529,742 | Series 2004-S1-2A1 6.000%, 09/25/2034 | 536,326 |
Principal Amount^ | Value | |||||||
$ 111,606 | Series 2005-A1-6T1 3.663%, 02/25/2035(f) | $ | 110,904 | |||||
149,267 | Series 2005-A2-3A2 3.468%, 04/25/2035(f) | 148,999 | ||||||
56,796 | Series 2005-A3-4A1 3.664%, 06/25/2035(f) | 57,535 | ||||||
3,975,674 | Series 2005-ALT1-3A1 3.434%, 10/25/2035(f) | 3,597,184 | ||||||
291,140 | Series 2006-A1-1A2 3.643%, 02/25/2036(f) | 272,591 | ||||||
128,284 | Series 2007-A1-4A2 3.728%, 07/25/2035(f) | 132,361 | ||||||
131,408 | Series 2007-S1-1A2 5.500%, 03/25/2022 | 139,551 | ||||||
1,035,895 | Series 2007-S3-1A97 6.000%, 08/25/2037 | 919,068 | ||||||
633,233 | Series 2008-R2-2A 5.500%, 12/27/2035(d) | 612,764 | ||||||
2,980,723 | Series 2015-3-A3 3.500%, 05/25/2045(d)(f) | 3,036,160 | ||||||
JP Morgan Resecuritization Trust | ||||||||
8,058,287 | Series 2015-4-1A7 1.518%, 06/26/2047(d)(h) 1 mo. USD LIBOR + 0.190% | 4,774,189 | ||||||
JPMBB Commercial Mortgage Securities Trust | ||||||||
150,000 | Series 2013-C17-E 3.867%, 01/15/2047(d)(f) | 109,812 | ||||||
78,000 | Series 2015-C27-D 3.844%, 02/15/2048(d)(f) | 63,095 | ||||||
Lehman Mortgage Trust | ||||||||
2,232,896 | Series 2006-2-2A3 5.750%, 04/25/2036 | 2,202,642 | ||||||
Lehman XS Trust | ||||||||
196,438 | Series 2006-2N-1A1 1.812%, 02/25/2046(h) 1 mo. USD LIBOR + 0.260% | 174,656 | ||||||
Ludgate Funding Plc | ||||||||
| 142,806 (EUR) | | Series 2007-1-A2B 0.000%, 01/01/2061(h) 3 mo. EURIBOR + 0.160% | 167,068 | ||||
| 559,913 (GBP) | | Series 2008-W1X-A1 0.936%, 01/01/2061(h) 3 mo. GBP LIBOR + 0.600% | 743,108 | ||||
Master Adjustable Rate Mortgages Trust | ||||||||
213,177 | Series 2004-7-3A1 3.308%, 07/25/2034(f) | 209,184 | ||||||
122,453 | Series 2006-2-1A1 3.707%, 04/25/2036(f) | 122,051 | ||||||
Master Alternative Loan Trust | ||||||||
53,387 | Series 2003-9-4A1 5.250%, 11/25/2033 | 55,454 | ||||||
61,187 | Series 2004-5-1A1 5.500%, 06/25/2034 | 62,943 | ||||||
74,485 | Series 2004-5-2A1 6.000%, 06/25/2034 | 77,548 | ||||||
276,763 | Series 2004-8-2A1 6.000%, 09/25/2034 | 296,164 | ||||||
Merrill Lynch Alternative Note Asset Trust | ||||||||
808,041 | Series 2007-AF1-1AF2 5.750%, 05/25/2037 | 734,695 |
The accompanying notes are an integral part of these financial statements.
64 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF INVESTMENTS IN SECURITIES at December 31, 2017 (Continued)
Principal Amount^ | Value | |||||||
MORTGAGE-BACKED SECURITIES (CONTINUED) | ||||||||
Merrill Lynch Mortgage Investors Trust | ||||||||
$ 26,387 | Series 2006-2-2A 3.183%, 05/25/2036(f) | $ | 26,697 | |||||
Morgan Stanley Bank of America Merrill Lynch Trust |
| |||||||
82,000 | Series 2015-C20-D 3.071%, 02/15/2048(d) | 63,992 | ||||||
1,000,000 | Series 2015-C26-E 4.410%, 10/15/2048(d)(f) | 708,344 | ||||||
Morgan Stanley Capital I Trust | ||||||||
285,000 | Series 2011-C2-D 5.483%, 06/15/2044(d)(f) | 284,497 | ||||||
Morgan Stanley Mortgage Loan Trust | ||||||||
4,279,216 | Series 2005-9AR-2A 3.562%, 12/25/2035(f) | 4,078,195 | ||||||
3,839,358 | Series 2006-11-2A2 6.000%, 08/25/2036 | 3,129,223 | ||||||
530,353 | Series 2006-7-3A 5.067%, 06/25/2036(f) | 469,267 | ||||||
314,019 | Series 2007-13-6A1 6.000%, 10/25/2037 | 270,828 | ||||||
Morgan Stanley Re-Remic Trust | ||||||||
612,054 | Series 2010-R9-3C 6.000%, 11/26/2036(d)(f) | 617,286 | ||||||
Motel 6 Trust | ||||||||
1,582,964 | Series 2017-M6MZ-M 8.404%, 08/15/2019(d)(h) 1 mo. LIBOR + 6.927% | 1,620,361 | ||||||
Newgate Funding | ||||||||
| 221,482 (EUR) | | Series 2007-3X-A2B 0.271%, 12/15/2050(h) 3 mo. EURIBOR + 0.600% | 264,403 | ||||
Prime Mortgage Trust | ||||||||
1,771,170 | Series 2006-DR1-2A1 5.500%, 05/25/2035(d) | 1,307,544 | ||||||
Residential Accredit Loans, Inc. | ||||||||
263,243 | Series 2006-QO4-2A1 1.742%, 04/25/2046(h) 1 mo. USD LIBOR + 0.190% | 249,682 | ||||||
1,439,872 | Series 2006-QS10-A9 6.500%, 08/25/2036 | 1,305,924 | ||||||
860,035 | Series 2006-QS14-A18 6.250%, 11/25/2036 | 767,249 | ||||||
695,187 | Series 2006-QS17-A5 6.000%, 12/25/2036 | 618,679 | ||||||
708,202 | Series 2006-QS2-1A4 5.500%, 02/25/2036 | 622,549 | ||||||
844,093 | Series 2006-QS7-A3 6.000%, 06/25/2036 | 768,352 | ||||||
847,231 | Series 2007-QS1-2A10 6.000%, 01/25/2037 | 791,787 | ||||||
1,302,242 | Series 2007-QS3-A1 6.500%, 02/25/2037 | 1,206,711 | ||||||
2,972,095 | Series 2007-QS6-A6 6.250%, 04/25/2037 | 2,860,777 | ||||||
712,247 | Series 2007-QS8-A8 6.000%, 06/25/2037 | 650,713 | ||||||
2,215,780 | Series 2007-QS9-A33 6.500%, 07/25/2037 | 2,018,261 |
Principal Amount^ | Value | |||||||
Residential Asset Securitization Trust | ||||||||
$ 449,610 | Series 2003-A9-A2 4.000%, 08/25/2033 | $ | 451,305 | |||||
216,499 | Series 2005-A8CB-A9 5.375%, 07/25/2035 | 193,392 | ||||||
382,939 | Series 2006-A8-1A1 6.000%, 08/25/2036 | 340,307 | ||||||
308,062 | Series 2007-A1-A8 6.000%, 03/25/2037 | 219,419 | ||||||
1,131,249 | Series 2007-A2-1A2 6.000%, 04/25/2037 | 1,023,402 | ||||||
616,471 | Series 2007-A5-2A5 6.000%, 05/25/2037 | 543,183 | ||||||
17,634,139 | Series 2007-A9-A1 2.102%, 09/25/2037(h) 1 mo. USD LIBOR + 0.550% | 7,889,773 | ||||||
17,634,139 | Series 2007-A9-A2 4.898%, 09/25/2037(h)(m) 1 mo. USD LIBOR + 6.450% | 5,218,000 | ||||||
Residential Funding Mortgage Securities I, Inc. |
| |||||||
67,151 | Series 2006-S1-1A3 5.750%, 01/25/2036 | 67,246 | ||||||
904,847 | Series 2006-S4-A5 6.000%, 04/25/2036 | 873,940 | ||||||
Residential Funding Mortgage Securities I, Inc. Trust |
| |||||||
675,129 | Series 2006-SA2-3A1 4.599%, 08/25/2036(f) | 634,520 | ||||||
RMAC Plc | ||||||||
| 68,848 (EUR) | | Series 2005-NS3X-A2C 0.034%, 06/12/2043(h) 3 mo. EURIBOR + 0.360% | 81,321 | ||||
RMAC Securities No 1 Plc | ||||||||
| 120,560 (EUR) | | Series 2006-NS1X-A2C 0.000%, 06/12/2044(h) 3 mo. EURIBOR + 0.150% | 140,195 | ||||
SCG Trust | ||||||||
200,000 | Series 2013-SRP1-A 3.127%, 11/15/2026(d)(h) 1 mo. LIBOR + 1.650% | 199,926 | ||||||
385,000 | Series 2013-SRP1-B 3.977%, 11/15/2026(d)(h) 1 mo. LIBOR + 2.500% | 374,850 | ||||||
700,000 | Series 2013-SRP1-C 4.727%, 11/15/2026(d)(h) 1 mo. LIBOR + 3.250% | 671,468 | ||||||
100,000 | Series 2013-SRP1-D 4.821%, 11/15/2026(d)(h) 1 mo. LIBOR + 3.344% | 92,777 | ||||||
Sequoia Mortgage Trust | ||||||||
7,000,000 | Series 2013-4-A4 2.750%, 04/25/2043(f) | 6,450,303 | ||||||
2,935,308 | Series 2013-6-A2 3.000%, 05/25/2043(f) | 2,928,887 | ||||||
Stanwich Mortgage Loan Trust | ||||||||
175,276 | Series 2011-5-A 4.809%, 09/15/2037(b)(d)(f) | 72,651 | ||||||
339,738 | Series 2012-2-A 0.000%, 03/15/2047(b)(d)(f) | 162,162 | ||||||
Structured Adjustable Rate Mortgage Loan Trust |
| |||||||
133,120 | Series 2004-12-7A3 3.664%, 09/25/2034(f) | 135,299 |
The accompanying notes are an integral part of these financial statements.
Schedule of Investments | 65 |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF INVESTMENTS IN SECURITIES at December 31, 2017 (Continued)
Principal Amount^ | Value | |||||||
MORTGAGE-BACKED SECURITIES (CONTINUED) | ||||||||
Structured Adjustable Rate Mortgage Loan Trust (Continued) | ||||||||
$ 123,420 | Series 2004-6-1A 3.361%, 06/25/2034(f) | $ | 122,163 | |||||
992,266 | Series 2005-14-A1 1.862%, 07/25/2035(h) 1 mo. USD LIBOR + 0.310% | 802,319 | ||||||
524,805 | Series 2005-15-1A1 3.395%, 07/25/2035(f) | 437,738 | ||||||
839,805 | Series 2005-22-3A1 3.899%, 12/25/2035(f) | 786,037 | ||||||
1,713,686 | Series 2008-1-A2 3.463%, 10/25/2037(f) | 1,566,776 | ||||||
Structured Asset Mortgage Investments II Trust | ||||||||
9,904,317 | Series 2007-AR1-2A1 1.732%, 01/25/2037(h) 1 mo. USD LIBOR + 0.180% | 9,379,473 | ||||||
Structured Asset Securities Corp. Trust | ||||||||
74,429 | Series 2004-20-8A7 5.750%, 11/25/2034 | 75,459 | ||||||
61,426 | Series 2005-1-7A7 5.500%, 02/25/2035 | 62,499 | ||||||
1,141,672 | Series 2005-5-2A2 5.500%, 04/25/2035 | 1,075,852 | ||||||
11,810,991 | Series 2007-4-1A3 4.686%, 03/28/2045(d)(h)(m) 1 mo. LIBOR + 6.250% | 1,609,763 | ||||||
Towd Point Mortgage Funding Granite1 Plc | ||||||||
| 300,000 (GBP) | | Series 2016-GR1X-B 1.791%, 07/20/2046(h) 3 mo. GBP LIBOR + 1.400% | 410,404 | ||||
Washington Mutual Mortgage Pass-Through Certificates Trust | ||||||||
591,594 | Series 2005-1-5A1 6.000%, 03/25/2035 | 602,311 | ||||||
854,816 | Series 2006-5-1A5 6.000%, 07/25/2036 | 767,741 | ||||||
554,537 | Series 2006-8-A6 4.512%, 10/25/2036(g) | 362,203 | ||||||
3,835,859 | Series 2007-5-A3 7.000%, 06/25/2037 | 2,673,355 | ||||||
Wells Fargo Alternative Loan Trust | ||||||||
299,972 | Series 2007-PA2-3A1 1.902%, 06/25/2037(h) 1 mo. USD LIBOR + 0.350% | 216,301 | ||||||
441,905 | Series 2007-PA2-3A2 5.098%, 06/25/2037(h)(m) 1 mo. USD LIBOR + 6.650% | 92,264 | ||||||
Wells Fargo Commercial Mortgage Trust | ||||||||
1,000,000 | Series 2015-C30-E 3.250%, 09/15/2058(d) | 642,053 | ||||||
Wells Fargo Mortgage-Backed Securities Trust | ||||||||
161,788 | Series 2003-M-A1 3.719%, 12/25/2033(f) | 163,607 | ||||||
547,947 | Series 2004-I-2A1 3.442%, 07/25/2034(f) | 557,312 | ||||||
60,783 | Series 2004-O-A1 3.554%, 08/25/2034(f) | 62,554 | ||||||
20,205 | Series 2005-11-2A3 5.500%, 11/25/2035 | 20,995 |
Principal Amount^ | Value | |||||||
$ 426,461 | Series 2005-12-1A5 5.500%, 11/25/2035 | $ | 435,499 | |||||
109,264 | Series 2005-16-A18 6.000%, 01/25/2036 | 110,262 | ||||||
64,605 | Series 2005-AR10-2A4 3.473%, 05/01/2035(f) | 66,482 | ||||||
215,022 | Series 2006-AR19-A1 3.702%, 12/25/2036(f) | 201,348 | ||||||
704,841 | Series 2006-AR2-2A5 3.544%, 03/25/2036(f) | 696,893 | ||||||
629,685 | Series 2007-3-1A4 | 630,455 | ||||||
WFRBS Commercial Mortgage Trust | ||||||||
500,000 | Series 2012-C6-D | 494,311 | ||||||
195,000 | Series 2012-C7-E | 159,478 | ||||||
Working Cap Solutions FDG LLC | ||||||||
1,500,000 | 6.700%, 08/30/2018(b)(c)(d) | 1,500,000 | ||||||
|
| |||||||
| TOTAL MORTGAGE-BACKED SECURITIES | 372,822,473 | ||||||
|
| |||||||
MUNICIPAL BONDS: 0.5% | ||||||||
Puerto Rico: 0.5% | ||||||||
Commonwealth of Puerto Rico | ||||||||
19,260,000 | 8.000%, 07/01/2035(k) | 4,622,400 | ||||||
420,000 | Series A | 95,550 | ||||||
385,000 | Series A | 87,588 | ||||||
75,000 | Series A 5.000%, 07/01/2041(k) | 17,063 | ||||||
Puerto Rico Commonwealth Aqueduct & Sewer Auth. | ||||||||
165,000 | Series A | 102,094 | ||||||
76,000 | Series A | 47,025 | ||||||
190,000 | Series A | 117,562 | ||||||
488,000 | Series A | 301,950 | ||||||
311,000 | Series A | 192,431 | ||||||
338,000 | Series A | 209,137 | ||||||
1,775,000 | Series A | 1,098,281 | ||||||
70,000 | Series A | 43,505 | ||||||
Puerto Rico Commonwealth Gov’t Employees Retirement System | ||||||||
6,745,000 | Series A | 2,529,375 | ||||||
2,300,000 | Series C | 862,500 | ||||||
|
| |||||||
| TOTAL MUNICIPAL BONDS | 10,326,461 | ||||||
|
|
The accompanying notes are an integral part of these financial statements.
66 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF INVESTMENTS IN SECURITIES at December 31, 2017 (Continued)
Principal Amount^ | Value | |||||||
SHORT-TERM INVESTMENTS: 21.0% | ||||||||
TREASURY BILLS: 3.1% | ||||||||
United States Treasury Bill | ||||||||
$ 7,900,000 | 0.000%, 01/04/2018(o) | $ | 7,899,286 | |||||
6,600,000 | 0.000%, 01/11/2018(a)(o) | 6,598,034 | ||||||
7,900,000 | 0.000%, 02/01/2018(o) | 7,892,721 | ||||||
3,180,000 | 0.000%, 03/01/2018(o) | 3,174,431 | ||||||
5,400,000 | 0.000%, 06/14/2018(o) | 5,364,576 | ||||||
3,135,000 | 0.000%, 06/21/2018(o) | 3,117,428 | ||||||
5,420,000 | 0.000%, 07/19/2018(a)(o) | 5,375,209 | ||||||
25,000,000 | 0.000%, 12/06/2018(a)(o) | 24,603,906 | ||||||
|
| |||||||
| TOTAL TREASURY BILLS | 64,025,591 | ||||||
|
| |||||||
REPURCHASE AGREEMENTS : 17.9% | ||||||||
$363,454,000 | FICC, 0.20%, 12/29/2017, due 01/02/2018 [collateral: par value $18,800,000, Federal Home Loan Bank, 0.875%, due 10/01/2018, value $18,714,420; par value $260,410,000, U.S. Treasury Notes, 0.750% to 1.750%, due 10/31/2018, value $260,311,388; par value $24,715,000, U.S. Treasury Note, 0.125%, due 04/15/2021, value $25,574,111; par value $66,540,000, U.S. Treasury Note, 1.875%, due 02/28/2022, value $66,189,033] (proceeds $363,462,077) | 363,454,000 | ||||||
|
| |||||||
| TOTAL REPURCHASE AGREEMENTS | 363,454,000 | ||||||
|
| |||||||
| TOTAL SHORT-TERM INVESTMENTS | 427,479,591 | ||||||
|
| |||||||
| TOTAL PURCHASED OPTIONS(p) | 814,037 | ||||||
|
| |||||||
| TOTAL INVESTMENTS BEFORE INVESTMENTS | 2,035,765,296 | ||||||
|
| |||||||
Liabilities in Excess of Other Assets: (0.1)% | (1,702,044 | ) | ||||||
|
| |||||||
Net Assets: 100.0% | $2,034,063,252 | |||||||
|
|
Percentages are stated as a percent of net assets.
ADR | American Depositary Receipt. |
BADLARPP | Argentina Badlar Floating Rate Notes |
CDOR | Canadian Dollar Offered Rate |
CLO | Collateralized Loan Obligation. |
CVR | Contingent Value Rights |
ETF | Exchange Traded Fund. |
GDR | Global Depositary Receipt. |
LIBOR | London Interbank Offered Rate. |
L.P. | Limited Partnership. |
OJSC | Open Joint-Stock Company |
PJSC | Public Joint-Stock Company |
PIK | Payment-in-kind |
REMICS | Real Estate Mortgage Investment Conduit |
* | Non-Income Producing Security. |
^ | The principal amount is stated in U.S. Dollars unless otherwise indicated. |
(a) | Securities with an aggregate fair value of $183,459,330 have been pledged as collateral for options, total return swaps, credit default swaps, securities sold short and futures positions. |
(b) | Illiquid securities at December 31, 2017, at which time the aggregate value of these illiquid securities is $26,267,503 or 1.3% of net assets. |
(c) | Security is fair valued under procedures approved by the Board of Trustees. As of December 31, 2017, these securities represent $9,329,173, or 0.5% of net assets. |
(d) | Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers or in a public offering registered under Securities Act of 1933. |
(e) | Perpetual Call. |
(f) | Variable rate security. Interest rate or distribution rate disclosed is that which is in effect at December 31, 2017. |
(g) | Coupon increases periodically based upon a predetermined schedule. Stated interest rate in effect at December 31, 2017. |
(h) | Floating Interest Rate. |
(i) | When issued security. |
(j) | This position represents an unsettled loan commitment at period end. Certain details associated with this purchase are not known prior to the settlement date, including coupon rate, which will be adjusted on settlement date. |
(k) | Security is currently in default and/or non-income producing. |
(l) | Pay-in-kind securities. |
(m) | Interest Only security. Security with a notional or nominal principal amount. |
(n) | Principal Only security. |
(o) | Issued with a zero coupon. Income is recognized through the accretion of discount. |
(p) | For a breakout of open positions, see details shown in the Schedule of Purchased Options table that follows. |
CURRENCY ABBREVIATIONS:
ARS | Argentine Peso |
AUD | Australian Dollar |
BRL | Brazilian Real |
CAD | Canadian Dollar |
CHF | Swiss Franc |
CLP | Chilean Peso |
CNY | Chinese Yuan |
COP | Colombian Peso |
CZK | Czech Koruna |
EUR | Euro |
GBP | British Pound |
HUF | Hungary Forint |
IDR | Indonesian Rupiah |
INR | Indian Rupee |
JPY | Japanese Yen |
KRW | South Korean Won |
MXN | Mexican Peso |
MYR | Malaysian Ringgit |
NOK | Norwegian Krone |
NZD | New Zealand Dollar |
PEN | Peruvian Nuevo Sol |
PHP | Philippine Peso |
PLN | Polish Zloty |
RUB | Russian Ruble |
SEK | Swedish Krona |
TRY | Turkish New Lira |
USD | U.S. Dollar |
ZAR | South African Rand |
The accompanying notes are an integral part of these financial statements.
Schedule of Investments | 67 |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF SECURITIES SOLD SHORT at December 31, 2017
Shares | Value | |||||||
COMMON STOCKS: (5.1)% | ||||||||
(52,192) | Akorn, Inc.* | $ | (1,682,148 | ) | ||||
(69,947) | Alibaba Group Holding Ltd. ADR* | (12,060,961 | ) | |||||
(82,908) | American Axle & Manufacturing Holdings, Inc.* | (1,411,923 | ) | |||||
(10,302) | Bayerische Motoren Werke AG | (1,075,440 | ) | |||||
(33,797) | Becton Dickinson and Co. | (7,234,586 | ) | |||||
(67,288) | BorgWarner, Inc. | (3,437,744 | ) | |||||
(16,467) | Boyd Gaming Corp.* | (577,168 | ) | |||||
(565) | Broadcom Ltd. | (145,148 | ) | |||||
(17,196) | Cboe Global Markets, Inc. | (2,142,450 | ) | |||||
(15,897) | CGI Group, Inc. Class A* | (863,684 | ) | |||||
(100) | Chelsea Therapeutics International*(c) | 0 | ||||||
(15,897) | Convergys Corp. | (373,580 | ) | |||||
(32,501) | CSX Corp. | (1,790,972 | ) | |||||
(15,715) | CVS Health Corp. | (1,139,338 | ) | |||||
(13,165) | Daimler AG | (1,120,595 | ) | |||||
(17,874) | Dover Corp. | (1,811,508 | ) | |||||
(17,277) | Eldorado Resorts, Inc.* | (572,733 | ) | |||||
(40,090) | Fiat Chrysler Automobiles N.V.* | (718,635 | ) | |||||
(81,044) | Ford Motor Co. | (1,012,240 | ) | |||||
(24,560) | General Motors Co. | (1,006,714 | ) | |||||
(28,261) | Genpact Ltd. | (897,004 | ) | |||||
(33,080) | Honda Motor Co. Ltd. | (1,133,685 | ) | |||||
(49,457) | Infosys Ltd. ADR | (802,193 | ) | |||||
(57,100) | Lennar Corp. Class A | (3,611,004 | ) | |||||
(1,141) | Lennar Corp. Class B | (58,967 | ) | |||||
(16,376) | McDonald’s Corp. | (2,818,637 | ) | |||||
(6,819) | Merck KGaA | (735,783 | ) | |||||
(11,144) | Meredith Corp. | (736,061 | ) | |||||
(52,101) | MGM Resorts International | (1,739,652 | ) | |||||
(71,225) | MoneyGram International, Inc.* | (938,746 | ) | |||||
(13,247) | Parker-Hannifin Corp. | (2,643,836 | ) | |||||
(74,143) | Penn National Gaming, Inc.* | (2,322,900 | ) | |||||
(12,210) | Pennsylvania Real Estate Investment Trust | (145,177 | ) | |||||
(22,758) | Peugeot S.A. | (463,902 | ) | |||||
(8,150) | Pitney Bowes, Inc. | (91,117 | ) | |||||
(43,333) | Prysmian SpA | (1,422,336 | ) | |||||
(6,194) | Renault S.A. | (624,855 | ) | |||||
(70,846) | Sinclair Broadcast Group, Inc. Class A | (2,681,521 | ) | |||||
(42,597) | Sonic Corp. | (1,170,566 | ) | |||||
(12,365) | Sykes Enterprises, Inc.* | (388,879 | ) | |||||
(367,700) | Tencent Holdings Ltd. | (19,107,411 | ) | |||||
(23,229) | Tenneco, Inc. | (1,359,826 | ) | |||||
(16,860) | Toyota Motor Corp. | (1,079,166 | ) | |||||
(25,899) | Verizon Communications, Inc. | (1,370,834 | ) | |||||
(23,300) | Vistra Energy Corp.* | (426,856 | ) | |||||
(2,260) | Walt Disney Co. (The) | (242,973 | ) | |||||
(42,953) | Washington Real Estate Investment Trust | (1,336,697 | ) | |||||
(73,455) | Wendy’s Co. (The) | (1,206,131 | ) | |||||
(78,475) | Worldpay, Inc. Class A | (5,771,836 | ) | |||||
(1,952) | WW Grainger, Inc. | (461,160 | ) | |||||
(68,899) | Xcerra Corp.* | (674,521 | ) | |||||
(153,200) | Yahoo Japan Corp. | (702,852 | ) | |||||
(59,604) | Yum! Brands, Inc. | (4,864,282 | ) | |||||
|
| |||||||
| TOTAL COMMON STOCKS | (104,208,933 | ) | |||||
|
|
Shares | Value | |||||||
EXCHANGE-TRADED FUNDS: (0.7)% | ||||||||
(19,200) | iShares Russell 2000 ETF | $ | (2,927,232 | ) | ||||
(16,827) | iShares Russell 2000 Value ETF | (2,115,995 | ) | |||||
(43,106) | VanEck Vectors Semiconductor ETF | (4,216,198 | ) | |||||
(48,453) | Vanguard REIT ETF | (4,020,630 | ) | |||||
|
| |||||||
| TOTAL EXCHANGE-TRADED FUNDS | (13,280,055 | ) | |||||
|
| |||||||
Principal Amount^ | ||||||||
CORPORATE BONDS: (0.1)% | ||||||||
L Brands, Inc. | ||||||||
(2,200,000) | 5.625%, 02/15/2022 | (2,356,750 | ) | |||||
L Brands, Inc. | ||||||||
(55,000) | 5.625%, 10/15/2023 | (59,606 | ) | |||||
|
| |||||||
| TOTAL CORPORATE BONDS | (2,416,356 | ) | |||||
|
| |||||||
| TOTAL SECURITIES SOLD SHORT | $ | (119,905,344 | ) | ||||
|
|
The accompanying notes are an integral part of these financial statements.
68 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS at December 31, 2017
At December 31, 2017, the Fund had the following forward foreign currency exchange contracts:
Asset Derivatives | Liability Derivatives | |||||||||||||||||||||||
Counterparty | Settlement Date | Fund Receiving | U.S. $ Value at December 31, 2017 | Fund Delivering | U.S. $ Value at December 31, 2017 | Unrealized Appreciation | Unrealized Depreciation | |||||||||||||||||
Bank of America N.A. | 1/11/2018 | USD | $ | 2,394,217 | GBP | $ | 2,401,724 | $ | — | $ | (7,507 | ) | ||||||||||||
1/16/2018 | ARS | 248,058 | USD | 264,538 | — | (16,480 | ) | |||||||||||||||||
1/16/2018 | PEN | 266,975 | USD | 267,181 | — | (206 | ) | |||||||||||||||||
1/16/2018 | RUB | 103,563 | USD | 100,709 | 2,854 | — | ||||||||||||||||||
1/16/2018 | TRY | 67,055 | USD | 65,895 | 1,160 | — | ||||||||||||||||||
1/16/2018 | USD | 1,194,966 | EUR | 1,215,186 | — | (20,220 | ) | |||||||||||||||||
1/16/2018 | USD | 262,718 | PEN | 266,975 | — | (4,257 | ) | |||||||||||||||||
1/16/2018 | USD | 101,343 | RUB | 103,564 | — | (2,221 | ) | |||||||||||||||||
1/17/2018 | CHF | 143,846 | USD | 142,184 | 1,662 | — | ||||||||||||||||||
1/17/2018 | PEN | 334,861 | USD | 335,125 | — | (264 | ) | |||||||||||||||||
1/17/2018 | USD | 309,037 | CHF | 313,380 | — | (4,343 | ) | |||||||||||||||||
1/17/2018 | USD | 300,462 | PEN | 300,912 | — | (450 | ) | |||||||||||||||||
1/17/2018 | USD | 33,408 | PEN | 33,949 | — | (541 | ) | |||||||||||||||||
1/22/2018 | RUB | 85,090 | USD | 84,700 | 390 | — | ||||||||||||||||||
1/22/2018 | USD | 83,263 | RUB | 85,091 | — | (1,828 | ) | |||||||||||||||||
1/29/2018 | USD | 606,308 | MXN | 603,005 | 3,303 | — | ||||||||||||||||||
1/31/2018 | USD | 242,963 | ARS | 242,930 | 33 | — | ||||||||||||||||||
1/31/2018 | USD | 14,435,382 | EUR | 14,564,715 | — | (129,333 | ) | |||||||||||||||||
2/2/2018 | USD | 1,365,095 | BRL | 1,367,072 | — | (1,977 | ) | |||||||||||||||||
5/21/2018 | PHP | 13,266,969 | USD | 13,081,747 | 185,222 | — | ||||||||||||||||||
5/21/2018 | USD | 3,620,143 | PHP | 3,727,606 | — | (107,463 | ) | |||||||||||||||||
BNP Paribas S.A. | 1/31/2018 | USD | 185,940 | CAD | 187,813 | — | (1,873 | ) | ||||||||||||||||
1/31/2018 | USD | 505,468 | JPY | 507,211 | — | (1,743 | ) | |||||||||||||||||
1/31/2018 | USD | 126,468 | NOK | 127,827 | — | (1,359 | ) | |||||||||||||||||
2/1/2018 | USD | 213,677 | JPY | 214,410 | — | (733 | ) | |||||||||||||||||
Citibank N.A. | 1/22/2018 | USD | 72,132 | CZK | 72,790 | — | (658 | ) | ||||||||||||||||
1/23/2018 | NZD | 85,167 | USD | 84,115 | 1,052 | — | ||||||||||||||||||
1/23/2018 | USD | 84,697 | NZD | 85,168 | — | (471 | ) | |||||||||||||||||
Credit Suisse International | 1/30/2018 | USD | 2,184,139 | COP | 2,195,880 | — | (11,741 | ) | ||||||||||||||||
Deutsche Bank AG | 1/8/2018 | MXN | 673,488 | EUR | 685,482 | — | (11,994 | ) | ||||||||||||||||
1/8/2018 | MXN | 3,087,183 | EUR | 3,283,097 | — | (195,914 | ) | |||||||||||||||||
1/16/2018 | AUD | 82,047 | USD | 80,764 | 1,283 | — | ||||||||||||||||||
1/16/2018 | JPY | 271,377 | USD | 272,551 | — | (1,174 | ) | |||||||||||||||||
1/16/2018 | USD | 79,063 | AUD | 82,047 | — | (2,984 | ) | |||||||||||||||||
1/16/2018 | USD | 269,991 | JPY | 271,378 | — | (1,387 | ) | |||||||||||||||||
1/16/2018 | ZAR | 73,716 | USD | 66,910 | 6,806 | — | ||||||||||||||||||
1/22/2018 | CNY | 347,468 | USD | 342,042 | 5,426 | — | ||||||||||||||||||
1/22/2018 | USD | 1,934,024 | GBP | 1,946,434 | — | (12,410 | ) | |||||||||||||||||
1/23/2018 | CNY | 568,343 | USD | 564,787 | 3,556 | — | ||||||||||||||||||
1/23/2018 | USD | 559,499 | CNY | 568,343 | — | (8,844 | ) | |||||||||||||||||
1/29/2018 | USD | 659,558 | EUR | 667,046 | — | (7,488 | ) | |||||||||||||||||
1/30/2018 | USD | 1,802,373 | EUR | 1,827,860 | — | (25,487 | ) | |||||||||||||||||
1/31/2018 | KRW | 146,003 | USD | 145,425 | 578 | — | ||||||||||||||||||
Goldman Sachs & Co. | 1/16/2018 | CAD | 147,822 | USD | 144,037 | 3,785 | — | |||||||||||||||||
1/16/2018 | CZK | 68,527 | USD | 67,308 | 1,219 | — | ||||||||||||||||||
1/16/2018 | USD | 144,010 | CAD | 147,822 | — | (3,812 | ) | |||||||||||||||||
1/16/2018 | USD | 58,412 | CZK | 59,343 | — | (931 | ) | |||||||||||||||||
1/16/2018 | USD | 135,668 | CZK | 137,761 | — | (2,093 | ) | |||||||||||||||||
1/17/2018 | SEK | 122,513 | USD | 121,111 | 1,402 | — | ||||||||||||||||||
1/17/2018 | USD | 241,297 | SEK | 250,538 | — | (9,241 | ) |
The accompanying notes are an integral part of these financial statements.
