• Financial & Investment Management Group
  • Tuesday, January 06, 2009

Utopia Funds FAQs

by Portfolio Team
Posted June 10, 2008
FIM Group

Current Observations

June Edition
PDF Version

Today's global economy is increasingly complex and requires a solution that can leverage the opportunities and risks of the ever- changing markets to perform and prosper. We feel using the Utopia Funds as an investment tool allows us to better perform in the ever-changing global landscape of finance, investing, economics, and political and social changes. We hope that the following questions and answers will help you better understand why the Utopia Funds were created and the benefits they offer.

What are the Utopia Funds?

The Utopia Funds are a family of no-load mutual funds that are managed by FIM Group. Each Utopia Fund is constructed to be both a complete investment solution for large and small portfolios. Each Utopia Fund is managed in a similar fashion to the corresponding risk profile of our larger client portfolios; however, the mutual fund format allows for greater investment flexibility. As single fund investment solutions, they provide investors potential access to all financial markets, geographical regions and industry sectors that the portfolio management team believes are appropriate given the current conditions and the client risk profile. The Utopia Funds are actively managed, meaning the portfolio management team makes strategic allocation decisions regarding which areas of the global markets are undervalued and attempts to avoid areas that are overvalued. Upon reading closely, you will note that the Utopia Funds prospectus allows the investment management team to avoid assets and asset classes that could expose the investor to undue risk and allows for concentration in areas that the investment team feels offer particularly beneficial risk/reward characteristics under current conditions. (To review the Utopia Funds prospectus, log on to www.utopiafunds.com or call us at 231.929.4500 for a copy.)

How are the Utopia Funds utilized?

The Utopia Funds are designed and managed to perform as stand-alone investment solutions, so a client may have up to 100% of their account allocated to one or more of the Utopia Funds. Advantages to holding the Utopia Funds include trading efficiencies, more effective account management and increased investment flexibility.

Our team assesses the individual circumstances of each client, including risk tolerance, portfolio constraints, liquidity needs, account size, tax treatment of the account and account withdrawal needs, when deciding whether and how much to allocate to one or more of the Utopia Funds. These decisions are impacted by changes in the client's situation, changes in our investment strategy and changes in the composition of the Utopia Funds. Our investment team views the Utopia Funds like all other potential investments and only allocates to the Utopia Funds when we feel such action improves the long-term risk-adjusted reward potential for the client.

Am I sufficiently diversified in the Utopia Funds?

Yes, each Utopia Fund is a fully diversified, actively managed portfolio. In general, each Utopia Fund will hold in excess of 100 individual securities drawn from a broad range of asset classes, sectors and geographies.

Why do some industry reporting services indicate that the Utopia Funds are non- diversified?

When planning the Utopia Funds, we sought maximum flexibility in order to best serve our shareholders. As such, we chose to classify the Utopia Funds as "non-diversified" given definitional constraints posed by the Investment Company Act of 1940. We view our "non-diversified" classification as simply a legal definition and not reflective of the broad diversification we expect to maintain in each Fund.

What does it mean that the Utopia Funds can employ leverage?

As noted in the prospectus, the Utopia Funds have the ability to utilize leverage. Since inception of the Utopia Funds, leverage has not been employed. The use of leverage is not viewed by the investment team as a core strategy, but as a tool to employ when the market environment warrants. Our goal is to always provide positive total return for our shareholders. At any time leverage is employed it will be used with prudence, right practice and always be consistent with the appropriate risk management of each Utopia Fund.

What types of securities are in the Utopia Funds?

The Utopia Funds allows our investment team to access a broader range of potential investments. Investments in some geographical markets like Taiwan are simply not accessible outside of the Funds. Other securities carry high minimum investment amounts, making them appropriate only in the Utopia Funds. Our team may also execute certain hedging techniques, including options and short positions, that are more efficient to execute in the Utopia Funds.

Generally speaking, can you address some of the disadvantages of the mutual fund format when managing a client portfolio?

  • Tax management – The Utopia Funds offer less flexibility when managing tax issues, so we favor the Funds for tax-deferred accounts.

  • Phantom Gains and Distributions – All mutual funds are required to pay out the realized capital gains, dividends and income generated throughout the year to shareholders of record on the distribution date. As such, depending on the timing of a mutual fund purchase, one may face a tax bill (on the distributed gains and income) for gains not "earned."

    For shareholders with a long-term investment horizon (i.e., the type of shareholder the Utopia Funds are designed for), this one-time "unearned" phantom gain is usually insignificant when "amortized" over any longer-term holding period. Our team, however, regularly reviews the potential tax liabilities posed by phantom gains generated by the Utopia Funds in our clients' taxable accounts and takes steps accordingly to mitigate these liabilities as circumstances warrant doing so.

  • Subscriptions/Redemptions – One valid concern of any "pooled" investment structure like a mutual fund is the impact on the fund from subscriptions and redemptions by other shareholders. For example, should a large number of shareholders (or a single large shareholder) decide to redeem (sell) their shares, the fund management team must find cash to meet that redemption (by utilizing cash on hand or selling fund holdings). Likewise, should a fund suddenly attract a large block of subscriptions, cash balances may run higher than desired by the management team and possibly "dilute" performance.

    Our team closely monitors the subscription/redemption activity of the Utopia Funds and has several tools at our disposal to help mitigate any negative impact from such activity. We also work with service partners who keep us informed when larger adviser groups who use the Utopia Funds for their client accounts expect to make significant subscriptions or redemptions.

Does the FIM Group team own shares of the Utopia Funds?

Yes, our multi-million-dollar 401(k) and profit sharing plan is invested in the Utopia Funds. Paul Sutherland and his family's long-term liquid financial investments are in the Utopia Funds as well as our own portfolio managers' investments. We feel it is important for investment managers to invest along with clients and shareholders to align with shareholders interest.

For more information about Utopia Funds, visit our website: www.utopiafunds.com.

 
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