New fund focuses on 'behavioral science' research
Firm says effort is only publicly traded mutual fund managed in county
CHAMPAIGN — Cozad Asset Management has launched what it believes is the only publicly traded mutual fund managed in Champaign County.
The fund, known as the Cozad Small Cap Value Fund, began trading July 1 under the ticker symbol COZIX.
Its investment strategy is heavily based on "behavioral finance" research done by former University of Illinois finance Professor David Ikenberry.
The fund resulted from a relationship formed several years ago by Ikenberry and Greg Cozad, the CEO of Cozad Asset Management.
The Cozad fund invests in about 100 "small-cap" companies — those with market capitalizations of less than $3 billion — that are considered good values. Typically, those are businesses with low price-to-earnings ratios.
Portfolio manager David Wetherell helped launch the strategy in July 2007, and three years later, the company opened it to accredited investors — generally, people whose net worth, excluding primary residence, exceeds $1 million or whose annual income exceeds $200,000.
Now that the mutual fund is publicly traded, it's open to all investors.
"Given the strong relative performance of the strategy since inception, we felt we needed to have a publicly traded mutual fund in order to offer the strategy to the broader investing public," Cozad said.
"Our plan is to develop a regional — and ultimately national — distribution plan with the fund," he said.
Wetherell said the fund has about $23 million in assets. Roughly 40 investors were involved with the strategy before the fund became publicly traded in July, and at least 10 have been added since, he said.
Cozad said the fund's goal is to beat the benchmark for competitors in the small-cap value space.
According to the fund's prospectus, the predecessor fund in 2013 had an average annual total return before taxes of 42.2 percent, compared with a 34.52 percent return for the Russell 2000 Value Index.
Between Sept. 30, 2010, and Dec. 31, 2013, the fund's average annual return was 20.94 percent, compared with a return of 18.38 percent for the Russell 2000 Value Index.
Cozad explained the fund's strategy.
"Academic research shows there's a lag between the time information becomes public in the marketplace and the time it's fully priced into a stock," he said.
"The lag can be three to five years depending on the information signal — which could be a stock buyback, dividend increase, the paydown of debt or a stock split," Cozad said.
"What we're trying to do is take advantage of the information lag and build a portfolio of stocks with positive information signals," he said.
Meanwhile, the fund tries to avoid stocks with negative information signals, such as equity offerings, dividend cuts and proxy fights, he said.
Wetherell said the fund managers tend to reconstitute the portfolio or change the weightings in it about every three months.
The share price for COZIX opened at $20 and generally declined in July, closing at $19 on Aug. 1. The price rebounded in August, closing last Wednesday at $19.79 a share.
Cozad said the fund should be viewed as a long-term investment.
COZIX is Cozad Asset Management's first publicly traded mutual fund, but may not be the company's last.
"The strategy itself could be incorporated into a mid-cap strategy or other potential alternatives," Cozad said. "As we build that out, there is the potential for additional funds."
Ikenberry, now dean of the Leeds School of Business at the University of Colorado at Boulder, counts himself among the academics who study how markets react to news and information.
"The formation of COZIX is yet another milestone for me in seeing these ideas about our marketplace come to life," Ikenberry said.
Besides Ikenberry, Cozad and Wetherell, the COZIX team includes analyst Umesh Nathani and Christy Swift, the product support manager.
Cozad is a member of the board of the Marajen Stevick Foundation, which owns The News-Gazette Inc.
More about the mutual fund and its strategy can be found at cozadfunds.com.
Cozad Small Cap Value Fund
Investment adviser: Cozad Asset Management, Champaign
Share distributor: Northern Lights Distributors, Omaha, Neb.
Types of shares: Class I for institutional holders; Class A and Class N for individual holders
Minimum initial investment: $10,000 for Class I Investors; $2,500 for Class A and Class N investors
Fees: 1.3 percent management fee, plus distribution and service fee of 25 basis points for individual holders, for overall fee of 1.55 percent for those investors.