Schedule of Investments | 69 |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS at December 31, 2017 (Continued)
Asset Derivatives | Liability Derivatives | |||||||||||||||||||||||
Counterparty | Settlement Date | Fund Receiving | U.S. $ Value at December 31, 2017 | Fund Delivering | U.S. $ Value at December 31, 2017 | Unrealized Appreciation | Unrealized Depreciation | |||||||||||||||||
3/15/2018 | EUR | $ | 134,739 | USD | $ | 133,102 | $ | 1,637 | $ | — | ||||||||||||||
3/15/2018 | USD | 699,457 | EUR | 700,134 | — | (677 | ) | |||||||||||||||||
3/15/2018 | USD | 122,047 | EUR | 123,631 | — | (1,584 | ) | |||||||||||||||||
3/15/2018 | USD | 144,160 | EUR | 146,088 | — | (1,928 | ) | |||||||||||||||||
3/15/2018 | USD | 262,869 | EUR | 267,546 | — | (4,677 | ) | |||||||||||||||||
3/15/2018 | USD | 322,451 | EUR | 328,275 | — | (5,824 | ) | |||||||||||||||||
3/15/2018 | USD | 2,012,435 | EUR | 2,024,703 | — | (12,268 | ) | |||||||||||||||||
3/15/2018 | USD | 1,337,026 | EUR | 1,352,941 | — | (15,915 | ) | |||||||||||||||||
3/15/2018 | USD | 1,559,754 | EUR | 1,577,989 | — | (18,235 | ) | |||||||||||||||||
3/15/2018 | USD | 1,563,091 | EUR | 1,589,338 | — | (26,247 | ) | |||||||||||||||||
3/15/2018 | USD | 3,301,873 | EUR | 3,340,700 | — | (38,827 | ) | |||||||||||||||||
3/15/2018 | USD | 3,392,225 | EUR | 3,432,458 | — | (40,233 | ) | |||||||||||||||||
3/15/2018 | USD | 2,213,488 | GBP | 2,246,226 | — | (32,738 | ) | |||||||||||||||||
HSBC Holdings Plc | 1/16/2018 | SEK | 128,631 | USD | 123,938 | 4,693 | — | |||||||||||||||||
1/16/2018 | USD | 125,043 | SEK | 128,630 | — | (3,587 | ) | |||||||||||||||||
JP Morgan Chase Bank N.A. | 1/19/2018 | EUR | 2,450,466 | USD | 2,409,574 | 40,892 | — | |||||||||||||||||
1/19/2018 | USD | 44,387 | EUR | 45,184 | — | (797 | ) | |||||||||||||||||
1/19/2018 | USD | 32,115 | EUR | 33,157 | — | (1,042 | ) | |||||||||||||||||
1/19/2018 | USD | 131,106 | EUR | 132,479 | — | (1,373 | ) | |||||||||||||||||
1/19/2018 | USD | 44,530 | EUR | 45,990 | — | (1,460 | ) | |||||||||||||||||
1/19/2018 | USD | 561,986 | EUR | 566,380 | — | (4,394 | ) | |||||||||||||||||
1/19/2018 | USD | 343,306 | EUR | 348,151 | — | (4,845 | ) | |||||||||||||||||
1/19/2018 | USD | 637,402 | EUR | 644,814 | — | (7,412 | ) | |||||||||||||||||
1/19/2018 | USD | 739,135 | EUR | 747,032 | — | (7,897 | ) | |||||||||||||||||
1/19/2018 | USD | 292,067 | EUR | 300,791 | — | (8,724 | ) | |||||||||||||||||
1/19/2018 | USD | 329,578 | EUR | 338,790 | — | (9,212 | ) | |||||||||||||||||
1/19/2018 | USD | 403,279 | EUR | 414,289 | — | (11,010 | ) | |||||||||||||||||
1/19/2018 | USD | 561,764 | EUR | 580,826 | — | (19,062 | ) | |||||||||||||||||
1/19/2018 | USD | 2,101,592 | EUR | 2,135,400 | — | (33,808 | ) | |||||||||||||||||
1/19/2018 | USD | 2,409,453 | EUR | 2,476,416 | — | (66,963 | ) | |||||||||||||||||
Morgan Stanley & Co. | 1/2/2018 | BRL | 3,123,210 | USD | 3,138,918 | — | (15,708 | ) | ||||||||||||||||
1/2/2018 | USD | 3,208,175 | BRL | 3,123,210 | 84,965 | — | ||||||||||||||||||
1/8/2018 | MXN | 2,846,902 | USD | 2,986,213 | — | (139,311 | ) | |||||||||||||||||
1/8/2018 | USD | 874,375 | PLN | 885,289 | — | (10,914 | ) | |||||||||||||||||
1/8/2018 | USD | 9,772,433 | PLN | 9,977,133 | — | (204,700 | ) | |||||||||||||||||
1/12/2018 | USD | 3,199,587 | EUR | 3,265,814 | — | (66,227 | ) | |||||||||||||||||
1/16/2018 | CLP | 71,565 | USD | 69,153 | 2,412 | — | ||||||||||||||||||
1/16/2018 | COP | 67,690 | USD | 68,034 | — | (344 | ) | |||||||||||||||||
1/16/2018 | EUR | 697,829 | USD | 685,947 | 11,882 | — | ||||||||||||||||||
1/16/2018 | IDR | 78,408 | USD | 78,271 | 137 | — | ||||||||||||||||||
1/16/2018 | INR | 707,806 | USD | 700,930 | 6,876 | — | ||||||||||||||||||
1/16/2018 | NZD | 81,626 | USD | 80,353 | 1,273 | — | ||||||||||||||||||
1/16/2018 | PHP | 78,782 | USD | 78,153 | 629 | — | ||||||||||||||||||
1/16/2018 | USD | 678,506 | CHF | 688,360 | — | (9,854 | ) | |||||||||||||||||
1/16/2018 | USD | 67,221 | CLP | 71,565 | — | (4,344 | ) | |||||||||||||||||
1/16/2018 | USD | 66,512 | COP | 67,690 | — | (1,178 | ) | |||||||||||||||||
1/16/2018 | USD | 78,453 | IDR | 78,408 | 45 | — | ||||||||||||||||||
1/16/2018 | USD | 707,626 | KRW | 720,062 | — | (12,436 | ) | |||||||||||||||||
1/16/2018 | USD | 79,459 | NZD | 81,626 | — | (2,167 | ) | |||||||||||||||||
1/16/2018 | USD | 78,032 | PHP | 78,782 | — | (750 | ) | |||||||||||||||||
1/17/2018 | INR | 150,243 | USD | 148,753 | 1,490 | — |
The accompanying notes are an integral part of these financial statements.
70 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS at December 31, 2017 (Continued)
Asset Derivatives | Liability Derivatives | |||||||||||||||||||||||
Counterparty | Settlement Date | Fund Receiving | U.S. $ Value at December 31, 2017 | Fund Delivering | U.S. $ Value at December 31, 2017 | Unrealized Appreciation | Unrealized Depreciation | |||||||||||||||||
1/18/2018 | CHF | $ | 82,204 | USD | $ | 81,264 | $ | 940 | $ | — | ||||||||||||||
1/18/2018 | CHF | 56,515 | USD | 56,076 | 439 | — | ||||||||||||||||||
1/18/2018 | HUF | 34,810 | USD | 33,980 | 830 | — | ||||||||||||||||||
1/18/2018 | HUF | 34,713 | USD | 34,126 | 587 | — | ||||||||||||||||||
1/18/2018 | INR | 67,646 | USD | 66,806 | 840 | — | ||||||||||||||||||
1/18/2018 | USD | 136,733 | CHF | 138,719 | — | (1,986 | ) | |||||||||||||||||
1/18/2018 | USD | 403,615 | GBP | 406,018 | — | (2,403 | ) | |||||||||||||||||
1/18/2018 | USD | 67,094 | HUF | 69,523 | — | (2,429 | ) | |||||||||||||||||
1/18/2018 | USD | 67,148 | MXN | 65,497 | 1,651 | — | ||||||||||||||||||
1/19/2018 | BRL | 33,102 | USD | 33,308 | — | (206 | ) | |||||||||||||||||
1/19/2018 | USD | 67,507 | BRL | 67,709 | — | (202 | ) | |||||||||||||||||
1/22/2018 | COP | 78,650 | USD | 79,067 | — | (417 | ) | |||||||||||||||||
1/22/2018 | MYR | 171,611 | USD | 170,469 | 1,142 | — | ||||||||||||||||||
1/22/2018 | PHP | 226,579 | USD | 224,536 | 2,043 | — | ||||||||||||||||||
1/22/2018 | PHP | 52,742 | USD | 52,901 | — | (159 | ) | |||||||||||||||||
1/22/2018 | USD | 170,426 | MYR | 171,610 | — | (1,184 | ) | |||||||||||||||||
1/26/2018 | CLP | 71,726 | USD | 71,086 | 640 | — | ||||||||||||||||||
1/29/2018 | SEK | 4,816,922 | USD | 4,685,441 | 131,481 | — | ||||||||||||||||||
1/29/2018 | SEK | 1,030,446 | USD | 1,006,447 | 23,999 | — | ||||||||||||||||||
1/29/2018 | USD | 2,225,897 | ZAR | 2,223,650 | 2,247 | — | ||||||||||||||||||
1/29/2018 | USD | 6,699,968 | ZAR | 6,896,894 | — | (196,926 | ) | |||||||||||||||||
1/31/2018 | INR | 226,322 | USD | 225,385 | 937 | — | ||||||||||||||||||
1/31/2018 | NOK | 5,831,712 | USD | 5,772,316 | 59,396 | — | ||||||||||||||||||
1/31/2018 | RUB | 137,660 | USD | 137,155 | 505 | — | ||||||||||||||||||
2/2/2018 | USD | 3,126,650 | BRL | 3,112,718 | 13,932 | — | ||||||||||||||||||
UBS AG | 1/5/2018 | GBP | 696,426 | EUR | 697,386 | — | (960 | ) | ||||||||||||||||
1/5/2018 | GBP | 3,254,367 | EUR | 3,282,524 | — | (28,157 | ) | |||||||||||||||||
1/16/2018 | HUF | 173,743 | USD | 172,470 | 1,273 | — | ||||||||||||||||||
1/16/2018 | PLN | 44,625 | USD | 43,630 | 995 | — | ||||||||||||||||||
1/16/2018 | PLN | 60,459 | USD | 59,785 | 674 | — | ||||||||||||||||||
1/16/2018 | USD | 168,135 | HUF | 173,743 | — | (5,608 | ) | |||||||||||||||||
1/16/2018 | USD | 102,388 | PLN | 105,084 | — | (2,696 | ) | |||||||||||||||||
1/17/2018 | HUF | 104,251 | USD | 101,695 | 2,556 | — | ||||||||||||||||||
1/17/2018 | USD | 100,886 | HUF | 104,251 | — | (3,365 | ) | |||||||||||||||||
1/22/2018 | USD | 71,069 | JPY | 71,272 | — | (203 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||
$ | 140,206,434 | $ | 141,277,665 | $ | 623,769 | $ | (1,695,000 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
SCHEDULE OF FINANCIAL FUTURES CONTRACTS at December 31, 2017
Description | Number of Contracts | Notional Amount | Notional Value | Expiration Date | Unrealized Appreciation/ | |||||||||||||||
Futures Contracts - Long | ||||||||||||||||||||
2YR U.S. Treasury Notes | 1,433 | 286,600,000 | $ | 306,818,736 | 3/29/2018 | $ | (41,086 | ) | ||||||||||||
10YR U.S. Treasury Notes | 10 | 1,000,000 | 1,240,469 | 3/20/2018 | 2,644 | |||||||||||||||
CBOE Volatility Index | 28 | 28,000 | 321,300 | 1/17/2018 | (5,676 | ) | ||||||||||||||
|
| |||||||||||||||||||
Total Long | $ | (44,118 | ) | |||||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Schedule of Investments | 71 |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF FINANCIAL FUTURES CONTRACTS at December 31, 2017 (Continued)
Description | Number of Contracts | Notional Amount | Notional Value | Expiration Date | Unrealized Appreciation/ | |||||||||||||||
Futures Contracts - Short | ||||||||||||||||||||
5YR U.S. Treasury Notes | (1,759 | ) | (175,900,000 | ) | $ | (204,332,587 | ) | 3/29/2018 | $ | (194,516 | ) | |||||||||
10YR U.S. Treasury Notes | (587 | ) | (58,700,000 | ) | (72,815,516 | ) | 3/20/2018 | (218,701 | ) | |||||||||||
Euro-Bund | (49 | ) | (4,900,000 | ) | (9,524,606 | ) | 3/08/2018 | 72,234 | ||||||||||||
Long Gilt Futures | (56 | ) | (5,600,000 | ) | (9,481,369 | ) | 3/27/2018 | (58,305 | ) | |||||||||||
S&P500 E Mini Index | (99 | ) | (4,950 | ) | (13,246,200 | ) | 3/16/2018 | (57,906 | ) | |||||||||||
Ultra 10YR. U.S. Treasury Notes | (77 | ) | (7,700,000 | ) | (10,284,313 | ) | 3/20/2018 | (72,742 | ) | |||||||||||
Ultra-Long U.S. Treasury Bonds | (60 | ) | (6,000,000 | ) | (10,059,375 | ) | 3/20/2018 | (14,398 | ) | |||||||||||
|
| |||||||||||||||||||
Total Short | $ | (544,334 | ) | |||||||||||||||||
|
| |||||||||||||||||||
Total Futures Contracts | $ | (588,452 | ) | |||||||||||||||||
|
|
SCHEDULE OF SWAPS at December 31, 2017
CENTRALLY CLEARED INTEREST RATE SWAP CONTRACTS
Rates Exchanged | ||||||||||||||||||||
Notional Amount(1) | Maturity Date | Payment Received | Payment Made | Fair Value | Upfront Made | Unrealized Appreciation/ | ||||||||||||||
CAD 11,100,000 | 9/14/2021 | 2.095% | 3 Month CDOR | $ | (29,670 | ) | $ | (159 | ) | $ | (29,511 | ) | ||||||||
CAD 26,500,000 | 9/15/2021 | 2.110% | 3 Month CDOR | (59,844 | ) | (390 | ) | (59,454 | ) | |||||||||||
CAD 26,500,000 | 9/15/2021 | 2.115% | 3 Month CDOR | (56,053 | ) | (393 | ) | (55,660 | ) | |||||||||||
CAD 26,500,000 | 9/18/2021 | 2.120% | 3 Month CDOR | (52,833 | ) | (398 | ) | (52,435 | ) | |||||||||||
CAD 20,710,000 | 9/19/2021 | 2.070% | 3 Month CDOR | (71,049 | ) | (291 | ) | (70,758 | ) | |||||||||||
$5,205,600 | 7/18/2026 | 3 Month LIBOR | 1.410% | 393,290 | — | 393,290 | ||||||||||||||
CAD 4,500,000 | 9/14/2027 | 3 Month CDOR | 2.351% | 10,763 | 90 | 10,673 | ||||||||||||||
CAD 10,800,000 | 9/15/2027 | 3 Month CDOR | 2.360% | 19,130 | 220 | 18,910 | ||||||||||||||
CAD 10,800,000 | 9/15/2027 | 3 Month CDOR | 2.365% | 15,322 | 221 | 15,101 | ||||||||||||||
CAD 10,800,000 | 9/18/2027 | 3 Month CDOR | 2.386% | (395 | ) | 226 | (621 | ) | ||||||||||||
CAD 8,340,000 | 9/19/2027 | 3 Month CDOR | 2.363% | 13,553 | 172 | 13,381 | ||||||||||||||
|
| |||||||||||||||||||
$ | 182,214 | $ | (702 | ) | $ | 182,916 | ||||||||||||||
|
|
(1) | Notional amounts are denominated in foreign currency. |
CENTRALLY CLEARED CREDIT DEFAULT SWAP CONTRACTS (1)(2)(3)
Description | Maturity Date | Fixed Deal (Pay) Rate | Implied Spread at December 31, | Notional Amount(4) | Fair Value | Upfront Premiums Paid (Received) | Unrealized Appreciation / (Depreciation) | |||||||||||||||||||||
21st Century Fox America, Inc. 3.700%, 09/15/2024 (Buy Protection) | 12/20/2022 | (1.000 | %) | 0.281 | % | $ | (7,550,000 | ) | $ | (256,146 | ) | $ | (225,855 | ) | $ | (30,291 | ) | |||||||||||
Advanced Micro Devices, Inc. 7.500%, 08/15/2022 (Buy Protection) | 12/20/2022 | (5.000 | %) | 2.093 | % | (5,550,000 | ) | (707,229 | ) | (810,793 | ) | 103,564 | ||||||||||||||||
AK Steel Corp. 7.000%, 03/15/2027 (Buy Protection) | 12/20/2022 | (5.000 | %) | 3.350 | % | (7,750,000 | ) | (533,243 | ) | (343,412 | ) | (189,831 | ) | |||||||||||||||
Amkor Technology, Inc. 6.625%, 06/01/2021 (Buy Protection) | 12/20/2022 | (5.000 | %) | 1.396 | % | (6,500,000 | ) | (1,056,026 | ) | (1,027,728 | ) | (28,298 | ) |
The accompanying notes are an integral part of these financial statements.
72 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF SWAPS at December 31, 2017 (Continued)
CENTRALLY CLEARED CREDIT DEFAULT SWAP CONTRACTS (1)(2)(3) (CONTINUED)
Description | Maturity Date | Fixed Deal (Pay) Rate | Implied Spread at December 31, | Notional Amount(4) | Fair Value | Upfront Premiums Paid (Received) | Unrealized Appreciation / (Depreciation) | |||||||||||||||||||||
Anadarko Petroleum Corp. 6.950%, 06/15/2019 (Buy Protection) | 12/20/2022 | (1.000 | %) | 1.002 | % | $ | (7,800,000 | ) | $ | 679 | $ | 264,033 | $ | (263,354 | ) | |||||||||||||
Apache Corp. 7.000%, 02/01/2018 (Buy Protection) | 12/20/2022 | (1.000 | %) | 0.878 | % | (7,650,000 | ) | (43,045 | ) | 76,328 | (119,373 | ) | ||||||||||||||||
Apache Corp. 3.250%, 04/15/2022 (Buy Protection) | 12/20/2022 | (1.000 | %) | 0.878 | % | (150,000 | ) | (844 | ) | (143 | ) | (701 | ) | |||||||||||||||
Arrow Electronics, Inc. 6.000%, 04/01/2020 (Buy Protection) | 12/20/2022 | (1.000 | %) | 0.492 | % | (5,300,000 | ) | (126,006 | ) | (104,026 | ) | (21,980 | ) | |||||||||||||||
AT&T, Inc. 2.450%, 06/30/2020 (Buy Protection) | 12/20/2022 | (1.000 | %) | 0.642 | % | (7,500,000 | ) | (124,638 | ) | (129,527 | ) | 4,889 | ||||||||||||||||
Autostrade per l’Italia SpA 5.875%, 06/09/2024 (Buy Protection) | 12/20/2022 | (1.000 | %) | 0.632 | % | EUR | (100,000 | ) | (2,168 | ) | (1,950 | ) | (218 | ) | ||||||||||||||
AutoZone, Inc. 7.125%, 08/01/2018 (Buy Protection) | 12/20/2022 | (1.000 | %) | 0.501 | % | $ | (7,600,000 | ) | (177,387 | ) | (67,248 | ) | (110,139 | ) | ||||||||||||||
Avis Budget Car Rental LLC / Avis Budget Finance, Inc. 5.250%, 03/15/2025 (Buy Protection) | 12/20/2022 | (5.000 | %) | 2.595 | % | (1,100,000 | ) | (113,668 | ) | (70,305 | ) | (43,363 | ) | |||||||||||||||
Avnet, Inc. 4.875%, 12/01/2022 (Buy Protection) | 12/20/2022 | (1.000 | %) | 0.755 | % | (1,900,000 | ) | (21,494 | ) | (20,525 | ) | (969 | ) | |||||||||||||||
Avon Products, Inc. 6.500%, 03/01/2019 (Buy Protection) | 12/20/2022 | (5.000 | %) | 9.850 | % | (8,850,000 | ) | 1,405,261 | 816,875 | 588,386 | ||||||||||||||||||
Barrick Gold Corp. 5.800%, 11/15/2034 (Buy Protection) | 12/20/2022 | (1.000 | %) | 0.599 | % | (9,250,000 | ) | (172,812 | ) | (140,940 | ) | (31,872 | ) | |||||||||||||||
Best Buy Co., Inc. 5.500%, 03/15/2021 (Buy Protection) | 12/20/2022 | (5.000 | %) | 0.880 | % | (1,850,000 | ) | (350,898 | ) | (336,235 | ) | (14,663 | ) | |||||||||||||||
Block Financial LLC 5.500%, 11/01/2022 (Buy Protection) | 12/20/2022 | (5.000 | %) | 0.701 | % | (5,550,000 | ) | (1,106,540 | ) | (1,112,529 | ) | 5,989 | ||||||||||||||||
BMW Finance N.V. 5.000%, 08/06/2018 (Buy Protection) | 12/20/2022 | (1.000 | %) | 0.349 | % | EUR | (6,250,000 | ) | (242,770 | ) | (208,236 | ) | (34,534 | ) | ||||||||||||||
Bombardier, Inc. | 12/20/2022 | (5.000 | %) | 3.562 | % | $ | (350,000) | (20,821 | ) | (26,551 | ) | 5,730 |
The accompanying notes are an integral part of these financial statements.
Schedule of Investments | 73 |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF SWAPS at December 31, 2017 (Continued)
CENTRALLY CLEARED CREDIT DEFAULT SWAP CONTRACTS (1)(2)(3) (CONTINUED)
Description | Maturity Date | Fixed Deal (Pay) Rate | Implied Spread at December 31, | Notional Amount(4) | Fair Value | Upfront Premiums Paid (Received) | Unrealized Appreciation / (Depreciation) | |||||||||||||||||||||
British Telecommunications Plc | 12/20/2022 | (1.000 | %) | 0.552 | % | EUR(9,450,000) | $ | (250,687 | ) | $ | (211,673 | ) | $ | (39,014 | ) | |||||||||||||
Cardinal Health, Inc. | 12/20/2022 | (1.000 | %) | 0.686 | % | $ | (7,450,000) | (108,359 | ) | (122,388 | ) | 14,029 | ||||||||||||||||
Carrefour S.A. | 12/20/2022 | (1.000 | %) | 0.532 | % | EUR | (9,400,000) | (260,481 | ) | (219,633 | ) | (40,848 | ) | |||||||||||||||
CBS Corp. | 12/20/2022 | (1.000 | %) | 0.751 | % | $ | (5,650,000) | (65,031 | ) | (70,225 | ) | 5,194 | ||||||||||||||||
CDX North America High Yield Index Series 29 | 12/20/2022 | (5.000 | %) | 3.069 | % | (131,600,000) | (10,899,548 | ) | (10,004,150 | ) | (895,398 | ) | ||||||||||||||||
Centrica Plc | 12/20/2022 | (1.000 | %) | 0.730 | % | EUR | (7,650,000) | (121,541 | ) | (131,763 | ) | 10,222 | ||||||||||||||||
Chesapeake Energy Corp. | 12/20/2022 | (5.000 | %) | 7.394 | % | $ | (1,300,000) | 111,368 | 130,000 | (18,632 | ) | |||||||||||||||||
Commerzbank AG | 12/20/2022 | (1.000 | %) | 0.550 | % | EUR | (1,850,000) | (50,805 | ) | (47,456 | ) | (3,349 | ) | |||||||||||||||
Darden Restaurants, Inc. | 12/20/2022 | (1.000 | %) | 0.328 | % | $ | (3,600,000) | (113,920 | ) | (85,731 | ) | (28,189 | ) | |||||||||||||||
Deutsche Lufthansa AG | 12/20/2022 | (1.000 | %) | 0.449 | % | EUR | (50,000) | (1,637 | ) | (1,420 | ) | (217 | ) | |||||||||||||||
Deutsche Telekom International Finance BV | 12/20/2022 | (1.000 | %) | 0.331 | % | (4,850,000) | (193,763 | ) | (193,454 | ) | (309 | ) | ||||||||||||||||
Devon Energy Corp. | 12/20/2022 | (1.000 | %) | 0.760 | % | $ | (7,700,000) | (85,575 | ) | 92,810 | (178,385 | ) | ||||||||||||||||
DISH DBS Corp. | 12/20/2022 | (5.000 | %) | 3.864 | % | (100,000) | (4,644 | ) | (6,526 | ) | 1,882 |
The accompanying notes are an integral part of these financial statements.
74 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF SWAPS at December 31, 2017 (Continued)
CENTRALLY CLEARED CREDIT DEFAULT SWAP CONTRACTS (1)(2)(3) (CONTINUED)
Description | Maturity Date | Fixed Deal (Pay) Rate | Implied Spread at December 31, | Notional Amount(4) | Fair Value | Upfront Premiums Paid (Received) | Unrealized Appreciation / (Depreciation) | |||||||||||||||||||||
Enbridge, Inc. | 12/20/2022 | (1.000 | %) | 0.892 | % | $ | (7,700,000) | $ | (38,106 | ) | $ | (60,173 | ) | $ | 22,067 | |||||||||||||
Encana Corp. | 12/20/2022 | (1.000 | %) | 0.719 | % | (7,600,000) | (99,030 | ) | 117,157 | (216,187 | ) | |||||||||||||||||
Enel SpA | 12/20/2022 | (1.000 | %) | 0.557 | % | EUR | (50,000) | (1,310 | ) | (1,219 | ) | (91 | ) | |||||||||||||||
Expedia, Inc. | 12/20/2022 | (1.000 | %) | 0.666 | % | $ | (7,750,000) | (120,088 | ) | (133,073 | ) | 12,985 | ||||||||||||||||
First Data Corp. | 12/20/2022 | (5.000 | %) | 1.504 | % | (6,150,000) | (964,959 | ) | (1,032,941 | ) | 67,982 | |||||||||||||||||
Gas Natural Capital Markets S.A. | 12/20/2022 | (1.000 | %) | 0.563 | % | EUR | (6,600,000) | (170,670 | ) | (149,530 | ) | (21,140 | ) | |||||||||||||||
General Electric Co. | 12/20/2022 | (1.000 | %) | 0.410 | % | $ | (7,450,000) | (206,124 | ) | (183,574 | ) | (22,550 | ) | |||||||||||||||
GKN Holdings Plc | 12/20/2022 | (1.000 | %) | 1.036 | % | EUR | (6,650,000) | 13,883 | (8,798 | ) | 22,681 | |||||||||||||||||
Halliburton Co. | 12/20/2022 | (1.000 | %) | 0.466 | % | $ | (1,950,000) | (48,738 | ) | (36,841 | ) | (11,897 | ) | |||||||||||||||
Hertz Corp. (The) | 12/20/2022 | (5.000 | %) | 7.229 | % | (3,350,000) | 268,798 | 430,305 | (161,507 | ) | ||||||||||||||||||
Host Hotels & Resorts L.P. | 12/20/2022 | (1.000 | %) | 0.360 | % | (1,800,000) | (54,161 | ) | (47,423 | ) | (6,738 | ) | ||||||||||||||||
Imperial Brands Finance Plc | 12/20/2022 | (1.000 | %) | 0.590 | % | EUR | (6,500,000) | (157,573 | ) | (122,350 | ) | (35,223 | ) | |||||||||||||||
Intesa Sanpaolo SpA | 12/20/2022 | (1.000 | %) | 0.620 | % | (3,750,000) | (83,997 | ) | (72,238 | ) | (11,759 | ) | ||||||||||||||||
ITV Plc | 12/20/2022 | (5.000 | %) | 1.115 | % | (5,650,000) | (1,268,692 | ) | (1,238,107 | ) | (30,585 | ) | ||||||||||||||||
JC Penney Corp, Inc. | 12/20/2022 | (5.000 | %) | 12.22 | % | $ | (4,100,000) | 892,258 | 533,000 | 359,258 |
The accompanying notes are an integral part of these financial statements.
Schedule of Investments | 75 |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF SWAPS at December 31, 2017 (Continued)
CENTRALLY CLEARED CREDIT DEFAULT SWAP CONTRACTS (1)(2)(3) (CONTINUED)
Description | Maturity Date | Fixed Deal (Pay) Rate | Implied Spread at December 31, | Notional Amount(4) | Fair Value | Upfront Premiums Paid (Received) | Unrealized Appreciation / (Depreciation) | |||||||||||||||||||||
Kinder Morgan, Inc. | 12/20/2022 | (1.000 | %) | 0.804 | % | $ | (3,650,000) | $ | (33,083 | ) | $ | (45,650 | ) | $ | 12,567 | |||||||||||||
Kroger Co. (The) | 12/20/2022 | (1.000 | %) | 0.816 | % | (7,900,000) | (67,104 | ) | 63,633 | (130,737 | ) | |||||||||||||||||
LafargeHolcim Ltd. | 12/20/2022 | (1.000 | %) | 0.670 | % | EUR | (1,900,000) | (36,875 | ) | (36,656 | ) | (219 | ) | |||||||||||||||
Leonardo SpA | 12/20/2022 | (5.000 | %) | 1.030 | % | (6,600,000) | (1,519,934 | ) | (1,533,715 | ) | 13,781 | |||||||||||||||||
Marks & Spencer Plc | 12/20/2022 | (1.000 | %) | 1.324 | % | (11,700,000) | 216,865 | 325,047 | (108,182 | ) | ||||||||||||||||||
MBIA, Inc. | 12/20/2022 | (5.000 | %) | 13.600 | % | $ | (2,650,000) | 655,606 | 223,625 | 431,981 | ||||||||||||||||||
McKesson Corp. | 12/20/2022 | (1.000 | %) | 0.579 | % | (7,700,000) | (151,026 | ) | (197,297 | ) | 46,271 | |||||||||||||||||
Metsa Board OYJ | 12/20/2022 | (5.000 | %) | 0.813 | % | EUR | (100,000) | (24,504 | ) | (24,615 | ) | 111 | ||||||||||||||||
MGM Resorts International | 12/20/2022 | (5.000 | %) | 1.221 | % | $ | (1,800,000) | (308,867 | ) | (330,096 | ) | 21,229 | ||||||||||||||||
Michelin Luxembourg SCS | 12/20/2022 | (1.000 | %) | 0.279 | % | EUR | (5,900,000) | �� | (254,729 | ) | (231,974 | ) | (22,755 | ) | ||||||||||||||
Nabors Industries, Inc. | 12/20/2022 | (1.000 | %) | 4.451 | % | $ | (400,000) | 55,179 | 52,769 | 2,410 | ||||||||||||||||||
Nabors Industries, Inc. | 12/20/2022 | (1.000 | %) | 4.451 | % | (8,750,000) | 1,207,031 | 1,295,604 | (88,573 | ) | ||||||||||||||||||
Navient Corp. | 12/20/2022 | (5.000 | %) | 2.810 | % | (7,200,000) | (671,785 | ) | (602,440 | ) | (69,345 | ) | ||||||||||||||||
Newell Brands, Inc. | 12/20/2022 | (1.000 | %) | 0.652 | % | (7,800,000) | (126,164 | ) | (148,162 | ) | 21,998 | |||||||||||||||||
Next Plc | 12/20/2022 | (1.000 | %) | 1.154 | % | EUR | (1,700,000) | 15,067 | 14,603 | 464 | ||||||||||||||||||
Nokia OYJ | 12/20/2022 | (5.000 | %) | 1.182 | % | $ | (5,550,000) | (1,221,461 | ) | (1,354,038 | ) | 132,577 |
The accompanying notes are an integral part of these financial statements.
76 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF SWAPS at December 31, 2017 (Continued)
CENTRALLY CLEARED CREDIT DEFAULT SWAP CONTRACTS (1)(2)(3) (CONTINUED)
Description | Maturity Date | Fixed Deal (Pay) Rate | Implied Spread at December 31, | Notional Amount(4) | Fair Value | Upfront Premiums Paid (Received) | Unrealized Appreciation / (Depreciation) | |||||||||||||||||||||
Omnicom Group, Inc. | 12/20/2022 | (1.000 | %) | 0.368 | % | $ | (11,000,000) | $ | (326,610 | ) | $ | (332,820 | ) | $ | 6,210 | |||||||||||||
Pearson Plc | 12/20/2022 | (1.000 | %) | 0.688 | % | EUR | (6,550,000) | (120,141 | ) | 44,933 | (165,074 | ) | ||||||||||||||||
Pernod Ricard S.A. | 12/20/2022 | (1.000 | %) | 0.310 | % | (1,500,000) | (61,854 | ) | (57,230 | ) | (4,624 | ) | ||||||||||||||||
Peugeot S.A. | 12/20/2022 | (5.000 | %) | 1.063 | % | (3,700,000) | (843,862 | ) | (859,645 | ) | 15,783 | |||||||||||||||||
PostNL N.V. | 12/20/2022 | (1.000 | %) | 0.392 | % | (6,550,000) | (237,394 | ) | (214,278 | ) | (23,116 | ) | ||||||||||||||||
Publicis Groupe S.A. | 12/20/2022 | (1.000 | %) | 0.542 | % | (7,650,000) | (207,297 | ) | (169,359 | ) | (37,938 | ) | ||||||||||||||||
Renault S.A. | 12/20/2022 | (1.000 | %) | 0.547 | % | (6,400,000) | (171,771 | ) | (85,429 | ) | (86,342 | ) | ||||||||||||||||
Repsol International Finance BV | 12/20/2022 | (1.000 | %) | 0.460 | % | (350,000) | (11,237 | ) | (9,548 | ) | (1,689 | ) | ||||||||||||||||
Rolls-Royce Plc | 12/20/2022 | (1.000 | %) | 0.707 | % | (3,850,000) | (66,276 | ) | (67,192 | ) | 916 | |||||||||||||||||
RR Donnelley & Sons Co. | 12/20/2022 | (5.000 | %) | 6.835 | % | $ | (450,000) | 30,177 | 30,645 | (468 | ) | |||||||||||||||||
RR Donnelley & Sons Co. | 12/20/2022 | (5.000 | %) | 6.835 | % | (7,700,000) | 516,358 | 273,110 | 243,248 | |||||||||||||||||||
Simon Property Group L.P. | 12/20/2022 | (1.000 | %) | 0.679 | % | (5,600,000) | (83,378 | ) | (64,405 | ) | (18,973 | ) | ||||||||||||||||
Societe Generale S.A. | 12/20/2022 | (1.000 | %) | 0.231 | % | EUR | (3,850,000) | (177,427 | ) | (173,600 | ) | (3,827 | ) | |||||||||||||||
Sprint Communications, Inc. | 12/20/2022 | (5.000 | %) | 3.494 | % | $ | (6,650,000 | ) | (415,194 | ) | (605,149 | ) | 189,955 | |||||||||||||||
Stora Enso OYJ 2.125%, 06/16/2023 (Buy Protection) | 12/20/2022 | (5.000 | %) | 0.666 | % | EUR | (50,000) | (12,762 | ) | (12,414 | ) | (348 | ) |
The accompanying notes are an integral part of these financial statements.
Schedule of Investments | 77 |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF SWAPS at December 31, 2017 (Continued)
CENTRALLY CLEARED CREDIT DEFAULT SWAP CONTRACTS (1)(2)(3) (CONTINUED)
Description | Maturity Date | Fixed Deal (Pay) Rate | Implied Spread at December 31, | Notional Amount(4) | Fair Value | Upfront Premiums Paid (Received) | Unrealized Appreciation / (Depreciation) | |||||||||||||||||||||
Sudzucker International Finance BV 1.250%, 11/29/2023 (Buy Protection) | 12/20/2022 | (1.000 | %) | 0.528 | % | EUR | (9,300,000 | ) | $ | (260,056 | ) | $ | (214,863 | ) | $ | (45,193 | ) | |||||||||||
Target Corp. 3.875%, 07/15/2020 (Buy Protection) | 12/20/2022 | (1.000 | %) | 0.498 | % | $ | (7,850,000) | (184,161 | ) | (147,446 | ) | (36,715 | ) | |||||||||||||||
TEGNA, Inc. 4.875%, 09/15/2021 (Buy Protection) | 12/20/2022 | (5.000 | %) | 1.695 | % | (6,800,000 | ) | (1,001,048 | ) | (1,049,671 | ) | 48,623 | ||||||||||||||||
Telecom Italia SpA 5.375%, 01/29/2019 (Buy Protection) | 12/20/2022 | (1.000 | %) | 1.275 | % | EUR | (3,800,000) | 60,043 | 47,916 | 12,127 | ||||||||||||||||||
Telefonica Emisiones SAU 2.736%, 05/29/2019 (Buy Protection) | 12/20/2022 | (1.000 | %) | 0.747 | % | (3,800,000 | ) | (56,431 | ) | (47,628 | ) | (8,803 | ) | |||||||||||||||
Tenet Healthcare Corp. 6.875%, 11/15/2031 (Buy Protection) | 12/20/2022 | (5.000 | %) | 5.837 | % | $ | (8,100,000) | 257,299 | 238,050 | 19,249 | ||||||||||||||||||
Tesco Plc 6.000%, 12/14/2029 (Buy Protection) | 12/20/2022 | (1.000 | %) | 0.957 | % | EUR | (100,000) | (253 | ) | 1,357 | (1,610 | ) | ||||||||||||||||
thyssenkrupp AG 4.000%, 08/27/2018 (Buy Protection) | 12/20/2022 | (1.000 | %) | 1.022 | % | (6,750,000 | ) | 8,717 | (20,391 | ) | 29,108 | |||||||||||||||||
Transocean, Inc. 5.800%, 10/15/2022 (Buy Protection) | 12/20/2022 | (1.000 | %) | 4.043 | % | $ | (2,450,000) | 302,810 | 322,200 | (19,390 | ) | |||||||||||||||||
United Rentals North America, Inc. 5.750%, 11/15/2024 (Buy Protection) | 12/20/2022 | (5.000 | %) | 0.917 | % | (1,950,000 | ) | (365,956 | ) | (375,043 | ) | 9,087 | ||||||||||||||||
United Utilities Plc 6.875%, 08/15/2028 (Buy Protection) | 12/20/2022 | (1.000 | %) | 0.648 | % | EUR | (7,600,000) | (157,725 | ) | (148,514 | ) | (9,211 | ) | |||||||||||||||
Uniti Group L.P. / Uniti Group Finance, Inc. / CSL Capital LLC 8.250%, 10/15/2023 (Buy Protection) | 12/20/2022 | (5.000 | %) | 6.568 | % | $ | (5,550,000) | 321,055 | 556,835 | (235,780 | ) | |||||||||||||||||
Universal Health Services, Inc. 3.750%, 08/01/2019 (Buy Protection) | 12/20/2022 | (1.000 | %) | 0.627 | % | (7,850,000 | ) | (136,234 | ) | (23,006 | ) | (113,228 | ) | |||||||||||||||
Valeo S.A. 3.250%, 01/22/2024 (Buy Protection) | 12/20/2022 | (1.000 | %) | 0.428 | % | EUR | (1,850,000) | (62,903 | ) | (58,556 | ) | (4,347 | ) |
The accompanying notes are an integral part of these financial statements.
