HGLB: Not Worth It


Thesis Summary

Highland Global Allocation Fund (HGLB) seeks long-term growth of capital. By nature, the fund is global and flexible. This makes the investment option of this fund to be unlimited. HGLB can invest in a portfolio of the United States and also in foreign equity. The fund is incredibly well-diversified, which helps mitigate risks, but it has lost over 50% over the last 10 years.

ETF Overview

Highland Global Allocation Fund has an investment objective that tracks a long-term growth of capital. The fund achieves this investment objective by investing in the portfolio of the US and foreign equity, debt, and money market securities.

This global allocation fund is managed by James Dondero. The portfolio manager invests primarily in the US and foreign equity and debt securities which are undervalued in the market. James Dondero, the manager, believes that some of these undervalued securities have solid growth prospects.

In good market conditions, HGLB invests about 50% of its net asset in the U.S. equity securities. It also invests a minimum of 40% of its assets in securities of non-U.S. issuers. If the market condition is bad, the fund would invest a lesser percentage of its asset. However, these percentages are not usually lesser than 30% in the securities of non-U.S. issuer. Non-U.S. issuer companies are usually considered as companies that trade securities outside of the United States.

Funds like this, which are properly diversified, have a reduced amount of risk. It also can strive in the general market.

Let’s have a look at the fund’s holdings:

Source: YCharts

So, here is a chart that shows 25 of HGLB’s most significant holdings. We can see that the fund has its assets duly spread amongst its holdings. This, in turn, helps the fund manage any risk that is associated with its trading. TerreStar Corp. has about one-quarter of this traded funds asset. This makes it an important company in the HGLB asset. Another important company in the HGLB asset is Vistra Corp. (VST). Vistra Corp. accounts for 10% of the funds’ assets. The two companies hold about 35% of the funds’ assets. The fund has the rest of its assets shared among other holdings.

With all these in mind, let’s consider what the performance of HGLB looks like amongst its peers.

Here is a chart that shows the fund performance:

Source: YCharts

This chart gives feedback on how the HGLB strived vis-a-vis its peer and in the general market. When HGLB is placed alongside its peer, we can observe that it is struggling to maintain its line of performance and has not participated in the market competition.

The HGLB has an expense ratio of 2.45% and over $213M in assets under management. On the other hand, the Nuveen Real Asset Income and Growth Fund (JRI) has a total expense ratio of 2.75% and over $524M in AUM. Lastly, The Cambria Trinity ETF (BATS:TRTY) stands out as having the best return and lowest expense ratio, 0.48%, and only has around $38M in AUM.

What I like about HGLB

The Highland Global Allocation ETF has tactics and management strategies that make the fund flexible. This means it is a fund that can invest in many asset classes, anywhere around the globe. HGLB always seeks investment that would offer the following benefits:

The purpose of seeking this kind of investment is to make sure it produces profit while protecting its initial investment portfolio.

This fund pursues a potential investment opportunity wherever it presents itself around the world. The manager’s approach to investment commences at a high level of global market economy analysis, geopolitical, and factors that affect the market. This approach helps in finding the condition which causes investment to be either overvalued or undervalued. Using a bottom-up analysis, the manager can determine the wrong pricing and some other currency or commodity-linked instruments.

Another thing I like about HGLB apart from its methodology and flexibility is its growth potential. The flexibility of the fund already makes it a traded fund which can easily slip in and out of the market and trade if required. This gives it the extra ability to curb risk.

What I don’t like about the HGLB

Several risks are associated with trading global funds like HGLB. Since it can trade funds across various countries, several international laws would guide the way it trades.

The fund is incredibly well diversified, as it has stocks and also bonds. With rates increasing, we could see the value of bonds decreasing in the coming years. Furthermore, the company has a large exposure to the energy sector, which will take time to recover, and the same could be said of real estate.

Lastly, the high management fees do not seem to be justified given the fund’s underperformance in the long-run.


HGLB is a high-valued investment using high diversification of its holdings. Within the fund, the risk is well-managed. However, the fund is expensive and has underperformed the market. I would suggest buying a non-managed cheaper ETF instead.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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