Aquinas Investment Advisers of Dallas is hoping to persuade investors to make some changes to its four mutual funds. The changes are all aimed at expanding the now $200 million socially-responsible fund family which is managed according to screens based on Catholic values. Aquinas is a subsidiary of The Catholic Foundation, a registered investment adviser that manages money for religious groups.
In a preliminary proxy statement filed with the SEC on August 25, Aquinas is asking shareholders of all four no-load funds to approve the installation of a 25 basis point 12b-1 distribution and service program. It is also seeking approval of a new management agreement for one of the four funds - the $24 million small-cap fund. In late July, the funds' board approved shifting the fund from a balanced to a small-cap fund.
Aquinas hopes that a 12b-1 distribution plan will enable the predominantly direct-marketed fund group to attract the attention of registered investment advisors and more assets. In its proxy, Aquinas said that the fund group had not been growing rapidly.
Many financial advisors have expressed an interest in investing in the religiously-inclined funds, said Frank Rauscher, Aquinas Funds' president and CEO and COO of the funds' advisory company. But they wanted to be compensated for bringing in assets, he said.
"We are trying to reward RIAs," Rauscher said. The Aquinas funds are sold directly to investors, but are also available through some discount brokers and the institutional fund supermarket of Charles Schwab & Co. of San Francisco.
But Aquinas is moving deliberately. While it expects to receive approval for the 12b-1 plan, the plan will only initially be implemented on Aquinas' small-cap fund, the smallest fund in the group. But, the group's board of directors wants to reserve the right to add 12b-1 plans to the three other funds in the future.
"We're going to test the waters with the small-cap fund," said Rauscher.
The new management contract Aquinas is asking investors to approve will increase the small cap fund's annual management fee to 1.25 percent from 1.00 percent, and pay a higher portion to the fund's sub-adviser, John McStay Investment Counsel of Dallas, according to the proxy. John McStay had been receiving an annual fee of 0.80 percent of the fund's assets for its services but sought an increase. The new fee would be 0.90 percent. Each of the Aquinas funds is sub-advised.
The small-cap fund is the only fund on which Aquinas is seeking to raise its management fees. If approved by shareholders, the changes are expected to take effect November 1.
The requested changes follow others the board made to the funds earlier this summer. At a meeting of the fund's board of directors July 26, approval was given to change the Aquinas Balanced Fund into the new small-cap fund, the Aquinas Small Cap Fund.
Aquinas asked the board to revamp the fund because it believed the balanced fund concept had outlived its usefulness, said Rauscher.
"When the balanced fund was created seven years ago, there was a reasonable market for it," said Raushcer. Balanced funds invest a portion of their assets in stocks and the remaining portion in bonds.
"But because of the strong equity markets over the past several years, people now want to allocate assets themselves," he said.
Investors in the former Aquinas balanced fund could achieve the same asset allocation by distributing their assets among the three other Aquinas funds, Rauscher said. Aquinas executives and the board of directors decided that the fund group most needed a small-cap fund to round out its fund offerings, Rauscher said.
At the same time, Aquinas' board of directors approved minor changes to two of the three other Aquinas funds to better reflect their focuses. The name of the largest of the group's funds, the Aquinas Equity Growth Fund, was shortened to the Aquinas Growth Fund and the Aquinas Equity Income Fund was changed to the Aquinas Value Fund. The Aquinas Fixed Income Fund remains unchanged.
The socially-responsible Aquinas Funds were the first mutual funds to be managed according to Catholic principles.