78 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF SWAPS at December 31, 2017 (Continued)
|
|
CENTRALLY CLEARED CREDIT DEFAULT SWAP CONTRACTS (1)(2)(3) (CONTINUED)
Description | Maturity Date | Fixed Deal (Pay) Rate | Implied Spread at December 31, | Notional Amount(4) | Fair Value | Upfront Premiums Paid (Received) | Unrealized Appreciation / (Depreciation) | |||||||||||||||||||||
Viacom, Inc. 6.875%, 04/30/2036 (Buy Protection) | 12/20/2022 | (1.000 | %) | 1.568 | % | $ | (8,150,000) | $ | 207,422 | $ | 235,442 | $ | (28,020 | ) | ||||||||||||||
Volkswagen International Finance N.V. 5.375%, 05/22/2018 (Buy Protection) | 12/20/2022 | (1.000 | %) | 0.516 | % | EUR | (150,000 | ) | (4,304 | ) | (3,511 | ) | (793 | ) | ||||||||||||||
Weatherford International Ltd. 4.500%, 04/15/2022 (Buy Protection) | 12/20/2022 | (1.000 | %) | 6.684 | % | $ | (2,700,000) | 563,728 | 592,312 | (28,584 | ) | |||||||||||||||||
Wendel S.A. 3.750%, 01/21/2021 (Buy Protection) | 12/20/2022 | (5.000 | %) | 0.676 | % | EUR | (100,000) | (25,450 | ) | (25,243 | ) | (207 | ) | |||||||||||||||
Whirlpool Corp. 4.850%, 06/15/2021 (Buy Protection) | 12/20/2022 | (1.000 | %) | 0.551 | % | $ | (7,750,000) | (162,348 | ) | (131,828 | ) | (30,520 | ) | |||||||||||||||
WPP Finance S.A. 6.375%, 11/06/2020 (Buy Protection) | 12/20/2022 | (1.000 | %) | 0.630 | % | EUR | (7,550,000) | (164,745 | ) | (154,962 | ) | (9,783 | ) | |||||||||||||||
XLIT Ltd. 6.250%, 05/15/2027 (Buy Protection) | 12/20/2022 | (1.000 | %) | 0.453 | % | $ | (5,800,000) | (148,504 | ) | (149,439 | ) | 935 | ||||||||||||||||
|
| |||||||||||||||||||||||||||
Total Buy Protection | $ | (23,196,423 | ) | $ | (21,733,913 | ) | $ | (1,462,510 | ) | |||||||||||||||||||
|
| |||||||||||||||||||||||||||
21st Century Fox America, Inc. 3.700%, 09/15/2024 (Sell Protection) | 12/20/2022 | 1.000 | % | 0.281 | % | 5,600,000 | 189,989 | 124,019 | 65,970 | |||||||||||||||||||
Accor S.A 2.625%, 02/05/2021 (Sell Protection) | 12/20/2022 | �� | 1.000 | % | 0.600 | % | EUR | 3,800,000 | 89,781 | 87,255 | 2,526 | |||||||||||||||||
Advanced Micro Devices, Inc. 7.500%, 08/15/2022 (Sell Protection) | 12/20/2022 | 5.000 | % | 2.093 | % | $ | 6,650,000 | 847,401 | 982,543 | (135,142 | ) | |||||||||||||||||
Aegon N.V. 6.125%, 12/15/2031 (Sell Protection) | 12/20/2022 | 1.000 | % | 0.527 | % | EUR | 6,500,000 | 181,933 | 111,848 | 70,085 | ||||||||||||||||||
AES Corp. 4.316%, 06/01/2019 (Sell Protection) | 12/20/2022 | 5.000 | % | 1.356 | % | $ | 6,500,000 | 1,069,635 | 968,740 | 100,895 | ||||||||||||||||||
AES Corp. 4.875%, 05/15/2023 (Sell Protection) | 12/20/2022 | 5.000 | % | 1.356 | % | 300,000 | 49,367 | 47,666 | 1,701 | |||||||||||||||||||
AK Steel Corp. 7.000%, 03/15/2027 (Sell Protection) | 12/20/2022 | 5.000 | % | 3.350 | % | 250,000 | 17,202 | 11,137 | 6,065 | |||||||||||||||||||
American International Group, Inc. 6.250%, 05/01/2036 (Sell Protection) | 12/20/2022 | 1.000 | % | 0.551 | % | 11,050,000 | 231,472 | 210,961 | 20,511 |
The accompanying notes are an integral part of these financial statements.
Schedule of Investments | 79 |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF SWAPS at December 31, 2017 (Continued)
CENTRALLY CLEARED CREDIT DEFAULT SWAP CONTRACTS (1)(2)(3) (CONTINUED)
Description | Maturity Date | Fixed Deal (Pay) Rate | Implied Spread at December 31, | Notional Amount(4) | Fair Value | Upfront Premiums Paid (Received) | Unrealized Appreciation / (Depreciation) | |||||||||||||||||||||
Anadarko Petroleum Corp. 6.950%, 06/15/2019 (Sell Protection) | 12/20/2022 | 1.000 | % | 1.002 | % | $ | 1,800,000 | $ | (157 | ) | $ | 2,126 | $ | (2,283 | ) | |||||||||||||
Anglo American Capital Plc 4.450%, 09/27/2020 (Sell Protection) | 12/20/2022 | 5.000 | % | 1.149 | % | EUR | 8,100,000 | 1,800,540 | 1,858,504 | (57,964 | ) | |||||||||||||||||
Arconic, Inc. 5.720%, 02/23/2019 (Sell Protection) | 12/20/2022 | 1.000 | % | 1.150 | % | $ | 7,950,000 | (54,474 | ) | (113,001 | ) | 58,527 | ||||||||||||||||
Assicurazioni Generali SpA 2.875%, 01/14/2020 (Sell Protection) | 12/20/2022 | 1.000 | % | 0.644 | % | EUR | 6,500,000 | 136,456 | 61,554 | 74,902 | ||||||||||||||||||
Autostrade per l’Italia SpA 5.875%, 06/09/2024 (Sell Protection) | 12/20/2022 | 1.000 | % | 0.632 | % | 6,650,000 | 144,182 | 131,579 | 12,603 | |||||||||||||||||||
AutoZone, Inc. 2.500%, 04/15/2021 (Sell Protection) | 12/20/2022 | 1.000 | % | 0.501 | % | $ | 4,750,000 | 110,866 | 90,182 | 20,684 | ||||||||||||||||||
Avis Budget Car Rental LLC / Avis Budget Finance, Inc. 5.250%, 03/15/2025 (Sell Protection) | 12/20/2022 | 5.000 | % | 2.595 | % | 3,800,000 | 392,671 | 358,667 | 34,004 | |||||||||||||||||||
Avon Products, Inc. 6.500%, 03/01/2019 (Sell Protection) | 12/20/2022 | 5.000 | % | 9.850 | % | 1,250,000 | (198,483 | ) | (221,250 | ) | 22,767 | |||||||||||||||||
Beazer Homes USA, Inc. 6.750%, 03/15/2025 (Sell Protection) | 12/20/2022 | 5.000 | % | 2.202 | % | 7,000,000 | 854,853 | 812,935 | 41,918 | |||||||||||||||||||
Berkshire Hathaway, Inc. 1.550%, 02/09/2018 (Sell Protection) | 12/20/2022 | 1.000 | % | 0.520 | % | 7,500,000 | 168,105 | 145,096 | 23,009 | |||||||||||||||||||
Berkshire Hathaway, Inc. 2.750%, 03/15/2023 (Sell Protection) | 12/20/2022 | 1.000 | % | 0.520 | % | 200,000 | 4,483 | 4,319 | 164 | |||||||||||||||||||
Best Buy Co., Inc. 5.500%, 03/15/2021 (Sell Protection) | 12/20/2022 | 5.000 | % | 0.880 | % | 6,400,000 | 1,213,921 | 1,217,729 | (3,808 | ) | ||||||||||||||||||
Block Financial LLC 5.500%, 11/01/2022 | 12/20/2022 | 5.000 | % | 0.701 | % | 1,700,000 | 338,940 | 336,998 | 1,942 | |||||||||||||||||||
Bombardier, Inc. 7.450%, 05/01/2034 | 12/20/2022 | 5.000 | % | 3.562 | % | 7,750,000 | 461,036 | 606,657 | (145,621 | ) | ||||||||||||||||||
British Telecommunications Plc 5.750%, 12/07/2028 (Sell Protection) | 12/20/2022 | 1.000 | % | 0.552 | % | EUR | 100,000 | 2,653 | 2,538 | 115 |
The accompanying notes are an integral part of these financial statements.
80 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF SWAPS at December 31, 2017 (Continued)
CENTRALLY CLEARED CREDIT DEFAULT SWAP CONTRACTS (1)(2)(3) (CONTINUED)
Description | Maturity Date | Fixed Deal (Pay) Rate | Implied Spread at December 31, | Notional Amount(4) | Fair Value | Upfront Premiums Paid (Received) | Unrealized Appreciation / (Depreciation) | |||||||||||||||||||||
Canadian Natural Resources Ltd. 3.450%, 11/15/2021 | 12/20/2022 | 1.000 | % | 0.730 | % | $ | 7,800,000 | $ | 97,569 | $ | 76,066 | $ | 21,503 | |||||||||||||||
Centrica Plc 7.000%, 09/19/2018 | 12/20/2022 | 1.000 | % | 0.730 | % | EUR | 100,000 | 1,588 | 1,660 | (72 | ) | |||||||||||||||||
Commerzbank AG 4.000%, 09/16/2020 | 12/20/2022 | 1.000 | % | 0.550 | % | 4,100,000 | 112,593 | 74,117 | 38,476 | |||||||||||||||||||
Deutsche Bank AG 0.171%, 04/11/2018 | 12/20/2022 | 1.000 | % | 0.732 | % | 1,850,000 | 29,146 | 26,012 | 3,134 | |||||||||||||||||||
Deutsche Lufthansa AG 1.125%, 09/12/2019 | 12/20/2022 | 1.000 | % | 0.449 | % | 7,600,000 | 248,762 | 145,477 | 103,285 | |||||||||||||||||||
Devon Energy Corp. 7.950%, 04/15/2032 | 12/20/2022 | 1.000 | % | 0.760 | % | $ | 3,350,000 | 37,231 | 32,595 | 4,636 | ||||||||||||||||||
Diamond Offshore Drilling, Inc. 3.450%, 11/01/2023 (Sell Protection) | 12/20/2022 | 1.000 | % | 2.401 | % | 8,400,000 | (509,736 | ) | (730,321 | ) | 220,585 | |||||||||||||||||
DISH DBS Corp. 6.750%, 06/01/2021 | 12/20/2022 | 5.000 | % | 3.864 | % | 7,450,000 | 345,951 | 775,595 | (429,644 | ) | ||||||||||||||||||
DR Horton, Inc. 3.625%, 02/15/2018 | 12/20/2022 | 1.000 | % | 0.364 | % | 7,500,000 | 224,272 | 148,740 | 75,532 | |||||||||||||||||||
Electricite de France S.A. 5.625%, 02/21/2033 | 12/20/2022 | 1.000 | % | 0.587 | % | EUR | 9,400,000 | 229,611 | 262,183 | (32,572 | ) | |||||||||||||||||
Enbridge, Inc. 3.500%, 06/10/2024 | 12/20/2022 | 1.000 | % | 0.892 | % | $ | 1,850,000 | 9,155 | 8,991 | 164 | ||||||||||||||||||
Encana Corp. 6.500%, 05/15/2019 | 12/20/2022 | 1.000 | % | 0.719 | % | 4,350,000 | 56,683 | 36,333 | 20,350 | |||||||||||||||||||
Enel SpA 4.750%, 06/12/2018 (Sell Protection) | 12/20/2022 | 1.000 | % | 0.557 | % | EUR | 6,600,000 | 172,912 | 119,238 | 53,674 | ||||||||||||||||||
Fiat Chrysler Automobiles N.V. 4.500%, 04/15/2020 (Sell Protection) | 12/20/2022 | 5.000 | % | 1.604 | % | 5,750,000 | 1,106,279 | 1,021,170 | 85,109 | |||||||||||||||||||
FirstEnergy Corp. 7.375%, 11/15/2031 (Sell Protection) | 12/20/2022 | 1.000 | % | 0.749 | % | $ | 7,800,000 | 90,583 | 71,036 | 19,547 | ||||||||||||||||||
Ford Motor Co. 4.346%, 12/08/2026 (Sell Protection) | 12/20/2022 | 5.000 | % | 0.800 | % | 9,450,000 | 1,832,906 | 1,854,966 | (22,060 | ) |
The accompanying notes are an integral part of these financial statements.
Schedule of Investments | 81 |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF SWAPS at December 31, 2017 (Continued)
CENTRALLY CLEARED CREDIT DEFAULT SWAP CONTRACTS (1)(2)(3) (CONTINUED)
Description | Maturity Date | Fixed Deal (Pay) Rate | Implied Spread at December 31, | Notional Amount(4) | Fair Value | Upfront Premiums Paid (Received) | Unrealized Appreciation / (Depreciation) | |||||||||||||||||||||
Freeport-McMoRan, Inc. 3.550%, 03/01/2022 (Sell Protection) | 12/20/2022 | 1.000 | % | 1.586 | % | $ | 11,500,000 | $ | (301,598 | ) | $ | (586,274 | ) | $ | 284,676 | |||||||||||||
Gap. Inc. (The) 5.950%, 04/12/2021 (Sell Protection) | 12/20/2022 | 1.000 | % | 1.063 | % | 7,950,000 | (23,057 | ) | (256,146 | ) | 233,089 | |||||||||||||||||
General Motors Co. 3.500%, 10/02/2018 (Sell Protection) | 12/20/2022 | 5.000 | % | 0.844 | % | 6,500,000 | 1,245,245 | 1,197,706 | 47,539 | |||||||||||||||||||
Glencore Finance Europe Ltd. 6.500%, 02/27/2019 (Sell Protection) | 12/20/2022 | 5.000 | % | 1.261 | % | EUR | 6,650,000 | 1,428,734 | 1,508,813 | (80,079 | ) | |||||||||||||||||
Goldman Sachs Group, Inc. (The) 5.950%, 01/18/2018 (Sell Protection) | 12/20/2022 | 1.000 | % | 0.517 | % | $ | 7,650,000 | 172,699 | 131,807 | 40,892 | ||||||||||||||||||
Hertz Corp. (The) 5.875%, 10/15/2020 (Sell Protection) | 12/20/2022 | 5.000 | % | 7.229 | % | 7,050,000 | (565,680 | ) | (599,813 | ) | 34,133 | |||||||||||||||||
International Lease Finance Corp. 8.250%, 12/15/2020 (Sell Protection) | 12/20/2022 | 5.000 | % | 0.735 | % | 9,350,000 | 1,846,636 | 1,836,171 | 10,465 | |||||||||||||||||||
Intesa Sanpaolo SpA 4.375%, 02/12/2020 (Sell Protection) | 12/20/2022 | 1.000 | % | 0.620 | % | EUR | 6,400,000 | 143,356 | 66,559 | 76,797 | ||||||||||||||||||
ITV Plc 2.125%, 09/21/2022 (Sell Protection) | 12/20/2022 | 5.000 | % | 1.115 | % | 100,000 | 22,454 | 22,422 | 32 | |||||||||||||||||||
JC Penney Corp, Inc. 6.375%, 10/15/2036 (Sell Protection) | 12/20/2022 | 5.000 | % | 12.220 | % | $ | 2,150,000 | (467,891 | ) | (489,250 | ) | 21,359 | ||||||||||||||||
KB Home 7.000%, 12/15/2021 (Sell Protection) | 12/20/2022 | 5.000 | % | 1.291 | % | 9,600,000 | 1,612,048 | 1,506,697 | 105,351 | |||||||||||||||||||
Kohl’s Corp. 4.000%, 11/01/2021 (Sell Protection) | 12/20/2022 | 1.000 | % | 1.568 | % | 8,150,000 | (174,096 | ) | (298,168 | ) | 124,072 | |||||||||||||||||
L Brands, Inc. 8.500%, 06/15/2019 (Sell Protection) | 12/20/2022 | 1.000 | % | 1.628 | % | 8,050,000 | (225,745 | ) | (246,955 | ) | 21,210 | |||||||||||||||||
Ladbrokes Group Finance Plc 5.125%, 09/16/2022 (Sell Protection) | 12/20/2022 | 1.000 | % | 1.127 | % | EUR | 3,800,000 | (27,834 | ) | (246,390 | ) | 218,556 | ||||||||||||||||
Lennar Corp. 4.750%, 04/01/2021 (Sell Protection) | 12/20/2022 | 5.000 | % | 0.818 | % | $ | 9,500,000 | 1,833,377 | 1,802,041 | 31,336 |
The accompanying notes are an integral part of these financial statements.
82 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF SWAPS at December 31, 2017 (Continued)
CENTRALLY CLEARED CREDIT DEFAULT SWAP CONTRACTS (1)(2)(3) (CONTINUED)
Description | Maturity Date | Fixed Deal (Pay) Rate | Implied Spread at December 31, | Notional Amount(4) | Fair Value | Upfront Premiums Paid (Received) | Unrealized Appreciation / (Depreciation) | |||||||||||||||||||||
Lincoln National Corp. | 12/20/2022 | 1.000 | % | 0.560 | % | $ | 11,100,000 | $ | 227,882 | $ | 214,309 | $ | 13,573 | |||||||||||||||
Macy’s Retail Holdings, Inc. | 12/20/2022 | 1.000 | % | 2.671 | % | 5,900,000 | (422,528 | ) | (416,589 | ) | (5,939 | ) | ||||||||||||||||
Marks & Spencer Plc | 12/20/2022 | 1.000 | % | 1.324 | % | EUR | 2,000,000 | (37,071 | ) | (30,566 | ) | (6,505 | ) | |||||||||||||||
MBIA, Inc. | 12/20/2022 | 5.000 | % | 13.600 | % | $ | 6,900,000 | (1,707,050 | ) | 586,709 | (2,293,759 | ) | ||||||||||||||||
Meritor, Inc. | 12/20/2022 | 5.000 | % | 1.188 | % | 6,650,000 | 1,152,438 | 1,186,156 | (33,718 | ) | ||||||||||||||||||
Metsa Board OYJ | 12/20/2022 | 5.000 | % | 0.813 | % | EUR | 5,550,000 | 1,359,991 | 1,343,729 | 16,262 | ||||||||||||||||||
MGM Resorts International | 12/20/2022 | 5.000 | % | 1.221 | % | $ | 6,400,000 | 1,098,194 | 1,156,039 | (57,845 | ) | |||||||||||||||||
Motorola Solutions, Inc. | 12/20/2022 | 1.000 | % | 0.571 | % | 7,750,000 | 155,112 | 97,427 | 57,685 | |||||||||||||||||||
Navient Corp. | 12/20/2022 | 5.000 | % | 2.810 | % | 100,000 | 9,330 | 10,986 | (1,656 | ) | ||||||||||||||||||
Next PLC | 12/20/2022 | 1.000 | % | 1.154 | % | EUR | 6,600,000 | (58,495 | ) | (147,768 | ) | 89,273 | ||||||||||||||||
NRG Energy, Inc. | 12/20/2022 | 5.000 | % | 1.914 | % | $ | 6,800,000 | 926,416 | 806,572 | 119,844 | ||||||||||||||||||
Pernod Ricard S.A. | 12/20/2022 | 1.000 | % | 0.310 | % | EUR | 6,350,000 | 261,852 | 212,218 | 49,634 | ||||||||||||||||||
Peugeot S.A. | 12/20/2022 | 5.000 | % | 1.063 | % | 5,350,000 | 1,220,179 | 1,232,166 | (11,987 | ) | ||||||||||||||||||
PostNL N.V. | 12/20/2022 | 1.000 | % | 0.392 | % | 50,000 | 1,812 | 1,753 | 59 | |||||||||||||||||||
Publicis Groupe S.A. | 12/20/2022 | 1.000 | % | 0.542 | % | 100,000 | 2,710 | 2,478 | 232 | |||||||||||||||||||
PulteGroup, Inc. | 12/20/2022 | 5.000 | % | 0.800 | % | $ | 6,550,000 | 1,270,370 | 1,263,600 | 6,770 |
The accompanying notes are an integral part of these financial statements.
Schedule of Investments | 83 |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF SWAPS at December 31, 2017 (Continued)
CENTRALLY CLEARED CREDIT DEFAULT SWAP CONTRACTS (1)(2)(3) (CONTINUED)
Description | Maturity Date | Fixed Deal (Pay) Rate | Implied Spread at December 31, | Notional Amount(4) | Fair Value | Upfront Premiums Paid (Received) | Unrealized Appreciation / (Depreciation) | |||||||||||||||||||||
Repsol International Finance BV | 12/20/2022 | 1.000 | % | 0.460 | % | EUR | 6,500,000 | $ | 208,682 | $ | 112,627 | $ | 96,055 | |||||||||||||||
Royal Caribbean Cruises Ltd. | 12/20/2022 | 5.000 | % | 0.486 | % | $ | 9,400,000 | 1,992,857 | 2,057,749 | (64,892 | ) | |||||||||||||||||
RR Donnelley & Sons Co. 7.875%, 03/15/2021 (Sell Protection) | 12/20/2022 | 5.000 | % | 6.835 | % | 1,100,000 | (73,766 | ) | (42,625 | ) | (31,141 | ) | ||||||||||||||||
Schaeffler Finance BV 2.500%, 05/15/2020 (Sell Protection) | 12/20/2022 | 5.000 | % | 0.723 | % | EUR | 2,250,000 | 565,320 | 562,507 | 2,813 | ||||||||||||||||||
Sherwin-Williams Co. (The) | 12/20/2022 | 1.000 | % | 0.596 | % | $ | 11,100,000 | 208,798 | 210,373 | (1,575 | ) | |||||||||||||||||
Stora Enso OYJ 2.125%, 06/16/2023 (Sell Protection) | 12/20/2022 | 5.000 | % | 0.666 | % | EUR | 5,550,000 | 1,416,566 | 1,400,854 | 15,712 | ||||||||||||||||||
TEGNA, Inc. 4.875%, 09/15/2021 (Sell Protection) | 12/20/2022 | 5.000 | % | 1.695 | % | $ | 4,750,000 | 699,262 | 708,233 | (8,971 | ) | |||||||||||||||||
Telecom Italia SpA | 12/20/2022 | 1.000 | % | 1.275 | % | EUR | 6,600,000 | (104,285 | ) | (159,165 | ) | 54,880 | ||||||||||||||||
Telefonaktiebolaget LM Ericsson | 12/20/2022 | 1.000 | % | 1.421 | % | 1,850,000 | (44,447 | ) | (56,815 | ) | 12,368 | |||||||||||||||||
Tenet Healthcare Corp. | 12/20/2022 | 5.000 | % | 5.837 | % | $ | 1,200,000 | (38,118 | ) | (70,525 | ) | 32,407 | ||||||||||||||||
Tesco Plc | 12/20/2022 | 1.000 | % | 0.957 | % | EUR | 7,800,000 | 19,717 | (215,392 | ) | 235,109 | |||||||||||||||||
thyssenkrupp AG | 12/20/2022 | 1.000 | % | 1.022 | % | 100,000 | (129 | ) | 175 | (304 | ) | |||||||||||||||||
thyssenkrupp AG | 12/20/2022 | 5.000 | % | 1.022 | % | 1,900,000 | (2,454 | ) | 1,111 | (3,565 | ) | |||||||||||||||||
Toll Brothers Finance Corp. | 12/20/2022 | 1.000 | % | 0.767 | % | $ | 11,200,000 | 120,552 | 110,027 | 10,525 | ||||||||||||||||||
Transocean, Inc. | 12/20/2022 | 1.000 | % | 4.043 | % | 6,700,000 | (828,093 | ) | (827,875 | ) | (218 | ) |
The accompanying notes are an integral part of these financial statements.
84 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF SWAPS at December 31, 2017 (Continued)
CENTRALLY CLEARED CREDIT DEFAULT SWAP CONTRACTS (1)(2)(3) (CONTINUED)
Description | Maturity Date | Fixed Deal (Pay) Rate | Implied Spread at December 31, | Notional Amount(4) | Fair Value | Upfront Premiums Paid (Received) | Unrealized Appreciation / (Depreciation) | |||||||||||||||||||||
United Rentals North America, Inc. | 12/20/2022 | 5.000 | % | 0.917 | % | $ | 2,100,000 | $ | 394,106 | $ | 399,863 | $ | (5,757 | ) | ||||||||||||||
United Rentals North America, Inc. | 12/20/2022 | 5.000 | % | 0.917 | % | 6,450,000 | 1,210,467 | 1,058,723 | 151,744 | |||||||||||||||||||
United States Steel Corp. | 12/20/2022 | 5.000 | % | 2.451 | % | 7,150,000 | 787,676 | 490,708 | 296,968 | |||||||||||||||||||
United Utilities Plc | 12/20/2022 | 1.000 | % | 0.648 | % | EUR | 50,000 | 1,038 | 1,041 | (3 | ) | |||||||||||||||||
Uniti Group L.P. / Uniti Group Finance, Inc. / CSL Capital LLC | 12/20/2022 | 5.000 | % | 6.568 | % | $ | 1,000,000 | (57,848 | ) | (60,000 | ) | 2,152 | ||||||||||||||||
Verizon Communications, Inc. | 12/20/2022 | 1.000 | % | 0.617 | % | 7,550,000 | 134,489 | 130,440 | 4,049 | |||||||||||||||||||
Vivendi S.A. | 12/20/2022 | 1.000 | % | 0.520 | % | EUR | 9,400,000 | 267,371 | 230,079 | 37,292 | ||||||||||||||||||
Volkswagen International Finance N.V. | 12/20/2022 | 1.000 | % | 0.516 | % | $ | 7,650,000 | 219,547 | 146,221 | 73,326 | ||||||||||||||||||
Weatherford International Ltd. | 12/20/2022 | 1.000 | % | 6.684 | % | 7,750,000 | (1,618,110 | ) | (1,519,875 | ) | (98,235 | ) | ||||||||||||||||
Wendel SA | 12/20/2022 | 5.000 | % | 0.676 | % | EUR | 6,550,000 | 1,667,002 | 1,680,252 | (13,250 | ) | |||||||||||||||||
Xerox Corp. | 12/20/2022 | 1.000 | % | 1.869 | % | $ | 8,200,000 | (315,176 | ) | (309,650 | ) | (5,526 | ) | |||||||||||||||
Yum! Brands, Inc. | 12/20/2022 | 1.000 | % | 0.605 | % | 7,600,000 | 139,825 | 93,682 | 46,143 | |||||||||||||||||||
|
| |||||||||||||||||||||||||||
Total Sell Protection | $ | 31,088,516 | $ | 30,763,842 | $ | 324,674 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Total | $ | 7,892,093 | $ | 9,029,929 | $ | (1,137,836 | ) | |||||||||||||||||||||
|
|
(1) | For centrally cleared swaps, when a credit event occurs as defined under the terms of the swap contract, the Fund as a seller of credit protection will either (i) pay a net amount equal to the par value of the defaulted reference entity and deliver the reference entity or (ii) pay a net amount equal to the par value of the defaulted reference entity less its recovery value. |
The accompanying notes are an integral part of these financial statements.
Schedule of Investments | 85 |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF SWAPS at December 31, 2017 (Continued)
CENTRALLY CLEARED CREDIT DEFAULT SWAP CONTRACTS (1)(2)(3) (CONTINUED)
(2) | For centrally cleared swaps, implied credit spread, represented in absolute terms, utilized in determining the fair value of the credit default swap contracts as of period will serve as an indicator of the payment/ performance risk and represent the likelihood of risk of default for the credit derivative. The implied credit spread of a referenced entity reflects the cost of buying/ selling protection and may include upfront payments required to be made to enter into the contract. Generally, wider credit spreads represent a perceived deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the swap contract. |
(3) | For centrally cleared swaps, the notional amount represents the maximum potential the Fund may receive as a buyer of credit protection if a credit event occurs, as defined under the terms of the swap contract, for each security included in the CDX North America High Yield Index Series 28 and CDX North America High Yield Index Series 29. |
(4) | Notional amounts are denominated in foreign currency. |
OVER THE COUNTER CREDIT DEFAULT SWAP CONTRACTS
Description | Maturity Date | Counterparty | Fixed Deal (Pay) Rate | Implied Spread at December 31, | Notional Amount(1) | Fair Value | Upfront Premiums Paid (Received) | Unrealized Appreciation / (Depreciation) | ||||||||||||||||||||||
CDX Emerging Markets Index Series 28 | 12/20/2022 | Bank of America N.A. | (1.000 | %) | 1.196 | % | $ | (4,195,250 | ) | $ | 37,730 | $ | 184,591 | $ | (146,861 | ) | ||||||||||||||
Turkey Government International Bond | 12/20/2022 | Bank of America N.A. | (1.000 | %) | 1.639 | % | (1,700,000 | ) | 49,988 | 84,170 | (34,182 | ) | ||||||||||||||||||
Enel SpA | 12/20/2022 | Barclays Bank Plc | (1.000 | %) | 0.561 | % | EUR | (2,350,000 | ) | (61,567 | ) | (41,641 | ) | (19,926 | ) | |||||||||||||||
Altice Finco S.A. | 12/20/2022 | JP Morgan Chase Bank N.A. | (5.000 | %) | 4.362 | % | $(6,150,000 | ) | (199,188 | ) | (764,483 | ) | 565,295 | |||||||||||||||||
iTraxx Asia ex-Japan Investment Grade Index Series 28 | 12/20/2022 | Morgan Stanley Capital Services, Inc. | (1.000 | %) | 0.671 | % | (1,635,000 | ) | (24,944 | ) | (16,397 | ) | (8,547 | ) | ||||||||||||||||
Mexico Government International Bond | 12/20/2022 | Morgan Stanley Capital Services, Inc. | (1.000 | %) | 1.059 | % | (3,400,000 | ) | 9,426 | 9,496 | (70 | ) | ||||||||||||||||||
Turkey Government International Bond | 12/20/2022 | Morgan Stanley Capital Services, Inc. | (1.000 | %) | 1.639 | % | (1,675,000 | ) | 49,254 | 63,749 | (14,495 | ) | ||||||||||||||||||
|
| |||||||||||||||||||||||||||||
Total Buy Protection | $ | (139,301 | ) | $ | (480,515 | ) | $ | 341,214 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
Mediobanca SpA | 12/20/2022 | JP Morgan Chase Bank N.A. | 1.000 | % | 0.726 | % | EUR | 6,600,000 | 106,442 | (1,863 | ) | 108,305 | ||||||||||||||||||
Premier Foods Finance Plc | 12/20/2022 | JP Morgan Chase Bank N.A. | 5.000 | % | 3.124 | % | 5,400,000 | 539,798 | 384,527 | 155,271 |
The accompanying notes are an integral part of these financial statements.
86 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF SWAPS at December 31, 2017 (Continued)
OVER THE COUNTER CREDIT DEFAULT SWAP CONTRACTS (CONTINUED)
Description | Maturity Date | Counterparty | Fixed Deal (Pay) Rate | Implied Spread at December 31, | Notional Amount(1) | Fair Value | Upfront Premiums Paid (Received) | Unrealized Appreciation / (Depreciation) | ||||||||||||||||||||||
Prudential Plc | 12/20/2022 | JP Morgan Chase Bank N.A. | 1.000 | % | 0.478 | % | EUR 6,350,000 | $ | 196,714 | $ | 132,812 | $ | 63,902 | |||||||||||||||||
Rexel S.A. | 12/20/2022 | JP Morgan Chase Bank N.A. | 5.000 | % | 0.909 | % | 3,750,000 | 894,278 | 801,450 | 92,828 | ||||||||||||||||||||
Springleaf Finance Corp. | 12/20/2022 | JP Morgan Chase Bank N.A. | 5.000 | % | 2.739 | % | $ | 6,950,000 | 671,389 | 732,225 | (60,836 | ) | ||||||||||||||||||
|
| |||||||||||||||||||||||||||||
Total Sell Protection | $ | 2,408,621 | $ | 2,049,151 | $ | 359,470 | ||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
Total | $ | 2,269,320 | $ | 1,568,636 | $ | 700,684 | ||||||||||||||||||||||||
|
|
(1) | Notional amounts are denominated in foreign currency. |
OVER THE COUNTER TOTAL RETURN SWAP CONTRACTS
Referenced Obligation(1) | Maturity Date | Counterparty | Floating Rate Index(2) | Floating Spread(2) | Notional Amount(3) | Fair Value | Upfront Premiums Paid (Received) | Unrealized Depreciation* | ||||||||||||||||||||||||
Sky Plc GBP | 02/26/2018 | | Goldman Sachs International | | | 1-Month GBP LIBOR | | (0.450 | )% | GBP | (1,678,837) | $ | — | $ | — | $ | — | |||||||||||||||
iBoxx Liquid HIgh Yield Index USD | 3/20/2018 | | JP Morgan Chase Bank N.A. | | 3 Month LIBOR | 1.325 | % | $ | 10,000,000 | (46,950 | ) | — | (46,950 | ) | ||||||||||||||||||
Sky Plc GBP | 04/24/2019 | | Morgan Stanley & Co. | | | 1-Month GBP LIBOR | | (0.500 | )% | GBP | (623,574) | — | — | — | ||||||||||||||||||
|
| |||||||||||||||||||||||||||||||
$ | (46,950 | ) | $ | — | $ | (46,950 | ) | |||||||||||||||||||||||||
|
|
* | There are no upfront payments on the swap contract(s), therefore the unrealized appreciation (depreciation) on the swap contracts is equal to their fair value. |
(1) | The Fund receives payments based on any positive monthly return of the Referenced Obligation. The Fund makes payments on any negative monthly return of such referenced obligation. |
(2) | During the year, the Fund received periodic payments of $537,461 and made periodic payments of $998,055. |
(3) | Notional amounts are denominated in foreign currency. |
The accompanying notes are an integral part of these financial statements.
Schedule of Investments | 87 |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF SWAPS at December 31, 2017 (Continued)
SCHEDULE OF PURCHASED OPTIONS at December 31, 2017
Description | Counterparty | Exercise Price | Expiration Date | Number of Contracts | Notional Amount | Market Value | Premiums Paid | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||||
COMMON STOCKS |
| |||||||||||||||||||||||||||||
Call |
| |||||||||||||||||||||||||||||
Comcast Corp. | Morgan Stanley & Co. | $ | 36.25 | 1/19/2018 | 323 | 32,300 | $ | 127,585 | $ | 75,893 | $ | 51,692 | ||||||||||||||||||
Jack In The Box, Inc. | Goldman Sachs & Co. | 110.00 | 1/19/2018 | 541 | 54,100 | 8,115 | 22,094 | (13,979 | ) | |||||||||||||||||||||
Lennar Corp. | Goldman Sachs & Co. | 57.50 | 1/19/2018 | 65 | 6,500 | 9,743 | 9,743 | — | ||||||||||||||||||||||
Rent-A-Center, Inc. | Goldman Sachs & Co. | 12.50 | 3/16/2018 | 2,508 | 250,800 | 200,640 | 173,249 | 27,391 | ||||||||||||||||||||||
Put |
| |||||||||||||||||||||||||||||
Centurylink, Inc. | Morgan Stanley & Co. | 17.50 | 1/19/2018 | 450 | 45,000 | 48,150 | 36,581 | 11,569 | ||||||||||||||||||||||
Jack In The Box, Inc. | Goldman Sachs & Co. | 95.00 | 1/19/2018 | 247 | 24,700 | 33,345 | 55,913 | (22,568 | ) | |||||||||||||||||||||
Monsanto Co. | Goldman Sachs & Co. | 105.00 | 1/19/2018 | 152 | 15,200 | 5,624 | 59,132 | (53,508 | ) | |||||||||||||||||||||
NxpSemiconductors N.V. | Goldman Sachs & Co. | 115.00 | 1/19/2018 | 374 | 37,400 | 29,920 | 118,032 | (88,112 | ) | |||||||||||||||||||||
Orbital ATK, Inc. | Goldman Sachs & Co. | 110.00 | 5/18/2018 | 33 | 3,300 | 330 | 1,176 | (846 | ) | |||||||||||||||||||||
Time Warner, Inc. | Goldman Sachs & Co. | 85.00 | 3/16/2018 | 1,299 | 129,900 | 53,259 | 581,910 | (528,651 | ) | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Total | 516,711 | 1,133,723 | (617,012 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
CURRENCY OPTIONS |
| |||||||||||||||||||||||||||||
Call |
| |||||||||||||||||||||||||||||
USD Call/PHP Put | Bank of America N.A. | 51.06 | 5/18/2018 | 13,475,000 | 13,475,000 | 107,813 | 338,667 | (230,854 | ) | |||||||||||||||||||||
EXCHANGE TRADED FUNDS |
| |||||||||||||||||||||||||||||
Call |
| |||||||||||||||||||||||||||||
iShares MSCI Emerging Markets ETF | Morgan Stanley & Co. | 47.00 | 2/16/2018 | 1,061 | 106,100 | 122,015 | 67,152 | 54,863 | ||||||||||||||||||||||
Put |
| |||||||||||||||||||||||||||||
Financial Select Sector SPDR Fund | Morgan Stanley & Co. | 27.00 | 1/19/2018 | 629 | 62,900 | 6,919 | 35,892 | (28,973 | ) |
The accompanying notes are an integral part of these financial statements.
88 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF PURCHASED OPTIONS at December 31, 2017 (Continued)
Description | Counterparty | Exercise Price | Expiration Date | Number of Contracts | Notional Amount | Market Value | Premiums Paid | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||||
iShares Russell 2000 ETF | Morgan Stanley & Co. | $ | 151.00 | 1/19/2018 | 270 | 27,000 | $ | 36,450 | $ | 95,389 | $ | (58,939 | ) | |||||||||||||||||
Powershares QQQ Trust Series 1 | Morgan Stanley & Co. | 155.00 | 1/19/2018 | 87 | 8,700 | 14,181 | 16,207 | (2,026 | ) | |||||||||||||||||||||
SPDR S&P Retail ETF | Morgan Stanley & Co. | 42.00 | 1/19/2018 | 829 | 82,900 | 9,948 | 129,565 | (119,617 | ) | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Total | 189,513 | 344,205 | (154,692 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Total Purchased Options | $ | 814,037 | $ | 1,816,595 | $ | (1,002,558 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
SCHEDULE OF WRITTEN OPTIONS at December 31, 2017
Description | Counterparty | Exercise Price | Expiration Date | Number Contracts | Notional Amount | Market Value | Premiums Received | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||||
COMMON STOCKS |
| |||||||||||||||||||||||||||||
Call |
| |||||||||||||||||||||||||||||
Apple, Inc. | Morgan Stanley & Co. | $ | 180.00 | 1/19/2018 | (31 | ) | (3,100 | ) | $ | (744 | ) | $ | (12,019 | ) | $ | 11,275 | ||||||||||||||
Broadsoft, Inc. | Goldman Sachs & Co. | 55.00 | 2/16/2018 | (203 | ) | (20,300 | ) | (5,075 | ) | (4,377 | ) | (698 | ) | |||||||||||||||||
Centurylink, Inc. | Morgan Stanley & Co. | 21.00 | 4/20/2018 | (601 | ) | (60,100 | ) | (21,035 | ) | (26,268 | ) | 5,233 | ||||||||||||||||||
Comcast Corp. | Morgan Stanley & Co. | 41.25 | 1/19/2018 | (323 | ) | (32,300 | ) | (12,597 | ) | (13,568 | ) | 971 | ||||||||||||||||||
Lennar Corp. | Goldman Sachs & Co. | 57.50 | 1/19/2018 | (65 | ) | (6,500 | ) | (20,738 | ) | (20,738 | ) | — | ||||||||||||||||||
Monsanto Co. | Goldman Sachs & Co. | 115.00 | 1/19/2018 | (31 | ) | (3,100 | ) | (8,928 | ) | (19,001 | ) | 10,073 | ||||||||||||||||||
Nxp Semiconductors N.V. | Goldman Sachs & Co. | 120.00 | 1/19/2018 | (322 | ) | (32,200 | ) | (28,980 | ) | (71,350 | ) | 42,370 | ||||||||||||||||||
Rent-A-Center, Inc. | Goldman Sachs & Co. | 14.00 | 3/16/2018 | (1,071 | ) | (107,100 | ) | (37,485 | ) | (36,686 | ) | (799 | ) | |||||||||||||||||
Rush Enterprises, Inc. | JP Morgan Chase Bank N.A. | 35.00 | 1/19/2018 | (280 | ) | (28,000 | ) | (457,800 | ) | (159,056 | ) | (298,744 | ) | |||||||||||||||||
Rush Enterprises, Inc. | JP Morgan Chase Bank N.A. | 45.00 | 4/20/2018 | (471 | ) | (47,100 | ) | (372,090 | ) | (287,357 | ) | (84,733 | ) |
The accompanying notes are an integral part of these financial statements.
Schedule of Investments | 89 |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund
SCHEDULE OF WRITTEN OPTIONS at December 31, 2017 (Continued)
Description | Counterparty | Exercise Price | Expiration Date | Number Contracts | Notional Amount | Market Value | Premiums Received | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||||||
Time Warner, Inc. | | Goldman Sachs & Co. | | $ | 90.00 | 1/5/2018 | (38 | ) | (3,800 | ) | $ | (6,194 | ) | $ | (6,048 | ) | $ | (146 | ) | |||||||||||||
Time Warner, Inc. | | Goldman Sachs & Co. | | 90.00 | 1/12/2018 | (38 | ) | (3,800 | ) | (6,821 | ) | (6,238 | ) | (583 | ) | |||||||||||||||||
Time Warner, Inc. | | Goldman Sachs & Co. | | 91.00 | 1/12/2018 | (2 | ) | (200 | ) | (232 | ) | (208 | ) | (24 | ) | |||||||||||||||||
Time Warner, Inc. | | Goldman Sachs & Co. | | 90.00 | 1/19/2018 | (240 | ) | (24,000 | ) | (49,920 | ) | (40,480 | ) | (9,440 | ) | |||||||||||||||||
Time Warner, Inc. | | Goldman Sachs & Co. | | 90.50 | 1/19/2018 | (161 | ) | (16,100 | ) | (23,828 | ) | (22,333 | ) | (1,495 | ) | |||||||||||||||||
Time Warner, Inc. | | Goldman Sachs & Co. | | 91.00 | 1/19/2018 | (131 | ) | (13,100 | ) | (17,030 | ) | (14,666 | ) | (2,364 | ) | |||||||||||||||||
Time Warner, Inc. | | Goldman Sachs & Co. | | 91.50 | 1/19/2018 | (131 | ) | (13,100 | ) | (15,065 | ) | (10,977 | ) | (4,088 | ) | |||||||||||||||||
Time Warner, Inc. | | Goldman Sachs & Co. | | 92.00 | 1/19/2018 | (76 | ) | (7,600 | ) | (7,068 | ) | (5,309 | ) | (1,759 | ) | |||||||||||||||||
Time Warner, Inc. | | Goldman Sachs & Co. | | 92.50 | 1/19/2018 | (164 | ) | (16,400 | ) | (12,300 | ) | (12,100 | ) | (200 | ) | |||||||||||||||||
Put | ||||||||||||||||||||||||||||||||
Jack In The Box, Inc. | | Goldman Sachs & Co. | | 90.00 | 1/19/2018 | (541 | ) | (54,100 | ) | (27,050 | ) | (21,169 | ) | (5,881 | ) | |||||||||||||||||
|
| |||||||||||||||||||||||||||||||
Total | (1,130,980 | ) | (789,948 | ) | (341,032 | ) | ||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||
EXCHANGE TRADED FUNDS |
| |||||||||||||||||||||||||||||||
Call | ||||||||||||||||||||||||||||||||
iShares MSCI Emerging Markets ETF | | Morgan Stanley & Co. | | 49.00 | 2/16/2018 | (1,061 | ) | (106,100 | ) | (32,891 | ) | (11,892 | ) | (20,999 | ) | |||||||||||||||||
Put | ||||||||||||||||||||||||||||||||
iShares Russell 2000 ETF | | Morgan Stanley & Co. | | 144.00 | 1/19/2018 | (270 | ) | (27,000 | ) | (8,370 | ) | (35,021 | ) | 26,651 | ||||||||||||||||||
SPDR S&P Retail ETF | | Morgan Stanley & Co. | | 39.00 | 1/19/2018 | (829 | ) | (82,900 | ) | (3,316 | ) | (37,891 | ) | 34,575 | ||||||||||||||||||
|
| |||||||||||||||||||||||||||||||
Total | (44,577 | ) | (84,804 | ) | 40,227 | |||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||
Total Written Options | $ | (1,175,557 | ) | $ | (874,752 | ) | $ | (300,805 | ) | |||||||||||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
90 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Funds Trust
EXPENSE EXAMPLES – (Unaudited)
As a shareholder of the Funds, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory fees; and other fund expenses. The examples below are intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning of the period shown and held for the entire period from July 1, 2017 to December 31, 2017.
Actual Expenses
For each Fund, the first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
For each Fund, the second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line for each Fund of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
Beginning Account Value (7/1/17) | Ending Account Value (12/31/17) | Expenses Paid During Period* (7/1/17 to 12/31/17) | Expenses Ratio During Period* (7/1/17 to 12/31/17) | |||||||||||||
Litman Gregory Masters Equity Fund – Institutional Actual | $ | 1,000.00 | $ | 1,123.10 | $ | 5.99 | 1.12% | |||||||||
Litman Gregory Masters Equity Fund – Investor Actual | $ | 1,000.00 | $ | 1,122.00 | $ | 7.33 | 1.37% | |||||||||
Litman Gregory Masters Equity Fund – Institutional Hypothetical - | $ | 1,000.00 | $ | 1,019.55 | $ | 5.70 | 1.12% | |||||||||
Litman Gregory Masters Equity Fund – Investor Hypothetical - | $ | 1,000.00 | $ | 1,018.29 | $ | 6.97 | 1.37% | |||||||||
Litman Gregory Masters International Fund – Institutional Actual | $ | 1,000.00 | $ | 1,076.50 | $ | 4.92 | 0.94% | |||||||||
Litman Gregory Masters International Fund – Investor Actual | $ | 1,000.00 | $ | 1,075.30 | $ | 6.38 | 1.22% | |||||||||
Litman Gregory Masters International Fund – Institutional Hypothetical - (5% return before expenses) | $ | 1,000.00 | $ | 1,020.46 | $ | 4.79 | 0.94% | |||||||||
Litman Gregory Masters International Fund – Investor Hypothetical - | $ | 1,000.00 | $ | 1,019.05 | $ | 6.21 | 1.22% | |||||||||
Litman Gregory Masters Smaller Companies Fund – Institutional Actual | $ | 1,000.00 | $ | 1,105.90 | $ | 6.69 | 1.26% | |||||||||
Litman Gregory Masters Smaller Companies Fund – Institutional Hypothetical - (5% return before expenses) | $ | 1,000.00 | $ | 1,018.85 | $ | 6.41 | 1.26% | |||||||||
Litman Gregory Masters Alternative Strategies Fund – Institutional Actual | $ | 1,000.00 | $ | 1,020.20 | $ | 8.45 | 1.66% | |||||||||
Litman Gregory Masters Alternative Strategies Fund – Investor Actual | $ | 1,000.00 | $ | 1,018.90 | $ | 9.72 | 1.91% | |||||||||
Litman Gregory Masters Alternative Strategies Fund – Institutional Hypothetical - (5% return before expenses) | $ | 1,000.00 | $ | 1,016.83 | $ | 8.44 | 1.66% | |||||||||
Litman Gregory Masters Alternative Strategies Fund – Investor Hypothetical - (5% return before expenses) | $ | 1,000.00 | $ | 1,015.57 | $ | 9.70 | 1.91% |
* Expenses are equal to the Funds’ annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by the number of days in most recent fiscal half-year period (184), then divided by the number of days in the fiscal year (365) (to reflect the one-half-year period).
Expense Examples | 91 |
Table of Contents
Litman Gregory Funds Trust
STATEMENTS OF ASSETS AND LIABILITIES at December 31, 2017
Equity Fund | International Fund | Smaller Companies Fund | Alternative Strategies Fund | |||||||||||||
ASSETS: |
| |||||||||||||||
Investments in securities at cost | $ | 198,814,704 | $ | 549,604,163 | $ | 28,807,878 | $ | 1,574,642,016 | ||||||||
Repurchase agreements at cost | 27,911,000 | 17,771,000 | 3,427,000 | 363,454,000 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total investments at cost | $ | 226,725,704 | $ | 567,375,163 | $ | 32,234,878 | $ | 1,938,096,016 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Investments in securities at value | $ | 311,247,815 | $ | 665,217,590 | $ | 30,005,137 | $ | 1,672,311,296 | ||||||||
Repurchase agreements at value | 27,911,000 | 17,771,000 | 3,427,000 | 363,454,000 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total investments at value | $ | 339,158,815 | $ | 682,988,590 | $ | 33,432,137 | $ | 2,035,765,296 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Cash | 9,394 | 3,312 | 3,038 | — | ||||||||||||
Cash, denominated in foreign currency | — | 157,904 | — | 13,173,520 | ||||||||||||
Deposits at brokers for securities sold short | — | — | — | 90,342,443 | ||||||||||||
Deposits at brokers for futures | — | — | — | 425,000 | ||||||||||||
Deposits at brokers for options | — | — | — | 1,707,140 | ||||||||||||
Deposits at brokers for swaps | — | — | — | 10,541,589 | ||||||||||||
Receivables: |
| |||||||||||||||
Securities sold | 1,723,472 | 1,401,824 | 80,073 | 127,187,176 | ||||||||||||
Dividends and interest | 129,320 | 539,455 | 2,647 | 9,281,314 | ||||||||||||
Fund shares sold | 371,924 | 626,187 | 6,436 | 11,236,081 | ||||||||||||
Foreign tax reclaims | 38,715 | 1,330,379 | — | 95,307 | ||||||||||||
Variation margin - Centrally Cleared Swaps | — | — | — | 198,859 | ||||||||||||
Variation margin - Futures | — | — | — | 145,089 | ||||||||||||
Other Receivables | — | — | — | 3,567,536 | ||||||||||||
Line of credit interest | — | 495 | — | — | ||||||||||||
Net swap premiums paid | — | — | — | 1,568,636 | ||||||||||||
Unrealized gain on forward foreign currency exchange contracts | — | 135,218 | — | 623,769 | ||||||||||||
Unrealized gain on swaps | — | — | — | 985,601 | ||||||||||||
Prepaid expenses | 23,305 | 32,748 | 9,352 | 66,975 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Assets | 341,454,945 | 687,216,112 | 33,533,683 | 2,306,911,331 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
LIABILITIES: |
| |||||||||||||||
Written options (premium received, $0, $0, $0 | — | �� | — | — | 1,175,557 | |||||||||||
Securities sold short (proceeds, $0, $0, $0 | — | — | — | 119,905,344 | ||||||||||||
Deposits received from brokers for swaps | — | — | — | 300,000 | ||||||||||||
Payables: |
| |||||||||||||||
Advisory fees | 285,627 | 498,051 | 20,212 | 2,238,294 | ||||||||||||
Securities purchased | 1,334,882 | 1,169,776 | 14,498 | 137,455,701 | ||||||||||||
Fund shares redeemed | 170,969 | 324,359 | 67,667 | 1,950,999 | ||||||||||||
Foreign taxes withheld | 2,603 | 33,706 | — | 4,940 | ||||||||||||
Professional fees | 23,248 | 30,827 | 13,641 | 100,293 | ||||||||||||
Custodian | — | — | — | 6,352,627 | ||||||||||||
Line of credit interest | — | — | — | 5 | ||||||||||||
Dividend and interest on swaps | — | — | — | 17,444 | ||||||||||||
Variation margin - Futures | — | — | — | 505,872 | ||||||||||||
Short dividend | — | — | — | 147,719 | ||||||||||||
Chief Compliance Officer fees | 15,317 | 15,317 | 15,317 | 15,317 | ||||||||||||
Unrealized loss on forward foreign currency exchange contracts | — | 447,059 | — | 1,695,000 | ||||||||||||
Unrealized loss on swaps | — | — | — | 331,867 | ||||||||||||
Distribution fees payable for investor class (see Note 4) | 15 | 745 | — | 43,792 | ||||||||||||
Accrued other expenses | 85,992 | 256,334 | 7,322 | 607,308 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Liabilities | 1,918,653 | 2,776,174 | 138,657 | 272,848,079 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Commitments and Contingencies (See Note 8) |
| |||||||||||||||
NET ASSETS | $ | 339,536,292 | $ | 684,439,938 | $ | 33,395,026 | $ | 2,034,063,252 | ||||||||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
92 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Funds Trust
STATEMENTS OF ASSETS AND LIABILITIES at December 31, 2017 – (Continued)
Equity Fund | International Fund | Smaller Companies Fund | Alternative Strategies Fund | |||||||||||||
Institutional Class: |
| |||||||||||||||
Net Assets | $ | 339,474,037 | $ | 681,143,254 | $ | 33,395,026 | $ | 1,828,052,368 | ||||||||
Number of shares issued and outstanding (unlimited number of shares authorized, $0.01 par value) | 17,775,544 | 38,415,373 | 1,409,086 | 156,429,857 | ||||||||||||
Net asset value, offering price and redemption price per share | $ | 19.10 | $ | 17.73 | $ | 23.70 | $ | 11.69 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Investor Class: |
| |||||||||||||||
Net Assets | $ | 62,255 | $ | 3,296,684 | $ | — | $ | 206,010,884 | ||||||||
Number of shares issued and outstanding (unlimited number of shares authorized, $0.01 par value) | 3,310 | 184,903 | — | 17,609,123 | ||||||||||||
Net asset value, offering price and redemption price per share | $ | 18.81 | $ | 17.83 | $ | — | $ | 11.70 | ||||||||
|
|
|
|
|
|
|
| |||||||||
COMPONENTS OF NET ASSETS |
| |||||||||||||||
Paid-in capital | $ | 213,463,900 | $ | 652,271,540 | $ | 32,186,016 | $ | 1,967,634,187 | ||||||||
Undistributed net investment income (loss) | — | 2,181,068 | — | 3,554,640 | ||||||||||||
Accumulated net realized gain (loss) on | 13,638,737 | (85,359,066 | ) | 11,751 | (15,777,443 | ) | ||||||||||
Net unrealized appreciation/depreciation on: |
| |||||||||||||||
Investments, excluding purchased options | 112,433,111 | 115,613,427 | 1,197,259 | 98,671,838 | ||||||||||||
Purchased options | — | — | — | (1,002,558 | ) | |||||||||||
Short sales | — | — | — | (16,595,789 | ) | |||||||||||
Written options | — | — | — | (300,805 | ) | |||||||||||
Forward foreign currency exchange contracts | — | (311,841 | ) | — | (1,071,231 | ) | ||||||||||
Foreign currency transactions | 544 | 44,810 | — | (159,949 | ) | |||||||||||
Futures | — | — | — | (588,452 | ) | |||||||||||
Swaps | — | — | — | (301,186 | ) | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Net assets | $ | 339,536,292 | $ | 684,439,938 | $ | 33,395,026 | $ | 2,034,063,252 | ||||||||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
Statements of Assets and Liabilities | 93 |
Table of Contents
Litman Gregory Funds Trust
STATEMENTS OF OPERATIONS For the Year Ended December 31, 2017
Equity Fund | International Fund | Smaller Companies Fund | Alternative Strategies Fund | |||||||||||||
INVESTMENT INCOME: |
| |||||||||||||||
Income |
| |||||||||||||||
Dividends (net of foreign taxes withheld of $51,455, $1,262,991, $11,880 and $166,096, respectively) | $ | 3,510,467 | $ | 12,300,067 | $ | 336,628 | $ | 11,410,938 | ||||||||
Interest (net of interest taxes withheld of $0, $0, $0 and $1,448, respectively) | 29,701 | 14,063 | 5,051 | 60,296,377 | ||||||||||||
Non cash income | — | 2,351,504 | * | — | — | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total income | 3,540,168 | 14,665,634 | 341,679 | 71,707,315 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Expenses |
| |||||||||||||||
Advisory fees | 3,614,163 | 7,496,086 | 382,873 | 25,684,355 | ||||||||||||
Transfer agent fees | 152,745 | 320,568 | 37,631 | 1,038,530 | ||||||||||||
Fund accounting fees | 91,667 | 50,522 | 31,375 | 174,315 | ||||||||||||
Administration fees | 48,862 | 63,397 | — | 316,486 | ||||||||||||
Professional fees | 38,480 | 59,106 | 16,474 | 199,763 | ||||||||||||
Trustee fees | 73,070 | 91,270 | 58,201 | 147,334 | ||||||||||||
Custody fees | 43,642 | 344,812 | 6,594 | 566,550 | ||||||||||||
Reports to shareholders | 31,210 | 63,834 | 14,062 | 173,687 | ||||||||||||
Registration expense | 35,219 | 37,298 | 21,016 | 57,700 | ||||||||||||
Miscellaneous | 2,314 | — | 153 | 8,444 | ||||||||||||
Insurance expense | 10,086 | 25,967 | 1,115 | 47,557 | ||||||||||||
Dividend & interest expense | 7,963 | 17,247 | 299 | 3,608,320 | ||||||||||||
Chief Compliance Officer fees | 15,317 | 15,317 | 15,317 | 15,317 | ||||||||||||
Distribution fees for investor class (see Note 4) | 221 | 59,756 | — | 495,562 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total expenses | 4,164,959 | 8,645,180 | 585,110 | 32,533,920 | ||||||||||||
Less: fees waived (see Note 3) | (386,672 | ) | (1,876,901 | ) | (141,709 | ) | (1,675,406 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net expenses | 3,778,287 | 6,768,279 | 443,401 | 30,858,514 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net investment income (loss) | (238,119 | ) | 7,897,355 | (101,722 | ) | 40,848,801 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
REALIZED AND UNREALIZED GAIN (LOSS) |
| |||||||||||||||
Net realized gain (loss) on: |
| |||||||||||||||
Investments (net of capital gains tax of $0, $0, $0 and $0, respectively), excluding purchased options | 36,241,963 | 66,695,801 | 7,876,841 | 67,562,936 | ||||||||||||
Purchased options | — | — | — | (6,679,138 | ) | |||||||||||
Short sales | — | — | — | (30,160,364 | ) | |||||||||||
Written options | — | — | — | 1,177,931 | ||||||||||||
Forward foreign currency exchange contracts | — | (2,737,277 | ) | — | (3,083,703 | ) | ||||||||||
Foreign currency transactions | 2,980 | (336,159 | ) | — | 347,002 | |||||||||||
Futures | — | — | — | (3,085,107 | ) | |||||||||||
Swap contracts | — | — | — | (2,369,593 | ) | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Net realized gain (loss) | 36,244,943 | 63,622,365 | 7,876,841 | 23,709,964 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net change in unrealized appreciation/depreciation on: |
| |||||||||||||||
Investments, excluding purchased options | 27,232,139 | 75,223,821 | (3,408,299 | ) | 30,527,156 | |||||||||||
Purchased options | — | — | — | (724,225 | ) | |||||||||||
Short sales | — | — | — | (13,255,438 | ) | |||||||||||
Written options | — | — | — | (294,125 | ) | |||||||||||
Forward foreign currency exchange contracts | — | (2,652,862 | ) | — | (1,903,202 | ) | ||||||||||
Foreign currency transactions | 2,341 | 189,014 | — | (144,858 | ) | |||||||||||
Futures | — | — | — | (628,899 | ) | |||||||||||
Swap contracts | — | — | — | (438,365 | ) | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Net change in unrealized appreciation/depreciation | 27,234,480 | 72,759,973 | (3,408,299 | ) | 13,138,044 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Net realized and unrealized gain (loss) on investments, short sales, written options, foreign currency transactions, futures and swap contracts | 63,479,423 | 136,382,338 | 4,468,542 | 36,848,008 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net increase in net assets resulting | $ | 63,241,304 | $ | 144,279,693 | $ | 4,366,820 | $ | 77,696,809 | ||||||||
|
|
|
|
|
|
|
|
* | Represents non-cash distributions in connection with capital changes for certain investments held by the Fund recorded on ex-date and based on fair value. |
The accompanying notes are an integral part of these financial statements.
94 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Funds Trust
STATEMENTS OF CHANGES IN NET ASSETS
The accompanying notes are an integral part of these financial statements.
Statements of Changes in Net Assets | 95 |
Table of Contents
Litman Gregory Funds Trust
STATEMENTS OF CHANGES IN NET ASSETS – (Continued)
The accompanying notes are an integral part of these financial statements.
96 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Masters Equity Fund – Institutional Class
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout each year
Year Ended December 31, | ||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
Net asset value, beginning of year | $ | 17.02 | $ | 16.08 | $ | 18.01 | $ | 17.98 | $ | 13.88 | ||||||||||
|
| |||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||
Net investment income (loss) | (0.01 | )1 | 0.13 | 1 | 0.07 | 1 | (0.01 | )1 | (0.04 | ) | ||||||||||
Net realized gain (loss) and net change in unrealized appreciation/depreciation on investments and foreign currency | 3.61 | 1.81 | (0.41 | ) | 2.02 | 4.88 | ||||||||||||||
|
| |||||||||||||||||||
Total income (loss) from investment operations | 3.60 | 1.94 | (0.34 | ) | 2.01 | 4.84 | ||||||||||||||
|
| |||||||||||||||||||
Less distributions: | ||||||||||||||||||||
From net investment income | — | (0.14 | ) | (0.06 | ) | — | — | |||||||||||||
From net realized gains | (1.52 | ) | (0.86 | ) | (1.53 | ) | (1.98 | ) | (0.74 | ) | ||||||||||
|
| |||||||||||||||||||
Total distributions | (1.52 | ) | (1.00 | ) | (1.59 | ) | (1.98 | ) | (0.74 | ) | ||||||||||
|
| |||||||||||||||||||
Redemption fee proceeds | — | — | — | — | ^ | — | ^ | |||||||||||||
|
| |||||||||||||||||||
Net asset value, end of year | $ | 19.10 | $ | 17.02 | $ | 16.08 | $ | 18.01 | $ | 17.98 | ||||||||||
|
| |||||||||||||||||||
Total return | 21.15 | % | 11.98 | % | (1.87 | )% | 11.07 | % | 35.14 | % | ||||||||||
|
| |||||||||||||||||||
Ratios/supplemental data: | ||||||||||||||||||||
Net assets, end of year (millions) | $ | 339.5 | $ | 313.5 | $ | 321.2 | $ | 419.6 | $ | 420.2 | ||||||||||
|
| |||||||||||||||||||
Ratios of total expenses to average net assets: | ||||||||||||||||||||
Before fees waived | 1.27 | %2 | 1.27 | %2 | 1.28 | %2 | 1.27 | % | 1.30 | % | ||||||||||
|
| |||||||||||||||||||
After fees waived | 1.15 | %2,3 | 1.17 | %2,3 | 1.18 | %2,3 | 1.17 | %3 | 1.23 | %3 | ||||||||||
|
| |||||||||||||||||||
Ratio of net investment income (loss) to average net assets | (0.07 | )%2 | 0.78 | %2 | 0.37 | %2 | (0.03 | )% | (0.27 | )% | ||||||||||
|
| |||||||||||||||||||
Portfolio turnover rate | 33.49 | %4 | 26.98 | %4 | 33.94 | %4 | 52.70 | %4 | 113.28 | %4 | ||||||||||
|
|
^ | Amount represents less than $0.01 per share. |
1 | Calculated based on the average shares outstanding methodology. |
2 | Includes Interest & Dividend expenses of 0.00% of average net assets. |
3 | Includes the impact of the voluntary waiver of less than 0.01% of average net assets. |
4 | Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights | 97 |
Table of Contents
Litman Gregory Masters Equity Fund – Investor Class
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout each year
Year Ended December 31, | ||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
Net asset value, beginning of year | $ | 16.82 | $ | 15.90 | $ | 17.83 | $ | 17.87 | $ | 13.79 | ||||||||||
|
| |||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||
Net investment income (loss) | (0.06 | )1 | 0.08 | 1 | 0.02 | 1 | (0.05 | )1 | (0.11 | ) | ||||||||||
Net realized gain (loss) and net change in unrealized appreciation/depreciation on investments and foreign currency | 3.57 | 1.80 | (0.39 | ) | 1.99 | 4.93 | ||||||||||||||
|
| |||||||||||||||||||
Total income (loss) from investment operations | 3.51 | 1.88 | (0.37 | ) | 1.94 | 4.82 | ||||||||||||||
|
| |||||||||||||||||||
Less distributions: | ||||||||||||||||||||
From net investment income | — | (0.10 | ) | (0.03 | ) | — | — | |||||||||||||
From net realized gains | (1.52 | ) | (0.86 | ) | (1.53 | ) | (1.98 | ) | (0.74 | ) | ||||||||||
|
| |||||||||||||||||||
Total distributions | (1.52 | ) | (0.96 | ) | (1.56 | ) | (1.98 | ) | (0.74 | ) | ||||||||||
|
| |||||||||||||||||||
Redemption fee proceeds | — | — | — | — | — | |||||||||||||||
|
| |||||||||||||||||||
Net asset value, end of year | $ | 18.81 | $ | 16.82 | $ | 15.90 | $ | 17.83 | $ | 17.87 | ||||||||||
|
| |||||||||||||||||||
Total return | 20.87 | % | 11.72 | % | (2.08 | )% | 10.75 | % | 35.22 | % | ||||||||||
|
| |||||||||||||||||||
Ratios/supplemental data: | ||||||||||||||||||||
Net assets, end of year (thousands) | $ | 62.3 | $ | 99.5 | $ | 122.5 | $ | 76.7 | $ | 91.7 | ||||||||||
|
| |||||||||||||||||||
Ratios of total expenses to average net assets: | ||||||||||||||||||||
Before fees waived | 1.52 | %2 | 1.51 | %2 | 1.53 | %2 | 1.52 | % | 1.55 | % | ||||||||||
|
| |||||||||||||||||||
After fees waived | 1.40 | %2,3 | 1.42 | %2,3 | 1.43 | %2,3 | 1.42 | %3 | 1.48 | %3 | ||||||||||
|
| |||||||||||||||||||
Ratio of net investment income (loss) to average net assets | (0.31 | )%2 | 0.48 | %2 | 0.09 | %2 | (0.28 | )% | (0.52 | )% | ||||||||||
|
| |||||||||||||||||||
Portfolio turnover rate | 33.49 | %4 | 26.98 | %4 | 33.94 | %4 | 52.70 | %4 | 113.28 | %4 | ||||||||||
|
|
1 | Calculated based on the average shares outstanding methodology. |
2 | Includes Interest & Dividend expenses of 0.00% of average net assets. |
3 | Includes the impact of the voluntary waiver of less than 0.01% of average net assets. |
4 | Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued. |
The accompanying notes are an integral part of these financial statements.
98 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Masters International Fund – Institutional Class
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout each year
Year Ended December 31, | ||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
Net asset value, beginning of year | $ | 14.77 | $ | 16.13 | $ | 17.36 | $ | 18.06 | $ | 15.02 | ||||||||||
|
| |||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||
Net investment income | 0.20 | 1,2 | 0.23 | 1 | 0.22 | 1 | 0.17 | 1 | 0.18 | |||||||||||
Net realized gain (loss) and net change in unrealized appreciation/depreciation on investments and foreign currency | 3.28 | (0.98 | ) | (1.18 | ) | (0.66 | ) | 3.04 | ||||||||||||
|
| |||||||||||||||||||
Total income (loss) from investment operations | 3.48 | (0.75 | ) | (0.96 | ) | (0.49 | ) | 3.22 | ||||||||||||
|
| |||||||||||||||||||
Less distributions: | ||||||||||||||||||||
From net investment income | (0.52 | ) | (0.61 | ) | (0.27 | ) | (0.21 | ) | (0.18 | ) | ||||||||||
From net realized gains | — | — | — | — | — | |||||||||||||||
|
| |||||||||||||||||||
Total distributions | (0.52 | ) | (0.61 | ) | (0.27 | ) | (0.21 | ) | (0.18 | ) | ||||||||||
|
| |||||||||||||||||||
Redemption fee proceeds | — | — | — | ^ | — | ^ | — | ^ | ||||||||||||
|
| |||||||||||||||||||
Net asset value, end of year | $ | 17.73 | $ | 14.77 | $ | 16.13 | $ | 17.36 | $ | 18.06 | ||||||||||
|
| |||||||||||||||||||
Total return | 23.61 | % | (4.61 | )% | (5.52 | )% | (2.72 | )% | 21.47 | % | ||||||||||
|
| |||||||||||||||||||
Ratios/supplemental data: | ||||||||||||||||||||
Net assets, end of year (millions) | $ | 681.1 | $ | 621.3 | $ | 1,021.1 | $ | 1,175.7 | $ | 1,328.2 | ||||||||||
|
| |||||||||||||||||||
Ratios of total expenses to average net assets: | ||||||||||||||||||||
Before fees waived | 1.26 | %3 | 1.28 | %4 | 1.24 | %3 | 1.24 | % | 1.30 | % | ||||||||||
|
| |||||||||||||||||||
After fees waived | 0.98 | %3,5 | 1.00 | %4,5 | 0.99 | %3,5 | 1.03 | %5 | 1.11 | %5 | ||||||||||
|
| |||||||||||||||||||
Ratio of net investment income to average net assets | 1.18 | %2,3 | 1.51 | %4 | 1.22 | %3 | 0.94 | % | 1.02 | % | ||||||||||
|
| |||||||||||||||||||
Portfolio turnover rate | 41.90 | %6 | 43.84 | %6 | 51.68 | %6 | 70.08 | %6 | 112.35 | %6 | ||||||||||
|
|
^ | Amount represents less than $0.01 per share. |
1 | Calculated based on the average shares outstanding methodology. |
2 | Include non-cash distributions amounting to $0.06 per share and 0.35% of average daily net assets. |
3 | Includes Interest & Dividend expenses of 0.00% of average net assets. |
4 | Includes Interest & Dividend expenses of 0.01% of average net assets. |
5 | Includes the impact of the voluntary waiver of less than 0.01% of average net assets. |
6 | Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights | 99 |
Table of Contents
Litman Gregory Masters International Fund – Investor Class
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout each year
Year Ended December 31, | ||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
Net asset value, beginning of year | $ | 14.68 | $ | 16.02 | $ | 17.22 | $ | 17.92 | $ | 14.92 | ||||||||||
|
| |||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||
Net investment income | 0.09 | 1,2 | 0.21 | 1 | 0.17 | 1 | 0.12 | 1 | 0.12 | |||||||||||
Net realized gain (loss) and net change in unrealized appreciation/depreciation on investments and foreign currency | 3.34 | (1.00 | ) | (1.15 | ) | (0.65 | ) | 3.03 | ||||||||||||
|
| |||||||||||||||||||
Total income (loss) from investment operations | 3.43 | (0.79 | ) | (0.98 | ) | (0.53 | ) | 3.15 | ||||||||||||
|
| |||||||||||||||||||
Less distributions: | ||||||||||||||||||||
From net investment income | (0.28 | ) | (0.55 | ) | (0.22 | ) | (0.17 | ) | (0.15 | ) | ||||||||||
From net realized gains | — | — | — | — | — | |||||||||||||||
|
| |||||||||||||||||||
Total distributions | (0.28 | ) | (0.55 | ) | (0.22 | ) | (0.17 | ) | (0.15 | ) | ||||||||||
|
| |||||||||||||||||||
Redemption fee proceeds | — | — | — | — | — | ^ | ||||||||||||||
|
| |||||||||||||||||||
Net asset value, end of year | $ | 17.83 | $ | 14.68 | $ | 16.02 | $ | 17.22 | $ | 17.92 | ||||||||||
|
| |||||||||||||||||||
Total return | 23.36 | % | (4.93 | )% | (5.69 | )% | (2.98 | )% | 21.12 | % | ||||||||||
|
| |||||||||||||||||||
Ratios/supplemental data: | ||||||||||||||||||||
Net assets, end of year (millions) | $ | 3.3 | $ | 84.9 | $ | 245.2 | $ | 342.3 | $ | 345.4 | ||||||||||
|
| |||||||||||||||||||
Ratios of total expenses to average net assets: | ||||||||||||||||||||
Before fees waived | 1.55 | %3 | 1.53 | %4 | 1.49 | %3 | 1.49 | % | 1.55 | % | ||||||||||
|
| |||||||||||||||||||
After fees waived | 1.25 | %3,5 | 1.25 | %4,5 | 1.23 | %3,5 | 1.28 | %5 | 1.36 | %5 | ||||||||||
|
| |||||||||||||||||||
Ratio of net investment income to average net assets | 0.53 | %2,3 | 1.40 | %4 | 0.94 | %3 | 0.66 | % | 0.76 | % | ||||||||||
|
| |||||||||||||||||||
Portfolio turnover rate | 41.90 | %6 | 43.84 | %6 | 51.68 | %6 | 70.08 | %6 | 112.35 | %6 | ||||||||||
|
|
^ | Amount represents less than $0.01 per share. |
1 | Calculated based on the average shares outstanding methodology. |
2 | Include non-cash distributions amounting to $0.06 per share and 0.35% of average daily net assets. |
3 | Includes Interest & Dividend expenses of 0.00% of average net assets. |
4 | Includes Interest & Dividend expenses of 0.01% of average net assets. |
5 | Includes the impact of the voluntary waiver of less than 0.01% of average net assets. |
6 | Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued. |
The accompanying notes are an integral part of these financial statements.
100 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Masters Smaller Companies Fund – Institutional Class
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout each year
Year Ended December 31, | ||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
Net asset value, beginning of year | $ | 20.71 | $ | 17.43 | $ | 20.09 | $ | 20.94 | $ | 15.30 | ||||||||||
|
| |||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||
Net investment loss | (0.07 | )1 | (0.01 | )1 | (0.15 | )1 | (0.13 | )1 | (0.16 | ) | ||||||||||
Net realized gain (loss) and net change in unrealized appreciation/depreciation on investments | 3.06 | 3.29 | (2.51 | ) | (0.72 | ) | 5.80 | |||||||||||||
|
| |||||||||||||||||||
Total income (loss) from investment operations | 2.99 | 3.28 | (2.66 | ) | (0.85 | ) | 5.64 | |||||||||||||
|
| |||||||||||||||||||
Less distributions: | ||||||||||||||||||||
From net investment income | — | — | — | — | — | |||||||||||||||
From net realized gains | — | — | — | — | — | |||||||||||||||
|
| |||||||||||||||||||
Total distributions | — | — | — | — | — | |||||||||||||||
|
| |||||||||||||||||||
Redemption fee proceeds | — | — | — | — | — | ^ | ||||||||||||||
|
| |||||||||||||||||||
Net asset value, end of year | $ | 23.70 | $ | 20.71 | $ | 17.43 | $ | 20.09 | $ | 20.94 | ||||||||||
|
| |||||||||||||||||||
Total return | 14.44 | % | 18.82 | % | (13.24 | )% | (4.06 | )% | 36.86 | % | ||||||||||
|
| |||||||||||||||||||
Ratios/supplemental data: | ||||||||||||||||||||
Net assets, end of year (millions) | $ | 33.4 | $ | 37.2 | $ | 41.0 | $ | 73.2 | $ | 84.4 | ||||||||||
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Ratios of total expenses to average net assets: | ||||||||||||||||||||
Before fees waived | 1.74 | %2 | 1.66 | %2 | 1.69 | %2 | 1.54 | % | 1.54 | % | ||||||||||
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After fees waived | 1.32 | %2,3 | 1.24 | %2,3 | 1.59 | %2,3 | 1.44 | %3 | 1.47 | %3 | ||||||||||
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Ratio of net investment loss to average net assets | (0.30 | )%2 | (0.06 | )%2 | (0.75 | )%2 | (0.62 | )% | (0.83 | )% | ||||||||||
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Portfolio turnover rate | 107.51 | % | 51.32 | % | 60.73 | % | 104.22 | % | 153.56 | % | ||||||||||
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^ | Amount represents less than $0.01 per share. |
1 | Calculated based on the average shares outstanding methodology. |
2 | Includes Interest & Dividend expenses of 0.00% of average net assets. |
3 | Includes the impact of the voluntary waiver of less than 0.01% of average net assets. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights | 101 |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund – Institutional Class
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout each year
Year Ended December 31, | ||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
Net asset value, beginning of year | $ | 11.45 | $ | 10.99 | $ | 11.44 | $ | 11.42 | $ | 11.01 | ||||||||||
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Income from investment operations: | ||||||||||||||||||||
Net investment income | 0.26 | 1 | 0.31 | 1 | 0.30 | 1 | 0.27 | 1 | 0.26 | |||||||||||
Net realized gain and net change in unrealized appreciation on investments, foreign currency, short sales, options, futures and swap contract | 0.25 | 0.44 | (0.40 | ) | 0.14 | 0.43 | ||||||||||||||
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Total income (loss) from investment operations | 0.51 | 0.75 | (0.10 | ) | 0.41 | 0.69 | ||||||||||||||
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Less distributions: | ||||||||||||||||||||
From net investment income | (0.27 | ) | (0.29 | ) | (0.32 | ) | (0.31 | ) | (0.28 | ) | ||||||||||
From net realized gains | — | — | (0.03 | ) | (0.08 | ) | — | |||||||||||||
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Total distributions | (0.27 | ) | (0.29 | ) | (0.35 | ) | (0.39 | ) | (0.28 | ) | ||||||||||
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Redemption fee proceeds | — | — | — | — | ^ | — | ^ | |||||||||||||
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Net asset value, end of year | $ | 11.69 | $ | 11.45 | $ | 10.99 | $ | 11.44 | $ | 11.42 | ||||||||||
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Total return | 4.51 | % | 6.87 | % | (0.77 | )% | 3.58 | % | 6.32 | % | ||||||||||
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Ratios/supplemental data: | ||||||||||||||||||||
Net assets, end of year (millions) | $ | 1,828.1 | $ | 1,368.9 | $ | 1,176.9 | $ | 855.2 | $ | 600.9 | ||||||||||
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Ratios of total expenses to average net assets: | ||||||||||||||||||||
Before fees waived | 1.75 | %6 | 1.83 | %5 | 1.94 | %4 | 1.87 | %3 | 1.82 | %2 | ||||||||||
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After fees waived | 1.66 | %6,7 | 1.75 | %5,7 | 1.85 | %4,7 | 1.74 | %3,7 | 1.66 | %2,7 | ||||||||||
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Ratio of net investment income to average net assets | 2.25 | %6 | 2.78 | %5 | 2.62 | %4 | 2.32 | %3 | 2.53 | %2 | ||||||||||
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Portfolio turnover rate | 169.34 | %8 | 142.24 | %8 | 145.97 | %8 | 156.88 | %8 | 179.19 | %8 | ||||||||||
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^ | Amount represents less than $0.01 per share. |
1 | Calculated based on the average shares outstanding methodology. |
2 | Includes Interest & Dividend expense of 0.17% of average net assets. |
3 | Includes Interest & Dividend expense of 0.25% of average net assets. |
4 | Includes Interest & Dividend expense of 0.36% of average net assets. |
5 | Includes Interest & Dividend expense of 0.28% of average net assets. |
6 | Includes Interest & Dividend expense of 0.20% of average net assets. |
7 | Includes the impact of the voluntary waiver of less than 0.01% of average net assets. |
8 | Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued. |
The accompanying notes are an integral part of these financial statements.
102 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Masters Alternative Strategies Fund – Investor Class
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout each year
Year Ended December 31, | ||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
Net asset value, beginning of year | $ | 11.46 | $ | 11.00 | $ | 11.45 | $ | 11.43 | $ | 11.02 | ||||||||||
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Income from investment operations: | ||||||||||||||||||||
Net investment income | 0.23 | 1 | 0.28 | 1 | 0.28 | 1 | 0.24 | 1 | 0.24 | |||||||||||
Net realized gain and net change in unrealized appreciation/depreciation on investments, foreign currency, short sales, options, futures and swap contracts | 0.25 | 0.44 | (0.40 | ) | 0.14 | 0.43 | ||||||||||||||
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Total income (loss) from investment operations | 0.48 | 0.72 | (0.12 | ) | 0.38 | 0.67 | ||||||||||||||
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Less distributions: | ||||||||||||||||||||
From net investment income | (0.24 | ) | (0.26 | ) | (0.30 | ) | (0.28 | ) | (0.26 | ) | ||||||||||
From net realized gains | — | — | (0.03 | ) | (0.08 | ) | — | |||||||||||||
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Total distributions | (0.24 | ) | (0.26 | ) | (0.33 | ) | (0.36 | ) | (0.26 | ) | ||||||||||
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Redemption fee proceeds | — | — | — | — | ^ | — | ^ | |||||||||||||
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Net asset value, end of year | $ | 11.70 | $ | 11.46 | $ | 11.00 | $ | 11.45 | $ | 11.43 | ||||||||||
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Total return | 4.14 | % | 6.67 | % | (0.95 | )% | 3.33 | % | 6.07 | % | ||||||||||
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Ratios/supplemental data: | ||||||||||||||||||||
Net assets, end of year (millions) | $ | 206.0 | $ | 179.8 | $ | 190.6 | $ | 166.7 | $ | 108.3 | ||||||||||
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Ratios of total expenses to average net assets: | ||||||||||||||||||||
Before fees waived | 2.00 | %6 | 2.08 | %5 | 2.18 | %4 | 2.12 | %3 | 2.07 | %2 | ||||||||||
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After fees waived | 1.90 | %6,7 | 2.00 | %5,7 | 2.03 | %4,7 | 1.99 | %3,7 | 1.91 | %2,7 | ||||||||||
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Ratio of net investment income to average net assets | 2.01 | %6 | 2.54 | %5 | 2.44 | %4 | 2.07 | %3 | 2.27 | %2 | ||||||||||
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Portfolio turnover rate | 169.34 | %8 | 142.24 | %8 | 145.97 | %8 | 156.88 | %8 | 179.19 | %8 | ||||||||||
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^ | Amount represents less than $0.01 per share. |
1 | Calculated based on the average shares outstanding methodology. |
2 | Includes Interest & Dividend expense of 0.17% of average net assets. |
3 | Includes Interest & Dividend expense of 0.25% of average net assets. |
4 | Includes Interest & Dividend expense of 0.36% of average net assets. |
5 | Includes Interest & Dividend expense of 0.28% of average net assets. |
6 | Includes Interest & Dividend expense of 0.20% of average net assets. |
7 | Includes the impact of the voluntary waiver of less than 0.01% of average net assets. |
8 | Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights | 103 |
Table of Contents
Litman Gregory Funds Trust
Note 1 – Organization
Litman Gregory Funds Trust (the “Trust”) was organized as a Delaware business trust on August 1, 1996, and is registered under the Investment Company Act of 1940 (the “1940 Act”) as an open-end management investment company. Effective August 1, 2011, The Masters’ Select Funds Trust changed its name to the Litman Gregory Funds Trust. The Trust consists of four separate series: Litman Gregory Masters Equity Fund, Litman Gregory Masters International Fund, Litman Gregory Masters Smaller Companies Fund and Litman Gregory Masters Alternative Strategies Fund (each a “Fund” and collectively the “Funds”). Each Fund is diversified.
Litman Gregory Masters Equity Fund (“Equity Fund”) seeks to increase the value of an investment in the Fund over the long-term by using the combined talents and favorite stock-picking ideas of six highly regarded portfolio managers (each “Managers”). The Equity Fund offers two classes of shares: Institutional Class and Investor Class shares. The Investor Class shares charge a 0.25% 12b-1 distribution fee to the shareholders of this class (see Note 4).
Litman Gregory Masters International Fund (“International Fund”) seeks to increase the value of an investment in the Fund over the long-term by using the combined talents and favorite stock-picking ideas of six highly regarded international portfolio managers. The International Fund offers two classes of shares: Institutional Class and Investor Class shares. The Investor Class shares charge a 0.25% 12b-1 distribution fee to the shareholders of this class (see Note 4).
Litman Gregory Masters Smaller Companies Fund (“Smaller Companies Fund”) seeks to increase the value of an investment in the Fund over the long-term by using the combined talents and favorite stock-picking ideas of three highly regarded smaller company portfolio managers. The Smaller Companies Fund offers one class of shares: Institutional Class.
Litman Gregory Masters Alternative Strategies Fund (“Alternative Strategies Fund”) seeks to achieve long-term returns with lower risk and lower volatility than the stock market, and with relatively low correlation to stock and bond market indexes by using the combined talents and favorite stock and bond market indexes-picking ideas of five highly regarded portfolio managers. The Alternative Strategies Fund offers two classes of shares: Institutional Class and Investor Class shares. The Investor Class shares charge a 0.25% 12b-1 distribution fee to the shareholders of this class (see Note 4).
Note 2 – Significant Accounting Policies
The following is a summary of the significant accounting policies followed by the Funds. These policies are in conformity with accounting principles generally accepted in the United States of America.
A | Accounting Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. |
The Funds are investment companies and accordingly follow the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standard Codification Topic 946 Financial Services—Investment Companies.
B | Security Valuation. Investments in securities and derivatives traded on a national securities exchange are valued at the last reported sales price at the close of regular trading on each day that the exchanges are open for trading. Securities listed on the NASDAQ Global Market, the NASDAQ Global Select Market and the NASDAQ Capital Market are valued using the NASDAQ Official Closing Price (“NOCP”). Securities traded on an exchange for which there have been no sales are valued at the mean between the closing bid and asked prices. Debt securities maturing within 60 days or less are valued at amortized cost unless the Valuation Committee determines that amortized cost does not represent fair value. Securities for which market prices are not readily available or if a security’s value has materially changed after the close of the security’s primary market but before the close of trading on the NYSE, the securities are valued at fair value as determined in good faith by the Managers that selected the security for the Funds’ portfolio and the Trust’s Valuation Committee in accordance with procedures approved by the Board of Trustees. In determining fair value, the Funds take into account all relevant factors and available information. Consequently, the price of the security used by a Fund to calculate its net asset value may differ from quoted or published prices for the same security. Fair value pricing involves subjective judgments and there is no single standard for determining the fair value of a security. As a result, different mutual funds could reasonably arrive at a different value for the same security. For securities that do not trade during NYSE hours, fair value determinations are based on analyses of market movements after the close of those securities’ primary markets, and include reviews of developments in foreign markets, the performance of U.S. securities markets, and the performance of instruments trading in U.S. markets that represent foreign securities and baskets of foreign securities. Pricing services are used to obtain closing market prices and to compute certain fair value adjustments utilizing computerized pricing models. It is possible that the fair value determined for a security is materially different from the value that could be realized upon the sale of that security or from the values that other mutual funds may determine. |
104 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Funds Trust
NOTES TO FINANCIAL STATEMENTS – (Continued)
Investments in other funds are valued at their respective net asset values as determined by those funds in accordance with the 1940 Act.
Debt securities generally trade in the over-the-counter market rather than on a securities exchange. The Funds’ pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, option-adjusted spreads, credit spreads, estimated default rates, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Securities denominated in a foreign currency are converted into their U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the date that the values of the foreign debt securities are determined. Repurchase agreements are valued at cost, which approximates fair value.
Certain derivatives trade in the over-the-counter market. The Funds’ pricing services use various techniques including industry standard option pricing models and proprietary discounted cash flow models to determine the fair value of those instruments. The Funds’ net benefit or obligation under the derivative contract, as measured by the fair value of the contract, is included in net assets.
The Funds have procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Funds primarily employ a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. The Funds may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed.
C | Senior Term Loans. The Alternative Strategies Fund may invest in bank debt, which includes interests in loans to companies or their affiliates undertaken to finance a capital restructuring or in connection with recapitalizations, acquisitions, leveraged buyouts, refinancings or other financially leveraged transactions and may include loans which are designed to provide temporary or bridge financing to a borrower pending the sale of identified assets, the arrangement of longer-term loans or the issuance and sale of debt obligations. These loans, which may bear fixed or floating rates, have generally been arranged through private negotiations between a corporate borrower and one or more financial institutions (“Lenders”), including banks. The Alternative Strategies Fund’s investment may be in the form of participations in loans (“Participations”) or of assignments of all or a portion of loans from third parties (“Assignments”). |
D | Short Sales. Each Fund may sell a security it does not own in anticipation of a decline in the fair value of that security. When each Fund sells a security short, it must borrow the security sold short and deliver it to the broker-dealer through which it made the short sale. In addition, cash and certain investments in securities may be used to collateralize the securities sold short. Each day the securities sold short transaction is open, the liability to replace the borrowed security is marked to market and an unrealized gain or loss is recorded. While the transaction remains open, the Fund may also incur expenses for any dividends or interest which will be paid to the lender of the securities as well as a fee to borrow the delivered security. During the term of the short sale, the value of the securities pledged as collateral on short sales is required to exceed the value of the securities sold short. A gain, limited to the price at which each Fund sold the security short, or a loss, unlimited in size, will be recognized upon the termination of a short sale. Each Fund is also subject to the risk that it may be unable to reacquire a security to terminate a short position except at a price substantially in excess of the last quoted price. |
E | Repurchase Agreements. Each Fund may enter into repurchase agreements through which the Fund acquires a security (the “underlying security”) from a seller, a well-established securities dealer or a bank that is a member of the Federal Reserve System. The bank or securities dealer agrees to repurchase the underlying security at the same price, plus a specified amount of interest, at a later date, generally for a period of less than one week. It is the Trust’s policy that its Custodian takes possession of securities as collateral under repurchase agreements and to determine on a daily basis that the value of such securities, including recorded interest, is sufficient to cover the value of the repurchase agreements. The Funds’ policy states that the value of the collateral is at least 102% of the value of the repurchase agreement. If the counterparty defaults and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the counterparty of the security, realization of the collateral by a Fund may be delayed or limited. At December 31, 2017, the Funds’ ongoing exposure to the economic return on repurchase agreements is shown on the Schedules of Investments. |
F | Foreign Currency Translation. The Funds’ records are maintained in U.S. dollars. The value of securities, currencies and other assets and liabilities denominated in currencies other than U.S. dollars are translated into U.S. dollars based upon foreign |
Notes to Financial Statements | 105 |
Table of Contents
Litman Gregory Funds Trust
NOTES TO FINANCIAL STATEMENTS – (Continued)
exchange rates prevailing at the end of the reporting period. The currencies are translated into U.S. dollars by using the exchange rates quoted at the close of the London Stock Exchange prior to when each Fund’s net asset value is next determined. Purchases and sales of investment securities, income and expenses are translated on the respective dates of such transactions. |
The Funds do not isolate that portion of their net realized and unrealized gains and losses on investments resulting from changes in foreign exchange rates from the impact arising from changes in market prices. Such fluctuations are included with net realized and unrealized gain or loss from investments.
Net realized foreign currency transaction gains and losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the differences between the amounts of dividends, interest, and foreign withholding taxes recorded on the Funds’ books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency transactions gains and losses arise from changes in the value of assets and liabilities, other than investments in securities, resulting from changes in the exchange rates.
G | Forward Foreign Currency Exchange Contracts. The Funds may utilize forward foreign currency exchange contracts (“forward contracts”) under which they are obligated to exchange currencies on specified future dates at specified rates, and are subject to foreign exchange rates fluctuations. All contracts are “marked-to-market” daily and any resulting unrealized gains or losses are recorded as unrealized appreciation or depreciation on foreign currency transactions. The Funds record realized gains or losses at the time the forward contract is settled. These gains and losses are reflected on the Statements of Operations as realized gain (loss) on foreign currency transactions. Counterparties to these forward contracts are major U.S. financial institutions (see Note 7). |
H | Financial Futures Contracts. The Alternative Strategies Fund invests in financial futures contracts primarily for the purpose of hedging its existing portfolio securities, or securities that the Fund intends to purchase, against fluctuations in fair value caused by changes in prevailing market interest rates. Upon entering into a financial futures contract, the Fund is required to pledge to the broker an amount of cash, U.S. government securities, or other assets, equal to a certain percentage of the contract amount (initial margin deposit). Subsequent payments, known as variation margin, are made or received by the Fund each day, depending on the daily fluctuations in the fair value of the underlying security. The Fund recognizes a gain or loss equal to the daily variation margin. If market conditions move unexpectedly, the Fund may not achieve the anticipated benefits of the financial futures contracts and may realize a loss. The use of futures transactions involves the risk of imperfect correlation in movements in the price of futures contracts, interest rates, and the underlying hedged assets (see Note 7). |
I | Interest Rate Swaps. An interest rate swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals, based upon or calculated by reference to changes in interest rates on a specified notional principal amount. The payment flows are usually netted against each other, with the difference being paid by one party to the other. Bilateral swap contracts are agreements in which a Fund and a counterparty agree to exchange periodic payments on a specified notional amount or make a net payment upon termination. Bilateral swap transactions are privately negotiated in the OTC market and payments are settled through direct payments between a Fund and the counterparty. By contrast, certain swap transactions are subject to mandatory central clearing. These swaps are executed through a derivatives clearing member (“DCM”), acting in an agency capacity, and submitted to a central counterparty (“CCP”) (“centrally cleared swaps”), in which case all payments are settled with the CCP through the DCM. Swaps are marked-to-market daily using pricing vendor quotations, counterparty or clearinghouse prices or model prices, and the change in value, if any, is recorded as an unrealized gain or loss. Upon entering into a swap contract, a Fund is required to satisfy an initial margin requirement by delivering cash or securities to the counterparty (or in some cases, segregated in a triparty account on behalf of the counterparty), which can be adjusted by any mark-to-market gains or losses pursuant to bilateral or centrally cleared arrangements. For centrally cleared swaps the daily change in valuation, and upfront payments, if any, are recorded as a receivable or payable for variation margin. |
J | Credit Default Swaps. During the year ended December 31, 2017, the Alternative Strategies Fund entered into credit default swaps to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults of corporate issuers or indexes or to create exposure to corporate issuers or indexes to which it is not otherwise exposed. In a credit default swap, the protection buyer makes a stream of payments based on a fixed percentage applied to the contract notional amount to the protection seller in exchange for the right to receive a specified return upon the occurrence of a defined credit event on the reference obligation which may be either a single security or a basket of securities issued by corporate or sovereign issuers. Although contract-specific, credit events are generally defined as bankruptcy, failure to pay, restructuring, obligation acceleration, obligation default, or repudiation/moratorium. Upon the occurrence of a defined credit event, the difference between the value of the reference obligation and the swap’s notional amount is recorded as realized gain (for protection written) or loss (for protection sold) in the Statements of Operations. In the case of credit default swaps where the Fund is selling protection, the notional amount approximates the maximum loss (see Note 7). For centrally cleared swaps the daily change in valuation, and upfront payments, if any, are recorded as a receivable or payable for variation margin. |
106 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Funds Trust
NOTES TO FINANCIAL STATEMENTS – (Continued)
K | Total Return Swaps. Total return swap is the generic name for any non-traditional swap where one party agrees to pay the other the “total return” of a defined underlying asset, usually in return for receiving a stream of London Interbank Offered Rate (“LIBOR”) based cash flows. A total return swap may be applied to any underlying asset but is most commonly used with equity indices, single stocks, bonds and defined portfolios of loans and mortgages. Total return swap is a mechanism for the user to accept the economic benefits of asset ownership without utilizing the Statement of Assets and Liabilities. The other leg of the swap, usually LIBOR, is a spread to reflect the non-Statement of Assets and Liabilities nature of the product. No notional amounts are exchanged with total return swaps. The total return receiver assumes the entire economic exposure—that is, both market and credit exposure—to the reference asset. The total return payer—often the owner of the reference obligation—gives up economic exposure to the performance of the reference asset and in return takes on counterparty credit exposure to the total return receiver in the event of a default or fall in value of the reference asset (see Note 7). |
L | Purchasing Put and Call Options. Each Fund may purchase covered “put” and “call” options with respect to securities which are otherwise eligible for purchase by a Fund and with respect to various stock indices subject to certain restrictions. Each Fund will engage in trading of such derivative securities primarily for hedging purposes. |
If a Fund purchases a put option, a Fund acquires the right to sell the underlying security at a specified price at any time during the term of the option (for “American-style” options) or on the option expiration date (for “European-style” options). Purchasing put options may be used as a portfolio investment strategy when a portfolio manager perceives significant short-term risk but substantial long-term appreciation for the underlying security. The put option acts as an insurance policy, as it protects against significant downward price movement while it allows full participation in any upward movement. If a Fund is holding a stock which it feels has strong fundamentals, but for some reason may be weak in the near term, a Fund may purchase a put option on such security, thereby giving itself the right to sell such security at a certain strike price throughout the term of the option. Consequently, a Fund will exercise the put only if the price of such security falls below the strike price of the put. The difference between the put’s strike price and the market price of the underlying security on the date a Fund exercises the put, less transaction costs, will be the amount by which a Fund will be able to hedge against a decline in the underlying security. If during the period of the option the market price for the underlying security remains at or above the put’s strike price, the put will expire worthless, representing a loss of the price a Fund paid for the put, plus transaction costs. If the price of the underlying security increases, the profit a Fund realizes on the sale of the security will be reduced by the premium paid for the put option less any amount for which the put may be sold.
If a Fund purchases a call option, it acquires the right to purchase the underlying security at a specified price at any time during the term of the option. The purchase of a call option is a type of insurance policy to hedge against losses that could occur if a Fund has a short position in the underlying security and the security thereafter increases in price. Each Fund will exercise a call option only if the price of the underlying security is above the strike price at the time of exercise. If during the option period the market price for the underlying security remains at or below the strike price of the call option, the option will expire worthless, representing a loss of the price paid for the option, plus transaction costs. If the call option has been purchased to hedge a short position of a Fund in the underlying security and the price of the underlying security thereafter falls, the profit a Fund realizes on the cover of the short position in the security will be reduced by the premium paid for the call option less any amount for which such option may be sold.
Prior to exercise or expiration, an option may be sold when it has remaining value by a purchaser through a “closing sale transaction,” which is accomplished by selling an option of the same series as the option previously purchased. Each Fund generally will purchase only those options for which a Investment Manager believes there is an active secondary market to facilitate closing transactions (see Note 7).
Writing Call Options. Each Fund may write covered call options. A call option is “covered” if a Fund owns the security underlying the call or has an absolute right to acquire the security without additional cash consideration (or, if additional cash consideration is required, cash or cash equivalents in such amount as are held in a segregated account by the Custodian). The writer of a call option receives a premium and gives the purchaser the right to buy the security underlying the option at the exercise price. The writer has the obligation upon exercise of the option to deliver the underlying security against payment of the exercise price during the option period. If the writer of an exchange-traded option wishes to terminate his obligation, he may effect a “closing purchase transaction.” This is accomplished by buying an option of the same series as the option previously written. A writer may not effect a closing purchase transaction after it has been notified of the exercise of an option.
Effecting a closing transaction in the case of a written call option will permit a Fund to write another call option on the underlying security with either a different exercise price, expiration date or both. Also, effecting a closing transaction will permit the cash or proceeds from the concurrent sale of any securities subject to the option to be used for other investments of a Fund. If a Fund desires to sell a particular security from its portfolio on which it has written a call option, it will effect a closing transaction prior to or concurrent with the sale of the security.
Notes to Financial Statements | 107 |
Table of Contents
Litman Gregory Funds Trust
NOTES TO FINANCIAL STATEMENTS – (Continued)
Each Fund will realize a gain from a closing transaction if the cost of the closing transaction is less than the premium received from writing the option or if the proceeds from the closing transaction are more than the premium paid to purchase the option. Each Fund will realize a loss from a closing transaction if the cost of the closing transaction is more than the premium received from writing the option or if the proceeds from the closing transaction are less than the premium paid to purchase the option. However, because increases in the market price of a call option will generally reflect increases in the market price of the underlying security, any loss to a Fund resulting from the repurchase of a call option is likely to be offset in whole or in part by appreciation of the underlying security owned by a Fund (see Note 7).
Risks of Investing in Options. There are several risks associated with transactions in options on securities. Options may be more volatile than the underlying instruments and, therefore, on a percentage basis, an investment in options may be subject to greater fluctuation than an investment in the underlying instruments themselves. There are also significant differences between the securities and options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objective. In addition, a liquid secondary market for particular options may be absent for reasons which include the following: there may be insufficient trading interest in certain options; restrictions may be imposed by an exchange on opening transactions or closing transactions or both; trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of option of underlying securities; unusual or unforeseen circumstances may interrupt normal operations on an exchange; the facilities of an exchange or clearing corporation may not at all times be adequate to handle current trading volume; or one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or series of options), in which event the secondary market on that exchange (or in that class or series of options) would cease to exist, although outstanding options that had been issued by a clearing corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms.
A decision as to whether, when and how to use options involves the exercise of skill and judgment, and even a well-conceived transaction may be unsuccessful to some degree because of market behavior or unexpected events. The extent to which a Fund may enter into options transactions may be limited by the requirements of the Internal Revenue Code of 1986, as amended (the “Code”), with respect to qualification of a Fund as a regulated investment company.
M | Distributions to Shareholders. Distributions paid to shareholders are recorded on the ex-dividend date. The amount of dividends and distributions from net investment income and net realized capital gains is determined in accordance with federal income tax regulations, which may differ from generally accepted accounting principles. To the extent these “book/tax” differences are permanent in nature (i.e., that they result from other than timing of recognition – “temporary differences”), such amounts are reclassified within the capital accounts based on their federal tax-basis. |
N | Federal Income Taxes. The Funds intend to comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute all of their taxable income to their shareholders. Accordingly, no provisions for federal income taxes are required. The Funds have reviewed the tax positions, taken on federal income tax returns, for each of the three open tax years and as of December 31, 2017, and have determined that no provision for income tax is required in the Funds’ financial statements. The Funds recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statments of Operations. During the year, the Funds did not incur any interest or penalties. Foreign securities held by the Funds may be subject to foreign taxation on dividend and interest income received. Foreign taxes, if any, net of any reclaims, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Funds’ invest. |
Taxes on foreign interest and dividend income are generally withheld in accordance with the applicable country’s tax treaty with the United States. The foreign withholding rates applicable to a Fund’s investments in certain jurisdictions may be higher if a significant portion of the Fund is held by non-U.S. shareholders. Each Fund may be subject to taxation on realized capital gains, repatriation proceeds and other transaction-based charges imposed by certain countries in which it invests. Taxes related to capital gains realized during the year ended December 31, 2017, if any, are reflected as part of Net realized gain (loss) in the Statements of Operations.
Changes in tax liabilities related to capital gain taxes on unrealized investment gains, if any, are reflected as part of Change in net unrealized appreciation (depreciation) in the Statements of Operations. Transaction-based charges are generally calculated as a percentage of the transaction amount.
The Funds may have previously filed for and/or may file for additional tax refunds with respect to certain taxes withheld by certain countries. Generally, the amount of such refunds that a Fund reasonably determines are collectible and free from significant contingencies are reflected in a Fund’s net asset value and are reflected as foreign tax reclaims receivable in the Statements of Assets and Liabilities. In certain circumstances, a Fund’s receipt of such refunds may cause the Fund and/or its shareholders to be liable for U.S. federal income taxes and interest charges.
Foreign taxes paid by each Fund may be treated, to the extent permissible by the Code (and other applicable U.S. federal tax guidance) and if that Fund so elects, as if paid by U.S. shareholders of that Fund.
108 | Litman Gregory Funds Trust |
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NOTES TO FINANCIAL STATEMENTS – (Continued)
O | Security Transactions, Dividend and Interest Income and Expenses. Security transactions are accounted for on the trade date. Realized gains and losses on securities transactions are reported on an identified cost basis. Dividend income and, where applicable, related foreign tax withholding expenses are recorded on the ex-dividend date. Interest income is recorded on an accrual basis. Purchase discounts and premiums on fixed-income securities are accreted and amortized to maturity using the effective interest method. Many expenses of the Trust can be directly attributed to a specific Fund. Each Fund is charged for expenses directly attributed to it. Expenses that cannot be directly attributed to a specific Fund are allocated among the Funds in the Trust in proportion to their respective net assets or other appropriate method. Realized and unrealized gains and losses and net investment income, not including class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions by class are generally due to differences in class specific expenses. Class specific expenses, such as 12b-1 expenses, are directly attributed to that specific class. |
P | Restricted Cash. At December 31, 2017, the Alternative Strategies Fund held restricted cash in connection with investments in certain derivative securities. Restricted cash is held in a segregated account with the Alternative Strategies Fund’s custodian as well as with brokers and is reflected in the Statements of Assets and Liabilities as Deposits at brokers and custodian for securities sold short, futures, options, and swaps. Restrictions may include legally restricted deposits held as compensating balances against short-term borrowing arrangements or contracts entered into with others. |
The Funds considers their investment in an FDIC insured interest bearing savings account to be cash. The Funds maintain cash balances, which, at times, may exceed federally insured limits. The Funds maintain these balances with a high quality financial institution.
Q | Restricted Securities. A restricted security cannot be resold to the general public without prior registration under the Securities Act of 1933. If the security is subsequently registered and resold, the issuers would typically bear the expense of all registrations at no cost to the Fund. Restricted securities are valued according to the guidelines and procedures adopted by the Funds’ Board of Trustees. As of December 31, 2017, there were no restricted securities held in the Funds. |
R | Illiquid Securities. Each Fund may not invest more than 15% of the value of its net assets in illiquid securities, including restricted securities that are not deemed to be liquid by the Sub-Advisor. The Advisor and the Sub-Advisors will monitor the amount of illiquid securities in a Fund’s portfolio, under the supervision of the Board, to ensure compliance with a Fund’s investment restrictions. In accordance with procedures approved by the Board, these securities may be valued using techniques other than market quotations, and the values established for these securities may be different than what would be produced through the use of another methodology or if they had been priced using market quotations. Illiquid securities and other portfolio securities that are valued using techniques other than market quotations, including “fair valued” securities, may be subject to greater fluctuation in their value from one day to the next than would be the case if market quotations were used. In addition, there is no assurance that a Fund could sell a portfolio security for the value established for it at any time, and it is possible that a Fund would incur a loss because a portfolio security is sold at a discount to its established value. |
S | Indemnification Obligations. Under the Funds’ organizational documents, its current and former officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Funds. In addition, in the normal course of business, the Funds enter into contracts that contain a variety of representations and warranties that provide general indemnifications. The Funds’ maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred or that would be covered by other parties. |
Note 3 – Investment Advisory and Other Agreements
The Trust, on behalf of the Funds, entered into an Investment Advisory Agreement (the “Agreement”) with Litman Gregory Fund Advisors, LLC (the “Advisor”). Under the terms of the Agreement, each Fund pays a monthly investment advisory fee to the Advisor at the annual rate below of the respective Fund’s average daily net assets before any fee waivers:
Contractual Management Rate | ||||||||||||||||||||||||||||||||||||||||
Fund | First $450 million | Excess of | First $750 million | Excess of | First $1 billion | Excess of $1 billion | First $2 billion | Between $2 and $3 billion | Between $3 and $4 billion | Excess of $4 billion | ||||||||||||||||||||||||||||||
Equity | — | — | 1.10 | % | 1.00 | % | — | — | — | — | — | — | ||||||||||||||||||||||||||||
International | — | — | — | — | 1.10 | % | 1.00 | % | — | — | — | — | ||||||||||||||||||||||||||||
Smaller Companies | 1.14 | % | 1.04 | % | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Alternative Strategies | — | — | — | — | — | — | 1.40 | % | 1.30 | % | 1.25 | % | 1.20 | % |
The Advisor engages sub-advisors to manage the Funds and pays the sub-advisors from its advisory fees.
Notes to Financial Statements | 109 |
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NOTES TO FINANCIAL STATEMENTS – (Continued)
Through April 30, 2018, the Advisor has contractually agreed to waive a portion of its advisory fees effectively reducing total advisory fees to approximately 0.98% of the average daily net assets of the Equity Fund, 0.82% of the average daily net assets of the International Fund, 0.72% of the average daily net assets of the Smaller Companies Fund and 1.31% of the average daily net assets of the Alternative Strategies Fund. Additionally, the Advisor has voluntarily agreed to waive its management fee on the daily cash values of the Funds not allocated to Managers. For the year ended December 31, 2017, the amount waived, contractual and voluntary, was $386,672, $1,876,901, $141,709 and $1,675,406 for Equity Fund, International Fund, Smaller Companies Fund and Alternative Strategies Fund, respectively. The Advisor has agreed not to seek recoupment of such waived fees. Through April 30, 2018, the Advisor has contractually agreed to waive a portion of its advisory fees and/or reimburse a portion of the Alternative Strategies Fund’s operating expenses (excluding any taxes, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, borrowing costs, (including commitment fees), dividend expenses, acquired fund fees and expenses and extraordinary expenses such as but not limited to litigation costs) to ensure that the total annual fund operating expenses after fee waiver and/or expense reimbursement for the Institutional and Investor Classes will not exceed 1.49% and 1.74%, respectively. The contractual agreement was not renewed for periods ending after April 30, 2018. For the year ended December 31, 2017, the amount waived contractually pursuant to an Expense Limitation Agreement that expired on April 30, 2017 was $280,708 for the International Fund. The Alternative Strategies Fund’s expense did not exceed the contractual expense cap for the year ended December 31, 2017. The Advisor may be reimbursed by the Funds no later than the end of the third fiscal year following the year of the waiver provided that such reimbursement does not cause the Funds’ expenses to exceed the expense limitation. The Advisor is waiving its right to recoup these fees and any fees waived in prior years.
State Street Bank and Trust Company (“State Street”) serves as the Administrator, Custodian and Fund Accountant to the Funds.
DST Asset Manager Solutions, Inc. (“DST”) serves as the Funds’ Transfer Agent. The Funds’ principal underwriter is ALPS Distributors, Inc.
An employee of the Advisor serves as the Funds’ Chief Compliance Officer (“CCO”). The CCO receives no compensation from the Funds for his services, however, the Funds reimbursed the Advisor $61,268 for the year ended December 31, 2017 for the services of the CCO.
No Sub-Advisors used their respective affiliated entity for purchases and sales of the Funds’ portfolio securities for the year ended December 31, 2017.
During the year ended December 31, 2017, each independent Trustee, within the meaning of the 1940 Act, was compensated by the Trust in the amount of $90,000.
Certain officers and Trustees of the Trust are also officers of the Advisor.
Note 4 – Distribution Plan
Certain Funds have adopted a Plan of Distribution (the “Plan”) dated February 25, 2009, pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Investor Classes of the Equity Fund, International Fund and Alternative Strategies Fund will compensate broker dealers or qualified institutions with whom each Fund has entered into a contract to distribute Fund shares (“Dealers”). Under the Plan, the amount of such compensation paid in any one year shall not exceed 0.25% annually of the average daily net assets of the Investor Classes, which may be payable as a service fee for providing recordkeeping, subaccounting, subtransfer agency and/or shareholder liaison services. For the year ended December 31, 2017, the Equity, International and Alternative Strategies Funds’ Investor Classes incurred $221, $59,756 and $495,562, respectively, pursuant to the Plan.
The Plan will remain in effect from year to year provided such continuance is approved at least annually by a vote either of a majority of the Trustees, including a majority of the non-interested Trustees, or a majority of each Fund’s outstanding shares.
Note 5 – Investment Transactions
The cost of securities purchased and the proceeds from securities sold for the year ended December 31, 2017, excluding short-term investments and U.S. government obligations, were as follows:
Fund | Purchases | Sales | ||||||
Equity Fund | $ | 101,787,689 | $ | 147,469,049 | ||||
International Fund | 277,841,218 | 451,501,761 | ||||||
Smaller Companies Fund | 31,764,525 | 38,487,043 | ||||||
Alternative Strategies Fund | 2,638,620,410 | 2,235,857,649 |
During the year ended December 31, 2017, there was one transaction made in accordance with the established procedures pursuant to Rule 17a-7 (the exemption of certain purchase or sale transactions between an investment company and certain affiliated persons thereof). The transaction, arranged by Passport Capital, LLC, on behalf of the Litman Gregory Masters Alternative Strategies Fund, was made on September 25, 2017 in connection with the Alternative Strategies Fund’s purchase of National Commerical Bank P-note. For the year ended December 31, 2017, such purchase transaction was $3,845,591.
110 | Litman Gregory Funds Trust |
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NOTES TO FINANCIAL STATEMENTS – (Continued)
Note 6 – Fair Value of Financial Investments
The Funds follow a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Funds’ own market assumptions (unobservable inputs). These inputs are used in determining the value of each Fund’s investments and are summarized in the following fair value hierarchy:
Level 1 – | Quoted prices in active markets for identical securities. |
Level 2 – | Other significant observable inputs (including quoted prices for similar securities, interest rates, foreign exchange rates, and fair value estimates for foreign securities indices). |
Level 3 – | Significant unobservable inputs (including the Funds’ own assumptions in determining fair value of investments). |
Fixed income securities including corporate, convertible and municipal bonds and notes, U.S. government agencies, U.S. Treasury obligations, U.S. Treasury inflation protected securities, sovereign issues, bank loans, convertible preferred securities and non-U.S. bonds are normally valued on the basis of quotes obtained from brokers and dealers or independent pricing services or sources. Independent pricing services typically use information provided by market makers or estimates of market values obtained from yield data relating to investments or securities with similar characteristics. The service providers’ internal models use inputs that are observable such as, among other things, issuer details, interest rates, yield curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar assets. Securities that use similar valuation techniques and inputs as described above are categorized as Level 2 of the fair value hierarchy.
Fixed income securities purchased on a delayed-delivery basis are typically marked to market daily until settlement at the forward settlement date.
Mortgage and asset-backed securities are usually issued as separate tranches, or classes, of securities within each deal. These securities are also normally valued by pricing service providers that use broker dealer quotations or valuation estimates from their internal pricing models. The pricing models for these securities usually consider tranche-level attributes, estimated cash flows and market-based yield spreads for each tranche, current market data and incorporates deal collateral performance, as available.
Stripped mortgage-backed securities are usually structured with two different classes: one that receives substantially all interest payments (interest-only, or “IO” and/or high coupon rate with relatively low principal amount, or “IOette”), and the other that receives substantially all principal payments (principal-only, or “PO”) from a pool of mortgage loans. Little to no principal will be received at the maturity of an IO; as a result, periodic adjustments are recorded to reduce the cost of the security until maturity. These adjustments are included in interest income.
Mortgage and asset-backed securities that use similar valuation techniques and inputs as described above are categorized as Level 2 of the fair value hierarchy.
Financial derivative instruments, such as foreign currency contracts, options contracts, futures, or swap agreements, derive their value from underlying asset prices, indices, reference rates, and other inputs or a combination of these factors. These contracts are normally valued on the basis of broker dealer quotations or pricing service providers at the settlement price determined by the relevant exchange. Depending on the product and the terms of the transaction, the value of the derivative contracts can be estimated by a pricing service provider using a series of techniques, including simulation pricing models. The pricing models use inputs that are observed from actively quoted markets such as issuer details, indices, spreads, interest rates, curves, dividends and exchange rates. Derivatives that use similar valuation techniques and inputs as described above are categorized as Level 1 or Level 2 of the fair value hierarchy.
The following table provides the fair value measurements of applicable Fund assets and liabilities by level within the fair value hierarchy for each Fund as of December 31, 2017. These assets and liabilities are measured on a recurring basis.
Equity Fund | ||||||||||||||||
Description | Level 1 - Quoted prices in active markets for identical assets | Level 2 - Significant other observable inputs | Level 3 - Significant unobservable inputs | Total | ||||||||||||
Equity(a) | ||||||||||||||||
Common Stocks | $ | 311,247,815 | $ | — | $ | — | $ | 311,247,815 | ||||||||
|
| |||||||||||||||
Total Equity | 311,247,815 | — | — | 311,247,815 | ||||||||||||
|
| |||||||||||||||
Short-Term Investments | ||||||||||||||||
Repurchase Agreements | — | 27,911,000 | — | 27,911,000 | ||||||||||||
|
| |||||||||||||||
Total Investments in Securities | $ | 311,247,815 | $ | 27,911,000 | $ | — | $ | 339,158,815 | ||||||||
|
|
(a) | See Fund’s Schedule of Investments for sector classifications. |
There were no transfers between any levels in the Fund as of December 31, 2017.
Notes to Financial Statements | 111 |
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NOTES TO FINANCIAL STATEMENTS – (Continued)
International Fund | ||||||||||||||||
Description | Level 1 - Quoted prices in active markets for identical assets | Level 2 - Significant other observable inputs | Level 3 - Significant unobservable inputs | Total | ||||||||||||
Equity | ||||||||||||||||
Common Stocks | ||||||||||||||||
Australia | $ | — | $ | 6,700,238 | $ | — | $ | 6,700,238 | ||||||||
Belgium | — | 25,479,353 | — | 25,479,353 | ||||||||||||
Bermuda | 23,287,986 | — | — | 23,287,986 | ||||||||||||
Canada | 3,253,898 | — | — | 3,253,898 | ||||||||||||
China | 20,188,798 | — | — | 20,188,798 | ||||||||||||
Denmark | — | 19,779,789 | — | 19,779,789 | ||||||||||||
Finland | — | 12,890,784 | — | 12,890,784 | ||||||||||||
France | — | 84,292,197 | — | 84,292,197 | ||||||||||||
Germany | — | 45,986,968 | — | 45,986,968 | ||||||||||||
Greece | — | 7,560,129 | — | 7,560,129 | ||||||||||||
Hong Kong | — | 43,768,410 | — | 43,768,410 | ||||||||||||
Israel | — | 12,224,572 | — | 12,224,572 | ||||||||||||
Italy | — | 9,114,218 | — | 9,114,218 | ||||||||||||
Japan | — | 56,145,241 | — | 56,145,241 | ||||||||||||
Mexico | 11,107,593 | — | — | 11,107,593 | ||||||||||||
Monaco | 6,057,551 | — | — | 6,057,551 | ||||||||||||
Netherlands | — | 67,222,076 | — | 67,222,076 | ||||||||||||
Norway | — | 10,064,706 | — | 10,064,706 | ||||||||||||
South Korea | — | 10,981,859 | — | 10,981,859 | ||||||||||||
Spain | — | 25,311,095 | — | 25,311,095 | ||||||||||||
Switzerland | — | 26,507,914 | — | 26,507,914 | ||||||||||||
Taiwan | — | 4,140,808 | — | 4,140,808 | ||||||||||||
United Kingdom | 13,828,483 | 93,785,068 | — | 107,613,551 | ||||||||||||
United States | 25,537,856 | — | — | 25,537,856 | ||||||||||||
|
| |||||||||||||||
Total Equity | 103,262,165 | 561,955,425 | — | 665,217,590 | ||||||||||||
|
| |||||||||||||||
Short-Term Investments | ||||||||||||||||
United States | — | 17,771,000 | — | 17,771,000 | ||||||||||||
|
| |||||||||||||||
Total Short-Term Investments | — | 17,771,000 | — | 17,771,000 | ||||||||||||
|
| |||||||||||||||
Total Investments in Securities | $ | 103,262,165 | $ | 579,726,425 | $ | — | $ | 682,988,590 | ||||||||
|
| |||||||||||||||
Other Financial Instruments* | ||||||||||||||||
Forward Foreign Currency Exchange Contracts | $ | (311,841 | ) | $ | — | $ | — | $ | (311,841 | ) |
* | Other financial instruments are derivative instruments, such as futures, forward foreign currency exchange, swaps contracts and written options. Futures, forward foreign currency exchange and swap contracts are valued at the unrealized appreciation (depreciation) on the instrument, while written options are valued at fair value. |
There was $528,229,760 transferred from Level 1 to Level 2 in the International Fund. Securities transferred were priced by a third party vendor and a fair valuation model was applied in accordance with the Trust’s valuation procedures.
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Smaller Companies Fund | ||||||||||||||||
Description | Level 1 - Quoted prices in active markets for identical assets | Level 2 - Significant other observable inputs | Level 3 - Significant unobservable inputs | Total | ||||||||||||
Equity(a) | ||||||||||||||||
Common Stocks | $ | 30,005,137 | $ | — | $ | — | $ | 30,005,137 | ||||||||
|
| |||||||||||||||
Total Equity | 30,005,137 | — | — | 30,005,137 | ||||||||||||
|
| |||||||||||||||
Short-Term Investments | ||||||||||||||||
Repurchase Agreements | — | 3,427,000 | — | 3,427,000 | ||||||||||||
|
| |||||||||||||||
Total Investments in Securities | $ | 30,005,137 | $ | 3,427,000 | $ | — | $ | 33,432,137 | ||||||||
|
|
(a) | See Fund’s Schedule of Investments for sector classifications. |
There were no transfers between any levels in the Fund as of December 31, 2017.
Alternative Strategies Fund | ||||||||||||||||
Description | Level 1 - Quoted prices in active markets for identical assets | Level 2 - Significant other observable inputs | Level 3 - Significant unobservable inputs | Total | ||||||||||||
Equity(a) | ||||||||||||||||
Common Stocks | $ | 493,609,392 | $ | 9,106,428 | $ | 905,305 | ** | $ | 503,621,125 | |||||||
Exchange-Traded Funds | 4,714,438 | — | — | 4,714,438 | ||||||||||||
Limited Partnerships | — | — | 1,392,777 | ** | 1,392,777 | |||||||||||
Preferred Stocks | 1,458,160 | — | 1,683,512 | ** | 3,141,672 | |||||||||||
|
| |||||||||||||||
Total Equity | 499,781,990 | 9,106,428 | 3,981,594 | ** | 512,870,012 | |||||||||||
|
| |||||||||||||||
Rights/Warrants | — | 9,717 | 0 | 9,717 | ||||||||||||
Short-Term Investments | ||||||||||||||||
Treasury Bills | — | 64,025,591 | — | 64,025,591 | ||||||||||||
Repurchase Agreements | — | 363,454,000 | — | 363,454,000 | ||||||||||||
|
| |||||||||||||||
Total Short-Term Investments | — | 427,479,591 | — | 427,479,591 | ||||||||||||
|
| |||||||||||||||
Fixed Income | ||||||||||||||||
Asset-Backed Securities | — | 133,238,697 | 2,237,794 | ** | 135,476,491 | |||||||||||
Bank Loans | — | 37,242,238 | — | 37,242,238 | ||||||||||||
Convertible Bonds | — | 14,028,015 | — | 14,028,015 | ||||||||||||
Corporate Bonds | — | 451,142,097 | 1,609,785 | ** | 452,751,882 | |||||||||||
Government Securities & Agency Issue | — | 71,944,379 | — | 71,944,379 | ||||||||||||
Mortgage-Backed Securities | — | 371,322,473 | 1,500,000 | (1) | 372,822,473 | |||||||||||
Municipal Bonds | — | 10,326,461 | — | 10,326,461 | ||||||||||||
|
| |||||||||||||||
Total Fixed Income | — | 1,089,244,360 | 5,347,579 | ** | 1,094,591,939 | |||||||||||
|
| |||||||||||||||
Purchased Options | 706,224 | 107,813 | — | 814,037 | ||||||||||||
|
| |||||||||||||||
Total Investments in Securities in Assets | $ | 500,488,214 | $ | 1,525,947,909 | $ | 9,329,173 | ** | $ | 2,035,765,296 | |||||||
|
| |||||||||||||||
Short Sales | ||||||||||||||||
Common Stocks | (104,208,933 | ) | — | 0 | (104,208,933 | ) | ||||||||||
Exchange-Traded Funds | (13,280,055 | ) | — | — | (13,280,055 | ) | ||||||||||
Corporate Bonds | — | (2,416,356 | ) | — | (2,416,356 | ) | ||||||||||
|
| |||||||||||||||
Total Short Sales | (117,488,988 | ) | (2,416,356 | ) | — | (119,905,344 | ) | |||||||||
|
| |||||||||||||||
Total Investments in Securities in Liabilities | $ | (117,488,988 | ) | $ | (2,416,356 | ) | $ | 0 | $ | (119,905,344 | ) | |||||
|
|
Notes to Financial Statements | 113 |
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Litman Gregory Funds Trust
NOTES TO FINANCIAL STATEMENTS – (Continued)
Description | Level 1 - Quoted prices in active markets for identical assets | Level 2 - Significant other observable inputs | Level 3 - Significant unobservable inputs | Total | ||||||||||||
Other Financial Instruments* | ||||||||||||||||
Forward Foreign Currency Exchange Contracts | $ | (1,071,231 | ) | $ | — | $ | — | $ | (1,071,231 | ) | ||||||
Futures | (588,452 | ) | — | — | (588,452 | ) | ||||||||||
Swaps - Total Return | — | (46,950 | ) | — | (46,950 | ) | ||||||||||
Swaps - Interest Rate | — | 182,916 | — | 182,916 | ||||||||||||
Swaps - Credit Default | — | (437,152 | ) | — | (437,152 | ) | ||||||||||
Written Options | (1,175,557 | ) | — | — | (1,175,557 | ) |
(a) | See Fund’s Schedule of Investments for sector classifications. |
* | Other financial instruments are derivative instruments, such as futures, forward foreign currency exchange, swaps contracts and written options. Futures, forward foreign currency exchange and swap contracts are valued at the unrealized appreciation (depreciation) on the instrument, while written options are valued at fair value. |
** | Significant unobservable inputs were used in determining the value of portfolio securities for the Alternative Strategies Fund. |
(1) | These securities were priced by a pricing service; however, the Advisor/Sub-Advisor used their fair value procedures based on other available inputs which more accurately reflected the current fair value of these securities |
There was $28 transferred from Level 2 to Level 3 in the Alternative Strategies Fund. Prices for the subject securities were not obtainable from an approved pricing vendor so the Pricing Committee, in conjunction with the sub-advisor that holds the securities valued the securities.
There was $221,040 transferred from Level 3 to Level 2 in the Alternative Strategies Fund. The securities had heretofore been priced by an approved vendor and then subjected to the application of a liquidity discount, which was removed during the year.
The amount of transfers in and out are reflected at the securities’ fair value at the beginning of the year, pursuant to the Funds’ policies.
Note 7 – Other Derivative Information
At December 31, 2017, the Funds are invested in derivative contracts which are reflected in the Statements of Assets and Liabilities as follows:
International Fund | ||||||||||||||||||||
Derivative Assets | Derivative Liabilities | |||||||||||||||||||
Risk | Statements of Assets and Liabilities Location | Fair Value Amount | Statements of Assets and Liabilities Location | Fair Value Amount | ||||||||||||||||
Currency | Unrealized gain on forward foreign currency exchange contracts | $ | 135,218 | Unrealized loss on forward foreign currency exchange contracts | $ | (447,059 | ) | |||||||||||||
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| |||||||||||||||||||
Alternative Strategies Fund | ||||||||||||||||||||
Derivative Assets | Derivative Liabilities | |||||||||||||||||||
Risk | Statements of Assets and Liabilities Location | Fair Value Amount | Statements of Assets and Liabilities Location | Fair Value Amount | ||||||||||||||||
Currency | Unrealized gain on forward foreign currency exchange contracts | $ | 623,769 | Unrealized loss on forward foreign currency exchange contracts | $ | (1,695,000 | ) | |||||||||||||
Investments in securities(1) | 107,813 | Written options | — | |||||||||||||||||
Interest rate | Unrealized gain on swap contracts** | 451,355 | Unrealized loss on swap contracts** | (268,439 | ) | |||||||||||||||
Unrealized gain on futures contracts* | 74,878 | Unrealized loss on futures contracts* | (599,748 | ) | ||||||||||||||||
Credit | Unrealized gain on swap contracts** | 7,347,854 | Unrealized loss on swap contracts** | (7,785,006 | ) |
114 | Litman Gregory Funds Trust |
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NOTES TO FINANCIAL STATEMENTS – (Continued)
Derivative Assets | Derivative Liabilities | |||||||||||||||||||
Risk | Statements of Assets and Liabilities Location | Fair Value Amount | Statements of Assets and Liabilities Location | Fair Value Amount | ||||||||||||||||
Equity | Unrealized gain on swap contracts | $ | — | Unrealized loss on swap contracts | $ | (46,950 | ) | |||||||||||||
Unrealized gain on futures contracts* | — | Unrealized loss on futures contracts* | (63,582 | ) | ||||||||||||||||
Investments in securities(1) | 706,224 | Written options | (1,175,557 | ) | ||||||||||||||||
|
| |||||||||||||||||||
Total | $ | 9,311,893 | $(11,634,282) | |||||||||||||||||
|
| |||||||||||||||||||
| * Includes cumulative appreciation/depreciation on futures contracts described previously. Only
** Includes cumulative appreciation/depreciation on centrally cleared swaps.
(1) The Statements of Assets and Liabilities location for “Purchased Options” is “Investments in |
|
For the year ended December 31, 2017, the effect of derivative contracts in the Funds’ Statements of Operations were as follows:
International Fund
Statements of Operations | ||||||||||||||||||
Risk | Derivative Type | Net Realized Gain (Loss) | Net Change in Unrealized Gain (Loss) | Average Notional Amount | ||||||||||||||
Currency | Forward foreign currency exchange contracts | $ | (2,737,277 | ) | $ | (2,652,862 | ) | 60,799,105 | (a) |
(a) | Average notional values are based on the average of monthly end contract values for the year ended December 31, 2017. |
Alternative Strategies Fund
Statements of Operations | ||||||||||||||||||
Risk | Derivative Type | Net Realized Gain (Loss) | Net Change in Unrealized Gain (Loss) | Average Notional Amount | ||||||||||||||
Currency | Forward foreign currency exchange contracts | $ | (3,083,703 | ) | $ | (1,903,202 | ) | 172,680,203 | (a) | |||||||||
Purchased option contracts | (842,573 | ) | (15,704 | ) | 18,071,000 | (b) | ||||||||||||
Interest rate | Swap contracts | 258,723 | 11,761 | 490,936,131 | (b)(c) | |||||||||||||
Future contracts | (120,090 | ) | (511,587 | ) | 533,027,779 | (b) | ||||||||||||
Credit | Swap contracts | (4,674,394 | ) | 331,795 | 563,595,979 | (b)(c) | ||||||||||||
Equity | Swap contracts | 2,046,078 | (781,921 | ) | 3,125,991 | (b)(c) | ||||||||||||
Future contracts | (2,965,017 | ) | (117,312 | ) | 14,850,609 | (b) | ||||||||||||
Purchased option contracts | (5,836,565 | ) | (708,521 | ) | 13,776 | (d) | ||||||||||||
Written option contracts | 1,177,931 | (294,125 | ) | 9,375 | (d) | |||||||||||||
|
| |||||||||||||||||
Total | $ | (14,039,610 | ) | $ | (3,988,816 | ) | ||||||||||||
|
|
(a) | Average notional values are based on the average of monthly end contract values for the year ended December 31, 2017. |
(b) | Average notional values are based on the average of monthly end notional balances for the year ended December 31, 2017. |
(c) | Notional amount is denoted in local currency. |
(d) | Average contracts are based on the average of monthly end contracts for the year ended December 31, 2017. |
The Funds are subject to various Master Netting Arrangements, which govern the terms of certain transactions with select counterparties. The Master Netting Arrangements allow the Funds to close out and net their total exposure to a counterparty in the event of a default with respect to all the transactions governed under a single agreement with a counterparty. The Master Netting Arrangements also specify collateral posting arrangements at pre-arranged exposure levels. Under the Master Netting Arrangements, collateral is routinely transferred if the total net exposure to certain transactions (net of existing collateral already in place) governed under the relevant Master Netting Arrangement with a counterparty in a given account exceeds a specified threshold depending on the counterparty and the type of Master Netting Arrangement.
Notes to Financial Statements | 115 |
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Litman Gregory Funds Trust
NOTES TO FINANCIAL STATEMENTS – (Continued)
At December 31, 2017, Equity Fund, International Fund, Smaller Companies Fund and Alternative Strategies Fund had investments in repurchase agreements with a gross value of $27,911,000, $17,771,000, $3,427,000 and $363,454,000, respectively, which are reflected as repurchase agreements on the Statements of Assets and Liabilities. The value of the related collateral exceeded the value of the repurchase agreements at December 31, 2017.
The following tables represent the Accounting Standards Update (“ASU”) 2013-01 disclosure for derivative instruments related to offsetting assets and liabilities for each of the Funds as of December 31, 2017:
International Fund
Derivative Assets | Derivative Liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Counterparty | Purchased Options | Futures | Swaps | Forward Currency Contracts | Total | Futures | Swaps | Forward Currency Contracts | Written Options | Total | Net Derivative Asset (Liabilities) | Collateral (Received) Pledged | Net Amount | |||||||||||||||||||||||||||||||||||||||||
State Street Bank and Trust Company | $ | — | $ | — | $ | — | $ | 135,218 | $ | 135,218 | $ | — | $ | — | $ | (447,059 | ) | $ | — | $ | (447,059 | ) | $ | (311,841 | ) | $ | — | $ | (311,841 | ) | ||||||||||||||||||||||||
|
|
Alternative Strategies Fund
Derivative Assets | Derivative Liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Counterparty | Purchased Options | Futures(1) | Swaps(2) | Forward Currency Contracts | Total | Futures(1) | Swaps(2) | Forward Currency Contracts | Written Options | Total | Net Derivative Asset (Liabilities) | Collateral (Received) Pledged | Net Amount | |||||||||||||||||||||||||||||||||||||||||||
BNP Paribas S.A. | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (5,708 | ) | $ | — | $ | (5,708 | ) | $ | (5,708 | ) | $ | — | $ | (5,708 | ) | ||||||||||||||||||||||||||
Bank of | 107,813 | — | — | 194,624 | 302,437 | — | (181,043 | ) | (297,090 | ) | — | (478,133 | ) | (175,696 | ) | — | (175,696 | ) | ||||||||||||||||||||||||||||||||||||||
Barclays Bank Plc | — | — | — | — | — | — | (19,926 | ) | — | — | (19,926 | ) | (19,926 | ) | 19,926 | — | ||||||||||||||||||||||||||||||||||||||||
Citibank N.A. | — | — | — | 1,052 | 1,052 | (454,303 | ) | — | (1,129 | ) | — | (455,432 | ) | (454,380 | ) | — | (454,380 | ) | ||||||||||||||||||||||||||||||||||||||
Credit Suisse International | — | — | — | — | — | — | — | (11,741 | ) | — | (11,741 | ) | (11,741 | ) | — | (11,741 | ) | |||||||||||||||||||||||||||||||||||||||
Deutsche Bank AG | — | — | — | 17,649 | 17,649 | — | — | (267,682 | ) | — | (267,682 | ) | (250,033 | ) | — | (250,033 | ) | |||||||||||||||||||||||||||||||||||||||
Goldman Sachs & Co. | 340,976 | — | — | 8,043 | 349,019 | — | — | (215,230 | ) | (266,714 | ) | (481,944 | ) | (132,925 | ) | 132,925 | — | |||||||||||||||||||||||||||||||||||||||
HSBC Holdings Plc | — | — | — | 4,693 | 4,693 | — | — | (3,587 | ) | — | (3,587 | ) | 1,106 | — | 1,106 | |||||||||||||||||||||||||||||||||||||||||
JP Morgan Chase Bank N.A. | — | 74,878 | 985,601 | 40,892 | 1,101,371 | (209,027 | ) | (107,786 | ) | (177,999 | ) | (829,890 | ) | (1,324,702 | ) | (223,331 | ) | 223,331 | — | |||||||||||||||||||||||||||||||||||||
Morgan Stanley & Co. | 365,248 | — | — | 351,318 | 716,566 | — | — | (673,845 | ) | (78,953 | ) | (752,798 | ) | (36,232 | ) | 36,232 | — | |||||||||||||||||||||||||||||||||||||||
Morgan Stanley Capital Services, Inc. | — | — | — | — | — | — | (23,112 | ) | — | — | (23,112 | ) | (23,112 | ) | 23,112 | — | ||||||||||||||||||||||||||||||||||||||||
UBS AG | — | — | — | 5,498 | 5,498 | — | — | (40,989 | ) | — | (40,989 | ) | (35,491 | ) | — | (35,491 | ) | |||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 814,037 | $ | 74,878 | $ | 985,601 | $ | 623,769 | $ | 2,498,285 | $ | (663,330 | ) | $ | (331,867 | ) | $ | (1,695,000 | ) | $ | (1,175,557 | ) | $ | (3,865,754 | ) | $ | (1,367,469 | ) | $ | 435,526 | $ | (931,943 | ) | |||||||||||||||||||||||
|
|
(1) | Includes cumulative appreciation (depreciation) of futures contracts as reported in the Notes to Schedule of Investments. Only current day’s variation margin is reported within the Statements of Assets and Liabilities. |
(2) | Does not include the unrealized appreciation (depreciation) of centrally cleared swaps as reported in the Notes to Schedule of Investments. Only the variation margin is reported within the Statements of Assets and Liabilities. |
Note 8 – Commitments and Contingencies
The Alternative Strategies Fund’s investment portfolio may contain debt investments that are in the form of unfunded loan commitments, which required the Fund to provide funding when requested by portfolio companies in accordance with the terms of the underlying loan agreements.
At December 31, 2017, unfunded loan commitment for the Alternative Strategies Fund was as follows:
Borrower | Unfunded Commitment | |||
GACP II, LLC | $ | 2,600,000 |
116 | Litman Gregory Funds Trust |
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Litman Gregory Funds Trust
NOTES TO FINANCIAL STATEMENTS – (Continued)
Note 9 – Income Taxes and Distributions to Shareholders
As of December 31, 2017, the components of accumulated earnings (losses) for income tax purposes were as follows:
Equity Fund | International Fund | Smaller Companies Fund | Alternative Strategies Fund | |||||||||||||
Tax cost of Investments | $ | 226,688,017 | $ | 575,329,131 | $ | 32,223,127 | $ | 1,837,064,989 | ||||||||
Gross Tax Unrealized Appreciation | 115,833,582 | 132,579,957 | 3,244,886 | 138,763,064 | ||||||||||||
Gross Tax Unrealized Depreciation | (3,362,784 | ) | (24,920,499 | ) | (2,035,876 | ) | (63,104,527 | ) | ||||||||
|
| |||||||||||||||
Net Tax unrealized appreciation (depreciation) on investments | 112,470,798 | 107,659,458 | 1,209,010 | 75,658,537 | ||||||||||||
Net Tax unrealized appreciation (depreciation) on forward foreign currency exchange contracts, foreign currency, swaps, futures and short sales | 544 | 44,811 | — | (159,949 | ) | |||||||||||
|
| |||||||||||||||
Net Tax unrealized appreciation (depreciation) | 112,471,342 | 107,704,269 | 1,209,010 | 75,498,588 | ||||||||||||
|
| |||||||||||||||
Undistributed Ordinary Income | 1,366,942 | 2,787,822 | — | 3,364,911 | ||||||||||||
|
| |||||||||||||||
Undistributed Long-Term Capital Gains | 12,234,108 | — | — | — | ||||||||||||
|
| |||||||||||||||
Capital Loss Carry Forward | — | (78,323,693 | ) | — | (9,905,197 | ) | ||||||||||
|
| |||||||||||||||
Current Year Ordinary Late Year Losses | — | — | — | — | ||||||||||||
|
| |||||||||||||||
Post-October Capital Losses | — | — | — | — | ||||||||||||
|
| |||||||||||||||
Other Accumulated Losses | — | — | — | — | ||||||||||||
|
| |||||||||||||||
Total accumulated gain/(loss) | $ | 126,072,392 | $ | 32,168,398 | $ | 1,209,010 | $ | 68,958,302 | ||||||||
|
|
The difference between book-basis and tax-basis unrealized appreciation is attributable primarily to wash sales, forward foreign currency exchange contracts, futures contracts, swap contracts, passive foreign investment company adjustments, partnership basis adjustments, organizational expenses and constructive sales.
For the year ended December 31, 2017, capital loss carry over used in current year and carry forward losses expired for each Fund were as follows :
Fund | Capital Loss Carryover Utilized | Carry forward losses expired | ||||||
Equity Fund | $ | — | $ | — | ||||
International Fund | 64,351,164 | 89,568,027 | ||||||
Smaller Companies Fund | 7,425,219 | 14,524,857 | ||||||
Alternative Strategies Fund | 23,095,456 | — |
The capital loss carry forwards for each Fund were as follows:
Equity Fund | International Fund | Smaller Companies Fund | Alternative Strategies Fund | |||||||||||||
Capital Loss Carryforwards | ||||||||||||||||
Perpetual Short-Term | $ | — | $ | (78,323,693 | ) | $ | — | $ | (9,905,197 | ) | ||||||
|
| |||||||||||||||
Total | $ | — | $ | (78,323,693 | ) | $ | — | $ | (9,905,197 | ) | ||||||
|
|
Notes to Financial Statements | 117 |
Table of Contents
Litman Gregory Funds Trust
NOTES TO FINANCIAL STATEMENTS – (Continued)
Additionally, U.S. generally accepted accounting principles require that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. For the year ended December 31, 2017, the following table shows the reclassifications made:
Fund | Undistributed Net Investment Income/ (Loss) | Accumulated Net Realized Gain/(Loss) | Paid In Capital | |||||||||
Equity Fund* | $ | 238,119 | $ | (1,784,816 | ) | $ | 1,546,697 | |||||
International Fund* | (3,374,885 | ) | 92,942,912 | (89,568,027 | ) | |||||||
Smaller Companies Fund* | 101,722 | 14,539,078 | (14,640,800 | ) | ||||||||
Alternative Strategies Fund* | 1,369,331 | (1,369,274 | ) | (57 | ) |
* | The permanent differences primarily relate to paydowns, partnerships, foreign currency gains/losses, net operating losses, equalization adjustments, swap dividend reclass, short dividend expense reclass, expiration of capital loss carryforwards, and passive foreign investment companies. |
The tax composition of dividends (other than return of capital dividends), for the years ended December 31, 2017 and 2016 were as follows:
2017 | 2016 | |||||||||||||||||||
Fund | Ordinary Income | Long-Term Capital Gain | Ordinary Income | Long-Term Capital Gain | ||||||||||||||||
Equity Fund | $ | 670,204 | $ | 25,129,439 | $ | 2,538,599 | $ | 15,352,397 | ||||||||||||
International Fund | 19,819,596 | — | 28,813,724 | — | ||||||||||||||||
Smaller Companies Fund | — | — | — | — | ||||||||||||||||
Alternative Strategies Fund | 43,209,899 | — | 35,529,580 | — |
The Funds designated as long-term capital gain dividend, pursuant to Internal Revenue Code Section 852(b)(3), the amount necessary to reduce the earnings and profits of the Funds related to net capital gain to zero for the tax year ended December 31, 2017.
Net investment income and net realized gains differ for financial statement and tax purposes due to differing treatments of wash sale losses deferred, foreign currency transactions and losses realized subsequent to October 31 on the sale of securities and foreign currencies, late year losses, straddle loss deferral, passive foreign investment company adjustments, and partnership adjustments.
Note 10 – Line of Credit
The Trust has an unsecured, uncommitted $75,000,000 line of credit with the Custodian, for the Equity Fund, International Fund and Smaller Companies Fund (the “Three Funds”) expiring on May 4, 2018. Borrowings under this agreement bear interest at the higher of the federal funds rate and one month LIBOR plus a spread of 1.00% per annum. There is no annual commitment fee on the uncommitted line of credit. The Trust also has a secured $100,000,000 line of credit for the Alternative Strategies Fund with the Custodian expiring on July 26, 2018. The line of credit is secured by a general security interest in substantially all of the Alternative Strategies Fund’s assets. Borrowings under this agreement bear interest at the higher of the federal funds rate and one-month libor plus a spread of 1.25% per annum (spread increased to 1.25% from 1.10% effective July 27, 2017). As compensation for holding the lending commitment available, effective July 27, 2017, the Trust pays a commitment fee rate of 0.20% (prior to July 27, 2017, the Trust paid a tiered commitment fee of 0.15%/0.20% based on usage) on the unused portion of the commitment on the secured line, which is paid for by the Alternative Strategies Fund. The fee is payable quarterly in arrears.
Amounts outstanding to the Three Funds under the Facility at no time shall exceed in the aggregate at any time the least of (a) $75,000,000; (b) 10% of the value of the total assets of each Fund less such Fund’s total liabilities not represented by senior securities less the value of any assets of the Fund pledged to, or otherwise segregated for the benefit of a party other than the Bank and in connection with a liability not reflected in the calculation of the Fund’s total liabilities. Amounts outstanding for the Alternative Strategies Fund at no time shall exceed in the aggregate at any time the lesser of the (a) Borrowing Base, (b) the Facility amount of $100,000,000 and (c) should not have an aggregate amount of outstanding senior securities representing indebtedness the least of (i) 33 1/3% of the Alternative Strategies Fund’s net assets and (ii) the maximum amount that the Fund would be permitted to incur pursuant to applicable law.
For the year ended December 31, 2017, the interest expense was $516 for International Fund. For the year ended December 31, 2017, there were no borrowings for the Equity Fund, Smaller Companies Fund and Alternative Strategies Fund, and there was no balance outstanding at the end of the period. There was no balance outstanding at December 31, 2017 for the International Fund. The average and maximum borrowing for the year ended December 31, 2017 for the International Fund for the period from January 10, 2017 to January 18, 2017 the line was drawn was $1,314,096, at an average borrowing rate of 1.7678%.
118 | Litman Gregory Funds Trust |
Table of Contents
Litman Gregory Funds Trust
NOTES TO FINANCIAL STATEMENTS – (Continued)
Note 11 – Principal Risks
Below are summaries of the principal risks of investing in one or more of the Funds, each of which could adversely affect a Fund’s net asset value, yield and total return. Each risk listed below does not necessarily apply to each Fund, and you should read a Fund’s prospectus carefully for a description of the principal risks associated with investing in a particular Fund.
• | Below Investment-Grade Fixed Income Securities Risk. This is the risk of investing in below investment-grade fixed income securities (also known as “junk bonds”), which may be greater than that of higher rated fixed income securities. These securities are rated Ba1 through C by Moody’s Investors Service (“Moody’s”) or BB+ through D by Standard & Poor’s Rating Group (“S&P”) (or comparably rated by another nationally recognized statistical rating organization), or, if not rated by Moody’s or S&P, are considered by the sub-advisors to be of similar quality. These securities have greater risk of default than higher rated securities. The market value of these securities is more sensitive to corporate developments and economic conditions and can be volatile. Market conditions can diminish liquidity and make accurate valuations difficult to obtain. There is no limit to the Alternative Strategies Fund’s ability to invest in below investment-grade fixed income securities; however, under normal market conditions, it does not expect to invest more than 50% of its total assets in below investment-grade fixed income securities. |
• | Capital Structure Arbitrage Risk. The perceived mispricing identified by the sub-advisor may not disappear or may even increase, in which case losses may be realized. |
• | Convertible Arbitrage Risk. Arbitrage strategies involve engaging in transactions that attempt to exploit price differences of identical, related or similar securities on different markets or in different forms. A Fund may realize losses or reduced rate of return if underlying relationships among securities in which investment positions are taken change in an adverse manner or a transaction is unexpectedly terminated or delayed. Trading to seek short-term capital appreciation can be expected to cause the Fund’s portfolio turnover rate to be substantially higher than that of the average equity-oriented investment company, resulting in higher transaction costs and additional capital gains tax liabilities. |
• | Convertible Securities Risk. This is the risk that the market value of convertible securities may fluctuate due to changes in, among other things, interest rates; other general economic conditions; industry fundamentals; market sentiment; the issuer’s operating results, financial statements, and credit ratings; and the market value of the underlying common or preferred stock. |
• | Credit Risk. This is the risk that a Fund could lose money if the issuer or guarantor of a fixed income security, or the counterparty of a derivatives contract or other transaction, is unable or unwilling (or is perceived to be unable or unwilling) to make timely payment of principal and/or interest, or to otherwise honor its obligations. |
• | Currency Risk. This is the risk that investing in foreign currencies may expose the Fund to fluctuations in currency exchange rates and that such fluctuations in the exchange rates may negatively affect an investment related to a currency or denominated in a foreign currency. The Alternative Strategies Fund may invest in foreign currencies for investment and hedging purposes. All of the Funds may invest in foreign currencies for hedging purposes. |
• | Cybersecurity Risk. Information and technology systems relied upon by the Funds, the Advisor, the sub-advisors, the Funds’ service providers (including, but not limited to, Fund accountants, custodians, transfer agents, administrators, distributors and other financial intermediaries) and/or the issuers of securities in which a Fund invests may be vulnerable to damage or interruption from computer viruses, network failures, computer and telecommunication failures, infiltration by unauthorized persons, security breaches, usage errors, power outages and catastrophic events such as fires, tornadoes, floods, hurricanes and earthquakes. Although the Advisor has implemented measures to manage risks relating to these types of events, if these systems are compromised, become inoperable for extended periods of time or cease to function properly, significant investment may be required to fix or replace them. The failure of these systems and/or of disaster recovery plans could cause significant interruptions in the operations of the Funds, the Advisor, the sub-advisors, the Funds’ service providers and/or issuers of securities in which a Fund invests and may result in a failure to maintain the security, confidentiality or privacy of sensitive data, including personal information relating to investors (and the beneficial owners of investors). Such a failure could also harm the reputation of the Funds, the Advisor, the sub-advisors, the Funds’ service providers and/or issuers of securities in which a Fund invests, subject such entities and their respective affiliates to legal claims or otherwise affect their business and financial performance. |
• | Debt Securities Risk. This is the risk that the value and liquidity of debt securities may be reduced under certain circumstances. The value of debt securities can fluctuate in response to issuer activity and changes in general economic and credit market conditions, including changes in interest rates. In recent years, dealer capacity in the debt and fixed income markets appears to have undergone fundamental changes, including a reduction in dealer market-making capacity. These changes have the potential to decrease substantially liquidity and increase volatility in the debt and fixed income markets. |
• | Derivatives Risk. This is the risk that an investment in derivatives may not correlate completely to the performance of the underlying securities and may be volatile and that the insolvency of the counterparty to a derivative instrument could cause the Alternative Strategies Fund to lose all or substantially all of its investment in the derivative instrument, as well as the benefits derived therefrom. |
Notes to Financial Statements | 119 |
Table of Contents
Litman Gregory Funds Trust
NOTES TO FINANCIAL STATEMENTS – (Continued)
• | Options Risk. This is the risk that an investment in options may be subject to greater fluctuation than an investment in the underlying instruments themselves and may be subject to a complete loss of the amounts paid as premiums to purchase the options. |
• | Futures Contracts Risk. This is the risk that an investment in futures contracts may be subject to losses that exceed the amount of the premiums paid and may subject the Alternative Strategies Fund’s net asset value to greater volatility. |
• | P-Notes Risk. This is the risk that the performance results of P-Notes will not replicate exactly the performance of the issuers or markets that the P-Notes seek to replicate. Investments in P-Notes involve risks normally associated with a direct investment in the underlying securities as well as additional risks, such as counterparty risk. |
• | Swaps Risk. Risks inherent in the use of swaps include: (1) swap contracts may not be assigned without the consent of the counterparty; (2) potential default of the counterparty to the swap; (3) absence of a liquid secondary market for any particular swap at any time; and (4) possible inability of the Alternative Strategies Fund to close out the swap transaction at a time that otherwise would be favorable for it to do so. |
• | Distressed Companies Risk. A Fund may invest a portion of its assets in securities of distressed companies. Debt obligations of distressed companies typically are unrated, lower rated, in default or close to default and may be difficult to value accurately or may become worthless. |
• | Emerging Markets Risk. A Fund may invest a portion of its assets in emerging market countries. Emerging market countries are those with immature economic and political structures, and investing in emerging markets entails greater risk than in developed markets. Such risks could include those related to 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. |
• | Equity Securities Risk. This is the risk that the value of equity securities may fluctuate, sometimes rapidly and unpredictably, due to factors affecting the general market, an entire industry or sector, or particular companies. These factors include, without limitation, adverse changes in economic conditions, the general outlook for corporate earnings, interest rates or investor sentiment; increases in production costs; and significant management decisions. This risk is greater for small- and medium-sized companies, which tend to be more vulnerable to adverse developments than larger companies. |
• | Event-Driven Risk. Event-driven strategies seek to profit from the market inefficiencies surrounding market events, such as mergers, acquisitions, asset sales, restructurings, refinancings, recapitalizations, reorganizations or other special situations. Event-driven investing involves attempting to predict the outcome of a particular transaction as well as the optimal time at which to commit capital to it. Event-driven opportunities involve difficult legal as well as financial analysis, as some of the principal impediments to the consummation of major corporate events are often legal or regulatory rather than economic. In addition, certain of the securities issued in the context of major corporate events include complex call, put and other features, and it is difficult to precisely evaluate the terms and embedded option characteristics of these securities. A Fund may take both long and short positions in a wide range of securities, derivatives and other instruments in implementing its event-driven strategies. |
• | Foreign Investment and Emerging Markets Risks. This is the risk that an investment in foreign (non-U.S.) securities may cause the Funds to experience more rapid and extreme changes in value than a fund that invests exclusively in securities of U.S. companies, due to factors such as currency conversion rate fluctuations, currency blockages, political and economic instability, differences in financial reporting, accounting and auditing standards, nationalization, expropriation or confiscatory taxation, and smaller and less-strict regulation of securities markets. These risks are greater in emerging markets. There is no limit to the Alternative Strategies Fund’s ability to invest in emerging market securities; however, under normal market conditions, it does not expect to invest more than 50% of its total assets in emerging market securities; however, some Funds may invest a portion of their assets in stocks of companies based outside of the United States. |
• | Interest Rate Risk. This is the risk that debt securities will decline in value because of changes in interest rates. A Fund with a longer average portfolio duration will be more sensitive to changes in interest rates than a Fund with a shorter average portfolio duration. |
• | Leverage Risk. This is the risk that leverage may cause the effect of an increase or decrease in the value of the Alternative Strategies Fund’s portfolio securities to be magnified and the Fund to be more volatile than if leverage was not used. Leverage may result from certain transactions, including the use of derivatives and borrowing. Under normal circumstances, the Alternative Strategies Fund may borrow amounts up to one third of the value of its total assets except that it may exceed this limit to satisfy redemption requests or for other temporary purposes. |
• | Market Risk. As with all mutual funds that invest in common stocks, the value of an individual’s investment will fluctuate daily in response to the performance of the individual stocks held in a Fund. The stock market has been subject to significant volatility recently, which has increased the risks associated with an investment in a Fund. |
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• | Merger Arbitrage Risk. This is the risk that a proposed reorganization in which the Alternative Strategies Fund invests may be renegotiated or terminated. |
• | Mortgage-Backed Securities Risk. This is the risk of investing in mortgaged-backed securities, which includes interest rate risk, prepayment risk and the risk of defaults on the mortgage loans underlying these securities. |
• | Multi-Style Management Risk. Because portions of a Fund’s assets are managed by different portfolio managers using different styles, the Fund could experience overlapping security transactions. Certain portfolio managers may be purchasing securities at the same time other portfolio managers may be selling those same securities, which may lead to higher transaction expenses compared to a Fund using a single investment management style. |
• | Portfolio Turnover Risk. This is the risk that a Fund may experience high portfolio turnover rates as a result of its investment strategies. High portfolio turnover rates may indicate higher transaction costs and may result in higher taxes when shares of a Fund are held in a taxable account as compared to shares in investment companies that hold investments for a longer period. High portfolio turnover involves correspondingly greater expenses to a Fund, including brokerage commissions or dealer mark-ups and other transaction costs on the sale of securities and reinvestments in other securities, which may result in adverse tax consequences to a Fund’s shareholders as compared to shares in investment companies that hold investments for a longer period. |
• | Short Sale Risk. This is the risk that the value of a security the Alternative Strategies Fund sells short does not go down as expected. The risk of loss is theoretically unlimited if the value of the security sold short continues to increase. In addition, short sales may cause the Alternative Strategies Fund to be compelled, at a time disadvantageous to it, to buy the security previously sold short, thus resulting in a loss. To meet current margin requirements, the Alternative Strategies Fund is required to deposit with the broker additional cash or securities so that the total deposit with the broker is maintained daily at 150% of the current market value of the securities sold short. |
• | Smaller Companies Risk. A Fund may invest a portion of its assets in the securities of small- and mid-sized companies. Securities of small and mid-cap companies are generally more volatile and less liquid than the securities of large-cap companies. This is because smaller companies may be more reliant on a few products, services or key personnel, which can make it riskier than investing in larger companies with more diverse product lines and structured management. |
• | Technology Investment Risk. A Fund may invest a portion of its assets in the technology sector, which is a very volatile segment of the market. The nature of technology is that it is rapidly changing. Therefore, products or services that may initially look promising may subsequently fail or become obsolete. In addition, many technology companies are younger, smaller and unseasoned companies which may not have established products, an experienced management team, or earnings history. |
• | Unfavorable Tax Treatment Risk. This is the risk that a material portion of the Alternative Strategies Fund’s return could be in the form of net investment income or short-term capital gains, some of which may be distributed to shareholders and taxed at ordinary income tax rates. Therefore, shareholders may have a greater need to pay regular taxes than compared to other investment strategies that hold investments longer. Due to this investment strategy, it may be preferable for certain shareholders to invest in the Fund through pre-tax or tax-deferred accounts as compared to investment through currently taxable accounts. Potential shareholders are encouraged to consult their tax advisors in this regard. |
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OTHER INFORMATION – (Unaudited)
Proxy Voting Policies and Procedures
The sub-advisors of the Funds vote proxies relating to portfolio securities in accordance with procedures that have been approved by the Board of Trustees of the Funds. You may obtain a description of these procedures, without charge, by calling toll-free, 1-800-960-0188. This information is also available through the Securities and Exchange Commission’s website at http://www.sec.gov.
Proxy Voting Record
Information regarding how the sub-advisors of the Funds voted proxies relating to portfolio securities during the 12-month period ended June 30 is available, without charge, by calling toll-free, 1-800-960-0188. This information is also available through the Securities and Exchange Commission’s website at http://www.sec.gov.
Form N-Q Disclosure
The Funds file their complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Form N-Q is available on the Securities and Exchange Commission’s website at http://www.sec.gov. The Funds’ Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. This information is also available, without charge, by calling toll-free, 1-800-960-0188 or by visiting the Funds’ website at http://www.mastersfunds.com.
Householding Mailings
To reduce expenses, the Trust may mail only one copy of the Funds’ prospectus and each annual and semi-annual report to those addresses shared by two or more accounts. If you wish to receive individual copies of these documents, please call us at 1-800-960-0188 (or contact your financial institution). The Trust will begin sending you individual copies thirty days after receiving your request.
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Board Consideration of and Continuation and Renewal of Investment Advisory Agreements
At an in-person meeting held on December 12, 2017 (the “Meeting”), the Board of Trustees (the “Board”) of the Litman Gregory Funds Trust (the “Trust”), including the Trustees who are not “interested persons” of the Trust within the meaning of the Investment Company Act of 1940, as amended (the “1940 Act”) (the “Independent Trustees”), considered and approved for an additional one-year term through December 31, 2018 (i) the Unified Investment Advisory Agreement (the “Investment Advisory Agreement”) between the Trust and Litman Gregory Fund Advisors, LLC (the “Advisor”) with respect to the Litman Gregory Masters Equity Fund (the “Equity Fund”), the Litman Gregory Masters International Fund (the “International Fund”), the Litman Gregory Masters Smaller Companies Fund (the “Smaller Companies Fund”) and the Litman Gregory Masters Alternative Strategies Fund (the “Alternative Strategies Fund”) (each of the Equity Fund, the International Fund, the Smaller Companies Fund and the Alternative Strategies Fund, a “Fund,” and collectively, the “Funds”), and (ii) the investment sub-advisory agreements (the “Investment Sub-Advisory Agreements,” and collectively with the Investment Advisory Agreement, the “Advisory Agreements”) between the Advisor and (a) each of Davis Selected Advisers, L.P., Fiduciary Management, Inc., Harris Associates L.P. (“Harris”), Nuance Investments, LLC, Sands Capital Management, LLC, and Wells Capital Management Inc. (“Wells”) with respect to the Equity Fund; (b) each of Harris, Lazard Asset Management LLC, Northern Cross, LLC, Pictet Asset Management, Ltd., and Thornburg Investment Management, Inc. with respect to the International Fund; (c) each of Cove Street Capital, LLC and Wells with respect to the Smaller Companies Fund; and (d) each of DoubleLine Capital LP, First Pacific Advisors, LLC, Loomis, Sayles & Company, L.P., Passport Capital, LLC, and Water Island Capital, LLC with respect to the Alternative Strategies Fund (each of the foregoing sub-advisors, a “Sub-Advisor,” and collectively, the “Sub-Advisors”). The Board, including the Independent Trustees, also approved the continuation for an additional one-year term through April 30, 2019 of the Restated Contractual Advisory Fee Waiver Agreement between the Trust, on behalf of the Funds, and the Advisor (the “Fee Waiver Agreement,” and collectively with the Advisory Agreements, the “Agreements”).
Prior to the Meeting, the Independent Trustees had requested detailed information from the Advisor regarding the Funds. The materials provided by the Advisor were extensive, including advisory fee and expense comparisons, performance comparisons, Advisor profitability information, and a summary of compliance programs of the Sub-Advisors. In addition, the Independent Trustees discussed the approval or renewal of the Agreements with representatives of the Advisor and were advised by independent counsel on these and other relevant matters.
The Trustees, including the Independent Trustees, also noted that they had received extensive information about, and in-person presentations from, various members of senior management at the Advisor regarding the Funds throughout the year, including, without limitation, information on and/or discussion of the Funds’ and each Sub-Advisor’s investment results; portfolio composition; portfolio trading practices; shareholder services; advisory fees and expense comparisons; the Advisor’s financial condition and profitability; compliance monitoring by the Advisor; the personnel at the Advisor and the Sub-Advisors providing investment management, compliance and other services to the Funds; and the Advisor’s process for selecting Sub-Advisors for the Funds as well as the Advisor’s ongoing oversight of the Sub-Advisors.
The information provided to the Board at the Meeting, together with the information provided to the Board throughout the year, formed the primary (but not exclusive) basis for the Board’s determinations. The Board did not identify any single issue or particular datum point that, in isolation, would be a controlling factor in its decision to approve or renew the Agreements. Rather, the Board considered the total mix of information provided. The following summary describes the key factors considered by the Independent Trustees (as well as the Board).
1. Nature, extent and quality of services
The Independent Trustees considered the depth and quality of the Advisor’s investment management process, including its sophisticated monitoring and oversight of the Sub-Advisors; the experience, capability and integrity of its senior management and other personnel; the low turnover rates of its key personnel involved in the day-to-day operations of the Funds; and the overall financial strength and stability of its organization. The Independent Trustees also considered that the Advisor provided personnel to serve as officers of the Trust, including the Trust’s Chief Compliance Officer (“CCO”), and that the services of the CCO were provided at a nominal cost to the Trust. The Independent Trustees discussed the high level of sub-advisor due diligence continually being undertaken by the Advisor. The Independent Trustees also noted the high quality of the non-advisory management services provided by the Advisor, such as responsiveness to shareholder inquiries and requests of the Board, as well as the preparation of high quality shareholder communications and the development of targeted marketing programs for the Funds. In addition, the Independent Trustees noted that, because the Advisor is a significant shareholder in the Funds, the Advisor has an additional incentive to ensure that the Funds perform well for the shareholders. The Independent Trustees also noted that the members of senior management of the Advisor, including Mr. DeGroot and Mr. Welz, as well as the Independent Trustees themselves have made significant investments in the Funds.
The Independent Trustees also considered the Advisor’s policies, procedures and systems to ensure compliance with applicable laws and regulations and its adherence to and continual enhancement of those programs; its efforts to keep the Board informed; and
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its attention dedicated to matters that may involve potential conflicts of interest with a Fund. The Independent Trustees noted the extent and effectiveness of the Advisor’s compliance operations and the Advisor’s oversight of the Sub-Advisors’ and other service providers’ compliance operations.
The Independent Trustees then reviewed various materials relating to the Sub-Advisors, including copies of each Investment Sub-Advisory Agreement; copies of the Form ADV for each Sub-Advisor; information on assets of the Funds managed and fees charged by each Sub-Advisor; a summary of the compliance programs of the Sub-Advisors; and an oral report by the CCO on each Sub-Advisor’s commitment to compliance. The Independent Trustees also considered the Advisor’s lengthy and extensive due diligence process for selecting and monitoring each Sub-Advisor and the value of goodwill between the Advisor and each Sub-Advisor.
The Independent Trustees concluded that the nature, overall quality, and extent of the services provided and to be provided by the Advisor and the Sub-Advisors are fully satisfactory.
2. Investment results
The Independent Trustees reviewed the short-term and long-term performance of each Fund on both an absolute basis and in comparison to peer funds and benchmark indices. They also considered information regarding the selection, and discussed the appropriateness, of such peer funds and benchmark indices. The Independent Trustees considered the overall performance of the Funds as well as the performance of each Sub-Advisor within each Fund as compared to each Sub-Advisor’s own comparable mutual fund(s) or private fund(s) (if applicable). The Independent Trustees focused on longer-term performance, which they believe is more important than short, isolated periods for purposes of evaluating each Fund’s success in meeting its investment objective.
In particular, the Independent Trustees relied upon, among other information, the KFS Report. The Independent Trustees noted that KFS, and not the Advisor, selected the peer funds used in the KFS Report and that the Advisor had supplemented the KFS Report with additional performance comparisons.
For the Equity Fund, the Independent Trustees compared its investment results for its Institutional shares to a number of benchmarks, including (1) the Russell 3000 Index (the “Equity Market Benchmark”); (2) the Morningstar Large Blend Category (the “Equity Morningstar Category”); and (3) the KFS Peer Group for the Equity Fund (together with the Equity Morningstar Category, the “Equity Fund Benchmarks”). The Independent Trustees noted that, with respect to multi-year periods, the Equity Fund outperformed the Equity Morningstar Category for the one-year, three-year, five-year, ten-year, fifteen-year and since inception periods ended September 30, 2017 and was essentially tied with the Equity Market Benchmark since inception. The Equity Fund underperformed the KFS Peer Group for the same time periods, except for the five-year period, during which it outperformed the KFS Peer Group. The Independent Trustees found that the performance of the Institutional shares of the Equity Fund exceeded the average return of the Equity Morningstar Category for the one-year, three-year, five-year, ten-year, fifteen-year and since inception periods ended September 30, 2017.
For the International Fund, the Independent Trustees compared its investment results for its Institutional shares to (1) the MSCI ACWI ex-U.S. Index (the “International Market Benchmark”); (2) the Morningstar Foreign Large Blend Category (the “International Morningstar Category”); and (3) the KFS Peer Group for the International Fund (together with the International Morningstar Category, the “International Fund Benchmarks”). The Independent Trustees noted that, with respect to multi-year periods, the International Fund underperformed the International Market Benchmark and the International Fund Benchmarks for the three-year and ten-year periods ended September 30, 2017. While the International Fund performed the same as the International Fund Benchmarks for the five-year period ended September 30, 2017, it outperformed the International Morningstar Category for the one-year and fifteen-year periods ended September 30, 2017. The International Equity Fund underperformed the KFS Peer Group for the three-year, five-year and ten-year periods ended September 30, 2017. The Independent Trustees found that the performance of the Institutional shares of the International Fund fell below the average return for the International Morningstar Category for the three-year, five-year and ten-year periods ended September 30, 2017, but exceeded that average for the one-year and fifteen-year periods.
For the Smaller Companies Fund, the Independent Trustees compared its investment results for its Institutional shares to (1) the Russell 2000 Index (the “Smaller Companies Market Benchmark”); (2) the Morningstar Small Blend Category (the “Smaller Companies Morningstar Category”); and (3) the KFS Peer Group for the Smaller Companies Fund (together with the Smaller Companies Morningstar Category, the “Smaller Companies Fund Benchmarks”). The Independent Trustees noted that, with respect to multi-year periods, the Smaller Companies Fund underperformed the Smaller Companies Fund Benchmarks and the Smaller Companies Market Benchmark for the one-year, three-year, five-year and ten-year periods ended September 30, 2017. The Independent Trustees found that the performance of the Institutional shares of the Smaller Companies Fund fell below the average return for the Smaller Companies Morningstar Category for the one-year, three-year, five-year and ten-year periods ended September 30, 2017.
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For the Alternative Strategies Fund, the Independent Trustees compared its investment results for its Institutional shares to (1) the Barclays U.S. Aggregate Bond Index (the “Alternative Strategies Market Benchmark”); (2) the Morningstar Multi-Alternative Category (the “Alternative Strategies Morningstar Category”); and (3) the KFS Peer Group for the Alternative Strategies Fund (together with the Alternative Strategies Morningstar Category, the “Alternative Strategies Fund Benchmarks”). The Independent Trustees noted that, with respect to multi-year periods, the Alternative Strategies Fund outperformed the Alternative Strategies Fund Benchmarks for the one-year, three-year and five-year periods ended September 30, 2017 and outperformed the Alternative Strategies Market Benchmark for the one-year, five-year and since inception periods ended September 30, 2017. The Independent Trustees found that the performance of the Institutional shares of the Alternative Strategies Fund exceeded the average return of the Alternative Strategies Morningstar Category for the one-year, three-year, five-year and since inception periods ended September 30, 2017.
The Independent Trustees noted that the performance of the Sub-Advisors varies over time and noted and acknowledged the Advisor’s detailed monitoring of the Sub-Advisors’ investment results, and interactions with Sub-Advisors, particularly those Sub-Advisors that were experiencing periods of underperformance. The Independent Trustees noted and considered the comments by the Advisor with respect to underperforming Sub-Advisors, discussions at Board meetings throughout the year regarding the potential sources of underperformance and actions taken by the Advisor in response to underperformance by certain Sub-Advisors. The Independent Trustees considered the Advisor’s process for terminating Sub-Advisors and noted the Advisor’s continued willingness to terminate Sub-Advisors if the Advisor determined that the termination would be in the best interest of a Fund and its shareholders. The Independent Trustees also noted and considered the Advisor’s ability to attract and retain world-class investment managers to serve as Sub-Advisors to the Funds, as well as the Advisor’s extensive screening process before hiring a Sub-Advisor.
The Trustees noted the difficulty of fairly benchmarking the Funds in terms of performance. Ultimately, the Independent Trustees concluded that they were satisfied with the Funds’ overall performance records and were satisfied with the Advisor’s explanation for the periods of underperformance. The Independent Trustees further concluded that the Advisor was applying appropriate discipline and oversight to ensure that each Fund adhered to its stated investment objective and strategies, and the performance and services of the Sub-Advisors supported the decision to renew the Advisory Agreements.
3. Advisory fees and total expenses
The Independent Trustees reviewed the advisory fees and total expenses of each Fund and compared them with the advisory fees and total expenses of funds in the KFS Peer Group for each Fund. The Independent Trustees noted that the KFS Peer Group for each Fund was selected independently by KFS using a selection methodology designed to identify those funds most comparable to each Fund. The Independent Trustees further noted that in selecting the KFS Peer Group for each Fund, KFS considered various screening criteria, including, without limitation, fund type, category as determined by Morningstar, Inc., load/sales charge type, average net assets, and fund attributes. The Independent Trustees also noted that, to the extent possible without affecting KFS’ core peer fund selection methodologies, KFS had attempted to include funds that are considered by Morningstar to have a manager-of-managers structure in the KFS Peer Group for each Fund. The Independent Trustees then discussed various areas in which the Funds are different from the funds included in the KFS Peer Groups, such as distribution channels and investment strategies or approaches.
The Independent Trustees noted that according to the KFS Report, the total expenses of each Fund are higher than the average or the median of the total expenses of the funds in the KFS Peer Group for such Fund. The Independent Trustees observed that the Equity Fund’s total expense ratio exceeded both the Morningstar peer group and KFS Peer Group mostly because of its higher advisory fee. The Independent Trustees noted that the International Fund has an advisory fee that is slightly higher than the average and the median of its KFS Peer Group, while the Fund’s other operating expenses are slightly higher than the average other operating expenses for the KFS Peer Group and higher than the average other operating expenses for the Morningstar peer group. The Independent Trustees also noted that the International Fund’s total expense ratio was higher than the average expense ratio for the Morningstar peer group. The Independent Trustees also observed that, despite a fee waiver, the Smaller Companies Fund’s total expense ratio exceeded both the Morningstar peer group and KFS Peer Group mostly because of the Fund’s transfer agency and other expenses and smaller than average asset size. The Independent Trustees further noted that while the Alternative Strategies Fund has an advisory fee that is slightly higher than the average of the KFS Peer Group, it is lower than the average of the Morningstar peer group and its other expenses are higher than average compared to the funds in its Morningstar peer group and in line with the KFS Peer Group. The Independent Trustees agreed that the Funds’ use of the manager of managers structure is a primary contributor to the relatively high advisory fees, and noted that the higher advisory fees allow shareholders of the Funds to have access to Sub-Advisors to which they otherwise might not have access and that the higher fees are justified by the long-term performance results of certain Funds and potential performance results for underperforming Funds.
The Independent Trustees also noted the Advisor’s continued willingness to waive fees or reimburse operating expenses to maintain a competitive fee structure for each Fund and to pass through savings from fee breakpoints in any Sub-Advisor’s fee schedule to the applicable Fund’s shareholders. The Independent Trustees noted that the Fee Waiver Agreement, updated as of January 1, 2017, to reduce expenses by further increasing the amount of fee waivers for certain Funds under the Fee Waiver Agreement. With respect to
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the Alternative Strategies Fund, the Independent Trustees noted that the Advisor had been waiving a portion of the advisory fee payable by the Fund and/or reimbursing a portion of the Fund’s operating expenses each year since its inception in order to ensure that its operating expenses do not exceed the operating expense cap specified in the Alternative Strategies Fund Expenses Limitation Agreement. The Independent Trustees noted the Advisor’s determination to not renew the Fee Waiver Agreement after it expires on April 30, 2018, noting, among other things, that the Advisor has subsidized the Fund’s expenses for four years during which the last two years the Fund’s expenses have been lower than the expense cap and that the Fund’s assets continue to grow. The Independent Trustees further noted that the Advisor has waived its right to recoup any fees that is has subsidized.
The Independent Trustees noted the United States Supreme Court’s guidance in Jones v. Harris Associates on the relevance of comparisons of advisory fees charged by the Advisor to other similarly managed separate accounts such as pension funds or other institutional investors. The Advisor presented to the Independent Trustees the advisory fees the Advisor and its affiliates charge their separately managed accounts and private investment funds (collectively, the “Other Accounts”). The Advisor explained, to the Independent Trustees’ satisfaction, various factors that contribute to the different fee schedules between the Funds and the Other Accounts, including the fact that the products the Advisor and its affiliates offer for the Funds (i.e., concentrated sub-portfolios managed by a selection of Sub-Advisors) and the Other Accounts are significantly different; that the services the Advisor and its affiliates provide for the Funds (i.e., the assembly and monitoring of the Sub-Advisors) are not readily available on the market; that the Other Accounts have much higher minimum investment requirements as compared to those of the Funds; and that certain compliance obligations and liquidity requirements are only applicable to the Funds and not the Other Accounts.
The Independent Trustees noted that the sub-advisory fees payable to the Sub-Advisors are separately negotiated with the Advisor and are paid out of the advisory fees the Advisor receives from the Funds. The Independent Trustees also noted that the fees charged by the Sub-Advisors are discounted relative to the fees the Sub-Advisors charge to their own funds and separately managed accounts, and that the Advisor from time to time attempts to renegotiate lower fees with the Sub-Advisors. Given the existence of arm’s length bargaining between the Advisor and each Sub-Advisor, the Independent Trustees did not engage in an extensive discussion of sub-advisory fees and expenses.
Based on such review, the Independent Trustees concluded that the advisory fees and the total expenses of the Funds are reasonable in relation to the services the Funds receive from the Advisor and the Sub-Advisors.
4. The Advisor’s financial information
The Independent Trustees reviewed information regarding the Advisor’s costs of managing the Funds and information regarding the profitability of the Advisor. The Independent Trustees also considered the extent to which economies of scale may be realized as each Fund grows and whether advisory fee levels reflect economies of scale if the Funds grow in size. The Independent Trustees also noted that the Advisor had voluntarily forgone profits to subsidize the Funds when they were at lower asset levels.
The Advisor’s Costs and Profitability. The Independent Trustees noted that the Advisor appeared to be providing products that are competitively priced with other funds, especially funds with multiple sub-advisors. The Independent Trustees reviewed the total advisory fees, the amounts paid by the Advisor to the various Sub-Advisors, the general cost of the services provided by the Advisor and the Advisor’s retained portion of the total advisory fee. The Independent Trustees took note of information provided on advisory fees waived by the Advisor, noting that the Advisor had waived substantial advisory fees otherwise payable under the Investment Advisory Agreement over the most recent year, and that the Advisor follows a policy of not charging advisory fees on unallocated cash.
The Independent Trustees also noted that the Advisor to date had not sought recoupment of any advisory fees waived under the Fee Waiver Agreement. The Independent Trustees also considered the Advisor’s continued willingness to invest in staff dedicated to the Funds, including new hires when needed. The Independent Trustees received information that assured them that the Advisor was financially sound and able to honor its sponsorship commitments to the Funds and that the Advisor’s expected profits under the Advisory Agreement are in the range of reasonableness for the mutual fund management industry. The Independent Trustees did not engage in an analysis of Fund-by-Fund profitability given the integrated nature of the Advisor’s management of the Funds.
The Independent Trustees did not engage in an extended analysis of Sub-Advisor profitability given the arm’s length nature of the bargaining between the Advisor and each Sub-Advisor and the difficulty in interpreting profitability information with respect to each Sub-Advisor due to, among others, the use of disparate accounting conventions, disparate ownership structures, and the fact that each Sub-Advisor managed only a portion of each Fund. The Independent Trustees also reviewed information regarding the structure and manner in which the Advisor’s and the Sub-Advisors’ investment professionals are compensated and how the compensation structures are designed to attract and retain high caliber personnel and to promote the long-term performance of the Funds.
Economies of Scale. The Independent Trustees noted that the Advisor has continued to take steps to reduce expenses of the Funds, including agreeing to amendments to the breakpoints in its fee schedules to provide for higher fee waivers, negotiating favorable terms with service providers and providing certain support services to the Funds on a cost only basis, which represents a sharing of economies of scale. In addition, the Independent Trustees took note of the investments in the Funds made by the Other Accounts,
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which help reduce costs for the Funds by increasing the asset base of the Funds. The Independent Trustees also took favorable note of the Advisor’s efforts to invest in its advisory organization to ensure strong research, analytic and marketing capabilities.
Ancillary Benefits. The Independent Trustees considered other actual and potential financial benefits to the Advisor, noting that the Advisor does not have any affiliates that materially benefit from the Advisor’s relationship to the Funds.
5. Conclusions
Based on their review, including their non-exclusive consideration of each of the factors referred to above, the Independent Trustees as well as the Board concluded that the Agreements are fair and reasonable to each Fund and its shareholders, that each Fund’s shareholders received or would receive reasonable value in return for the advisory fees and other amounts paid to the Advisor, and that the renewal or approval, as applicable, of the Agreements would be in the best interests of each Fund and its shareholders. Each of the factors discussed above supported such approval.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of
Litman Gregory Funds Trust
Opinion on the Financial Statements
We have audited the accompanying statements of assets and liabilities, including the schedules of investments in securities, securities sold short, forward foreign currency exchange contracts, financial futures contracts, swaps, purchased options and written options of Litman Gregory Funds Trust comprising Litman Gregory Masters Equity Fund, Litman Gregory Masters International Fund, Litman Gregory Masters Smaller Companies Fund and Litman Gregory Masters Alternative Strategies Fund (the “Funds”) as of December 31, 2017, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, including the related notes, and the financial highlights for each of the five years in the period then ended (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of each of the Funds as of December 31, 2017, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits include performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and confirmation of securities owned as of December 31, 2017, by correspondence with the custodian, transfer agent, issuer and brokers, or by other appropriate auditing procedures where replies from brokers or counterparties were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Our audit was conducted for the purpose of forming an opinion on each Fund’s financial statements and financial highlights as a whole. The information presented on pages 2 through 12, 15 through 22, 26 through 31, 33 through 46, and 122 through 137, which is the responsibility of the Funds’ management, is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the financial statements, and, accordingly, we do not express an opinion or provide assurance on the information.
We have served as the Funds’ auditor since 2012.
COHEN & COMPANY, LTD.
Cleveland, Ohio
March 1, 2018
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The ABX Indexes serve as a benchmark of the market for securities backed by home loans issued to borrowers with weak credit. The ABX 2006-2 AAA is an asset-backed index that tracks AAA-rated bonds issued prior to the second half of 2006. The ABX 2007-1 AAA is an asset-backed index that tracks AAA-rated bonds issued prior to the first half of 2007.
BofA Merrill Lynch U.S. High Yield Master II Index tracks the performance of below investment grade, but not in default, US dollar-denominated corporate bonds publicly issued in the US domestic market.
Bloomberg Barclays U.S. Aggregate Bond Index is a market capitalization-weighted index, meaning the securities in the index are weighted according to the market size of each bond type. Most U.S. traded investment grade bonds are represented. The index includes U.S. treasury securities (non TIPS), government agency bonds, mortgage backed bonds, corporate bonds, and a small amount of foreign bonds traded in the U.S.
CDX is a series of credit default swap indexes, used to hedge credit risk or to take a position on a basket of credit entities.
The Citigroup Economic Surprise Indices are objective and quantitative measures of economic news. They are defined as weighted historical standard deviations of data surprises.
FTSE Emerging Markets Index – ETF Tracker. The Index is a market capitalization index, adjusted based on the free-float of potential index constituents, and designed to measure the performance of large-, medium- and small-capitalization companies located in emerging market countries throughout the world.
The FTSE Global All Cap ex U.S. Index is part of a range of indices designed to help U.S. investors benchmark their international investments. The index comprises large, mid and small cap stocks globally excluding the U.S. The index is derived from the FTSE Global Equity Index Series (GEIS), which covers 98% of the world’s investable market capitalization.
The HFRI Event Driven Index: Consists of investment managers who maintain positions in companies currently or prospectively involved in corporate transactions of a wide variety including but not limited to mergers, restructurings, financial distress, tender offers, shareholder buybacks, debt exchanges, security issuance or other capital structure adjustments. Security types can range from most senior in the capital structure to most junior or subordinated, and frequently involve additional derivative securities. Event driven exposure includes a combination of sensitivities to equity markets, credit markets and idiosyncratic, company specific developments.
The HFRI Event Driven Merger Arbitrage Index: Consists of merger arbitrage strategies which employ an investment process primarily focused on opportunities in equity and equity related instruments of companies which are currently engaged in a corporate transaction. Merger arbitrage involves primarily announced transactions, typically with limited or no exposure to situations which pre-, post-date or situations in which no formal
announcement is expected to occur. Opportunities are frequently presented in cross border, collared and international transactions which incorporate multiple geographic regulatory institutions, with typically involve minimal exposure to corporate credits. Merger arbitrage strategies typically have over 75% of positions in announced transactions over a given market cycle.
The HFRX Global Hedge Fund Index is designed to be representative of the overall composition of the hedge fund universe. It is comprised of all eligible hedge fund strategies; including but not limited to convertible arbitrage, distressed securities, equity hedge, equity market neutral, event driven, macro, merger arbitrage, and relative value arbitrage.
LIBOR stands for London Interbank Offered Rate. It’s an index that is used to set the cost of various variable-rate loans.
Morningstar Category Averages: Each Morningstar Category Average is representative of funds with similar investment objectives.
The MSCI All Country World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets.
The MSCI All Country World ex U.S. Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets, excluding the United States.
The MSCI All Country World ex U.S. Growth Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets, excluding the United States. It includes companies with higher price-to-book ratios and higher forecasted growth values.
The MSCI All Country World ex U.S. Value Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets, excluding the United States. It includes companies with lower price-to-book ratios and lower forecasted growth values.
The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada. As of May 27, 2010 the MSCI EAFE Index consisted of the following 22 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.
The MSCI Emerging Markets Index captures large and mid-cap representation across 23 Emerging Markets (EM) countries. With 836 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.
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The MSCI World ex U.S. Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets, excluding the United States.
The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index and includes approximately 1000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 92% of the U.S. market.
The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.
The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index.
The Russell 2000 Value Index measures the performance of small-cap value segment of the U.S. equity universe. It includes those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values.
The Russell 2500 Index measures the performance of the small to mid-cap segment of the U.S. equity universe, commonly referred to as “smid” cap. The Russell 2500 Index is a subset of the Russell 3000 Index. It includes approximately 2500 of the smallest securities based on a combination of their market cap and current index membership.
The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies as measured by total market capitalization, and represents about 98% of the U.S. stock market.
The Russell 3000 Value Index is a broad based index that measures the performance of those companies within the 3,000 largest U.S. companies, based on total market capitalization, that have lower price-to-book ratios and lower forecasted growth rates.
The S&P 500 Index is widely regarded as the standard for measuring large-cap stock performance, and consists of 500 stocks that represent a sample of the leading companies in leading industries.
The SPDR S&P 500 ETF consists of 500 of the largest U.S. companies, and it is one of the most heavily traded securities in the world. It tracks the S&P 500 Index, and fund follows a full replication strategy, holding every stock in the index.
The SPDR Financials Sector Index seeks to provide an effective representation of the financial sector of the S&P 500 Index. The Index includes companies from the following industries: diversified financial services; insurance; banks; capital markets; mortgage real estate investment trusts (“REITs”); consumer finance; and thrifts and mortgage finance.
The Vanguard 500 Index Fund invests in 500 of the largest U.S. companies, which span many different industries and account for about three-fourths of the U.S. stock market’s value. This fund tracks the S&P 500 Index as closely as possible.
VIX is a trademarked ticker symbol for the Chicago Board Options Exchange Market Volatility Index, a popular measure of the implied volatility of S&P 500 index options. Often referred to as the fear index or the fear gauge, it represents one measure of the market’s expectation of stock market volatility over the next 30 day period.
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Indices are unmanaged, do not incur fees, and cannot be invested in directly.
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INDUSTRY TERMS AND DEFINITIONS
1. | Active Share measures the degree of difference between a fund portfolio and its benchmark index. |
2. | Alpha is an annualized return measure of how much better or worse a fund’s performance is relative to an index of funds in the same category, after allowing for differences in risk. |
3. | Alt-A, or Alternative A-paper, is a type of U.S. mortgage that, for various reasons, is considered riskier than A-paper, or “prime”, and less risky than “subprime,” the riskiest category. |
4. | The Basel Accords are three sets of banking regulations (Basel I, II and III) set by the Basel Committee on Bank Supervision (BCBS), which provides recommendations on banking regulations in regards to capital risk, market risk and operational risk. |
5. | A basis point is a value equaling one one-hundredth of a percent (1/100 of 1%). |
6. | Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. |
7. | Book value is the net asset value of a company, calculated by subtracting total liabilities and intangible assets from total assets. |
8. | Brexit is an abbreviation of “British exit”, which refers to the June 23, 2016 referendum by British voters to exit the European Union. |
9. | Cash flow measures the cash generating capability of a company by adding non-cash charges (e.g., depreciation) and interest expense to pretax income. |
10. | Capex (capital expenditures) are expenditures creating future benefits. |
11. | Collateralized Loan Obligation (CLO) is a security backed by a pool of debt, often low-rated corporate loans. Collateralized loan obligations (CLOs) are similar to collateralized mortgage obligations, except for the different type of underlying loan. |
12. | Combined ratio is a formula used by insurance companies to relate premium income to claims, administration and dividend expenses. It is used in the annual statement filed by an insurer with the state insurance department. It is calculated by dividing the sum of incurred losses and expenses by earned premium. |
13. | Compound annual growth rate (CAGR) is the rate of growth of a number, compounded over several years. |
14. | Conditional pre-payment rate is a loan prepayment rate that is equal to the proportion of the principal of a pool of loans that is assumed to be paid off prematurely in each period. |
15. | The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. Changes in the CPI are used to assess price changes associated with the cost of living; the CPI is one of the most frequently used statistics for identifying periods of inflation or deflation. |
16. | Correlation is a statistical measure of how two securities move in relation to each other. |
17. | Credit default swaps are swaps designed to transfer the credit exposure of fixed income products between parties. A credit default swap is also referred to as a credit derivative contract, where the purchaser of the swap makes payments up until the maturity date of a contract. Payments are made to the seller of the swap. In return, the seller agrees to pay off a third party debt if this party defaults on the loan. |
18. | Discounted cash flow is calculated by multiplying future cash flows by discount factors to obtain present values. |
19. | Diversification is the spreading of risk by putting assets in several categories of investments. |
20. | Dividend yield is the return on an investor’s capital investment that a company pays out to its shareholders in the form of dividends. It is calculated by taking the amount of dividends paid per share over the course of a year and dividing by the stock’s price. |
21. | Drawdown is the peak-to-trough decline during a specific record period of an investment, fund or commodity. |
22. | Dry powder refers to cash reserves kept on hand to cover future obligations or purchase assets, if conditions are favorable. |
23. | Duration is a measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. Duration is expressed as a number of years. Rising interest rates mean falling bond prices, while declining interest rates mean rising bond prices. |
24. | Earnings per share (EPS) is calculated by taking the total earnings divided by the number of shares outstanding. |
25. | EBIT is a company’s earnings before interest and taxes, and measures the profit a company generates from its operations, making it synonymous with “operating profit”. |
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26. | EBITDA is a company’s earnings before interest, taxes, depreciation, and amortization. |
27. | E-Mini Futures Are an electronically traded futures contract on the Chicago Mercantile Exchange that represents a portion of the normal futures contracts. |
28. | Enterprise value is a measure of a company’s total value, calculated by adding a corporation’s market capitalization, preferred stock, and outstanding debt together and then subtracting out the cash and cash equivalents. |
29. | Enterprise value/adjusted target operating profit (or Enterprise Value/adjusted target EBIT) is a financial ratio that compares the total valuation of the company with its profitability, adjusting for various special circumstances. |
30. | EV/EBITDA is the enterprise value of a company divided by earnings before interest, taxes, depreciation, and amortization. |
31. | EV/Sales is the ratio of enterprise value of a company divided by the total sales of the company for a particular period, usually one year. |
32. | Forex (FX) is the market in which currencies are traded. |
33. | Free cash flow is the amount of cash a company has after expenses, debt service, capital expenditures, and dividends. |
34. | Futures are financial contracts obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future date and price. Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange. |
35. | The G20 (or G-20 or Group of Twenty) is an international forum for the governments and central bank governors from 20 major economies. It was founded in 1999 with the aim of studying, reviewing, and promoting high-level discussion of policy issues pertaining to the promotion of international financial stability. |
36. | Gross merchandise volume or GMV is a term used in online retailing to indicate a total sales dollar value for merchandise sold through a particular marketplace over a certain time frame. |
37. | “Growth” stocks are generally considered to be stocks of companies with high expected earnings growth compared to “value” stocks. Because of this higher expected growth, growth stocks tend to be priced at a higher multiple of their current earnings than value stocks. However, the premium paid for growth stocks compared to value stocks can vary dramatically depending on the market environment. |
38. | Industry cost curve is the standard microeconomic graph that shows how much output suppliers can produce at a given cost per unit. As a strategic tool, the cost curve applies most directly to commodity or near commodity industries, in which buyers get roughly the same value from a product regardless of who produces it. |
39. | An interest rate future is a financial derivative (a futures contract) with an interest-bearing instrument as the underlying asset. It is a particular type of interest rate derivative. Examples include Treasury-bill futures, Treasury-bond futures and Eurodollar futures. |
40. | Internal Rate of Return (IRR) is the discount rate often used in capital budgeting that makes the net present value of all cash flows from a particular project equal to zero. |
41. | Inverse floater (or inverse floating rate note) is a bond or other type of debt whose coupon rate has an inverse relationship to a benchmark rate. |
42. | Inverse interest-only security is a security that pays a coupon inversely related to market rates (i.e., it moves in the opposite direction of interest rates), instead of paying a coupon corresponding to the interest payments homeowners (mortgagors) actually make. |
43. | An Investment Grade bond is a bond with a rating of AAA to BBB; a Below Investment Grade bond is a bond with a rating lower than BBB |
44. | A Leveraged Buyout (LBO) is the acquisition of another company using a significant amount of borrowed money to meet the cost of acquisition. |
45. | Loss adjusted yields are those that already reflect the impact of assumed economic losses. |
46. | Margin of safety is a principle of investing in which an analyst only purchases securities when the market price is below the analyst’s estimation of intrinsic value. It does not guarantee a successful investment. |
47. | Market capitalization (or market cap) is the total value of the issued shares of a publicly traded company; it is equal to the share price times the number of shares outstanding. MBA Refinance index is a weekly measurement put together by the Mortgage |
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Bankers Association, a national real estate finance industry association, to predict mortgage activity and loan prepayments based on the number of mortgage refinance applications submitted. |
48. | The Merrill Option Volatility Expectations Index (MOVE©) reflects a market estimate of future Treasury bond yield volatility. The MOVE index is a yield curve weighted index of the normalized implied volatility on 1-month Treasury options. The MOVE Index reports the average implied volatility across a wide range of outstanding options on the two-year, five-year, 10-year, and 30-year U.S. Treasury securities. |
49. | Net operating profit after tax (NOPAT): A company’s potential cash earnings if its capitalization were unleveraged (that is, if it had no debt). |
50. | Normalized earnings are earnings adjusted for cyclical ups and downs of the economy. Also, on the balance sheet, earnings adjusted to remove unusual or one-time influences. |
51. | Operating cash flow is calculated by summing net profit, depreciation, change in accruals, and change in accounts payable, minus change in accounts receivable, minus change in inventories. |
52. | Options are financial derivatives that represent a contract sold by one party (option writer) to another party (option holder). The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (exercise date). |
53. | Pair-wise correlation is the average of the correlations of each managers’ performance with each of the other managers on the fund. |
54. | Personal consumption expenditure is the measure of actual and imputed expenditures of households, and includes data pertaining to durable and non-durable goods and services. It is essentially a measure of goods and services targeted towards individuals and consumed by individuals. |
55. | Present value is the current worth of a future sum of money or stream of cash flows given a specified rate of return. |
56. | Price to book ratio is calculated by dividing the current market price of a stock by the book value per share. |
57. | Price to earnings ratio is a common tool for comparing the prices of different common stocks and is calculated by dividing the current market price of a stock by the earnings per share. Similarly, multiples of earnings and cash flow are means of expressing a company’s stock price relative to its earnings per share or cash flow per share, and are calculated by dividing the current stock price by its earnings per share or cash per share. Forecasted earnings growth is the projected rate that a company’s earnings are estimated to grow in a future period. |
58. | Price to sales (P/S) ratio is a tool for calculating a stock’s valuation relative to other companies, calculated by dividing a stock’s current price by its revenue per share. |
59. | Price to tangible book value (PTBV) is a valuation ratio expressing the price of a security compared to its hard, or tangible, book value as reported in the company’s balance sheet. The tangible book value number is equal to the company’s total book value less the value of any intangible assets. |
60. | Prime is a classification of borrowers, rates, or holdings in the lending market that are considered to be of high quality. |
61. | Principal only securities are a type of fixed-income security where the holder is only entitled to receive regular cash flows that are derived from incoming principal repayments on an underlying loan pool. |
62. | Private market value is the value of a company if each of its parts were independent, publicly traded entities. |
63. | Prospective earnings growth ratio (PEG ratio): The projected one-year annual growth rate, determined by taking the consensus forecast of next year’s earnings, less this year’s earnings, and dividing the result by this year’s earnings. |
64. | Quantitative Easing (QE) is a monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply. |
65. | Return on capital (ROC) is a measure of how effectively a company uses the money (borrowed or owned) invested in its operations. It is calculated by dividing net income by invested capital. |
66. | Return on equity (ROE) is a measure of how well a company used reinvested earnings to generate additional earnings. Expressed as a percentage, it is calculated by dividing net worth at the beginning of the period into net income for the period after preferred stock dividends but before common stock dividends. |
67. | Return on investment capital (ROIC) is calculated by subtracting dividends from net income and dividing by total capital. |
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INDUSTRY TERMS AND DEFINITIONS – (Continued)
68. | Sequential growth is a measure of a company’s short-term financial performance that compares the results achieved in a recent period to those of the period immediately preceding it. |
69. | Sharpe ratio is the measure of a fund’s return relative to its risk. The Sharpe ratio uses standard deviation to measure a fund’s risk-adjusted returns. The higher a fund’s Sharpe ratio, the better a fund’s returns have been relative to the risk it has taken on. Because it uses standard deviation, the Sharpe ratio can be used to compare risk-adjusted returns across all fund categories. |
70. | Short (or short position) is the sale of a borrowed security, commodity, or currency with the expectation that the asset will fall in value. |
71. | Sortino Ratio is a modification of the Sharpe ratio that differentiates harmful volatility from general volatility by taking into account the standard deviation of negative asset returns, called downside deviation. |
72. | A special situation is a particular circumstance involving a security that would compel investors to trade the security based on the special situation, rather than the underlying fundamentals of the security or some other investment rationale. A spin-off is an example of a special situation. |
73. | Spot price is the current price at which a particular security can be bought or sold at a specified time and place. |
74. | Standard deviation is a statistical measure of the historical volatility of a mutual fund or portfolio, usually computed using 36 monthly returns. |
75. | Subprime refers to the credit quality of particular borrowers, who have weakened credit histories and a greater risk of loan default than prime borrowers. The market for lenders and borrowers of subprime credit includes the business of subprime mortgages, subprime auto loans and subprime credit cards, as well as various securitization products that use subprime debt as collateral. |
76. | Swaps, traditionally, are the exchange of one security for another to change the maturity (bonds), quality of issues (stocks or bonds), or because investment objectives have changed. Recently, swaps have grown to include currency swaps and interest rate swaps. |
77. | Swaption (swap option): The option to enter into an interest rate swap. In exchange for an option premium, the buyer gains the right but not the obligation to enter into a specified swap agreement with the issuer on a specified future date. |
78. | Tangible Book Value Per Share – TBVPS is a method of valuing a company on a per-share basis by measuring its equity after removing any intangible assets. |
79. | Tracking error is the monitoring the performance of a portfolio, usually to analyze the extent to which its price movements conform or deviate from those of a benchmark. |
80. | Upside/downside capture is a statistical measure that shows whether a given fund has outperformed—gained more or lost less than—a broad market benchmark during periods of market strength and weakness, and if so, by how much. |
81. | Yield Curve: A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. The curve is used to predict changes in economic output and growth. |
82. | Yield to Maturity is the rate of return anticipated on a bond if it is held until the maturity date. |
83. | Yield to Worst is the lowest potential yield that can be received on a callable bond without the issuer actually defaulting. |
84. | Z Bonds, or Z Tranches, are the final tranche in a series of mortgage-backed securities, that is the last one to receive payment. Used in some collateralized mortgage obligations (CMO), Z-bonds pay no coupon payments while principal is being paid on earlier bonds. |
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For the fiscal year ended December 31, 2017, certain dividends paid by the Funds may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. The percentage of dividends declared from ordinary income designated as qualified dividend income was as follows:
Litman Gregory Masters Equity Fund | 100.00 | % | ||
Litman Gregory Masters International Fund | 92.35 | |||
Litman Gregory Masters Smaller Companies Fund | N/A | |||
Litman Gregory Masters Alternative Strategies Fund | 14.64 |
For corporate shareholders, the percent of ordinary income distributions qualifying for the corporate dividends received deduction for the fiscal year ended December 31, 2017 was as follows:
Litman Gregory Masters Equity Fund | 100.00 | % | ||
Litman Gregory Masters International Fund | 4.16 | |||
Litman Gregory Masters Smaller Companies Fund | 0.00 | |||
Litman Gregory Masters Alternative Strategies Fund | 9.89 |
Pursuant to Internal Revenue Section 852(b), the following Funds paid distributions, which have been designated as capital gains distributions for the fiscal year ended December 31, 2017.
Litman Gregory Masters Equity Fund | $ | 26,676,139 | ||
Litman Gregory Masters International Fund | N/A | |||
Litman Gregory Masters Smaller Companies Fund | N/A | |||
Litman Gregory Masters Alternative Strategies Fund | N/A |
Additional Information Applicable to Foreign Shareholders Only:
The percent of ordinary dividend distributions for the year ended December 31, 2017, which are designated as interest-related dividends under Internal Revenue Code Section 871 (k)(1)(C) is as follows:
Litman Gregory Masters Equity Fund | N/A | |||
Litman Gregory Masters International Fund | N/A | |||
Litman Gregory Masters Smaller Companies Fund | N/A | |||
Litman Gregory Masters Alternative Strategies Fund | 83.45 | % |
The percentage of taxable ordinary income distributions that are designated as short-term capital gain distributions under Internal Revenue Section 871(k)(2)(C) for each Fund were as follows (unaudited):
Litman Gregory Masters Equity Fund | 0.00 | % | ||
Litman Gregory Masters International Fund | 0.00 | % | ||
Litman Gregory Masters Smaller Companies Fund | 0.00 | % | ||
Litman Gregory Masters Alternative Strategies Fund | 0.00 | % |
For the year ended December 31, 2017, the Litman Gregory Masters International Fund earned foreign source income and paid foreign taxes which they intend to pass through to their shareholders pursuant to Section 853 of the Internal Revenue Code as follows:
Creditable Foreign Taxes Paid | Per Share Amount | Portion of Ordinary Income Distribution Derived from foreign Sourced Income | ||
$1,244,956 | $0.0306 | 94.81% |
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TRUSTEE AND OFFICER INFORMATION
Background information for the Trustees and Officers of the Trust is presented below. All Trustees oversee the Litman Gregory Masters Funds. The SAI includes additional information about the Trust’s Trustees and is available, without charge, by calling 1-800-960-0188.
Independent Trustees*
Name, Address and Year Born | Position(s) Held with the Trust | Term of Office and Length of Time Served | Principal Occupation(s) During Past Five Years | # of Portfolios in Fund Complex Overseen by Trustee | Other Directorships Held by Trustee During Past Five Years | |||||
Julie Allecta 1676 N. California Blvd., Suite 500, Walnut Creek, California 94596 (born 1946) | Independent Trustee | Open-ended term; served since June 2013 | Member of Governing Council, Policy Committee Chair and Executive Committee member, Independent Directors Council (education for investment company independent directors) since 2014; Director, Northern California Society of Botanical Artists (botanical art) since 2014; and Retired Partner, Paul Hastings LLP (law firm) from 1999 to 2009. | 4 | Forward Funds (17 portfolios)
Salient MS Trust (4 portfolios) | |||||
Frederick A. Eigenbrod, Jr., Ph.D. 1676 N. California Blvd., Suite 500, Walnut Creek, California 94596 (born 1941) | Independent Trustee | Open-ended term; served since inception | Vice President, RoutSource Consulting Services (organizational planning and development) since 2002. | 4 | None | |||||
Harold M. Shefrin, Ph.D. 1676 N. California Blvd., Suite 500, Walnut Creek, California 94596 (born 1948) | Independent Trustee | Open-ended term; served since February 2005 | Professor, Department of Finance, Santa Clara University since 1979. | 4 | SA Funds – Investment Trust (10 portfolios) |
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TRUSTEE AND OFFICER INFORMATION
Interested Trustees & Officers
Name, Address and Year Born | Position(s) Held with the Trust | Term of Office and Length of Time Served | Principal Occupation(s) During Past Five Years | # of Portfolios in Fund Complex Overseen by Trustee | Other Directorships Held by Trustee/ Officer During Past Five Years | |||||
Jeremy DeGroot** 1676 N. California Blvd., Suite 500, Walnut Creek, California 94596 (born 1963) | Chairman of the Board, Trustee and President | Open-ended term; served as Chairman since March 2017, Trustee since December 2008 and President since 2014 | Chief Investment Officer of Litman Gregory Asset Management, LLC since 2008; and Co-Chief Investment Officer of Litman Gregory Asset Management, LLC from 2003 to 2008. | 4 | None | |||||
Taylor M. Welz** 1676 N. California Blvd., Suite 500, Walnut Creek, California 94596 (born 1959) | Trustee | Open-ended term; served since inception | CPA/PFS, CFP; President, Chief Compliance Officer & Sole Owner, Welz Financial Services, Inc. (investment advisory services and retirement planning) since 2007; and Partner and Chief Compliance Officer, Bowman & Company LLP (certified public accountants) from 1987 to 2007. | 4 | None | |||||
Stephen Savage 1676 N. California Blvd., Suite 500, Walnut Creek, California 94596 (born 1961) | Secretary | Open-ended term; served since 2014 | Chief Executive Officer of the Advisor since 2015; Managing Partner of the Advisor since 2010; Partner of the Advisor from 2003 to 2010. | N/A | None | |||||
John Coughlan 1676 N. California Blvd., Suite 500, Walnut Creek, California 94596 (born 1956) | Treasurer and Chief Compliance Officer | Open-ended term; served as Treasurer since inception, and as Chief Compliance Officer since September 2004 | Chief Operating Officer and Chief Compliance Officer of the Advisor since 2004. | N/A | None |
* | Denotes Trustees who are not “interested persons” of the Trust, as such term is defined under the 1940 Act (the “Independent Trustees”). |
** | Denotes Trustees who are “interested persons” of the Trust, as such term is defined under the 1940 Act, because of their relationship with the Advisor (the “Interested Trustees”). |
In addition, Jack Chee and Rajat Jain, each a Portfolio Manager and Senior Research Analyst at the Advisor, are each an Assistant Secretary of the Trust.
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The Funds may collect non-public personal information about you from the following sources:
• | Information we receive about you on applications or other forms; |
• | Information you give us orally; and |
• | Information about your transactions with us. |
We do not disclose any non-public personal information about our shareholders or former shareholders without the shareholder’s authorization, except as required or permitted by applicable law or in response to inquiries from governmental authorities. We restrict access to your personal and account information to our employees who need to know that information to provide products and services to you and to the employees of our affiliates. We also may disclose that information to non-affiliated third parties (such as to brokers or custodians) only as permitted or required by applicable law and only as needed for us to provide agreed services to you.
We maintain physical, electronic and procedural safeguards to guard your non-public personal information.
If you hold shares of the Funds through a financial intermediary, such as a broker-dealer, bank, or trust company, the privacy policy of your financial intermediary would govern how your non-public personal information would be shared with non-affiliated third parties.
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Advisor:
Litman Gregory Fund Advisors, LLC
1676 N. California Blvd., Suite 500
Walnut Creek, CA 94596
Distributor:
ALPS Distributors, Inc.
1290 Broadway, Suite 1100
Denver, CO 80203
Transfer Agent:
DST Asset Manager Solutions, Inc.
P.O. Box 219922
Kansas City, MO 64121-9922
1-800-960-0188
For Overnight Delivery:
Masters Funds
C/O DST Asset Manager Solutions, Inc.
330 W. 9th Street
Kansas City, MO 64105
Investment Professionals:
Registered Investment Advisors, broker/dealers, and other investment professionals may contact Fund Services at 1-925-254-8999.
Prospectus:
To request a current prospectus, statement of additional information, or an IRA application, call
1-800-960-0188.
Shareholder Inquiries:
To request action on your existing account, contact the Transfer agent, DST Asset Manager Solutions, Inc., at 1-800-960-0188, from 9:00 a.m. to 6:00 p.m. eastern time, Monday through Friday.
24-Hour Automated Information:
For access to automated reporting of daily prices, account balances and transaction activity, call
1-800-960-0188, 24 hours a day, seven days a week. Please have your Fund number (see below) and account number ready in order to access your account information.
Information:
Fund | Symbol | CUSIP | Fund Number | |||||||||
Equity Fund | ||||||||||||
Institutional Class | MSEFX | 53700T108 | 305 | |||||||||
Investor Class | MSENX | 53700T504 | 475 | |||||||||
International Fund | ||||||||||||
Institutional Class | MSILX | 53700T207 | 306 | |||||||||
Investor Class | MNILX | 53700T603 | 476 | |||||||||
Smaller Companies Fund | MSSFX | 53700T306 | 308 | |||||||||
Alternative Strategies Fund | ||||||||||||
Institutional Class | MASFX | 53700T801 | 421 | |||||||||
Investor Class | MASNX | 53700T884 | 447 |
Website:
www.mastersfunds.com
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Item 2. | Code of Ethics. |
The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer and principal financial officer.
The registrant has not made any amendments to its code of ethics during the period covered by this report.
The registrant has not granted any waivers from any provisions of the code of ethics during the period covered by this report.
The registrant undertakes to provide to any person without charge, upon request, a copy of its code of ethics by mail when they call the registrant at 1-800-960-0188.
Item 3. | Audit Committee Financial Expert. |
The registrant’s board of trustees (the “board”) has determined that Harold M. Shefrin, the Chairman of the board’s audit committee, is the “audit committee financial expert” and Mr. Shefrin has been deemed to be “independent” for purposes of this Item 3.
Item 4. | Principal Accountant Fees and Services. |
The registrant has engaged its principal accountant to perform audit services, audit-related services, tax services and other services during the past two fiscal years. “Audit services” refer to performing an audit of the registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years. “Audit-related services” refer to the assurance and related services by the principal accountant that are reasonably related to the performance of the audit. “Tax services” refer to professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning. The following table details the aggregate fees billed or expected to be billed for each of the last two fiscal years for audit fees, audit-related fees, tax fees and other fees by the principal accountant.
Cohen & Company, Ltd. | Cohen & Company, Ltd. | |||||||
FYE 12/31/2017 | FYE 12/31/2016 | |||||||
Audit Fees | $ | 140,725 | $ | 126,725 | ||||
Audit-Related Services | $ | 0 | $ | 0 | ||||
Tax Fees | $ | 20,600 | $ | 19,600 | ||||
All Other Fees | $ | 0 | $ | 0 | ||||
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The audit committee has adopted pre-approval policies and procedures that require the audit committee to pre-approve all audit and non-audit services of the registrant, including services provided to any entity affiliated with the registrant.
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The percentage of fees billed by the principal accountant applicable to non-audit services pursuant to waiver of pre-approval requirement were as follows:
Cohen & Company, Ltd. | Cohen & Company, Ltd. | |||
FYE 12/31/2017 | FYE 12/31/2016 | |||
Audit-Related Services | 0% | 0% | ||
Tax Fees | 0% | 0% | ||
All Other Fees | 0% | 0% | ||
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All of the principal accountant’s hours spent on auditing the registrant’s financial statements were attributed to work performed by full-time permanent employees of the principal accountant. The following table indicates the non-audit fees billed or expected to be billed by the registrant’s accountant for services to the registrant and to the registrant’s investment adviser (and any other controlling entity, etc.—not sub-adviser) for the last two years. The audit committee of the board of trustees has considered whether the provision of non-audit services that were rendered to the registrant’s investment adviser is compatible with maintaining the principal accountant’s independence and has concluded that the provision of such non-audit services by the accountant has not compromised the accountant’s independence.
Cohen & Company, Ltd. | Cohen & Company, Ltd. | |||||||
Non-Audit Related Fees | FYE 12/31/2017 | FYE 12/31/2016 | ||||||
Registrant | $ | 3,350 | $ | 2,500 | ||||
Registrant’s Investment Adviser | None | None | ||||||
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Item 5. | Audit Committee of Listed Registrants. |
Not applicable to registrants who are not listed issuers (as defined in Rule 10A-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)).
Item 6. | Investments. |
(a) The complete Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form N-CSR.
(b) Not applicable.
Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. |
Not applicable to open-end investment companies.
Item 8. | Portfolio Managers of Closed-End Management Investment Companies. |
Not applicable to open-end investment companies.
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Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. |
Not applicable to open-end investment companies.
Item 10. | Submission of Matters to a Vote of Security Holders. |
There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant’s board since the registrant last provided disclosure in response to this Item 10.
Item 11. | Controls and Procedures. |
(a) The registrant’s President/Principal Executive Officer and Treasurer/Principal Financial Officer have reviewed the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Act) as of a date within 90 days of the filing of this report, as required by Rule 30a-3(b) under the Act and Rules 13a-15(b) or 15d-15(b) under the Exchange Act. Based on their review, such officers have concluded that the disclosure controls and procedures are effective in ensuring that information required to be disclosed in this report is appropriately recorded, processed, summarized and reported timely and made known to them by others within the registrant and by the registrant’s service provider.
(b) There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the most recent fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. | Disclosure of Securities Lending Activities for Closed-End Management Investment Companies. |
Not applicable to open-end investment companies.
Item 13. | Exhibits. |
(a)(1) Not applicable because the Code of Ethics is provided free of charge, upon request, as described in Item 2 of this Form N-CSR.
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 are attached as exhibits hereto.
(a)(3) Not applicable to open-end investment companies.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are attached as exhibits hereto.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, and the Investment Company Act of 1940, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
LITMAN GREGORY FUNDS TRUST | ||
By: | /s/ Jeremy DeGroot | |
Jeremy DeGroot | ||
President and Chief Executive Officer | ||
Date: | March 5, 2018 |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, and the Investment Company Act of 1940, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ Jeremy DeGroot | |
Jeremy DeGroot | ||
President and Chief Executive Officer | ||
Date: | March 5, 2018 |
By: | /s/ John Coughlan | |
John Coughlan | ||
Treasurer and Principal Financial Officer | ||
Date: | March 5, 2018 |